TRANSPORTATION LAW

CHAPTER 1

GENERAL CONSIDERATIONS

1. DEFINITION OF CONTRACT OF TRANSPORTATION. There is a contract of transportation when a

person obligates himself to transport persons or property from one place to another for a consideration. The contract
may involve carriage of passengers or carriage of goods. The person who obligates himself to transport the
goods or passengers may be a common carrier or a private carrier.

2. PARTIES. The parties to a contract of transportation would depend on whether it is for carriage of
passengers or carriage of goods.

2.1. CARRIAGE OF PASSENGERS. The parties in a contract of carriage of passengers are the common
carrier and the passenger. A passenger is defined as one who travels in a public conveyance by
virtue of contract, express or implied, with the carrier as to the payment of fare or that which is
accepted as an equivalent thereof.

Gratuitous or reduced fare. It should be noted in this connection, however, that a passenger is
still considered as such (passenger) even if he is being carried gratuitously or under a reduced
fare. This is subject to the rule in Article 1758 of the Civil Code which provides that when a
passenger is carried gratuitously, a stipulation limiting the common carrier’s liability for
negligence is valid.

Related case: Baliwag Transit Corporation v. Court of Appeal

1.2. CARRIAGE OF GOODS. The parties are the shipper and the carrier when the contract is for carriage
of goods. The shipper is the person who delivers the goods to the carrier for transportation. The
shipper is the person who pays the consideration or on whose behalf payment is made.

a. Consignee. The consignee is the person to whom the goods are to be delivered. The consignee may
be the shipper himself as in the case where the goods will be delivered to one of the branch offices
of the shipper. However, the consignee may be a third person who is not actually a party to the
contract.
b. When Consignee is bound by Contract. Nevertheless, there are instances when the third-party
consignee is bound by the agreement between the shipper and the carrier. For instance, in one case,
the Supreme Court ruled that the consignee may be deemed to be bound by the terms and
conditions of the bill of lading where it was established that he accepted the same and is trying to
enforce the agreement.

3. PERFECTION. The Supreme Court has adopted in one the view that there are two (2) types of contracts of
carriage of passengers.
i. Contract to carry- agreement to carry the passenger at some future date. This contract is
consensual and is therefore perfected by mere consent.
ii. Contract of carriage or of common carriage- considered a real contract for not until the facilities
of the carrier are actually used can the carrier be said to have already assumed the obligation of
the carrier.

a. Perfection of Contract of Carriage of Goods. With respect to carriage of goods, there may be a
consensual contract to carry goods whereby the carrier agrees to accept and transport goods at
TRANSPORTATION LAW
some futuredate. However, by the act of delivery of the goods, that is, “when the goods [are]
unconditionally placed in the possession and control of the carrier, and upon their, receipt by the
carrier for transportation, the contract of carriage [is] perfected.”

Related case: British Airways, Inc. v. The Hon. Court of Appeals

1.1. AIRCRAFT. There is a perfected contract to carry passengers even if no tickets have been issued to
said passengers so long as there was already a meeting of minds with respect to the subject matter and the
consideration.

4. COMMON CARRIER. Article 1732 of the Civil Code provides the definition of common carriers, viz.:
ARTICLE 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services
to the public.

It has also been defined as “one that holds itself out as ready to engage in the transportation of goods
for hire as a public employment and not as a casual occupation.

5. TEST. In First Philippine Industrial Corporation v. Court of Appeals, the Supreme Court reiterated that
the tests for determining whether a party is a common carrier of goods are:
i. He must be engaged in the business of carrying goods for others as a public employment, and
must hold himself out as ready to engage in the transportation of goods for person generally as a
business and not as a casual occupation;
ii. He must undertake to carry goods of the kind to which his business is confined;
iii. He must undertake to carry by the method by which his business is conducted and over his
established roads; and
iv. The transportation must be for hire.

6. CHARACTERISTICS. The concept of common carriers contemplated under Article 1732 of the Civil Code
and the fact that the said concept corresponds to the concept of “public service” under the Public Service
Act results in the application of the following rules or principles:
a. Article 1732 makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity
b. Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis.
c. Article 1732 does not distinguish between a carrier offering its services to the “general public,” i.e.,
the general community or population, and one who offers services or solicits business only from a
narrow segment of the general population.
d. A person or entity is a common carrier and has the obligations of the common carrier under the
Civil Code even if he did not secure a Certificate of Public Convenience.
e. The Civil Code makes no distinction as to the means of transporting, as long as it is by land, water
or air.
f. The Civil Code does not provide that the transportation should be by motor vehicle.
g. A person or entity may be a common carrier even if he has no fixed and publicly known route,
maintains no terminals, and issues no tickets.
h. A person or entity need not be engaged in the business of public transportation for the provisions
of the Civil Code on common carriers to apply to them.
TRANSPORTATION LAW

1.1. BROADER CONCEPT. The above-enumerated characteristics of common carriers derived from case
law indicate an expanding concept of common carriers. Carriers which are considered common
carriers in a number of decisions do not fall neatly into the concept of common carriers contemplated
in the test announced in National Steel Corporation v. Court of Appeals.

1.2. ANCILLIARY BUSINESS. Article 1732 makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying only as an
ancillary activity.
Related case: De Guzman v. Court of Appeals

1.3. LIMITED CLIENTELE. Although the clientele is limited, the regularity of the activities of a carrier
may indicate that the same carrier is a common carrier.

Related case: Phil. American General Insurance Company, et al. v. PKS Shipping Company
Asia Lighterage and Shipping, Inc. v. Court of Appeals,

1.4. MEANS OF TRANSFORATION. The Supreme Court ruled in First Philippine Industrial Corp. v.
Court of Appeals that pipeline operators are common carriers that are subject to business taxes on
common carriers. Such operators are common carriers even if the oil or petroleum products are being
transported not through motor vehicles but through pipelines.

7. EFFECT OF CHARTER PARTY. A charter party may transform a common carrier into a private carrier.
However, it must be a bareboat or demise charter where the charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated. The common carrier is not
transformed into a private carrier if the charter party is a contract of affreightment like a voyage charter or
a time charter. In a voyage charter, the carrier is answerable to the loss of the goods received for
transportation

The Supreme Court gave this explanation in Planters Products, Inc. v. Court of Appeals, et al.:
“A ‘charter-party’ is defined as 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 by which the
owner of a ship or other vessel lets the whole or a 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.

Charter parties are of two types:

a) contract of affreightment - involves the use of shipping space on vessels leased by the owner in
part or as a whole, to carry goods for others; and
b) charter by demise or bareboat charter - by the terms of which the whole vessel is let to the
charterer with a transfer to him of its entire command and possession and consequent control
over its navigation, including the master and the crew, who are his servants.

Contract of affreightment may either be: (in both cases, the charter-party provides for the hire of the
vessel only)
a) time charter - the vessel is leased to the charterer for a fixed period of time
b) voyage charter - wherein the ship is leased for a single voyage.
TRANSPORTATION LAW
8. COMMON CARRIER DISTINGUISHED FROM PRIVATE CARRIER. The distinction between a
“common or public carrier” and a “private or special carrier” lies in the character of the business, such that
if the undertaking is a single transaction, not a part of a general business or occupation, although involving
the carriage of the goods for a fee, the person or corporation offering such service is a private carrier. For
instance, if a person agrees to carry a person to the airport using his privately-owned car that is meant for
personal use, he will be considered a private carrier. \

In a contract of private carriage, the parties may freely stipulate their duties and obligations, which
perforce would be binding on them. while a common carrier is bound to exercise extraordinary diligence, a
private carrier owes only diligence of a good father of a family. Moreover, while a common carrier cannot
stipulate that it is exempt from liability for the negligence of its agents or employees, a private carrier may
validly enter into such stipulation. The stipulation involving a common carrier is void for being contrary to
public policy. There is no presumption on the part of the private carrier. He who alleges negligence must
prove such negligence.

9. COMMON CARRIAGE DISTINGUISHED FROM OTHER CONTRACTS. Common carriers that carry
or transport goods by sea should be distinguished from those who are engaged in towage and from
arrastre operators.

9.1. DISTINGUISHED FROM TOWAGE. In towage, one vessel is hired to bring another vessel to another
place. Thus, a tugboat may be hired by a common carrier to bring a barge to a port. In this case, the
operator of the tugboat cannot be considered a common carrier. In maritime law, it refers to a service
rendered to a vessel by towing for the mere purpose of expediting her voyage without reference to any
circumstances of danger. It is usually confined to vessels that have received no injury or damage.

The party that provides the service in a contract of towage is required to observe the due diligence of a
good father of the family. The negligence of the obligor in the performance of the obligation renders
him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor
consists in his failure to exercise due care and prudence in the performance of the obligation as the
nature of the obligation so demands.

9.2. DISTINGUISHED FROM ARRASTRE. Arrastre, a Spanish word which refers to hauling of cargo,
comprehends the handling of cargo on the wharf or between the establishment of the consignee or
shipper and the ship’s tackle. The responsibility of the arrastre operator lasts until the delivery of the
cargo to the consignee. The service is usually performed by longshoremen.

the functions of an arrastre operator have nothing to do with the trade and business of navigation, nor
to the use or operation of vessels.46 Both as to the nature of the functions and the place of their
performance (upon wharves and piers shipside), the arrastre operator’s services are clearly not
maritime. They are, in fact, no different from those of a depositary or warehouseman.

9.3. DISTINGUISHED FROM STEVEDORING. The function of stevedores involves the loading and
unloading of coastwise vessels calling at the port. Stevedoring refers to the handling of the cargo in the
holds of the vessel or between the ship’s tackle and the holds of the vessel. The responsibility of the
stevedore ends upon the loading and stowing of the cargo in the vessel.

The diligence required of a stevedore is the diligence of a good father of a family. A stevedore is NOT
a common carrier for it does not transport goods or passengers; it is not akin to a warehouseman for it
does not store goods for profit.
TRANSPORTATION LAW

9.4. DISTINGUISHED FROM TRAVEL AGENCY. A travel agency is not a common carrier. In many cases,
the object of contractual relation of a person who purchases a ticket through a travel agency is only the
agency’s service of arranging and facilitating the booking, ticketing and accommodation in a package
tour. In contrast, the object of the contract with a common carrier is transportation. The contract
between the travel agency is a contract of service and not a contract of carriage. The diligence required
of a travel agency is not extraordinary diligence but that of a good father of a family.

10. GOVERNING LAWS. Article 1766 of the Civil Code expresses the primacy of the said Code over the laws
that were in force prior to its enactment. Article 1766 provides:

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.

However, Article 1763 of the Civil Code is also explicit that with respect to cases involving loss,
destruction or deterioration of goods, the law of the country of destination shall apply. Thus, Philippine
Laws shall apply if the goods are to be transported from Japan to the Philippines

Treaties are also part of the law of the land. Hence, treaties can also be applied in this jurisdiction.

SUMMARY OF RULES. The rules with respect to applicable laws were summarized, thus:
a. Coastwise Shipping.
1. New Civil Code (Art. 1732-1766) — primary law.
2. Code of Commerce — governs suppletorily in absence of Civil Code provisions.

b. Carriage from Foreign Ports to Philippine Ports

1. New Civil Code — primary law
2. Code of Commerce — all matters not regulated by the Civil Code (National Development Co.
v. CA, 164 SCRA593)
3. Carriage of Goods by Sea Act — suppletorily to the Civil Code (Ibid.)

c. Carriage from Philippine Ports to Foreign Ports

1. The laws of the country to which the goods are to be transported. (Art. 1753, Civil Code;
National Development Co. v. CA, 164 SCRA 593).

d. Overland Transportation.
1. Civil Code — primary law.
2. Code of Commerce — suppletorily.

e. Air Transportation.
1. Civil Code
2. Code of Commerce
3. For International Carriage — Convention for the Unification of Certain Rules Relating to the
International Carriage by Air or “Warsaw Convention” with its amendments (Alitalia v.
Intermediate Appellate Court, 192 SCRA 9)

11. NATURE OF BUSINESS. Common carriers exercise a sort of public office, and have duties to perform in
which the public is interested. Common carriers are public utilities; they are enterprises that specially cater
TRANSPORTATION LAW
to the needs of the public and conduce to their comfort and convenience. As such, common carriers are
impressed with public interest and concern. Consequently, common carriers are subject to regulation by
the State.

12. REGISTERED OWNER RULE AND KABIT SYSTEM. In certain cases, it is not only the operator of the
vehicle who may be held liable even if the cause of actions is culpa contractual. Ordinarily, the person who
can be sued for breach of contract is the contracting party. However, in certain cases, by reason of public
policy, the law allows victims of accidents to sue those who, strictly speaking, are third parties. This
obtains in the cases covered by the registered owner rule.

1. REGISTERED OWNER RULE. The rule in this jurisdiction is that the person who is the registered
owner of a vehicle is liable for any damage caused by the negligent operation of the vehicle
although the same was already sold or conveyed to another person at the time of the accident. The
registered owner is liable to the injured party subject to his right of recourse against the transferee
or the buyer.

a) The registered owner is not liable if the vehicle was taken from his garage without his
knowledge and consent.
b) The registered owner rule applies even if the registered owner leased the vehicle to another
who is the actual operator. The registered owner is directly liable. In order to be free from
liability, the lessor-owner should register the lease contract with the Land Transportation Office
c) The registered owner rule applies in a financial lease
d) If the registered owner is made liable despite the transfer of the vehicle, the transferee is liable
to the registered owner for the damages caused to the passenger.82 He has the right to be
reimbursed by the transferee. Hence, a third-party complaint against the transferee may be
appropriate in a case filed by the injured passenger against the registered owner.

2. KABIT SYSTEM. The “registered owner” rule is applicable whenever the persons involved are
engaged in what is known as the “kabit system.” The “kabit system” is an arrangement whereby a
person who has been granted a certificate of public convenience allows other persons who own
motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings.
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
Art. 1409 of the Civil Code.

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.

3. PARI DELICTO RULE. Persons who are parties to the “kabit” system cannot invoke the same as
against each other either to enforce their illegal agreement or to invoke the same to escape liability.
This is consistent with the time- honored maxim “ex pacto illicito non oritur action" [No action
arises out of an illicit bargain], “Having entered into an illegal contract, neither can seek relief from
the courts, and each must bear the consequences of his acts.

4. AIRCRAFTS AND VESSELS. It is believed that the policy which prohibits the “kabit system” may
also be applied to vessels and aircrafts that are covered by certificates of public convenience and
necessity. It is a basic rule that no person can operate a common carrier without securing a
TRANSPORTATION LAW
certificate of public convenience and necessity. Hence, persons who do not have such certificate
cannot circumvent the law by using the certificate of another. No permits or certificates can be
transferred without the permission of the government agency concerned.

With respect to aircrafts, Section 44 of Republic Act No. 9497 otherwise known as the Civil Aviation
Authority Act of 2008 provides that the certificate of registration of an aircraft is conclusive
evidence of ownership except when ownership itself is at issue. Hence, in action for damages, the
name of the carrier appearing in the certificate of registration is conclusive. No proof to the contrary
can be established.

13. BOUNDARY SYSTEM. In land transportation where the boundary system may be implemented by the
common carrier, the carrier cannot escape liability by claiming that the driver is a lessee. The carrier cannot
exempt himself on the ground that he is a lessor because to tolerate such position would not only abet
flagrant violations of the Public Service Law but also to place the riding public at the mercy of reckless and
irresponsible drivers — reckless because the measure of their earnings depends largely upon 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