Commercial Laws: Maritime Law, COGSA, Warsaw Convention, Public Service Act
Maritime Law
A. General Concepts
1. Definition of Maritime Law
Maritime law is a
system of laws
which particularly relates to the affairs and business
of the sea,
to ships,
their crews and navigation,
and to maritime conveyance of persons and property.
2. Vessel
A ship or vessel
is any kind, class or type of craft or artificial contrivance capable of floating in water,
designed to be used or capable of being used
as a means of water transport
for the carriage of passengers or cargo or both,
utilizing its own motive power or that of another.
Vessels, any interest thereto as well as conveyances, transfers or mortgages thereof are registered with the Maritime Industry Authority (MARINA for short)
Any unregistered transfer shall not affect third persons but is considered binding on the parties.
A Philippine flag vessel or watercraft is one that is registered under Philippine laws.
It entitles the vessel to protection of the authorities and flag of the Philippines in all ports and on the high seas.
The reason of knowing the meaning of the term vessel is to determine whether or not the Maritime law and the laws and regulations of MARINA will apply.
P.D. No. 474 (Decree Providing for the Reorganization of Maritime Functions in the Philippines):
Any barge, lighter, bulk carrier, passenger ship freighter, tanker, container ship, fishing boats or other artificial contrivance utilizing any source of motive power, designed, used or capable of being used as a means of transportation operating either as a common carrier, including fishing vessels covered under P.D. No. 43, except:
those owned and/ or operated by the Armed Forces of the Philippines and by foreign governments for military purposes, and
bancas, sailboats, and other water borne contrivance of less than three gross tons capacity and not motorized.
It refers to crafts which are not accessory to another such as launches, lifeboats, pleasure crafts, yachts, pontoons, health service, harbor police vessels, floating storehouses, patrol vessels, coast guard vessels, towboats and warships and small crafts which in harbors, along shores, bays, inlets, coves and anchorages are engaged in transporting The Doctrine of Error in Extremis is a protective legal principle in maritime law that shields a ship’s captain from liability for a wrong decision made in the final moments before a collision.passengers and baggage.
A motor boat engaged in conveying passengers and luggage back and forth from landing to boats at anchor propelled by a second hand motor originally used for a tractor plow and had a capacity of only 8 persons is not a maritime vessel contemplated in Article 835 of the Code of Commerce. Thus, protest is not a condition precedent to the filing of the case for damages.
Vessels are personal property.
Article 416 of the Civil Code and Article 585 of the Code of Commerce consider the vessels as personal property.
Article 585. For all purposes of law not modified or restricted by the provisions of this Code, vessels shall continue to be considered as personal property.
Vessel being a personal property is subject to chattel mortgage but the difference is that it has to be entered in the Record of Collector of Customs.
It partakes of the nature of real property in the sense that the transfer has to be in writing and recorded to appropriate agency.
Acquisition.
Vessels may be acquired or transferred by any means recognized by law. Transfer of ownership must be recorded in Maritime Industry Authority (MARINA).
B. Limited Liability Rule
1. Real and Hypothecary Liability
It is the right to retain the cargo and the embargo and detention of the vessel.
It means that:
the ship agent has the right to abandon the vessel, and free him from liability, while
the maritime creditor has the right to attach the vessel to secure his claim without waiting for a settlement of his right by a final judgment, even to the prejudice of the third person.
The liability of the agents is limited to the actual value of the vessel which is hypothecated for such obligation, its appurtenance, the freight money and insurance, if any.
This is also known as "Limited Liability Rule."
It covers: IAC
injuries to the third parties (Art. 587 of the Code of Commerce),
acts of the captain (Art. 590), and
collision (Art. 837).
Rationale.
The Maritime trade and sea voyages are attended by innumerable hazards and perils especially during the medieval ages.
To offset such adverse conditions and to encourage shipbuilding and maritime commerce, it was deem necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, freight and insurance, if any so that if the shipowner abandons the ship, his liability is extinguished.
Effect of the Civil Code provisions on common carrier, on the real and hypothecary nature of liability under Maritime Law.
There is no conflict between the provisions of the Civil Code and the provisions of the Code of Commerce pertaining to the real and hypothecary nature of liability because the Civil Code recognizes the provisions of the Code of Commerce in all matters not covered by the provisions of the Civil Code.
Article 1766 of the Civil Code provides that, "In all matters not regulated by this Code, the rights and obligations of the common carrier shall be governed by the Code of Commerce and by Special laws."
Since the NCC has no provision regulating the liability of ship owners or agents in the event of the total loss or destruction of the vessel, then it is the provision of the Code of Commerce (Art. 587) that governs.
2. Doctrine of Limited Liability
Under the Limited Liability Rule, the liability of the ship owners is limited only to the value of the vessel abandoned, its appurtenances, insurance and freightage already accrued. VAIF
This is expressly provided under Article 837 of the Code of Commerce.
Article 837. The civil liability incurred by ship owners in the case prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and the freightage served during the voyage.
Since the liability of the ship-owner is limited only to the value of the vessel with all its appurtenances and freightage served during the voyage, it follows that if the vessel which is hypothecated is totally lost, the ship-owner is no longer liable or the obligation is extinguished provided the ship-owner is not negligent and the cause of loss is purely due to the negligence or fault of the ship captain.
In the nutshell, it means "no vessel, no liability."
In the case of total loss, there is no need of abandonment of the vessel to avail of Limited Liability Rule.
Article 837 applies the limited liability rule in cases of collision.
There is negligence on the part of the ship captain but the ship owner is not liable for damages if the vessel is totally lost because Limited Liability Rule applies.
In case of partial loss, the ship-owner will be free from personal liability if he abandons the vessel with all the equipment and the freight it may have earned during the voyage as provided under Article 587 of the Code of Commerce as follows:
Article 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all the equipment and the freight it may have earned during the voyage.
Article 587 embodies the universal principle of limited liability in all cases wherein the ship-owner or agent may be properly held liable for the negligent or illicit acts of the captain.
Article 587 also refers to a situation wherein the ship-owner has still something to abandon and that means the loss is just partial and not total.
In case of partial loss and the ship-owner abandons the vessel, he is exempt from liability as the damages will be answered by the value of the abandoned vessel with all the equipment and the freight it may have earned during the voyage.
The ship-owner will be liable for damages if he does not abandon the vessel.
If there is a total loss, the liability is extinguished.
Abandonment is not necessary to free him from liability.
This limited liability applies when the ship-owner has no negligence or no concurrent negligence with the ship captain.
The term "ship agent" as used in this article is broad enough to include the ship owner.
The limited liability rule, also known as the real or hypothecary nature of maritime law, simply means that the liability of the carrier in connection with losses related to maritime contract is limited to his interest in the vessel which is hypothecated for such obligations or which stands as the guaranty for their settlement.
Thus, the liability of the ship owner or ship agent, arising from the operation of a ship, is limited to the vessel, equipment, and freight during the voyage, so that if the ship owner or agent would abandon the vessel, equipment, and freight, his liability would be extinguished.
However, if the vessel would sink and never be recovered, that would also extinguish the liability of the ship owner or agent, unless those would be insured, and in this case, it would suffice to surrender the insurance to the creditors to extinguish his liability.
The doctrine is effectively an exception to the rule that in case of loss, damage, or deterioration of the goods or death or injury to Passengers, the common carrier is presumed to be negligent and liable.
It was designed to offset the adverse conditions of maritime trade and to encourage people to venture into maritime commerce despite the risks and prohibitive cost of shipbuilding.
Thus, the liability of the vessel owner and agent arising from the operation of such vessel is confined to the vessel itself, its equipment, freight, and insurance, if any.
For this reason, when the vessel, its appurtenances, freightage, or insurance proceeds, if any, are abandoned by the shipowner or ship agent, their liability would be extinguished.
In the same manner, if the vessel totally sinks or is a total loss, their liability is likewise extinguished. This rule may best be explained by the doctrine: "No vessel, no liability."
3. Applicability of the Limited Liability Rule ICU
Civil liability for indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried (Art. 587, Code of Commerce);
Example:
If a ship carrying goods damages those goods due to the captain’s negligence, the shipowner doesn’t have to pay more than the value of the ship and its earnings. They can "abandon" the ship, leaving its assets to settle the claim.
Civil liability arising from collisions (Art. 837, Code of Commerce);
Example:
If a ship collides with another vessel and causes damage, the shipowner can abandon the ship and avoid paying more than what the ship is worth. If the ship sinks completely, the owner’s liability is automatically extinguished, meaning they don’t owe anything more.
Unpaid wages of the captain and the crew if the vessel and its cargo are totally lost by reason of capture or shipwreck. (Art. 643, Code of Commerce).
Example:
If a ship sinks in a storm, and both the ship and cargo are lost, the shipowner doesn’t have to pay the crew their wages because the ship no longer exists. The wages owed are covered only up to the value of the ship’s remaining assets (if any).
Under the Code of Commerce, the ship agent or ship-owner may exempt himself from liability under the following instances:
If the vessel or part of it still exists (if the vessel is partially lost or damaged).
Article 587 of the Code of Commerce is explicit that the ship agent may free himself from liability by abandoning the vessel if the ship or part thereof still exists.
He is free from liability in the sense that he is not liable beyond the value of the vessel he abandoned, its appurtenances, freightage earned during the voyage and insurance, if any. It is the value of the abandoned vessel, its appurtenances, freightage earned and insurance that will answer for damages, injuries or death caused.
This rule also applies in the case of a co-owner. The co-owners of a vessel are civilly liable in proportion of their interest but each co-owner may exempt himself from liability by abandonment of the part of the vessel belonging to him.
Article 590.
The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Article 587.
Each co-owner may exempt himself from his liability by the abandonment, before a notary, of the part of the vessel belonging to him.
If a ship has several co-owners, each is liable for a portion based on their ownership. However, any co-owner can free themselves from further liability by abandoning their part of the ship.
Example: If three co-owners each own 33% of a ship, and the ship causes damage, one co-owner can abandon their 33% share to avoid further liability. The remaining owners must deal with their share of the responsibility unless they also abandon their shares.
If the vessel is totally lost.
"No vessel, no liability," expresses in a nutshell the Limited Liability Rule.
The ship-owners or agents liability is merely co extensive with his interest in the vessel such that a total loss thereof results in its extinction.
The total destruction of the vessel extinguishes maritime liens because there is no longer any re, to which it can attach.
This doctrine is based on the real and hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils.
To offset these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any.
If the vessel sank and is totally lost, there is no need of abandonment on the part of the ship-owner in order to avail of the Limited Liability Rule because there is nothing more to abandon. In both cases, the other properties of the ship-owner cannot be used to answer for damages once the requisites are complied with.
4. Exceptions to the Limited Liability Rule
FIWR
When the injury to or death of a passenger is due either to the fault of the shipowner, or to the concurring negligence of the ship owner and the captain;
When the vessel is insured (to the extent of the insurance proceeds);
In Workmen's Compensation claims;
Expenses for repairs and provisioning of the ship prior to the departure thereof;
When the vessel is not abandoned;
In case the voyage is not maritime but only in river, bay, or gulf;
In case the vessel is not a common carrier.
The limited liability rule does not apply if the carrier failed to overcome the presumption of negligence.
The first exception — when shipowner is negligent — applies.
In the instances stated above, a claim for damages or compensation is not barred by the Limited Liability Rule.
Under Article 587 of the Code of Commerce, the Limited Liability Rule applies only in cases where the fault or negligence is committed solely by the captain.
In cases where the ship-owner is likewise to be blamed, Article 587 does not apply, which means that the Limited Liability Rule does not apply.
Such a situation will be covered by the provisions of the Civil Code on common carrier.
Where the injury or death to a passenger is due either to the fault of the ship-owner; or to the concurrence negligence of the ship-owner and captain.
Negligence of the ship captain or ship-owner as to the unseaworthiness of the vessel.
The Limited Rule applies if the unseaworthiness of the vessel is caused by the captain or crew during the voyage.
The Rule does not apply if the unseaworthiness is due to the ship-owner alone or concurrently with the captain.
The unseaworthiness is attributable to the captain if it is due to his failure to examine the vessel before sailing and to comply with the laws of navigation because these are inherent duties as a captain.
The unseaworthiness is attributable to the ship-owner if it is due to the structural condition of the vessel.
Where the vessel is found unseaworthy, the ship-owner is also presumed to be negligent since it is tasked with the maintenance of its vessel.
Though this duty can be delegated, still, the ship-owner must exercise close supervision over its men.
Cases:
Leaking of the hull not caused by the typhoon is unseaworthiness of the vessel attributable to the fault of the ship-owner.
If there is a concurrent negligence of ship-owner, the Limited Liability Rule does not apply and the ship-owner will be liable despite total loss.
There is negligence on the part of the ship-owner if the crew/master does not have a license.
Examples:
When the shipowner reconfigured the bulkhead of the deck of the ship to load excessive amount of cargo which made the vessel unseaworthy.
When the shipowner himself was guilty of such fault or negligence in not making certain that the passenger vessel is not overloaded, as well as in failing to provide sufficient life belts on board the vessel.
If the injury or damage is caused by the shipowner's fault as where he engages the services of an inexperienced and unlicensed captain or engineer, he cannot avail of the provisions of Article 837 of the Code by abandoning the vessel. He is personally liable for the damages arising thereby.
When the shipowner is at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon.
2. Where the vessel is insured.
The insurance proceeds will answer for the damages caused to the cargoes and injuries/death to the passengers.
The liability of the shipowner or ship agent is limited to the extent of the insurance proceeds.
This simply means that in case of a lost vessel, the claimants may go after the proceeds of the insurance covering the vessel.
3. In cases of claims under Workmen's Compensation Act.
The employee may receive compensation under a separate statute which is the Workmen's Compensation Act.
Corollary to the claim under Workmen's Compensation Act, is a claim under POEA-SEC which is based on the contract between the employees and their employers.
The death benefits-under POEA SEC are intended to be separate and distinct from, and in addition to whatever benefits the seafarer is entitled under Philippine laws.
Thus, it belongs to a different realm from that of Maritime Law.
4. Expenses for repairs and provisioning of the ship prior to the departure thereof.
Article 586.
The shipowner and the ship agent shall be civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor proves that the amount claimed was invested therein.
By ship agent is understood the person entrusted with the provisioning a vessel, or who represents her in the port in which she may be found.
The shipowner and the ship agent are civilly liable for the obligations contracted by the captain to repair, equip and provision the vessel.
Article 588.
Neither the ship-owner nor the ship agent shall be liable for the obligation contracted by the captain if the latter exceed his power and privileges pertaining to him by reason of his position or conferred upon him by the former.
However, if the amounts claimed were used for the benefit of the vessel, the owner or agent shall be liable.
Abandonment.
Under Article 587 of the Code of Commerce, the shipowner or ship agent may exempt themselves from liability by abandoning the vessel with all her equipment and the freight it may have earned during the voyage.
If there is insurance over the vessel, abandonment covers the insurance proceeds while the vessel itself shall be abandoned in favor of the insurer.
Abandonment, however, is only necessary in case of constructive total loss.
There is no need to abandon if the vessel has sunk.
Who can invoke the Limited Liability Rule.
It is the shipowner who can invoke the limited liability rule.
He is the person for whom the rule has been conceived.
The charterer cannot invoke the limited liability rule as a defense especially against the shipowner.
How claims are satisfied under the Limited Liability Rule.
All claims should be collated before they can be satisfied from what remains of the insurance proceeds and freightage at the time of the loss.
No claimant should be given preference over the others by the simple expedience of having filed or completed its action earlier than the rest.
Thus, execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending completion of all cases occasioned by the subject sinking.
Then and only then can all such claims be simultaneously settled, either completely or pro rata should the insurance proceeds and freightage be not enough to satisfy the claim.
Settlement of claims against proceeds from insurance and freightage.
If the cargoes were insured and the cargo owners were paid by their respective insurance companies, the insurance are subrogees to the rights of the cargo owners.
Aboitiz Shipping Corporation v. General Accident Fire & Life Assurance Corp. Ltd.:
The Court sets the guidelines on how to settle the several claims from the insurance proceeds and freightage. The Court stated that there is a need to collate all claims preparatory to their satisfaction from the insurance proceeds and freightage.
No claimant can be given precedence over the others by the simple expedience of having filed or completed its action earlier than the rest.
Thus, the execution of judgment in earlier completed cases even those already final and executor, must be stayed pending completion of all cases occasioned by the subject sinking.
In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should be deposited in trust. The common carrier should institute the necessary action before the proper court and deposit the proceeds for final pro-rating and settlement thereof.
Protest.
Protest is a written statement by the master of the vessel or any authorized person, attested by the proper officer or notary, to the effect that damages has been suffered by the ship.
Protest is needed before the filing a suit for damages in cases of shipwreck, when the vessel has gone through a hurricane or the captain believes that the cargo suffered damages or averages, when the vessel makes an arrival under stress and in maritime collision.
Protest must be filed within 24 hours before the competent authority:
at the point of collision
or at the first port of arrival if the collision occurred in the Philippines,
otherwise before the Philippine Consul.
Admiralty Jurisdiction.
Under BP Blg. 129, which took effect on August 14, 1981, the jurisdiction of admiralty cases is with Regional Trial Court if in Metro Manila, the amount exceeds P400,000.00.
Outside of Metro Manila, the jurisdiction is with Regional Trial Court if the amount exceeds P300,000.00. Otherwise, the jurisdiction is with the Metropolitan Court.
C. Persons involved in Maritime Commerce
1. Shipowners and Ship Agents
The ship agent is entrusted with the provisioning and representing the vessel in the port in which it may be found.
His liability to passengers and cargo owners for loss or injury is the same as the shipowner.
He is solidarily liable with the owner for such loss or damage subject to his right to claim reimbursement from the shipowner.
"Domestic Ship Operator" or "Domestic Ship Owner"
may be used interchangeably and shall mean a citizen of the Philippines, or a commercial partnership wholly owned by Filipinos, or a corporation at least sixty percent (60%) of the capital of which is owned by Filipinos, which is duly authorized by the Maritime Industry Authority (MARINA) to engage in the business or domestic shipping.
2. Captains and Masters of the Vessel
Article 609.
Captains and masters of vessels must be Filipinos having legal capacity to obligate themselves in accordance with this Code, and must prove that they have the skill, capacity, and qualifications required to command and direct the vessel, as established by marine or navigation laws, ordinances, or regulations, and must not be disqualified according to the same for the discharge of the duties of that position.
If the owner of a vessel desires to be the captain thereof and does not have the legal qualifications therefore, he shall limit himself to the financial administration of the vessel, and shall entrust her navigation to the person possessing the qualifications.
The name of captain or master is given a person according to the kind of vessel in charge of it.
Captain
is a designation given to a person in charge of the vessels that navigate the high seas or ships of large dimensions and importance, although they are engaged in coastwise trade.
Master
is a designation given to a person who commands smaller ships engaged exclusively in the coastwise trade.
What are the triple roles of the captain? GCG
The general agent of the shipowner
he can sign bills of lading, agree upon freight rates and decide whether to take cargo;
enter into contracts with respect to the vessel;
The commander and technical director of the vessel
considered the most important because it has to do with the operation of the vessel and the protection of the passengers, crew and cargo;
Government representative of the country under whose flag he navigates.
The captain has management and fiduciary functions and as such has a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage.
The responsibility of the captain remains even if the vessel is on a compulsory pilotage.
What are the grounds for discharge of a captain? IRHD
Insubordination in serious matters;
Robbery or theft;
Habitual drunkenness; and
Damage caused to the vessel or to its cargo through malice or manifest or proven negligence.
Inherent powers of the captain
Article 610. The following powers are inherent in the position of captain or master of a vessel. ACI-CAD
To appoint or make contracts with the crew in the absence of the ship agent, and to propose said crew, should the said agent be present; but the ship agent shall not be permitted to employ any member against the captain's express refusal.
To command the crew and direct the vessel to the port of its destination, in accordance with the instructions he may have received from the ship agent.
To impose, in accordance with the contracts and the laws and regulations of the merchant marine, on board the vessel, correctional punishment upon those who do not comply with his orders or who conduct themselves against discipline, holding a preliminary investigation on the crimes committed on board the vessel on the high seas, which shall turn over to the authorities who are to take cognizance thereof, at the first port touched.
To make contracts for the charter of the vessel in the absence of her ship agent or consignee, acting in accordance with the instructions received and protecting with utmost care the interest of the owner.
To adopt all proper measures in order to keep the vessel well provisioned and equipped. Purchasing all that may be necessary for the purpose, provided there is no time request instructions from the ship agent.
To make disposition, in similar urgent cases while on a voyage, for the repairs of the hull and engines of the vessel and other rigging and equipment which are absolutely necessary so that she may be able to continue and conclude her voyage; but if she should arrive at a point where there is a consignee of the vessel, he shall act in concurrence with the latter.
Accountabilities of the captain
Article 614.
A captain who, having agreed to make a voyage, fails to fulfill his undertaking, without being prevented by fortuitous event or force majeure, shall indemnify all the losses which his failure may cause, without prejudice to criminal penalties, which may be proper.
Article 615.
Without the consent of the ship agent, the captain may not have himself substituted by another person; and should he do so, besides being liable for all the acts of the substitute and bound to pay the indemnities mentioned in the foregoing article, the captain as well as the substitute may be discharged by the ship agent.
Benefits of the captain
Article 644.
A sailor who falls sick shall not lose his right to wages during the voyage, unless his sickness is the result of his own fault.
At any rate, the cost of medical attendance and treatment shall be defrayed from the common funds, in the form of a loan.
If the sickness should be caused by an injury received in the service or defense of the vessel, the sailor shall be attended to and treated at the expense of the common funds, deducting, before anything else, from the proceeds of the freight, the costs of attendance and treatment.
Article 645.
If a sailor should die during the voyage, his heirs shall be given the wages earned and not yet received, according to his contract and cause of his death, namely:
If he died a natural death and was contracted on wages, what may have been earned up to the date of his death shall be paid.
If the contract was for a fixed sum for the whole voyage, half the amount earned shall be paid if the sailor died on the voyage out, and the whole amount if he died on the return voyage.
And if the contract was on shares and his death occurred after the voyage was begun, the heirs shall be paid the entire participation due the sailor; but if the sailor died before the departure of the vessel from the port, the heirs shall not be entitled to claim anything.
If death occurred in defense of the vessel, the sailor shall be considered as living, and his heirs shall be paid, at the end of the voyage, the full amount of wages or the full participation on the profits which may be due him, as others of his class.
Likewise, the sailor who was captured while defending the vessel shall be considered as present, in order to enjoy the benefits as the rest; but should he have been captured by reason of negligence or other accident having no relation with the service, he shall only receive the wages due up to the day of his capture.
3. Officers and Crew of the Vessel FSEM
Sailing Mate/First Mate;
Second Mate;
Engineers;
Members of the crew.
4. Supercargoes
Supercargo is a person who discharges administrative duties assigned to him by ship agent or shippers, keeping an account and record of transaction as required in the accounting hook of the captain.
Article 649.
The supercargoes shall discharge on board the vessel the administrative duties which the ship agent or shippers may have assigned to them; they shall keep an account and record of their transactions in a book which shall have the same conditions and requisites as those required for the accounting book of the captain, and shall respect the latter in his duties as chief of the vessel.
The power and responsibility of the captain shall cease, when there is supercargo, with regard to that part of the administration legitimately conferred upon the latter, but they shall continue in force for all acts, which are inseparable from his authority and office.
Super Cargo as understood in maritime law, is a person especially employed by the owner of a cargo to take charge of and sell to the best advantage merchandise which has been shipped, and to purchase returning cargoes and to receive freight, as he may be authorized.
5. Harbor Pilot
Harbor Pilot is a person licensed to take over the vessel from the captain for the purpose of guiding the vessel to enter the harbor or passing through rivers or straits within a pilotage district, docking or undocking at any pier/wharf or shifting from one berth to another.
Compulsory Pilotage Service.
The Port of Manila is under compulsory pilotage pursuant to Section 8, Article 111 of Philippine Ports Authority Administrative Order No. 03-85, 47.
Duties and responsibilities of a Harbor Pilot. GDD
He guides the vessels into or out of ports.
He is responsible for the damage caused to a vessel or to life and property at ports due to his negligence or fault. He can only be absolved from liability if the accident is caused by force majeure or natural calamities provided he has exercised prudence and extra diligence to prevent or minimize damage.
He is responsible for the direction of a vessel from the time he assumes his work as a pilot until he leaves it anchored or berthed safely; provided, however, that his responsibility shall cease at the moment the Master neglects or refuses to carry out his order.
Captain/Master and Pilot.
The Harbor Pilot is the master pro hac vice and gives all directions as to speed, course, stopping and reversing, anchoring, towing and the like.
When a licensed pilot is employed in a place where pilotage is compulsory, it is his duty to insist on having effective control of the vessel, or to decline to act as pilot.
The Master retains overall command of the vessel.
He can countermand or overrule the order or command of the Harbor Pilot on board.
In this case, any damage that may be caused to a vessel or to life and property at ports due to the fault or negligence of the Master shall be the responsibility of the registered owner without prejudice to run after the Master.
The Master may and should interfere and even displace the pilot when the pilot is obviously incompetent, intoxicated or physically incapacitated.
If the Master does not observe that a compulsory pilot is incompetent or physically incapacitated, the master is justified in relying on the pilot, but not blindly.
Ship-owners and Pilot.
The owners of the vessel are responsible to the injured party for the acts of the pilot but they may recover the amount from him.
If the pilot of the vessel is not a compulsory one, the more the ship-owners are liable for the negligent act of the pilot.
Desertion
Desertion is an act by which a seaman deserts and abandons a ship or vessel before the expiration of his term of duty and without leave and without intention to return.
Security of Tenure of the Seafarers.
The seafarers, like any other employees, have the right to security of tenure and cannot be dismissed without just cause and without due process.
Seafarers who are working in foreign vessels engaged in overseas shipping are governed by laws on overseas employment, the Philippine Overseas Employment Administration (POEA) regulations and the provisions of the Standard Contract for Seafarers Employed Abroad as well as special laws like Migrant Workers and Overseas Filipino Act of 1995.
The seafarers are considered contractual employees and their employment is governed by the contract they signed every time they are rehired.
As provided in the standard seafarers' contract, the employment of the seafarers may be terminated for any of the following reasons:
The employment shall cease when the seafarer completes his period of contractual service abroad.
Medical reasons.
When the seafarer signs-off due to shipwreck, ship's sale, lay-up of vessel, discontinuance of voyage or change of vessel principal.
When the seafarer voluntarily resigns in writing.
When the seafarer is discharged for just cause.
D. Special Contracts of Maritime Commerce
1. Charter Parties
Definition and concept of Charter Party
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use.
The Civil Code provisions on Common Carrier should not apply where the common carrier is not acting as such but as a private carrier.
As private carrier, a stipulation exempting the owner from liability for the negligence of its agent is valid.
Formalities and contents of charter party.
Article 652 of the Code of Commerce: A charter party must be drawn in duplicate and signed by the contracting parties, and when either does not know how or is not able to do so, by the two witnesses at his request.
Aside from those conditions freely stipulated, it shall contain the following:
The kind, name and tonnage of the vessel
Flag and port of registry
Name, surname and domicile of the captain, ship agent and charterer
Port of loading and unloading
Capacity, number of tons or weight agreed to be transported
Freightage
Primage
Days agreed for loading and unloading
Lay days and extra lay days allowed and demurrage for each of them to be paid
Requisites for a valid charter party.
Consent of the contracting parties
An existing vessel placed at the disposal of the shipper
The freight
Compliance of the requirements of Article 652 of the Code of Commerce
Kinds of Charter Party
Contract of Affreightment
Time Charter
Voyage or "Trip" Charter
Bareboat or Demise Charter
The charterer must prove that the charter party is not demise or bareboat, otherwise the charterer will be made liable because the charter party will be treated as a demise or bareboat.
In determining the kind of charter party, what is controlling is the intent of the parties all shown in the stipulations and not the title or name denominated by them.
The parties may call it voyage charter but it may be treated by the Court as demise or bareboat and thus converts the character of the carrier from common carrier to a private carrier.
If the charter party shows that the possession and control of the ship were not entirely transferred to the charterer but the vessel was chartered to its full and complete capacity, the charter party is one of affreightment over the whole vessel.
Voyage charter which is limited only to the whole vessel and not the crew, the common carrier remains as such.
It is not converted into a private carrier and so the presumption of fault or negligence applies.
Moreover, the stipulation holding the carrier free from liability is not valid.
The charterer in a voyage Charter of a sea vessel is not liable for damages resulting from a collision between the chartered vessel and a passenger ship.
Contract of affreightment
The charterer hires the vessel either for a determinate period of time or for a single or consecutive voyage only with the ship-owner providing for the provisions of the ship, the wages of the master and crew and the expenses for the maintenance of the vessel.
The owner of the vessel retains possession and control through the master and crew who remain his employees.
What the charterer acquires is the right to utilize the carrying capacity and facilities of the vessel and to designate her destinations during the term of the charter.
A contract of affreightment may be:
Time charter
The vessel is leased to the charterer for a fixed period of time,
Voyage charter
The ship is leased for a single voyage.
The vessel is leased to carry goods for a single or particular voyage or from one or more ports of loading to one or more ports of unloading.
In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship's store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the ship.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship.
It is a contract by which the owner or agent of the vessel leases the whole or a portion of the vessel to another for the transportation of goods or persons from one port to another for a certain price.
Demise or bareboat charter
The ship-owner leases to the charterer the whole vessel, transferring to the latter the entire command, possession and control over the vessel's navigation, including the master and the crew who thereby become the charterer's "servants."
The ship-owner is not required to provide for the crew and the charterer takes possession of the vessel "bare," hence, the term "bareboat."
The charterer becomes the owner "pro hac vice," owner of the vessel for a voyage or service stipulated since he mans the vessel with his set of master and crew.
In some instance where the charter party may provide that the ship-owner will furnish the master and the crew, this stipulation will not remove the character as a demise or bareboat charter as long as the master and the crew become the agents and servants or employees of the charterer and the latter through the master has possession and control of the vessel and navigation during the charter period.
The master of the vessel is the agent of the charterer and not of the ship-owner.
The charterer assumes the rights and liabilities of the ship-owner in relation to third person who may have dealt with him or with the vessel.
He is liable for the expenses of the voyage and wages of seamen.
The distinction between the demise and contract of affreightment as far as liability is concerned is that in demise the charterer is liable in personam for all liabilities arising out of the operation of the vessel because he is considered owner pro hac vice, and as such he is responsible for the actions of the master and crew.
The ship-owner is generally not liable in persona although the ship may be liable in rem.
In the event the ship is made liable, the charterer is obliged to indemnify the owner against liability suffered by the vessel as a consequence of charterer's negligence.
The ship-owner may be liable only if the liability or injury results from unseaworthiness or negligence which existed prior to delivery of the vessel to the demise charterer.
Transshipment
The transfer of goods from the vessel stipulated in the contract of affreightment to another vessel before the place of destination named in the contract has been reached.
The existence of transshipment is not dependent upon the ownership of the transporting ships but on the fact of actual physical transfer of cargo from one vessel to another.
There is transshipment even if the two vessels are owned by one and the same owner.
Transshipment without legal excuse is a violation of the contract and infringement of the right of the shipper. It subjects the carrier to liability if the freight is lost even by a cause otherwise.
2. Bill of Lading
A bill of lading is a written acknowledgment signed by the captain of the vessel or other authorized agent of the carrier that he received the described goods from the shipper to be transported on the expressed terms, to the designated place of destination and to be delivered to the designated consignee.
Article 706. The captain of the vessel and the shipper shall have the obligation of drawing up the bill of lading in which shall be stated:
The name, registry, and tonnage of the vessel.
The name of the captain and his domicile.
The port of loading and that of unloading.
The name of the shipper.
The name of the consignee, if the bill of lading is issued in the name of a specified person.
The quantity, quality, number of packages and marks of the merchandise
The freightage and the primage stipulated.
The bill of lading may be issued to bearer, to order, or in the name of a specified person, and must be signed within twenty-four hours after the cargo has been received on board, the shipper being entitled to demand the unloading at the expense of the captain should the latter not sign it, and, in every case, the losses and damages suffered thereby.
The bill of lading shall be executed in four true copies or even more as may be considered necessary by the parties.
All of them shall be signed by the captain and by the shipper.
one copy shall go to the shipper
one to the consignee
the captain shall take two, one for himself and another for the ship agent
Purposes of the Bill of Lading.
The bill of lading serves two functions or two-fold character of a bill of lading.
It is a receipt for the goods shipped.
It is a contract by which three parties, namely, the shipper, the carrier and the consignee undertake specific responsibilities and assume stipulated obligations.
Bill of lading, to constitute as a receipt of the goods.
The bill of lading operates as receipt of the quantity and condition of the goods at the time they were turned-over to the carrier for transportation.
It operates merely as a receipt of the goods and not the contract of carriage if the vessel is chartered by virtue of the contract of affreightment and the ship-owner issued a bill of lading to the charterer covering the goods being transported.
In this case, the contract of the parties is the Charter Party.
In a charter party of the entire vessel, the bill of lading issued by the master to the charterer, as a shipper is in legal contemplation merely a receipt and a document of title not a contract, for the contract is the charter party.
The terms in the bill of lading cannot change those stated in the Voyage Charter because the bill of lading cannot prevail over the express provisions of the voyage charter.
It merely operates as a receipt of the goods.
Bill of Lading, to constitute as a contract of carriage.
The bill of lading must be delivered and accepted to consider it as a contract and binding to the parties.
If the bill of lading is not accepted, it is as if one party does not accept the contract.
A bill of lading delivered and accepted constitutes the contract of carriage even though not signed, because the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all its terms and conditions of which the acceptor has actual or constructive notice.
The bill of lading is not indispensable for the perfection of the contract of carriage.
Article 1736 of the Civil Code provides that the extraordinary responsibility of the common carrier starts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation.
It means that the contract of carriage is perfected upon receipt by the carrier of the goods for transportation because at that point in time, the law mandates already the common carrier to observe extraordinary diligence in the vigilance over the goods.
Moreover, Article 354 of the Code of Commerce provides that "In the absence of a bill of lading, disputes shall be determined by the legal proofs which the parties may present in support of their respective claims, according to the general provisions established in this Code for commercial contracts."
This provision contemplates a situation when there is a contract of carriage but there is an absence of a bill of lading.
The bill of lading is usually drawn up by the shipper/consignor and the carrier without the intervention of the consignee.
However, the consignee can be bound by the stipulations of the bill of lading when:
there is a relation of agency between the shipper or consignor and the consignee or
when the consignee demands fulfillment of the stipulation of the bill of lading which was drawn up in its favor.
A consignee, although not a signatory to the contract of carriage between the shipper and the carrier, becomes a party to the contract by reason of either:
the relationship of agency between the consignee and the shipper/consignor;
the unequivocal acceptance of the bill of lading delivered to the consignee, with full knowledge of its contents or
availment of the stipulation pour autrui, i.e., when the consignee, a third person, demands before the carrier the fulfillment of the stipulation made by the consignor/shipper in the consignee's favor, specifically the delivery of the goods/cargoes shipped.
A consignee, who is not a signatory to the bill of lading or who is not an agent of the shipper and who did not make any demand for the fulfillment of the stipulations of the bill of lading drawn in its favor is not bound by the stipulations in the bill of lading and is not liable to pay the corresponding freight and handling charges.
Validity of the stipulation in the Bill of Lading.
The stipulation in the Bill of Lading is valid as long as it is not contrary to law, morals or public policy.
Bico v. Philippine Steamship Nauigation Co.
The Appellees would contend that the above stipulation does not bind them because it was printed in fine letters on the back-of the bills of lading; and that they did not sign the same.
The Court ruled that this argument overlooks the pronouncement of this Court in Ong Yiu u. Court of Appeals, promulgated June 29, 1979, where the same issue was resolved in this wise:
While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is nevertheless bound by the provisions thereof.
Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation'.
It is what is known as a contract of adhesion', in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.
Some Types of Bill of Lading RO-CF-BO-NS
Received for Shipment Bill of Lading
This is a bill of lading that states that the goods have been received for shipment, with or without specifying the vessel by which the goods are to be shipped.
It is usually issued when there is insufficient shipping space.
On Board Bill of Lading
A bill of lading that states the goods have been received on board the vessel that will carry them.
Clean Bill of Lading
This bill of lading has no notation of any defect or damage in the goods.
Foul Bill of Lading
This bill of lading contains notations of defects or damage in the goods.
Bill of Lading Issued to Bearer
A bill of lading that is transferable by actual delivery.
Bill of Lading Issued to Order
A bill of lading that is transferable by virtue of an endorsement.
Bill of Lading Issued in the Name of a Specified Person
This bill of lading contains the specific name of the person.
Spent Bill of Lading
A bill of lading that is unreturned after the delivery of the goods.
Some Shipment Terms Used in the Bill of Lading
F.O.B. (Free on Board)
The seller assumes the risk until the goods reach the destination.
Example: “F.O.B., Cagayan de Oro.” Cagayan de Oro is the point of destination.
F.A.S. (Free Alongside)
The seller assumes the risk until the goods are delivered alongside the vessel.
F.O.B. Vessel
The seller has the obligation to ensure that the goods are loaded, and this obligation exists until the loading is completed.
F.A.S. Vessel
The seller has no obligation to ensure that the goods are loaded; the seller's responsibility is to deliver the goods to the wharf.
C.I.F. (Cost, Insurance, Freight)
This means that the quoted price of the seller includes the invoice price, insurance, and freight. The seller will handle procuring the necessary documents such as the bill of lading, packing list, insurance policy in the buyer’s name, and the invoice.
C.F. (Cost and Freight)
This means that the quoted price of the seller includes only the invoice price and the freight, but not the insurance policy. It is used when the buyer opts to secure their own insurance for the cargo.
"Shipper’s Load and Count"
This term means that the shipper is solely responsible for loading the container, and the carrier is not aware of the contents of the shipment. Protection against pilferage is the responsibility of the consignee. The arrastre operator, like any ordinary depositary, is responsible for taking care of the goods received from the vessel and delivering them to the party entitled to their possession, subject to the qualifications in the contract between the parties. The arrastre operator is not required to verify the contents of the container received or compare them with those declared by the shipper. They are expected to deliver to the consignee only the container received from the carrier.
The difference between the Bill of Lading and the Charter Party.
The contract to carry the goods generally takes the form of either of a charter party or a bill of lading. The distinctions between the charter party and a bill of lading are as follows:
Nature:
Charter Party:
It is a complete contract that governs the terms and conditions of the lease or hiring of a vessel for transporting goods.
It outlines the relationship between the shipowner and the charterer.
Bill of Lading:
This is more like a private receipt issued by the captain (or carrier) as proof that specific goods have been received on board for transportation.
It serves as evidence of the title or ownership of the goods.
Effectivity:
Charter Party:
It is a consensual contract, meaning it becomes effective once the parties agree to the terms, even before any goods are delivered or loaded onto the vessel.
Bill of Lading:
It takes effect only after the delivery of the goods to the carrier. It signifies that the carrier has taken possession of the goods for transport to a designated recipient.
In a charter of the entire vessel, the bill of lading issued by the muter to the charterer, as shipper, is in legal contemplation merely receipt and a document of title not a contract, for the contract is the charter party.
The consignees under the bills of lading must likewise abide by the terms of the charter party.
Bill of lading not indispensable to contract of carriage.
As to issuance of a bill of lading, although Article 350 of the Code of Commerce provides that 'the shipper as well as the carrier of merchandise of goods may mutually demand that a bill of lading be made,’ still, said bill of lading is not indispensable.
As regards the form of the contract of carriage it can be said that provided that there is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to form.
The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations of railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves.
The bill of lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties.
In other words, the Code does not demand, as necessary requisite in the contract of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the shipper to mutually demand of each other the delivery of said bill.
Bill of Lading as a Contract of Adhesion.
A bill of lading is in the nature of a contract of adhesion.
A contract of adhesion is one where one of the parties imposes a ready made form of contract which the other party may accept or reject, but which the latter cannot modify.
One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.
This type of contract has been declared to be valid and binding because the other party is free to reject it entirely unless the terms and conditions are contrary to law, morals, good custom, public order, and public policy.
This type of contracts is construed liberally in favor of the passenger or shipper who adhered to such bill of lading or ticket.
Article 24 of the Civil Code provides that, "In all contractual property or other relations. when one of the parties is at a disadvantage on account of his moral dependence, ignorance indigence, mental weakness, tender age and other handicap, the courts must be vigilant for his protection."
The validity and/or enforceability of a bill of lading will have to be determined by the peculiar circumstances obtaining in each case and the nature of the conditions or terms sought to be enforced.
After the cargo has been delivered, the bills of Lading signed by the captain or at least the copy under which the delivery is made shall be surrendered to the captain.
The bill of lading which the delivery was made shall be surrendered to the captain after delivery.
The delay on the part of the consignee shall make him liable for the damages which delay may cause the captain.
The delivery of the bill of lading shall produce the cancellation of all the provisional receipts of prior date issued by the captain for partial delivery of the cargo which may have been made.
If before the delivery of the cargo, the bill of lading was lost or cannot be produced for just cause, a new bill of lading should be demanded of the captain and the latter shall be obliged to issue the same.
Even without the new bill of lading, the goods may be released provided the consignee will issue a receipt to the carrier acknowledging the release of the goods.
The surrender of the original bill of lading is not a condition precedent for the common carrier to be discharged of its contractual obligation.
The release of the goods without the bill of lading but supported by acknowledgment receipt issued by the consignee is not a violation of carrier's duty to exercise extraordinary diligence over the goods.
If several persons should present bills of lading issued to bearer or to order, indorsed in their favor, demanding the same goods, the captain shall deliver the goods to the person presenting the copy first issued.
When the subsequent one was issued on proof of the loss of the first one, or when the second or subsequent copies issued without proof of loss and presented by different persons, the captain shall apply to the court or judge, so that he may order the deposit of the goods and their delivery to the proper persons.
Bill of Lading as actionable document.
When a contractual obligation is being enforced as stated in the bill of lading, the bill of lading is considered as an actionable document.
As such, it must be properly pleaded either as cause of action or defense.
If not specifically denied under oath, the genuineness and due execution are deemed admitted.
The adverse party who failed to controvert the existence and due execution of the bill of lading, impliedly admitted the same.
3. Loans on Bottomry and Respondentia
General concept of Loans on Bottomry and Respondentia.
ART. 719. A loan in which, under any condition whatsoever, the repayment of the sum loaned and of the premium stipulated depends upon the safe arrival in port of the effects ("efectos") on which it is made, or of the value in case of accident, shall be considered a loan on bottomry or respondentia.
Both Loans on Bottomry and Respondentia are in the nature of mortgage but predicated on marine risk.
If the vessel or the cargo is lost due to that marine risk, the lender loses the money he lent.
If there is no such marine risk, meaning the money borrowed will be paid in any event, or when the obligation is secured by collateral as when there is an insurance policy upon the vessel or the cargo, then there is no bottomry nor respondentia but a simple loan, with the obligation on the part of the borrower to return the principal and interest at the legal rate.
These loans assume the marine risks during the voyage.
If the vessel or the cargo is lost, the borrower will not pay the amount borrowed but if nothing happens to the vessel or cargo, or the journey was terminated safely, the lender will receive a greater return on his principal compared to a lender in an ordinary or simple loan.
Concept of Loan on Bottomry.
It is a contract in the nature of the mortgage, whereby the owner of the ship borrows money for the use, equipment, or repair of the vessel, for a definite term, and pledges the ship (or the kneel or bottom of the ship pars pro toto) as security, with the stipulation
Concept of Loan on Respondentia.
The goods or some part thereof are hypothecated as security for a loan, the repayment is dependent upon maritime risk.
The loan is not made upon the ship but on the goods on board.
The lender must be paid of his principal and interest although the vessel perishes as long as the goods are saved.
It is called Loan on Respondentia because the borrower's personal responsibility is deemed the principal security for the performance of the contract.
Who are the parties to the loans on Bottomry and Respondentia.
Ship-owner:
May secure a loan on bottomry upon his ship.
If he is just a co-owner, the loan is only to the extent of his interest in the vessel.
Captain:
May secure a loan on bottomry up to the extent of his interest if he is a part-owner.
Even if not a part-owner, the captain can enter into a loan on bottomry in cases of extreme necessity to comply with obligations under Articles 583 and 611 of the Code of Commerce.
The captain cannot enter into a loan on respondentia because he is not an agent of the cargo owner but that of the ship owner.
Restriction: No loan on bottomry shall be made on the salaries of the crew or on expected profits (Art. 725).
Cargo Owner:
May secure a loan on respondentia involving his cargo.
Cannot enter into a loan on bottomry.
Distinguish from ordinary loan
Applicability of Usury Law:
LB and LR: Not subject to usury law because repayment is contingent on the safety of the vessel or cargo. If the vessel or cargo is lost, the lender loses the principal.
SL: Subject to usury law, as the principal is repayable under all conditions.
Existence of Marine Risk:
LB and LR: Marine risk is essential.
SL: Marine risk is not a factor.
Requirement of Written Form:
LB and LR: Must be in writing for judicial action.
SL: Written form is not necessary.
Preference of Lenders:
LB and LR: The last lender has preference over earlier ones, as they help preserve the security.
SL: The first lender has priority.
Effect of Loss of Security:
LB and LR: Obligation is extinguished if the security (vessel or cargo) is lost.
SL: The obligation remains but becomes unsecured.
Registration Requirement:
LB and LR: Must be recorded in the Registry of Vessels to be effective against third parties.
SL: Registration is not required.
Circumstances Where Loans on Bottomry and Respondentia Do Not Apply:
The borrowed money is repayable under all conditions.
The collateral secures the obligation fully, such as when there is insurance coverage on the vessel or cargo.
The obligation is not subject to risk.
Forms of the Loan:
Article 720 states that loans on bottomry or respondentia can be executed by:
Public instrument.
A policy signed by the contracting parties with broker participation.
A private instrument, where signature acknowledgment is required for binding effect.
Contract Registration:
Whichever form is used, the instrument must be entered into the Registry of Vessel to have binding effects on third parties.
Contracts executed during a voyage are effective against third parties if recorded within eight days of the vessel's arrival.
Contents of the Contract (Art. 721):
The kind, name, and registry of the vessel.
The name, surname, and domicile of the captain.
The names, surnames, and domiciles of the person giving and receiving the loan.
The amount of the loan and the premium.
The time for repayment.
The goods pledged as security.
The voyage during which the risk is undertaken.
Effects if the Loan Amount is Larger Than the Collateral Due to Fraud:
The loan is valid only up to the appraised value of the collateral.
Any surplus must be returned with legal interest.
Example: If a ship-owner secures a loan of ₱10,000,000 through fraud, but the vessel is appraised at only ₱7,000,000, the loan is valid only for ₱7,000,000, and the remaining ₱3,000,000 must be repaid with interest.
Other Provisions:
Article 728: Loans taken by the captain at the residence of the ship-owner affect only the captain's share unless expressly authorized.
Article 730: Loans made during a voyage have preference over those made before the clearing of the vessel and are prioritized in reverse order of their dates.
Article 731: The lender's right to collect is extinguished if the loaned goods are lost due to a sea accident during the designated voyage, except in cases of inherent defects, fault or malice, barratry, contraband, or loading on an undesignated vessel.
A lender's claim is extinguished by the total loss of the ship or cargo due to a sea accident during the specified voyage, provided the cargo was on board. However, the lender's right remains if the loss was caused by:
Inherent defects in the cargo.
Fault or malice by the borrower.
Barratry (willful misconduct) by the captain.
Damage due to contraband activities.
Loading the goods onto a vessel not specified in the contract, except when caused by force majeure.
Article 732: Lenders on bottomry and respondentia contribute to general average (shared losses) in proportion to their interests. In cases of particular average, they contribute unless explicitly exempted in the contract.
Article 733: If the period of risk is not defined in the contract, it lasts from the time the vessel sets sail until it arrives at the destination for the vessel and its parts. For goods, the risk period is from loading to unloading.
Article 734: After a shipwreck, the loan repayment is reduced to the value of salvaged goods, minus salvage costs. If the loan covers the vessel or its parts, any earned freight during the voyage can be used for repayment.
Article 735: If both a bottomry loan and marine insurance exist on the same vessel or cargo, any salvaged value is divided between the lender and the insurer based on their interests. The owner's insurable interest is limited to the value exceeding the loan amount.
Article 736: In case of delayed repayment, only the principal loan amount accrues legal interest, not the premium.
E. Accidents and Damages in Maritime Commerce
1. Averages
General and Particular Average
Article 806 defines average as:
Extraordinary or accidental expenses incurred during a voyage to preserve the vessel or cargo, or both.
Damages or deterioration suffered by the vessel from departure until arrival at the destination port, as well as damages to the cargo from loading at the port of shipment until unloading at the port of consignment.
Article 807 distinguishes between average and ordinary expenses:
Ordinary expenses include routine navigation and port-related costs (e.g., pilotage, towage, inspection, health, quarantine, anchorage, and unloading costs). These are typically the responsibility of the shipowner unless otherwise agreed upon.
In summary, average involves extraordinary costs and damages during a voyage, while routine expenses fall under the shipowner's responsibility.
Summary: Classification of Averages (Articles 808-810, 732)
Article 808 classifies averages into two types:
Simple or Particular Average: These refer to expenses and damages affecting the vessel or cargo that do not benefit all parties involved in the voyage. Such costs are incurred for the benefit of specific cargo or parts of the vessel rather than the entire interest group (vessel owner, cargo owners, etc.).
Article 809 provides examples of simple or particular averages, including:
Losses to cargo from embarkation to unloading due to inherent defects, marine accidents, or force majeure.
Damage to the vessel’s hull, rigging, and equipment from departure to arrival at the destination.
Damage to goods loaded on deck (except in coastwise navigation, if allowed by marine ordinances).
Wages and provisions for the crew during detention or embargo due to a legitimate order or force majeure.
Expenses for repairs or provisions upon arrival at a port.
Loss from the sale of goods under stress to provide for the crew or vessel’s needs.
Wages and provisions for the crew during quarantine.
Damage from accidental and unavoidable collisions.
Damage to cargo caused by the captain or crew’s negligence or fault.
Article 810: The party responsible for particular averages is the owner of the affected property (cargo or vessel). However, if the vessel or goods are hypothecated under a bottomry or respondentia loan, the lender may also bear the loss proportionate to their interest unless otherwise stipulated.
Article 732: In cases of bottomry or respondentia loans, lenders must contribute to particular averages according to their share of interest unless the specific risks are excluded by agreement.
In summary, simple or particular averages are expenses and damages that specifically impact certain parties rather than benefiting all. The affected party or lender (under certain loans) typically bears these costs.
Definition (Article 811): General or gross average includes expenses or damages intentionally incurred to save the vessel, its cargo, or both from a real and known risk during a voyage. It involves a deliberate sacrifice for the common safety.
Requisites of General Average:
Common Danger: Both the vessel and cargo face an imminent and unavoidable threat during the voyage.
Deliberate Sacrifice: A voluntary action (e.g., jettison of cargo) is made to preserve the vessel and remaining cargo.
Successful Outcome: The sacrifice must result in saving the vessel and/or cargo.
Legal Steps Taken: The actions taken must comply with proper legal procedures.
Explanation of Requisites:
Common Danger: Arises from maritime risks like sea accidents, official orders, or human error.
Deliberate Sacrifice: Actions such as jettisoning cargo or sinking the vessel to save others must be intentional, not due to unavoidable loss.
Sacrifice includes exceptional cases like transferring cargo to lighten the ship during a storm (Art. 817) or intentionally sinking a vessel to extinguish a fire (Art. 818).
Proof of General Average (Article 816): The existence of jettisoned goods must be proven through the bill of lading (for transported cargo) or inventory prepared before departure (for vessel goods).
Specific Situations:
Loss from Lightening the Ship: If part of the cargo is lost while being transferred during a storm to help the vessel enter a port, it is considered a general average, with costs shared between the vessel and cargo (Art. 817).
Sinking a Vessel to Extinguish Fire: If a vessel is intentionally sunk to put out a fire and save others, the loss is a general average, shared by the saved vessels (Art. 818).
Successful Sacrifice Requirement (Article 860): No general average can be claimed if the vessel or cargo sought to be saved is ultimately lost. For example, if cargo is jettisoned to save a vessel during a storm, but the vessel sinks, no contribution is required from other cargo owners.
Subsequent Risks (Article 861): If the vessel survives an initial risk (e.g., a storm) because of a sacrifice but is later lost due to another accident, the goods saved from the first risk are still liable for contribution to the general average, based on their current value minus the costs of saving them.
In summary, general or gross average involves deliberate sacrifices for the common benefit during maritime danger, with contributions owed by those whose property is preserved. Proper legal steps and a successful outcome are necessary for claiming such contributions.
Legal Steps Requirement: To incur expenses or damages constituting general average, certain legal procedures must be followed, as outlined in Articles 813 to 815 of the Code of Commerce.
Resolution by Captain (Article 813):
A decision must be made by the captain after consulting with the sailing mate and other officers, considering input from interested cargo parties present.
If any cargo representatives object, the majority opinion of the officers can prevail, allowing actions to be taken under the captain's responsibility.
Cargo representatives who are not consulted cannot contribute to the general average unless urgency prevents deliberation.
Logbook Entry (Article 814):
The captain must document the resolution in the logbook, noting the reasons for the decision, dissenting opinions, and urgent circumstances prompting independent action.
All actions must be recorded, including details of jettisoned goods and injuries to retained items.
The log must be signed by all present when possible or, if not, at the earliest opportunity.
A copy of this documentation must be submitted to the maritime judicial authority within 24 hours of arrival at the first port.
Jettison Order (Article 815):
The captain directs the order in which goods are to be jettisoned, starting with those on deck that hinder navigation, followed by those below deck based on weight and value.
Examples of General Average (Article 811):
General or gross average includes damages and expenses intentionally incurred to save the vessel and cargo from known risks, including:
Costs for redeeming the vessel or cargo captured by enemies.
Jettisoned goods to lighten the vessel.
Damages to cables, masts, and anchors sacrificed to save the vessel.
Expenses from transferring cargo to aid the vessel’s entry into port.
Damages from opening the vessel to prevent sinking.
Costs associated with floating intentionally stranded vessels.
Treatment costs for crew injuries sustained while saving the vessel.
Wages and provisions for crew members held hostage or during force majeure events.
Depreciation of goods sold under duress to repair the vessel.
Expenses related to the liquidation of the average.
In conclusion, the successful compliance with legal steps is essential for validating general average claims, ensuring accountability and transparency in the process of preserving maritime interests during a common danger.
General Principle: General average costs are shared among all parties who benefit from the sacrifice made to save the vessel and cargo during a maritime incident. This is articulated in Article 859 of the Code of Commerce.
Parties Responsible for Contribution:
Ship Owner: The owner of the vessel that was saved is liable to contribute.
Cargo Owners: Owners of the cargo that was saved must also share in the expenses.
Lenders on Bottomry and Respondentia: Those who provided loans secured by the vessel or cargo (as defined in Article 732) contribute based on their respective interests.
Insurers: Insurers of both the vessel and the cargo are obligated to pay for the indemnification of general average losses in proportion to their insured values.
Lenders on Bottomry and Respondentia:
According to Article 732, these lenders share in the general average costs in proportion to their respective interests in the secured assets. This means that their contribution reflects the value they have at stake.
Insurers:
Article 859 specifies that marine insurers are responsible for covering general average costs according to the respective insured values. Sections 164 and 165 of the Insurance Code of the Philippines detail this responsibility:
Section 164: A marine insurer must compensate for losses tied to contributions towards general average as long as the loss is insured against. However, the insurer's liability is capped at the proportion of the insured value if that value is less than the actual contributing value.
Section 165: If the insured has a claim against others for contribution, they can claim the full loss from the insurer, transferring the right to seek contribution to the insurer. However, this right cannot be exercised after the contribution interests have been separated, nor if the insured fails to act on their right to pursue contributions.
Eligibility for Indemnity:
Owners of sacrificed goods are entitled to receive contributions towards general average costs. However, certain goods are excluded:
Goods on Deck: Goods carried on deck are generally not entitled to contribution unless permitted by special laws or local customs (Article 855).
Unrecorded Goods: Goods that are not documented in the vessel's records are also excluded from claims (Article 855, 2nd Paragraph).
Excess Fuel: Fuel for the vessel is not entitled to contribution if there is more than sufficient fuel for the voyage (Rule JX, York-Antwerp Rules).
2. Collisions
Definitions
Collision: Impact between two moving vessels.
Allision: Impact between a moving vessel and a stationary one.
Applicable Law
Liability is primarily governed by the Code of Commerce for collisions, while Article 2176 of the Civil Code on quasi-delicts can apply for negligence determinations.
Provisions related to collision also extend to cases of allision.
Rules on Liability
Courts determine negligence similarly to quasi-delicts, assessing what a reasonable person with similar expertise would have done.
The defense of a good father of a family and doctrines of last clear chance and contributory negligence are not applied in maritime collision cases.
Instead, specific rules under the Code of Commerce govern the outcome.
Scenarios
If one vessel is at fault:
The vessel’s owner indemnifies the other party for damages, based on Article 826.
If a moving vessel hits a stationary one, it is presumed at fault unless it can prove otherwise.
If both vessels are at fault:
Each vessel bears its own damages, but they are solidarily liable for damage to cargoes as per Article 827.
Solidary liability allows creditors to seek full compensation from any liable party, who can then seek reimbursement from co-debtors.
If fault cannot be determined (Doctrine of Inscrutable Fault):
Each vessel bears its own damages but remains solidarily liable for cargo losses (Article 828).
If the cause is a fortuitous event (e.g., natural disasters):
Each vessel and cargo owner bears their own damages, in line with Article 882.
If a third party causes the collision:
The third party's owner is responsible for indemnifying the damages, while the captain may bear civil liability towards that owner.
Zones of Time in Collision
First Zone: Time before the risk of collision arises; vessels can navigate freely.
Second Zone: Time when the risk of collision begins until it becomes a certainty and must be avoided by observing nautical routes. This is where liability is determined.
Third Zone: Time when collision is inevitable until actual impact, and errors in extremis by the non-fault vessel are excused.
- In the first zone no rules apply.
- In the second the burden is on the vessel required to keep away and avoid the danger.
- The third zone covers the period in which errors in extremis occur; and the rule is that the vessel which has forced the privileged vessel into danger is responsible even if the privileged vessel has committed an error within that zone.
Presumption of Loss
Under Article 833, a vessel is presumed lost due to collision if:
it sinks immediately,
is lost while repairing, or
is intentionally stranded to avoid further damage.
Liability of the Captain with a Pilot Onboard
Despite a pilot's presence, the captain retains responsibility but may seek indemnity from the pilot if their negligence is proven.
Protest
Filing a protest is necessary for actions related to losses or damages due to collisions involving sea-going vessels, but it is not required for smaller non-maritime vessels.
Limited Liability Rule
Article 837 states that a shipowner's liability is limited to the value of the vessel and the freight earned during the voyage.
This means if a vessel is a total loss, the owner's liability may be extinguished if no other assets are available for claims.
Example:
Both Vessels at Fault:
Each vessel suffers its own damage. If A incurs PHP 1 million in damage and B PHP 700,000, each covers its losses.
For cargo losses, PHP 800,000 is shared solidarily, with one vessel potentially covering the full amount and seeking reimbursement.
Fortuitous Event:
If a collision occurs due to events like a hurricane, each vessel bears its own losses, including damages to cargo.
3. Arrival Under Stress
Definition
Arrival Under Stress is the arrival of a vessel at the nearest and most convenient port which was decided upon after determining that there is well founded fear of seizure, privateers, or pirates or by reason of any accident of the sea disabling it to navigate.
Steps to Determine Propriety of Arrival Under Stress
The captain determines during the voyage if there is well founded fear of seizure, privateer, and other valid grounds.
The captain shall assemble his officers.
The captain shall summon the persons interested in the cargo who may be present and who may attend but without right to vote.
The captain shall determine and agree if there is well founded reason after examining.
Objections and protests shall likewise be entered in the minutes.
Unlawful Arrivals
If the lack of provisions should arise from the failure to take the necessary provision for the voyage according to usage and customs, or if they should have been rendered useless or lost through bad stowage or negligence in their care.
If the risk of enemies, privateers, or pirates should not have been well known, manifest, and based on positive and provable facts.
If the defect of the vessel should have arisen from the fact that it was not repaired, rigged, equipped, and prepared in a manner suitable for the voyage, or from some erroneous order of the captain.
When malice, negligence, want of foresight, or lack of skill on the part of the captain exists in the act causing the damage.
Expenses for Arrival Under Stress
For the account of the ship-owner or agent.
Art. 821. The expenses of an arrival under stress shall always be for the account of the shipowner or agent, but they shall not be liable for the damages which may be caused the shippers by reason of the arrival provided the latter is legitimate. Otherwise, the ship agent and the captain shall be jointly liable.
The expenses incurred during an arrival under stress, such as port fees, harbor dues, and salvage charges, are always borne by the shipowner or their agent.
This is because the decision to seek refuge is made by the shipmaster on behalf of the ship's owners.
If the arrival under stress is justified, the shipowner or agent is not liable for any damages suffered by the shippers as a result of the arrival.
This is because the arrival was necessary to protect the ship and its cargo.
If the arrival under stress is found to be unjustified, the ship agent and the captain are held jointly liable for any damages suffered by the shippers.
This means that the shippers can sue either the ship agent or the captain, or both, to recover their losses.
Expenses to unload the cargoes to make repairs or because of the danger that the cargo will suffer damages.
Art. 822. If in order to make repairs to the vessel or because there is danger that the cargo may suffer damage, it should be necessary to unload, the captain must request authorization from the competent judge or court for the removal, and carry it out with the knowledge of the person interested in the cargo, or his representative, should there be any. In a foreign port, it shall be the duty of the Philippine Consul, where there is one, to give the authorization. In the first case, the expenses shall be for the account of the ship agent or owner, and in the second, they shall be chargeable against the owners of the merchandise for whose benefit the act was performed. If the unloading should take place for both reasons, the expenses shall be divided proportionately between the value of the vessel and that of the cargo.
If it becomes necessary to unload the cargo to carry out repairs to the vessel or to prevent the cargo from suffering damage, the captain must obtain authorization from a competent judge or court.
The captain must carry out the unloading with the knowledge of the person interested in the cargo, or their representative, if there is one.
If the ship is in a foreign port, the Philippine consul, if there is one, is responsible for giving the authorization to unload the cargo.
Expenses:
If the unloading is solely for vessel repairs, the expenses are borne by the ship agent or owner.
If the unloading is solely to protect the cargo from damage, the expenses are charged against the owners of the merchandise for whose benefit the act was performed.
If the unloading is necessary for both vessel repairs and cargo protection, the expenses are divided proportionately between the value of the vessel and that of the cargo.
The captain must request for authorization from the court to unload the cargoes with the knowledge of the persons interested in the cargoes under the following circumstances:
To make repair to the vessel.
There is danger that the cargo may suffer damage.
For both reasons stated above.
In the first case, the expenses shall be borne by the ship agent.
In the second case, the expenses shall be borne by the owner of the merchandise.
In the third case, the expenses shall be divided proportionately between the value of the vessel and that of the cargo.
Custody of the Cargo.
Article 823. The custody and preservation of the cargo which has been unloaded shall be entrusted to the captain, who shall be responsible for the same, except in cases of force majeure.
Article 824. If the entire cargo or part thereof should appear to be damaged, or there should be imminent danger of its being damaged, the captain may request of the competent judge or court, or of the consul in a proper case, the sale of all or of part of the former, and the person taking cognizance of the matter shall authorize it, after an examination and declaration of experts, advertisements, and other formalities required by the case, and an entry in the book, in accordance with the provisions of Article 624. The captain shall, in a proper case, justify the legality of his conduct, under the penalty of answering to the shipper for the price the merchandise would have brought if they had arrived in good condition at the port of destination.
Captain's Custody and Responsibility:
The captain is entrusted with the custody and preservation of the unloaded cargo.
The captain's responsibility is limited by cases of force majeure, which are unforeseeable events beyond the captain's control.
Damaged or Perishable Cargo
If the entire cargo or part thereof appears to be damaged or is in imminent danger of being damaged, the captain may request authorization from a competent judge or court, or from the consul in a proper case, to sell all or part of the cargo.
The sale is authorized after an examination and declaration of experts, advertisements, and other necessary formalities, and an entry in the book in accordance with the provisions of Article 624.
The captain must justify the legality of his conduct in requesting and obtaining the sale authorization. If the captain fails to justify the sale, they may be liable to the shipper for the price the merchandise would have brought if they had arrived in good condition at the port of destination.
Liability of the captain.
Art. 825. The captain shall be responsible for the damages caused by his delay, if after the cause of the arrival under stress has ceased, he should not continue the voyage. If the cause of arrival should have been the fear of enemies, privateers, or pirates, a deliberation and resolution in a meeting of the officers of the vessel and persons interested in the cargo who may be present, in accordance with the provisions contained in Article 819, shall precede the departure. If the reason for the "arrival under stress" has ceased to exist, the captain must continue the voyage without delay, otherwise, he shall be liable for damages.
If the cause of the arrival under stress has ceased, and the captain does not continue the voyage, they are responsible for any damages caused by the delay.
If the cause of the arrival was the fear of enemies, privateers, or pirates, a meeting of the vessel's officers and interested cargo owners must be held to decide whether to continue the voyage.
This meeting follows the procedures outlined in Article 819.
Once the reason for the arrival under stress no longer exists, the captain must continue the voyage without delay.
Failure to do so will make the captain liable for any damages caused by the unjustified delay.
4. Shipwreck
Definition.
Shipwreck is a loss or injuries suffered of a vessel at sea either by being swallowed by the waves or as a consequence of its grounding or running against an object in the sea or on the coast, rendering her incapable of navigation.
Who will bear the damages and deterioration.
The losses and deteriorations suffered by a vessel and her cargo by reason of shipwreck or stranding shall be individually for the account of the owners, the part which may be saved belonging to them in the same proportion.
In case of shipwreck, each owner shall bear his own losses.
When is the captain liable for shipwreck.
If the wreck or stranding should be caused by the malice, negligence, or lack of skill of the captain, or because the vessel put to sea was insufficiently repaired and equipped, the ship agent or the shippers may demand indemnity of the captain for the damages caused to the vessel or to the cargo by the accident, in accordance with the provisions contained in Articles 610, 612, 614, and 621.
The captain is liable for losses if the shipwreck is due to the following:
Malice, negligence, or lack of skill of the captain .
The vessel put to sea was insufficiently repaired and equipped.
Obligation of owners to pay expenses for salvage.
The owners of the goods saved from the wreck shall pay the expenses of the salvage before they are delivered to the owners.
Where the ship and her cargo are saved together, the salvage allowance should be charged in proportion to their respective value (general average).
Therefore, where personal action is brought by the salvor, against the owner of the ship, the liability of the latter is just proportionate to the value of the ship.
Other effects of shipwreck.
The captain makes the proper protest (Arts. 612 to 615).
If the vessel and cargo should be totally lost by reason of capture or shipwreck, all rights shall be extinguished both as regards the right of the crew to demand wages and the right of the ship-owner or agent to recover advances-made (Art. 643).
Goods lost by reason of shipwreck or stranding, (goods seized by enemies or pirates and goods jettisoned for the common safety and never recovered) shall not pay freight (Art. 661).
Amount liable for the payment of the loan (bottomry or respondentia) shall be reduced to the proceeds of the effects saved after deducting the cost of salvage (Art. 734).
The value that may be saved will be divided between the lender and insurer in proportion to their interest taking into consideration on the principal.
F. Salvage Law
Act No. 2616
Enacted on February 4, 1916
When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be entitled to a reward for the salvage. Those who, not being included in the above paragraph, assist in aving a vessel or its cargo from shipwreck, shall be entitled to a like reward.
Concept/definition of terms:
Salvage
A service which one person, renders to the owner of a ship or goods by his own labor, preserving the goods or ship which the owner or those entrusted with the care of them either abandoned in distress at sea or are unable to protect and secure.
Salvage services are either:
Voluntary Salvage
the salvage reward is dependent on success;
Per contract payable at all events;
Per contract payable only in case of success.
The first kind is a pure salvage and the second and third are considered salvage services based on contract.
Derelict
It means a ship or her cargo is abandoned and deserted at sea by those who were in charge of it, without any hope of recovering it.
It is determined by ascertaining the intention and expectation of those in charge of it at the time when they left it.
Thereafter, the change of their intention to abandon and an attempt to return will not change the nature of the ship or cargo as derelict.
Not res nullius.
Quasi-derelict
When the owner of a ship or cargo or the persons entrusted with the care of the ship or cargo who may not have abandoned the ship or cargo but are unable to protect or secure it.
Compensation/Salvage Reward
It is a reward given for perilous services, such dangerous enterprise to save life and property
It is founded on equity of remunerating individual services performed in saving, in whole or in part, a ship or its cargo from impending peril, or recovering them after actual loss.
The elements of valid salvage.
Marine peril
The service is voluntarily rendered and is not required as an existing duty or from a special contract.
Success in whole or in part or service rendered contributed to such success.
The vessel is shipwrecked beyond the control of the crew or shall have been abandoned.
Marine peril.
To have a valid salvage, there must be a marine peril.
Peril of the sea.
If there is no marine peril, the act of towing is not a salvage service but purely a towing service.
Barrios v. Go Thong & Co.:
Barrios received an S.O.S. or distress signal by blinkers, from MV Alfredo, owned by defendant Carlos A. Go Thong & Company. Barrios as captain of MV Henry, answered the distress call and found MV Alfredo in trouble due to engine failure and because of this, it was drifting slowly towards Borneo in the open China Sea, at the mercy of a moderate easterly wind. MV Henry with the consent and knowledge of the captain of MV Alfredo, succeeded in towing the latter at safe place where it was released to MV Lux, a sister ship of MV Alfredo.
The service rendered is one of towage not salvage. There was no marine peril. Though MV Henry was in a helpless condition due to engine failure, it did not drift too far, besides the weather was fair, clear and good and the waves were small. There was no danger of stranding as it was far from any island or rocks. Neither was there danger of sinking as the sea was smooth and the weather was fair. The crew did not even find it necessary to lower its launch and two motorboats; neither did they find it necessary to jettison the vessel's cargo as a safety measure.
The service is voluntarily rendered and is not required as an existing duty or from a special contract.
The person must not have legal obligation to preserve or save the vessel or goods.
It is not his duty to preserve or save the vessel or because there is no employment contract or special contract that imposes that duty to him.
The members of the crew of the vessel, being employees have legal obligation to preserve the vessel or cargoes and so they are not entitled to salvage reward.
Article 8 of the Salvage Law states that the following shall have no right to a reward for salvage or assistance:
The crew of the vessel shipwrecked or which was in danger of shipwreck;
He who shall have commenced the salvage in spite of opposition of the captain or his representative; and
He who shall have failed to comply with the provisions of Section three."
Section 3. He who shall save or pick up a vessel or merchandise at sea in the absence of the captain of the vessel, owner, or a representative of either of them, they being unknown, shall convey and deliver such vessel or merchandise, as soon as possible, to the Collector of Customs, if the port has a collector, and otherwise to the provincial treasurer or municipal mayor.
Success in whole or in part or service rendered contributed to such success.
There is salvage and the salvage reward is allowed if the person who undertakes the salvage service is successful in saving the whole or part of the vessel or goods; otherwise it will not be granted despite their benevolent intention and heroic act.
The vessel is shipwrecked beyond the control of the crew or shall have been abandoned
To have a valid salvage, the vessel/cargo must be a derelict or a quasi-derelict which means that the vessel is shipwrecked and have been abandoned or beyond the control of the crew.
There is no valid salvage if the captain or the person acting in his stead is present because there is no abandonment and the vessel or cargo is not considered as derelict.
What may be the objects of salvage.
Ship itself.
Jetsam
goods which are cast into the sea and sank and remain under water.
Floatsam or Flotsam
goods which float upon the sea when cast overboard.
Ligan or Lagan
goods cast into the sea tied to a buoy, so that they may be found again by the owner.
The ship and her cargo are subjects of salvage if they are considered derelict.
To consider the ship or cargo derelict, it would depend upon the condition of the vessel before the salvage services are performed.
When the vessel is abandoned by the owner or by those in charge of which or although not abandoned but unable protect it, then the vessel or cargo is considered derelict and may be the object of salvage.
If those in charge left with the intention of returning or procuring assistance, the property is not derelict and therefore not a fit object of salvage.
Rights of finder or salvor of derelict.
The finder of the derelict vessel or goods gains the right of possession even against the true owner.
He has no right of ownership over the derelict.
The owner does not renounce his right of ownership to the vessel or cargo although he abandoned it.
It is the right of possession that is temporarily abandoned and transferred to the finder.
In other words, the owner temporarily abandoned the possession only and not the ownership.
Same is true when a man finds a property temporarily left to the mercy of the elements, though not finally abandoned or legally derelict, he takes possession of it with the bona fide intention of saving it for the owner, he will be entitled to remuneration as a salvor and he cannot be treated as trespasser.
He acquires the right to be paid for his services.
He is not bound to part with the possession until he is paid or the property is taken into the possession of the law while the amount of salvage is being legally ascertained.
Obligation of the finder.
The finder is bound to preserve the property with good faith and bring it to the place of safety for the owner's use.
The finder has to deliver the property to the owner or the captain or his representative is present or known.
In the absence of the owner, captain or his representative or his whereabouts is unknown; the finder has to deliver it to the collector of customs of the port, if there is no collector of customs, to the national treasurer or otherwise, to the municipal mayor.
Section 3. He who shall save or pick up a vessel or merchandise at sea. in the absence of the captain of the vessel, owner, or a representative of either of them, they being unknown, shall convey and deliver such vessel or merchandise, as soon as possible, to the Collector of Customs, if the port has a collector, and otherwise to the provincial treasurer or municipal mayor.
The salvor who picks up a vessel or merchandise at sea, in the absence of the captain or owner, has an obligation to deliver such vessel or merchandise to the Collector of Customs if there is one, otherwise to the provincial treasurer or municipal mayor.
Failure to comply with this, the salvor will not be entitled to a salvage reward.
Section 4. After the salvage is accomplished, the owner or his representative shall have a right to the delivery of the vessel or things saved, provided that he pays, or gives a bond to secure, the expenses and the proper reward.
The amount and sufficiency of the bond, in the absence of agreement, shall be determined by the Collector of Customs or by the Judge of the Court of First Instance of the Province in which the things saved may be bond.
Salvor's lien on property salvage.
The salvage service creates a lien in the thing saved.
The salvor cannot be compelled to release the property to the owner unless the salvage expense and rewards are paid.
The salvor becomes a joint owner and if the property is lost, he must bear his share like the other joint owners.
Payment of compensation.
If both vessel and its cargo are saved, the salvage allowance should be charged against the ship to be paid by the ship owner and cargo to be paid by the owner of the cargo in proportion to value of the vessel and the value of the cargo saved as in the case of general average.
Procedure to expedite the settlement of salvage claim on salved derelicts in the clearing of Pasig River, adjoining esteros and waterways.
With regards to the continuous clearing of the Pasig River, adjoining esteros and waterways within the Greater Manila Area of derelicts and other discarded matters, the following procedure shall be followed to expedite the settlement of the salvage claim on and/or disposition of those salved derelicts:
Upon receipt of the salvor's report on the successful salvage of ay derelict, known owner(s) and rightful party(ies) thereto must immediately be informed thereof in 72 hours within which to file their claim, otherwise the same shall immediately be awarded to the salving party by way of salvage compensation.
With respect to those the owner(s) or rightful party(ies) of which are unknown, the salved derelicts shall be published for public bidding for three successive days in a newspaper of general circulation, after which, bidding shall immediately be held as scheduled. Should there be no bidder and/or shall the highest bid offered thereon is insufficient to cover the reasonable salvage claim, such bid shall be denied and the salved derelict shall be awarded to the salving party.
Distinction between salvage and towage and the payment of services.
The distinction between salvage and towage is important to the crew of the salvaging vessel because if the contract is that of towage, the crew does not have an interest or rights in the remuneration pursuant to the contract.
But if the contract or service done is that of salvage, the crew of the salvaging ship is entitled to salvage reward, and can look to the salvaged vessel for its share.
To determine whether the service is salvage or towage, it is necessary to determine the nature of the service rendered.
The act of towing is considered an act of salvage if the distressed vessel is exposed to serious danger and it is abandoned or left at the mercy of the sea and cannot be salved at that very moment unless towed to a safer place.
In salvage, the captain and the crew participate in the salvage award.
In salvage, the crew of the salvaging vessel who participated in salvage service is entitled to salvage reward.
If it is a contract of towage, the crew does not have any interest or rights with the remuneration pursuant to the contract.
The act of towing is not considered salvage but simply as a towing service if the vessel towed was not exposed to serious danger or is not left at the mercy of the sea.
Obligation of government officials whom salvage is reported.
The Collector of Customs, provincial treasurer, or municipal mayor, to whom salvage is reported, shall order:
That the things saved be safeguarded and inventoried.
The sale at public auction of the things saved which may be in danger of immediate loss or of those whose conservation is evidently prejudicial to the interests of the owner, when no objection is made to such sale.
The advertisement within the thirty days subsequent to the salvage, in one of the local newspapers or in the nearest newspaper published, of all the details of the disaster, with a statement of the mark and number of the effects requesting all interested persons to make their claims.
Persons who have no right to a reward for salvage.
The following shall have no right to a reward for salvage or assistance:
The crew of the vessel shipwrecked or which was in danger of shipwreck;
He who shall have commenced the salvage in spite opposition of the captain or crew or his representative; and
He who shall have failed to comply with the provisions of Section three.
Basis in fixing salvage reward.
There is no fixed rule for salvage allowance.
It is left to the sound discretion of the court or judge who hears the case with due consideration of the following:
The labor expended by the salvors.
The promptitude, skill, and energy displayed in saving the property.
The value of the property used by the salvors and the danger said property was exposed.
The risk incurred by the salvors.
The value of the property saved.
The degree of danger from which the property was rescued.
Proportionate obligation of each owner to pay.
If the salvage allowance shall be charged against the ship and cargo in the proportion of their respective values, as in the case of general average, the owners of different cargoes must share in proportion to the value of each cargo.
In case the owner fails to claim.
No claim being presented in the three months subsequent to the publication of the advertisements prescribed in subsection (c) of Section five, the things saved shall be sold at public auction, and their proceeds, after deducting the expenses and the proper reward shall be deposited in the insular treasury.
If three years shall pass without anyone claiming it, one-half of the deposit shall be adjudged to him who saved the things, and the other half to the insular government.
Owner does not claim within three months after publication. If the owner does not make claim within three months after the publication of the Salvage Report:
The things saved shall be sold at a public auction, the proceeds of which shall be deposited in the National Treasury after deducting the expenses and reward.
If not claimed within three years from the publication of the advertisements, the salvor shall be entitled to half of the deposit as his reward and the other half, to the government.
How proceeds of the sale of salvaged goods disposed of: From the proceeds of the sale of the things saved shall be deducted first, the expenses of their custody, conservation, advertisement, and auction, as well as whatever taxes or duties they should pay for their entrance; then there shall be deducted the expenses of salvage; and from the net amount remaining shall be taken the reward for the salvage or assistance which shall not exceed fifty per cent of such amount remaining.
The proceeds of the sale shall be disposed as follows:
Expenses of custody, advertisement and auction, truces and duties.
Expenses of salvage.
Salvage reward not exceeding 50% of net amount.
Balance to the owner of the goods.
If the owner does not claim it within three years from its deposit, the proceeds of the sale shall be distributed as follows:
1/2 goes to the salvor.
1/2 goes to the government.
Distribution of the salvage reward if the vessel intervenes in salvage.
50% of the salvage reward will go the owner of the vessel
25% to the captain of the salvaging vessel
25% to the crew in proportion to their salaries.
If in the salvage or in the rendering of assistance different persons shall have intervened the reward shall be divided between them in proportion to the services which each one may have rendered, and, in case of doubt, in equal parts. Those who, in order to save the persons, shall have been exposed to the same dangers shall also have a right to participation in the reward.
Taking the passengers from a sinking ship, without rendering any service in rescuing the vessel, is not a salvage service, being a duty of humanity and not for reward.
But the Salvage law gives the salvors of human life a fair share or remuneration offered to salvors of the vessel.
If a vessel or its cargo shall have been assisted or saved, entirely or partially, by another vessel, the reward for salvage or for assistance shall be divided between the owner, the captain. and the remainder of the crew of the latter vessel, so as to give the owner a half, the captain a fourth, and all the remainder of the crew the other fourth of the reward, in proportion to their respective salaries, in the absence of an agreement to the contrary. The expenses of salvage, as well as the reward for salvage or assistance, shall be a charge on the things salvaged or their value.
The owner of the salving vessel is entitled to salvage reward for the use of his vessel in rendering salvage services, although he was not present when the salvage service was rendered
The remuneration for salvage service is awarded to the owners not because of they are present but because of the danger which the services exposes their property.
G. Carriage of Goods by Sea Act (COGSA)
The Carriage of Goods by Sea Act (COGSA) was enacted by 74th US Congress on April 16, 1936 as Public Act. No. 521.
At this time, the Philippines was then a Commonwealth government and was a territory of the U.S.
The law provides that the Philippine Legislature has the option to accept or reject its application to transportation to or from the ports of Philippine islands.
On October 22, 1936, the Commonwealth government elected to accept and make applicable to the Philippines through Commonwealth Act No. 65, but should not be construed to repeal the Code of Commerce already in existence.
On August 30, 1950, the New Civil Code took effect.
Two pertinent provisions affecting COGSA
Article 1753
The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration.
Article 1766
In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws.
Thus, since the latest law is the governing law unless there is a provision to the contrary, then the following shall govern in this order:
Civil Code – Primary law
Code of Commerce – Suppletory
Special laws, COGSA, Salvage, etc.
But the parties could stipulate that COGSA be the primary law whether the shipment is to or from the Philippines.
That stipulation is valid and binding.
However, in coastwise shipment, COGSA is inapplicable even if the parties will stipulate it will apply because COGSA is meant only for international shipment by sea.
The NCC is the primary or the governing law because it is the latest law having been enacted in 1950.
On the other hand, although COGSA was adopted in 1936 which is much later than the Code of Commerce which was adopted in 1916, yet the Code of Commerce is still considered as a suppletory law because COGSA does not repeal the Code of Commerce.
By express provision of Commonwealth Act No. 65 which adopted COGSA, it states that, “Provided, that nothing on this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application” (Sec. 1).
Application
To what kinds of contracts of carriage does the COGSA apply?
The COGSA is applicable to all contracts of carriage of goods by sea to and from Philippine ports in foreign trade.
The COGSA is likewise applicable up to the final port of destination.
The fact that transshipment was made on an interisland vessel does not remove the contract of carriage of goods from the operation of the said Act.
The COGSA covers loss or damage to goods arising from contracts of carriage by sea from a foreign port to a Philippine port.
It does not cover carriage of goods from a Philippine port to a foreign port as such provision of COGSA has been superseded by the Civil Code of the Philippines.
In such a case, the laws of the country of destination apply.
What are the legal consequences of the application of the COGSA in case of loss or damage to goods?
If the contract of carriage is governed by COGSA, the prescriptive period to file an action against the ship owner or ship agent in case of loss or damage to goods is not 10 years even though the contract of carriage may be in writing.
The prescriptive period is one (1) year from delivery of the goods or the date the goods should have been delivered.
The one (1)-year period of limitation is designed to meet the exigencies of maritime hazards.
The COGSA also provides under Section 4, Subsection 5 that an amount recoverable in case of loss or damage shall not exceed US$500.00 per package or per customary freight unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.
What law will apply in case of loss of goods shipped from foreign country to the Philippines?
The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss destruction or deterioration.
Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and special laws.
Hence, the COGSA, a special law, is merely suppletory to the provision of the Civil Code
What is the meaning of loss under the COGSA?
The term “loss” under the COGSA contemplates merely a situation where no delivery at all was made by the shipper of the goods because the same had:
perished,
gone out of commerce, or
disappeared in such a way that their existence is unknown or
they cannot be recovered.
It has been ruled that when the goods are not transhipped immediately with the result that the shipment arrived beyond the delivery date and the consignee paid only one half the value of the goods on the ground that they did not arrive until the off-season in the country, the loss incurred by the shipper is not the loss contemplated by the COGSA.
Thus, the one (1)-year prescriptive period for bringing the suit will not apply.
However, where the suit is predicated not upon loss or damage but on alleged misdelivery (or conversion) of the goods, the applicable rule on prescription is not the one (1)-year period provided for in Section 3(6), paragraph 4 of the COGSA, which short period is designed merely to meet the exigencies of maritime hazards, but that found in the Civil Code, namely, either:
10 years for breach of written contract or
4 years for quasi-delict.
In a case where the goods shipped were neither lost nor damaged in transit but were, on the contrary, delivered in port to someone who claimed to be entitled thereto, the situation is different, and the special need for the short period of limitation in cases of loss or damage caused by maritime perils does not obtain.
The “loss of value” is not the total loss contemplated by the COGSA.
Notice of Loss or Damage
Under the provisions of Section 3 of the Carriage of Goods by Sea Act, notice must be given of loss or damage to the goods. Within what period must notice be given, if the loss or damage is not apparent?
Notice of loss must be given within three (3) days from the delivery of the goods, if the loss is not apparent.
Is notice necessary to enable the consignee to be able to recover from the carrier in case of loss or damage to the goods?
The COGSA provides for the procedure in case of loss or damage of the cargo. To be able to recover from the carrier, a notice of loss or damage should be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage.
If the loss or damage is not apparent, the notice must be given within three (3) days of delivery.
The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey inspection.
The action for loss or damage under the COGSA should be brought within one (1) year after delivery of the goods or the date when the goods should have been delivered, otherwise, the carrier and ship shall be discharged from all liability for such loss or damage.
If the notice of loss is not given as provided for by law, the fact shall not affect or prejudice the right of the shipper to bring suit within one (1) year after delivery of the goods or the date when the goods should have been delivered.
A request for, and the result of, a bad order examination done within the reglementary period for furnishing notice of loss or damage to the carrier or its agent serves the purpose of a claim.
Moreover, failure to comply with the notice requirement shall not affect or prejudice the right of the shipper to bring suit within one (1) year after delivery of the goods.
In other words, under the COGSA, while notice to the carrier should be given in case of loss or damage to goods, the lack of notice does not affect the cause of action of the shipper as long as the suit is filed within one (1) year from delivery of the goods or the goods should have been delivered.
Period of Prescription
When should the one (1)-year prescriptive period for bringing an action for loss or damage of goods delivered commence?
The one (1)-year period within which the consignee should sue the carrier is computed from the delivery of the goods or the date when the goods should have been delivered.
The sensible and practical interpretation is that delivery within the meaning of Section 3(6) of the Carriage of Goods by Sea Law means delivery to the arrastre operator. That delivery is evidenced by tally sheets which show whether the goods were landed in good order or in bad order, a fact which the consignee or shipper can easily ascertain through the customs broker.
To use as basis for computing the one (1)-year period the delivery to the consignee would be unrealistic and might generate confusion between the loss or damage sustained by the goods while in the carrier's custody and the loss or damage caused to the goods while in the arrastre operator's possession.
On the other hand, if no delivery is made, then the period should be computed from the date the goods should have been delivered.
Example:
If the carrier arrived on November 2, 1962 and left on November 4, 1962 without delivering the cargo, it was on the latter date that the carrier had the last opportunity to deliver the goods.
Hence, the one (1)-year period within which the carrier could be sued commenced to run on November 2, 1962 and expired on November 4, 1963.
In what circumstances can the one (1)-year prescriptive period to bring an action under the COGSA be interrupted?
The one (1)-year period is interrupted in the following cases:
One (1)-year period is interrupted in case an action has already been filed in court;
It has been held that upon dismissal of the suit, not on the merits, the consignee may commence a new action within one (1) year from dismissal.
When there is an express agreement by the parties that an extrajudicial claim for damages will suspend the running of the prescriptive period for in such case, their agreement becomes the law for them.
Mere negotiations for settlement or extrajudicial demand, however, do not interrupt or toll the one (1)-year period to file action under the COGSA.
The period of one (1) year under the COGSA is not interrupted by a written extrajudicial demand.
The provision of Article 1155 of the Civil Code merely apply to the prescriptive periods provided for in said Code and not the special laws except when otherwise provided.
Does the filing of an insurance claim by the consignee for loss or damage to cargo interrupt the running of the one (1)-year prescriptive period under the COGSA?
No. In fact, if the insurer finds the documents in support of the insurance claim for loss or damage to cargo as unsubstantiated, it should formally reject the claim so that the consignee can file a suit against the carrier within the one (1)-year prescriptive period under the COGSA.
The delay in the rejection of the claim and the consequent expiration of the one (1)-year prescriptive period makes the insurer liable to pay the value stated in the policy.
Does COGSA apply to claims against the arrastre operator?
No.
The term “carriage of goods” covers the period from the time when the goods are loaded to the time when they are discharged from the ship; thus, it can be inferred that the Period of time when the goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by the COGSA.
Under COGSA, the carrier and the ship may put up the defense of prescription if the action for damages is not brought within one year after the delivery of the goods or the date when the goods should have been delivered.
However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator.
The arrastre operator's responsibility and liability for losses and damages and the periods to file a claim and enforce liability are set forth in the Contract for Cargo Handling Services executed between the Philippine Ports Authority and the arrastre operator.
The suit may be filed against the arrastre operator within four (4) years from receipt of the goods by the arrastre operator.
The consignee of the goods must, however, prove that its shipment sustained damage while in the arrastre operator's custody.
Asian Terminals v. Padoson Stainless Steel Corporation, G.R. No. 200876 June 25, 2018:
It was held that although the consignee presented photographs as proofs of failure of the arrastre operator to exercise extraordinary diligence, the said photographs were not pre-marked as evidence. The RTC had already ruled that the photographs were inadmissible and were not admitted in evidence.
Additionally, the sheriffs declaration in the Sheriffs Report on Ocular Inspection that the steel coils which were part of the shipment, were "already in a deteriorating condition," is a mere uncorroborated conclusion for having no evidence to back it up.
There is no showing that the Sheriff had personal knowledge of the original condition of the shipment, for him to arrive at the conclusion that it deteriorated while it was docked at the arrastre operator's premises.
Mere allegation and speculation is not evidence, and is not equivalent to proof.
It should be noted, however, that in other cases, the Supreme Court ruled that the degree of diligence required of arrastre operator is not extra-ordinary and that if the goods are lost or damaged while in the custody of the arrastre operator, the latter is presumed to be at fault.
What is clear though is that evidence must be adduced and admitted to prove that the arrastre operator was at fault in order to be liable.
Is the one (1)-year period to file a suit against the carrier and ship agent applicable also to the insurer of the goods?
No.
The one (1)-year prescriptive period only applies in a suit against the common carrier, shipowner, or charterer (and even the ship agent).
It applies to a suit by the insurer against the shipowner or ship agent but not to a suit against the insurer.
Under Section 3(6) of the COGSA, only the carrier's liability is extinguished if no suit is brought within one (1) year.
The ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro should apply only to suits against the carrier filed by the shipper, the consignee, or the insurer, not to suits by the insured against the insurer.
When the Court said in Filipino Merchants that Section 3(6) of the COGSA applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier beyond the one (1)-year period provided in the law.
But it does not mean that the shipper may no longer file claims against the insurer because the basis of the insurer's liability is the insurance contract.
Such claim prescribes in 10 years, in accordance with Article 114 of the Civil Code.
Otherwise, what the Act intends to prohibit after the lapse of the one (1)-year prescriptive period can be done indirectly by the shipper or owner of the goods by simply filing a claim against the insurer even after the lapse of one (1) year.
This could not have been the intention of the law which has also for its purpose the protection of the carrier and the ship from fraudulent claims by having matters affecting transportation of goods by sea be decided in as short a time as possible and by avoiding incidents which would unnecessarily extend the period and permit delays in the settlement of questions affecting the transportation.
However, where there is inordinate delay in the processing of the insurance claim, as when the insurer made an unreasonable demand for an itemized list of the damaged units, parts and accessories with corresponding values when it appeared settled that the loss was total and the insurance policy did not require the Production of such list in the event of a claim, and as a consequence, the instead failed to file a suit against the carrier within the one (q) year period, the ship owner is relieved from liability but the insurer must make good the loss incurred by the insured.
The liability of the common carrier under the COGSA is US$ 500.00 per package unless the shipper declares higher valuation. Does the term "package" mean container or number of units?
The term “package” means container unless the bill of lading disclosed the contents of the containers, the number of cartons or units, as well as the nature of the goods, in which case, each of those units and not the container constitutes the "package" referred to in the liability limitation provision of the COGSA.
Is the liability limitation binding on the parties to the contract of carriage even though it is not incorporated in the bill of lading?
Yes.
The Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed by the Code of Commerce and special laws.
Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading.
The provisions on limited liability are as much a part of the bill of lading as though physically in it and as though placed there by agreement of the parties.
Belgian Overseas Chartering and Shipping v. Philippine First Insurance:
There was no stipulation in the Bill of Lading limiting the carrier's liability. Neither did the shipper declare a higher valuation of the goods to be shipped.
It was held that this fact notwithstanding, the insertion of the words "UC No. 90/02447," cannot be the basis for the carriers' liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the shipper for the importation of steel sheets did not effect a declaration of the value of the goods as required by the bill.
That notation was made only for the convenience of the shipper and the bank processing the Letter of Credit. Second, a bill of lading is separate from the Other Letter of Credit arrangements. The carriers' liability was thus computed based on US$500.00 per package and not on the per metric ton price declared in the Letter of Credit.
The value of the goods which the carrier must pay in cases of loss or misplacement shalI be determined in accordance with that declared in the bill of lading, the shipper not being allowed to present proof that among the goods declared therein there were articles of greater value and money.
In case, however, of the shipper's failure to declare the value of the goods in the bill of lading the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500.00 per package.
Palabrica:
Responsibilities and Liabilities.
The carrier impliedly warrants the ship's seaworthiness.
Section 3(1) The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to
Make the ship seaworthy;
Properly man, equip, and supply the ship;
Make the holds, refrigerating and cooling chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage, and preservation.
Under Section 3(1)(a), the carrier warrants impliedly the seaworthiness of the ship.
To be seaworthy, it should be adequately equipped for the voyage, manned with sufficient number and competent officers and crew properly licensed and it should be cargoworthy.
The obligation of the carrier to make the ship seaworthy includes the making of the bolds, refrigerating and cooling chambers fit and safe for the carriage and preservation of the goods.
The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
Section 3(2) The carrier has the responsibility to properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
Damages, losses and deterioration due to the failure of the common carrier to perform these obligations would subject it to liability.
Carrier upon demand, shall issue a Bill of Lading after receipt of the goods.
Section 3(3) After receiving the goods into his charge, the carrier, or the master or agent of the carrier, shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things xxx.
Notice of Loss and its effect.
Section 3(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading.
If the loss or damage is not apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery thereat.
The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That, if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice, the right of the shipper to bring suit within one year after delivery of the goods or the date when the goods should have been delivered.
In case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods.
It is not mandatory on the part of the consignee to give written notice of loss.
The notice of loss or damage shall be filed by the consignee within the reglementary period to afford the carrier or repository reasonable opportunity and facilities to check the validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction and documents are still available.
lf there is no notice of loss or damage, the removal of goods is a prima facie evidence of the delivery by the carrier of the goods as described in the Bill of Lading.
The giving of notice of damage by the consignee is not mandatory in nature unlike in the case of overland transportation and domestic shipping because failure to file the notice of loss or damage does not affect or preJudice the right of the shipper to bring suit within one year after the delivery of !the goods.
Section 3(6) of COGSA provide that "x x x That, if a notice of loss or damage. either apparent or concealed, is not given as provided form this section, that fact shall not affect or prejudice, the right of the shipper to bring suit within one year after delivery of the goods or the date when the goods should have been delivered."
Thus, a stipulation in the Bill of Lading that the carrier shall not be liable for loss or damage to the cargo unless written notice thereof is given to the carrier within 30 days after receipt of the cargo by the shipper or consignee is null and void.
If the consignee/shipper made a Request for a Joint Bad Order Survey to the carrier, the Request for Bad Order Survey done within the reglementary period to file the notice of loss/damage, and the result furnished to the carrier or its agent, shall serve the purpose of a claim and shall take the place of the notice of loss or damage.
The request for bad order survey with the result furnished to the carrier served as the notice of damage or claim because the carrier is aware of the result of the examination or extent of damage within the reglementary period to file the notice of loss, in fact even before the release of the cargoes or before the reglementary period t.o file has started to run.
Time to file notice of loss or damage.
The notice of loss or damage must be filed as follows:
Upon receipt of the goods — if the damage is apparent.
Within three days from receipt — if the damage is not apparent.
If there is no notice of loss or damage, the removal of goods is a prima facie evidence of the delivery by the carrier of the goods as described in the Bill of Lading.
It is not a bar to the filing of the suit within one year from delivery or from the date the goods should have been delivered, neither would it free the carrier from liability because the shipper could still prove the liability of the carrier during the trial.
Time to bring suit under COGSA.
The suit for loss or damage to the cargo should be brought within one year from delivery which is the date of discharge of the cargoes from the carrying vessel to the Arrastre Operator or from the date the goods should have been delivered, whether or not notice of the loss or damage was made.
Section 3, paragraph 6, of the COGSA provides that:
"x x x the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered; Provided, That, if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. x x x"
The prescriptive period of one year from delivery to file a suit applies only if COGSA is the primary law either because it was stipulated to be the governing law of the parties or it is the law of the country of destination.
This does not apply in the case of transshipment from a domestic port to another domestic port and losses occurred during this transshipment, the prescriptive period of one year set by COGSA still applies because the domestic transhipment is still part of the international transportation of goods.
The prescriptive period of one year for the shipper/consignee to file a suit applies only to the carrying vessel and not to other parties like the arrastre operator or customs broker.
Thus, it is only the carrying vessel that could raise the defense of prescription under COGSA and the same cannot be availed of by other parties like arrastre operator or customs broker because they are not directly involved in sea transportation.
Aside from the shipper/consignee, the insurer as a subrogee is also bound by the one-year prescriptive period under COGSA in a suit against the carrying vessel because as subrogee, it merely steps into the shoes of the consignee.
But the claim of the consignee against the insurer, the prescriptive period of one year under COGSA does not apply.
The insurer is bound by the one-year prescriptive period under COGSA in a suit against the carrying vessel.
The prescriptive period of one year is computed from the date of delivery/discharge from the vessel up to the date of the filing of the complaint or date of the filing of the amended complaint if the amendment is to include a new defendant.
The general rule is that the filing of an amended pleading is the basis in determining the prescriptive period of one year. The filing of the amended pleading does not retroact to the date of the filing of the original complaint except if the amendment merely supplements and amplifies facts originally alleged in the complaint, in which case the basis of determining the prescriptive period is the date of the filing of the original complaint.
If the amended complaint is not meant to supplement and amplify facts originally alleged in the complaint as when it includes new defendant, the basis of determining prescription is the date of the filing of the amended complaint .
Meaning of "loss" contemplated in Section 3(6) of COGSA
The loss referred to in Section 3(6) of COGSA means that there is no delivery at all was made to the shipper for the reason that the cargoes had perished, gone out of commerce or disappeared.
In this case the prescriptive period of one-year applies.
Misdelivery.
Delivery of goods to wrong person, not non-delivery.
Loss does not include situation when there was indeed delivery.
Thus, loss does not include:
Misdelivery
Conversion
If it is misdelivery/conversion, the prescriptive period is not one year under COGSA.
The prescriptive period shall be based on the provision of the Civil Code:
10 years for written contract
six years for oral contract
four years for quasi-delict.
Damage due to delay or late delivery is not damage or loss contemplated under the COGSA and the prescriptive period of filing case is 10 years.
Section 3(6) of COGSA does not apply in suits filed against the arrastre operator or against the customs broker, so the prescriptive period is not one year from delivery.
The prescriptive period of one year is not interrupted or tolled by circumstances stated in Article 1155 of the Civil Code.
Written extrajudicial demand
Written extrajudicial demand by the creditor does not interrupt or toll the prescriptive period under the COGSA.
Article 1155 of the Civil Code provides that "The prescriptive period of actions is interrupted when they are filed before the court, where there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor."
Article 1155 of the Civil Code does not apply in the case of international transportation by sea wherein the primary law is COGSA.
Hence, the extrajudicial demand does not interrupt or toll the period of prescription in cases wherein the COGSA is the primary law.
Article 1155 applies only in overland transportation and domestic sea transportation.
The filing of the extrajudicial demand does not ''toll" the prescriptive period provided by COGSA.
The one-year period is suspended by express agreement of the parties.
Section 3 (6) on filing of action within one (1) year period admits exception – it is suspended by the express agreement of the parties.
The agreement of the parties is the law between them.
The case against the insurer is not barred by the one-year prescriptive period under COGSA.
The prescriptive period of one year under COGSA does not apply to a case against the insurer.
The relationship between the insurer and the insured is governed by the Insurance Code and not by COGSA.
Prescription
International carriage
Carriage of Good by Sea Act (COGSA) is the governing law
The suit must be filed within one (1) year upon discharge of the goods from the carrying vessel as provided in Article 6 of COGSA
The "loss" referred to in COGSA with the prescriptive period of one year is when the thing perishes, goes beyond the commerce of man or disappears in such a way that its existence is unknown or it cannot be recovered.
Thus, it does not include conversion or misdelivery which has a prescriptive period of ten (10) years for breach of a written contract or four (4) years for quasi-delict.
Likewise, damage or loss due to delay or late delivery which resulted to deterioration of the goods is a ''loss" contemplated in Section 3(6) of COGSA.
However, damage or loss due to delay or late delivery which resulted to the drop of the market value of the goods is not ''loss" contemplated under the COGSA and the prescriptive period of filing the case is ten (10) years.
Delay in the transportation of the cargo which resulted to "loss" or "damage" not due to deterioration but other causes independent of the condition of the cargo upon arrival like a drop in their market value, Article 1144 of the Civil Code applies with the prescriptive period of ten (10) years.
Overland Transportation and Coastwise Shipping
The provisions of the COGSA do not apply in overland transportation and coastwise Shipping regardless of the agreement of the parties.
With regards to prescription, there is no provision from special laws for breach of contract of carriage on overland Transportation and Coastwise Shipping, so the provision of the Civil Code applies.
Under the Civil Code, the action prescribes in ten (10) years if it is based on a written contract like a bill of lading as provided under Article 1144 of the Civil Code.
In the absence of a written contract, the action prescribes in six (6) years as provided under Article 1145 of the Civil Code.
In the case of quasi-delict, the action prescribes in four (4) years.
Air Transportation (Warsaw Convention)
What laws govern persons engaged in air transportation
business?
The Civil Code, particularly the provisions on common carriers, is the primary law governing persons engaged in air transportation business.
This is on the premise that the place of departure and place of destination are situated in the Philippines and there is no agreed stopover in any country which is a party to the Warsaw Convention.
The provisions of the Code of Commerce shall apply suppletorily.
It is not correct to say that Philippine laws, particularly the Civil Code, shall be the primary law governing air transportation just because the place of destination is the Philippines.
If the place of departure is a country which signed up or adhered to the Warsaw Convention, the latter is the governing law even though place of destination is the Philippines.
The relevant convention that the country now adheres to is the Convention for the Unification of Certain Rules for International Carriage by Air, Montreal, 28 May 1999, otherwise known as the Montreal Convention or "MC99."
It is designed to be a single, universal treaty, governing airline liability around the world relative to carriage of passengers, baggage, and cargo.
It amended the now defunct Warsaw Convention and its related protocols — which compensation system, over time, has become outdated.
MC99 espouses a more modern and fair liability regime than its Warsaw counterpart.
MC99 was ratified by the Philippine Senate on 10 August 2015 and became effective on 12 December 2015.
To date, 143 of the 191 contracting states of International Civil Aviation Organization are parties to the MC99. With the Philippines' accession to MC99, it has the force and effect of law in this country.
What are the obligations of a common carrier under a contract of air carriage?
The nature of an airline's contract of carriage partakes of two types; namely:
contract to deliver a cargo or merchandise to its destination and
to transport passengers to their destination.
Air carrier, like any other common carrier, is required to exercise extraordinary diligence in the care and preservation of goods placed in its possession.
It is also required to ensure the safety of passengers as far as human care and foresight can provide using the utmost diligence of a very cautious person with due regard to all circumstances.
When is a contract of air carriage perfected?
A contract of air carriage commences when an airline issues a ticket to a passenger, that he/she is confirmed for a particular flight on a certain time and date, including the type of flight accommodation.
The passenger has every right to expect that he/she be transported on that flight and on that date and it becomes the carrier's obligation to carry him/her and his/her luggage safely to the agreed destination.
If the passenger is not so transported or if in the process of transporting, he/she dies or is injured, the carrier may be held liable for breach of contract of carriage.
The carrier's liability also includes:
loss, damage to the baggage, as well as
delay in the delivery thereof.
In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent.
All he has to prove is the existence of the contract and the fact of its non-performance by the carrier, through the latter's failure to carry the passenger to its destination.
Non-performance of contract includes:
the downgrading of the type of accommodation of the passenger from first class to economy or
upgrading him/her from business class to first class accommodation.
When does the obligation to exercise extraordinary diligence commence?
Unlike a contract of carriage of passengers in land transportation where the obligation to exercise due diligence commences upon perfection of the contract, a different rule should be applied in air transportation.
Obviously, the passenger cannot sue the air carrier if he or she sustains injuries on his/her way to the airport just because the contract for air carriage has been perfected by the issuance of the plane ticket.
The responsibility should commence when the baggage is placed in the possession of the air carrier and when the passenger is within the premises of the air carrier after checking-in for the flight.
It is not a valid excuse to claim that the passenger checked in at the last minute and that there was insufficient time to load his bag in the plane.
Accepting last minute passengers and their baggage with no definite assurance that the carrier can comply with its obligation due to lack of time amounts to negligence so gross and reckless as to amount to malice or bad faith.
Manay, Jr. vs. Cebu Air, Inc. (2016): This extraordinary diligence must be observed not only in the transportation of goods and services but also in the issuance of the contract of carriage, including its ticketing operations. Once the ticket is paid for and printed, the purchaser is presumed to have agreed to all its terms and conditions.
What governs the relationship between the passengers/ consignors and the air carrier?
The laws governing air transportation and the terms of the contract of carriage.
When is the Warsaw Convention applicable?
The Warsaw Convention applies to all international carriage of persons, luggage or goods performed by aircraft for hire.
It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking.
The expression "international carriage" means any carriage in which, according to the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in the carriage or a transshipment, are situated either within the territories of two High Contracting Parties, or within the territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate or authority of another Power, even though that Power is not a party to this Convention.
Note: Include "round-trip ticket."
A carriage without such an agreed stopping place between territories subject to the sovereignty, suzerainty, mandate or authority of the same High Contracting Party is not deemed to be international for the purposes of the Convention.
Thus, when the place of departure and the place of destination in a contract of carriage are situated within the territories of two High Contracting Parties, said carriage is deemed an "international carriage."
The High Contracting Parties referred to are the signatories to the Warsaw Convention and those which subsequently adhered to it.
The Montreal Convention retained this provision.
As to what is the final place of destination is determined by the contract of carriage.
Santos v. Northwest, 210 SCRA 256:
The passenger bought a ticket in San Francisco, United States of America (USA) from Northwest Airlines.
His flight itinerary is San Francisco - Tokyo - Manila - San Francisco.
Despite reconfirmation, he was informed that he had no reservation for his flight from Tokyo to Manila and therefore had to be waitlisted.
He sued in RTC Manila.
It was ruled that the Philippine court has no jurisdiction because the place of departure and place of destination are both in San Francisco, USA.
It is the passenger's "ultimate destination," not an "agreed stopping place" that determines the country where suit against international carrier to be filed.
What are the liabilities of the air carrier under the Warsaw Convention?
Under the Warsaw Convention, the air carrier is liable in any of the following cases:
Death or injury to the passenger while on board embarking and disembarking.
Loss, destruction and damage to baggage during the carriage.
This means simple loss of luggage without any improper conduct on the part of carrier's officials and employees.
The period of responsibilities includes the period during which the baggage is in the charge of the carrier whether in an airport or any place whatsoever.
Delay in the flight.
Getting bumped off, however, is not delay.
It was held that Section 2, Article 30 of the Warsaw Convention does not contemplate the instance of ''bumping-off' but merely of simple delay.
In its ordinary sense, "delay" means to prolong the time of or before; to stop, detain or hinder for a time, or cause someone or something to be behind in schedule or usual rate of movement in progress.
"Bumping-off," which is the refusal to transport passengers with confirmed reservation to their planned and contracted destinations, totally forecloses said passengers' right to be transported, whereas delay merely postpones for a time being the enforcement of such right.
Consequently, Section 2, Article 30 of the Warsaw Convention cannot provide a handy excuse for the air carrier as to exculpate it from any liability to its passenger.
What are the legal effects of the Warsaw Convention on the liabilities of air carrier engaged in international transportation?
They are as follows:
The action against the carrier will prescribe if it is not brought within two (2) years from date of arrival of the air carrier at the destination, or it should have arrived or from the date on which the transportation stopped.
The Montreal Convention retained this provision.
The Montreal Convention, however, added time limits in case of filing claims against the carrier.
In case of damage to baggage, the complainant must file his or her written complaint within seven (7) days from the date of receipt of the checked-in baggage.
In case of delay of delivery, on the other hand, the complaint must be made at the latest within 21 days from the date of receipt of the baggage.
These time limitations are important since no action can lie against the carrier if the complaints were made beyond the period stated, save in the cases where the carrier employed fraud.
There is a limitation on the liability on the air carrier in case of loss or damage to goods or death or injury to passengers.
With respect to goods, the limit is US$20 or 9.07 pound per kilo unless the shipper declares higher valuation.
For unchecked baggage, it is US$400.
For death or injury to passengers, the liability does not exceed US$25,000.
Under the Montreal Convention, the liability of the air carrier has been modified, as follows:
Death or injury to passenger
The Montreal Convention established a two-tier liability for death or bodily injury to a passenger.
The first tier is on the basis of a strict liability where an airline carrier shall be made liable for damage sustained in case of death or bodily injury of a passenger on the condition that the accident which caused the death or injury took place on board the aircraft or in the course of any of the operations of embarking or disembarking.
Under this first tier of liability, the carrier cannot limit or exclude its liability provided the damages sustained does not exceed 113,100 Special Drawing Rights ("SDRs").
An SDR is a type of foreign exchange reserve asset created by the International Monetary Fund. Its value is based on an artificial basket of currencies consisting of the US dollar, the euro, the pound, the Chinese renminbi and the Japanese yen.
The liability limits are reviewed every five (5) years.
In this regard, the carrier may be held liable even if it is not negligent or at fault.
The carrier is thus presumptively liable up to the amount of 113,100 SDRs.
The carrier's liability may be reduced or exonerated only in case where damage was caused by contributory or sole negligence of the passenger or person claiming compensation.
Under the second tier of liability, or for all damages higher than 113,100 SDRs (or approximately up to US$170,000 based on current IMF valuation), the carrier shall be liable unless it can show that the damage was not due to its negligence or wrongful act or omission, or that the damage was solely due to the negligence or wrongful act or omission of a third party.
Otherwise stated, for those claims above 113,100 SDRs, the carrier shall not be liable under this tier only if it shall prove that it was not negligent or at fault.
To emphasize, the burden of proof is on the carrier.
This two-tier liability is a departure from the liability regime under the Warsaw Convention (and its subsequent amendments) where the carrier's liability was limited to $25,000.00 (or its equivalent) regardless of whether the airline was at fault or not.
Also, the full defense that the carrier or its agents has taken all reasonable measures to avoid damage is not already availing under the Montreal Convention.
Destruction, loss damage or delay in carrying baggage.
In the case of destruction, or loss of, or of damage to, checked baggage, the carrier shall be liable for damages as long as the destruction, loss or damage took place on board the aircraft or during any period within which the checked baggage was under the carrier's custody.
The carrier may be held not liable if and to the extent that the damage resulted from the inherent defect, quality or vice of the baggage.
- inherent defect, quality or vice of that cargo;
- defective packing of that cargo performed by a person other than the carrier or its servants or agents;
- an act of war or an armed conflict;
- an act of public authority carried out in connection with the entry, exit or transit of the cargo
In case of unchecked baggage, including personal items, the carrier shall be liable if the damage resulted from its faults or that of its agents.
In those cases where the carrier is held liable, the carrier's liability shall be up to 1,131 SDRs for each passenger, or approximately US$70 per kg luggage (per current valuation).
This is an apparent increase from the previous limit under the Warsaw Convention of only up to US$20 per kg luggage.
The passenger may only claim above the limit of 1,131 SDR if he has made a special declaration of interest at the time of check-in and has paid a supplementary sum if the case so requires.
In such case, the carrier will be liable to pay a sum not exceeding the declared sum.
The limits of liability were revised, as follows:
There are no financial limits for passenger death or bodily injury, however, the carrier shall not be liable for damages exceeding 128,821 Special Drawing Rights (Approximately EUR 160,240) if it proves that it was not negligent or at fault or such damages is solely attributable to the negligence or fault of third parties.
In the case of damage caused by delay in the carriage by air of passengers, 5,346 Special Drawing Rights (approximately EUR 6,650).
In the case of destruction, loss of, or damage or delay to baggage, 1,288 Special Drawing Rights (approximately EUR 1,602) per passenger.
In the case of destruction, loss of, damage or delay to cargo, 22 Special Drawing Rights per kilogram (approximately EUR 27 per kilogram).
May the passenger recover an amount greater than the amount set forth in the Convention?
The passenger may recover a greater amount in the following cases:
If at the time the packages were handed over to the carrier, the passenger made a special declaration of the value at delivery and has paid a supplementary sum; and
When the air carrier failed to raise timely objections during the trial when questions and answers regarding the actual claims and damages sustained by the passenger were asked.
Where should the action be filed?
Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages before:
the court where the carrier is domiciled;
the court where the carrier has its principal place of business;
the court where the carrier has an establishment by which the contract has been made; or
the court of the place of destination.
The Montreal Convention retained the jurisdictional rules under the Warsaw Convention but as a supplement, the MC99 also allows, in respect of damage resulting from death or injury of a passenger, the filing of action in the territory of a State Party in which at the time of the accident the passenger has his principal and permanent residence and to and from which the carrier operates services for the carriage of passengers by air.
If a claim is covered by the Warsaw Convention, may the passenger bring the legal action under local laws?
Article 24 of the Warsaw Convention excludes other remedies by further providing that “in the cases covered by Articles 18 and 19 (of the Convention), any action for damages, however founded, can only be brought subject to the conditions and limits set out in this convention.
Therefore, a claim covered by the Warsaw Convention can no longer be recovered under local law if the statute of limitations of two (2) years has already lapsed.
The same principle applies under the Montreal Convention.
Are death and injuries to passengers or loss, destruction and damage to goods the only causes of liability of air carrier?
No, the air carrier can also be held liable in case of tortious conduct of employees or other cases of breach of contract.
Public Service Act
Definition of public utility
What is public service?
Public service is defined specifically by Commonwealth Act No. 146 or the Public Service Act, as follows: The term "public service" includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, sub-way, motor vehicle, either for freight or passenger or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine railways, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power, petroleum, sewerage system, telephone, wire or wireless communications system, wire or wireless broadcasting stations and other similar public services: Provided, however, That a person engaged in agriculture, not otherwise a public service, who owns a motor vehicle and uses it personally and/or enters into a special contract whereby said motor vehicle is offered for hire or compensation to a third party or third parties engaged in agriculture, not itself or themselves a public service, for operation by the latter for a limited time and for specific purpose directly connected with the cultivation of his or their farm, the transportation, processing, and marketing of agricultural products of such third party or third parties shall not be considered as operating a public service for the purpose of this Act.
Public service, as defined by Commonwealth Act No. 146 (Public Service Act), refers to any person or entity that owns, operates, manages, or controls, for hire or compensation, services like:
transportation (e.g., common carriers, railways, ferries),
utilities (e.g., electricity, water, gas),
communication systems (e.g., telephone, broadcasting), and
other similar services.
Exceptions include individuals in agriculture using their vehicles for specific agricultural purposes under special contracts, as they are not considered public services under this Act.
What is a public utility?
Public utility refers to a public service that operates, manages, or controls for public use any of the following:
Distribution of Electricity;
Transmission of Electricity;
Petroleum and Petroleum Products Pipeline Transmission Systems;
Water Pipeline Distribution Systems and Wastewater Pipeline Systems, including sewerage pipeline systems;
Seaports; and
Public Utility Vehicles.
All concessionaires, joint ventures and other similar entities that wholly operate, manage, or control for public use the sectors above are public utilities.
Nothing in the law shall be interpreted as a requirement for legislative franchise where the law does not require any. While the concepts of public service and public utility are related, they do not have the same legal meaning.
Thus, it can be said that all public utilities are public services, but not all public services are public utilities.
Prior to R.A. No. 11659, there was no statutory definition for public utility.
The Supreme Court defined public utility as a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone, or telegraph service.
The term implies public use and service.
This definition no longer holds in view of the statutory definition of public utility under the amendatory law.
Is this an exclusive list of public utilities?
Yes. No other person shall be deemed a public utility otherwise subsequently provided by law.
Which entity has jurisdiction and supervision over public services and public utilities?
Administrative Agency or Administrative Agencies, as the case may be, which refer to the relevant government agencies to which the powers and duties of the Public Service Commission were transferred pursuant to existing laws.
What are examples of these administrative agencies?
Civil Aeronautics Board (CAB);
Civil Aviation Authority of the Philippines (CAAP);
Department of Energy (DOE);
Department of Environment and Natural Resources (DENR);
Department of Information and Communications Technology (DICT);
Department of Transportation (DOTr);
Energy Regulatory Commission (ERC);
Land Transportation Franchising and Regulatory Board (LTFRB);
Land Transportation Office (LTO);
Local Water Utilities Administration (LWUA);
Maritime Industry Authority (MARINA);
Metropolitan Waterworks and Sewerage System (MWSS);
National Telecommunications Commission (NTC);
National Water Resources Board (NWRB);
Philippine National Railways (PNR);
Philippine Ports Authority (PPA); and
Toll Regulatory Board (TRB).
What are the general powers and functions of these administrative agencies?
These Administrative Agencies shall have jurisdiction and supervision over all public services, including public utilities, and their franchises, equipment, and other properties, and in the exercise of its authority, it shall have the necessary powers and the aid of public force: Provided, That public services, including public utilities, owned or operated by government entities or government-owned or -controlled corporations shall be regulated by the relevant administrative agency in the same way as privately-owned public services.
Nothing in the law shall be interpreted to diminish, limit, or restrict the authority of Congress from granting franchises to public services, including public utilities, and other activities, as may be provided by law.
Any franchise or certificate necessary for the operation of a public service shall be granted by Congress unless otherwise previously delegated by law to the relevant Administrative Agencies.
Are administrative agencies required to cause the annual conduct of performance audits?
Yes. Administrative agencies must ensure the annual conduct of performance audit by an independent evaluation team to monitor cost, the quality of services provided to the public, and the ability of the public service provider to immediately and adequately respond to emergency cases:
Provided, That in the case of critical infrastructure and public utilities, the performance audit shall include risk assessment, emergency response, and cybersecurity, among others.
Metrics for various types of services must be established to sustain reliability, security, and safety of the public.
What are the limitations of franchises, certificates, or authorizations granted by Administrative Agencies?
No franchise, certificate, concession, or authorization granted by the appropriate Administrative Agencies shall be:
exclusive in character;
for a longer period than fifty (50) years:
Provided, That if a public service has maintained an exemplary record in the delivery of services, and has made substantial investments on infrastructure, technology or equipment for its operations, such performance and size of investment shall be taken into consideration, and the application for renewal of the franchise, certificate, concession or authorization of the public service shall be given priority by the appropriate Administrative Agencies; and
granted except under the condition that it shall be subject to amendment, alteration, or repeal by Congress when the public interest so requires.
May the President reclassify a public service as a public utility?
No.
Upon the recommendation of the National Economic and Development Authority (NEDA), the President may recommend to Congress the classification of a public service as a public utility on the basis of the following criteria:
The person or juridical entity regularly supplies and transmits and distributes to the public through a network a commodity or service of public consequence;
The commodity or service is a natural monopoly that needs to be regulated when the common good so requires.
For this purpose, natural monopoly exists when the market demand for a commodity or service can be supplied by a single entity at a lower cost than by two or more entities;
The commodity or service is necessary for the maintenance of life and occupation of the public; and
The commodity or service is obligated to provide adequate service to the public on demand.
What constitutional provision governs the citizenship requirement for public utilities?
Section 11, Article XII of the 1987 Constitution governs the citizenship requirement for public utilities. It provides:
No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise certificate, or authorization be exclusive in character for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.
To what does "capital" in Section 11, Article XII of the 1987 Constitution refer?
The term "capital" refers to shares with voting rights, as well as with full beneficial ownership.
This is precisely because the right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.
Consequently, what the Constitution requires is full and legal beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights which must rest in the hands of Filipino nationals.
Can a foreign corporation own the facilities by which a public utility may operate?
Yes. In law, there is a clear distinction between the "operation" of a public utility and the "ownership" of the facilities and equipment used to serve the public.
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the public as a public utility unless the operator has a franchise.
The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof.
One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public.
Differentiate "operation" of public utility and "ownership" of facilities and equipment.
While the Constitution in no uncertain terms requires a franchise for the operation of a public utility, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public.
In law, there is a clear distinction between "operation" of a public utility and "ownership" of its facilities and equipment.
May the President suspend or prohibit a merger or acquisition transaction, or any investment in a public service?
Yes. In the interest of national security, the President, after review, evaluation and recommendation of the relevant government department or Administrative Agency, may, within sixty (60) days from the receipt of such recommendation, suspend or prohibit any proposed merger or acquisition transaction, or any investment in a public service that effectively results in the grant of control, whether direct or indirect, to a foreigner or a foreign corporation.
National security refers to the requirements and conditions necessary to ensure the territorial integrity of the country and the safety, security, and well-being of Filipino citizens.
May nationality requirements be imposed on any public service?
No. Notwithstanding any law to the contrary, nationality requirements shall not be imposed by the relevant Administrative Agencies on any public service not classified as a public utility.
What is a public service classified as critical infrastructure?
Critical infrastructure refers to any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Republic of the Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications and other such vital services as may be declared by the President of the Philippines.
What is a Foreign State-owned Enterprise?
Foreign State-owned Enterprise refers to an entity in which a foreign State:
directly or indirectly owns more than fifty percent (50%) of the capital taking into account both the voting rights and beneficial ownership;
controls, through ownership interests, the exercise of more than fifty percent (50%) of the voting rights; or
holds the power to appoint a majority of members of the board of directors or any other equivalent management body.
Can a Foreign State-owned Enterprise own capital in a public utility or critical infrastructure?
No.
An entity controlled by or acting on behalf of the foreign government or foreign state-owned enterprises shall be prohibited from owning capital in any public service classified as public utility or critical infrastructure:
Provided, That the prohibition shall apply only to investments made after the effectivity of this Act:
Provided, further, That foreign state-owned enterprises which own capital prior to the effectivity of this law are prohibited from investing in additional capital upon the effectivity of this Act:
Provided, finally, That notwithstanding the immediately Preceding clause, the sovereign wealth funds and independent Pension funds of each state may collectively own up to thirty percent (30%) of the capital of such public services. In the interest of national security, an entity controlled by or acting on behalf of the foreign government or foreign-owned enterprises shall not make any data or information disclosure, nor extend assistance, support or cooperation to any foreign government, instrumentalities or agents.
What is the effect of the Reciprocity Clause of R.A. No. 11659?
Foreign nationals shall not be allowed to own more than fifty percent (50%) of the capital of entities engaged in the operation and management of critical infrastructure unless the country of such foreign national accords reciprocity to Philippine Nationals as may be provided by foreign law, treaty or international agreement.
Reciprocity may be satisfied by according rights of similar value in other economic sectors.
The NEDA shall promulgate rules and regulations for this purpose.
What are the purposes for the enactment of the Public Service Act?
To secure adequate, sustained service for the public at the least possible cost;
To protect the public against unreasonable charges and poor, inefficient service;
To protect and secure investments in public services; and
To prevent ruinous competition.
The first two are carried out by the appropriate government agencies in terms of fixing rates, like water rates and electricity rates.
They are regulated by the State. The third and fourth are achieved, among others, by determining who will be allowed to provide public service in a particular area.
Thus, there is the first operator rule which gives preferential right to the first operator to perform service, and a second operator shall be allowed only if public interest will indeed be served.
Is an ordinance infringing the rights under Public Service Act valid?
The ordinance is valid.
A charter is a special law and therefore prevails over the Public Service Act.
The Public Service Commission was not designed to supersede the regulatory power of local governments.
Necessity for Certificate of Public Convenience
What is the basic requirement for the operation of a public utility?
No public service shall operate in the Philippines without having first secured from the Public Service Commission a certificate which shall be known as Certificate of Public Convenience or a Certificate of Public Convenience and Necessity, as the case may be, to the effect that the operation of said service and the authorization to do business will promote the public interests in a proper and suitable manner.
What is a Certificate of Public Convenience and Necessity?
A Certificate of Public Convenience and Necessity (CPCN) is a written authority issued by the government to enable a person to engage in public service, for which service a legislative franchise is required, subject to the existence of a need.
Examples:
air transportation
shipping
railroad
telecommunications
What is a Certificate of Public Convenience?
A Certificate of Public Convenience (CPC) is a written authority issued by the government to enable a person to engage in public service.
There is nothing in the law nor the Constitution which indicates that a legislative franchise is necessary or required for an entity to operate as a supplier of electric power and light to its factory and its employees living within the compound.
Does the issuance of a Certificate of Public Convenience and/ or Necessity confer property right?
No.
The certificate constitutes neither a franchise nor a contract, confers no property right, and is a mere license or privilege.
The holder of said certificate does not acquire a property right in the route covered thereby.
Nor does it confer any property right or interest or franchise in the public highways.
Revocation of this certificate deprives him of no vested right.
New and additional burdens, alteration of the certificate, or even revocation or annulment thereof is reserved to the State.
Requisites
What requirements must be met before a certificate of public convenience may be granted under the Public Service Act?
The following are the requirements for the granting of a certificate of public convenience, to wit: CPPF
Citizenship
The applicant must be a citizen of the Philippines, or a corporation, co-partnership, or association organized under the laws of the Philippines and at least 60% of the stock or paid up capital of which must belong to citizens of the Philippines.
Public Necessity
The applicant must prove public necessity.
Promotion of Public Interest
The applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner.
Financial Capability
The applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation.
What is the primordial consideration in granting franchises or certificates of public convenience?
The grant of franchises or certificates of public convenience should be guided by public interest.
Hence, in the determination of whether a certificate to operate a public service is to be granted or not, public interest and convenience must be the primary consideration.
What does financial capability mean in relation to the grant of franchises or certificates of public convenience?
This means that the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation, as reasonably determined by the government agency or instrumentality granting the franchises or certificates of public convenience.
Prior Operator Rule
What is the Prior Operator Rule?
It is the rule allowing an existing franchise operator to invoke a preferential right within the authorized territory as long as he renders satisfactory and economical service.
The policy is not to issue a certificate to a second operator to cover the same field and in competition with a first operator who is rendering sufficient, adequate and satisfactory service.
The prior operator must first be given an opportunity to improve its service, if inadequate or deficient.
Where the operator either fails or neglects to make the improvement or effect the increase in services, especially when given the opportunity, new operators should be given the chance to give the services needed by the public.
In other words, a public utility operator should be shielded from ruinous competition by affording him an opportunity to improve his equipment and service before allowing a new operator to serve in the same territory he covers.
The "prior or old operator rule" allows an existing franchise operator to invoke preferential right to render the public service within the authorized territory as long as he does so satisfactorily and economically.
In case of conflict between the "prior or old operator rule" and the "prior applicant rule," the former will apply as long as again the operator is able to render satisfactory and economical service.
What is the Prior Applicant Rule?
This rule presupposes a situation when two interested persons apply for a certificate to operate a public utility in the same community over which no person has as yet granted any certificate.
If it turns out after the hearing, that the circumstances between the two applicants are more or less equal, then the applicant who applied ahead of the latter will be granted the certificate.
What are the exceptions to the Prior Operator Rule?
Where public interest would better be served by the new operator; as when the operator has failed, despite ample time and opportunity given to it by the Commission, to render adequate, sufficient and satisfactory service;
Where the old operator failed to make an offer to meet the increase in traffic;
Where the CPC granted to the new operator is a maiden certificate;
When the application of the rule would be conducive to monopoly and contrary to the principle that promotes healthy competition.
What is the policy behind the Prior Operator Rule?
The policy behind the Prior Operator Rule is the general principle that public utility operators must be protected from ruinous competition, such that before permitting a new operator to serve in a territory already serviced by another operator, the latter should first be given opportunity to improve his equipment and service.
However, this policy is not without any exceptions. The primary consideration will always be public convenience.
What is "protection of investment" rule?
"Protection of investment" rule means that one of the purposes of the Public Service Law is to protect and conserve investments which have already been made for that purpose by public service operators.
Fixing of rate
What is "rate"?
Rate is a charge, payment, or price fixed according to a ratio, scale, or standard.
It is an amount paid or charged for a good or service.
How are rates fixed?
Rates are fixed on the basis of the investment amount or property value that the public utility is allowed to earn – an amount value otherwise called "rate base."
A just rate is founded on conditions that are fair and reasonable to both the public utility and the public.
This stipulation means that the public utility must have, as profit, a fair return on the reasonable value of the property.
The imposition of the maximum rates it charges cannot be confiscatory.
As to the public, reasonableness requires entitlement to the service at an affordable cost.
The Commission has the power to fix and determine individual or joint rates, tools, charges, classifications or schedules thereof, as well as commutations, mileage, kilometrage and other special rates which shall be imposed, observed and followed thereafter by a public service.
What is the standard in the fixing of rates?
In the fixing of rates, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonable and just.
It has been held that even in the absence of an express requirement as to reasonableness, this standard may be implied.
What is a just and reasonable rate is a question of fact calling for the exercise of discretion, good sense, and fair, enlightened and independent judgment.
The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive.
What are the major factors to be considered in determining just and reasonable rates?
In determining the just and reasonable rates to be charged by a public utility, three (3) major factors are considered by the regulating agency:
Rate of return;
Rate base; and
The return itself or the computed revenue to be earned by the public utility based on the rate of return and rate base.
The rate of return is a judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use of its property for service to the public.
The rate of return of a public utility is not prescribed by statute but by administrative and judicial pronouncements.
The Supreme Court has consistently adopted a 12% rate of return for public utilities.
The rate base, on the other hand, is an evaluation of the property devoted by the utility to the public service or the value of invested capital or property which the utility is entitled to a return.
What other factors are considered in determining reasonable rates?
There are many factors considered in ascertaining reasonable rates, such as:
The original cost of construction;
The amount expended in permanent improvements;
The amount and market value of the bonds and stock of the public utility;
The present cost compared with the original cost of construction;
The probable earning capacity of the property under the particular rates prescribed; and
The sum required to meet operating expenses.
It must be noted that the government is not bound to apply any particular method or formula for determining rates.
What is the policy behind the fixing of rates?
The regulation of rates to be charged by public utilities is f ounded upon the police powers of the State, and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof.
When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation. I
n regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates while maintaining the efficiency and quality of services rendered. However, the power to regulate rates does not give the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return on investment.
Thus, the rates prescribed by the State must be one that yields a fair return on the public utility upon the value of the property performing the service and one that is reasonable to the public for the services rendered.
The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests.
What is "rate of return"?
The rate of return is a judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use of its property for service to the public.
The rate of return of a public utility is not prescribed by statute but by administrative and judicial pronouncements. The Supreme Court has consistently adopted a 12% rate of return for public utilities.
The rate base, on the other hand, is an evaluation of the property devoted by the utility to the public service or the value of invested capital or property which the utility is entitled to a return.
Can a public utility include income tax payments as part of its operating expenses in determining the base of its returns?
No. Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general, operating expenses are those which are reasonably incurred in connection with business operations to yield revenue or income.
They are items of expenses which contribute or are attributable to the production of income or revenue.
Income tax, it should be stressed, is imposed on an individual or entity as a form of excise tax or a tax on the privilege of earning income.
In exchange for the protection extended by the State to the taxpayer, the government collects taxes as a source of revenue to finance its activities.
Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection to the production of profit of a public utility.
Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State.
No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should not be shifted to the consumers by including the same in the computation of public utilities' operating expenses.
Unlawful arrangements
Boundary system
Kabit system
Define boundary system.
It is an arrangement whereby a driver is engaged to drive the owner/operator's unit and pays the latter a fee – commonly called ''boundary" –- for the use of the unit.
Whatever he earned in excess of that amount is his income.
To exempt from liability the owner of a public vehicle who operates it under the "boundary system" on the ground that he is a mere lessor would not only be to abet a flagrant violation of the Public Service Law, but it would also place the riding public at the mercy of reckless and irresponsible drivers.
Such drivers are reckless because the measure of their earnings depends largely on the number of trips they make and, hence, the speed at which they drive; and irresponsible because most, if not all of them, are in no position to pay the damages they might cause.
Discuss the "kabit system" in land transportation and its legal consequences.
The ''kabit system" is an arrangement whereby a person who has been granted a certificate of public convenience allows another who owns a motor vehicle to operate under his certificate for a fee or a percentage of the earnings.
The owner of the certificate of public convenience and the actual owner of the motor vehicle should be held jointly and severally liable for damages to third persons as a consequence of the negligent operation of the motor vehicle.
Although the parties to such an agreement are not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Article 1409 of the Civil Code.
Dizon v. Octavio:
The Court explained that one of the primary factors considered in the granting of a certificate of public convenience for the business of public transportation is the financial capacity of the holder of the license, so that liabilities arising from accidents may be duly compensated.
The kabit system renders illusory such purpose and, worse, may still be availed of by the grantee to escape civil liability caused by negligent use of a vehicle owned by another and operated under his license.
If a registered owner is allowed to escape liability by proving who the supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses no property with which to respond financially for the damage done.
Thus, for the safety of passengers and the public who may have been wronged and deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person has become the owner so that he may be thereby relieved of responsibility.
Subsequent cases affirm such basic doctrine.
It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding public. The policy therefore loses its force if the public at large is not deceived, much less involved.
What are the effects of the Kabit System?
The transfer, sale, lease, or assignment of the privilege granted is valid between the contracting parties but not upon the public or third persons.
The registered owner is primarily liable for all the consequences flowing from the operations of the carrier
The thrust of the law in enjoining the kabit system is to identify the person upon whom responsibility may be fixed with the end in view of protecting the riding public.
The registered owner cannot recover from the actual owner and the latter cannot obtain transfer of the vehicle to himself, both being in pari delicto.
For the better protection of the public, both the registered owner and the actual owner are jointly and severally liable with the driver.
Approval of sale, encumbrance, or lease of property What are the rules governing the sale, encumbrance, or lease of public utilities' properties?
Under Section 20 of the Public Service Act, it shall be unlawful for any public service or for the owner, lessee or operator thereof to sell, alienate, mortgage, encumber, or lease its property, franchises, certificates, privileges, or rights, or any part thereof; or merge or consolidate its property, franchises, privileges or rights, or any part thereof, with those of any other public service without the prior approval and authorization of the Commission.
The approval shall be given, after notice to the public and after hearing the persons interested at a public hearing if it be shown that there are just and reasonable grounds for making the mortgage or encumbrance, for liabilities of more than one (1) year maturity, or the sale, alienation, lease, merger, or consolidation to be approved and that the same are not detrimental to the public interest, and in case of a sale, the date on which the same is to be consummated shall be fixed in the order of approval.
Why is prior approval required for the sale, mortgage or lease of the franchise or of the property of the public utility?
Since a franchise is personal in nature, any transfer or lease thereof should be brought to the attention of the Commission so that the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that, before the approval is granted, there should be a public hearing, with notice to all interested parties, in order that the Commission may determine if there are good and reasonable grounds justifying the transfer or lease of the property, or if the sale or lease is detrimental to the public interest.
Is the Commission's approval of the sale, encumbrance, or lease a condition precedent to the validity of the contract?
No. Under Section 20(g) of the Public Service Act, the sale, encumbrance, or lease of properties may be negotiated and completed before the approval by the proper authority. Its approval is not a condition precedent to the validity of the contract.
The approval is necessary to protect public interest. This means that the sale, encumbrance or lease is valid and binding between the contracting parties although not effective against the public and the Commission.
May a certificate of public convenience be sold?
Yes a certificate of public convenience is included in the term "property" in the broad sense of the term.
Under the Public Service Law, a certificate of public convenience can be sold by the holder because it has considerable material value.
However, although there is no doubt that it is a private property, it is affected with a public interest and must be submitted to the control of the government for the common good.
Hence, approval of the Commission is necessary prior to the sale thereof.
May a certificate of public convenience be levied on execution to satisfy a court judgment?
Yes, following the principle that the certificate of public convenience is property, the same may therefore be levied on execution to satisfy a court judgment against the holder of the certificate but the resulting transfer of ownership in favor of the judgment creditor should have the prior approval of the Commission.
The Commission has to consider the qualifications of the judgment creditor to operate a public utility subject of the certificate of public convenience and whether or not public interest will be served.