Transportation laws

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San Beda College of Law

Memory Aid in Commercial Law


Contract of Transportation/ CARRIAGE

 A contract whereby a person, natural or juridical, obligates to transport persons, goods, or both, from one place to another, by land, air or water, for a price or compensation.


  1. Common or Private

  2. Goods or Passengers

  3. For a fee (for hire) or Gratuitous

  4. Land, Water/maritime, or Air

  5. Domestic/inter-island/coastwise or International/foreign

 It is a relationship which is imbued with the public interest.
Common Carrier

 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 (Art. 1732, Civil Code).

 Art. 1732 of the New Civil Code avoids any 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 (sideline). It also avoids a 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.

Neither does the law distinguish between a carrier offering its services to the general public that is the general community or population and one who offers services or solicits business only from a narrow segment of the general population.

A person or entity is a common carrier even if he did not secure a Certificate of Public Convenience (De Guzman vs. CA, 168 SCRA 612).

 It makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation should be by motor vehicle. (First Philippine Industrial Corporation vs. CA)

 One is a common carrier even if he has no fixed and publicly known route, maintains no terminals, and issues no tickets (Asia Lighterage Shipping, Inc. vs. CA).


1. Undertakes to carry for all people indifferently and thus is liable for refusal without sufficient reason (Lastimoso vs. Doliente, October 20, 1961);

2. Cannot lawfully decline to accept a particular class of goods for carriage to the prejudice of the traffic in these goods;

3. No monopoly is favored (Batangas Trans. vs. Orlanes, 52 PHIL 455);

4. Provides public convenience.

Private Carrier

 One which, without being engaged in the business of carrying as a public employment, undertakes to deliver goods or passengers for compensation. (Home Insurance Co. vs. American Steamship Agency, 23 SCRA 24)


 The SC in First Philippine Industrial Corporation vs. CA (1995) reiterated the following tests:

  1. It must be engaged in the business of carrying goods for others as a public employment and must hold itself out as ready to engage in the transportation of goods generally as a business and not as a casual occupation;

  2. It must undertake to carry goods of the kind to which its business in confined;

  3. It must undertake to carry by the method by which his business is conducted and over its established roads; and

  4. The transportation must be for hire.

 In National Steel Corp. vs. CA (1997) the SC held that the true test of a common carrier is the carriage of goods or passengers provided it has space for all who opt to avail themselves of its transportation for a fee.



1. As to availability

Holds himself out for all people indiscriminately

Contracts with particular individuals or groups only

2. As to required diligence

Extraordinary diligence is required

Ordinary diligence is required

3. As to regulation

Subject to State regulation

Not subject to State regulation

4. Stipulation limiting liability

Parties may not agree on limiting the carrier’s liability except when provided by law

Parties may limit the carrier’s liability, provided it is not contrary to law, morals or good customs

5. Exempting circumstance

Prove extraordinary diligence and Art. 1733, NCC

caso fortuito, Art. 1174 NCC

6.Presumption of negligence

There is a presumption of fault or negligence

No presumption of fault or negligence

7.Governing law

Law on common carriers

Law on obligations and contracts


A. Domestic/inter-island/coastwise

 Applicable to Land, Water, and Air transportation

1. Civil Code - primary

2. Code of Commerce (Arts. 349, 379, 573-734, 580, 806-845) - suppletory

B. International/foreign/overseas (Foreign country to Philippines)

 Applicable to Water/maritime and Air transportation

 The law of the country of destination generally applies.

1. Civil Code - primary

2. Code of Commerce - suppletory

3. Others - suppletory

a. Water/maritime: Carriage of Goods by Sea Act (COGSA)

b. Air: Warsaw Convention


(Arts. 1732-1766)

 Rendition of service with the greatest skill and utmost foresight. (Davao Stevedore Co. v. Fernandez)


  1. From the nature of the business and for reasons of public policy (Art. 1733)

  2. Relationship of trust

  3. Business is impressed with a special public duty

  4. Possession of the goods

  5. Preciousness of human life

 A common carrier is not an absolute insurer of all risks of travel.

1. Vigilance over goods (Arts. 1734-1754); and

2. Safety of passengers (Arts. 1755-1763).

 A person who has entered into a contract of carriage, express or implied, with the carrier. They are entitled to extraordinary diligence from the common carrier.

 The following are not considered passengers, and are entitled to ordinary diligence only:

  1. One who has not yet boarded any part of a vehicle regardless of whether or not he has purchased a ticket;

  2. One who remains on a carrier for an unreasonable length of time after he has been afforded every safe opportunity to alight;

  3. One who has boarded by fraud, stealth, or deceit;

  4. One who attempts to board a moving vehicle, although he has a ticket, unless the attempt be with the knowledge and consent of the carrier;

  5. One who has boarded a wrong vehicle, has been properly informed of such fact, and on alighting, is injured by the carrier;

  6. Invited guests and accommodation passengers. (Lara vs. Valencia)

  7. One who rides any part of the vehicle which is unsuitable or dangerous or which he knows is not designed or intended for passengers.




  1. Must be the proximate and only cause of the loss

  2. Exercise of due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster (Art. 1739)

  3. Carrier has not negligently incurred in delay in transporting the goods (Art. 1740)

 Fire is not considered a natural disaster or calamity as it arises almost invariably from some act of man. (Eastern Shipping Lines Inc. vs. IAC)

 Mechanical defects are not force majeure if the same was discoverable by regular and adequate inspections. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.120-122)



  1. Must be the proximate and only cause of the loss

  2. Exercise of due diligence to prevent or minimize the loss before, during or after the act causing the loss, deterioration or destruction of the goods (Art. 1739)


a. Sole and proximate cause: absolute defense

b. Contributory: partial defense. (Art. 1741)


 Even if the damage should be caused by the inherent defect/character of the goods, the common carrier must exercise due diligence to forestall or lessen the loss. (Art. 1742)

 The carrier which, knowing the fact of improper packing of the goods upon ordinary observation, still accepts the goods notwithstanding such condition, is not relieved of liability or loss or injury resulting therefrom. (Southern Lines, Inc. v. CA, 4 SCRA 258)

 Said public authority must have the power to issue the order (Art. 1743). Consequently, where the officer acts without legal process, the common carrier will be held liable. (Ganzon v. CA 161 SCRA 646)

 Diligence in the selection and supervision of employees under Article 2180 of the Civil Code cannot be interposed as a defense by the common carrier because the liability of the carriers arises from the breach of the contract of carriage. The defense under said articles is applicable to negligence in quasi-delicts under Art. 2176. (Del Prado v. Manila Electric Co., 52 Phil 900)


death or injuries to passengers due to acts of ITS employees and other passengers or strangers

For acts of ITS Employees


Required diligence and defense

Extraordinary diligence

Ordinary diligence

Nature of liability

Tort; however,

The employee must be on duty at the time of the act. (Maranan v. Perez)

Not absolute; limited by Art. 1763

 The carrier is liable when its personnel allowed a passenger to drive the vehicle causing it to collide with another vehicle resulting to the injuries suffered by the other passengers. (MRR vs. Ballesteros, 16 SCRA 641)




  1. Common carrier

  2. Shipper

  3. Consignee

  1. Common carrier

  2. Passenger

Cause of liability

Delay in delivery, loss, destruction, or deterioration of the goods

Death or injury to the passengers

Duration of liability

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 the right to receive them. (Art. 1736)

 It 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. (Art. 1737)

 It 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 bee advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. (Art. 1738)

 Delivery of goods to the custom authorities is not delivery to the consignee. (Lu Do v. Binamira, 101 Phil 120)

The duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip, but for so long as the passengers are within its premises and where they ought to be in pursuance to the contract of carriage. (LRTA v. Navidad, [2003])

 All persons who remain on the premises within a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. (La Mallorca v. CA, 17 SCRA 739 ; Abiotiz Shipping Corporation v. CA, 179 SCRA 95)

 It is the duty of common carriers of passengers to stop their conveyances a reasonable length of time in order to afford passengers an opportunity to enter, and they are liable for injuries suffered from the sudden starting up or jerking of their conveyances while doing so. The duty which the carrier of passengers owes to its patrons extends to persons boarding the cars as well as to those alighting therefrom (Dangwa Trans Co., Inc. vs. CA 202 SCRA 574).

Presumption of negligence

Art.1735 Civil Code

Reason: As to when and how goods were damaged in transit is a matter peculiarly within the knowledge of the carrier and its employees. (Mirasol v. Dollar, 53 PHIL 124)

Mere proof of delivery of goods to a carrier in good order and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. (Coastwise Lighterage Corp. v. CA, 245 SCRA 796)

Art.1755 Civil Code

Reason: The contract between the passenger and the carrier imposes on the latter the duty to transport the passenger safely; hence the burden of explaining should fall on the carrier.


  1. Ordinary circumstance: Exercise of extraordinary diligence (Art. 1735)

  2. Special circumstances:

  1. Flood, storm, earthquake, lighting, or other natural disaster or calamity (plus force majeure)

  2. Act of the public enemy in war, whether international or civil

  3. Act or omission of the shipper or the owner of goods

  4. The character of the goods or defects in the packing or in the containers

  5. Order or act of competent public authority (Art. 1734)

    1. Exercise of extraordinary diligence (Art. 1756)

    2. Caso fortuito

Valid stipulations

1. Reduction of degree of diligence to ordinary diligence, 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 carriers; and

  3. Reasonable, just and not contrary to public policy. (Art. 1744)

2. Fixed amount of liability: A contract fixing the sum to be recovered by the owner or shipper for the loss, destruction or deterioration of the goods, if it is reasonable and just under the circumstances and has been fairly and freely agreed upon. (Art. 1750)

3. Limited liability for delay: An agreement limiting the common carrier’s liability for delay on account of strikes or riots (Art. 1748)

4. Stipulation limiting liability to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value. (Art. 1749)
 The diligence required in the carriage of the goods may be reduced by only one degree, from extraordinary to ordinary diligence or diligence of a good father of a family. (Art. 1744, Art. 1745, no. 4)

Stipulation limiting liability when a passenger is carried gratuitously, but not for willful acts or gross negligence. (Art. 1758)

Void stipulations

  1. That the goods are transported at the risk of the owner or shipper;

  2. That carrier will not be liable for any loss, destruction or deterioration of the goods;

  3. That the carrier need not observe any diligence in the custody of the goods;

  4. That the carrier shall exercise a degree of diligence less than that of a good father of a family over the movable transported;

  5. That the carrier shall not be responsible for the acts or omissions of his or its employees;

  6. That the carrier’s liability for acts committed by thieves or robbers who do not act with grave or irresistible threat, violence or force is dispensed with or diminished;

  7. That the carrier is not responsible for the loss, destruction or deterioration of the goods on account of the defective condition of the car, vehicle, ship or other equipment used in the contract of carriage. (Art. 1745)

Dispensing with or lessening the extraordinary responsibility of a common carrier for the safety of passengers imposed by law by stipulation, by posting of notices, by statements on tickets or otherwise. (Art. 1757)

Rules on Passengers’ Baggage





Legal nature of the baggage

Necessary deposit

Considered as “goods”

Required diligence by the common carrier

Diligence of a depositary (ordinary diligence)

Extraordinary diligence

Applicable rules

Arts. 1998 and 2000-2003

Arts. 1733-1753


1. Culpa contractual (breach of contract)

 Only the carrier is primarily liable and not the driver, because there is no privity between the driver and the passenger.

 Basis: Art.1759, NCC.

 No defense of due diligence in the selection and supervision of employees.

2. Culpa aquiliana (quasi-delict)

 The carrier and driver are solidarily liable as joint tortfeasors.

 Basis: Art. 2180, NCC.

 Defense of due diligence in the selection and supervision of employees is available. Exception: maritime tort resulting in collision. (See notes on Collision)

3. Culpa criminal (criminal negligence)

 The driver is primarily liable. The carrier is subsidiarily liable only if the driver is convicted and declared insolvent.

 Basis: Art. 100, RPC.
 In case of injury to a passenger due to the negligence of the driver of the bus on which he is riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for damages. It makes no difference that the liability of the bus driver and owner springs from contract while that of the owner and driver of the other vehicle arises from quasi-delict. (Fabre vs. CA)



1. One exempting the carrier from any and all liability for loss or damage occasioned by its own negligence.

2. An unqualified limitation of liability to an agreed valuation.

1. One limiting the liability of the carrier to an agreed valuation, unless the shipper declares a higher value and pays a higher rate of freight

(H.E. Heacock Company vs. Macondray & Company Inc.)

 However, the carrier cannot limit its liability for injury to, or loss of, goods shipped where such injury or loss was caused by its own negligence.

(Shewaram vs. PAL, 17 SCRA 606)

1. In case of flight diversion due to bad weather or other circumstances beyond the pilot’s control, the relation between the carrier and the passenger continues until the latter has been landed at the port of destination and has left the carrier’s premises. The carrier should necessarily exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination. (Philippine Airlines vs. CA, 226 SCRA 423)

2. Even where overbooking of passengers is allowed as a commercial practice, the airline company would still be guilty of bad faith and still be liable for damages if it did not properly inform passenger that it could breach the contract of carriage even if they were confirmed passengers. (Zalamea vs. CA, 228 SCRA 23)

3. An open-dated ticket constitutes a complete contract between the carrier and passenger. Hence, the airline company is liable if it refused to confirm a passenger’s flight reservation. (Singson vs. CA, 282 SCRA 149)

4. An airline company which issued a confirmed ticket to a passenger covering successive trips on different airlines can be held liable for damages occasioned by “bumping off” by one of the successive airlines. (Lufthansa German Airlines vs. CA, 238 SCRA 290)

5. An airline ticket providing that carriage by successive air carriers is to be regarded as a “single operation” is to make the issuing carrier liable for the tortuous conduct of the other carrier. A printed provision in the ticket limiting liability only to its own conduct is not enough to rebut that liability. (KLM Royal Dutch Airlines vs. CA, 65 SCRA 237)



(Arts. 349-379)


1. Domestic land and water/maritime transportation. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

2. Domestic Air Transportation. (Commercial Law Review, Cesar Villanueva, 2004 ed.)


  1. Bill of lading

  2. Obligations of the carrier

  3. Right of abandonment

  4. Notice of damage

  5. Combined carrier agreement

Bill of Lading

 The written acknowledgment of receipt of goods and agreement to transport them to a specific place to a person named or to his order.


1. It is not indispensable for the creation of a contract of carriage. (Compania Maritima vs. Insurance Company of North America, 12 SCRA 213)

2. Ambiguity is construed against the carrier, the contract being one of adhesion.
3. The consignee, although the instrument is oftentimes drawn up only by the consignor and carrier, becomes bound by all the stipulations contained therein by making a claim for loss on the basis of said bill of lading. (Sea-Land Services Inc. vs. IAC)
4. The right of a party to recover for loss of shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of agency between him and the shipper, or his status as stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation. (Art. 1311 (2), (Mendoza vs. PAL Inc.)
5. Acceptance of the bill of lading without dissent raises the presumption that all the terms therein where brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or mistake; he is estopped from thereafter denying that he assented to such terms. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.261)

  1. On board - issued when the goods have been actually placed aboard the ship with very reasonable expectation that the shipment is as good as on its way.

  2. Received - one in which it is stated that the goods have been received for shipment with or without specifying the vessel by which the goods are to be shipped.

  3. Negotiable - one in which it is stated that the goods referred to therein will be delivered to the bearer or to the order of any person named therein.

  4. Non-negotiable - One in which it is stated that the goods referred to therein will be delivered to a specified person.

  5. Clean – One which does not indicate any defect in the goods.

  6. Foul – One which contains a notation thereon indicating that the goods covered by it are in bad condition.

  1. Spent ­– One which covers goods that already have been delivered by the carrier without a surrender of a signed copy of the bill.

  2. Through – One issued by the carrier who is obliged to use the facilities of other carriers as well as his own facilities for the purpose of transporting the goods from the city of the seller to the city of the buyer, which bill of lading is honored by the second and other interested carriers who do not issue their own bills.

  3. Custody – One wherein the goods are already received by the carrier but the vessel indicated therein has not yet arrived in the port.

  4. Port – One which is issued by the carrier to whom the goods have been delivered, and the vessel indicated in the bill of lading by which the goods are to be shipped is already in the port where the goods are held for shipment.


  1. Best evidence of the existence of the contract of carriage of cargo (Art. 353)

  2. Document of title

  3. Receipt of cargo

  4. Contract to transport and deliver goods as stipulated

  5. Symbol of the goods


A. Duty to accept the goods

GENERAL RULE: A common carrier cannot ordinarily refuse to carry a particular class of goods.

EXCEPTION: For some sufficient reason the discrimination against the traffic in such goods is reasonable and necessary. (Fisher vs. Yangco Steamship Co. 31 Phil 1).

 Instances when the carrier may validly refuse to accept the goods include the ff:

1.) Goods sought to be transported are dangerous objects, or substances including dynamite and other explosives

2.) Goods are unfit for transportation

3.) Acceptance would result in overloading

4.) Contrabands or illegal goods

5.) Goods are injurious to health

6.) Goods will be exposed to untoward danger like flood, capture by enemies and the like

7.) Goods like livestock will be exposed to disease

8.) Strike

9.) Failure to tender goods on time. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p.68)

 In case of carriage by railway, the carrier is exempted from liability if carriage is insisted upon by the shipper, provided its objections are stated in the bill of lading.

 However, when a common carrier accepts cargo for shipment for valuable consideration, it takes the risk of delivering it in good condition as when it was loaded. (PAL vs. CA)
B. Duty to deliver the goods

 Not only to transport the goods safely but to the person indicated in the bill of lading. The goods should be delivered to the consignee or any other person to whom the bill of lading was validly transferred or negotiated.

Time of delivery

Stipulated in Contract/Bill of Lading

No stipulation

1. Carrier is bound to fulfill the contract and is liable for any delay; no matter from what cause it may have arisen.

1. Within a reasonable time.

2. Carrier is bound to forward them in the 1st shipment of the same or similar goods which he may make to the point of delivery. (ART. 358 Code of Commerce)

Effects of delay

    1. Merely suspends and generally does not terminate the contract of carriage

    2. Carrier remains duty bound to exercise extraordinary diligence

    3. Natural disaster shall not free the carrier from responsibility (Art.1740)

    4. If delay is without just cause, the contract limiting the common carrier’s liability cannot be availed of in case of loss or deterioration of the goods (Art.1747)



  1. Partial non-delivery, where the goods are useless without the others (Art. 363);

  2. Goods are rendered useless for sale or consumption for the purposes for which they are properly destined (Art. 365); and

  3. In case of delay through the fault of the carrier (Art. 371).


Requisites for applicability:

  1. Domestic/inter-island/coastwise transportation

  2. Land/water/air transportation

  3. Carriage of goods

  4. Goods shipped are damaged


a. Patent damage: shipper must file a claim against the carrier immediately upon delivery (it may be oral or written)

b. Latent damage: shipper should file a claim against the carrier within 24 hours from delivery.

Note: These rules does not apply to misdelivery of goods. (Roldan vs. Lim Ponzo)

Purpose of notice: To inform the carrier that the shipment has been damaged, and it is charged with liability therefore, and to give it an opportunity to make an investigation and fix responsibility while the matter is fresh.

 The filing of notice of claim is a condition precedent for recovery.

 Shorter period may be stipulated by the parties because it merely affects the shipper’s remedy and does not affect the liability of the carrier. (PHILAMGEN vs. Sweetlines, Inc.)

Prescriptive Period

 Not provided by Article 366. Thus, in such absence, Civil Code rules on prescription apply.

 If despite the notice of claim, the carrier refuses to pay, action must be filed in court.

    1. No bill of lading was issued: within 6 years

    2. Bill of lading was issued: within 10 years.


COGSA Sec.3 (6)


  1. Domestic/inter-island/coastwise transportation

  2. Land, water, air transportation

  3. Carriage of goods

  1. International/

overseas/foreign (from foreign country to Phils.)

Note: subject to the rule on Paramount Clause

2. Water/maritime transportation

3. Carriage of goods

Notice of damage

  1. Condition precedent

  2. 24-hour period for claiming latent damage

  1. Not a condition precedent

  2. 3-day period for claiming latent damage

Prescriptive period

None provided; Civil Code applies.

One year from the date of delivery (delivered but damaged goods), or date when the vessel left port or from the date of delivery to the arrastre (non-delivery or loss).


GENERAL RULE: In case of a contract of transportation of several legs, each carrier is responsible for its particular leg in the contract.

EXCEPTION: A combined carrier agreement where a carrier makes itself liable assuming the obligations and acquiring as well the rights and causes of action of those which preceded it.

(Arts. 573-869)

  1. Merchant vessel

  2. Maritime lien and Preference of Credit

  3. Doctrine of limited liability

  4. Causes of revocation of voyage

  5. Participants in maritime commerce

  6. Charter party

  7. Loans on bottomry and respondentia

  8. Accidents in maritime commerce


 It is the system of laws which particularly relates to the affairs and business of the sea, to ships, their crews and navigation, and to maritime conveyance of persons and property. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino & Hernando, citing Francisco, p.254)

 Maritime laws apply only to maritime trade and sea voyages. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)
 Arrastre service is not maritime in character. It refers to a contract for the unloading of goods from a vessel. (ICTSI vs. Prudential Guarantee, 320 SCRA 244)

1. Real - similar to transactions over real property with respect to effectivity against third persons which is done through registration. (Rubiso vs. Rivera, 37 Phil. 72). The evidence of real nature is shown by: 1) the limitation of the liability of the agents to the actual value of the vessel and the freight money; and 2) the right to retain the cargo and embargo and detention of the vessel (Luzon Stevedoring Corp v. CA, 156 SCRA 169);

2. Hypothecary - the liability of the owner of the value of the vessel is limited to the vessel itself (Doctrine of Limited Liability).
 The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which stands as the guaranty for their settlement. (Aboitiz Shipping Corp. vs. General Accident Fire and Life Assurance Corp. 217 SCRA 359).

 Vessel engaged in maritime commerce, whether foreign or otherwise. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)

 Constitutes property which may be acquired and transferred by any of the means recognized by law. They shall continue to be considered as personal property. (Arts. 573, 585)

 They are susceptible to maritime liens such as for the repair, equipping and provisioning of the vessel in the preparation of a voyage, as well as mortgage liabilities, in satisfaction of which a vessel may be validly arrested and sold. (Ship Mortgage Decree of 1978)


 It constitutes a present right of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem. (PNB vs. CA, 337 SCRA 381)

 If the maritime lien arose prior to the recording of a preferred mortgage, it shall have priority over the said mortgage lien. (PNB vs. CA, 337 SCRA 381)

R.A. 6106

P.D. 1521

Effectivity date




Overseas shipping only

Both domestic and overseas shipping

Kind of sale


Judicial and extrajudicial

Order of Preference

A preferred mortgage shall have priority over all claims against the vessel, except the following preferences in the order stated:

1. Judicial costs of the proceedings;

2. Taxes due the Philippine Government;

3. Salaries and wages of the Captain and Crew of the vessel during its last voyage;

4. General average or salvage including contract salvage, bottomry loans, and indemnity due shippers for the value of goods transported but which were not delivered to the consignee;

5. Costs of repair and equipment of the vessel, and provisioning of food, supplies and fuel during its last voyage; and

6. Preferred mortgages registered prior in time.

The preferred mortgage lien shall have priority over all claims against the vessel, except the following preferences in the order stated:

1. Expenses and fees allowed and costs taxed by the court and taxes due to the Government;

2. Crew’s wages;

3. General average;

4. Salvage, including contract salvage;

5. Maritime liens arising prior in time to the recording of the preferred mortgage;

6. Damages arising out of tort; and

7. Preferred mortgage registered prior in time.

 Effect of sale: All pre-existing claims in the vessel are terminated. They will then be satisfied from the proceeds of the sale subject to the order of preference.



 Cases where applicable:

  1. Art. 587 – civil liability for indemnities to third persons

  2. Art. 590 – indemnities from negligent acts of the captain (not the shipowner or ship agent)

  3. Art. 837 – collision

  4. Art. 643 – liability for wages of the captain and the crew and for advances made by the ship agent if the vessel is lost by shipwreck or capture

GENERAL RULE: The liability of shipowner and ship agent is limited to the amount of interest in said vessel such that where vessel is entirely lost, the obligation is extinguished. (Luzon Stevedoring v. Escano, 156 SCRA 169) The interest extends to: 1) the vessel itself; 2) equipments; 3) freightage; and 4) insurance proceeds. (Chua v. IAC, 166 SCRA 183)


  1. Claims under Workmen’s Compensation (Abueg vs. San Diego 77 Phil 730);

  2. Injury or damage due to shipowner or to the concurring negligence of the shipowner and the captain;

  3. The vessel is insured (Vasquez vs. CA 138 SCRA 553).

  4. Expenses for repair on vessel completed before loss;

  5. In case there is no total loss and the vessel is not abandoned;

  6. Collision between two negligent vessels;

 Abandonment of the vessel is necessary to limit the liability of the shipowner. The only instance were abandonment is dispensed with is when the vessel is entirely lost (Luzon Stevedoring vs. CA 156 SCRA 169).


 Instances:

  1. In case of civil liability from indemnities to third persons (Art. 587);

  2. In case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687); and

  3. In case of constructive loss of the vessel (Sec. 138, Insurance Code).




What may be abandoned


Goods shipped


1. In case of civil liability from indemnities to third persons (Art. 587);

2. Sec. 138, Insurance Code;

3. In case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687)

1. Partial non-delivery, where the goods are useless without the others (Art. 363);

2. Goods are rendered useless for sale or consumption for the purposes for which they are properly destined (Art. 365); and

3. In case of delay through the fault of the carrier (Art. 371).


  1. Transfer of ownership of the vessel from the shipowner to the shippers or insurer.

  2. In case of (2), the insurer must pay the insured as if there was actual total loss of the vessel.

  1. Transfer of ownership on the goods from the shipper to the carrier.

  2. Carrier should pay the shipper the market value of the goods at the point of destination.


  1. War or interdiction of commerce;

  2. Blockade;

  3. Prohibition to receive cargo at destination;

  4. Embargo;

  5. Inability of the vessel to navigate. (Art. 640)


  1. Interdiction of commerce – A governmental prohibition of commercial intercourse intended to bring about an entire cessation for the time being of all trade whatever.

  2. Blockade – A sort of circumvallation of a place by which all foreign connection and correspondence is, as far as human power can effect it, to be cut off.

  3. Embargo – A proclamation or order of a state, usually issued in time of war or threatened hostilities, prohibiting the departure of ships or goods from some or all the ports of such state until further order.

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