Comm. Law Rev. | 35

NOTE: Most parts culled entirely from Commercial Law Review, 2012 Ed. and Revisiting Philippine Commercial Law, both by Villanueva, except for Transportation Law, Negotiable Instruments and Credit Transactions from Villanueva and Commercial Law Review by Sundiang and Aquino, and Bouncing Checks from Villanueva and Special Penal Laws by Boado. Follows Atty. Nick Nangits Commercial Law Review course outline. - Weng

PRELIMINARIES

Coverage of Commercial Law

... the branch of private law that provides for the rules that govern the rights, obligations, and relations of persons engaged in commerce or trade, and necessarily includes the purchase, sale, exchange, traffic or distribution of goods, commodities, productions, services or property, tangible or intangible, including the instrumentalities and agencies by which they are promoted and the means and appliances by which they are carried on.

Likewise, the term includes both concept of laws relating to trade, which is the business traffic within the limitations of a state, and commerce, which covers the intercourse with foreign states.

Characteristics of Commercial Law

Principal characteristics of Commercial Law:a. Universal - universal or international because it exist in every civilized b. Progressive - progressive because as time passes by Commercial Law accumulates new ideas and keeps abreast with contemporary developmentsc. Equitable - since commercial transactions involve the exchange of values or consideration.d. Customary embodies rules that are followed from time to time or invoked in everyday transactions.

Postulates:a. Habitualness - transactions generally arise from the element of repetition (i.e. a single act of sale does not make the seller a merchant within the law)b. Time is of the essence if no period fixed an obligation becomes demandable in 10 days, unlike in Civil Law where the courts must fix an unspecified period.c. Delay and Demand - every debtor to a commercial contract would be in mora without making demand (mora ex re), unlike in Civil Law where demand is necessary.d. Independent branch of private laws mercantilist theory: commercial law is distinct from civil law. However, what prevails is the mixed theory, in that civil and commercial laws supplement one another.

Constitutional Provisions on Commerce and Trade

Section 1 of Article XII on National Economy and Patrimony, our present 1987 Constitution maps out in broad details the national goal and the role of commerce and economy in the national life, thus:

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.

Fr. Bernas enumerates the 3 constitutional directions mandated by the section, namely:1. ...it sets the dual goal of dynamic productivity and a more equitable distribution of what is produced.2. ...it seeks complementarity between industrialization and agricultural development.3. ...it is protective of things Filipino.

Commissioner Villegas, who introduced the section during the proceedings, admitted that equity has been placed in first order, and economic growth being the last, to serve as constitutional guidelines for the various branches of the government for the promotion of the common good in the economic sphere. The economic nationalism under Section 1, Article XII, is complemented by Sections 19 and 20, in Article II on Declaration of Principles and State Policies, thus

SEC. 19. THE STATE SHALL DEVELOP A SELF-RELIANT AND INDEPENDENT NATIONAL ECONOMY EFFECTIVELY CONTROLLED BY FILIPINOS.

SEC. 20. THE STATE RECOGNIZES THE INDISPENSABLE ROLE OF THE PRIVATE SECTOR, ENCOURAGES PRIVATE ENTERPRISE, AND PROVIDES INCENTIVES TO NEEDED INVESTMENTS.

Sections 19 and 20 are said to represent two of the pillars of the economic policy of the Constitution, and together with Section 1 of Article XII, circumscribe the evolving Philippine economic policy by which Filipino businessmen and entrepreneurs may fasten the support they can expect from their Government, and by which foreign investors may determine the legality and viability of their investments within Philippine territory. The same flagship provisions of the 1987 Constitution also provide framework upon which it can be determined whether the actions taken the Executive Department, or the laws enacted by the Legislative Department, having a bearing on Philippine Commercial Law, may be adjudged as being on a solid basis of reliance upon which to proceed with an investment opportunity in the Philippines.

National Hierarchy of Values

We believe in being in a nation that cares first and foremost for its masses, rather than emphasizing the individualistic rights to property and livelihood. This point is well-conceded in Sections 9 and 10, Article II of the 1987 Constitution, in our "Declaration of Principles," thus:

SEC. 9. THE STATE SHALL PROMOTE A JUST AND DYNAMIC SOCIAL ORDER THAT WILL ENSURE THE PROSPERITY AND INDEPENDENCE OF THE NATION AND FREE THE PEOPLE FROM POVERTY THROUGH POLICIES THAT PROVIDE ADEQUATE SOCIAL SERVICES, PROMOTE FULL EMPLOYMENT, A RISING STANDARD OF LIVING, AND AN IMPROVED QUALITY OF LIFE FOR ALL.

SEC. 10. THE STATE SHALL PRMOTE SOCIAL JUSTICE IN ALL PHASES OF NATIONAL DEVELOPMENT.

In constitutional language, we declare that, above all else, equitable distribution of wealth and opportunities should be the main goals of society, and all activities, resources and equity shall be deployed to achieve such ends; that economic progress, although important, when it benefits only the few would be an unwanted boon.

This socialist spirit of preferring the greater good versus individual rights is reinforced in many other provisions of the 1987 Constitution. This is really in stark contrast to the underlying philosophy of the free enterprise system that business left to its own selfish end would eventually work out well to the greater good of society by raising the standards of living. Thus, although we recognize the institution of private ownership and property rights and the indispensable role of the private sector, we nevertheless declare that property bears a social function, and all economic agents shall contribute to the common good, and always subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.

We therefore emphasize in our society the spiritual oneness that the members of our society must achieve; that material blessings must be pursued not for individual ends but as a contribution of what is good for the nation.

The emphasis on spiritual good over material blessings therefore is the signet of our society. Whereas, the determination of what is successful is an mercantile society and easily verifiable from the bottom lines of financial statements, what is the common good and the measure of achieving the public interests are difficult to verify and often fluid in their meaning and coverage, and therefore makes it difficult to pinpoint with certain degree of reliability the guideposts in the playing field upon which businessmen and investors make their business decisions.

When taken together with other provisions of the Constitution having to do with economic and commercial matters, the constitutional declarations are a forthright admission of the existing poverty and privation that pervades our present society; the inability of most of our people to fend for themselves; of the distrust we bear against our local elite and foreign business interests; and the pivotal role of Government and its agencies, to be the main agent to effect such goals, and the bulwark against otherwise resultant exploitation of the great majority of the Filipino people.

Judicial Review

By virtue of judicial review, the Constitution vests in the courts the final word on commercial matters.

Lex Mercatoria

International law of merchants and mariners growing out of their customary practices.

I. Nationalized Activities and Undertakings

Activities which are reserved in part or in whole for Filipinos1. Mass media (100% ownership, 100% management)2. Advertising (75% capital)3. All others, including BOT-scheme contractors (60%)4. Those covered by Flag Laws (Filipino First; in bidding, 75% considered 100% Filipino, although superfluous due to Grandfather Rule)EXCEPTION: FTAAs, which allow for 100% foreign investment; exempt transactions provided by law

Constitutional Provisions

Sec 10, Art XII: Congress, upon the recommendation of NEDA, can reserve to Filipinos certain areas of investment, and can regulate foreign investment. (Filipino-first policy)

Sec 12, Art XII: preferential use of Filipino labour, domestic goods

Sec 19, Art II: self-reliant, independent economy

Sec 17, Art XII: in times of emergency, when dictated by public-interest, State may temporarily take over or direct the operations of privately-owned public utilities or businesses affected with public interest, under reasonable terms. An aspect of the emergency powers clause No just compensation needed, as this is not expropriation (there is no taking) and the ownership does not transfer.

The Philippine Mining Act of 1995 [RA 7942]

Sec 2, Art XII: allows the state to enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporation or associations at least sixty percentum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years... 25 + 25 years (exploration, development, utilization). However, this does not apply to FTAAs, and government can always waive refusal of extension. Mining law constitutional, FTAAs are allowed; laws provide for more than enough Filipino control and supervision of mining operations. FTAAs are service contracts. Even if the FTAA is assailable for involving foreigners in mining, its transfer to Filipinos cures the defect. Constitution does not fix an iron-clad 60% share of profits for the State in mining, unlike in petroleum. However, costs incurred by government in building roads to the mine site cannot be deducted from its share.

Retail Trade Liberalization Act of 2000 [RA 8762 repealing Retail Trade law RA 1180]

Law adopts a liberal policy towards foreign investments to bring down prices for the Filipino consumer, create jobs, promote tourism, assist small manufactures, stimulate economic growth, and make Filipino goods and services globally-competitive. Aims for a retail sector characterized by lower prices, better services, wider choices, and higher-quality goods to empower the Filipino consumer.

Retail Trade

Retail trading is any act or occupation of habitually selling direct to the general public merchandise, commodities, or goods for consumption. Retail trade includes sales to employees and officers, if company does not regularly sell to the public.

EXCEPTIONS:1. Manufacturer, processor, labourer, worker, if capital does not exceed PhP100K2. Manufacturer in a single outlet3. Farmer selling farm products4. Restaurants incidental to hotel businessConsumer goods (for retail)

Consumption goods which directly satisfy human wants and desires, needed for daily life; excludes raw materials and other producer goods (tools for production).

Categories and Capitalization:Category A Reserved exclusively for Filipinos, former Filipinos who are residents, and corporations which are wholly owned by Filipinos. EXCEPTION: Foreigners may engage in exempt transactions if licensed. EXEMPT TRANSACTIONS (foreigners can participate)5. Manufacturer, processor, labourer, worker, if capital does not exceed PhP100K6. Manufacturer in a single outlet7. Farmer selling farm products8. Restaurants incidental to hotel business Paid-up capital less than US$2.5M

Category B Foreign-owned groups may participate if organized under laws of the Philippines but must obtain license from SEC for companies, or DTI if single proprietorship Before 2002, foreign ownership limited to 60%; April 2002, foreigners may wholly-own Minimum paid-up capital US$2.5 M but less than US$7.5M; the establishment of a store must cost US$30K or greater If foreign ownership exceeds 80% of equity, must offer 30% of equity through stock exchange in the Philippines within 8 years from start of operations.

Category C Foreign-owned groups may participate if organized under laws of the Philippines but must obtain license from SEC for companies, or DTI if single proprietorship May be wholly foreign-owned Paid-up capital greater than US$ 7.5M; the establishment of a store must cost US$30K or greater If foreign ownership exceeds 80% of equity, must offer 30% of equity through stock exchange in the Philippines within 8 years from start of operations.

Category D Foreign-owned groups may participate if organized under laws of the Philippines but must obtain license from SEC for companies, or DTI if single proprietorship May be wholly foreign-owned Specializing in high-end or luxury products (good not necessary for life maintenance demand generated by higher-income groups) Paid-up capital at least US$ 250K per store.

Use grandfather rule to determine if entity is local or foreign-owned.

Qualifications and requirements for foreign investors:1. Minimum net worth of parent corporation: US$200M for categories B & C, US$50M for category D2. At least 5 branches worldwide, unless has one store capitalized at US$25M or more3. 5 years track record in retailing4. Only nationals from countries that also allow the entry of Filipino retailers5. Must maintain full amount of capitalization in Philippines unless notifies SEC/DTI of cessation of operations. Failure to maintain capitalization prior to notice makes foreign trader vulnerable to penalties or future trade restrictions.

Safeguards from foreign domination of retail trade1. Follow the categories delineated2. Only nationals or parent corporations formed in countries that allow the entry of Filipino retailers3. Not allowed to retail outside their accredited stores through the use of:a. Mobile or rolling stores, or cartsb. Sales representativesc. Door to door sellingd. Restaurants and sari-sari storese. Other similar retailing activities

Common-law wife of foreigner may engage in retail trade but must use exclusively her own paraphernal property; allowing the husband to take part in managing the business is a violation of the law.

An Act Limiting the Right to Engage in the Rice and Corn Industry to Citizens of the Philippines; or Rice and Corn law [RA 3018]

The rice and corn industry is limited to Filipino citizens, and to partnerships, associations, corporations which are wholly Filipino-owned.

Rice and corn industry

1. Acquiring rice and corn and their by-products (includes acquisition as raw materials) for manufacturing or processing of other finished products2. Engaging in:a. Cultureb. Productionc. Millingd. Processinge. Trading, including wholesale, export, import (excludes retailing, which is covered by Retail Law)

This law allows for the participation of foreigners in all rice and corn industry activities (except retailing which is governed by the Retail Law), if authorized by the National Grains Authority, when:1. NGA certifies an urgent need for foreign investment, and the same will not promote monopolies or restraint of trade2. Alien has necessary finances and technical expertise; and3. Alien submits an acceptable developmental plan to the NGA.

Flag Laws

May only be invoked against non-domestic bidders; or against domestic bidders if such domestic bidder uses imported articles, or local articles made from imported materials.

Merely dealing exclusively in foreign materials does not make the company an alter-ego of a foreign entity.

a. An Act to Give Native Products and Domestic Entities the Preference in the Purchase of Articles for the Government [CA138]

In government (including local/GOCC) biddings, if the difference in bid price between the native products and foreign entities is only 15%, preference shall be given to the Filipino.

b. An Act to Require the Use, Under Certain Conditions, of Philippine Made Materials or Products in Government Projects or Public Works Construction, Whether Done Directly by the Government or Awarded thru Contracts [RA 912]

Sec 1. In construction or repair work undertaken by the government, whether done directly or through contract awards, Philippine-made materials and products, whenever available, practicable and usable... shall be used... upon proper certification of availability, practicality, usability and durability... by the [DPWH].

Sec. 3. No contract may be awarded... unless the contractor agrees to comply... an award may be rescinded for unjustifiable failure to comply.

Requiring Government Offices, Agencies, Instrumentalities and Government Owned or Controlled Corporations, Persons and Entities Enjoying Tax Exemption, Incentive or Subsidy from the Government to Utilize in International Transportation Services of the Philippine Flag Air Carrier and Shipping Lines; or Philippine Flag Carriers law [PD 894]

Requires government and persons enjoying tax incentives to utilize Philippine flag carriers.

Anti-Dummy law [CA 108 aa RAs 134 and 6084, and PD 715]

Law penalizes Filipinos who allow themselves to be used by aliens as dummies in order to avail of certain Filipino-only privileges. The law specifically bans the participation of aliens in the management of nationalized businesses, whether as employees, labourers, officers, whether paid or not.

EXCEPTION: Aliens may participate in technical aspects if:1. No Filipino can do the technical work2. Authorized by the President of the Philippines

PD 715 later allowed aliens to be voted as directors (not officers) in corporations engaged in partially-nationalized activities in proportion to their allowable share in the capitalization of such corporation. Thus, the Anti-Dummy Law covers only nationalized businesses and not partially-nationalized undertakings.

Important Concepts

a. Exploitation of Natural Resources

Exploitation / development / utilization of natural resources shall be under the full control and supervision of the State, but may also be effected through: (60% Filipino)1. Joint venture2. Production sharing3. Co-production

b. Retail Trade

Retail trading is any act or occupation of habitually selling direct to the general public merchandise, commodities, or goods for consumption. Retail trade includes sales to employees and officers, if company does not regularly sell to the public.

EXCEPTIONS:1. Manufacturer, processor, labourer, worker, if capital does not exceed PhP100K2. Manufacturer in a single outlet3. Farmer selling farm products4. Restaurants incidental to hotel business

c. Foreign Ownership

Ownership by aliens of equity in Filipino enterprises. Generally allowed, but prohibited in nationalized undertakings and limited in partially-nationalized businesses, subject to exceptions allowed by law. The restrictions on foreign ownership are founded on Constitutional policies of a nationalized economy and Filipino-first.

d. Grandfather Rule

If 60% or more of the equity in an entity is Filipino-owned, the entity in question is 100% Filipino. If it is less than 60%, it is Filipino only to the exact percentage of ownership of Filipinos. Same goes if equity is owned by another juridical entity (hence, grandfather), check first the percentage of Filipino ownership in the parent corporation.

II. Laws to Protect Small and Domestic Enterprises

Magna Carta for Micro, Small and Medium Enterprises (MSMEs) (Kalakalan 20) [RA6977 aa RAs 8289 and 9501]

Seeks to promote the growth and development of micro-small-medium enterprises by:1. Facilitating access to funds2. Removing stringent collateral registration requirements

Principles:1. Simplification on requirements and procedures2. Encouragement of private sector participation3. Coordination of government efforts4. Decentralization of administration through regional and provincial offices

MicroCapitalized at not more than P 3M

SmallMore than P 3M up to P 15M

MediumMore than P 15M up to P 100M

Eligibility for Government Assistance

1. Registered (micro enterprises, register with municipal/city treasurer)2. 100% Filipino capital; of juridical, 60% of equity Filipino-owned3. Sectors: industry, trade, services (including practice of profession), tourism-related establishments, agri-business (manufacturing, processing, production of produce)4. Not a branch or subsidiary of large-scale enterprise; must not be controlled by large-scale enterprise or 3rd parties. (May accept subcontracts, partner with large enterprises, and join cooperatives.)

Eligible MSMEs shall be granted at least 10% of the procurements of government for products and services annually

SB Corporation (attached to DTI).

Barangay Micro Business Enterprises (BMBEs) Act of 2000 [RA 9178]

Economic development through entrepreneurship and integration of the informal sector.

A BMBE is:1. A business entity / enterprise2. Engaged in production, processing (including agro-processing, manufacturing of products, trading, services (excluding professional services pursuant to government licensing)3. Total assets (including loans, exclusive of land where situated): P 3M

Benefits of registration as BMBE: (registration with municipal / city treasurer, free certificates good for 2 years, renewable) Exempt from income tax Minimal requirements LGUs encouraged to reduce amount of taxes / fees imposable on BMBEs Exempt from minimum wage (SSS / PhilHealth still required) Special credit windows Creation of P 300M BMBE development fund from PAGCOR DTI matching up BMBEs with other enterprises for incentives

Embroidery Law [RA 3137]

Allows for sub-contracting to sub-contractors or home workers of other processes or completion in the manufacture of garments. (Dispenses with complete assembly line requirement.) Required only to ensure that goods released from its bonded warehouse for embroidery has been stamped or cut in the pattern to be manufactured.

Countervailing Duties on Imported Subsidized Products [302, Part 2, Title II, Book I, TCCP aa RA 8751]

A countervailing duty equal to the amount of subsidy, which is in addition to regular duties, taxes, and charges, will be imposed whenever:1. A subsidized foreign product is imported into the Philippines2. Tending to cause material damage to a domestic industry or retarding the establishment of a domestic industry

Anti-Dumping Act of 1999 [301, Part 2, Title II, Book I, TCCP aa RA 8752]

An anti-dumping duty equal to the margin, which is in addition to regular duties, taxes, and charges, will be imposed whenever:1. A product is imported at less than normal value in the exporting country2. Tending to cause material damage to a domestic industry or retarding the establishment of a domestic industry.

Safeguard Measures Act [RA 8800]

Objectives of Safeguard Measures Act

1. Promote competitiveness of domestic industries2. Provide safeguards for domestic industries against exports

Determination

The DTI (non-agricultural) or DA (agricultural) may initiate or implement appropriate safeguard measures motu propio or upon a verified petition, a request of the President, or resolution of Congress committee.

DTI/DA refers to the Tariff Commission for investigation, and shall make a determination if a product is being imported in increased quantities that may cause substantial injury to domestic industries. Report must be submitted in 120 days (60 if urgent).

Factors to be considered:1. Rate of increase of imports2. Market share taken by imports3. Changes in levels of sales, productivity, profits and employment resulting

For agricultural products, consider volume and price.

Measures

Safeguard measures may be made to apply to all imported products.

DOF Secretary may order Customs Commissioner to impose a provisional increase in tariffs, through a cash bond, to redress or prevent injury to domestic industries

Tariff Commission shall recommend a definitive measure:1. Increase duty2. Decrease tariff-rate quota3. Restrictions on import quantities4. Others, including combinations*measures cannot be made to apply if product originates from a developing country and market share is less than 3%; developing countries collectively should not account for more than 9% of total imports

Period of measure must not exceed 4 years, and aggregate period not to exceed 10.

III. Laws on Consumer Protection

Consumer Act of the Philippines [RA 7394]

State policy

Protection against safety hazard and unfair practices Provision of consumer education and rights Involve consumers in economic policy-making

Consumer petitions

Consumers may petition government for the recall of products and for amendments to consumer safety rules.

Safety standards and warranties

Consumer products must be inspected and certified by the government before distribution. Imported products will be refused admission for failing to comply with safety and quality standards.

In addition to warranties for sales in the Civil Code, the following are provided:1. Seller sets forth the identity of the warrantor and to whom warranties are extended2. Statement of coverage by warranty3. Duties of warrantor, enforcement of consumer rights, period for enforcement.

Labelling and deceptive acts

The following must appear on labels:1. Trade names2. Trademark3. Business name4. Address of manufacturer, importer, re-packer5. Make or ingredients6. Country of manufacture if applicable

An act is deceptive if it induces the consumer to buy a product through concealment, misrepresentation, or fraud.

Retailer subsidiary liable

Retail seller is subsidiary liable if both manufacturer and distributor fail to honour warranties.

The Meat Inspection Code of the Philippines [RA 9296 aa RA 10536]

Provides penalties for the sale or offering for sale of substandard meat.

Food, Drug and Cosmetic (FDC) Act [RA 3720]

Prohibits the following:1. Manufacture, transfer, or sale of FDC that is adulterated or misbranded.2. Adulteraltion or misbranding of FDC.3. Refusal to allow inspection and sampling by BFAD.4. False guaranties.5. Faking identification marks required by BFAD.6. Violation of trade secrets.7. Alteration of labels.8. False statements of effectiveness and compliance.9. Using analysis by BFAD for promotion.

Milk Code [EO 51]

Law allows for the advertising of breast milk substitutes, the same falling within the ambit of allowed commercial speech. The DOH is the implementing agency of the Milk Code but it cannot prohibit such advertisement, only screen and control the same. Donations from manufacturers may be refused or requested at the discretion of the DOH.

IEC (info/educ/comm) materials regarding breast milk substitutes from manufacturers must be directed towards doctors, and not to women and children.

Law on Mislabeling [Act 3740 aa CA46]

Penalizes fraudulent advertising, mislabelling, misbranding of any kind on any product or bond. Possession of mislabelled products in excess of reasonable needs is prima facie evidence of possession with intent to sell.

Law on Stamped or Marked Containers [RA 623 aa RA 5700]

Prohibits the use of registered bottles and containers for any purpose other than that for which they were registered without express permission of the owner. The purpose is the protection of public health and the spread of disease.

Purchaser of containers have the right to use them in any way he pleases, unless such use violates intellectual property rights or creates a likelihood of confusion. Native products are exempted from prohibitions of the law in order to render assistance to small-scale manufacturers and cottage industries.

Price Tag law [RA 71 aa RA 1074]

Price tags must be affixed and products sold without discrimination at the stated price.

Price Control laws [RAs 6124 and 6361]

Price Control Council to fix maximum selling prices. Price control of essential commodities.

Metric System laws

a. Metric System law [BP 8]

Full implementation / dissemination of metric system by 1984.

b. Prescribing the Use of the Metric System of Weights and Measures as the Standard easurement for All Products, Commodities, Materials, Utilities and Services and in All Business and Legal Transactions [PDs 187 aa 748]

Metric system to be used in Philippines for all transactions.

Laws against Monopolies and Restraint of Trade

a. An Act to Prohibit Monopolies and Combinations in Restraint of Trade [Act 3247]

Constitution provides that the state shall regulate or prohibit monopolies when public interest so requires, and that no restraint of trade or unfair competition shall be allowed.

Monopoly a solitary entity, or conspiracy of entities (cartel), whose purpose is to dominate trade in such manner as to exclude competition.

b. Monopolies and Combinations in Restraint of Trade [Art. 186 RPC aa RA 1956; and Art. 28, CC]

Revised Penal Code (186) restraint of trade or artificial prevention of free competition; monopoly by false rumours; combination of importers prejudicial to commerce

Civil Code (28) person who suffers damage may obtain relief for unfair competition because of force, deceit, machination, or unjust method

Downstream Oil Industry Deregulation Act of 1998 [RA 8479]

Policy

1. Ensure a competitive market under a regime of fair prices; adequate supply of clean and quality petroleum products.2. Encourage new participants in downstream oil industry.

Fair Trade Practice

DTI and DOE shall take measures to promote fair trade and prevent cartels, and monitor relationships between industry participants to ensure enforcement of contracts and equitable practices.

IV. Maritime Commerce

Real

A vessel is essentially movable property; nevertheless, maritime transactions are similar to real property transactions in that registration is required to bind 3rd persons.

Hypothecary

Limited liability rule confines liability to the value of the vessel itself (liability co-extensive with vessel), such that when the vessel is lost the liability is extinguished. Vessels total destruction extinguishes all maritime liens, subject to exceptions.

EXCEPTIONS:1. Damage caused by negligence of ship owner (ship owners fault) or concurring negligence of ship owner and captain.2. Expenses for the repair/provisions of the ship before its loss.3. Vessel made collateral and lost before public sale.4. Vessel is insured. (up to extent insured)5. Liabilities under the Labour Code / Workmens Compensation Act.1. No total loss or vessel was not abandoned. (Total loss and abandonment of the vessel, to be a limitation on liability, must be SOLELY through the fault or negligence of the captain. If ship owner is to blame / equally to blame, exception #1 to limited liability rule governs.)

By nature and place of performance of their functions (loading/unloading/custody of cargo at port), arrastre operations are not maritime transactions. (akin to warehouse deposit) Admiralty jurisdiction Philippine law follows the American rule (subject matter test): local court has jurisdiction over maritime transactions is subject matter is in the Philippines (i.e. ship docked in Philippines).Common carriers impliedly warrant the seaworthiness of their vessels.

Charter Party

A contract whereby an entire ship or some principal part thereof is let (leased) by the owner to another for a specified time or use for the conveyance of goods or passengers in consideration for the payment of freight.

A charterer has no obligation to check if the boat is seaworthy or has complied with legal requirements because such are presumed of a common carrier for being engaged in public service. If the vessel is under a charter party and controlled by the charterers own captain and crew, and the captain was negligent, the owner of the ship cannot be made liable for its sinking just because it gave the sailing order. Charterer remains holder of Bill of Lading, which operate as a receipt of goods, and does not vary the contract between the charterer and ship owner. Even if the charter party has a condition against sub-chartering and was in fact sub-chartered without knowledge on the part of the sub-charterer of the prohibition:1. No cause of action accrues in favour of the owner of the vessel2. No lien on the cargo of sub-charterer, since the owner of the vessel only has alien on goods he has in possession, and by the contract, he relinquished possession of the entire ship.

Primage

Bonus to be paid to the captain for a successful voyage.

Demurrage

The sum fixed in the charter party as renumeration to the ship owner for the detention of his ship beyond the number of days allowed by the contract for loading, unloading, sailing. It is a penal clause to compensate owner for non-use.

Demurrage must be stipulated in the contract. Loading and unloading must be for a reasonable amount of time or customary quick dispatch demurrage/dispatch: NONE means right to demurrage has been waived Delay in loading/unloading for the purpose of demurrage runs from the moment the ship is detained for an unreasonable time, if the circumstances of delay were brought about by the fault or negligence of the charterer. A claim for demurrage is an obligation NOT arising from a loan or forbearance of money; interest rate 6%. If cost of demurrage not stipulated, interest runs from the moment the court imposes the proper demurrage charges.

Contract of affreighment

A contract for the use of space on vessels leased in part or in whole, for the carriage of goods of others. Rules for common carriers still govern. Contract for special services rendered by the ship owner, who retains possession, command, and navigation of the ship. Charterer merely has use of space contracted for. Ship owner must provision the ship, pay the master and crews wages, answer for maintenance costs of the ship. Carrier is still a common carrier. It is the charterers obligations under the contract of affreightment to exercise ordinary diligence in ensuring berthing (loading/unloading) space for the vessel.

Time charter- leased for a particular or fixed period of time

Voyage charter- leased for a single voyage, regardless of number of stops and connecting trips stipulated.

Bareboat of demise charter

A contract where the entire vessel is leased to the charterer; includes the relinquishment of the command, possession, control, and navigation by the ship owner to the charterer. The master and crew are considered servants of the charterer. Undertaking is private in character; contract governs, not law on common carriers. Turnes common carrier into private character. Charterer mans the vessel with his own people, and in effect becomes the owner pro hac vice (for the voyage or service stipulated), subject to liability for damages caused by negligence. Owner must completely relinquish command, possession, control, and navigation of the ship; anything short of a complete transfer is a contract of affreightment, not a bareboat or demise charter.

Charter party rules

If cargo of charterer is not sufficient to fill 3/5 the capacity of the vessel, carrier may put it on a smaller vessel at the expense of charterer. Chartered in whole by one party, carrier cannot receive cargo of other persons. Owner liable for damage because of undue delay by captain. If cargo is more than contracted for, carrier may accept and require additional freightage as long as vessel is not overloaded. Upon arrival at port where cargo is to be loaded, in the absence of cargo, captain may look for other cargo OR return in ballast (no cargo; loaded with weight for stability) if the lay days have expired and charterer is still obliged to pay in cost of freightage full. If charterer can prove that vessel is not in condition to navigate, he does not have to pay freightage. Charterer may sub-charter unless expressly prohibited (sub-lease principle) Full freightage even if charterer cannot fill the vessel. Carrier can open packages to find out if the cargo may subject the vessel to forfeiture / confiscation. If vessel is forfeited / confiscated due to cargo, charterer is liable for damages. If ship agent / captain know that merchandise for illicit commerce have been loaded, they become jointly liable with the ship owner for losses caused to other shippers. Charterer must wait until necessary repairs are completed. Charterer may unload vessel before destination but must pay full freightage. Before the trip, charterer may unload the vessel and pay of freightage. The obligation to pay freightage accrues after discharge of cargo. Liquid cargo, leaks out because of inherent defect: charterer / shipper cannot abandon if more than still remains. If charter party is only partial, charterer has no right to fix the date of departure.

Rescission of charter party

By charterer: Before loading, cancel unilaterally by paying of freight agreed upon. Mere notice is sufficient; consent of ship owner. When vessel is does not have capacity agreed upon, or flag is different than stipulated. When vessel not placed at the disposal of charterer within agreed-upon period. If the vessel returns due to pirates or bad weather, charterer may decide to unload but must pay of freightage. If vessel stops for repairs for less than 30 days, full freightage must be paid. If more than 30 days, freightage paid in proportion to distance covered.

Total rescission by ship owner: When charterer fails to load vessel and lay days expire, but charterer must still pay freightage. Owner sells vessel, and the new owner decides to load the vessel with his own cargo despite knowledge of the charter party.

Total rescission by due to fortuitous event: (mere occurrence of any) War Blockade Prohibition to receive cargo Embargo of vessel by government Inability of vessel to navigate through no fault of captain or ship agent

Vessel

Vessel is considered personal property regardless of value.

Co-owners

If the ship is co-owned, a co-owner desiring to sell his aliquot share must first offer the same to the other co-owners (right of pre-emption). If the sale is made to 3rd parties without offering the same first to the co-owners, co-owners may buy back the original share of the seller within 30 days (right of redemption).

Co-ownership gives rise to a partnership by operation of law.

Ship Agent (Naviero)

When the ship owner is absent, liability is imposed upon the ship agent as if he were the owner because he can exercise acts of ownership (i.e. abandonment; termination of ship employees for just cause) over the vessel. The naviero represents the owner and the courts may acquire jurisdiction over him.

The ship owner and the ship agent are liable for the debts incurred by the captain for the repair and provisioning of the vessel.

A naviero: Is entrusted with the provisioning a ship / representing it in the port where it is located; must reimburse captain for legitimate advances. May be a local corporation Is liable solidarily with the ship owner to owners of cargo for losses and damage, whithout prejudice to his rights against the ship owner Is liable when cargo is damaged or a collision occures and the ship owner is absent Is liable for taxes if ship owner is not within the taxing jurisdiction

Unlicensed Persons

An unlicensed person does not possess the skill to navigate.

Captain

The captain acts as an agent of the vessel and acts by him exceeding his authority will absolve the ship owner or ship agent from liability, except to the extent of his own investment in the ship, if any. (position of captain is agency coupled with interest)

The captain also holds the position of a trustee, such that there is no acquisition by prescription in his favour.

The captain is liable for the cargo from the time it is turned over to him (at the dock or afloat alongside the vessel) at the port of loading, until he delivers the same (on the shore or wharf) at the port of unloading, unless otherwise stipulated. As a representative of the ship owner, the captains liability is ultimately that of the ship owner.

Roles of a captain1. General agent of shipowner2. Commender / technical director of vessel3. Representative of the country under whose flag he sails

Powers of the captain1. Contract with, command and discipline the crew2. Enter into a charter party3. Contract for fuel/provisions4. Contract for needed repairs

Duties of the captainIn port:1. Equipment inventory2. Report to ship agent on arrival3. Marine survey of vessel before loading4. Remain on board while loading5. Record loan on bottomry with customs6. Demand for a pilot on departure and arrival at every port

During Voyage:7. Keep a copy of Code of Commerce on board8. Keep a log book (prima facie evidence if made by person required), freight book, accounting book9. Stay on the ships bridge when sighting land10. Keep papers / properties of deceased crew11. Comply with rules / regulations of navigation

Arrival under stress: (lack of provisions / fuel, pirates, inability to navigate)12. File a marine protest within 24 hours for arrivals under stress

Destruction:13. File a marine protest within 24 hours shipwreck

Captain is liable to ship agent, if ship agent is made liable for the following:1. Damages because of neglect or lack of skill of captain2. Theft or robbery by crew3. Mutiny4. Effects of failure to comply with rules of navigation, customs, health5. Misuse of captains powers6. Unjustified deviation

If voyage is diverted due to instructions of management to captain, ship owner / ship agent liable for the damage caused.

If cargo has to be unloaded, the same shall be the responsibility of the captain, who shall also be liable for undue delay in the re-commencement of the voyage.

Succession

1. Captain2. 1st mate3. 2nd mate

Grounds for rescission of contract of employment by captain or crew1. War2. Change of destination3. Outbreak of disease4. New ship owner*vessels complement is from captain to cabin boy

Freightage and merchandise

Owner of merchandise sold to make necessary repairs should still pay freightage Merchandise jettisoned, no freightage, considered general average Lost at sea / seized by pirates, no freightage Freightage may be paid by merchandise recovered by salvage Full freightage even if merchandise damaged, if damage is cause by inherent defect If freightage is based on weight and cargo increases in weight (i.e. live cargo producing young) during the voyage, charterer must pay for the weight increase Ship has retaining lien on cargo carried; such lien may be waived by surrender of cargo, but the lien subsists for 30 days after surrender. This lien is independent of the transactions of 3rd persons. Carrier may demand payment in cash and refuse a surety bond. 2% greater than capacity not allowed; if beyond capacity, 1st come, 1st served, unless all are present in which case shippers will be allowed to load in proportion they have contracted for

Action to recover undelivered cargo:1. 10 years with bill of lading (because bill of lading is a written contract; may be reduced by carrier if reasonable)2. 6 years if no bill of lading3. 1 year for overseas trade (COGSA)

Delay

If the vessel cannot sail for temporary causes not attributable to the vessel, the ship owner or ship agent cannot be made liable for damages.

If the voyage has begun and was interrupted by:1. Force majeure / fortuitous event - passengers are obliged to pay fares in proportion to the distance covered, without right to recover.2. Fault of captain exclusively passengers have right to indemnity3. Disability of vessel, and passengers agree to wait not required to pay increased fares, but must shoulder their own living expenses

Desertion

Act of seaman in abandoning the vessel, without leave, before the expiration of his time; an unauthorized absence from the ship with no intention to return to her service. (animo non revertendi)

Philippine Coast Guard laws

a. Amending Section 808 of the TCCP, as amended, by Allowing the Registration of Vessels the Ownership of which is Vested in Corporations or Associations, at least 60% of the Capital Stock or Capital of Which Belong to Citizens of the Philippines [PD 761]

A certificate of Philippine registry shall be issued only to a vessel of domestic ownership of more than 15 tons gross. Domestic ownership means ownership vested in Filipino citizens or juridical entities organized under Philippine laws, at least 60% of which is owned by Filipino citizens.

b. Transferring the Functions of Registration and Documentation of Philippine Vessels to the Philippine Coast Guard [PD 1064]

PD 1604 vests registration and documentation duties with the Coast Guard. Registry with the Coast Guard of vessels 15 tons gross or over makes the vessel of Philippine registry (registered under Philippine flag) and allows vessel to engage in coastwise (domestic) trade.

Reorganizing the Ministry of Transportation and Communications, Defining its Powers and Functions [EO 125 aa EO 125-A]

EO 125 has, by law, transferred the duty of registration to MARINA (Maritime Industry Authority, under the DOTC) from the Coast Guard; HOWEVER the Coast Guard has NOT RELINQUISHED its registration functions. MARINA issues certificates of competency.

The Ship Mortgage Decree of 1978 [PD 1521]

Allows the mortgage of a ship or its equipment with any financial institution, for the purpose of financing the operation, construction, acquisition of vessels. If such mortgage is taken for these purposes, the mortgage is a preferred mortgage if it complies with the formal requisites under law.1. Mortgage must be registered with Coast Guard2. Mortgage lien must be prioritized over all claims, EXCEPT: Fees taxed by court Taxes Crews wages General average Salvage Maritime liens prior to mortgage Damages from tort Preferred mortgage priorUnpaid portion after sale enforceable by personal action against the debtor. (not really a maritime transaction, otherwise deem as exception to hypethecary nature)

A vessel may be attached.

Maritime lien under ship mortgage decree

A maritime lien is a present right of property in a ship. From the moment it attaches, it is inchoate until brought into legal effect in admiralty by a proceeding in rem, at which point it relates back to the time when it first attached.

The Ship Mortgage Decree provides that any person furnishing repairs or provisions for the ship shall have a maritime lien on such vessel. If such maritime lien is prior to the recording of the preferred mortgage, it shall have priority over the mortgage lien.

A person who extends credit for the discharge a maritime lien becomes entitled to the said lien, if:1. The funds were furnished to the ship on order of the master; and2. There is evidence that the funds were actually used to pay the debts secured by the lien.

A local RTC can assume jurisdiction over a maritime case involving foreign elements if the ship is docked in the Philippines because the Philippines follows the American rule (subject matter test) as opposed to a purely English rule (locational test, or where the contract is made or to be performed).

A foreign company cannot avail of the provisions of PD 1521 which was decreed specifically for the protection of Filipino suppliers. The foreign company must therefore prove that the maritime lien was constituted in its favour under applicable foreign law.

Requisites of a maritime for the supplying of necessaries:1. necessaries are furnished to the vessel for its benefit2. necessaries are necessary for continuation of vessels voyage3. Credit must have been extended to the vessel4. A necessity for the extension of credit5. necessaries were ordered by persons authorized to contract for the vessel

Bottomry and Respondentia

Loans secured by ship (bottomry) or cargo (respondentia). Hypothecary in nature (limited liability). EXCEPTIONS to hypothecary nature:1. Loss due to inherent defect2. Loss due to barratry on part of captain3. Loss due to fault of malice of the borrower4. Vessel engaged in contraband5. Cargo loaded is different from agreed upon

Common elements:1. Exposure of security to marine peril2. Debtors obligation is conditioned on the safe arrival at destination of security

BottomryRespondentiaBoth

Loan using vessel as securityLoan using cargo as securityLoan in excess because of overvaluation by borrower to be returned with legal interest

Not available for crews salaryLoan not all used for cargo, excess must be returned.If not subjected to marine peril, becomes ordinary loan. Failure to pay loans on time gives rise to liability for legal interest.

Loan availed of by owner; in his absence, by captainLoan availed of only by owner of cargoLoss due to marine peril extinguishes obligation (hypothecary, general rule)

Several; last is preferred in paymentInsurable interest is only on the excess of value of loan (if concurring with insurance)

Lenders must contribute to general average

Exposure to marine peril: from time anchors are weighed at departure to the time anchors are dropped at destination

In case of shipwreck and salvage is undertaken, repayment will depend on what may be salvaged

Averages

Average is damage or loss deliberately caused (i.e. jettison) to successfully save the vessel and/or cargo from a marine peril.

General average inures to the benefit of all. Thus, when both vessel and cargo are saved, it is general average, and all persons whose property were saved by the deliberate sacrifice made must contribute to reimburse the loss of the person whose cargo or part of the vessel was sacrificed in the process.

If the average is particular, such as only the vessel or cargo is saved, or only part of the cargo is saved, the owner must bear the loss.

General average procedure

1. Before the sacrifice, captain must call a meeting of officers and cargo owners on board2. They shall decide by voting, but the captain has the final say. Decision to be made is on the sacrifice to be made.

If the captain does not call a meeting before the sacrifice, it cannot be considered general average, and no claim for contribution can be made, UNLESS the meeting cannot be called (i.e. dangerous storm, no time to meet).

If cargo is jettisoned, begin with those on deck, of bigger bulk, of smaller value. The cargo must be covered by a bill of lading to be reimbursable as constituting general average.

Arrivals under stress, if justified and not attributable to the neglect or fault of the crew, constitute particular average. No damage need be paid to the shippers, who must wait patiently. But if the arrival under stress is occasioned by bad faith, damages must be paid to the shippers, and the vessel must bear its own losses.

Following York-Antwerp rulesOverseas TradeCoastwise Shipping (interisland; domestic)

Prohibition on deck loadingDeck cargo permitted

Deck cargo, with consent of owner, if saved:Must contribute to general averageDeck cargo, with consent of owner, if saved:Must contribute to general average

Deck cargo, with consent of owner, if jettisoned:Owner NOT entitled to reimbursementDeck cargo, with consent of owner, if jettisoned:Owner entitled to reimbursement

Collision

Guilty vessel must pay for the damage caused by the collision.EXCEPTION: If the guilty vessel sinks or is completely lost. (hypothecary nature)

One vessel at fault OR third vessel at faultVessel at fault liable for damage, unless such vessel is completely lost.

Both vessels at fault OR vessel at fault not knownVessels must bear their own losses; shippers may go after ship owners who are solidarily liable for the shippers losses.

Fortuitous eventNo liabilities; each must bear own loss.

The ship owner may proceed against those responsible for civil and criminal liability. Within 24 hours upon reaching the nearest post, the captain of innocent ship must file a marine protest, otherwise there can be no recovery. However, such failure to file the protest on time will not prejudice the rights of cargo owners, innocent vessels without decks, and small crafts in the bay or river.

There is a presumption of loss if vessel sinks and cannot be salvaged.

Last Clear Chance

Inapplicable as under the Code of Commerce, if both vessels are negligent (negligence on both parties is a requirement for the invocation of last clear chance), both must bear their own losses, and are solidarily liable for the damage sustained by the shippers.

Overtaking or Crossing

It is the duty of the crossing or overtaking vessel to stay out of the way even if the distance cannot be determined. In case of collision, overtaking vessel is liable since it is the one that can avoid the collision.

Striking a stationary objectThe presumption is that the moving vessel is at fault. The presumption is rebuttable if the moving vessel can prove that it was without fault, the stationary object was at fault, or it was an inevitable accident.

Pilotage

The fact that a vessel has a pilot on board will not exempt it from liability.

Pilot is a person licensed to conduct a vessel in and out of ports or through rivers and channels. He becomes the master of the ship pro hac vice. If pilotage is compulsory, it is the pilots duty to insist on effective control of the ship, otherwise he should decline to act as a pilot. As a pilot, he must exercise the ordinary care required by the circumstances. (Extraordinary care if circumstances dictate.)

Occasions when master should interfere or even displace the pilot:1. Pilot is incompetent, intoxicated, is not aware of dangers, and in cases of great necessity2. Advice or offer suggestions to the pilot3. Ensure that there is sufficient watch on deck and that the men are attentive of their duties, engines stopped, tow lines cast off, anchors clear, ready to go on pilots order

The Salvage Law [Act 2616]

Provides for compulsory reward to those who brave the perils of the sea to save cargoes or vessels. Owner of property saved must give reward, the max of which is 50% the value of the property saved.

Requisites:1. Valid object of salvage2. Exposure to marine peril3. Voluntary salvage service4. Effort must be successful

Derelict

A vessel or cargo badly damaged and abandoned to the mercy of the sea. It is not res nullius.

Procedure:1. Salvor must tow it to nearest port where it will be delivered to municipal treasurer or customs who will advertise the fact of salvage.2. If owner appears, he may take possession of vessel but must pay a reward not more than 50% of the value of the vessel.3. Reward is determined by: Value of property saved Zeal employed by salvor Danger to the lives of participants in the salvage Number of persons who took part Services rendered Exoenses incurred4. No claim made within 3 months after publication, sell at public auction. Salvor gets his reward, expenses will be deducted from the proceeds, balance is deposited with treasury.5. No claim on the balance is made after 3 years, half goes to salvor, half to government.6. If a vessel saves another vessel, the reward shall be divided: ship owner captain crew*there is no salvage if there is no marine peril; differentiate salvage from towage; towage can be waived

Domestic Shipping Development Act of 2004 [RA 9295 and its Revised RRs]

The law recognizes:1. Vitality of shipping industry to economic development.2. The need to grant necessary incentives to the shipping industry to encourage investments.3. The need for a strong and competitive domestic merchant fleet.

Domestic shipping transport of passenger or cargo or both, by ships duly registered and licensed under Philippine law to engage in commerce between Philippine ports.

Domestic trade sale or exchange of goods within the Philippines.

Domestic ship operator / owner citizen or juridical entity at least 60% Filipino, authorized by MARINA to engage in domestic shipping

Shipper person who procures the services of the ship operator or carrier

Policy

1. Promote Filipino ownership of vessels operating under the flag.2. Attract private capital investments in shipping.3. Provide assistance and incentives for growth of Philippine merchant marine fleet.4. Encourage upgrading of existing fleet.5. Ensure viability of domestic shipping.6. Encourage the development of ship-building / ship repair industry.

Incentives

Domestic ship operatorsShip-building / ship repair

VAT exemption within 10 years from ActVat exemption on importation of equipment / materials not manufactured locally in sufficient amounts

NOLCO (net operating loss carr-over) for next 3 consecutive years following loss

Accelerated depreciation rates on equipment for purposes to taxation

Deregulation of Domestic Shipping

Authority to operate granted only to domestic ship owners / operators

Foreign vessels engage in trade on Philippine waters foreign vessels allowed to engage in transport of passengers and cargo on within Philippine waters only if granted a permit by MARINA on the grounds of necessity that cannot be satisfied by domestic vessels

Issuance of authority to operate MARINA has power to issue certificates of public convenience to qualified operators taking into consideration economic and beneficial effect. Application must state proposed route.

Deregulation to encourage investments, ship operators are allowed to:1. Establish own domestic shipping rates, provided competition is fostered2. Fix passenger per cargo ratesProvided:1. Obligation to carry mail; give preference to government cargo2. MARINA shall have authority to implement rules and regulations in monopolized routes to determine fairness of rates3. Uphold safety standards and seaworthiness

Insurance

a. Compulsory insurance for liabilities from breach of contract of carriage, required: Adequate insurance coverage for each passenger; total amount must correspond to number of passenger accommodations offered Adequate insurance coverage for cargo; total amount must correspond to capacity Both passenger and cargo, insurance must be the totals for passenger accommodations and cargo combinedb. Other insurance MARINA shall require other necessary insurance to cover possible claims

Prohibited Acts

1. Operation without certificate of public convenience or accreditation or authority2. Refusal of passenger or cargo without just cause3. Failure to maintain condition of vessel, violation of safety rules4. Failure to obtain or maintain adequate insurance5. Failure to meet manning requirements6. Other acts which MARINA determine are detrimental to safety and stability of domestic shipping.

MARINA powers, functions, jurisdiction

1. Register vessels2. Issue certificates of public convenience and extensions3. Upon hearing, may modify, suspend, revoke at any time certificates or authorities granted4. Establish and prescribe routes and zones of operation5. Require a domestic ship operator to provide services where needed to meet emergencies or public interest needs6. Set safety standards for vessels7. Ensure domestic ship operators have financial ability to sustain safe, reliable operations8. Determine the impact of new services9. Hear and adjudicate complaints, adopt and enforce rules and regulations

Allowing the Temporary Registration of Foreign-Owned Vessels under Time Charter or Lease to Philippine Nationals for Use in the Philippine Coastwise Trade Subject to Certain Conditions [PD 760]

Authorizes foreign-owned vessels under time charter or lease to a Philippine national, to be allowed issuance of certificate of Philippine resgistry by MARINA, provided:1. Valid for at least 5 years2. Exclusively used in coastwise trade3. Operation shall be Filipino without interference from foreign owner4. Manned exclusively by a Filipino crew, except for specialized fishing vessels

Important Concepts in Maritime Transactions

a. Characteristics of Maritime Transactions

Real- vessels are personal, movable property, but has the nature of a real property, because maritime transactions, to be effective against third parties, requires registration. Also, jurisprudence has provided other aspects of the real nature of maritime transactions: the limitation of liability to actual value of the ship, and the right to retain the cargo, embargo of the vessel and the vessel itself.

Hypothecary- the liability of a ship owner is limited to the value of the vessel itself. The vessel stands as the guaranty for the settlement of the losses; thus said losses are confined to the vessel. Applies in all cases, from loss of goods to injury of passengers.

b. Exceptions to Hypothecary Nature of Maritime Transactions

General Rule: No vessel, no liability.EXCEPTIONS:1. Damage caused by negligence of ship owner (ship owners fault) or concurring negligence of ship owner and captain.2. Expenses for the repair/provisions of the ship before its loss.3. Vessel made collateral and lost before public sale.4. Vessel is insured. (up to extent insured)5. Liabilities under the Labour Code / Workmens Compensation Act.6. No total loss or vessel was not abandoned. (Total loss and abandonment of the vessel, to be a limitation on liability, must be SOLELY through the fault or negligence of the captain. If ship owner is to blame / equally to blame, exception #1 to limited liability rule governs.)

c. Charter Party

A contract whereby an entire ship or some principal part thereof is let by the owner to another for a specified time or use for the conveyance of goods or passengers in consideration for the payment of freight.

Obligations of Charterer1. Pay the agreed-upon charter price2. Pay freightage on unloaded cargo3. Pay for losses to others for loading uncontracted or illicit cargo4. To wait if the vessel needs repair5. Pay for deviation expenses

Obligations of ship owner / ship agent1. Not to accept cargo from others if vessel is chartered wholly2. Observe represented capacity3. Unload clandestinely-placed cargo4. Substitute another vessel if load is less than 3/5 of the capacity5. Lave port if charterer does not bring cargo within the lay days / extra lay days allowed6. Place vessel in condition to navigate7. Bring cargo to nearest neutral port in case of war / blockade

Seaworthiness is implied! No need for charterer to inquire.

Classification of Charter Parties1. Contract of affreightment Time charter Voyage or trip charter2. Bareboat/Demise charter

d. Contract of Affreightment

A contract where the ship owner leases part or all of its space to haul goods for others. Generally does not affect character as common carrier. Only the vessel is hired Master and crew remain employees of the ship owner ship owner remains the owner of the vessel and is liable for the expenses of the voyage charterer acquires right to use the carrying capacity and facilities of the vessel and to designate destinations during the time or voyage stipulated

2 kinds:1. Time charter vessel is chartered for a fixed period2. Voyage or trip charter vessel is chartered for a specific voyage / set of voyages.

e. Bareboat / Demise Charter

Ship owner leases to the charterer the whole vessel, transferring the command, possession, and control over the vessels navigation, including the master and his crew who become the charterers servants. Charterer becomes owner of the vessel pro hac vice (for this occasion) Charterer is liable for the expenses of the voyage including wages of seamen Charterer is liable for damages arising from negligence Charterer assumes customary rights / liabilities of ship owner with respect to 3rd parties Master of the vessel becomes agent of the charterer Ship is converted from common to private carrier

f. Primage, Demurrage, Lay Days, and Deadfreight

Primage - bonus due captain for a successful voyage

Demurrage - sum fixed in the charter party as renumeration to the ship owner for the detention of his ship beyond the number of days allowed by the contract for loading, unloading, sailing. (penal clause to compensate owner for non-use; must be stipulated in the contract; loading and unloading must be for a reasonable amount of time or customary quick dispatch; demurrage/dispatch: NONE means right to demurrage has been waived)

Lay Days - days allowed for loading / unloading cargo

Deadfreight - the amount paid by or recoverable from a charterer for the portion of ships capacity the charterer contracted for but failed to occupy.

g. Bottomry and Respondentia

Bottomry: A loan taken by the ship owner or ship agent guaranteed by the ship itself, payable only upon the arrival of the ship at the destination. This loan can also be taken by the ship captain outside the residence of the ship owner or ship agent.

Respondentia: A loan taken by the owner of the cargo payable upon the safe arrival of the cargo at the destination. Only the cargo owner can take out this loan.

Hypothecary nature of bottomry/respondentia: Obligation to pay the loan is extinguished if the goods given as security (vessel/cargo) are absolutely lost by reason of an accident of the sea.EXCEPTIONS:1. Loss due to inherent defect2. Barratry on the part of the captain3. Fault or malice of borrower4. Contraband5. Cargo loaded is different than agreed upon

Concurrence with Marine Insurance: There is insurable interest only on the excess of the value secured and hypothecated by bottomry or respondentia. Value of what may be saved in case of shipwreck divided pro rtate between lender and insurer.

h. Averages

Averages are the extraordinary or accidental expenses (damages and deterioration) which may be incurred during the voyage to save the vessel, cargo, or both, from the time it puts to sea until it casts anchor at the destination (vessel) or from the time of loading until unloading at the post of destination (cargo).

General Average: (Gross Average) Inured to the common benefit, thus all persons having an interest in the vessel and cargo must contribute pro rata, as well as the insurers and lenders on bottomry and respndentia.1. Common danger to both ship and cargo2. Deliberate sacrifice/jettison during voyage (exceptions: cargo transferred to lighten a ship during a storm for port entry, or ship is deliberately sunk to extinguish a fire in port, bay, creek, roadsteads)3. Success

Extra fuel for the vessel and goods not recorded in the vessels books are not covered by general average.

Particular Average: (Simple Average) Did not inure to the common benefit; borne by respective owners.

i. Collision and Allision

Collision: both vessels movingAllision: 1 vessel moving, 1 stationary

V. Transportation Law

Constitutional Provisions

Arts. 1732-1763 NCC (COMMON CARRIERS)

SUBSECTION 1. General Provisions

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.

Article 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756.

SUBSECTION 2. Vigilance Over Goods

Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:1. Flood, storm, earthquake, lightning, or other natural disaster or calamity;2. Act of the public enemy in war, whether international or civil;3. Act or omission of the shipper or owner of the goods;4. The character of the goods or defects in the packing or in the containers;5. Order or act of competent public authority.

Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in article 1733.

Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738.

Article 1737. The common carrier's duty to observe extraordinary diligence over the goods remains in full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the right of stoppage in transitu.

Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.

Article 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm or other natural disaster in order that the common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of the public enemy referred to in article 1734, No. 2.

Article 1740. If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free such carrier from responsibility.

Article 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be liable in damages, which however, shall be equitably reduced.

Article 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the character of the goods, or the faulty nature of the packing or of the containers, the common carrier must exercise due diligence to forestall or lessen the loss.

Article 1743. If through the order of public authority the goods are seized or destroyed, the common carrier is not responsible, provided said public authority had power to issue the order.

Article 1744. 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; and3. Reasonable, just and not contrary to public policy.

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.

Article 1746. An agreement limiting the common carrier's liability may be annulled by the shipper or owner if the common carrier refused to carry the goods unless the former agreed to such stipulation.

Article 1747. If the common carrier, without just cause, delays the transportation of the goods or changes the stipulated or usual route, the contract limiting the common carrier's liability cannot be availed of in case of the loss, destruction, or deterioration of the goods.

Article 1748. An agreement limiting the common carrier's liability for delay on account of strikes or riots is valid.

Article 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.

Article 1750. A contract fixing the sum that may be recovered. by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon.

Article 1751. The fact that the common carrier has no competitor along the line or route, or a part thereof, to which the contract refers shall be taken into consideration on the question of whether or not a stipulation limiting the common carrier's liability is reasonable, just and in consonance with public policy.

Article 1752. Even when there is an agreement limiting the liability of the common carrier in the vigilance over the goods, the common carrier is disputably presumed to have been negligent in case of their loss, destruction or deterioration.

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 1754. The provisions of articles 1733 to 1753 shall apply to the passenger's baggage which is not in his personal custody or in that of his employee. As to other baggage, the rules in articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable.

SUBSECTION 3. Safety of Passengers

Article 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.

Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755.

Article 1757. The responsibility of a common carrier for the safety of passengers as required in articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on tickets, or otherwise.

Article 1758. When a passenger is carried gratuitously, a stipulation limiting the common carrier's liability for negligence is valid, but not for wilful acts or gross negligence.

The reduction of fare does not justify any limitation of the common carrier's liability.

Article 1759. Common carriers are liable for the death of or injuries to passengers through the negligence or wilful acts of the former's employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees.

Article 1760. The common carrier's responsibility prescribed in the preceding article cannot be eliminated or limited by stipulation, by the posting of notices, by statements on the tickets or otherwise.

Article 1761. The passenger must observe the diligence of a good father of a family to avoid injury to himself.

Article 1762. The contributory negligence of the passenger does not bar recovery of damages for his death or injuries, if the proximate cause thereof is the negligence of the common carrier, but the amount of damages shall be equitably reduced.

Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the wilful acts or negligence of other passengers or of strangers, if the common carrier's employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission.

SUBSECTION 4. Common Provisions

Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier.

Article 1765. The Public Service Commission may, on its own motion or on petition of any interested party, after due hearing, cancel the certificate of public convenience granted to any common carrier that repeatedly fails to comply with his or its duty to observe extraordinary diligence as prescribed in this Section.

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.

Common Carriers

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 [without discrimination].

A common carrier holds itself out as ready to engage in the transportation of goods for hire as a regular business and not as a casual occupation.

Tests

1. Engaged in the business of carrying goods for others as an employment and hold himself out as ready to engage in the transportation of goods as a business and not as a casual occupation2. Undertake to carry goods of the kind to which his business is confined3. Undertake to carry goods by the method by which his business is conducted4. Transportation must be for hire.

A common carrier offers the carriage of goods or passengers, provided it has space for all who opt to avail themselves of the transportation for a fee.

Specific examples of unusual common carriers

Pipeline operators Warehouseman who carries goods from port to warehouse for select parties Shipping corporation with limited clientele Freelance and irregular barge operators with no routes, tickets, or terminals Operator of beach resort who offers ferry services Scrap dealer who engages in delivery of goods for others as an ancillary activity Transports goods as a business although hires the vehicle from a 3rd person Customs brokerage firm who delivers merchandise to clients premises or otherwise transports goods Transporters who have no permits or certificates to operate as such*stevedoring, arrastre operations, towage, and travel agencies are not common carriers

Towage vessel is hired to bring one vessel to another place (i.e. tugboat)

Arrastre loading / unloading / keeping in warehouse; no connection to navigation. Also bound to exercise extraordinary diligence, and solidary liable with common carrier.

Stevedoring loading / unloading of coastwise vessels

Common CarrierPrivate Carrier

Governed by law on common carriersGoverned by law on contracts

Subject to state regulationNot subject to state regulation

A public serviceNot a public service

Available to all people indiscriminatelyAvailable to particular groups or individuals only

Bound to carry for all who avail of the serviceNot bound to carry for any reason

Extraordinary diligence requiredOnly ordinary diligence required

Presumption of fault or negligenceNo presumption of fault of negligence

General rule, parties may not agree to negate liabilityParties may limit liability as long as not contrary to law, morals, policy

Diligence Required of Common Carriers

Because common carriage is imbued with public interest, common carriers are required by law to carry passengers safely as far as human care and foresight can provide.

Extraordinary diligence required (Utmost diligence.) - Common carriage is an industry impressed with public interest. Extraordinary diligence is the rendering of service with the greatest skill and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery.

Presumption of negligence In an action for a breach of contract of carriage, all that must be proven by the plaintiff is the existence of such contract and its non-satisfaction by the carrier because of its failure to carry the passenger safely to his destination. If goods are lost or damaged, the common carrier is presumed to be at fault and it is his duty to rebut the presumption.

Registered Owner Rule Registered owner of vehicle primarily liable to public and 3rd persons while it is being operated; whether the driver is authorized or not is irrelevant. In the event of sale, the registered owner is still liable, but registered owner has recourse against the transferee.

Obligations of Common Carriers

a. Duty to accept goods

A common carrier, as a general rule, cannot refuse to carry particular goods. The certificate of public convenience means that the carrier is duty bound to accept passengers or cargo without discrimination.

b. Duty to deliver goods

This encompassed the duty to seasonably deliver the goods or bring the passengers to the destination, and the duty to deliver goods to the right person.

c. Duty to exercise extraordinary diligence

Common carriage is impressed with public interest; it is the duty of common carriers to exercise utmost diligence.

Liabilities of Common Carriers

a. Culpa Contractual based on contract

The contract of carriage with a common carrier is between the passenger and company/owner, and it imposes the obligation on the carrier to carry the passenger safely to the point of destination. Any untoward incident that happens to the passenger while being transported will give rise to the presumption that the common carrier was negligent and thus in breach of contract.

A common carrier will be made liable under culpa contractual through: Negligence or wilful act acts of its employees Negligence or wilful acts of other passengers or of strangers if its employees could have prevented them with due diligence

The best evidence of the contract of carriage is the ticket. However, contract may also be oral.

b. Culpa Aquiliana based on tort

This is based on the negligence of the employee of the carrier (i.e. driver). This is the weakest as the employer may raise the defence of due diligence in the selection and supervision of the employee.

The liability of the registered owner of the vehicle is primary and solidary with that of the driver. The owner, however, has a recourse against the driver.

c. Culpa Criminal based on crime

This is based on the criminal act of the employee of the carrier (i.e. driver), who, if convicted but insolvent, makes the company/owner of the carrier subsidiary liable.

Vigilance over Goods

See NCC1734-1754

Exempting Causes

The presumption of fault or negligence can only be rebutted by proof of: (exclusive list of defences)1. Exercise of extraordinary diligence2. Caso fortuito / force majeure (fire is almost always not a natural disaster, unless proven to be caused exclusively by nature)3. Acts of Public Enemy (in war, whether international or civil)4. Negligent act or omission of the shipper or owner of the goods5. Character of the goods / defects in packing or container6. Order or Act of Public Authority (must be lawful and competent, respectively)*hijacking not included; common carrier presumed negligent for allowing the acts of thieves or robbers; carrier must prove extraordinary diligence, or that extraordinary diligence was not possible because of grave irresistible threat, violence, or force.

Requirement of Absence of Negligence

Skill, competence, and utmost diligence are expected of common carriers.

Absence of Delay

Due Diligence to Prevent or Lessen the Loss

Contributory Negligence

Duration of Liability

From the time the carrier has unconditional possession, to the time the consignee is made aware of their arrival and has had a reasonable time to take them. Includes storage or temporary unloading in transit (exception: shipper makes use of right of stoppage in transit) and the storage at the warehouse of the carrier at the destination. (NCC 1736-1738)

Delivery of Goods to Common Carrier

Actual or Constructive Delivery

Temporary Unloading or Storage

Stipulation for Limitation of Liability

Void Stipulations

Limitation of Liability to Fixed Amount

Limitation of Liability in Absence of Declaration of Greater Value

Liability for Baggage of Passengers

Checked-in Baggage

Baggage in Possession of Passengers

Safety of Passengers

Passengers have the right to be treated by the carriers employees with kindness, respect, courtesy, and due consideration. Any discourteous conduct toward a passenger gives the passenger a cause of action for damages against the carrier.

Void Stipulations

Duration of Liability

Begins from the time that an attempt to board is allowed, including allowing the stepping onto the carriers platform or slowing down to allow boarding, until the time the passenger has had a reasonable opportunity to gather his belongings and leave the carriers premises or get out of the terminal.

Waiting for Carrier or Boarding of Carrier

Arrival at Destination

Liability for Acts of Others

Employees

In culpa contractual, a common carrier will be made liable under through the negligence or wilful act acts of its employees, even those committed outside the scope of authority.

In culpa aquiliana, the liability of the registered owner of the vehicle is primary and solidary with that of the driver. The owner, however, has a recourse against the driver

In culpa criminal, the carrier is not involved as this is based on the criminal act of the employee of the carrier (i.e. driver). But, if the employee is convicted but insolvent, such situation makes the company/owner of the carrier subsidiary liable.

Other Passenger