Transportation Law | Atty.

Golangco | 2015-2016 | 2J

PUROMINES v CA
March 22, 1993
SUMMARY: A sales contract for the sale of prilled urea was entered into by Puromines and Makati Agro and
it was provided therein that any disputes arising from the contract shall be settled by arbitration in London.
The shipment covered by 3 bills of lading was undertaken by MV Liliana Dimitrova with Philipp Brothers as
charterer of said vessel. When shipment covered by Bill of Lading 2&3 were discharged in Manila in bad order
and condition, Puromines filed a complaint with TC for breach of contract of carriage against Maritime, shipagent and Philipp Brothers, as charterer. Philipp filed a motion to dismiss on the basis that case should be
brought to arbitration first. Puromines opposed contending that the sales contract does not include contract of
carriage, the latter not covered by agreement on arbitration. SC: Granted Motion to Dismiss, sales contract and
bill of lading provides covers arbitration clause. Assuming the cause of action is based on contract of carriage,
it must be first determined what kind of charter party had with the shipowner to determine liability. If contract
of affreightment, charterer is not liable as possession is still with owner. If charter of demise or bareboat, then
charterer is liable as it is considered the owner and therefore would be liable for damage or loss.
FACTS:
Puromines, Inc. and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with
Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk.
Sales Contract provided an arbitration clause:
o "9. Arbitration: "Any disputes arising under this contract shall be settled by arbitration in
London in accordance with the Arbitration Act 1950 and any statutory amendment or
modification thereof. Each party is to appoint an Arbitrator, and should they be unable to agree,
the decision of an Umpire appointed by them to be final. The Arbitrators and Umpire are all to be
commercial men and resident in London. This submission may be made a rule of the High
Court of Justice in England by either party."
May 22, 88: M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a shipment of 15k metric tons
prilled Urea in bulk complete and in good order and condition for transport to Iloilo and Manila, to be
delivered to Puromines.
3 bills of lading were issued by the ship-agent, Maritime Factors Inc:
o Bill of Lading No. 1 dated May 12, 88 covering 10k metric tons for discharge to Manila;
o Bill of Lading No. 2 of even date covering 4k metric tons for unloading in Iloilo City; and
o Bill of Lading No. 3, same date, covering 1,500 metric tons likewise for discharge in Manila
Shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order and
condition. However, shipments covered by Bill of Lading Nos. 1 and 3 were discharged in Manila in
bad order and condition, caked, hardened and lumpy, discolored and contaminated with rust and dirt.
o Damages were valued at P683, 056. 29 including additional discharging expenses.
Puromines filed a complaint with the trial court for breach of contract of carriage against Maritime
Factors Inc. (not included as respondent in this petition) as ship-agent for the owners of the vessel MV
"Liliana Dimitrova," while Philipp Brothers Oceanic Inc., was impleaded as charterer of the said vessel
o Caking and hardening, wetting and melting, and contamination by rust and dirt of the damaged
portions of the shipment were due to the improper ventilation and inadequate storage facilities of
the vessel
o Wetting of the cargo was attributable to the failure of the crew to close the hatches before and
when it rained while the shipment was being unloaded in the Port of Manila;
o As a direct and natural consequence of the unseaworthiness and negligence of the vessel,
Puromines suffered damages in the total amount of P683, 056.29.
Maritime Factors, Inc. filed its Answer to the complaint, while Philipp filed a motion to dismiss on the
grounds that:
o the complaint states no cause of action; it was prematurely filed; and Puromines should comply
with the arbitration clause in the sales contract.

Transportation Law | Atty. Golangco | 2015-2016 | 2J

Puromines opposed motion to dismiss contending the inapplicability of the arbitration clause inasmuch
as the cause of action did not arise from a violation of the terms of the sales contract but rather for claims
of cargo damages where there is no arbitration agreement.
TC: Denied Philipp's motion to dismiss. Arbitration not applicable.
o Sales contract states in part: 'Any disputes arising under this contract shall be settled by
arbitration
o Facts alleged in the complaint show that the cause of action arose from a breach of contract of
carriage by the vessel chartered by Philipp Brothers thus; the arbitration clause cannot apply to the
dispute in the present action which concerns Puromines' claim for cargo loss/damage arising from
breach of contract of carriage.
o No merit to allegations that Philipp, not being the ship owner, is therefore not the real party in
interest as it was impleaded as charterer of the vessel, hence, a proper party
CA: Complaint Dismissed. The arbitration provision in the sales contract and/or the bills of lading is
applicable in the present case.
o Sales contract is broad enough to include the claim for damages arising from the carriage
and delivery of the goods subject-matter thereof.
o Bills of lading state: 'Any dispute arising under this Bill of Lading shall be referred to
arbitration of the Maritime Arbitration Commission xxx
Hence, this special civil action for certiorari and prohibition.
o Puromines argues that the sales contract does not include the contract of carriage which is a
different contract entered into by the carrier with the cargo owners.
o Error for CA to touch upon the arbitration provision of the bills lading in its decision inasmuch as
the same was not raised as an issue by Philipp who was not a party in the bills of lading
ISSUES:
1) Whether the phrase "any dispute arising under this contract" in the arbitration clause of the sales contract
covers a cargo claim against the vessel (owner and/or charterers) for breach of contract of carriage? (YES)
2) Assuming that the cause of action arises from the contract of carriage, whether Philipp, as charterer, would
be liable for the loss or damage? (Depends on type of charter, YES if charter of demise, NO if contract of
affreightment)
3) Whether arbitration provision should not have been discussed as it was not raised as a defense? (NO)
RATIO:
1) Sales contract is comprehensive enough to include claims for damages arising from carriage and delivery
of the goods.
GENERAL RULE: Seller has the obligation to transmit the goods to the buyer, and concomitant thereto,
the contracting of a carrier to deliver the same.
o Art. 1523: Where in pursuance of a contract of sale, the seller is authorized or required to send
the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not,
for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the
buyer, EXCEPT in the cases provided for in article 1503, first, second and third paragraphs, or
UNLESS a contrary intent appear.
o "Unless otherwise authorized by the buyer, the seller must take such contract with the carrier
on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the
other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in
course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to
himself, or may hold the seller responsible in damages."
Sales Contract provides for conditions relative to the delivery of goods, such as date of shipment,
demurrage, weight as determined by the bill of lading at load port and more particularly the provisions in
the contract. xxxx
Puromines derives his right to the cargo from the bill of lading which is the contract of affreightment
together with the sales contract. It is BOUND by the provisions and terms of said bill of lading and of
the ARBITRATION CLAUSE incorporated in the sales contract.

Transportation Law | Atty. Golangco | 2015-2016 | 2J

2) Assuming that the liability of Philipp is not based on the sales contract, but rather on the contract of carriage,
being the charterer of the vessel MV "Liliana Dimitrova," it is material to show what kind of charter party
Philipp had with owner of vessel to determine former's liability. Assuming that in the present case, the charter
party is a demise or bareboat charter, then Philipp Brothers is liable to Puromines, Inc., subject to the terms
and conditions of the sales contract. On the other hand, if the contract between Philipp and the owner of the
vessel MV "Liliana Dimitrova" was merely that of affreightment, then it cannot be held liable for the
damages caused by the breach of contract of carriage, the evidence of which is the bill of lading.
Charter party: Definition
American jurisprudence defines charter party as a contract by which an entire ship or some principal part
thereof is let by the owner to another person for a specified time or use. (Ward v. Thompson)
Two Kinds of Charter Parties
o Charter of demise or bareboat AND contracts of affreightment.
Demise or Bareboat Charter of Veseel
Contract of Affreightment
Charterer will generally be considered as OWNER
Owner of the vessel leases part or all of its space to
for the voyage or service stipulated
haul goods for others
The charterer mans the vessel with his own people
It is a contract for a special service to be rendered
and becomes, in effect, the owner pro hac vice,
by the owner of the vessel and under such contract
subject to liability to others for damages caused by
the GENERAL OWNER RETAINS the possession,
negligence. (Assistance, Inc. v. Teledyne Industries command and navigation of the ship, the charterer
Inc)
or freighter merely having use of the space in the
vessel in return for his payment of the charter hire.
(US v. Shea)
To create a demise, the owner of a vessel must
Anything short of such a complete transfer is a
completely and exclusively relinquish possession.
contract of affreightment (time or voyage charter
party) or not a charter party at all.
Responsibility to third persons for goods shipped
If the charter is a contract of affreightment, which
on board a vessel follows the vessel's possession
leaves the general owner in possession of the ship
and employment; and if possession is transferred to as owner for the voyage, the rights, responsibilities
the charterer by virtue of a demise, the charterer,
of ownership rest on the owner and the charterer
and not the owner, is liable as carrier on the
is usually free from liability to third persons in
contract of affreightment made by himself or by the respect of the ship. (Leary v. US)
master with third persons, and is answerable for
An owner who retains possession of the ship,
loss, damage or non-delivery of goods received for though the hold is the property of the charterer,
transportation.
remains liable as carrier and must answer for any
breach of duty as to the care, loading or unloading
of the cargo. (Gracie v. Palmer)
o In any case, whether the liability of Philipp should be based on the same contract or that of the bill of
lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract
and/or the bill of lading. Puromines being a signatory and party to the sales contract cannot escape from
his obligation under the arbitration clause as stated therein.
Arbitration Clauses
o Arbitration has been held valid and constitutional. Even before the enactment of RA 876, SC has
countenanced the settlement of disputes through arbitration. The rule now is that UNLESS the
agreement is such as absolutely to close the doors of the courts against the parties, which agreement would
be void, the courts will look with favor upon such amicable arrangements and will only interfere with
great reluctance to anticipate or nullify the action of the arbitrator. (Arbitration as a Means of
Reducing Court Congestion, Coquia, Jorge quoting Malcolm, J.)
o Mindanao Portland Cement Corp. v. McDonough Construction Company of Florida: With a written
provision for arbitration as well as failure on respondent's part to comply, parties must proceed to their
arbitration in accordance with the terms of their agreement (Sec. 6, RA 876). Proceeding in court is merely
a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to
resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or
not. And although it has been ruled that a frivolous or patently baseless claim should not be ordered to

Transportation Law | Atty. Golangco | 2015-2016 | 2J

arbitration it is also recognized that the mere fact that a defense exist against a claim does not make it
frivolous or baseless.
3) Puromines contention that the arbitration provision in the bills of lading should not have been discussed as
an issue in the CA decision since it was not raised as a special or affirmative defense is without merit. The 3
bills of lading were attached to the complaint as Annexes and are therefore parts thereof and may be
considered as evidence although not introduced as such. (Philippine Bank of Communications v. CA) It was
then proper for CA/TC to discuss the contents of the bills of lading, having been made part of the record.
DISPOSITIVE: Arbitration clause stated in Sales Contract valid and applicable. CA Affirmed.

LITONJUA SHIPPING CO INC v. NATIONAL SEAMAN BOARD & GREGORIO CANDONGO

G.R. No. L-51910, August 10, 1989
FACTS: Petitioner is the duly appointed local crewing managing office of the Fairwind Shipping Corporation.
On September 11, 1976 M/V Dufton Bay an ocean-going vessel of foreign registry owned by the R.D. Mullion
ship broking agency under charter by Fairwind, while in the port of Cebu contracted the services (among
others) of Gregorio Candongo as Third Engineer for 12 months with a monthly wage of US$500.00. The
agreement was executed before the Cebu Area Manning Unit of the NSB, after which respondent boarded the
vessel.
On December 28, 1976 before the expiration of contract, respondent was required to disembark at Port Kilang,
Malaysia. Describe in his seamans handbook is the reason by owners arrange.
Condongo filed a complaint against Mullion (Shipping company) for violation of contract and against Litonjua
as agent of shipowner.
On February 1977, NSB rendered a judgment by default for failure of petitioners to appear during the initial
hearing, rendering the same to pay Candongo because there was no sufficient or valid cause for the
respondents to terminate the service of the complainant.
Litonjuas defense:
Contends that the shipowner, nor the charterer, was the employer of private respondent; and that liability for
damages cannot be imposed upon petitioner which was a mere agent of the charterer.
ISSUE: W/N Litonjua may be held liable to the private respondent on the contract of employment YES
HELD: The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the
charterer. It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac vice of
the vessel, the charterer assuming in large measure the customary rights and liabilities of the shipowner in
relation to third persons who have dealt with him or with the vessel. In such case, the Master of the vessel is
the agent of the charterer and not of the shipowner. The charterer or owner pro hac vice, and not the general
owner of the vessel, is held liable for the expenses of the voyage including the wages of the seamen
Treating Fairwind as owner pro hac vice, petitioner Litonjua having failed to show that it was not such, we
believe and so hold that petitioner Litonjua, as Philippine agent of the charterer, may be held liable on the
contract of employment between the ship captain and the private respondent.
There is a second and ethically more compelling basis for holding petitioner Litonjua liable on the contract of
employment of private respondent. The charterer of the vessel, Fairwind, clearly benefitted from the

Transportation Law | Atty. Golangco | 2015-2016 | 2J

employment of private respondent as Third Engineer of the Dufton Bay, along with the ten (10) other Filipino
crewmembers recruited by Captain Ho in Cebu at the same occasion.
In so doing, petitioner Litonjua certainly in effect represented that it was taking care of the crewing and other
requirements of a vessel chartered by its principal, Fairwind.
Last, but certainly not least, there is the circumstance that extreme hardship would result for the private
respondent if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to private respondent
upon the contract of employment.

PLANTERS PRODUCTS v. CA
FACTS: Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI)
of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on
16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki
Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as
evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner,
in Tokyo, Japan.
Before loading the fertilizer aboard the vessel, four (4) of her holds were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party.
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the
steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel
bonds. The hatches remained closed and tightly sealed throughout the entire voyage.
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the
use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which
were parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions
of the charter-partly (which provided for an F.I.O.S. clause). The hatches remained open throughout the
duration of the discharge.
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to
the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the trucks
were made to pass through a weighing scale where they were individually weighed for the purpose of
ascertaining the net weight of the cargo. The port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining occasionally while the discharge was in progress.
The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an opening at the front
where the dump trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets
were placed in-between and alongside the trucks to contain spillages of the ferilizer.
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and
18th). A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI
to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after
discharge. The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage
in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was contaminated
with dirt. The same results were contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974

Transportation Law | Atty. Golangco | 2015-2016 | 2J

prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and about 23 M/T
were rendered unfit for commerce, having been polluted with sand, rust and dirt.
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the
resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods
shipped and the diminution in value of that portion said to have been contaminated with dirt.
Respondent SSA explained that they were not able to respond to the consignee's claim for payment because,
according to them, what they received was just a request for shortlanded certificate and not a formal claim, and
that this "request" was denied by them because they "had nothing to do with the discharge of the shipment."
Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila.
The defendant carrier argued that the strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the charter-party.
The trial court however sustained the claim of the plaintiff against the defendant carrier for the value of the
goods lost or damaged.
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the
value of the cargo that was lost or damaged. Relying on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private
respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party.
Accordingly, the Civil Code provisions on common carriers which set forth a presumption of negligence do
not find application in the case at bar.
ISSUE: W/N a charter-party between a shipowner and a charterer transform a common carrier into a private
one as to negate the civil law presumption of negligence in case of loss or damage to its cargo
RULING: It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun
Plum", the ship captain, its officers and compliment were under the employ of the shipowner and therefore
continued to be under its direct supervision and control. Hardly then can we charge the charterer, a stranger to
the crew and to the ship, with the duty of caring for his cargo when the charterer did not have any control of
the means in doing so. This is evident in the present case considering that the steering of the ship, the manning
of the decks, the determination of the course of the voyage and other technical incidents of maritime
navigation were all consigned to the officers and crew who were screened, chosen and hired by the shipowner.
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a
time-charter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage
covering the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains
possession and control of the ship, although her holds may, for the moment, be the property of the charterer.
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee
should first prove the fact of shipment and its consequent loss or damage while the same was in the possession,
actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove that he has
exercised extraordinary diligence required by law or that the loss, damage or deterioration of the cargo was due
to fortuitous event, or some other circumstances inconsistent with its liability.
Although it is considered a common carrier, respondent has sufficiently overcome, by clear and
convincing proof, the prima facie presumption of negligence.

Transportation Law | Atty. Golangco | 2015-2016 | 2J

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the
Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the
fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing
the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron
lids, then covered with three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel covers made it
impossible for a person to open without the use of the ship's boom.
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility
of spillage of the cargo into the sea or seepage of water inside the hull of the vessel. When M/V "Sun Plum"
docked at its berthing place, representatives of the consignee boarded, and in the presence of a representative
of the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of
the shipmates who were overseeing the whole operation on rotation basis.
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by
the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo.

PLANTERS PRODUCTS INC v. CA

G.R. No. 101503 September 15, 1993
FACTS:
Planters Products - purchased from Mitsubishi Interl Corp. 9.3K metric tons of Urea (fertilizer), 46% of
which the latter shipped in bulk aboard the cargo vessel M/V Sun Plum owned by Kyosei Kisen Kabushiki
Kaisha (KKKK)
time charter-party on the vessel M/V Sun Plum pursuant to the Uniform General Charter was entered into
between Mitsubishi as shipper/charterer and KKKK as shipowner
before loading the fertilizer aboard the vessel they were inspected by the charterers representative and found
fit
After the Urea fertilizer was loaded in bulk by stevedores (somebody whose job is to load and unload ships)
hired by and under the supervision of the shipper, the steel hatches were closed with heavy iron lids, covered
with 3 layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed
throughout the entire voyage.
port area was windy, certain portions of the route to the warehouse were sandy and the weather was variable,
raining occasionally while the discharge was in progress
survey report revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer
approximating 18 M/T was contaminated with sand, rust and dirt
Planters Products sent a claim letter to Soriamont Steamship Agencies, the resident agent of the carrier, for
damages
ISSUES:
(1) W/N a common carrier becomes a private carrier by reason of a charter-party;
(2) W/N the shipowner was able to prove that he had exercised that degree of diligence required of him
HELD:
(1) Yes.
charter-party contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; contract of affreightment by which the owner of a ship or other
vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight
2 types of charter-party:

Transportation Law | Atty. Golangco | 2015-2016 | 2J

a. contract of affreightment involves the use of shipping space on vessels leased by the owner in part or as
a whole, to carry goods for others; may either be: i) time charter - vessel is leased to the charterer for a
fixed period of time; or ii) voyage charter - ship is leased for a single voyage
b. charter by demise or bareboat charter whole vessel is let to the charterer with a transfer to him of its
entire command and possession and consequent control over its navigation, including the master and the
crew, who are his servants
In both types, the charter-party provides for the hire of vessel only, either for a determinate period of time or
for a single or consecutive voyage, the shipowner to supply the ships stores, pay for the wages of the master
and the crew, and defray the expenses for the maintenance of the ship.
common or public carrier see Art. 1732; extends to carriers either by land, air or water which hold
themselves out as ready to engage in carrying goods or transporting passengers or both for compensation as
a public employment and not as a casual occupation
distinction between a common or public carrier and a private or special carrier lies in the character of the
business, such that if the undertaking is a single transaction, not a part of the general business or occupation,
although involving the carriage of goods for a fee, the person or corporation offering such service is a private
carrier
common carrier - should observe extraordinary diligence in the vigilance over the goods they carry; in case
of loss, destruction or deterioration of the goods, it is presumed to be at fault or to have acted negligently,
and the burden of proving otherwise rests on it
private carrier - exercise of ordinary diligence in the carriage of goods will suffice; no such presumption
applies to private carriers
only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is concerned
when Planters Products chartered the vessel M/V Sun Plum, the ship captain, its officers and compliment
were under the employ of the shipowner and therefore continued to be under its direct supervision and
control. As stranger to the crew and to the ship, Planters Products did not have the duty of caring for its
cargo as it did not have control of the means in doing so.
(2) Yes.
Before the fertilizer was loaded, the 4 hatches of the vessel were cleaned, dried and fumigated. After
completing the loading of the cargo in bulk in the ships holds, the steel pontoon hatches were closed and
sealed with iron lids, then covered with 3 layers of serviceable tarpaulins which were tied with steel bonds.
The hatches remained close and tightly sealed while the ship was in transit as the weight of the steel covers
made it impossible for a person to open without the use of the ships boom.
the hull of the vessel was in good condition, foreclosing the possibility of spillage of the cargo into the sea or
seepage of water inside the hull of the vessel
stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the whole
operation on rotation basis
Urea also contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and
ammonia do not normally evaporate even on a long voyage, provided that the temperature inside the hull
does not exceed 80 degrees centigrade.
dissipation of quantities of fertilizer, or its deterioration in value, is caused either by an extremely high
temperature in its place of storage, or when it comes in contact with water
probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made
greater by the fact that the fertilizer was transported in bulk, thereby exposing it to the inimical effects of the
elements and the grimy condition of the various pieces of equipment used in transporting and hauling it risk
the shipper or the owner of the goods has to face

Transportation Law | Atty. Golangco | 2015-2016 | 2J

CALTEX [PHILS] v. SULPICIO LINES

FACTS: On December 20, 1987, motor tanker MV Vector, carrying petroleum products of Caltex, collided in
the open sea with passenger ship MV Doa Paz, causing the death of all but 25 of the latters passengers.
Among those who died were Sebastian Canezal and his daughter Corazon Canezal. On March 22, 1988, the
board of marine inquiry found that Vector Shipping Corporation was at fault. On February 13, 1989, Teresita
Caezal and Sotera E. Caezal, Sebastian Caezals wife and mother respectively, filed with the Regional
Trial Court of Manila a complaint for damages arising from breach of contract of carriage against Sulpicio
Lines. Sulpicio filed a third-party complaint against Vector and Caltex. The trial court dismissed the complaint
against Caltex, but the Court of Appeals included the same in the liability. Hence, Caltex filed this petition.
FACTS (alternative):
December 19, 1987 8 pm: motor tanker MT Vector owned and operated by Vector Shipping
Corporation carried 8,800 barrels of petroleum products of Caltex by virtue of a charter contract
December 20, 1987 6:30 am: MV Doa Paz passenger and cargo vessel owned and operated by
Sulpicio Lines, Inc. left the port of Tacloban headed for Manila with 1,493 passengers indicated in the
Coast Guard Clear
December 20, 1987: MT Vector collided with MV Doa Paz in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental Mindoro, killing almost all the passengers and crew
members of both ships except for 24 survivors
MV Doa Paz carried an estimated 4,000 passengers most were not in the passenger manifest
board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector, its
registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation,
were at fault and responsible for its collision with MV Doa Paz
February 13, 1989: Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and mother
respectively, filed a complaint for Damages Arising from Breach of Contract of Carriage against
Sulpicio Lines, Inc. for the death of Sebastian E. Caezal (public school teacher 47 years old) and his
11-year old daughter Corazon G. Caezal
Sulpicio, in turn, filed a 3rd party complaint against Francisco Soriano, Vector Shipping Corporation
and Caltex
Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well
that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation
RTC: dismissed the third party complaint and favored the Caezal's against Sulpicio Lines
CA: included Caltex as liable party
ISSUE: W/N a charterer of a sea vessel liable for damages resulting from a collision between the chartered
vessel and a passenger ship
HELD:
First: The charterer has no liability for damages under Philippine Maritime laws.
Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter.
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or
other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight. A contract of affreightment may be either time
charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the
vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to
supply the ships store, pay for the wages of the master of the crew, and defray the expenses for the
maintenance of the ship. If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the
owner. The charterer is free from liability to third persons in respect of the ship.

Transportation Law | Atty. Golangco | 2015-2016 | 2J

Second: MT Vector is a common carrier

The charter party agreement did not convert the common carrier into a private carrier. The parties entered into
a voyage charter, which retains the character of the vessel as a common carrier. It is imperative that a public
carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage charter. It is
only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably,
a ship-owner in a time or voyage charter retains possession and control of the ship, although her holds may, for
the moment, be the property of the charterer. A common carrier is a person or corporation whose regular
business is to carry passengers or property for all persons who may choose to employ and to remunerate him.
16 MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code.
The public must of necessity rely on the care and skill of common carriers in the vigilance over the goods and
safety of the passengers, especially because with the modern development of science and invention,
transportation has become more rapid, more complicated and somehow more hazardous. For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the
carrier being obliged by law to impliedly warrant its seaworthiness.
Third: Is Caltex liable for damages under the Civil Code?
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered
complied with all legal requirements. The duty rests upon the common carrier simply for being engaged in
"public service." The relationship between the parties in this case is governed by special laws. Because of the
implied warranty of seaworthiness, shippers of goods, when transacting with common carriers, are not
expected to inquire into the vessels seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the
futility of our maritime laws insofar as the protection of the public in general is concerned. Such a practice
would be an absurdity in a business where time is always of the essence. Considering the nature of
transportation business, passengers and shippers alike customarily presume that common carriers possess all
the legal requisites in its operation.

DELA TORRE VS. CA

G.R. No. 160088, Jul. 13, 2011
FACTS: Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with the
Philippine Coast Guard. Concepcion and the Philippine Trigon Shipyard Corporation (PTSC), represented by
Roland, entered into a "Contract of Agreement," wherein the latter would charter LCT-Josephine.
PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single proprietorship owned by
Rolands father, Agustin de la Torre (Agustin). TSL, this time represented by Roland per Agustins Special
Power of Attorney, sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo
consisting of sand and gravel to Leyte. The LCT-Josephine with its cargo of sand and gravel arrived at Philpos,
Isabel, Leyte. The vessel was beached near the NDC Wharf. With the vessels ramp already lowered, the
unloading of the vessels cargo began with the use of Larrazabals payloader. While the payloader was on the
deck of the LCT-Josephine scooping a load of the cargo, the vessels ramp started to move downward, the
vessel tilted and sea water rushed in. Shortly thereafter, LCT-Josephine sank. Concepcion demanded that
PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion that negotiations were underway for the
refloating of his vessel. Unfortunately, this did not materialize. For this reason, Concepcion was constrained to
institute a complaint for "Sum of Money and Damages" against PTSC and Roland before the RTC. PTSC and
Roland filed their answer together with a third-party complaint against Agustin. Agustin, in turn, filed his

Transportation Law | Atty. Golangco | 2015-2016 | 2J

answer plus a fourth-party complaint against Larrazabal. The latter filed his answer and counterclaim but was
subsequently declared in default by the RTC. Eventually, the fourth-party complaint against Larrazabal was
dismissed when the RTC rendered its decision in favor of Concepcion. The appellate court, in agreement with
the findings of the RTC, affirmed its decision in toto.
ISSUE:
(1) W/N the Code of Commerce is applicable, more specifically, the Limited Liability Rule; and
(2) W/N the petitioners are solidarily liable.
HELD: No. Petitioners position is that the Limited Liability Rule under the Code of Commerce should be
applied to them, the argument is misplaced. The said rule has been explained to be that of the real and
hypothecary doctrine in maritime law where the shipowner or ship agents liability is held as merely coextensive with his interest in the vessel such that a total loss thereof results in its extinction.
In this jurisdiction, this rule is provided in three articles of the Code of Commerce. One of which, Article 837
specifically applies to cases involving collision which is a necessary consequence of the right to abandon the
vessel given to the shipowner or ship agent under the first provision Article 587. Similarly, Article 590 is a
reiteration of Article 587, only this time the situation is that the vessel is co-owned by several persons.
Obviously, the forerunner of the Limited Liability Rule under the Code of Commerce is Article 587. Now, the
latter is quite clear on which indemnities may be confined or restricted to the value of the vessel pursuant to
the said Rule, and these are the "indemnities in favor of third persons which may arise from the conduct of
the captain in the care of the goods which he loaded on the vessel."
Thus, what is contemplated is the liability to third persons who may have dealt with the shipowner, the agent
or even the charterer in case of demise or bareboat charter. The only person who could avail of this is the
shipowner, Concepcion. He is the very person whom the Limited Liability Rule has been conceived to protect.
The petitioners cannot invoke this as a defense. The shipowners or agents liability is merely coextensive with
his interest in the vessel such that a total loss thereof results in its extinction. The total destruction of the vessel
extinguishes maritime liens because there is no longer any res to which it can attach. This doctrine is based on
the real and hypothecary nature of maritime law which has its origin in the prevailing conditions of the
maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To
offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any.
The charterer of a vessel, under the conditions stipulated in the charter party in question, is the owner pro hac
vice of the ship and takes upon himself the responsibilities of the owner. Therefore, even if the contract is for
a bareboat or demise charter where possession, free administration and even navigation are temporarily
surrendered to the charterer, dominion over the vessel remains with the shipowner. Ergo, the charterer or the
sub-charterer, whose rights cannot rise above that of the former, can never set up the Limited Liability Rule
against the very owner of the vessel. In the present case, the charterer and the sub-charterer through their
respective contracts of agreement/charter parties, obtained the use and service of the entire LCT-Josephine.
The vessel was likewise manned by the charterer and later by the sub-charterers people. With the complete
and exclusive relinquishment of possession, command and navigation of the vessel, the charterer and later the
sub-charterer became the vessels owner pro hac vice.
Now, and in the absence of any showing that the vessel or any part thereof was commercially offered for use to
the public, the above agreements/charter parties are that of a private carriage where the rights of the
contracting parties are primarily defined and governed by the stipulations in their contract. Thus, Roland, who,
in his personal capacity, entered into the Preliminary Agreement with Concepcion for the dry-docking and
repair of LCT-Josephine, is liable under Article 1189 of the New Civil Code. There is no denying that the
vessel was not returned to Concepcion after the repairs because of the provision in the Preliminary Agreement

Transportation Law | Atty. Golangco | 2015-2016 | 2J

that the same "should" be used by Roland for the first two years. Before the vessel could be returned, it was
lost due to the negligence of Agustin to whom Roland chose to sub-charter or sublet the vessel.
Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under Article
1651 of the New Civil Code. Although he was never privy to the contract between PTSC and Concepcion, he
remained bound to preserve the chartered vessel for the latter. Despite his non-inclusion in the complaint of
Concepcion, it was deemed amended so as to include him because, despite or in the absence of that formality
of amending the complaint to include him, he still had his day in court as he was in fact impleaded as a thirdparty defendant by his own son, Roland the very same person who represented him in the Contract of
Agreement with Larrazabal.
Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the time
when it was dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to do so in
clear contravention of their respective agreements. Certainly, they should now all answer for the loss of the
vessel.

OUANO v. CA
G.R. No. 95900, 23 July 1992
Facts: Julius C. Ouano is the registered owner and operator of the motor vessel known as M/V Don Julio
Ouano. On 8 October 1980, Ouano leased the said vessel to Florentino Rafols Jr. under a charter party. The
consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down
payment and the balance of P30,000.00 to be paid within 20 days after actual departure of the vessel from the
port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and
should not sublet or sub-charter the same without the knowledge and written consent of the owner. On 11
October 1980, Rafols contracted with Market Developers, Inc. (MADE) through its group manager, Julian O.
Chua, under an agreement denominated as a Fixture Note to transport 13,000 bags of cement from Iligan
City to General Santos City, consigned to Supreme Merchant Construction Supply, Inc. (SMCSI) for a
freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that
is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of
loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of
Ouano. Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from
Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination. On 13
October 1980, Ouano wrote a letter to MADE through its manager, Chua, to strongly request, if not demand
to hold momentarily any payment or partial payment whatsoever due M/V Don Julio Ouano until Mr.
Florentino Rafols makes good his commitment to petitioner. On 20 October 1980, MADE, as shipper, paid
Rafols the amount of P23,075.00 corresponding to the first installment of the freightage for the aforestated
cargo of cement. The entire cargo was thereafter unloaded at General Santos City Port and delivered to the
consignee, SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said
sobre cargo of Rafols, or even of Ouano himself who was then in General Santos City Port, to hold and keep in
deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any demand
made on Rafols, et. al. for a bond to secure payment of the freightage, nor to assert in any manner the maritime
lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement was sold in
due course of trade by SMCSI to its customers in October and November 1980.
On 6 January 1981, Ouano filed a complaint in the RTC of Cebu against MADE, as shipper; SMCSI, as
consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the
cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorneys fees and
expenses of litigation. On 10 March 1981, MADE filed its answer, while Ang and Chua filed theirs on 10
February 1982 and 31 May 1982, respectively. Rafols was declared in default for failure to file his answer
despite due service of summons. On 25 May 1985, the trial court rendered a decision in favor of Ouano, (1)

Transportation Law | Atty. Golangco | 2015-2016 | 2J

ordering MADE, Chua, SMCSI, Ang (Chua Pek Giok) and Rafols, jointly and severally, to pay to Ouano the
sum of P23,075.00 corresponding to the first 50% freight installment on the latters vessel `M/V Don Julio
Ouano included as part of the purchase price paid by SMCSI to MADE, plus legal interest from 6 January
1981 date of filing of the original complaint; (2) sentencing MADE, Chua and Rafols, jointly and solidarily, to
pay Ouano P50,000.00 in concept, of moral and exemplary damages, and P5,000.00 attorneys fees; and (3)
sentencing SMCSI and Ang, jointly and severally, to pay Ouano P200,000.00 attorneys fees and expenses of
litigation, P4,000.00, including P1,000.00 incurred by Ouano for travel to General Santos City to coordinate in
serving an alias summons per sheriffs return of service, with costs against Rafols, et.al.
On appeal, and on 30 August 1990, the Court of Appeals reversed the decision, and absolved MADE, et. al.
from the complaint; but affirmed the decision with respect to Rafols. Ouano filed a motion for reconsideration
which was denied by the Court of Appeals on 15 October 1990. Hence, the petition for review on certiorari.
The Supreme Court denied the petition and affirmed the assailed judgment of the Court of Appeals.
1. Contract binding upon contracting parties; Contract neither favor nor prejudice third person
It is a basic principle in civil law that, with certain exceptions not obtaining in the present case, a contract can
only bind the parties who had entered into it or their successors who assumed their personalities or their
juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person.
Herein, the charter contract was entered into only by and between Ouano and Rafols, and MADE and SMCSI
were neither parties thereto nor were they aware of the provisions thereof.
2. Violation of charter party does not give rise to cause of action against sublessee or sub-charterer;
Owners recourse
The violation of the prohibition in the contract against the sublease or sub-charter of the vessel without the
vessel owners knowledge and written consent does not give rise to a cause of action against the supposed
sublessee or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a categorical
prohibition may be a violation of the contract, but the owners right of recourse is against the original
charterer, either for rescission or fulfillment, with the payment of damages in either case.
3. Obligations of contracts limited to parties making them
The obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to
contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under
its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an
expression of agent by such person is necessary.
4. MADE and Chua not liable for damages for quasi-delict under Article 176 NCC
MADE and Chua are not to be held liable for damages for a quasi-delict under Article 176 of the Civil Code
for having failed to obtain his consent before entering into an agreement with Rafols. The obligation to obtain
the written consent of Ouano before subleasing or sub-chartering the vessel was on Rafols and not on MADE,
hence the latter cannot be held liable for the supposed non-compliance therewith.
5. MADE and Chua not liable for damages for quasi-delict under Artice 1314 for inducing Rafols to
violate charter party
MADE and Chua could not be held guilty of inducing Rafols to violate the original charter party. (1) There is
no evidence on record to show that MADE and Chua had knowledge of the prohibition imposed in the original
charter party to sublease or sub-charter the vessel. (2) At the time the fixture note was entered into between
Rafols and MADE, a written authorization signed by the wife of Ouano in his behalf, authorizing Rafols to
execute contracts, negotiate for cargoes and receive freight payments, was shown by the former to the latter.
Although the said authorization may have been made by the wife, the same, however, can evidently be proof of
good faith on the part of MADE and Chua who merely relied thereon. (3) As stated in the fixture note, the
agreement between Rafols and MADE was for the former to transport the cement of the latter using either the

Transportation Law | Atty. Golangco | 2015-2016 | 2J

M/V Don Julio Ouano or substitute vessel at his discretion. Hence, the decision to use the M/V Don Julio
Ouano in transporting the cargo of MADE was solely that of Rafols.
6. Demand of second freight installment a ratification of the sub-charter contract
Herein, Ouano is deemed to have ratified the supposed sub-charter contract entered into by MADE and Rafols
when he demanded the payment of the second freight installment as provided in the agreement and, later,
received the same by virtue of the decision of the CFI of Cebu in Civil Case R-19845, an interpleader case
filed by MADE.
7. Payment not indication of bad faith or malice; Article 1240 NCC
The act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or malice.
Article 1240 of the Civil Code provides that (p)ayment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person authorized to receive it.
Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols.
8. Leases involved in a sublease agreement; Rights and obligations of parties
In a sublease arrangement, there are two distinct leases involved, that is, the principal lease and the sublease.
There are two juridical relationships which co-exist and are intimately related to each other, but which are
nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not
disappear; his rights and obligations vis-a-vis the lessor are not passed on to nor acquired by the sublessee. The
lessor is in the main and except only in the instances specified in the Civil Code, a stranger to the relationship
between the lessee-sublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the
lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the
lessor, said rentals being due and parable to the lessee-sublessor. Herein, MADE was under no obligation to
pay Ouano since the freightage was payable to Rafols.
9. Article 1652 NCC, Sublessee subsidiary liable to lessor; No demand however was made against
sublessee
Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor
for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from
him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. Herein,
Ouano made no demand for payment from MADE. His letter dated 13 October 1980 was only a request to hold
momentarily any payment due for the use of M/V Don Julio Ouano until Rafols had made good his obligations
to him.
10. MADE could not withhold payment of freight
In the absence of any positive action on the part of Ouano, MADE could not withhold the payment of the
freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon arrival of
the assigned vessel at the port of loading. The goods were loaded in the vessel on or before 9 October 1980,
hence on that date the first freight installment was already due and demandable. To further withhold the
payment of said installment would constitute a breach of MADEs obligation under the foregoing contract.
11. Rafols bouncing checks cannot be ascribable to MADE
Herein, payments were actually made after 13 October 1980 by Rafols to Ouano, to wit: (a) two checks in the
total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third postdated check for
P32,000.00 issued on 9 November 1980. The fact that the said checks bounced for insufficient funds cannot in
any way be ascribable to MADE nor can it create or affect any liability which Ouano seeks to impute to
MADE, SMCSI and their agents.
12. Kinds of charter party
A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a
cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner
of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the

Transportation Law | Atty. Golangco | 2015-2016 | 2J

officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of
the owner and becomes the owner for the voyage. This second type is also known as a bareboat charter or
otherwise referred to as a demise of the vessel. In a charter party of the second kind, not only the entire
capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and
management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not
destroyed, the charterer is substituted in his place, in whose favor the lien continues to exist when goods are
taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal
action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the
charterer. Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the
voyage, and that is the kind of charter party involved in the present case, the general owner has no lien on the
cargo for the hire of the vessel, in the absence of an express provision therefor.
13. Lien on unpaid freight available when owner retains possession of goods
Even on the assumption that Ouano had a lien on the cargo for unpaid freight, the same was deemed waived
when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a
lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third
person terminates, or constitutes a waiver of, the lien. The lien of a carrier for the payment of freight charges
is nothing more than the right to withhold the goods, and is inseparably associated with its possession and
dependent upon it.
14. Shipowners lien on freight not in the nature of hypothecation
The shipowners lien for freight is not in the nature of a hypothecation which will remain a charge upon the
goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is
therefore lost by an unconditional delivery of the goods to the consignee.
15. Article 667 of Code of Commerce as modified by Article 2241 NCC; Period where lien subsists
Under Article 667 of the Code of Commerce, the period during which the lien shall subsist is 20 days.
Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for
transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a
preferred claim or lien on the goods carried until their delivery and for 30 days thereafter. During this period,
the sale of the goods may be requested, even though there and other creditors and even if the shipper or
consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were
turned over to a third person without malice on the part of the third person and for a valuable consideration.
16. Overseas Factors vs. South Sea Shipping inapplicable
The case of Overseas Factors, Inc., et al. vs. South Sea Shipping Co., et al. is ineffectual and unavailing. In
said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the
same unless the balance of the freight was paid. Herein, the cargo had already been unconditionally delivered
to the consignee SMCI without protest.