WARSAW CONVENTION

INTERNATIONAL TRANSPORTATION
For the purposes of this Convention 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 transhipment, 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. 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 this Convention. (Art. 1, WARSAW CONVENTION)

BILL OF LADING AND OTHER FORMALITIES

BILL OF LADING
It is a written acknowledgment of the receipt of goods and an agreement to transport and to deliver
them at a specified place to a person named or on his or her order. (Unsworth Transport
International [Phils], Inc. v. CA)

THREE-FOLD FUNCTION OF A BILL OF LADING

1. Receipt for the goods shipped
2. Contract
3. Document of Title

KINDS OF BILL OF LADING

1. CLEAN – does not indicate any defect in the goods
2. ON BOARD – issued when the goods have been actually placed aboard the ship with very
reasonable expectation that the shipment is as good as on its way.
3. RECEIVED – states that the goods have been received for shipment with or without
specifying the vessel by which the goods are to be shipped.
4. NEGOTIABLE – states that the goods referred to therein will be delivered to the bearer or
to the order of any person named therein.
5. NON-NEGOTIABLE – states that the goods referred to therein will be delivered to a
specified person.
6. FOUL – contains a notation thereon indicating that the goods by it are in bad condition.
7. SPENT – covers goods that already have been delivered by the carrier without a surrender
of a signed copy of the bill.
8. THROUGH – issued by the carrier who is obliged to use the facilities of other carriers as
well as his own facilities for the purpose of transporting the goods from the city of the seller
to the city of the buyer, which bill of lading is honored by the second and other interested
carriers who do not issue their own bills.
9. PORT – issued by the carrier to whom the goods have been delivered and the vessel
indicated in the bill of lading by which the goods are to be shipped is already in the port
where the goods are held for shipment.
10. CUSTODY – one wherein the goods are already received by the carrier but the vessel
indicated therein has not yet arrived in the port.

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PROHIBITED AND LIMITING STIPULATIONS
THREE KINDS OF LIMITING STIPULATIONS OFTEN MADE IN THE BILL OF LADING
1. Exculpatory contracts or the one exempting the carrier from any and all liability for loss or
damage occasioned by its own negligence – INVALID
2. One providing for an unqualified limitation of such liability to an agreed valuation –
INVALID
3. One limiting the liability of the carrier to an agreed valuation unless the shipper declares
a higher value and pays a higher rate of freight. – VALID
PROHIBITED STIPULATIONS

Article 1745. Any of the following or similar stipulations shall be considered

unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the
goods;
(4) That the common carrier shall exercise a degree of diligence less than that of
a good father of a family, or of a man of ordinary prudence in the vigilance over
the movables transported;
(5) That the common carrier shall not be responsible for the acts or omission of
his or its employees;
(6) That the common carrier’s liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violence or force, is dispensed with
or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car, vehicle,
ship, airplane or other equipment used in the contract of carriage.

LIMITATIONS WITH REGARD TO DILIGENCE REQUIRED IN THE CARRIAGE OF GOODS

It must be noted that parties cannot stipulate so as to totally exempt a carrier from exercising any
degree of diligence whatsoever, or to stipulate that common carrier shall exercise diligence less
than that of a good father of a family.

However, Article 1744 of the New Civil Code provides that a stipulation between the common
carrier and the shipper or owner limiting the liability of the former for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence shall be valid, provided it
be:

(1) In writing, signed by the shipper or owner;

(2) Supported by a valuable consideration other than the service rendered by the
common carrier; and
(3) Reasonable, just and not contrary to public policy.

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NOTE: Article 1757 mandates that there shall be no reduction of diligence to be observed by the
carrier for the carriage of passengers.

ACTIONS AND DAMAGES IN CASE OF BREACH

LOSS OF EARNING CAPACITY, FORMULA

The computation for loss of earning capacity was extensively discussed in Villa Rey
Transit v. Court of Appeals. The SC considered two factors in determining loss of earning
capacity: 1.) the number of years on the basis of which the damages shall be computed; and 2.)
the rate which the losses sustained by said respondents should be fixed. The number of years is
often pegged at life expectancy, while the rate of losses is derived from annual income.

FORMULA:
Net Earning Capacity = Life Expectancy x [Gross Annual Income – Necessary Living
Expenses]
LIFE EXPECTANCY is computed by applying the formula [2/3 x (80 – age of the deceased at the
time of death)]. This is adopted in the American Expectancy Table of Mortality or the Actuarial
Combined Experience Table of Mortality.
NET EARNINGS should be based on [the gross income of the victim – (necessary and incidental
livimg expenses that the victim would have incurred if he were alive)]. NOTE: The SC ruled that
the amount of Necessary Living Expenses is fixed at 50% of the gross income in the absence of
proof of the amount of living expenses to be deducted from the gross income. NOTE, FURTHER:
The said rules on loss of earning capacity applies when the breach of the carrier resulted in the
plaintiff’s permanent incapacity.
EXPANDED FORMULA IN THE ABSENCE OF PROOF RE: AMOUNT OF NECESSARY
LIVING EXPENSES
Net Earning Capacity = [2/3 x (80 – age of the deceased at the time of death)] x [Gross
Annual Income – (50% of the gross annual income)]

ATTORNEY’S FEES
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;

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 (8) In actions for indemnity under workmen's compensation and employer's
liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.

AWARD OF ATTORNEY’S FEES

The SC explained that in awarding attorney’s fees, the trial court must state the factual,
legal, or equitable justification for awarding the same, bearing in mind that the award of attorney’s
fees is the exception, not the general rule, and is not sound policy to place a penalty on the right
to litigate; nor should attorney’s fees be awarded every time a party wins a lawsuit. The text of
the decision must state the reason behind the award of attorney’s fees. Otherwise, its award is
totally unjustified. (Philippine Airlines, Inc. v. Court of Appeals)
NOTE: Attorney’s fees may be awarded in an action for breach of contract of carriage
under paragraphs 1, 2, 4, 5, 10, and 11 of Article 2208.

MARITIME LAW

MARITIME LAW
The system of law which particularly relates to the affairs and business of the sea, to ships, their
crews and navigation, and to the maritime conveyance of persons and property.

CHARACTERISTICS OF MARITIME TRANSACTION

1. REAL
Similar to transactions over real property with respect to effectivity against third persons
which is done through registration.

The evidence of real nature is shown by:

a. The limitation of the liability of the agents to the actual value of the vessel and the
freight money; and
b. The right to retain the cargo, and embargo and detention of the vessel (Luzon
Stevedoring Corp. v. CA)

2. HYPOTHECARY
The real and hypothecary nature of maritime law simply means that the liability of the
carrier in connection with losses related to maritime contracts is confined to the vessel,
which stands as the guaranty for the settlement. (Aboitiz Shipping Corp. v. General
Accident Fire and Life Assurance Corp.)

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DOCTRINE OF LIMITED LIABILITY (HYPOTHECARY RULE)
The exclusively real and hypothecary nature of the maritime law operates to limit the liability of
the shipowner to the value of the vessel, earned freightage, and proceeds of the insurance, if any.

General Rule: No vessel, no liability

The liability of shipowner and ship agent is limited to the amount of interest in said vessel, such
that, where the vessel is entirely lost, the obligation is extinguished.

Exceptions:
1. Claims under Workmen’s Compensation (Chua Yek Hong v. IAC)
2. The vessel is insured (Chua Yek Hong v. IAC)
3. There is an actual finding of negligence on the part of the vessel owner or agent (Chua
Yek Hong v. IAC)
4. Collision between 2 negligent vessels
5. Expenses for repair and provisioning of the ship before its loss
6. In case there is no total loss and the vessel is not abandoned.

SHIP MORTGAGE AND MARITIME LIENS

MARITIME LIEN
It is a privilege claim on a vessel for some service rendered to it to facilitate its use in the
navigation. (Black’s Law Dictionary). It constitutes a present tight of property in the ship, a jus in
re, to be afterward enforced in admiralty by process in rem. (PNB v. CA)

PREFERRED CLAIMS
Preferred mortgage lien should have priority over all claims against the vessel, except the
following claims in the order stated:
(1) expenses and fees allowed and costs taxed by the court and taxes due to the
Government;
(2) crew's wages;
(3) general average;
(4) salvage; including contract salvage;
(5) maritime liens arising prior in time to the recording of the preferred mortgage;
(6) damages arising out of tort; and
(7) preferred mortgage registered prior in time. (Section 17, P.D. 1521 or the Ship
Mortgage Decree)

FORMAL REQUIREMENTS FOR PREFERRED MORTGAGE

1. The mortgage is recorded in the office of the Philippine Coast Guard of the port of
documentation of such vessel as provided in Section 3 od P.D. 1521
2. An Affidavit of Good Faith is filed with the record of such mortgage
3. The mortgage does not stipulate that the mortgagee waives the preferred status thereof.

ADDITIONAL REQUIREMENTS
4. The mortgage should cover the whole of the vessel

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 5. The vessel must be of domestic ownership

CHARTER PARTIES

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; a contract of affreightment is one by which
the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for
the conveyance of goods, on a particular voyage, in consideration of the payment of freight

KINDS OF CHARTER PARTIES

DEMISE OR BAREBOAT CHARTER CONTRACT OF AFFREIGHTMENT
Definition
The shipowner leases to the charterer the A contract whereby the charterer hires the
whole vessel, transferring to the latter the vessel only, either for a determinate period of
entire command, possession and consequent time or for a single or consecutive voyage, with
control over the vessel’s navigation, including the shipowner providing for the provisions of
the master and the crew, who thereby the ship, the wages of the master and the
becomes the charterer’s servants crew, and the expenses for the maintenance
of the vessel

As to Liability
Charterer becomes liable to others caused by Owner remains liable as carrier and must
its negligence answer for any breach of duty
As to Owner
Charterer regarded as owner pro hac vice for Charterer is not regarded as owner
the voyage
As to Possession and Command of Vessel
Owner of the vessel relinquishes possession, The vessel owner retains possession,
command and navigation to charterer command and navigation of the ship
As to Conversion
Common carrier is converted to private carrier Common carrier is not converted to private
carrier

REQUISITES OF A VALID CHARTER PARTY

1. Consent of the contracting parties
2. Existing vessel which should be placed at the disposition of the shipper
3. Freight
4. Compliance with Art. 652 of the Code of Commerce
a. In writing
b. Drawn in duplicate
c. Signed by the parties
d. Containing the circumstances required to be contained in the charter party

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CHARTER PARTY V. LEASE
CHARTER PARTY LEASE
As to Rights to Rescind
Charterer may rescind charter party by paying If for a definite period, lessee cannot give up
half of the freightage agreed upon the lease by paying a portion of the amount
agreed upon.
As to Change of Ownership
The new owner is not compelled to respect the If the leased property is sold to one who knows
charter party so long as he can load the vessel of the existence of the lease, the new owner
with his own cargo (CODE OF COMMERCE, must respect the lease.
Art. 689)
As to Concept
Commercial law concept Civil law concept

RESCISSION OF CHARTER PARTY

Charter party may be rescinded partially or totally at the request of the charterer or the shipowner
or in fortuitous cases.

AT THE CHARTERER’S REQUEST

a. Failure to place the vessel at the charterer’s disposal;
b. By abandoning the charter and paying half of the freightage
c. Return of the vessel due to pirates, enemies, or bad weather
d. Error in tonnage or flag; and
e. Arrival at a port of repairs (CODE OF COMMERCE, ART. 688)

AT SHIPOWNER’S REQUEST
a. If the extra lay days terminated without the cargo being placed alongside the vessel, and
b. Sale by the owner of the vessel before loading by the charterer. (CODE OF COMMERCE,
Art. 689)

FORTUITOUS CASES
a. War or interdiction of commerce
b. Inability of the vessel to navigate
c. Prohibition to receive cargo
d. Embargo
e. Blockade (CODE OF COMMERCE, Art. 690)

LOAN ON RESPONDENTIA AND BOTTOMRY

BOTTOMRY AND RESPONDENTIA V. SIMPLE LOAN
BOTTOMRY & RESPONDENTIA SIMPLE LOAN
As to Marine Risk

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 Duly established existence of a marine risk is Marine risk is not necessary
necessary
As to Form
Must be executed in accordance with the form Formal requisites of an ordinary contract will
and manner prescribed by the Code of suffice.
Commerce
As to Registration
Must be recorded in the Registry of Vessels to No such registration is required
be binding to third persons
As to Preference
Preference is extended to the last lender Preference is extended to the first lender

CASES WHEN LOAN ON BOTTOMRY AND RESPONDENTIA IS REGARDED AS SIMPLE

LOAN
1. Lender loaned an amount larger than the value of the object due to fraudulent means
employed by the borrower (CODE OF COMMERCE, Art. 726)
2. Full amount of the loan is not used for the cargo or given on the goods if all of them could
not have been loaded, the balance will be considered a simple loan (CODE OF
COMMERCE, Art. 727)
3. If the effects on which the money is taken is not subjected to any risk (CODE OF
COMMERCE, Art. 729)

AVERAGES

REQUISITES OF GENERAL AVERAGE

1. There must be a common danger
2. That for the common safety, part of the vessel or of the cargo or both is sacrificed
deliberately
3. That from the expenses or damages caused follows the successful saving of the vessel
and cargo
4. That the expenses or damages should have been incurred or inflicted after taking proper
legal steps and authority. (A. Magsaysay, Inc. v. Agan)

FORMULA:
Value of each of contributing interest x Sum of general average expense
Sum of contributing values

PARTICULAR AVERAGE V. GENERAL AVERAGE

Particular or Simple Average Gross or General Average
As to Definition
Damages or expenses caused to the vessel or Damages or expenses deliberately caused in
cargo that did not inure to the common benefit order to save the vessel, its cargo or both from
and borne by respective owners. (CODE OF real and unknown risk. (CODE OF
COMMERCE, Art. 809) COMMERCE, Art. 811)

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 As to Liability
The owner of the goods which gave rise to the All the persons having an interest in the vessel
expense or suffered the damage shall bear and the cargo therein at the time of the
this average (CODE OF COMMERCE, Art. occurrence of the average shall contribute to
810) satisfy this average (CODE OF COMMERCE,
Art. 812)

The insurers (Art. 859) and lenders on

bottomry and respondentia shall likewise
contribute (CODE OF COMMERCE, Art. 732)
As to Number of Interests Involved
Only 1 interest involved Several interests involved
As to Share bin the Damage or Expense
100% In proportion to the value of the owner’s
property saved.
As to Right to Recover
No reimbursement There may be reimbursement
As to Kinds (NOT EXCLUSIVE)
Art. 809 Art. 811

COLLISIONS

COLLISION
It refers to the contact of two moving vessels. NOTE: For purposes of applying the provisions of
the Code, collision includes collision per se and allision.

LIABILITIES IN COLLISION
1. ONE VESSEL AT FAULT
Vessel at fault is liable for damage caused to innocent vessel as well as damages suffered
by the owners of cargo or both vessels (CODE OF COMMERCE, Art. 826)

2. BOTH VESSELS AT FAULT

Each vessel must bear its own loss and shall be solidarily responsible for the losses and
damages assigned to their cargoes. (CODE OF COMMERCE, Art. 827)

3. VESSEL AT FAULT NOT KNOWN

Each vessel must bear its own loss, but the shippers of both vessels may go against the
ship owners who will be solidarily liable. (CODE OF COMMERCE, Art. 828)

4. THIRD VESSEL AT FAULT

The third vessel will be liable for losses and damages. (CODE OF COMMERCE, Art. 831)

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 5. FORTUITOUS EVENT/FORCE MAJEURE
No liability. Each bears its own loss (CODE OF COMMERCE, Art. 830) subject to the Civil
Code requirement in case of fortuitous events for the carrier to exercise due diligence
before, during and thereafter and provided that there is no delay.

DOCTRINE OF INSCRUTABLE FAULT

It provides that where fault is established but it cannot be determined which of the two vessels
were at fault, both shall be deemed to have been at fault.

RULES NOT APPLICABLE IN COLLISION

The rules that apply to quasi-delict cannot be applied to collision such as the Doctrine of Last
Clear Chance and Rule on Contributory Negligence because Art. 827 of the Code of Commerce
provides that each must suffer its own damage if both of them are negligent.

MARITIME PROTEST
It is a written statement made under oath by the captain of a vessel after the occurrence of an
accident or disaster in which the vessel or cargo is lost or damaged, with respect to the
circumstances attending such occurrence, for the purpose of recovering losses and damages.
(CODE OF COMMERCE, Art. 835) NOTE: It is a pre-requisite to recovery of damages arising
from collisions and other maritime accidents.

It is made by the captain within 24 hours from the time the collision took place before the
competent authority at the point of collision or at the first port of arrival, if in the Philippines, and
to the Philippine consul, if the collision took place abroad. (CODE OF COMMERCE, Art. 835)

ARRIVAL UNDER STRESS AND SHIPWRECKS

ARRIVAL UNDER STRESS

The arrival of the vessel at the nearest and most convenient port instead of the port of destination,
if during the voyage the vessel cannot continue the trip to the port of destination on account of
lack of provisions, well-founded fear of seizure, privateers, or pirates, or by reason of any accident
of the sea disabling it to navigate. (CODE OF COMMERCE, Art. 819)

LAWFUL AND UNLAWFUL ARRIVAL IN DISTRESS

LAWFUL ARRIVAL UNDER STRESS UNLAWFUL ARRIVAL UNDER STRESS
The inability to continue voyage is due to: The inability to continue voyage is due to:
1. Lack of provisions; 1. Lack or provisions due to negligence
2. Well-founded fear of seizure, to carry according to usage and
privateers, pirates; or customs;
2. Risk of enemy not well known or
manifested

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 3. Accidents of the sea disabling it to 3. Defect of vessel due to improper
navigate (CODE OF COMMERCE, Art. repair; and
819) 4. Malice, negligence, lack of foresight
or skill of captain (CODE OF
COMMERCE, Art. 820)

SHIPWRECK
It is the loss of the vessel at seas as a consequence of its grounding, or running against an object
in sea or on the coast. It occurs when the vessel sustains injuries due to a marine peril rendering
her incapable of navigation.

SALVAGE
It is the service which one person renders to the owner of a ship or goods, by his own labor,
preserving the goods or the ship which the owner or those entrusted with the care of them have
either abandoned in distress at sea, or are unable to protect and secure.

WHO ARE ENTITLED TO SALVAGE REWARD

1. Those persons who, in case of shipwreck, picked up and conveyed to safe place the
vessel or its cargo which are beyond the control of the crew or have been abandoned by
them. (Sec. 1, Act. No. 2616 or LAW SALVAGE LAW)
2. Those who assist in saving a vessel or its cargo from shipwreck (Sec. 1, Act. No. 2616 or
LAW SALVAGE LAW)
3. Those who, in order to save persons, shall have been exposed to the same dangers (Sec.
12, Act. No. 2616 or LAW SALVAGE LAW)
4. Shipowner, captain, officers and crew of the salvor vessel. (Sec. 13, Act. No. 2616 or LAW
SALVAGE LAW)

REQUISITES FOR A VALID SALVAGE CLAIM

1. There must be marine peril;
2. The vessel is shipwrecked beyond the control of the crew or shall have been abandoned;
3. Services voluntarily rendered when not required as an existing duty or from special
contract; and
4. There must be success, in whole or in part or that the service rendered contributed to such
success.

PERSONS NOT ENTITLED TO SALVAGE COMPENSATION

1. Crew of the vessel shipwrecked or which was in danger of shipwreck
2. Person who commenced salvage in spite of opposition of the Captain or his representative
3. In accordance with Sec. 3 of the Salvage Law, a person who fails to deliver a salvaged
vessel or cargo to the Collector of Customs

MAY A CAPTAIN OR CREW OF THE SHIP WHICH SANK SHARE IN THE VALUE OF
SALVAGE REWARD?
YES. Section 13 of the Salvage Law provides that 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

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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 express of salvage, as well as the reward for salvage or assistance, shall be a
charge on the things salvaged on their value.

PERCENTAGE IN THE DIVISION OF REWARD

1. In the absence of an agreement or if the agreement is impugned because the reward is
excessive, the RTC shall fix the reward for salvage.
NOTE: The limit of the reward is 50% of the net amount of the proceeds of the sale of the
things saved.
NOTE, FURTHER: In case there is a PUBLIC AUCTION, the net amount is determined
by deducting from the proceeds first the expenses of their:
a. Custody
b. Conservation
c. Advertisement
d. Auction
e. Whatever taxes they should pay for their entrance
f. Expenses of salvage (Sec. 11, THE SALVAGE LAW)

2. If no claim being presented in the 3 months subsequent to the publication of the

advertisement prescribed in Sec. 5(c), things shall be sold at public auction and their
proceeds, after deducting the expenses and the proper reward shall be deposited in the
insular treasury.

3. If 3 years shall pass without anyone claiming it, ½ of the deposit shall be adjudged to him
who saved the things, and other ½ to the insular government. (Sec. 7, THE SALVAGE
LAW)

4. If another vessel was the salvor, the reward shall be distributed as follows:
50% - shipowner
25% - Captain
25% - officers and crew in proportion to their salaries.

SALVAGE V. TOWAGE
SALVAGE TOWAGE
As to Governing Law
Governed by special law (Act No. 2616) Governed by Civil Code on Contract of Lease
As to Requisite of Success
Requires success, otherwise no payment Success is not required
As to Consent
Must be done with the consent of the Captain Only the consent of the tugboat owner is
/Crewmen needed
As to Involvement of the Vessel in the Accident
Vessel must be involved in an accident Vessel need not be involved in an accident
As to Fees
Fees distributed among crewmen Fees belong to the tugboat owner

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 CARRIAGE OF GOODS BY SEA ACT

NOTICE OF DAMAGE
Patent Damage – shipper should file a claim with the carrier immediately upon delivery
Latent Damage – shipper should file a claim with the carrier within 3 days from delivery (Sec. 3(6),
COGSA)

PRESCRIPTIVE PERIOD
Actions for the loss or damage to the cargo should be brought to he cargo within 1 year after:
1. Delivery of the goods (delivered but damaged goods); or
2. The date when the goods should have been delivered (non-delivery) (Sec. 3(6), COGSA)
NOTE: The prescriptive period does not apply to cases of misdelivery or conversion.

PUBLIC UTILITIES

PUBLIC UTILITY
It is 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. (National Power Corporation v. Court of Appeals)

PUBLIC SERVICE
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 whether 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, [warehouse] wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power water supply and power, petroleum,
sewerage system, 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 a 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 purposes of this Act. (Sec. 13, PUBLIC SERVICE ACT)

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CONSTITUTIONAL PROVISIONS
Article XII of the 1987 Constitution entitled “National Economy and Patrimony” includes the
following that concern public utilities:

Section 1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods
and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the
country shall be given optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.

Section 6. The use of property bears a social function, and all economic agents
shall contribute to the common good. Individuals and private groups, including
corporations, cooperatives, and similar collective organizations, shall have the
right to own, establish, and operate economic enterprises, subject to the duty of
the State to promote distributive justice and to intervene when the common good
so demands.

Section 11. 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 or 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.

Section 17. In times of national emergency, when the public interest so requires,
the State may, during the emergency and under reasonable terms prescribed by
it, temporarily take over or direct the operation of any privately-owned public utility
or business affected with public interest.

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 Section 18. The State may, in the interest of national welfare or defense, establish
and operate vital industries and, upon payment of just compensation, transfer to
public ownership utilities and other private enterprises to be operated by the
Government.

Section 19. The State shall regulate or prohibit monopolies when the public interest
so requires. No combinations in restraint of trade or unfair competition shall be
allowed.

Section 22. Acts which circumvent or negate any of the provisions of this Article
shall be considered inimical to the national interest and subject to criminal and civil
sanctions, as may be provided by law.

DETERMINATION OF JUST AND REASONABLE RATES TO BE CHARGED BY A PUBLIC

UTILITY
In Republic v. Manila Electric Co., the Supreme Court ruled that three major factors are
considered by regulating agency: a.) rate of return; b.) rate base and c.) 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 that, 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.
NOTE: The SC 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 that the utility is entitled to run.

METHODS OF RATE IN LTFRB

1. Add-on Method – adding the established minimum fare (0.75) to the fare per succeeding
kilometer multiplied by the distance traveled in excess of 4km. and 5km. respectively.

2. Straight Computation Method – the process by which the actual distance travelled is
multiplied by the authorized fare per kilometer of 0.25 centavo.

FRANCHISE VS. CERTIFICATE OF PUBLIC CONVENIENCE

FRANCHISE CERTIFICATE OF PUBLIC CONVENIENCE
A grant or privilege from the sovereign power A form of regulation through the administrative
agencies
(Radio Communication of the Philippines, Inc. v. National Telecommunications Commission)

OTHER RULES AND POLICIES IN DETERMINING THOSE ENTITLED TO CERTIFICATE

1. PRIOR OPERATOR RULE
Under this policy, the Public Service Commission will not issue a certificate of public
convenience to a second operator if there is a first operator who is rendering sufficient,
adequate and satisfactory service, and who in all things and respects is complying with
the rules and regulations of the Commission.

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 2. THIRD OPERATOR RULE
A variation of the “prior operator rule” instead of one prior operator, there are 2 prior
operators who are rendering sufficient service. Where 2 operators are more than serving
the public there is no reason to permit a third operator to engage in competition with them.

3. PROTECTION INVESTMENT RULE – aims not only to protect the public but the operators
as well. It is the duty of the government to protect the investment of the operators of public
utilities and to protect the operators from unfair, unjustified and ruinous competition.

4. PRIOR APPLICANT RULE – provides that priority in the filing of the application for a
certificate of public convenience is, other conditions being equal, an important factor in
determining the rights of the public service companies.

DIFFERENT ADMINISTRATIVE AGENCIES AND THEIR FUNCTIONS

1. DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS

• Administer and enforce all laws, rules and regulations in the field of transportation and
communications;
• Issue certificates of public convenience for the operation of public land and rail
transportation utilities and services;
• Establish and prescribe rules and regulations for the issuance of licenses to qualified
motor vehicle drivers, conductors, and airmen;
• Establish and prescribe the rules, regulations, procedures and standards for the
accreditation of driving schools;
• Administer and operate the Civil Aviation Training Center (CATC) and the National
Telecommunications Training Institute (NTTI). (E.O 125-A)

2. LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD

• To issue, amend, revise, suspend or cancel Certificates of Public Convenience or

permits
• To determine, prescribe and approve and periodically review and adjust, reasonable
fares, rates and other related charges, relative to the operation of public land
transportation services provided by motorized vehicles;
• To punish for contempt of the Board, both direct and indirect, in accordance with the
pertinent provisions of, and the penalties prescribed by, the Rules of Court;
• To issue subpoena and subpoena duces tecum and summon witnesses to appear in
any proceedings of the Board, to administer oaths and affirmations;
• To review motu proprio the decisions/actions of the Regional Franchising and
Regulatory Office herein created;
• To fix, impose and collect, and periodically review and adjust, reasonable fees and
other related charges for services rendered; (E.O 202)

3. LAND TRANSPORTATION OFFICE

• Inspection and registration of motor vehicles

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 • Issuance of licenses and permits
• Enforcement of Land Transportation Rules and Regulations
• Adjudication of Traffic Cases

4. CIVIL AERONAUTICS BOARD

CAB is charged with the power to regulate the economic aspects of air transportation in
the Philippines. It fixes and determines reasonable individual, joint or special rates,
charges or fares which an air carrier may demand, collect or receive for any service in
connection with air commerce.

5. CIVIL AVIATION AUTHORITY OF THE PHILIPPINES

• Provides comprehensive policy guidelines for the promotion and development of the
Philippine Aviation Industry
• Ensures that the Authority performs its functions in a proper, efficient and effective
manner.
• Decide the objectives, strategies and policies of the Authority

6. MARITIME INDUSTRY AUTHORITY

• Issue certificate of Public Convenience for the operation of domestic and overseas
water carriers
• Register vessels
• Undertake the issuance of license to qualified seamen and harbor bay river pilots

7. PHILIPPINE COAST GUARD

• Detain, stop or prevent a ship or vessel which does not comply with the safety
standards, rules and regulations from sailing or leaving port
• Conduct emergency readiness evaluation on merchant marine vessels
• Board and inspect all types of merchant ships and watercrafts

FERRY BOAT V. INTERISLAND SERVICE

FERRY BOAT SERVICE INTERISLAND SERVICE
service either by barges or rafts, even by service between the different islands,
motor or steam vessels, between the banks of involving more or less great distance and over
a river or stream to continue the highway more or less turbulent and dangerous waters
which is interrupted by the body of water, or in of the open sea and involves crossing the
some cases to connect two points on opposite open sea
shores of an arm of the sea such as bay or
lake which does not involve too great a
distance or too long a time to navigate

(San Pablo v. Pantranco South Express, Inc.)

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