Marx Notes - Mercantile Law Review 2 (Dimayuga)

Professor: Dean Amado L.
Dimayuga DCL
Transcribers:
Marc Roby de Chavez (MARX)
MERCANTILE LAW REVIEW 2 NOTES by MARX

Historical Background of Insurance in the Philippines:
During the Spanish regime, we had already the so
called contract of insurance.
elements found in the Civil Code namely the consent, object

and cause or consideration must be present in all kinds of
contracts.
What was the governing law at that time?

During that time, the governing laws were the
Spanish Code of Commerce and th
the Spanish Civil
Code. There were provisions found in two Codes
governing contracts of insurance.
Consent - is the meeting of the minds of the contracting

parties. There is consent when there is the concurrence of
offer and acceptance
who are the parties in a contract of Insurance?
Insurer
Insured
Beneficiary ***
When the Americans came, the first Insurance Act was

enacted into law in a year 1915, it was the Philippine
legislature that enacted a piece of legislation governing
g
insurance.
es. But the contracting parties are

They are the main parties.
only the insurer and insured. The moment that there is a
meeting of the minds between the insurer and insured, there
is a consent.
Then in 1974, the Phil. Legislature enacted P.D.

And finally in 1978, we had the so called Insurance Code of
the Phil. This is the present law on insurance (Insurance Code
of 1978). The Insurance Code is the primary/principal law. On
O
the other hand, the Civil Code applies suppletorily
(Supplemental Law). Provisions relative to Obligations and
Contracts are applicable insurance cases if there is no
applicable provision in the Insurance Code.
When is there a meeting of the mind between insurer and

insured in a contract of insurance?
insuran
who is the offeror and the
offeree?
Offeror- the one who applies for contract of
insurance. The insured is the one who applies for
insurance. Thus, the insured is the offeror and
applicant.
Insurance is a contact wherein the two contracting

co
parties
namely the obligor and obligee a juridical relation is created.
So any if there is no provision in the Insurance Code, recourse
can be made to the general provision
on on Obligations and
Contracts
who solicits?
the agent of the Insurer
But who signs and accepts
epts the application
the insurer is the one who accomplish the
application.
Another repository of applicable principles is Decisions of the

United States Court and more particularly the Insurance Code
of California. When the Insurance of the Philippines was
being drafted, it was used as the principal model. These were
the laws that can be used in resolving insurance cases.
But the Insurer will accomplish the application form

for the insurance policy. The application will be
processed by the office of the Insurer. It is up for the
insurer whether to accept or to turn down. So in
effect, the offeree is insurer. When the insurer
accepts the application, it becomes the offeror.
When the insurer approves the application, the
insured will be notified.
In the year 1829, there was already a branch of an Insurance

company here in the name of Lloyds of London. In 1898, the
first life insurance company established to do business here
in our country was the Sun Life Insurance Company of
Canada. In 1906, Yek Tong Lin Fire and Marine Insurance
Company. In 1910, another life insurance company, Insular
Life.
How is the insured notified by the insurer that the application

a
has been accepted?
through the issuance of insurance policy
Insurance is a contract. There are 3 essential elements of a

contract namely:
consent
object
cause or consideration
When the policy is delivered to the insured, there is the

meeting of the minds. When the acceptance has come to the
knowledge of the offeror and when the acceptance of his
application has come to the knowledge of the insured, that is
the time that you can say that there is a meeting of the mind.
when does it come to his personal knowledge?
either constructively or actually
The same three elements are duly present in a contract of

insurance. In the absence of one element, you cannot have a
valid contract of insurance. Remember that the three
Page | 1

There is actual knowledge when the policy is delivered to
him.
Characteristics/features of a Contract of Insurance

Aleatory
Personal
Executory and Conditional
Utmost Confidence
Contract of Adhesion
There is constructive knowledge if the policy has already

been mailed but not yet received by the insured.
Offeror- insured
Offeree- insurer
When can we say that a contract is aleatory?

The liability of the
th insurer depends upon a
contingent event which may or may not happen.
Acceptance of the offer is made known to the insured. And

the conventional way to convey this is through
ugh the delivery of
the policy.
The insurance is an aleatory contract because there

is an assumption of risk.
Object - the contract of Insurance is a special contract. This is

not like a contract of sale wherein you can easily determine
what is the object. In a contract of sale, the object is the
subject matter to be sold. It is the
he thing that is being sold. But
in a contract of insurance, what is the object
ect?
Is sale an aleatory contract?

not an aleatory contract because there is no
assumption of risk.
There are two kinds of insurance

Life Insurance
Non-Life
insurance
ce is a highly personal contract.
if a person has to insure his life, he has to undergo medical
examination. Background of insured: his age, work, state of
health, status in life. All these will come to play in the
evaluation for a life insurance by the insurer.
If it is life insurance,, the subject matter is the life of a person.

That is your object.
If it is non-life, it is thee thing that is being insured e.g. car,
house, building. That is the object.
life insurance? Will it still be considered as

how about in a non-life
highly personal? Will personal circumstances come into play?
Yes. It also highly personal.
There is an element of insurable interest. It is not only the

object. The object may be there but there is a qualifying
element, the inured must have insurable interest in the
th
object. You cannot just insure a life of a person for instance if
you do not have an insurable interest. The insured must have
insurable interest in the thing or object. Without insurable
interest, there would not have been a valid contract of
insurance. In the absence of insurance interest, no valid
insurance contract. This applies to all kinds of insurance be it
life or non-life.
Illustration: You will insure your car. Insurer found out that
you figured in several car
ar accidents every year during the last
4 years. Records show that you are reckless driver.
If you figured in several car accidents, your premium will be
higher than a regular premium.
X has a bldg. Insurer found out that you are convicted of
arson. Insurer
surer will think twice.
Cause or Consideration - dual obligation

the cause or consideration on the part of the insurer
is the premium to be paid by the insured
insured.
X has a warehouse. But the insurer found out that he is

heavily indebted. Insurer will think twice regarding your
application.
The cause or consideration on the part of the

insured is the assumption of risk by the insurer
Executory and Conditional

in so far as the insurer is concerned, the contract of
insurance is executory
executor and conditional.
The consideration in so far as contract of insurance is

concerned:
1) assumption of risk by the insurer and
2) the premium to be paid by the insured.
insur
if the peril insured against happened, the insurer has

to pay. So it becomes executory
The contact of insurance is a special contract.
conditional because it depends upon the happening

of the contingency insured against.
Page | 2

insofar
far as the insured is concerned, it is already
executed because he has already paid the premium.
He has complied already with his prestation. In so far
as the insured is concerned, the insurance contract is
fully executed because he has done his part.
future. But the Insurance Code says, past or future. Does it

mean to say that a past event can be the subject
subj matter of an
insurance?
This is something peculiar to a maritime insurance.
With respect to maritime insurance, when you
insure a vessel, the liability against a future or past
event can be the subject
subj matter.
Utmost Confidence (Uberrima Fides)

contract that involvess utmost good faith on the part
of both parties
Example: when the vessel is insured, the insurer has

no obligation
igation to examine the vessel because
bec
it might
be on the high seas. A vessel in North America is
insured here by a local insurer, at the time that it
was insured, the vessel was already lost. The vessel
sank before the issuance of the policy.
when there is an application for insurance, the

applicant must divulge info like when he has been
hospitalized before, the insurer will rely on his
personal statement. The insurance company is not
mandated byy law to conduct an investigation before
a policy is issued. No presumption. The presumption
here is that the insurer will rely on the personal
statements/assertions of the insured.
er of the vessel acted in good faith, he

But the owner
does not have any knowledge whatsoever that his
vessel has already been lost. The coverage here is
loss or not loss. It is covered here by the insurance.
There is a provision of loss or not loss. Meaning to
say, it applies to past events.
b
Example: have you been hospitalized before
No. There is complete reliance
relian
on the
statement of the insured.
The insurance here is valid because the insured

acted in good faith, he did not know that his vessel
was lost.
Contract of Adhesion
the insured practically does not have any say in the
drafting of the policy
When we speak of insurable interest, there is piece of

property, which is mortgaged. It is given as a collateral to
secure
ecure an obligation to a mortgagee by way mortgage. When
you borrow money ex. in a bank, the bank will ask for a
collateral. You give as collateral a piece of property. What will
the bank do? The bank will ask the buyer to get an insurance
policy and make the bank a beneficiary for the amount of the
loan.
policy is printed by the insurer.

Insured has no say when it comes to the terms,
conditions of the policy.
so in casee of doubt, it will always be resolved in favor
of the insured.
It is a case of take it or leave it.
there can be two cases: if the owner for ex has already an

existing insurance over his house. Mr. X borrowed 100k from
the bank. He gave as collateral a house/bldg. But at the time
he is applying for loan,
oan, the prop which is giving as collateral is
already insured in his name. The beneficiary of the insurance
policy should be the bank to cover the amount of loan. Will it
be necessary on the part of X who already has an existing
policy to get another policy?
cy?
There is no more need if there is already an existing
policy. X can just assign his policy. Just an
assignment of policy. And that assignment is not
assignment of the interest in the property. The
assignment is for the effect that in case of loss, the
proceeds shall go to the beneficiary which is the
bank. Assignment of Policy to secure the obligation
to the bank.
Sec. 3. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against
him, may be insured against, subject to the provisions of this chapter.
The consent of the husband is not necessary for the validity of an insurance
policy taken out by a married woman on her life or that of her children.
Any minor of the age of eighteen
n years or more, may, notwithstanding such
minority, contract for life, health and accident insurance, with any insurance
company duly authorized to do business in the Philippines, provided the
insurance is taken on his own life and the beneficiary appointed
appoint is the
minor's estate or the minor's father, mother, husband, wife, child, brother or
sister.
Sec. 3 provides, Any

Any Contingent or unknown event, whether
past or future, which may damnify a person having an
insurable interest or create a liability against
st him..
When we speak of contingent event, we assume that this is a
future event. Something which may or may not happen in the
Page | 3

Supposing there is no policy yet, what will Mr. X do?
Mr. X will procure an insurance policy and in the
policy the beneficiary should be the
th bank to cover
the loan.
Supposing the insurance was obtained by the mortgagee

himself. There is no insurance yet. Who is the real party in
interest?
No. Because the contract is between the mortgagee
and the insurer. The mortgagee here is considered
creditor.
In the case of a mortgage executed to secure a loan

obligation, the mortgagee has insurable interest to the extent
of the loan he extended. The bank can secure a policy in his
name to secure the credit. Property is mortgaged in the bank.
So the bank by itself can obtain a policy. The insured here will
be the bank. What the bank will be insuring is his interest in
the mortgaged property.
Up to how much amount can the

th mortgagee insure?
only up to the extent of the credit.
If the insurance contract is for 100k but at the time of the
loss, the obligation is 50k only, he can only collect 50k
because that is the amount of the insurable interest.
Supposing the mortgagee is the one who applied in the name

of mortgagor, the beneficiary is the bank. The policy is in the
name of the mortgagor but assigned to the bank. What will
be the effect in case of loss?
The insurance is still believed to be for the interest
of the mortgagor. The real party in interest is the
mortgagor. Whatever the mortgagor
agor will do will
affect the insurance policy. If he violates the policy,
even though he designated the bank as beneficiary
or has already assigned the policy in favor of the
bank, still the mortgagor is a party to the insurance.
How about the balance?

the mortgagee cannot recover the entire amount of
100k. What is recoverable only is up to the extent of
insurable interest.
Assuming that there is full payment, will the payment by the
insurer to the mortgagee extinguish your obligation?
not extinguished. The bank will be subrogated in the
place of the mortgagee. The bank can now run after
the mortgagor.
What if he violates a provision

ovision in the policy? And the violation
is a cause for the annulment/avoidance of the policy?
Any act which can be performed by the mortgagor
can be performed by the mortgagee for example the
payment of the premium. The bank usually advances
the payment of the premiums. When there is notice
of renewal, the bank advances the premium in
behalf of the mortgagor. This can be done by the
mortgagee.
INSURABLE INTEREST
What is insurable interest?
an essential element, without insurable interest
there cannot be a valid contract of insurance.
It is something from which one can derive pecuniary
rd
interest in and the 3 person will suffer damage in
case of loss. There is an interest in a thing
In case of loss, to whom shall the proceeds will go?

the mortgagee shall be entitled to the proceeds to
the extent of the credit extended.
The benefit should be qualifiedit

qualified
must be
pecuniary and subject to pecuniary estimation
Not all kinds of interest
erest can be the subject to pecuniary
interest like for example love and affection, friendship (not
valid insurable interest, not capable of pecuniary interest)
What will be the effect of the payment of the proceeds to the

mortgagee? What will be the effect on the mortgagor? Will
the loan obligation be extinguished?
the whole obligation is already extinguished because
he has already been
een paid, already received an
equivalent to the insurer. The bank cannot proceed
to the mortgagor. No subrogation. The insurance
was already paid by the mortgagor.
When we speak of insurable interest, under the Insurance

Code, the insurable interest of a person
per
consists of(Sec.10):
In
n what cases does a person have insurable interest
i
in the life
of another?
Sec. 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wh
wholly or in part for
education or support, or in whom he has a pecuniary
interest;
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of
which death or illness might delay or prevent the
performance; and
The interest of the mortgagee is separate from the

interest of the mortgagor.
Page | 4

(d)
Of any person upon whose life any estate or interest vested

in him depends.
Unlike in Property Insurance, there must be a Pecuniary Value

Exception to the rule wherein in the case of life insurance,
there is a pecuniary value
when you insure the life of your debtor, there is a
limit. You cannot insure
insu beyond the credit that you
have extended. Have to determine the pecuniary
loss that you will suffer in case of the death of the
debtor.
Of any person upon whose life any estate or interest invested

in him depends.
By express provision of the law, a person has
insurable interest over himself. No question about it.
But is the insurable interest in your life capable of pecuniary
estimation?
Life insurance is not a contract of indemnity unlike
property insurance contract of indemnity. You
cannot recover more than what you have lost.
Is blood relationship a valid basis for insurable interest?

Yes. Every person has insurable interest in the life
and
d health of his spouse and of his children. Here
the blood relationship is the basis.
Purpose of Insurance: to indemnify a person
Aside from these cases expressly mention by law, do you

know of a case where the insured has insurable interest in the
life of a relative like an auntie? For instance, Do you have
insurable interest over the life of your mother-in-law?
mother
If you proved that you are related to a
person/relative on whom you depends wholly or in
part for education or support.
So if the property for instance is worth 50k, you cannot

recover more than 50k
why does the law prohibit recovery over and above the
insurable interest? Consequence if the insured will be allowed
to recover more than what he has lost?
when
hen the insured is allowed to recover from the
insurer more than the value of his insurable
interest, it becomes a WAGERING CONTRACT/ GAME
OF CHANCE.
GR: a person has no insurable interest in the life of his

relative like an uncle-nephew.
nephew.
EXPN: provided in Sec.10 (b).
Insurance Contract as a Contract of indemnity (Property

Insurance)
Under Art. 195 of the Family Code, The ff are obliged to

support each other:
the spouses
legitimate ascendants and descendants
parents and their legitimate children and the
legitimate and illegitimate children of the latter
Parents and their illegitimate children and the
legitimate and illegitimate children of the latter
Legitimate brothers and sisters, whether of the full or
half-blood.
The policy must be valid. If it is not valid because you insure it

more than the value of the property, upon the occurrence of
loss, not allowed to recover more than the amount of
property even if you have insured it for more than the value
of the property.
In the case of life, how will you
ou determine the pecuniary
interest of a person?
Life insurance may be classified into two ways:
Insurance where a person insured himself
A person insured the life of another
By express provision of the law, there is a legal obligation to

support. Members of the family are bound to support each
other. They have insurable interest in the life of the other.
Insurance of your own self
Does a child have insurable interest over the life of his

parents?
yes, by express provision of the law
How will you apply for a life insurance policy? Who will
determine the amount of the policy?
it depends upon the capacity of the insured to pay
the necessary premium.
Suppose you have a rich auntie,

aunti spinster, she has been
supporting you for your education, do you have an insurable
interest in her life?
Yes. Have insurable interest over the life of my
auntie. Basis: Sec.10 par.b.
Measure: capacity of the insured to pay premium.

If you do not have the capacity to pay a 10M policy, there is
no way that you can insuree yourself with that amount.
Page | 5

Under the Family Code, an auntie is not duty bound to
support a niece or nephew.
If you are the creditor, do you have insurable interest over the
life of your debtor? To what extent?
Up to the extent of the amount of the credit. As a
general rule, Life insurance is not a contract of
indemnity unlike in property insurance. But when
the creditor insures the life of the debtor, it becomes
a contract of indemnity. The purpose is to indemnify
him in case of death of the debtor.
Not because of blood relation. You have insurable interest

because you are dependent on him for support.
Is it necessary that the act of supporting you is a benevolent
act on the part of your auntie has a legal basis?
when we speak of supporter
orter of education, there is
no need for legal basis, the mere fact that you are
receiving support from somebody even though he is
a complete stranger--.you
.you have insurable interest in
his/her life.
supposing in a partnership, partner in a business, do you have

insurable interest
rest over the life of your partner?
Yes
You have to take it into account, under the Civil Code, does a
partnership have a separate juridical personality?
also has juridical personality
What is the distinction between an insurable interest in life

and insurable interest in the property
Life Insurance
-legal basis is not necessary.
When we speak of life insurance, it is classified into two.

When a person
son insures the life of another person, Is the
consent of a another person needed for you to insure him?
Remember the rationale why there is an insurable interest.
Why does the law require that you must have insurable
interest over the life of another person.
pers
because it is public policy, you cannot insure
anybody because there is a temptation to end his life
for you to recover. Thus, there is a need to get the
consent of another if you do not have insurable
interest. But as long as you have insurable interest
inter in
his life, then there is no need to get his consent.
Property Insurance
-there
there is a need for legal
basis (contract of lease)
Ex. friend is leaving for
abroad for 2yrs. In the
meantime, X can occupy her
condo unit.
X has no
insurable interest over the
condo unit of Xs friend.
Allowed to use the prop for
free. The right to stay does
not accrue as legal basis.
Who is a beneficiary?
is a person designated to receive the proceeds in
case of loss or death. One who is entitled to the
proceeds.
Sec.10 par. C
Of any person under legal obligation to him for the payment
of money, or respecting propertyy or services, of which death
or illness might delay or prevent the performance.
Example: Creditor-Debtor
2 Kinds of Beneficiary
Ordinary/ Revocable
Irrevocable
In the case of property insurance, there must be insurable

interest
Who is an irrevocable beneficiary?

As a rule, every beneficiary is revocable unless there
is a waiver on the part of the insured. If there is a
waiver, the beneficiary becomes irrevocable.
Supposing there is a stockholder, do you have insurable

interest in the property of the corporation?
No, the stockholder does not have insurable interest
in the property of the corporation because the
stockholder has merely an inchoate interest/right.
GR: Designation is revocable. The insured has the right to

change the beneficiary
neficiary he designated in the policy
do you (stockholder) have insurable interest in the life of the

president of the corporation?
As stockholder, no insurable interest in the life of the
pres. of corporation.
EXPN: Express waiver

What kind of interest does irrevocable beneficiary have in the
policy?
Irrevocable beneficiary has vested right/interest in
the policy. However, the insured can still use the
policy as a collateral
collate
provided he obtained the
consent of irrevocable beneficiary. The insured can
supposing it is the other way around, it is the corporation

itself that insured the life of the president?
Corporation as a juridical person, has insurable
interest
st over the life of the president.
Page | 6

also surrender but with the consent of the
irrevocable beneficiary.
If a person is designated as irrevocable beneficiary, he

acquires a vested interest in the policy. If he has acquired
vested interest, will the heirs of irrevocable beneficiary be
entitled?
Heirs of the beneficiary are not entitled. So the
nearest relatives of the insured will be entitled to
the proceeds and not the nearest relatives of the
T
The interest of irrevocable iinterest does not pass
through succession to his relatives. In the case of
death, it is the estate of the insured and not the
relatives of the irrevocable interest that should
receive the proceeds.
In life insurance, there are several privileges granted by the

insurer to the insured. First, can borrow money and use the
policy as a collateral. Second, can also assign the policy. Third,
after 2 years as a rule, can surrender the policy and get the
cash surrender value- refers to the computation as to what is
the value of the policy upon reaching a particu
particular year
.
During the first two years, it does not have any cash
surrender value. You cannot collect and surrender the policy.
After 2 years, the policy has already a cash surrender value.
The longer the year, the higher is the cash surrender value.
osing it is the matter of paying the premium, the insured
Supposing
has been delayed in paying the premium, the grace period is
about to expire, and when the grace period expires, what
happens to the policy?
The policy lapses. Unlike in property insurance, there
is what we called grace period. If the period lapses,
the policy becomes null and void.
Are there persons entitled by law to become the beneficiary?

beneficiar
Under Insurance Code, those who are prohibited by
the law from giving donations.
Under Art.2012 of the Civil Code,
Those who are guilty of adultery or concubinage
Those who are found to be guilty for criminal offense
Those donations made in favor of public
p
officer, wife
or children in connection to the public office
May the irrevocable policy compel the insured to pay the

premium?
No, the beneficiary cannot compel the insured to
pay the premium. He cannot go to court to compel
the insured.
nsured. However, the irrevocable beneficiary
can continue paying the premium by himself.
Same with the beneficiary

Distinction between Insurance Code and Civil Code when it
comes to donee:
not exactly the same but there are points of
similarity.
Insured decided to add another beneficiary. Can he do that if

he designated an irrevocable beneficiary? Will the addition of
another beneficiary adversely affect the interest of
Irrevocable beneficiary?
Certainly, it will reduce the amount of the benefits
he is supposed to receive. Hence, the consent of the
irrevocable beneficiary is needed if the insured
wants to add another beneficiary.
When a person makes a donation,

donati
what is the consideration?
the cause or consideration for giving donation is the
liberality of the person/donor.
When an insured designates a person as beneficiary, what is
the consideration?
also liberality
irrevocable Beneficiary predeceases

deceases the insured. What will
happen to the policy? Will that affect the policy considering
that there is no more beneficiary?
the policy will not be affected. The policy will still
continue to be in force.
Can a juridical person be a beneficiary?

yes
INSURABLE INTEREST IN
N THE PROPERTY
In the preceding situation, If the insured passes

sses away, who is
entitled to the proceeds?
the proceeds shall go to the nearest relative of the
insured.
What is the insurable interest in property?

Sec. 14. An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest;
or
(c) An expectancy, coupled with an eexisting interest in
that out of which the expectancy arises.
Under Sec. 14,, an insurable interest in property in property

may consist in:
Page | 7

existing interest
Example: owner of a property
Does a warehouseman have I.I. in goods deposited in his

warehouse?
Yes, he has insurable interest to the extent of his
liability (sec.15,)
inchoate interest founded on an existing interest

Example: stockholder
der has inchoate right over the
property of the corporation
Sec. 15. A carrier or depository of any kind has an insurable

interest in a thing held by him as such, to the extent of his liability
but not to exceed the value thereof.
expectancy, coupled with an existing interest

Example: future harvest of your orchard provided
that you are the owner or lessee
Does the carrier have insurable interest in the goods being

transported?
Yes
By custom, you have a part in the harvest but you are not the
owner.
r. Do you have an insurable interest over the future
harvest?
remember that expentancy must be coupled with
interest. You are not the owner even if customarily
you have share over the harvest
If the thing is loss, to what extent are you going to suffer?

That is your insurable interest (Sec.17)
(
Sec. 17. The measure of an insurable interest in property is the
extent to which the insured might be damnified by loss or injury
thereof.
If your parents do not believe in insurance, can you insure

their properties?
No, you cannot insure. You only have an inchoate
right over the properties of your parents. The
acquisition of the insurable interest over the
property is based in a contingency.
In the case of foreclosure,, a piece of property belonging to a

judgment debtor has been foreclosed. The judgment
judg
debtor
has right of redemption. But the title has been passed to the
judgment creditor. Does the judgment debtor before the
auction of prop have insurable interest?
yes because he has still the right of redemption
Supposing Mr. X extended credit to Mr. Y. Can Mr. X insure

some of the properties of Mr. Y?
Mr. X is considered as unsecured creditor. So he
does not have insurable interest over the properties
of Mr. Y. It would be different if Mr. X is a secured
creditor. Meaning a property was used as a collateral
to secure the debt. In that case, Mr. X has an
insurable interest over the properties of Mr.Y.
Does contractor has an insurable interest

i
in a bldg?
yes
for example you are a merchant. Can you insure your

expected profit supposing there is a shipment of goods from
abroad?
Yes. It is an expectancy coupled with interest
Life insurance
Extent
of
insurable
interest: life of a person
beyond
pecuniary
estimation
-the
the amount of i.i. of a
person he has in himself
depends
his
financial
capacity to pay the
premium
and
the
application is acceptable to
the insurer, then he can
insure himself for any
amount
No legal basis is needed
If you are about to suffer pecuniary loss due to the loss or

damage of the property, you have insurable interest
With respect to insurable interest, insurable interest in life
and insurable interest in property,
prop
there is a distinction
favorite
te niece. Designated in a will as a beneficiary of a piece
of property, do you have an insurable interest?
no insurable interest because you only have an
inchoate right just like in the case of insuring the
properties of your parents.
In case of lessor and
nd lessee. Does the lessor have insurable
interest over the property subject of lease?
yes of course because he is the owner
does the lessee have insurable interest?
Yes, he has insurable interest. He is not the owner
but he has a leasehold right which is deemed a legal
title.
Page | 8
Property Insurance
Measure of insurable interest
in the property: Amount that
he may suffer
-for example the amount of
property is 1m, then that is
the insurable interest
-cannot recover more than
the insurable interest
Semblance of legal basis

e.g. friend leaves for abroad.
Told you can stay in his
apartment. You do not have
insurable interest over the
condo unit-no legal basis
Existence of Insurable
interest at the time of the
loss: (life, health) Insurable
interest must exist at the
time of the inception
insurance but need not
exist thereafter or when
the time of loss
(staying
bec.
of
mere
accommodation. It would be
different if theres ccontract of
lease
Insurable interest must exist
not only at the time of the
inception of contract of
insurance but also when the
loss occurs, although it may
not existing meantime
so long as the bldg for instance and the

contents are separately insured
A change in interest, by will or succession, on the
death of the insured, does not avoid
avo an insurance;
and his interest in the insurance passes to the
person taking his interest in the thing insured.
A transfer of interest by one several partners, joint
owners, in common, who are jointly insured, to the
others, does not avoid an insurance even
e
though it
has been agreed that the insurance shall cease upon
an alienation of the thing insured.
CONCEALMENT
In a valued policy,, the insured and insurer agreed beforehand
as to the amount/value.
It is the neglect to communicate that which a party knows

and ought to communicate (sec.26)
Sec. 26. A neglect to communicate that which a party
pa knows and
ought to communicate, is called a concealment.
In an open policy,, there is no value. In case of loss, insurer

adjusted to the necessary appraisal on to how much is the
loss
Insurance is a highly technical contract. There are various

legal devices enjoyed by the insurer to protect itself like for
example:
concealment
representation
warranties
conditions
exceptions
Cannot recover more than the value in the policy because it is

a contract of indemnity. If you are allowed to recover more
than your insurable interest, it becomes a wagering contract
with respect to the excess. If the value of your prop is 1M but
you insure it for 1.5M, that is a wagering contract so as the
excess is concern-500K.
Sec. 20. Except in the cases specified in the next four sections, and in the
cases of life, accident,
cident, and health insurance, a change of interest in any part
of a thing insured unaccompanied by a corresponding change in interest in
the insurance, suspends the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance are vested in the same
person.
In the case of concealment, if you know something and that

something is material, you have to tell the insurer.
Insurance is based on utmost good faith
GR: any change in the interest in a property not accompanied

by corresponding change in the policy, you cannot recover.
Example: X has a car, he sold to Y without assigning
the policy. New owner cannot recover if the car for
instance has been stolen.
when the insurer evaluates insurance application, it relies on

every representations made by the insured
ins
There is privity of contract between the insurer and

seller but there is no privity of contract between the
buyer and insurer.
Example: the application is going to accept the life

application, based from the representations made, the
insurer will decide whether to aaccept it or not.
Neither the transferor nor the transferee can

recover on the policy at the time of the loss.
In the case of property insurance, it is not only the

acceptability but the fixing of the premium comes into play.
EXPNS:
A change in interest in a thing insured, after the
occurrence of an injury which results in a loss, does
not affect the right of the insured to indemnity for
loss
Reason: have a claim against the insurer
A change of interest in one or several distinct things,
separately insured by one policy, does not avoid the
insurance as to the others
Example: vessel. The insurer is not obliged to make physical

inspection of the vessel. The insurer will only rely on the
representations made by the owner. In marine insurance,
there is an implied warranty of sea worthiness with or
without any misrepresentation made. If it comes out that the
vessel is not seaworthy, then it is a ground for avoidance.
if the misrepresentation is material, then there is a

concealment ground for the avoidance of the contract.
Page | 9

those which the other knows
Example: the insurer inspected the bldg. found out
that the bldg wass surrounded by squatters. Insured
has no more obligation
gation to divulge such fact
REQUISITES FOR CONCEALMENT

party knows the fact which he neglects to
communicate or disclose
has personal knowledge but did not disclose
like hospitalization
such party concealing is duty bound to disclose such
fact to the other
the fact must be material to the risk
insured. If it is not material then there is no
obligation on the part of the insured to
disclose
such party concealing makes no warranty of the fact
concealed
the other party has not the means of ascertaining
the fact concealed
those which, in the exercise of ordinary care, the other ought

to know, and of which the former has the reason to suppose
him ignorant
certain areas which are part of the typhoon
typho
belt.
Insured a bldg which is located to a typhoon belt. No
need to tell the insurer about that.
those of which the other waives communication
those which prove or tend to prove the existence of a risk
excluded by warranty, and which are not otherwise
otherwis material
Is it necessary that the concealmentt intentional?

No. the concealment can be intentional or
unintentional. No element of Bad faith is required.
There is existence of fraud
those which relate to a risk excepted from the policy and

which are not otherwise material.
there is what you called excepted risk like
earthquake, lightning
Sec. 27. A concealment whether intentional or unintentional entitles the

injured party to rescind a contract of insurance.
if it is a piece of info related to excepted risk, no

need to divulge, after all it is an excepted risk.
Is there a duty on the part of the insurer to conduct an

investigation? To follow up any information stated in the
application
No need to conduct investigation. He cannot
accused the insurer for failure to conduct an
investigation.
How do you determine the materiality of an information?

Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of
the facts upon the party to whom the
communication is due, in forming his
hi estimate of the
disadvantages of the proposed contract, or in
making his inquiries.
In exceptional cases, like for a policy which amounts

to millions, a prudent insurer will conduct an
investigation. But there is no obligation. Not a
defense that can be used against the insurer. Always
remember that the contract of insurance is based on
utmost good faith.
Concealment only applies to a material info/fact. If the info

withheld is not material, no concealment.
Subject matter of concealment: material fact which the
insured fails to disclose
There are matters where neither parties are bound to

communicate (Sec. 30):
It is the over all evaluation which determines whether it is a

disadvantage or not.
Sec. 30. Neither party to a contract of insurance is bound to

communicate information of the matters following, except in
answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other
ought to know, and of which the former has no reason
to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a
risk excluded
xcluded by a warranty, and which are not
otherwise material; and
(e) Those which relate to a risk excepted from the policy
and which are not otherwise material.
In the case of life insurance, the evaluation depends on

whether if for instance the insured has been hospitalized. But
the physician of the insurer stated
st
that he is insurable. Here
the application will be accepted.
In the case of property insurance, the evaluation is not
whether the prop is insurable or not.
not There are various
devices that may be enjoyed by insurer. There are advantages
which are countered
tered by certain disadvantages like exceptions,
warranties.
Page | 10

In property insurance, this is important not only in accepting
risk but the fixing of a premium. If it is a high-risk
high
property,
the insurer will accept it but the premium will be very much
higher.
When we speak of representations, is it necessary that it is

intentional?
No. in concealment and representations whether
whe
intentional or not, it will affect consent
In life insurance, it is not a question of fixing a premium, the

question is whether to accept or not.
If the insured intentionally failed to disclose a fact or

intentionally misinterpreted a fact that is fraud. Why will it
vitiate consent in contract of insurance?
Because a contract of insurance is an utmost
confidence. The insurer relies heavily in the
representation made by the insured
REPRESENTATIONS
What is representation in a contract of insurance?
Oral or written factual statements made by the
insured to induced the insurer to enter into a
contract of insurance; to accept the application for
insurance
Misrepresentation is a ground to rescind the contract or deny

payment
In matters of interpretations, how are the provisions of
contract of insurance interpreted more particularly
partic
in
representations?
Where is it written? where do we find the representations?

In the application
Sec. 38. The language of a representation is to be interpreted by

the same rules as the language of contracts in general.
The insurer will give the insured an application form to be

accomplished and any statement or fact contained
c
in such
application is a representation (written)
Representations are liberally construed in favor of

the insured
Whenever the insured is interviewed by the underwriter,

there is oral representation. Whatever factual statements
that may be given by the insured during his interview by the
underwriter, that willl form under the classification of oral
representation
Why?
Are representations considered as part of the insurance

contract?
No, unless it forms part of the policy
When we say liberal interpretation, it means substantial

compliance under representation
representatio made by the insured will
suffice
What is the purpose of representation?

To induce the insurer to accept the application
There are 2 kinds of representations:

Affirmative
Promissory
When we speak of contract of insurance,

insura
the insurer
has an advantage over the insured because the
insurer knows the ins and outs of the contract of
insurance. It is the insurer who prepares the policy
Under what particular element of a contract does

representation belongs?
Consent. It is the element of consent that will be
affected by representations
What is an affirmative representation?

One where the insured states the existence or nonnon
existence of a given fact
How about in concealment?

Consent
Example:
In life insurance the insured told the underwriter
that he was never hospitalized during the past 10
years
In property insurance the insured told that they
employed security guards
In Marine insurance the insured told the
underwriter that the vessel is 5 years old
Representations and concealment will affect the consent that

will be given by the insurer. When the consent is vitiated, the
contract is voidable
What vitiates consent?
Fraud
Violence
Intimidation
Undue influence
When is a representation
entation promissory?
There is a commitment on the part of the insured to
do something in the future
Page | 11

Example: there is no security guard. The insured promised
that he will employ security guards
Example: In marine Insurance when the insured makes a

representation that his vessel was in south Africa but at the
time the contract
ntract takes effect, the same is no longer in south
Africa but in South America in effect, there is
misrepresentation
If the promise is incorporated in the policy, it becomes part of

the contract. But if the same is not incorporated, its legal
effect is that when the promissory representation is not
fulfilled and the same is material, it can be a ground for
rescission
Sec. 48. Whenever a right to rescind a contract of insurance is given to the

insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
Can representation qualify as an express provision?

No.
After a policy of life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two years
from the date of its issue
sue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.
Sec. 40. A representation cannot qualify an express provision in a

contract of insurance, but it may qualify an implied warranty.
Sec 48 is about the incontestability clause
The best evidence is the contract itself, but the same

may qualify as an implied warranty
What are the requisites in order that this incontestability

clause may apply?
It applies only to life insurance policy
It is payable upon the death of the insured
It must be in effect for at least 2 yrs during the
lifetime of the insured either at the time of the
inception
nception or last reinstatement
Example of implied warranty:: in marine iinsurance seaworthiness

Implied warranty although not part of the contract itself,
the insured warrants the same
The implied warranty may be affected by representation
What is the rationale of this provision?

For the protection of the insured
Can representations be altered or withdrawn?

Yes, for as long as the policy is not yet issued any
representations (oral or written) may still be
withdrawn or altered
What is the effect of incontestability clause?

After 2 years that the policy is in effect, the insurer
can no longer question the validity
v
of the policy
under on the ground of concealment or
misrepresentation. Meaning to say, the insurer has
no right anymore to rescind the contract on the
ground of concealment or misrepresentation or the
insurer cannot interpose as a defense the ground of
concealment or misrepresentation in case there is an
action for recovery under the policy
Sec. 41. A representation may be altered or withdrawn before the

insurance is effected, but not afterwards.
Aside from the policy, is there another contract of insurance?

None
The terms and condition agreed upon by the parties are
found in the policy. The policy itself contains the terms and
conditions
Is there such a thing as incontestability clause in non-life

non
insurance?
There is no incontestability clause in that kind of
insurance because non-life
non
insurance is good only for
1 year
The insured is not a signatory to the policy. The only signatory

to the policy is the insurer. The application accomplis
accomplished by
the insured is the offer. When the insurer prepares the policy
that means the application is accepted
If the insured had paid premiums 2 years in advance,

the insurance policy will be treated as for 1 year
after another
The issuance of the policy marks the acceptance of the offer

of the insured
Whatever representation that the insured will make, it will
refer to what particular date?
Does it necessarily mean that the policy is incontestable

already in all cases?
No, there are exceptions
Sec. 42. A representation must be presumed to refer to the date

on which the contract goes into effect.
Page | 12

There are cases where the incontestability clause does not
apply:
Nonpayment of premiums
Lack of insurable interest
If the case of the loss or if the risk is an exception
Vicious fraud
Exception with respect to military or naval strike
Failure to present the required proof
If the action is filed after the prescriptive period
o in life insurance the life

cause or consideration:
o the premium insofar as the insurer is
concerned
o the commitment by the insurer to damnify
the insured in case of loss insofar as the
insurer iss concerned
Strictly speaking the beneficiary is not a party in a contract of

insurance
The above enumerations are defenses that will bar the

application of incontestability clause
who may be an insurer?

Sec. 6. Every person, partnership, association, or corporation duly
authorized to transact insurance business as elsewhere provided
in this code,
de, may be an insurer.
POLICY
What is a policy?
A written instrument in which the terms and
conditions of a contract of insurance are set forth
Can a natural person be an insurer under the insurance code?

Yes, as long as he is duly authorized by the office of
the insurance commission
Sec. 49. The written instrument in which a contract of insurance is

set forth, is called a policy of insurance.
How is consent obtained in a contract of insurance?

There is what we call offer and acceptance
accept
Is the policy the same as the contract of insurance?

No, the policy is different from the contract of
insurance
Offeror make the offer

Offeree accepts the offer
Who is the signatory to the policy?

Insurer only
In non-life
life insurance
The offeror is the insured
The offeree is the insurer
Where can we find the contract of insurance?

The insured has not sign any written contract of
insurance, what the insured had sign is an
application for insurance. The same is not a contract
of insurance
The insured accomplishes the application. The application will

be processed by the insurance company
Who solicits insurance?
The underwriter or the agent of the insurance
company
Remember that contracts

racts may be in writing, oral or
partly in writing & oral
In the application, all material information are disclosed.

Aside from the application, the insured will be interviewed by
the underwriter
There is no separate contract of insurance

From the contents of the application, information
gathered by the underwriter from the insured, the
terms and conditions are formulated and set forth in
another instrument called the policy. In the policy,
the signatory is only the insurer
What are the contents of the application?

Representations made to the under writer
On the basis of all the info gathered, the insurer will
evaluate whether they are going to accept the risk
What kind of contract is a contract of insurance?

Consensual
How does the insurer make known to the insured that his
offer is accepted?
The acceptance of the offer is made known to the
t
insured thru the delivery of the policy
Essential elements of contract as applied to insurance

Consent - the meeting of the minds between the
insured and insurer
Object
o in property insurance the property
Page | 13

be issued in lieu thereof, including within its terms the
identical insurance bound under the cover
c
note and the
premium therefor.
The contract of insurance is perfected from the time

the acceptance of the offer by the insurer is made
known to the insured
Cover notes may be extended or renewed beyond such

sixty days with the written approval of the Commissioner if
he determines that such extension is not contrary to and is
not for the purpose of violating any provisions of this
Code. The Commissioner may promulgate rules and
regulations governing such extensions for the purpose of
preventing such violations and may by such rules and
regulations dispense with the requirement of written
approval by him in the case of extension
exten
in compliance
with such rules and regulations.
The acceptance may be made known to the insured wither:

Constructive delivery
Actual delivery
Actual delivery
Physical delivery to the insured
Constructive delivery
The delivery of the policy to the agent for him to
deliver the same to the insured. In other words,
when the insured died and the policy is still in the
hands of the agent but the policy is already released
by the insurer, there is already constructive delivery
If the policy is delivered thru mail
If the policy has already been deposited by the

insurer forr delivery to the insured, there is already
constructive delivery
When do we use the cover note?

Example: in a big farm, there are equipments, raw
materials, inventories, the insurance is for 20M. No
underwriter can make the evaluation alone. The
insurance company will assign an independent
appraiser. Such independent appraiser will be hired
by the insurance company to appraise the value of
the farm, equipments and inventories. In the mean
time, the insured needs protection, the insurance
company will issue a cover note.
note
Sometimes,
imes, it takes time to evaluate the application for
insurance. Lets say 3 months had passed, there is no reply yet
by the insurer. Can the insured consider that his application is
accepted?
If the policy has not yet been issued, there is no
perfected contract of insurance
A cover note will be issued because the final policy

may be issued, it may take weeks before they can
estimate the thing that may be insured. So a cover
note is a temporary insurance that is good for 60
days subject to extension with the permission of the
t
office of the insurance commission
There are isolated cases that when the insured

accomplished an application form, the underwriter
asked the insured to pay the corresponding premium
and the same was paid.. If the application is
accompanied with a corresponding premium
meaning
ning to say, that any unreasonable delay on the
part of the insurer to decide whether or not the risk
is accepted, it be considered as an implied
acceptance. The insure in that case has a valid cause
of action against the insurer but not on the basis of
thee insurance contract but torts and damages
A cover note applies only to property insurance

The bank is already authorized to issue cover notes usually
for importation or exportation
In case of life insurance, is there such a thing as temporary
insurance?
Yes,, a binding slip
What is a binding slip?
A temporary insurance, a temporary coverage of life
but subject to certain conditions
Aside from the policy, there is what we call a cover note and
binding slip
There are several kinds of policies

Valued
Open
Running
What is a cover note?

A temporary insurance issued by the insurer and
good for 60 days only. This is expressly allowed by
law
Sec. 59. A policy is either open, valued or running.
Sec. 52. Cover notes may be issued to bind insurance

temporarily pending the issuance of the policy. Within
sixty days after the issue of the cover note, a policy shall
Page | 14

rance and group annuity policies, however, may be
Group insurance
typewritten and need not be in printed form.
What is a valued policy?

Sec. 61. A valued policy is one which expresses on its face an
agreement that the thing insured shall be valued at a specific sum.
The policy cannot be issued by the insurer without the

approval of the office of the insurance commission
Lets say a building is going to be insured for 500k.

Aside from the 500k, there is valuation already. It is
valued
ed of the policy is 500k because the value of the
thing is already agreed upon and the same is stated
in the policy
In the policy, aside from the standard provisions contained,

co
there are what we call exceptions, conditions and warranties.
These are key devices employed by the insurer to protect
themselves
In case of loss, there is no need for an adjuster. The

company will not engage the services of an adjuster
anymore to evaluate how much the value of the
thing at the time because there is already an agreed
valuation.
Example of Exceptions:
In fire insurance earthquake is an excepted peril.
So if the proximate cause is an earth quake,
qu
no
recovery
The valuation is different from the amount of

insurance
Example of Condiitons
The
e residential house should always be tenanted
Round the clock security guard
Fire extinguishers
No installation of explosives
Open policy
Sec. 60. An open policy is one in which the value of the thing
insured is not agreed upon, but is left to be ascertained in case of
loss.
Because of these, the contract of insurance is one of the

adhesive type. For which reason,
reas
in an interpretation, the
same is interpreted for the benefit of the insured.
There is an open policy when there is no agreed

valuation in the policy
If there is loss or damage, there is a need for an
insurance adjuster to inspect the property. To make
an estimate of the value of the damage.
WARRANTIES
Sec. 67. A warranty is either expressed or implied.
Running Policy
When is it express?
It is express when it is included in the policy when it
is part or parcel of the policy itself
Sec. 62. A running policy is one which contemplates successive

insurances, and which provides that the object of the policy may
be from time to time defined, especially as to the subjects of
insurance, by additional statements or indorsements.
Usually
lly in stock insurance like in a
store, the same has inventories
It may not be found in the policy itself but in another

instrument signed by the insured
department
Is there a need for the insured to sign the policy?

No, the insured does not sign the policy. When the
insured received the policy, it is already fixed
Under the Insurance code, there should be a printed policy

Sec. 50. The policy shall be in printed form which may contain
blank spaces; and any word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to complete the contract of
insurance shall be written on the blank spaces provided therein.
In fact,
ct, the policy is not the contract itself. The policy
merely contains the terms and conditions in the
contract of insurance
Any rider, clause, warranty or endorsement purporting to be part

of the contract of insurance and which is pasted or attached to
said policy is not binding on the insured, unless the descriptive
title or name of the rider, clause, warranty or endorsement is also
mentioned and written on the blank spaces provided in the policy.
Does it necessarily mean that there is a separate contract of

insurance?
No
Unless applied for by the insured or owner

owner, any rider, clause,
warranty or endorsement issued after the original policy shall be
countersigned by the insured or owner, which countersignature
shall be taken as his agreement to the contents of such rider,
clause, warranty or endorsement.
Contract of insurance is a product of the offer and counterco

offer
Page | 15
When the insured accomplishes the application, when the

insured is interviewed by the underwriter, this will form part
of the offer to the insurer. And the insurer accepts the offer,
then the insurer will issue the policy containing the terms and
conditions agreed upon by the parties
Example of warranties With respect to a thing

Insurance of a building as to what kind of structure,
whether the building is tenanted or not that the
building is tenanted during the past 10 years up to
present is an express warranty
The age of a building
The age of the vessel
The fact that the vessel is domestic or foreign
The course of the vessel to take
Any statement or fact that the vessel is seaworthy,
that it can take river navigation and sea navigation is
a warranty
So the express warranties should be found in the policy or in

any other incorporated instrument signed by the insured
Sec. 70. Without prejudice to section fifty-one,
one, every express warranty, made
at or before the execution of a policy, must be contained in the policy itself,
or in another instrument signed by the insured and referred to in the policy
as making a part of it.
According to the insurance Code, there is another kind of

warranty what we called implied warranty
What is an implied warranty? Where can we find this implied
warranty?
There is an implied warranty in marine insurance
Promissory warranty
A statement in writing on the part of the insured
that he is going to do or not to do something that is
material to the risk
The classic example of implied warranty is the warranty of

seaworthiness of the vessel
Example:
No explosives or any hazardous materials shall be
deposited in the premises
That the building will be used exclusively
exclu
for
residential purposes
If the building at the time of the loss is tenanted, not
being used by the owner for residential purposes
that is a violation of a promissory warranty
Another example of an implied warranty is that the insured

warrants the nationality or neutrality of the vessel. There is
an implied warranty that the vessel will carry all the
necessary documents to show its neutrality or nationality as
the case may be
How do we define warranty?
It is a statement
ement or promise set forth in the policy
where incorporated with it, the untruth or nonnon
fulfillment of which in any respect whether affecting
or not the insurer renders the policy voidable at the
option of the insurer
In insurance, the premium is lower if it is occupied by the

family of the insured. If the building is occupied by a
tenant, the rate is higher. The same is given because the
owner will take care of his property. The care that will be
given is better than the one expected from a tenant
How do we classify the warranty?

Express
Implied
The express warranty of the insured relative to the

kind of employment in the past and in the present is
also an express warranty
Take note, that when we speak of warranties,

warran
they are like
representations that is presented to the insurer
Affirmative
Promissory
Representation vs Warranty
Warranty
It is a part of the contract
What is an affirmative warranty?

Sec. 71. A statement in a policy of matter relating to the person or
thing insured, or to the risk, as a fact, is an express warranty
thereof.
Found in the policy

There is strict compliance.
Warranties should be strictly
complied with
Presumed to be material
Example of warranties (person)

With respectt to the person, age is very material
A statement by the insured that he has not been
hospitalized during the past 10 years is an express
warranty
Page | 16
Representation
Not part of the contract, it is
a mere inducement
Not found in the policy
Merely
substantial
compliance
It must be proven that the
representation is material

Sec. 73. When, before the time arrives for the performance of a warranty
relatingg to the future, a loss insured against happens, or performance
becomes unlawful at the place of the contract, or impossible, the omission to
fulfill the warranty does not avoid the policy.
Sec. 76. A breach of warranty without fraud merely exoner

exonerates an insurer
from the time that it occurs, or where it is broken in its inception, prevents
the policy from attaching to the risk.
The violation of warranty may either be tainted with fraud or

not. Supposing, it is fraudulent, there is fraud in making the
t
warranty. Supposing that the insured said that there are
round the clock security guards, but it turns out that the
employment of the security guards is only for daytime. There
is a fraudulent violation of the warranty.
In section 73, when the performance becomes unlawful,

impossible or loss takes place will not affect the validity of the
policy
Example: there is a warranty in the policy that within 30 days
from the date of policy that the building will be guarded.
Guards will be employed by the owner of the building
If loss takes place
ce within the 30 days to look for an
agency (during the grace period of 30 days, loss
takes place, there is no violation of warranty
because the loss takes place before the promised
performance)
Example of violation of warranty without fraud:

The insurer expects that the tenants will leave the
premises within 60 days. There is no fraud, the
insured made an assurance that the tenants will
leave the premises
As to legal effects (violation with fraud or without fraud)
w/o fraud the insurer is merely exonerated during
the period prior to the violation
Example (when it becomes unlawful)

There is a promissory warranty
ranty that within 2 months,
the premises will be vacated and shall be used as
residence by the owner. In other words, tenants will
vacate the premises and the owner will be the one
to use it for his residence. Then a law was passed
prohibiting for a certain
n period of time the
ejectment of tenants within that area, the
promissory warranty becomes unlawful, then there
will be no violation of the same
example: promissory warranty of employment of

security guards. After one month, the contract of
agency is terminated. So the owner of the building is
looking for another agency. Loss
Los takes place. This is a
violation of warranty without fraud
Example (when it becomes impossible)

In a factory, there is a promissory warranty that new
equipments, manufactured
ctured in Germany will be
installed within 6 months. A war broke out, the
insured cannot do the importation of the new
equipments, it becomes impossible
if the violation is fraudulent upon inception it is

broken, prevents the policy from attaching to the
risk
PREMIUMS
Premiums (payment thereof) is one of the essential elements
of an insurance
e contract. Insofar as the insurer is concerned,
the consideration is the premium to be received from the
insured. Insofar as the insured is concerned, the
consideration is the promise of the insurer to damnify the
insured in case of loss
Sec. 74. The violation of a material warranty, or other material provision of a

policy, on the part of either party thereto, entitles the other to rescind.
Supposing there is a warranty that no explosives or hazardous

material will be deposited in the premises. The building was
destroyed by a fire. The proximate cause of the fire was not
the explosives deposited
posited in the premises. It is electrical failure
that caused the fire. So it is not the violation of the warranty
that caused the loss of the property, may the insured recover
from the insurer?
It is not necessary that the proximate cause of the
loss or damage
amage a violation of a warranty. Even if the
proximate cause is some other cause other than the
violation of the warranty, still that is a good ground
on the part of the insurer to deny liability
Sec. 77. An insurer

rer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless an
and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies.
Without payment of premium, no insurance contract

What is Cash and Carry rule?
rule
This is a rule promulgated by the insurance
commissioner that without payment of premium,
there is no valid insurance contract
General Rule: without payment of premium, there is no valid
insurance contract
Page | 17

If it is a non-life
life insurance policy, it is only good for
one year and renewable. Lets say the insured is
leaving for abroad
d and he wanted to pay in advance
the premium for 3 years. Even if the insured paid for
3 years, it shall be considered as a year-to-year
year
policy. The insurer will consider it renewed policy.
policy
Exceptions:
In case of life and industrial insurance, it refers to
the grade period.
eriod. In life insurance, a grace period is
given to the insured for the payment of premium
If the insurer acknowledges the receipt of the
premium, although in truth and in fact, there is no
payment yet. That will not, in any way affect the
validity of the policy without prejudice to the right of
the insurer to collect premiums
In case of surety bonds. A surety bond is also a form
of insurance. When a surety bond is issued and the
rd
bond is already in the hands of a 3 person
regardless of the payment of premium,
mium, that surety
bond is considered valid. This is for the protection of
rd
a 3 person
rd
In case of motor vehicle insurance (3 party liability
insurance) when a car is registered, there is a
mandatory requirement that there is a need to get a
rd
rd
3 party liability
bility insurance. This 3 party liability
rd
insurance is in favor of 3 persons who might be
insured. Although there is no payment of premiums
rd
yet, if there is a 3 party liability insurance, it is
exception to the rule because if we apply the general
rd
rule, innocent 3 person will be affected
In Makati Tuscany case, in this case, there is an
agreement between the insurer and insured for
payment of premium by installments. The SC ruled
that the same is valid. It is an exception by way of
jurisprudence
Cover notes
The insured in a non-life

non
insurance may become a __
if he has nott paid in full the premium. The moment
the policy is issued, he is already an obligor
In what cases is the insured entitled to a return of premium?
In life insurance, if the insured surrendered his
policy, there is no such a thing as return of premium
in life insurance. But there is what we call cash
surrender value
When we speak of cash surrender value, normally, a
policy acquires a cash surrender value, after 2 years.
After 2 years, the insureds life insurance policy has
already a cash surrender value.
value If the policy is
surrendered, the insured may collect from the
insurance. But before 2 years, no cash surrender
value. Also, after 2 years, the insured may borrow
from the insurance company and used the policy as
a collateral, to the extent of the cash surrender
s
value
of the policy. If the policy has, lets say, a cash
surrender value of 10k, the insured can borrow 10k
in the insurance policy
In cover notes, does the law require an immediate payment of

cover note?
The premium is not yet computed. The insured who
is a holder of a cover note may not have been paid a
single centavo but the same is valid
In non-life
life insurance, there is a return of premium.
When an insurance policy is for a definite period and
the insured
sured surrender the same prior to the expiry
date, he is entitled to a corresponding return of
premium
Example: a fire insurance policy is good for 1 year.
The insured paid the premium for 1 year. After 6
months, the insured wants to cancel the policy, can
ca
the insured ask the insurance company to return the
premium corresponding to the remaining half-year?
half
Yes, pro
pro-rata, in the absence of any short
period provision
Do we consider payment of premiums as an obligation on the

part of the insured?
In case of life insurance, it is for more than one year.
After payment of premium for the first year, there is
a need to pay for premium for the succeeding years.
Do we consider the insured as obligor with the
payment of premiums for the succeeding years?
No, he is not an obligor because if the
insured failed to pay the corresponding
premium during the grace period granted in
the policy, the policy is automatically
cancelled. There is an automatic
st
cancellation off the policy if after the 1
year, the insured fails to pay the required
premium for the succeeding year within the
grace period.
If the policy is cancelled because of fraud,

misrepresentation on the part of the insurer
insure
Example: there is already a medical examination,
payment of premium and the insurer said that the
policy will be issued within 30 days. No policy is
issued within 30days
The insured is entitled for the return of the
premium
Page | 18
theft, the insured cannot recover because theft is not the

peril insured against
Over insurance, if there is over insurance
Does the law prohibit double (over) insurance? Can a property

be insured with 2 or more insurer?
Yes
Lets take a case of fire insurance policy, what is the usual

covered, what is the risk covered?
Loss by fire
In case of over insurance, the insured cannot recover more

than what his insurable interest is
If the loss is caused by explosion,

explosion assuming that the explosion
is an excepted risk, the cause is explosion, no recovery
If the insurable interest is only 1M, theree will be pro

pro-rata
return of premium from all insurance company whatever the
excess, he is entitled.
If earthquake is an excepted risk and the proximate case is

earthquake, no recovery
The rule is, the peril insured against should be the proximate
cause
If there is a provision in the contract of insurance prohibiting

double insurance, violation thereof is a ground for
recancellation
Sec. 84. Unless otherwise provided by the policy, an insurer is

liable for a loss of which a peril insured against was the proximate
cause, although a peril not contemplated by the contract may
have been a remote cause of the loss; but he is not liable for a loss
which the peril insured against was only a remote cause.
LOSS
Sec. 83. An agreement
eement not to transfer the claim of the insured against the
insurer after the loss has happened, is void if made before the loss except as
otherwise provided in the case of life insurance.
It is axiomatic, in insurance, that the peril insured against

must be the proximate cause
Under sec 83, the law says that any agreement prohibiting
transfer of claim after loss is void. It may be made by the
parties prior to the loss
Example: in a fire insurance policy, earthquake and explosion

is an excepted
d risk. The risk insured against is fire. Supposing
there was an explosion and because of the explosion, there
was fire. And because of fire, the property is damage and loss
What is meant by this?

This is prohibiting the assignment of the claim in
case of loss, after the loss
What is the proximate cause?

Explosion
Why does the law declares the same is void?

This is against public policy because after the loss,
the claim is already a monetary claim and the party
entitled to it is free to transfer it in favor of anybody.
Can the insured recover?

The insured cannot
cann
recover. Fire is only the
immediate cause but not the proximate cause.
cause
If there was an earthquake and because of the earthquake,
there was fire, the earthquake was the proximate cause,
there can be no recovery
How about prohibiting the transfer of claim prior to the loss?

It is valid but there is a need for the consent of the
insurer.
nsurer. The personal circumstances of the parties
will come into play. So the insured cannot transfer
the claim without the consent of the insurer.
How do we define proximate cause?

Proximate
te cause is one which in a natural and
continuous sequence producing an event which
should not have occurred had it not been for the
said proximate cause
There are some factors to be taken into account were we

consider the term loss
What is loss in insurance? When do we say that the insured is
entitled to indemnification because there was a valid loss?
Example: in a building that was on fire and because of the

debris falling, another building was damage.
damag Can the owner
of the other building that was damage recover?
The damage was not caused by the fire but by the
debris falling from a building that is on fire. The
proximate cause is fire. The insured may recover
In insurance, there are certain risks covered by the policy.

There are certain risk that are excepted
The most common risk in property insurance is fire. If the
t
policy is only against fire and the property is lost because of
The most common property insurance policy

polic is fire. There are
2 kinds of fire
Page | 19

Friendly
Hostile
When is fire considered friendly?
When a fire remains in the place or within it confines
or where it is ought to be
Driving while intoxicated, it is gross negligence. Can the

insurer put up as a defense?
No, it is part of the risk assumed by the insurer
If the tenant of the building was grossly negligent that is why
fire started in a building and the building was destroyed
Recoverable, negligence is not a valid defense
Example: fire in a fire place or in a stove
This is negligence of the agent of the insured
But the moment the fire escapes or spread

ad out, it is no longer
friendly. It becomes hostile
Negligence of the insured will not exonerate the insurer

unless there is an exception to the policy that driving while
intoxicated is an excepted peril. In the absence of exception,
negligence is not a ground for the insurer to exculpate or
exonerate itself
Sec. 85. An insurer is liable where the thing insured is rescued from a peril
insured against that would otherwise have caused a loss, if, in the course of
such rescue, the thing is exposed to a peril not
ot insured against, which
permanently deprives the insured of its possession, in whole or in part; or
where a loss is caused by efforts to rescue the thing insured from a peril
insured against.
Example: the building is tenanted, the owner of the building

insured the building. One of the warranties no explosives or
no hazardous
ous materials to the premises. The tenant, without
the knowledge of the owner of the building deposited
explosives. Ca the insurer invoked this as a ground for denying
for breach of warranty? Can the act of the tenant be the act
of the owner-principal?
The
e tenant is not the agent of the owner, but if the
same is done with knowledge of the owner of the
building.
When the thing insured is rescued from the peril insured

against
nst and its lost in whole or in part by perils not insured
against. This is recoverable
Example: there are certain equipments, while they are in the
process of being rescued, some of the items got lost or
destroyed. The same is recoverable, although not by fire, but
in the process of rescuing it from the peril insured against
Sec. 86. Where a peril is especially excepted in a contract of insurance, a loss,
which would not have occurred but for such peril, is thereby excepted
although the immediate cause of the loss was a peril which was not
excepted.
In this case, there is no breach of warranty provided

that the insured acted in good faith
There is excepted risk and the same is a proximate cause

the insurer is not liable
There are cases where the act of the tenant is consid

considered the
act of the owner.
Sec. 87. An insurer is not liable for a loss caused by the willful act or through
the connivance of the insured; but he iss not exonerated by the negligence of
the insured, or of the insurance agents or others.
Example: the building was being rented and shall be used

exclusively as residence. The tenant shall use the building
exclusively as residence (promissory warranty). The tenant
converted the ground floor as a coffee shop. Is there
ther a breach
of warranty?
Yes
The insurer is not liable for loss caused by the willful act or in
connivance with the insured
In life insurance policy suicide no recovery
Is the owner liable for breach?

Yes, because the owner cannot say that he did not
know
Supposing the fire that

hat was the proximate cause of a loss of a
building was due to the negligence of the insurer. During a
black out, the insured lighted a candle and it was showed that
the same was the caused of the fire. May the insured recover?
The cause of the loss was gross
oss negligence. Can the insurer
invoked as a defense, negligence on the part of the insured? Is
negligence a valid defense?
No, the insurer is not exonerated by the negligence
of the insured because, if otherwise, the same will
be the usual defense of the insurance company
NOTICE OF LOSS
Sec. 88. In case of loss upon an insurance against fire, an insurer is
exonerated, if notice thereof be not given to him by an insured, or some
person entitled to the benefit of the insurance, without unnecessary delay.
In case of fire insurance, there is a requirement of submission

of notice of loss by express provision of law (sec 88)
If the notice of loss is not given by the
t insured or
some person entitled to the benefit of insurance,
without necessary delay, the insurer is exonerated
Page | 20

able to get from both insurer for as long as they are not
aware
If the insured has a piece of property and the same is covered

by an insurance and the property has been lost or damage,
the insured has to notify immediately the insurer without
unnecessary delay, otherwise, the claim for recovery will be
denied
Requisites in order a case may be considered as double

insurance
2 or more insurers
One insured
The same subject matter, property and risk
Why is it that notice of loss should be given without

unnecessary delay?
For the protection of the insurer. So that the insurer
can take all the necessary
essary steps to protect its
interest. If there is unnecessary delay, that can be
used by the insurer to exonerate itself
If there is double insurance, there are cases where there will

be over insurance, so that in case of loss, who shall be liable?
If there are 2 or more, pro
pro-rata
There are policies that require submission of preliminary

proof
REINSURANCE
Sec. 89. When a preliminary proof of loss is required by a policy,

thee insured is not bound to give such proof as would be necessary
in a court of justice; but it is sufficient for him to give the best
evidence which he has in his power at the time.
Sec. 95. A contract of reinsurance is one by which an insurer procures a third

person to insure him against loss or liability by reason of such original
insurance.
Insofar as preliminary proof is concerned, there are printed

materials thatt the agent will furnished, the insured with
documents to be accomplished.
What is reinsurance?
It is a case where an insurer insures the risk that he
had assumed with another
anoth
insurer known as
reinsurer
DOUBLE INSURANCE
Who are the parties to a reinsurance contract?
Reinsured
Reinsurer
Sec. 93. A double insurance exists where the same person is insured by
several insurers separately in respect to the same subject and interest.
Is double insurance prohibited by law?

lutely free to seek several
No, the insured is absolutely
coverages for his property. The law does not limit
him to insure his property on one insurance
company
Example: X company insured a piece of property for 10M, but

the insurer would like to reinsure a part of the coverage 5M.
The 5m or 50% is reinsured with aanother insurance company
There are 2 kinds of reinsurance contract
Automatic reinsurance
Facultative reinsurance
The only limitation is that the entire coverage shall not

exceed his insurable interest
Automatic reinsurance
Commonly known as reinsurance treaty
If the property is worth 500k, he can avail insurance

coverages to 2 or 3 insurers but not for more than 500k
because that is the extent of his insurable interest
Insurance company may enter into reinsurance

treaty with a bigger insurance company
com
Can there be a valid stipulation in the policy that the insured

shall not cover the
he same property with another insurance
company? (absolute prohibition)
Yes
Example: X insurer is a small insurance company, so

X may enter into a reinsurance treaty with Y insurer.
Both will sign an agreement. Under such agreement,
20% of all the undertakings of the reinsured will be
automatically reinsured by the reinsurer
Insofar as double insurance is concerned, the problem is that

the party had insured might be tempted to commit fraud by
over insuring his property with 2 or more insurance company.
company
The office of the insurance commission requires

automatic insurance company to look for insurance
company who is willing to sign a reinsurance treaty.
Example: 200k is insured with insurer X. the insured gets

another for 100k with insurer Y. in case of loss, he might be
Page | 21

So that there will be an automatic ceiling of
whatever excess
Any specie or kind of damage or loss caused by

violent winds or waves
Peril of the ship?
The cause of the ordinary wear and tear
If the insurance company issued a marine insurance policy, as
a general rule, that marine policy covers perils of the sea. The
insurer is liable only if the loss or damage is caused by peril of
the sea (ordinary marine insurance)
Facultative Reinsurance
A voluntary reinsurance
insurance contract entered into by an
insurer from time to time when a need arises
Example: X insurer, a small insurance company, the
writing capacity is only for 50M (the writing capacity
is determined by the capitalization). If an insurance
company is going
oing to write a policy over 50M, he has
to reinsure. Supposing there is an offer for coverage
of 200M. X insurer cannot solely underwrite 200M. X
has to look for reinsurer who are willing to absorb
the excess 150M
all risk policy of marine insurance, this includes all kinds of

losses, damages whether caused by peril of the sea or ship
If the owner of the vessel obtains an all risk policy, the
premium is very much higher that ordinary
ordi
marine policy.
Insurable interest
General Rule: the general principles of insurance applicable
to fire, life are also applicable to marine insurance.
ver representations,
In case of facultative reinsurance, whatever
informations that might have been received by the reinsured
should be communicated by the reinsurer because that is a
separate policy. It is not an automatic coverage
Representations, warranties, exceptions

exceptions the principles
governing these devices are likewise applicable
appli
to marine
insurance
In a reinsurance contract, is the original insured a party?

No
What is the insurable interest of the owner of the vessel?

As owner of the vessel, the insurable interest is up to
the extent that he will be damnified by the loss and
as a rule the value of the vessel
What is the subject matter?

The risk assumed by the reinsured
In case of loss, does the original insured have cause of action
against the reinsurer?
No, there is no privity of contract between the
original insured and the reinsurer. The reinsurance
contract is strictly between the reinsured and
reinsurer
If the vessel is worth 20M,, that is the insurable interest of the

owner of the vessel
Supposing that there is a charter party contract covering the
vessel, one of the stipulations in the charter party contract is
that the charterer shall be liable for any loss or damage to the
vessel.
sel. If there is a provision in the contract that the charterer
will assume the loss, is there any insurable interest to the
vessel on the part of the owner?
MARINE INSURANCE
Sec. 100. The owner of a ship has in all cases an insurable interest
in it, even when it has been chartered by one who covenants to
pay him its value in case of loss: Provided, That in this case the
insurer shall be liable for only that part of the loss which the
insured cannot recover from the charterer.
In Marine Insurance, there are 2 kinds of perils

Perils of the Sea
Perils of the Ship
Normally, the insurer is liable to the insured if the proximate
cause is peril of the sea
The owner of the vessel has still an insurable

insurabl interest over the
vessel despite the fact that there is an assumption of risk on
the part of the charterer
If it is peril
eril of the ship, the insurer is not liable
What is the extent of the insurable interest?

Whatever is not covered by the payments that may
be made by the charterer for having assume the risk,
risk
this is the insurable interest of the vessel
In marine insurance, the counter-part

part of hostile fire is peril of
the sea; friendly fire- peril of the ship
What is the peril of the sea?
Page | 22

Example:
the value of the vessel is 55M, the assumption of risk
and the owner was able to recover 50M, the owner
of the vessel can still recover from the insurance
company 5M (partial)
Who between the 2 has insurable

insur
interest in the goods which
is the subject matter of insurance?
It depends upon the terms of the bill of lading
If it is FOB factory, the buyer assumed the risk from
the time the goods leave the factory. So the person
who is going to insure the goods should be the buyer
or consignee
But if the full value of the vessel is paid for by the

charterer or it is the assumption of risk, the owner of
the vessel cannot recover anymore from the
insurance company
If it is FOB destination,
destination the buyer shall assume the
risk only from the time the good reached is
destination, the seller/shipper is the one usually
secures an insurance
So only to the extent that the amount that is going

to receive from the charterer is deficient insofar aas
the full value of the vessel is concerned, that is the
insurable interest of the owner
If it is CIF,, the seller is the one responsible for

obtaining an insurance policy
Supposing the vessel is the subject matter of a bottomry loan

(contract of bottomry) does the owner of the vessel, still have
insurable interest in the vessel? The goods
ods may be subject of a
contract of bottomry. What is the essence of the contract of
bottomry?
In a contract of bottomry, the loss of the vessel or
the loss of the goods extinguishes the obligation.
Can the expected profits in the sale of goods be subject of

marine insurance?
You can also insure expected profits
There is a loan of 10M, loan of bottomry, the vessel is lost,

the owner of the vessel is not liable
The expected freightage, the owner of the vessel

ve
can also
insure the expected freightage
If there is a loan on bottomry, the vessel or goods are covered,

does the owner of the vessel or goods still have insurable
interest?
Yes, to the extent that the amount of loan on
bottomry is __ insofar as the value
alue of the goods or
vessel is concerned
If he is going to drive from a particular place, the freightage

amounting to 3-4million,
4million, the same can also be covered by
insurance
Example: if the vessel is worth 20B and the loan on bottomry

is 10B, the owner of the vessel has an insurable interest
equivalent to 10B
In marine insurance, we have the so called Charter party.

There are 3 kinds of charter party contract:
Bareboat charter
Voyage charter
Time charter
If it is C & F,, the buyer will be the one to insure the

goods
Not only the vessel or goods but also expected profits and
freightage can be a subject of insurance
But if the entire value of the vessel is covered by the loan on

bottomry, does
es the owner of the vessel has insurable interest?
None, because the 20B has already been advanced
to him and he does not have anymore obligation
Sec. 107. In marine insurance each party is bound to communicate, in

addition to whatt is required by section twenty-eight,
twenty
all the information
which he possesses, material to the risk, except such as is mentioned in
Section thirty, and to state the exact and whole truth in relation to all
matters that he represents, or upon inquiry disclo
discloses or assumes to disclose.
There are 2 phases where the insurable interest of the owner

of the vessel may be affected. In cases where:
There
here is a charter party contract when the
charterer assumes the risk of loss
When the vessel/goods is a subject of bottomry loan
In sec 107, we have concealment here. As we discussed a

while ago, all the devices (representation, conditions,
exceptions) are likewise applicable to marine insurance. But
insofar as concealment is concerned..
Most common, in shipment of goods; there are 2 parties

involved
Shipper/seller
Consignee/ buyer
What is concealment
ment in marine insurance?
Failure to disclose any material fact which the
insured know or ought to know and the insurer has
no actual or presumptive knowledge
Page | 23

(e)
Is there any difference or distinction between the rules on

interpretation in marine as against other non-life
non
insurance?
The application of the rules with respect to marine
are stricter.
The use of false and simulated papers.
Cases where concealment of the same does not vitiate the

th
entire contract
(a) The national character of the insured;
(b) The liability of the thing insured to capture and
detention;
(c) The liability to seizure from breach of foreign laws of
trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.
Why stricter?
Because in marine, the insurer does not have the
opportunity to inspect the subject matter. The vessel
may be in South America, the owner of the vessel
will insure it in Manila. There is no way to inspect
the vessel. The insurer just relies on the
representations made by the owner of the vessel.
Any
ny misrepresentation relative to this matter will not vitiate
of the entire contract not unless it is the cause. If this is the
cause of the loss . . .
Sec. 112. The eventual falsity of a representation as to expectation does not,
in the absence of fraud, avoid a contract of marine insurance.
The vessel had already been lost in the high seas, but the
owner of the vessel does not have any knowle
knowledge or
communication whatsoever that the vessel has been lost. Can
this be a subject matter of marine insurance?
Yes, provided that the owner of the vessel acted in
good faith
The expectation disclosed or communicated to the insurer

and it did not materialized, it will not affect the contract of
insurance, in the absence of fraud
We said that warranties should be contained in the policy.
This is different from representation. Representation are not
found in the policy. There are 2 kinds of warranties, we have
the express and the implied.
This is an insurance covering a past event. It is valid

for as long as the insured
red acted in good faith
Sec. 108. In marine insurance, information of the belief or expectation of a
third person, in reference to a material fact, is material.
In fire insurance, is there any implied warranties?

None
This is a mere information, expectation or belief, but in

marine insurance, if the insured hass this kind of information,
he has to disclose it to the insurer
In life insurance, is there any implied warranties?

wa
None
Example: the owner of the vessel received communication

from a correspondent of a vessel regarding weather
conditions, this is material, but this must be communicated to
the insurer by the insured
nsured despite of the fact that such
information which the insured has no actual knowledge but
merely communicated to him
In marine insurance, there are 2 kinds of warranties:

Express
Implied
Implied warranties can be found only in marine insurance
What are the implied warranties in marine insurance?
The vessel is seaworthy
There will be no improper deviation
No illegal ventures
The vessel will carry all the required documents to
show such nationality or neutrality and that it will
not carry any documents which cast reasonable
suspicion thereon
In ordinary non-life
life insurance, information received from
third persons, the insured is not bound to disclose the same.
Another example: the owner of the shipyard inspected the
vessel. The shipyard owner told the owner of the vessel that
the vessel needs some repairs because certain parts are only
good for 3 months, this kind of information is material which
must be communicated to the insurer.
Sec. 110. A concealment in a marine insurance, in respect to any of the
following matters, does not vitiate the entire contract, but merely
exonerates the insurer from a loss resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents;
When is a vessel sea worthy?

Sec. 114. A ship is seaworthy when
w
reasonably fit to perform the
service and to encounter the ordinary perils of the voyage
contemplated by the parties to the policy.
Page | 24

It does not refer merely to the kind of __ that the vessel has
but it include __ __. Like for example, the vessel should
shou have
a complete complement as prescribe in its registration. If the
registration says that the vessel should have a master and 20
complements.
There must be proof that the vessel is seaworthy

when the voyage was commenced.
commenced The moment it
becomes unseaworthy, the law says that no
unreasonable delay in repairing the vessel.
So the requirement of seaworthiness is met for as
long as there is a showing that when the vessel
commences the voyage, it must be seaworthy. When
the moment the vessel becomes unseaworthy, no
unreasonable delay in repairing the same.
If the master of the vessel does not have the qualification

required by law to become a master, that vessel is not
seaworthy
The vessel is properly equipped with all instruments
necessary for navigation. That the vessel carries sufficient
provision for a particular voyage.
Voyage and deviation

Insofar as voyage and deviation is concerned, there are 4
cases of deviation:
Departure from course of sailing fixed by mercantile
usage
The first rule is you have to follow the route
fixed by mercantile usage, if you depart
from that , there is deviation.
Departure from the most natural, direct and
advantageous route.
So in the absence of mercantile usage, the
most natural, direct and advantageous
route
nable delay in pursuing a voyage
Unreasonable
Commencement of an entirely different voyage
Sec. 116. A warranty of seaworthiness extends not only to the condition of

the structure of the ship itself, but requires that it be properly laden, and
provided with a competent master, a sufficient number of competent
officers and seamen, and the requisite appurtenances and equipment, such
as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights,
and other necessary or proper stores and implements for the voyage.
With respect to seaworthiness of the vessel, there is another

factor that must be taken into account. A vessel may be
seaworthy insofar as ocean navigation is concerned but in
river navigation, it is not seaworthy.
If the voyage requires not only open sea navigation but
includes navigation to reach its destination, the vessel must
be seaworthy in both bodies of water.
Sec. 121. When the voyage contemplated by a marine insurance policy

is described by the places of beginning and ending, the voyage insured
in one which conforms to the course of sailing fixed by mercantile
usage between those places.
How about the cargo? A cargo may be a subject matter of

marine insurance. Does seaworthiness of the vessel likewise
apply to cargo? This is a marine insurance covering the cargo.
Does the implied warranty of sea worthiness likewise apply to
cargo?
There is an implied warranty that the vessel I have
employed for shipment of my cargo is seaworthy. So
if it turns out that the vessel is not seaworthy, I may
not be able to collect
Sec. 122. If the course of sailing is not fixed by mercantile usage, the
voyage insured by a marine insurance policy is that way between the
places specified, which to a master of ordinary skill and discretion,
would mean the most natural, direct and advantageous.
Sec. 123. Deviation is a departure from the course of the voyage
insured, mentioned in the last two sections, or an unreasonable delay
in pursuing the voyage or the commencement of an enti
entirely different
voyage.
Sec. 118. When the ship becomes unseaworthy during the voyage to which
an insurance relates, an unreasonable delay in repairing the defect
exonerates the insurer on ship or shipowner's interest from liability from any
loss arising therefrom.
A deviation may either be proper or improper.

When is it proper?
When the vessel becomes unseaworthy and there is

unreasonable delay in repairing, the insurer will be
exonerated
Sec. 124. A deviation is proper:

(a) When caused by circumstances over which neither the
master nor the owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a
peril, whether or not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human
life or relieving another
ano
vessel in distress.
When should the vessel

essel be seaworthy? Does the requirement
of seaworthiness extend from point of departure to point of
destination?
When the vessel leaves the port, it must be
seaworthy.
Example of no. 1:: typhoon
Page | 25

Suppose a vessel receives an SOS from another vessel. Can a
vessel make a proper deviation to help another vessel?
Saving a vessel is not found in the enumeration but if
there are human lives in that vess
vessel, that can be a
proper deviation
Constructive loss. When the vessel incurred damage

amounting to more than of the value of the vessel,
there is already
lready constructive loss. The insured can
already abandon the vessel and it will be treated as a
total loss. The insured has to notify the insurer that
he is abandoning the vessel as a constructive total
loss. The notice either be oral or written.
Supposing the vessel made an improper deviation, the

improper deviation lasted for more that 1 hr. it was an honest
mistake on the part of the master of the vessel. If for more
than 1 hour, it is improper deviation.. When
Whe the master
realized that they are deviating from the usual course, he
corrected, if the vessel is lost or damage after the improper
deviation, can the insured recover?
Any loss taking place after improper deviation, the
insurer is exonerated.. The imprope
improper deviation may
not be the cause of the loss.
If the owner of the vessel did not exercise his right of

abandonment, despite of the fact there is already more than
actual losses, how much will be the extent of his recovery?
It will be the actual loss. If only, that is partial loss.
But if turns out that the
t whole thing is lost, he can
recover as actual total loss. But if the whole thing is
not loss, he cannot recover from the insurer actual
total loss.
But if he exercise the right to abandon, the moment
he realized that the loss amounted already to more
than
han of the value of the vessel, he can recover
from the insurer as if there is a total loss
Loss
There are 2 kinds of losses. A loss may either be
total
o actual
o constructive
Partial
Is there in other non-life

life insurance constructive total loss?
None. Constructive total loss is found only in marine
insurance. The moment the notice of abandonment
abandonme
is received, the insurer ipso facto takes all the
ownership of whatever remains. The insurer can
already direct the master of the vessel.
Sec. 127. A loss may be either total or partial.

Sec. 128. Every loss which is not total is partial.
Is there a need for a written acceptance of the abandonment?

The law does not require written acceptance of
abandonment.
donment. The acceptance may either be
express or implied
Sec. 129. A total

tal loss may be either actual or constructive.
What is our definition of actual total loss?

Sec. 130. An actual total loss is cause by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by
being broken up;
(c) Any damage
age to the thing which renders it valueless to
the owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner
of the possession, at the port of destination, of the
thing insured.
Supposing the right to a constructive total loss is a valid one

and in spite of that the insurer refused to accept the
abandonment. In other words, there is a valid abandonment
under the law, the insured
sured send notice to exercise his right of
abandonment to the insurer, but for no valid reason, the
insurer refused to accept the abandonment, is the insurer
liable?
The insurer is still liable. The exercise of the right of
abandonment is a valid right and if the insurer refuse
to accept the same, that refusal will not exonerate
the insurer. The insurer will still be liable for a
constructive total loss
What is meant by constructive total loss?

Sec. 131. A constructive total loss is one which gives to a person
insured a right to abandon, under Section one hundred thirtythirty
nine.
So constructive total loss is connected with the abandonment

of the vessel
When the insured has the right to abandon
don the vessel in
accordance with law, that is constructive loss
There are 2 kinds of policies:

Valued policy
Open policy
When is the insured have the right to abandon a vessel? What

kind of loss?
In valued policy,, the amount of insurance is different

d
from
the value as contained in the policy. The amount of insurance
may be less than the agreed value. The agreed value may be
Page | 26

20M but the insured may collect only for 15M. If the value of
the thing is agreed upon and the same is contained in the
policy
olicy that is a valued policy. With respect to the agreed
valuation, the same is conclusive as between the parties in
the absence of fraud.
There is no such thing as co-insurance

co
in life and other non
life insurance. The only case of co-insurance
co
is in marine
insurance, that is section 157
Sec. 157. A marine insurer is liable upon a partial loss, only for
such proportion of the amount insured by him as the loss bears to
the value of the whole interes
interest of the insured in the property
insured.
If there is no valuation of the thing that is contained in the

policy, the same is an open policy.. What is contained
containe in the
policy is only the amount of insurance. How much is the
insurance. No agreed valuation.
This is a case where the vessel underinsure, when the vessel

is underinsure, the owner of the vessel becomes a co-insurer
co
insofar as the amount of underinsurance is concerned.
In marine, we have averages. Particular and general

Example: supposing the vessel is worth
wo 5M but the owner of
the vessel insure it for only 2.5M. This is a case of
underinsurance, the vessel is underinsured to the extent of
2.5M. If is this the case, the owner of the vessel becomes a
co-insurer
insurer insofar as the amount of underinsurance is
concerned.
General average: there are several conditions

condition for a general
average:
ves or cargo
There must be common danger, the vessel
is subject to a common danger
Part of the vessel or cargo was deliberately sacrificed
for the common safety.
It must be made by the master or upon his authority
It must be successful. It results in saving the vessel
and cargo
insurance takes place in case of partial loss.

Co-insurance
Supposing that the partial loss is 2.5M, that is 50%. The
amount to be recovered here is only is 50% of the 2.5M. The
1.25M will be recovered because the owner of the vessel
becomes a co-insurer.
The classic example

ple of a general average is jettison to lighten
the vessel.
All the parties benefited (owner of the vessel, owner of the
cargoes) shall contribute pro-rata
rata to the loss. The insurer is
liable for general average.
Why is co-insurance
insurance found only in marine insurance?
The most risky kind of insurance is marine. And the
insurer has to protect itself so that they will be
encourage to cover full coverage if it is marine
insurance
Example: 1M worth of cargo was jettisoned to lighten the

vessel. The persons benefited will contribute to the value of
1M jettisoned goods. If the vessel is covered by the insurance
and if the other cargo is covered by the insurance, the insure
is liable for the general average
But it does not necessarily mean that

tha we cannot have coinsurance in life. If the parties agreed (insurer and insured)
that the insured will be a co-insurer
co
to the extent of the
amount not covered by insurance, it is a valid agreement.
How about particular average?

In a loss or damage suffered by the vessel from the
time it leaves the port up to the time it reaches its
port of destination, to which did not deliberately
done to save the cargo or vessel, this is particular
average. So any other kind of dama
damage or losses not
deliberately done in order to save the vessel, there is
particular average
So co-insurance
insurance may take place in any other kind of insurance
ins
provided that it is expressly agreed upon. But in case of
marine insurance, there is no need to provide the same
because it is provided for by law.
FIRE INSURANCE
Sec. 167. As used in this Code, the term "fire insurance" shall include
insurance against
gainst loss by fire, lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are covered by extension to fire
insurance policies or under separate policies.
Example: because of leakage of certain goods or the goods

are damage by the sea water because of waves, that is
particular average. Is the insurer liable?
surer of the damaged goods is liable.
The insurer
Fire insurance is a contract whereby the insurer binds itself to

indemnify
nify the insured for any loss or damage caused by perils
insured against.
If some of the cargo was damage because of the

miscarriage of the crew, that is particular average.
Fire insurance is a contract of indemnity. You cannot recover

more than what you insurable interest is. If the value of the
co
In marine insurance, there is what we call co-insurance.
Page | 27

property is 100k, you cannot recover more than 100k. If there
t
is recovery beyond the value of the property insured, that is
against the law. It becomes a wagering contract.
Insofar as fire insurance is concerned, the peril insured
against is fire. In other words, if the proximate cause is hostile
fire, there iss recovery. And the subject matter is a property.
Supposing a building worth 1M, but experience shows that
considering the materials being used now in constructing a
building, complete loss has lower percentage. In many cases,
the loss is merely partial. The insured did not insure the
building for 1M. The insured insure the same for 500K.
500
supposing there is partial loss and the partial loss amounts
only to 500K, can he recover the 500k?
Yes
In some cases, we may have what we call extended

insurance.
Example of extended fire insurance:
If there are other properties belonging to
insured that got damage or loss because of
occurrence of a fire, although not covered by
insurance policy, these may be included under
extended coverage. That is indirect losses
the
the
the
the
If the partial loss is only 300k?

He can recover 300k
If it is a store, another indirect loss which may be a

subject of fire insurance is profit loss
On the other hand if it is full coverage 1M, the loss is 500k

The insured only gets 500k
These are what we call extended

ended coverage, in the absence of
any provision relative to extended coverage only losses or
damages caused by fire are recoverable. In other words,
direct losses
Ass shown above, in some insurance company, they require a

co-insurance clause.
There is what we call alterations in the use or condition
It is important also know that there are 2 kinds of insurance

generally:
Life
Non life
Sec. 168. An alteration in the use or condition of a thing insured

from that to which it is limited by the policy made without the
consent of the insurer, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a
contract of fire insurance.
Marine, fire are non life
Sec. 169. An alteration in the use or condition of a thing insured

from that to which it
i is limited by the policy, which does not
increase the risk, does not affect a contract of fire insurance.
Supposing the coverage of the marine policy is limited only to

damage or loss caused by fire. In other words, not caused by
peril of the sea. Fire is a peril of a ship. Can you get an
insurance?
Yes
If there is an alteration either in the use or in the condition of

the policy. Like the condition of a building. Will that affect the
insurance contract?
Why is it important to make a distinction; to know the

distinction between the 2?
Because there is right of abandonment in marine
insurance. We dont have this right of abandonment
in fore insurance
When a building was insured, the building was being used as

residence. That is a warranty, that the building shall be used
for residential purposes. During the lifetime of the policy, the
owner of the building converted the same into a dormitory.
There
here is a change in the use of the building. Is the change
material?
Yes. A building that is used as dormitory is more
prone to fire.. There is an alteration in the use. If this
is done without the consent of the insurer and it
increases the risk and other elements concur, this
will avoid the policy
In case of co-insurance. Co- insurance is only

available in marine insurance. In fire insurance, there
is no co-insurance
insurance unless expressly agreed upon by
the parties
Elements of alteration of use or condition that will avoid the

policy
Limitation as to use or condition
Alteration of the use or condition of the thing
How should we call it? Should we call it a marine policy or fire

policy?
Marine,, notwithstanding the fact that the risk is
limited only to fire
Page | 28
Without the consent of the insurer

Increases the risk
Within the control the insured
What is the measure of indemnity?

Sec. 171. If there is no valuation in the policy, the measure of
indemnity in an insurance against fire is the expense it would be
to the insured at the time of the commencement of the fire to
replace
eplace the thing lost or injured in the condition in which at the
time of the injury; but if there is a valuation in a policy of fire
insurance, the effect shall be the same as in a policy of marine
insurance.
Supposing the fire did not start in that building, the fire
started in an adjoin building but it spread out to the building
insured. In other words, the cause of the fire is in no way
related to the alteration? Is the insurer liable?
ble?
The insurer is not liable although the cause is not the
unauthorized alteration
It depends upon what kind of policy that was issued.

If it is a valued policy,
policy whatever valuation agreed
upon by the parties as provided for in the policy shall
be conclusive between the insured and insurer in the
absence of fraud.
Supposing there is a limitation, the building is tenanted. The

owner of the building insured such building. The building is
being leased. The building was being used by a tenant. Under
the policy, there is a limitation as to the use and condition.
This was violated by the TENANT. Will the violation made by
the tenant be considered also as a violation of the insured?
No, the tenant is not the extension of the personality
off the insured but if the alteration is done with the
knowledge of the insured, that is a different story.
The violation made by the tenant shall be likewise be
attributed to the insured
If it is an open policy, the measure of indemnity will

be the value of the thing at the time of the
commencement of the fire. How much was the value
of the thing at the commencement of the fire. If the
value was 800k, that is the measure of indemnity.
The determination of the value in the open policy
will be done subsequent
subsequen to the loss not prior to the
loss.
The determination is valued policy is prior to the loss
The tenant converted the building into a dormitory. He

accepted boarders.
ers. Do you think the acts of the tenant will be
considered as acts of the insured?
Yes, there is no reason why the landlord does not
know. The presumption here is that he knows
Who shall make the evaluation?

An independent adjuster
Can the insurer tell the insured that he will just rebuild the
building? He will do the reconstruction or conduct necessary
repairs. Does the insurer have that option Instead of paying
the insured?
That is only optional if so provided in the policy. If it
is not provided for in the policy, payment should be
made
Another limitation as to the use or condition, the deposit of

explosives. It was deposited by the tenant without the
knowledge of the insured.
That cannot be attributed to the insured. The tenant
cannot be an extension of the personality of the
insured unless it is done with his knowledge
There is also a provision in fire insurance that no policy

subsequent to the issuance may be the subject of pledge,
mortgage or transfer to any agent or any person connected
with the insurance company. Absolute prohibition to prevent
any connivance. The insured cannot execute a contract of
pledge in
n favor an agent of an insurance company. The
insured cannot mortgage the policy or transfer.
Supposing there is no limitation in the policy.

olicy. No limitation as
to use or condition, then there is no prohibition regarding
deposit of explosives. The insured deposited explosives in the
premises. There was fire, the fire was caused by the
explosives, can the insured recover?
The insured can recover.
over. There was no limitation. He
did not violate the policy. So if there is no limitation
as to use or condition and the insured did something
increasing the risk and the same is the cause of the
loss or damage, these will not exonerate the insurer
becausee there is no violation in the provision of the
policy
Sec. 173. No policy of fire insurance shall be pledged,

hypothecated, or transferred to any person, firm or company who
acts as agent for or otherwise represents the issuing company,
and any such pledge, hypothecation, or transfer hereafter made
shall be void and of no effect insofar as it may affect other
creditors of the insured.
Remember that the proximate cause should be hostile fire. If

the proximate cause iss not hostile fire, no recovery. If the
proximate cause is subject of an exception, no recovery.
Sec. 170. A contract of fire insurance is not affected by any act of

the insured subsequent to the execution of the policy, which does
not violate its provisions, even though it increases the risk and is
the cause of the loss.
Page | 29

The juridical vinculum of 3rd party liability insurance is
between the insured and the insurer. But that
rd
notwithstanding, the benefit is intended for 3 person. So
much so that if there is any accident causing injury or death
to a third person, the third person may bring a direct action
rd
against the insurer. So the 3 person acquires a cause of
action against the insurer although he is not a party to the
casualty insurance
There are policies where exceptions are provided for. Like

earthquake, flood, typhoon or explosions are excepted. So if
the proximate is earthquake, flood, typhoon
phoon or explosion and
the immediate cause is fire, no recovery. The proximate
cause should be hostile fire.
CASUALTY INSURANCE
Casualty Insurance it includes all forms of insurance arising
from accident or mishap which are not included in other
kinds of policy
rd
If it is not a 3 party liability insurance, like damage to

property, the motor vehicle hit another motor vehicle. There is
damage to property. Does the owner of the other motor
vehicle has a cause of action directed against the insurer?
rd
None, because
se that is not for the benefit of 3 party
Sec. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom
are considered as falling exclusively within the scope of other types of
insurance such as fire or marine. It includes, but is not limited to, employer's
liability insurance, motor vehicle liability insurance, plate glass insurance,
burglary and theft insurance, personal accident and health insurance as
written by non-life insurance companies,, and other substantially similar kinds
of insurance.
The cash and carry rule with respect to premiums. If the

policy is issued and there is no payment of premium that
policy is not valid, that is an express provision of law. But
rd
there are exceptions, one exception is 3 party liability
insurance in favor of third person. Even though the insured
rd
has not paid a single centavo for 3 party liability insurance,
rd
that is valid to protect 3 persons
Example: Insurance coverage of a motor vehicle against theft,

damage. This is casualty insurance
Authorized drivers clause the driver at the time of the
accident must be permitted in accordance w
with the licensing
or other laws or regulations to drive the motor vehicle and is
not disqualified from driving such motor vehicle by order of
the court or by reason of any enactment or regulation in that
behalf
There is a right of subrogation. If the insurer is made to pay

the insurer
surer is subrogated to the rights of the person who
claimed from them.
No fault indemnity clause
Sec. 378. Any claim for death or injury to any passenger or third party
pursuant to the provisions of this chapter shall be paid without the necessity
of proving
ing fault or negligence of any kind; Provided, That for purposes of this
section:
(i)
The total indemnity in respect of any person shall not
exceed five thousand pesos (15K by memo circular);
(ii)
The following proofs of loss, when submitted under oath,
shall be sufficient
fficient evidence to substantiate the claim:
(a) Police report of accident; and
(b) Death certificate and evidence sufficient to
establish the proper payee; or
(c) Medical report and evidence of medical or
hospital disbursement in respect of which refund
is claimed;
(iii)
Claim may be made against one motor vehicle only. In the
case of an occupant of a vehicle, claim shall lie against the
insurer of the vehicle in which the occupant is riding,
mounting or dismounting from. In any other case, claim shall
lie against the ins
insurer of the directly offending vehicle. In all
cases, the right of the party paying the claim to recover
against the owner of the vehicle responsible for the accident
shall be maintained.
The main purpose of such clause is to make sure

s
that
a person other than the insured owner who drives
the car on the insureds order is a duly licensed
driver and has no disqualification to drive a motor
vehicle
Such clause applies only when the driver is driving
on the insureds order or with his persmission
Theft clause when a car is unlawfully and wrongfully taken
without the owners consent or knowledge, such taking
constitutes theft and therefore, it is the theft clause and not
the authorized drivers clause should apply.
Example: third-party liability
rd
What is this 3 party liability insurance?

One requirement of the motor vehicles office before
someone could register his motor vehicle is that the
vehicle must be covered by 3rd party liability
rd
insurance. This is for the protection of 3 persons
who might be injured or figured in an accident
involving such motor vehicle.
rd
Such clause allows a passenger or 3 party to recover without

prooff of negligence on the party of the driver of the insured
vehicle. Proof of fault or negligence is not necessary for
payment of any claim for DEATH or INJURY to a passenger ir
3rd party.
Conditions
Page | 30
A claim may be made against one motor vehicle only

If the victim is an occupant of a vehicle, the claim
shall lie against the insurer of the vehicle in which he
is riding, mounting or dismounting
In any other case, the claim shall lie against the
insurer of the directly offending vehicle
Limited to 15k
Every contract or pledge for the payment of endowments or annuities shall

be considered a life insurance contract for purpose of this Code.
In the absence of a judicial guardian, the father, or in the latter's absence or
incapacity, the mother, or any minor, who is an insured or a beneficiary
under a contract of life, health or accident insurance, may exercise, in behalf
of said minor, any right under the policy, without necessity of court authority
or the giving of a bond, where the interest of the minor in the particular
particu act
involved does not exceed twenty thousand pesos. Such right may include,
but shall not be limited to, obtaining a policy loan, surrendering the policy,
receiving the proceeds of the policy, and giving the minor's consent to any
transaction on the policy.
The same does not apply if the claim is damage to property.

The same applies only in cases of injury or death
SURETYSHIP
What is life insurance?

It is an insurance payable upon the death of a person
or on his surviving a specified period, or otherwise
contingently on the continuance or cessation of life.
Sec. 175. A contract of suretyship is an agreement whereby a party called the

surety guarantees the performance by another party called the principal
p
or
obligor of an obligation or undertaking in favor of a third party called the
obligee. It includes official recognizances, stipulations, bonds or undertakings
issued by any company by virtue of and under the provisions of Act No. 536,
as amended by Act No. 2206.
Example:
The policy will be considered be matured if the
insured
ed survives and reaches the age or 60 or 65
(limited life insurance)
Policy that is payable upon the death of a person
(ordinary life insurance)
When the insured reaches the age of 60, he is going
to receive a monthly of endowment of so much until
he dies (Endowment policy)
Example: surety bank to answer for a loan. X would like to

borrow money from the bank for 20k. There is no collateral
and the bank required, instead a co-maker,
maker, a surety bond
from an accredited insurance company. The insurance
company willll issue a surety bond in favor of the bank for 20k.
It is the insurance company that guarantees the performance
of an obligation.
In life insurance, it is not a contract of indemnity. You cannot

indemnify the life of a person. The value of the life of a
person is beyond pecuniary estimation
Suretyship vs contract of guaranty

See CIV2 transcribe
Remember that not all insurance company is authorized to
issue surety
rety bond. Only those authorized by the office of the
insurance commission
In non-life
life insurance, the measure of indemnity is the
insurable interest.. In life insurance, the measure of indemnity
beyond estimation. The value depends upon the agreement
of the parties
The moment that a surety bond is issued and the same was
delivered to the obligee, although there is no payment of
premium yet, such bond is valid. An exception to the cash and
carry rule.
A life insurance policy is also called a valued policy because

prior to the issuance of the policy, the parties has already as
to the amount
nt of recovery, the value of the insurance
What are the applicable laws that are applicable to

suretyship?
Civil code relative to solidary obligation, provision on
guaranty
The only exception that a life insurance may be a contract of

indemnity is when the insurer is covered the life of a debtor.
When the creditor insures the life of his debtor to cover the
indebtedness. That is a contract
c
of indemnity by way of
exception.
Suretyship is a contract of insurance
Life insurance is considered as a contract of investment. The

insured invest. The premiums that he is paying are being
invested by the insurance company so that it can earn
money.
LIFE INSURANCE
Sec. 179. Life insurance is insurance on human lives and insurance
ins
appertaining thereto or connected therewith.
Cash surrender value

Sec. 180. An insurance upon life may be made payable on the death of the
person, or on his surviving a specified period, or otherwise contingently on
the continuance or cessation of life.
Who are the

he parties in a life insurance contract?
Page | 31
Insured
Insurer
Beneficiary if any
The insured is considered the owner of the policy. The person

who insured his life is the owner of the policy. He is entitled
for the rights appertaining to an owner of an insuran
insurance policy.
He can name beneficiaries, he can change the beneficiaries.
He is entitled to the cash surrender value. Borrow money
from the insurer or use the policy as collateral. He can assign
his policy. These rights are limited or curtailed if there is an
ide was committed in the state of

When the suicide
insanity
Transportation Laws:
New Civil Code
Code of Commerce
Public Service Act
Carrier of Goods Sea Act
What is an irrevocable beneficiary?

When the insured waives expressly his right to
change the beneficiary and it is contained in the
policy
How does the New Civil Code define a common carrier?

Art. 1732. Common carriers are persons, corporations, firms
f
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.
If that is the case, the insured cannot add additional

beneficiaries; he cannot get the cash surrender value
without he consent of the beneficiary; he cannot use
the same as collateral nor transfer the same
To qualify as a common carrier under our laws, is it necessary

that a common
mmon carrier should possess a certificate of public
convenience?
No, this has been cited already by the SC. The SC said
that it is unsound to give certain rights to persons
who have failed to follow the law.
As irrevocable beneficiary, he cannot compel the insured to

pay the premiums. The irrevocable beneficiary can continue
paying the premiums.
Carriers who have certificate of public convenience

conveni
have to follow the line, rules and regulations of the
public service commission, whereas a carrier without
a certificate of public convenience, if they will not be
classified as common carrier just because there is no
certificate of public convenience,
convenience that is unsound.
Life insurance is also an exception to the cash and carry rule.

In life insurance, there is what we call a grace period
Insurable interest in the life of the beneficiary. No need for
insurable interest.
So with or without a certificate of public

convenience, it falls under the definition of common
carrier
Insurable interest in life should exist upon incep

inception only and
not necessary at the time of loss
No need for legal basis in insurable interest
Is it necessary that the business of common carrier is a

principal business of the operator?
Not necessary, it may be incidental to his business. If
it meets all the conditions required by law, even if
the operator may only have one carrier or one unit,
that is a common carrier. The law does not say that
there is a need for more than one unit,
The policy may provide for suicide as an excepted peril.

Contrarily, the policy may also include suicide as a peril
insured against. However, a stipulation in the
t policy is not
necessary for the insurer to be liable even in the case of
suicide provided that the policy has been in force for period
of 2 years from the date of issue or last reinstatement
Is it necessary, just like the big transportation

t
companies,
their buses are scheduled at a time?
Not necessary
Sec. 180-A. The insurer in a life insurance contract shall be liable in case of
suicides only when it is committed after the policy has been in force for a
period of two years from the date of its issue or of its last reinstatement,
unless the policy provides a shorter period: Provided, however, That suicide
committed
ted in the state of insanity shall be compensable regardless of the
date of commission.
When we say serving the general public, supposing that the

market has a limited clientele and not the general public, can
we still call it a common carrier? Example: school Buses.
The insurer is liable in case of suicide even before the 2 year

period in any of the following cases:
When a shorter period is provided for in the policy
Page | 32

They are classified as common carrier although they
have limited clientele. So it is not necessary that the
market is for the general public.
This is the only instance where the obligor is required by law

to exercise extra ordinary diligence.
diligenc If there is a loss or
damage and there is no showing that the common carrier
employed or exercised extra ordinary diligence but only less
than extra ordinary, the common carrier is liable.
Art. 1734. Common carriers are responsible for the loss, destruction,
destr
or
deterioration of the goods, unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
Colorum lets say somebody owns a vehicle, then its for

hire. Its services can be engaged. The vehicle can be
b rented for
one day for a particular trip. There is no certificate of public
convenience. Is a colorum a common carrier? Lets say Pedro
owns a motor vehicle and he offers it for hire, is the colorum a
common carrier?
It depends
In item 3, if the proximate cause of the loss can be attributed

to the act or omission of the shipper
s
or owner, the carrier is
not liable.
The real distinction between

een a common carrier and a
private carrier is this:
Common carrier owes a duty to the
general public. The general public can
employ the common carrier as a matter of
right. The common carrier cannot turn
down the request
These are the 5 causes that will exempt the carrier from
liability.
In these 5 cases enumerated by law are not the only cases
that may cause damage or loss to the shipper. There are other
fortuitous events that may take place. There are other
fortuitous events which are the proximate cause of the loss or
deterioration. Does it necessarily mean that these 5 cases are
exclusive?
There are other fortuitous events which may be a
ground for exception but in one condition.
condi
The
fortuitous events other than the 5 enumerated, the
carrier must prove extra ordinary diligence. So Aside
from these 5 enumerated cases, other fortuitous
events may be utilized to exempt liability provided
that there is a proof that the carrier exercised
ex
extra
ordinary diligence
Private carrier - although for hire, is free to

choose his clients and the same is not a
common carrier
But if the colorum without a certificate of public convenience
is offered to the general public so that anybody could use it,
and the same is a common carrier
Characteristics (summary)
Not necessary that the common carrier has a
certificate of public convenience
Not necessary that it is a principal business
Not necessary that it has more than one unit
Not necessary that it caters to the general public or
having a limited clientele
Also, in these 5 cases enumerated, these must be the

proximate cause.
In the 5 enumerated cases, there is no presumption of
negligence
Art. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of
the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733.
Such extraordinary diligence in the vigilance over the goods is further

expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth in
Articles 1755 and 1756.
Speaks of the presumption

resumption of negligence
Because of the nature of the business and reasons of public

policy, the law requires a common carrier to exercise extra
ordinary diligence
Take note that negligence, as a general rule, is never

presumed, there must be proof that the cause of the loss or
damage or injury is a negligent act
Page | 33

But in this article, there is a presumption of negligence. So if
the injured party
arty goes to court, he only needs to prove by
way of evidence is the loss, damage or deterioration of the
goods. There is already a presumption of negligence on the
part of the carrier.
What kind of contract is required by law for a contract of

transportation?
It may either be written or oral
If it is written contract of transportation of goods, we call the
contract bill of lading
The bill of lading may either be:
Negotiable or non negotiable
What may be the defense of the carrier?

That they exercised extraordinary
nary diligence
In the matter of extra ordinary diligence, can the parties
stipulate limiting the degree of diligence to less than
extraordinary? Supposing that the voyage is quite dangerous,
like during the rainy season. One of the conditions is that the
carrier will exercise ordinary diligence and not extraordinary
diligence. Can the parties agree?
Yes in a transportation of goods, but the same must
be signed by the shipper; the consideration must be
other than the service rendered by the common
carrier; Reasonable, just and not contrary to public
policy.
The
he contract of transportation of goods may be oral but
shipment of goods in bulk, this is usually covered by a bill of
lading.
Art. 1744. A stipulation between the common carrier and the shipper or
owner limiting the liability of the former for the loss, destruction, or
deterioration of the goods to a degree less than extraordi
extraordinary diligence shall
be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service
rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.
What is less than extraordinary?

It may be diligence of a good father of the family but
if it is less than ordinary diligence, that cannot be
because that is against public policy
In the bill of lading, art 1744 says that a stipulation limiting

the liability for less than extraordinary diligence shall be void
vo
unless it is in writing, signed by shipper or owner; supported
by a valuable consideration other than the services rendered
and it must be reasonable, just and not contrary to public
policy. So, under this article, there can be a stipulation
limiting the
e liability to less than extraordinary.
So the contract relative to lessening

lessen
the degree of diligence,
this can be only ordinary diligence
There are 2 contracts of transportation

Transportation of good
Transportation of persons
At the onset,, 2 important principles in the law on common

carriers as enunciated in the new civil code:
the degree of diligence required by law is
extraordinary diligence.
the presumption of
o negligence
Parties in a contract of transportation

Goods: the carrier and shipper or consignee
Persons: the carrier and the passenger
All provisions found from art 1733-1763

1733
in the NCC are
American provisions
In our study of transportation law, remember the

classification.
fication. This involves a contract of transportation and
there are 2 objects of the contracts:
Transportation of goods
Transportation of passengers
Extraordinary diligence is required for 2 reasons, Because of:

the nature of the business
for matters of public policy
When we speak of extraordinary diligence, it does not apply
only to transportation of persons but it also applies in the
transportation of goods.
There is also what we call classification of articles, what type

of carrier is being used in transportation:
By land
By sea
By air
The law does not make any distinction

This requirement (extraordinary diligence) applies not only to
transportation of persons but also to transportation of goods.
There is a part in this section in the new civil code relative to

common carriers, this transportation of goods. This involves a
contract. When we speak of transportation of goods, there is
a contract of transportation.
Another principle enshrined in the law on common carriers is

the presumption of negligence.
Page | 34

There is a presumption of negligence not only in a case of
transportation of goods but also in the transportation of
person. In other words, in the case
e of transportation of
goods, the injured party or the plaintiff has to prove only in
case there is loss, damage or deterioration, there is a
presumption of negligence. The carrier was at fault
robbers did not act with irresistible force, the carrier

is not liable, such provision is not valid. The only way
that the carrier may escape liability is to prove that
the thieves or robbers acted with irresistible force.
It is duty of the carrier to maintain the good condition of the
carrier being used in the transportation. If the proximate
cause of the loss or damage is defective carrier or equipment,
the carrier is liable.
In the case of transportation of persons, in case of death or

injury, there is a presumption of negligence on the part of the
carrier.
Art. 1748. An agreement limiting the common carrier's liability for delay on
account of strikes or riots is valid.
As a general rule, negligence should be proven but in the law

on common carriers is an exception.
If there is a stipulation limiting the carrier's liability in case of

strikes or riots is valid. If there is a stipulation in the bill of
lading that the carrier is not liable in case of loss or damage
caused by strike or riot, is that a valid stipulation?
That stipulation is valid
Art. 1745. Any of the following or similar stipulations shall be considered

unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or
shipper;
(2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the
custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less
than that of a good father of a family, or of a man of ordinary
prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or
omission of his or its employees;
(6) That the common carrier's liability for acts committed by thieves,
or of robbers who do not act with grave or irresistible threat,
violence or force, is dispensed with or diminished;
diminish
(7) That the common carrier is not responsible for the loss,
destruction, or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment
used in the contract of carriage.
Art. 1749. A stipulation that the common carrier's liability is limited to the
value of the goods appearing in the bill of la
lading, unless the shipper or owner
declares a greater value, is binding.
There are separate cases that has been decided by the court
applying this article.
In determining the amount of freightage to be charged by the
carrier in connection with the transportation
trans
of goods, there
are 2 ways:
By volume
By value
There are certain Stipulations

ions considered by law as
unreasonable, unjust and against public policy. And for which
reason, these stipulations are considered null and void not
effective or not valid.
If it is based on Volume, it is the space that may be occupied

that may be occupied by the goods that you are transporting.
So the computation is space
Other is by Value, how much is the value supposing
sup
the
shipment involves valuable things like jewelry.
What are these cases provided by law?

Goods transported are at the risk of the ship
shipper.
Some shipper to economized, they declare a lower value. So

if the value of the goods is 200k or more, the shipper may
declare only 20k to reduce the amount that they are going to
pay by way of freightage.
ightage. That is why there is a provision that
the shipper cannot recover damages greater than what they
have declared. If the shipper declares a different value, he
cannot recover the actual value of the shipment in case of
loss.
What does it mean?

Whatever be the proximate cause of the loss,
damage or deterioration, it shall be on the account
of the shipper, that is null and void, that is against
public policy.
Item 6, supposing part of the goods were stolen. Let say the
goods is entrusted to the carrier?
It depends
Art 1748 applies where the

t freightage is computed on the
basis of value but not on the basis of volume.
If there is evidence to that effect that the thieves did

not act with irresistible cause or threat, the carrier is
liable. But if the carrier was threatened by
irresistible force or threat, the carrier is not liable. So
if there is a stipulation that even if the thieves or
Art. 1746. An agreement limiting the common carrier's liability may be

annulled by the shipper or owner if the common carrier refused to carry the
goods unless the former agreed
ed to such stipulation.
Page | 35

If there is a stipulation in the bill of lading limiting the liability
of the carrier and there is knowledge and evidence to the
effect that the carrier refused to transport the goods unless
the shipper agreed to that stipulation, the law says that such
stipulation shall be considered as null and void. In other
words the stipulation goes like this we will only be liable for
so much, take it or leave it
Art. 1752. Even when there is an agreement limiting the liability of the
common carrier in the vigilanc
vigilance over the goods, the common carrier is
disputably presumed to have been negligent in case of their loss, destruction
or deterioration.
In this article, the stipulation limiting the liability will not

effect, the presumption of negligence. By the fact that
tha there
is a presumption limiting the liability of the carrier, the
presumption of negligence remains.
Art. 1747. If the common carrier, without just cause, delays the
transportation
n of the goods or changes the stipulated or usual route, the
contract limiting the common carrier's liability cannot be availed of in case of
the loss, destruction, or deterioration of the goods.
Art. 1754. The provisions of Articles 1733 to 1753 shall apply to the
passenger's baggage which is not in his personal custody or in that of his
employee.. As to other baggage, the rules in Articles 1998 and 2000 to 2003
concerning the responsibility of hotel-keepers
hotel
shall be applicable.
In this article, there is a stipulation limiting the carrie

carriers
liability but there was a delay in the commencement of the
trip or there is a change in the stipulated route, there was a
change in the usual or customary route, in case of loss,
damage the provision regarding the limitation of the liability
may not be availed of by the carrier. So these 3 cases
neutralized the limitation of the carriers liability:
a delay in the commencement of the trip
there is a change in the stipulated route
there was a change in the usual or customary route
Under Art 1754, the law speaks of 2 cases, baggage which

remain in possession of the shipper or of his employees and
baggage
gage in transit to the carrier.
For baggage in transit to the carrier, the provision of the law
(1733-1763) will apply
For baggage remains in the possession of the shipper or his
employees, the provisions of the new civil code on hotel
keepers shall apply.
ly. The carrier should be considered as
necessary depositaries. It will be considered as a necessary
deposit.
Art. 1750. A contract fixing the sum that may be recovered. by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely
agreed upon.
What degree of diligence shall be measured?

It is no longer extraordinary diligence because the
liability of the carrier in that situation is not
n that of a
carrier anymore.
Can there be an agreement limiting

miting the liability of the carrier
on a certain amount?
The law says that it is valid provided that it is
reasonable, just, based on the attendant
circumstances
Regarding transportation of passenger,

passenger what are the laws
applicable to transportation of passenger?
Land common carrier in an overland transportation,
the primary law is the civil code. The suppletory law
is the code of commerce
comme
If the voyage to be undertaken is quite dangerous (sea

voyage) like transportation of goods to
o be Batanes islands
during the typhoon season. The carrier said the he is willing to
transport the goods in one condition, if something happens,
his liability shall not be more than so much.
The same is valid if freely given and just and
reasonable in accordance
ordance with attendant
circumstances
Supposing it is not a common carrier but a private carrier,

what law shall apply?
The provision of the civil code on contracts
Supposing it involves transportation by sea, what law or laws
shall apply? Common carriers (vessel) involving sea
transportation
If it is coastwise shipping (within the island or
archipelago), the primary law is the civil code on
common carriers. The suppletory law, the code of
commerce.
If it is from a Philippine port to foreign port,
port the
laws of the country of destination shall apply
If it is from foreign port to Philippine port,
port the civil
code is the primary law. The code of commerce and
There are various cases where under the law, there carrier is
allowed to limit his liability.
Art. 1751. The fact that the common carrier has no competitor
along the line or route, or a part thereof, to which the contract
cont
refers shall be taken into consideration on the question of
whether or not a stipulation limiting the common carrier's liability
is reasonable, just and in consonance with public policy.
Supposing that a particular route is a monopoly route of a

one transportation company and no competitor, the same
will be taken consideration in determining the
reasonableness of a provision limiting the liability.
Page | 36

the carriage of goods by sea act is the suppletory
law.
A passenger may either be:

Paying passenger
Gratuitous passenger
How about Air travel?

Domestic: civil code on common carriers is the
primary law
International: civil code on common carriers is the
primary law. The warsaw convention is the
suppletory law
When does a person becomes a passenger? Does a person

becomes a passenger when he actually boards the vehicle or
after boarding the vehicle? Can a person becomes a
passenger even before boarding the carrier?
Actual boarding
rding does not signify the perfection of
the contract of transportation.
Art. 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of
o very
cautious persons, with a due regard for all the circumstances.
The issuance of the ticket does not necessarily mean the

beginning of the commencement of the contract of
transportation.
The 2 principles discussed earlier is also applied in

transportation of passengers
The payment of the fare does not signify or mean the

commencement
cement of the contract of transportation
What kind of contract is a contract of transportation of

passengers? Does the law prescribe any particular
parti
contract
for the contract of transportation of passenger?
The law does not provide
When does the contract of transportation of passengers

commence?
The contract of transportation of passenger
commences when a person voluntarily places
himself under the control of the carrier with the
consent of the
he latter
The contract may either be written or oral. It may be

express or implied
Who is a passenger?
A Passenger is a person who undertakes with
consent of the carrier to travel
avel in the conveyance
provided by the latter otherwise that the service of
the carrier as such
Example: when a person is going to take a ride in bus. He

goes to the bus terminal, the moment the person enters the
bus terminal, and goes to the ticket booth to buy ticket, that
person is already considered a passenger. The duty of
extraordinary
ary diligence begins. In other words, if a person is
in the bus station, there is an intention to travel. If there is an
intention, he already placed himself in the control of the
carrier.
He is the one who undertakes or agrees to be

transported by a conveyance provided by the carrier,
with the consent of the carrier.
Nowadays, there is what we call promotional payers. Buying a

ticket
et 3 months ahead for a scheduled trip. Is there already a
contract of transportation?
None, that is only a contract to transport in the
future. It is not a contract of transportation. That is
an executor contract (contract to transport).
Any person who entrust himself

elf to another person
operating a carrier with the consent of the latter for
transportation in a particular place of destination is a
passenger.
Can you be classified as a passenger if you do not have a
ticket? Is a ticket necessary in order that a person may
acquired the category of a passenger under the law?
A ticket is not necessary to qualify as a passenger
although it may be an evidence of a contract of
transportation
We may consider a contract of transportation of passengers a

real contract. In other words, there must be an actual placing
of the passenger under the control of the carrier. So in effect,
it is a real contract.
Supposing you are an employee of a transportation company,
there are perks and privileges that an employee received from
his employer like free ride from and to the transportation
office. Is he a passenger? If something happens to the
employee, can he claim the rights and privileges of a
passenger under the law or
o will he just considered an
employee?
How about payment of the fare? Is a payment of a fare

necessary element or essentiall condition in order that a
person may qualify as a passenger in the eyes of the law?
Payment of fare is not necessary to qualify because a
passenger may be a gratuitous passenger. A
passenger may be allowed to ride for free
Page | 37

It depends, if the transportation company charges
his employee a certain amount for the ride to and
from the office (he is paying something or a salary
deduction), he is a passenger
When does a contract of transportation take effect? Is it upon

the consent? The moment there is an agreement between the
parties?
Strictly speaking,
g, No. it becomes effective and gives
to causes of action only when there is actual
transporting of the passenger. If the passenger has
not delivered himself to the control of the carrier,
there is no contract of transportation yet.
But if it is absolutely for free, as part of the perks, he

is not a passenger, he is an employee. Be that as it
may, although he is not classified as a passenger, the
fact remains that he has the protection of the law
insofar as the exercise of extraordinary diligence is
concerned. In otherr words, employer shall exercise
extraordinary diligence insofar as his employee is
concerned although he is not considered a
passenger
When does the contractt of transportation commence? Is it

upon boarding the carrier? Actual boarding? Is it when the
passenger inside the carrier ready to be transported?
No, actual boarding is not necessary. The moment a
person entrust himself to the care of the carrier
under the control of the carrier, the contract of
transportation is deemed to have commenced.
When a passenger enters a bus station to arrive at a
particular destination, that person is already a
passenger for as long as his arrival is within
reasonable time between
bet
arrival and departure.
The kind of passenger involve in a contract of transportation

is immaterial insofar as the 2 general principles relating
relatin to
common carrier is concerned.
It is not a defense on the part of the carrier that you are a
non-paying
paying passenger and hence the carrier is not bound to
observe extraordinary diligence. The carrier cannot say that
extraordinary diligence is for paying passengers
assengers only. That is
against public policy
More so, if he already purchased a ticket. But even

without a ticket, if he is already right there inside the
bus station waiting for his ride, he is already
considered a passenger. The duty to exercise
extraordinary diligence commences.
The requirement of the law that a common carrier still

observes extraordinary diligence in its discharge of its
obligation as an obligor or conveyor applies to paying and
non-paying passengers
When does a person cease to be a passenger? Does a person

cease to be a passenger the moment he alights from the
carrier? Does the duty to exercise extraordinary diligence ends
upon when the passenger already alighted?
No, the passenger might have already alighted but if
he is still in the premises of the carrier waiting for his
baggage, he is still a passenger. The duty to exercise
extraordinary diligence subsist
If a passenger is injured or dies caused by the negligence of

the common carrier, the injured party enjoys the
presumption of negligence. The only thing that the injured
party has to proved is evidence that the passenger is injured
or has died. The burden of proof to overcome
ove
this
presumption is on the part of the carrier. The carrier should
prove that he exercised extraordinary diligence.
Supposing the carrier arrives early in the morning, lets say it

is a train. Thatt particular carrier will leave in the afternoon.
The passenger did not leave the carrier, he stays behind the
carrier. Will you consider him as a passenger?
He is no longer a passenger. Reasonable time after
leaving the carrier. If he stays behind for no purpose
at all, he is not a passenger anymore. If something
happens, the carrier cannot be held liable.
The 2 general principles that we have discussed is contained

in Art 1755 and 1756
Art. 1755. A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for
all the circumstances.
Art. 1756. In case of death of or injuries to passengers, common
carriers are presumed to have
ave been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as prescribed in Articles 1733 and 1755.
This is important to know when does the duty begins and

ends because during the effectivity of the contract of
transportation, there is a duty to exercise
exerc
extraordinary
diligence. Whatever happens to the passenger, the same
might give rise to a cause of action against the carrier.
Art 1755 speaks of extraordinary diligence with respect to the

transportation of passengers.
In transportation of goods, when does the duty of

extraordinary diligence commence? Does it commence when
What kind of contract is a contract of transportation? Do we

consider this as a consensual contract or a real contract?
Page | 38

the goods are already
ady loaded in the carrier to be transported
or even before?
Even before the loading of the goods in the carrier,
the duty of extraordinary diligence commences the
moment the shipper has delivered or entrusted the
goods to the possession of the carrier. If the carrier
is going to leave for tomorrow or 2 days later, for
example, and the shipper delivered the goods to the
carrier and it was stored in the warehouse of the
carrier, the duty of extraordinary diligence already
exist.
Supposing a cigarette vendor, they just ride the platform of

the carrier, even without the consent of the carrier. Can you
consider him as a passenger?
No, because he is being transported without the
consent of the carrier. There is no contract of
transportation express or implied between the
carrier and the cigarette vendor.
Art. 1757. The responsibility of a common carrier for the safety of passengers
as required in Articles 1733 and 1755 cannot be dispensed with or lessened
by stipulation, by the posting of notices, by statements on tickets, or
otherwise.
If there is transshipment and the goods are temporarily

stored pending transshipment, the duty of extraordinary
diligence subsist.
What is this responsibility for the safety of passengers?

The exercise
cise of extraordinary diligence. This cannot
be dispensed with or lessened because human lives I
at sake. It cannot be a subject matter.
In transportation of goods, when does it end? Does it end

upon arrival of the goods to the point of destination?
Not necessarily, upon arrival on the por
port of
destination, the goods might be deposited by the
carrier in its warehouse.
Is there any exception to this rule?

Yes, the exception is gratuitous passenger
If a passenger is carried by a carrier
carrie gratuitously,
under the law (Art 1758), a stipulation limiting
liability is valid but not for willful act or gross
negligence.
Does the duty of extraordinary diligence still subsist? The

vessel arrived, the goods are unloaded, the goods are
deposited in the warehouse of the shipping company?
The duty still subsist until there is delivery, actual
delivery or constructive delivery to the consignee.
The reduction of fare does not justify any limitation

of the carriers liability
Actual: physical delivery

But remember, it is by stipulation, not by way of
notice or statement in the ticket. The gratuitous
passenger and carrier should agree.
When is there a constructive delivery of goods to the

consignee?
When the carrier gives notice to the consignee and
the consignee fails to claim the good within a
reasonable time from notice, there is constructive
delivery
Art. 1758. When a passenger is carried gratuitously, a stipulation

limiting the common carrier's liability for negligence is valid, but
not for wilful acts or gross
gro negligence.
The reduction of fare does not justify any limitation of the
common carrier's liability.
The mere fact that there was delay on the part of the
consignee in claiming the goods, does it necessarily mean that
the carrier is already free from liability?
No, the carrier ceases to be a carrier, the carrier
becomes a depositary. As a depositary, the carrier
should exercise ordinary diligence.
Supposing a policeman takes a ride, the carrier will not charge

the policeman. So he is a gratuitous passenger, can the
responsibility of the carrier be reduced to ordinary diligence?
Yes, but there must be a stipulation. It must be in
writing
After the lapse of the reasonable period of time from

notice, there is what we call constructive delivery.
The extraordinary
ordinary diligence required by the civil
code for common carrier will no longer apply but the
common carrier shall continue to be an obligor in
the eyes of the law, but the degree of diligence is no
longer that of the extraordinary, only ordinary
diligence of the a good father of a family. Because
the liability of the common carrier is no longer that
of a carrier but of a depositary
There is a difference between stipulate and

agreement. Agreement is a broader term. It includes
written and unwritten. But when we say stipulation,
it presupposess a written agreement
Art. 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or wilful acts of the former's employees,
although such employees may have acted beyond the scope of their
authority or in violation
ion of the orders of the common carriers.
Page | 39

This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.
This is unlike in the case of gratuitous passenger, where the

same can be limited
Like in a bus, there is a driver

iver and a conductor
Art. 1761. The passenger must observe the diligence of a good father of a
family to avoid injury to himself.
Supposing, in a bus station, there was a commotion or a

quarrel between 2 passengers within the premises. One of the
drivers of the bus company arrives and he tried to pacify the 2
quarreling parties. In solving the issue, he injured one of
them. Did the bus driver acted within the scope of his
authority?
No, he did not. He is not the security guard, he is the
bus driver but he took it upon himself to pacify the
parties quarreling
The passenger also has a duty

dut to observe the diligence of a
good father of a family.
Art. 1762. The contributory negligence of the passenger does not bar
recovery of damages for his death or injuries, if the proximate cause thereof
is the negligence of the common carrier, but the am
amount of damages shall be
equitably reduced.
Supposing the passenger was also partly to blame for the

accident, but the proximate cause was the negligence of the
carrier.
If the proximate cause was the negligence of the
carrier, contributory negligence on the part of the
passenger cannot be a defense to exculpate the
carrier from liability. But it can be a ground for the
reduction of liability in accordance with the
circumstance
Is the carrier liable?

The law is specific, even if nott acting within the
authority. The carrier is liable
Supposing that the same driver is off duty but incidentally he
arrived at the bus station. And he took it upon himself to
pacify the parties, then one parties got injured. Can you hold
the carrier liable?
e? Can the carrier put up as a defense that
they are not liable because the bus driver was not on duty?
It depends
Art. 1763. A common carrier is responsible for injuries suffered by a

passenger
er on account of the wilful acts or negligence of other passengers or
of strangers, if the common carrier's employees through the exercise of the
diligence of a good father of a family could have prevented or stopped the
act or omission.
This is an act of a stranger, the carrier is liable if they

did not exercise due diligence that they could have
prevented the accident
Is the proximate of the injury of the passenger is the act of a

stranger, thief or a robber, can you hold the carrier liable?
The carrier is liable if through the exercise of
ordinary diligence, the carrier could have prevented
the incident
Under
er this article, diligence of a good father of the family in
the selection and supervision of their employees is not a
defense. Remember torts and damages (culpa aquiliana).
Art. 1764. Damages in cases com

comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206
shall also apply to the death of a passenger caused by the breach of contract
by a common carrier.
In culpa aquiliana, is that a valid defense?

Yes. If the cause of action is a tortuous
rtuous act, under the
Civil Code, due diligence of a good father of a family
not only in the selection but also in the supervision is
a defense
What are the damages ___ by the passenger?

passen
If a passenger
is injured or he died as a result of the negligence of the
carrier. We are assuming here that the carrier is liable. What
kind of damages are recoverable by the passenger from the
carrier?
There are 2 kinds of damages recoverable
Actual damages the cost of medicine and
hospitalization
Compensatory Damages unrealized profit;
the net yearly income of the injured or
deceased passenger multiplied by the
number of years ____ existence based of
the mortality table
But the study of common carrier is not about culpa aquiliana.

It is culpa contractual. Contract of transportati
transportation, the carrier
cannot put up as a defense the exercise of due diligence of a
good father of the family not only in the selection but also in
the supervision.
Art. 1760. The common carrier's responsibility prescribed in the preceding
article cannot be eliminated
minated or limited by stipulation, by the posting of
notices, by statements on the tickets or otherwise.
This is with respect to the liability of common carrier for the

acts of its employees as prescribed in article 1759. This
cannot be limited by any stipulation,
pulation, statement in the ticket.
For example: the passeng

passenger died as a result of an accident
and he died at the age of 40 having involved gainful years had
Page | 40

he survived. According to the mortality rate, he may have 20
years, how much could he earn net income yearly for the next
20 years?
There is what we call unrealized
alized profit based on the
mortality rate.
culpa aquilana, it is the carrier and the driver are the

respondents
If it is culpa criminal, based on the RPC, who will be the
respondents?
The driver but insofar as civil liability
lia
is concerned,
the carrier is subsidiary liable. Under the RPC, if the
driver is convicted and he is insolvent, the employer
is subsidiary liable.
Is the carrier liable for moral damages?

With respect to moral damages, there is a qualification.
There are only 2 instances where a passenger is entitled
to moral damages:
In case of death
ilty of fraud or bad faith
When the carrier is guilty
even though death did not result. So if there is
injury, the law qualifies, there must be bad faith
on the part of the common carrier
The difference between culpa contractual and culpa aquiliana

Culpa Contractual there is an agreement. There is
a contract
Culpa Aquiliana there is no agreement. It is an act
or omission, there being no agreement, causing
damage or injury to another, that is a tort.
This is different from culpa aquilana, even if there is no fraud

or bad faith, the injured party
rty is entitled to moral damages
but if the cause of action is culpa contractual, injury alone is
not a ground for moral damages, it must be accompanied
with bad faith or fraud.
Culpa Contractual in matter of diligence,

extraordinary diligence (contract of transportation)
transp
to absolve the carrier
Culpa Aquiliana to absolve the employer, due
diligence of good father of a family in the selection
and supervision of its employees, that is a defense
If a passenger is injured or died, there are 3 available causes

of action:
Culpa
lpa contractual based on the contract of
transportation
Culpa Aquilana based on tortuous act
Culpa Criminal based on a penal clause
Culpa Contractual there is a presumption of

negligence (contract of
o transportation)
Culpa Aquiliana there is no presumption of
negligence. You have to prove negligence
The choice belong to the injured party

Culpa Contractual in matter of moral damages, for
a passenger to recover moral damages in case injury,
there must be fraud or bad faith
Culpa Aquiliana there is no need for fraud or bad
faith, moral damages is recoverable even without
bad faith or fraud
If the cause of action is culpa contractual, lets say X is the

transportation company,
any, Y is a passenger, the Z is the driver
of the bus. There was an accident. Y got injured. If it is culpa
contractual, who will be the respondents?
X, the transportation company the carrier
OVERLAND TRANSPORTATION (Code of Commerce)
Will you include the driver if the cause of action is culpa

contractual?
He cannot be included, he is not a privy to the
contract of transportation.
The code of commerce speaks of overland transportation,

waterways transportation and maritime commerce but
b never
transportation by air.
So of the cause of action availed of by the passenger

is culpa contractual, there is only one respondent
and that is the common carrier, the passenger
cannot include the driver because the driver is not a
privy to the contract of transportation
Why is there no provision in the code of commerce relative to

transportation by air?
Because when the code of commerce was enacted
to law, it was year 1889. Airplanes are not yet used
for commercial transportation during that
th time.
Supposing the cause of action is culpa aquilana, who will be

the respondents? Can the driver be included if the case is one
of culpa aquilana?
Yes, because there is what we called
led joint tortfeasor.
Employer and employee are solidarily liable. So if it is
But nonetheless, the SC said, the New Civil code and

provision in overland transportation and waterways
may have suppletory effect insofar as air
transportation is concerned.
Page | 41

If the carrier is a merchant, the contract of transportation is a
merchant
ARTICLE 349. A contract of transportation by land or water ways of any

kind shall be considered commercial:
1. When it has for its object merchandise or any article of
commerce.
2. When, whatever its object may be, the carrier is a merchant or is
habitually engaged in transportation for the public.
But the under NCC, there is no more distinction. So this Art

349 is superseded, meaning, not in force in law because
under the new civil code, the distinction is now relates to
what kind of carrier involve. Is a carrier a common carrier or a
private carrier?
BEFORE the New Civil Code was

as enacted, we follow the dual
system of law in our jurisdiction, meaning to say, there is one
set of law covering commercial transaction and another set of
law to cover commercial transaction. That is the reason why,
we use to have the Civil Code and the code of Commerce
If it is a common
on carrier, we apply the NCC on common
carriers and Code of commerce as suppletory law. If it is not a
common carrier (private carrier, we apply the provision of the
NCC on contracts
Before we determine the nature of the transaction, is it civil

in character or commercial in character? If it is commercial,
we apply the code of commerce. If it is civil, we apply the civil
code
ARTICLE 350. The shipper as well as the carrier of merchandise or goods

go
may mutually demand that a bill of lading be made, stating:
1. The name, surname and residence of the shipper.
2. The name, surname and residence of the carrier.
3. The name, surname and residence of the person to whom or to
whose order the goods are to be sent or whether they are to be
delivered to the bearer of said bill.
4. The description of the goods, with a statement of their kind, of
their weight, and of the external marks or signs of the packages in
which they are contained.
5. The cost of transportation.
6. The date on which shipment is made.
7. The place of delivery to the carrier.
8. The place and the time at which delivery to the consignee shall be
made.
9. The indemnity to be paid by the carrier in case of delay, if there
should be any agreement on this matter.
This dual system has been abandoned by the

th code of
commission when they drafted the 1950 New Civil Code, they
adopted the unitary system, only one set of law to cover all
kinds of transaction irrespective of the nature and character
of the transaction.
Under the new civil code, do we still have to distinguish a
commercial contract of transportation or a civil contract of
transportation?
Not anymore
Some provisions in this article is still in force
When it has for its object merchandise or any article of

commerce
In other words, when the goods are transported to
be sold and not for personal use.
If you are the shipper, you can tell the carrier, issue me a bill
of lading. If the shipper is not asking for one, the carrier may,
on its own, issue a bill of lading to cover the goods they
transported.
When the code speaks of merchandise, there is a

connotation that these are goods belonging to a
merchant to be sold.
Can there be a contract of transportation without a bill of

lading? Is it necessary that there should be a bill of lading?
No, it is not necessary. There can be a contract of
transportation even without a bill of lading
When, whatever its object may be, the carrier is a merchant

or is habitually engaged in transportation for the public.
The nature of goods
ods is immaterial if the carrier is a
merchant
If it involves transportation of goods,

goods we call the contract bill
of lading
When is a carrier (the code of commerce does not speak of a

common carrier) a merchant?
When the carrier is transporting goods or passenger, serving
the public for compensation, that carrier is a merchant
If it is a transportation of person, what do we call the

contract?
It is not bill of lading, it is the issuance of a ticket.
The ticket is equivalent of a bill of lading when it
comes to the transportation of person
The test is:

The character of the goods being carried or
The character of the carrier
The bill of lading has a 2--fold character, what are the 2-fold
characters of a bill of lading?
If the goods are merchandise, the contract of transportation

is commercial
Page | 42
In a bill of lading, usually, there are 3 common stipulations

encountered by the courts in a bill of lading. What are these
stipulations?
The carrier not liable
liab for any loss or damage or the
goods are carried at risk of the shipper
A stipulation limiting the liability of the carrier to a
particular amount. An unqualified limitation of the
carrier to a certain amount
Liability of carrier shall not exceed the amount
am
declared in the bill of lading. In other words, the
liability of carrier should not be more than the
amount in the bill of lading unless the shipper
declares a higher or greater amount
It is considered as a receipt meaning to say evidence

of the receipt of the goods by the carrier. That is one
of the functions of a bill of lading.
It can be considered as a contract by itself containing
the terms and conditions. If there is a case in court
involving the terms and conditions, the best
evidence is the bill of lading
Material matters contained in a bill of lading

Description of the __
Terms and conditions
How much is the freightage
Who is the consignee
Place of departure
Place of destination
The
The carrier not liable for any loss or damage or the goods are
carried
arried at risk of the shipper
shipper is this stipulation valid?
Not valid,, if there is a stipulation in a bill of lading to
refer that the carrier is not liable in case of loss or
damage, that stipulation is null and void. It is against
public policy. According to the NCC, regarding
prohibited provisions, the same is found in the NCC
The code of commerce speaks of 2 kinds of Bill of lading

Negotiable bill of lading
Non-negotiable bill of lading
When is a bill of lading negotiable?
This is more or less similar to a negotiable
instrument. When the goods are deliverable to the
order of a particular person or to bearer, that bill of
lading is negotiable
Supposing there is a stipulation that the carrier is liable only

up to 20k. is that a valid stipulation unqualified limiting the
liability of the carrier?
That stipulation is not valid, that is against public
policy
If the bill of lading says the goods described herein

deliverable to the order of ___, that is a negotiable
bill of lading
A stipulation that the Liability of carrier shall not exceed the

amount declared in the bill of lading. In other words, the
liability of carrier should not be more than the amount in the
bill of lading unless the shipper
shipp declares a higher or greater
amount
The stipulation is valid. It is valid because, when we
speak of freightage, there are 2 terms of freightage:
In accordance with the volume
In accordance with the value
What is the importance?

The negotiation of a bill is very important because
without actual delivery of the object, you can
transact with other person. You can sell your goods
without actual delivery of the goods that you are
selling, the only thing that you have to do is to
negotiate the bill of lading
May the parties stipulate for a shorter period within

w
which to
file a court action? In other words, the prescriptive period. A
shorter prescriptive period to file a claim than what is
provided for by law?
The parties may shortened the period provided that
it is reasonable
The other kind of bill of lading is non-negotiable

negotiable bill of lading.
When is a bill of lading non-negotiable?
The bill of lading is non-negotiable
negotiable when according
to the bill,
ill, the goods are deliverable to a particular
person.
Example: the goods described herein is deliverable to Mr. X.
that bill of lading is non-negotiable
ARTICLE 355. The responsibility

lity of the carrier shall commence from the
moment he receives the merchandise, personally or through a person
charged for the purpose, at the place indicated for receiving them.
How will the owner of the bill of lading sell the goods covered
by a non-negotiable bill of lading?
He cannot do it by mere delivery of the bill of lading.
He has to execute a deed of assignment
This has already been repealed.

The code of commerce does not speak about the
presumption of negligence. The 2 principles found under the
Page | 43
law on common carrier in the NCC is not found in the code of

commerce
The bill of lading is issued by the carrier. The bill of lading is
signed only by one party, that is the carrier. The shipper
shi
does
not sign the bill of lading. If you are the shipper, can you
change the consignee as found in the bill of lading?
It can be done only upon surrender of the bill of
lading. Without the surrender of the bill of lading,
there can be no change of thee consignee because
the bill of lading is already in the hands of a third
person
Buyer insolvent
Goods are in transit
When the goods are in transit,

trans the unpaid seller can order the
carrier to stop delivery. Stoppage in transitu cannot be done
by the shipper without surrendering the bill of lading
Regarding the obligation of the carrier, the moment the right
of stoppage in transit is exercised and the same is a valid
exercise, the responsibility of the carrier as a carrier ceases.
The carrier becomes a mere depositary.
ARTICLE 368. The carrier must deliver to the consignee, without any delay
or obstruction, the goods which he may have received, by the mere fact of
being named in the bill of lading to receive them; and if he does not do so, he
shall be liable for the damages which may be caused thereby.
When the goods are delivered by the carrier to the consignee,

the consignee should surrender the bill of lading to the
carrier. Without surrendering the bill of lading, the carrier
c
is
not bound to deliver the goods to the consignee. But the
moment the bill of lading is surrendered to the carrier, all
obligations relative to the contract of transportation are
considered terminated. If a bill of lading is still in the hands of
the
he shipper or consignee, the presumption is that the goods
have not yet been delivered.
Suppose there was delay on the part of the carrier in the

delivery of the goods to the consignee,
consig
can the consignee tell
the carrier that he is not going to accept the goods anymore
because there has been delay in the delivery?
The mere delay does not amount to conversion, the
carrier may be held liable for the delay for whatever
that have caused to the consignee, but the
consignee cannot refuse to accept the goods.
ARTICLE 358. If there is no period fixed for the delivery of the goods the
carrier shall be bound to forward them in the first shipment of the same or
similar goods which he may make point where he must deliver them; and
should he not do so, the damages caused by the delay should be for his
account.
But if the delay is unreasonable, like when the delay

is for more than a year, then conversion will apply.
The consignee can hold the carrier liable for the
value of the goods plus damages
dam
because the delay
here is unreasonable
Usually, the time of delivery is not contained in bill of lading.

No carrier will do that. If you are in a province and
an you want
to send something to manila, the carrier will not indicate in
the bill of lading that the goods or the effects you are
shipping are to be delivered on or before a date, not unless, it
is expressly stipulated.
Supposing a part of the goods were damaged, may the

consignee refuse acceptance of the remaining undamaged
goods?
No, the law says that the consignee should accept
the portion that is not damage and hold the carrier
car
for the damage portion.
Under the code of commerce, if there

re is no express
stipulation as to the exact date of delivery, the carrier is
bound to ship out the goods together with the same or
similar merchandise bound for the same destination, first
shipment. That is the obligation of the carrier.
Exception to the rule:

If the remaining portion cannot be used without the
damaged portion, then the consignee has the right
to refuse acceptance the remaining goods.
Remember the provisions

visions in the NCC relative to documents of
title. These will also apply to bills of lading
ARTICLE 373. The carrier who makes the delivery of the merchandise to the
consignee by virtue of combined agreements or services with other carriers
shall assume the obligations of those who preceded him in the conveyance,
reserving his right to proceed against the latter if he was not the party
directly responsible
nsible for the fault which gave rise to the claim of the shipper
or consignee.
There is also another provision in the NCC, that is what we

call the RIGHT OF STOPPAGE IN TRANSITU.
When is there right of stoppage in transitu? Meaning to say
when
hen can the shipper tell the carrier to stop delivery?
This case involves an unpaid seller and the buyer is
in a state of insolvency and the goods are in transit
The carrier who makes the delivery shall likewise acquire all the actions and
rights of those who preceded him in the conveyance.
The shipper and the consignee shall have an immediate
i
right of action
against the carrier who executed the transportation contract, or against the
Conditions:
Seller unpaid
Page | 44

other carriers who may have received the goods transported without
reservation.
MARITIME COMMERCE
However, the reservation made by the latter shall not relieve them from the
t
responsibilities which they may have incurred by their own acts.
Maritime Commerce is still governed by the code of

commerce
In this article, there is what we call transportation of goods

by combined carriers
Insofar as maritime commerce is concerned, what is the

subject matter?
Vessels. The transportation of goods or persons by
merchant vessels from one port to another port
When there is transportation of goods by combined carriers,

there is what we call transshipment
oes the code of commerce qualify the kind of vessel covered

Does
by the law?
According to the commentaries, the vessels covered
are merchant vessels manned by duly licensed
master with a floating apparatus. These are the big
vessels, whether moved by sail or steam,
st
they are
manned by licensed masters.
If there are 2 carriers, there is a transshipment from the first

st
nd
to the second. It may even involved 3 carriers, from 1 to 2 ,
nd
rd
from 2 to 3
The code of commerce is very clear in Art 373, who shall be
liable? Assuming that there are 3 carriers invol
involved, carriers A,
B and C. If there are 3 carriers involved, who is responsible?
The last carrier, the carrier who delivers the goods
may be held liable by the consignee in spite the fact
the last carrier was not the negligent one but this is
without prejudice
ice to the right of the last carrier to
hold the guilty carrier liable.
Not only the type of vessel, but also the venue. The
venue is the open sea. If the vessel is being used for
river navigation, that is not covered by maritime
commerce
They are merchant vessels. So if it is a yacht,
yac will the code of
commerce will apply?
No
In spite the fact that the law says that the last carrier
shall assume the responsibility, this is also without
prejudice to right of the consignee to choose anyone
of them. So either A, B or C can be sued by the
consignee
If it is a patrol boat or a boat assigned for scientific

expedition?
This is not the vessel contemplated in the law
Right of Abandonment: may the consignee or shipper

abandon the goods and hold the carrier liable for the value of
the same?
In insurance law, the insured has the right to
exercise the right of abandonment if the claim
cla more
than of the value of the vessel
The qualifications is that it is strictly merchant vessels

navigating in the open seas, manned
mann by licensed master with
a floating apparatus
What kind of a property is a vessel? Does the law consider it
real property considering its value and importance in the field
of commerce? Considering its value, will you consider a vessel
a real property?
A vessel, no matter how much the value is still
considered personal property
In overland transportation, if there is delay and the

delay is caused by the fault of the carrier,
unreasonable delay, the consignee, before the
arrival of the goods, exercise the right of
abandonment.
If a vessel is a personal property and it is offered as a

collateral for a loan to be obtained from an institution, what
kind of mortgage will be constituted?
Chattel Mortgage
After the arrival, the consignee cannot abandon the

goods anymore.
Does the carrier have a lien on the goods?
yes
If it is a chattel mortgage, where are you going to register the

mortgage? Is there a need to register it with the register of
deeds?
No, instead of the register of deeds, the registration
shall be with the office of registry of vessels
For how long does the lien last?

Under art 375, it says 8 days. But this has been
qualified by the civil code.
Under Art 2241 of the NCC, its 30 days
ays
Page | 45

Affidavit of good faith must be registered in order to bind
third persons
ARTICLE 590. The co-owners

owners of a vessel shall be civilly liable in the proportion
of their interests
ts in the common fund, for the results of the acts of the
captain, referred to in Article 587.
How is ownership acquired over a vessel?

Any of the mode provided for by law with the
acquisition of property be it real or personal will
apply to the acquisition of vessels
Each co-owner
owner may exempt himself from this liability by the abandonment,
before a notary, of the part of the vessel belonging to him.
ARTICLE 587. The ship agent
nt shall also be civilly liable for 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; but he may exempt himself
therefrom by abandoning the vessel with all her equipments and the freight
it may have earned during the voyage.
Under the code of commerce,

rce, possession in good faith within
3 years continuously with a good title that will give rise to
ownership, in any other case, continuous possession for 10
years. With respect to a captain of the vessel, the captain of
the vessel cannot acquire the vessell by prescription.
In maritime commerce, who are the important persons

participating in maritime commerce?
The owner of the vessel
Ship agent
Captain of the vessel
Other officers and crew
Article 573. Merchant Vessels constitute property which may be acquired

and transferred by any of the means recognized by law. The acquisition of a
vessel must appear in a written instrument, which shall not produce any
effect with respect
ect to third persons if not inscribed in the registry of vessels
The ownership of a vessel shall likewise be acquired by possession in good
faith, continued for 3 years, with a just title duly recorded
ight of dominion.
Ship owner has the right
In the absence of any of these requisites, continuouss possession for ten years
shall be necessary in order to acquire ownership.
Ship agent, just like in a contract of agency, the agent is just a

mere extension of the personality of the principal. He acts for
and in behalf of his principal
A captain may not acquire by prescription the vessel of which he is in

command
Can the agent act alone in his own name?

He cannot, he has to disclose his
hi principal. If he does
not disclose his principal, he is liable
There are several provisions governing co-ownership

co
of
vessels. Right now, vessels are co-owned
owned by big companies. A
vessel may be co-owned
owned by 2 or more persons and the
management shall be that through a resolution of the coco
owners. Majority vote of the co-owners
In ordinary agency in NCC, is the agent personally liable?

The agent is a mere extension of the personality of
the principal. So much so, if he does not exceed the
powers given to him, he acts
ac in accordance and
within the power granted to him by his principal, he
is not personally liable.
ARTICLE 589. If two or more persons should be part owners of a merchant

vessel, a partnership
hip shall be presumed as established by the co-owners.
co
This partnership shall be governed by the resolutions of the majority of the
members.
Is an agent subsidiarily liable in case his principal fails to ?

no
If the part owners should not be more than two, the disagreement of views,
if any, shall be decided by the vote off the member having the largest
interest. If the interests are equal, it should be decided by lot.
Under the maritime laws, what is the concept of a ship agent?

Is the concept the samee as what in the NCC?
Art 586, 587 mentioned about the liability of the
shipping agent
The person having the smallest share in the ownership shall have one vote;
and proportionately the other part owners as many votes as they have parts
equal to the smallest one.
ARTICLE 586. The shipowner and the ship agent shall be civilly liable for the
acts of the captain and for the obligations contracted by the latter to repair,
equip, and provision the vessel, provided the creditor proves that the
amount claimed was invested for the benefit of the same.
Can a co-owner
owner assume the position of captain of the vessel?
Yes. Under the code of commerce, if a co-owner
co
is
qualified to occupy that position, that co-owner
co
should be given preference
By ship agent is understood the person entrusted with provisioning or

representing the vessel in the port in which it may be found.
For whatever be the vessel figured in an accid

accident or with the
conduct of the captain, indemnity is ___ in favor of 3rd person
arose, the partners are liable in proportion of the share in the
co-ownership
So remember,
emember, the owner and the ship agent is liable, they are
practically on equal footing. Liable for the acts of the captain.
Liable for the contracts of the captain unless the same said
contract redound for the benefit of the vessel, the shipping
Page | 46

agent in maritime
aritime commerce assumes primary liability, same
as the shipowner
ARTICLE 826. If a vessel should collide with another, through or the

fault, negligence, or lack of skill of the captain, sailing mate, or any
other member of the complement, the owner of the vessel at fault
shall indemnify the losses and damages suffered, after an expert
appraisal.
Why is there a difference between the liability of an agent in

an ordinary contract of agency under NCC and in maritime
commerce?
Because of the peculiar nature of the business
operating a merchant vessel. In maritime commerce,
the vessels have ship agents in every port wherever
they go. The ship agent takes of the provisioning of
the vessel. If there are equipments necessary to be
acquired, the ship agent needs it to clear with the
ship owner.
ner. The manning of the vessel, the hiring of
the crew and the master of the vessel, that job
belongs to the ship agent.
Aside from the 3 articles, In general, the shipowner and ship

agent are liable for damages for torts or quasi-delicts
quasi
committed by the captain
ARTICLE 598. The ship agent may not order a new voyage, or make contracts
for a new charter, or insure the vessel, without the authorization of its owner or
resolution of the majority of the co-owners,
co
unless these powers were granted
him in the certificate of his appointment.
pointment.
If he insures the vessel without authorization therefore, he shall be subsidiarily
liable for the solvency of the insurer.
The ship agent is the one who signs the contract

whenever the shipowner is not around. The vessel
cannot be readily attached or levied upon because
the vessel is in one port. What is the security of the
other party? For example, the vessel is Manila based.
While it was is south America, there was an incident,
damages was incurred, the guilty party was not able
to make repairs. How can thee innocent party in South
America, get hold of the vessel?
They have to hold the shipping agent liable
ARTICLE 606. If the captain should be a co-owner

co
of the vessel, he may not be
discharged unless the ship agent returns to
t him the amount of his interest
therein, which, in the absence of agreement between the parties, shall be
appraised by experts appointed in the manner established in the law of civil
procedure.
ARTICLE 607. If the captain who is a co-owner
co
should have obtained the
command of the vessel by virtue of a special agreement contained in the
articles of association, he may not be deprived of his office except for the
causes mentioned in Article 605.
Considering the responsibility of the shipping agent, what will

be the remedy of the ship agent in case he was held to be
liable?
The remedy provided forr by law is the right of
abandonment or right of reimbursement
What are the inherent powers of the captain of the vessel?

ARTICLE 610. The following powers shall be inherent in the position of
captain, master or patron of a vessel:
1.
To appoint or make contracts with the crew in the absence of
the ship agent, and to propose said crew, should said agent be
present; but the ship agent
ag may not employ any member
against the captain's express refusal.
The shipping agent is given by law the right to

abandon the vessel including its freght to exempt
himself from liability
2.
To command the crew and direct

di
the vessel to the port of its
destination, in accordance with the instructions he may have
received from the ship agent.
3.
To impose, in accordance with the contracts and with the laws

and regulations of the merchant marine, and when on board
the vessel, correctional punishment upon those who fail to
comply with his orders or are wanting in discipline, holding a
preliminary hearing on the crimes committed on board the
vessel on the seas, which crimes shall be turned over to the
authorities having jurisdiction over the same at the first port
touched.
4.
To make contracts for the charter of the vessel in the absence

of the ship agent or of its consignee, acting in accordance with
the instructions received and protecting the interests of the
owner with utmost care.
5.
To adopt all proper measures to keep the vessel well supplied

and equipped, purchasing all that may be necessary for the
The shipping agent, if he is made to pay, can seek

reimbursement from the ship owner
What are the liabilities of the shipowner and ship agent?
ARTICLE 586. The shipowner and the ship agent shall be civilly
liable for the acts of the captain and for the obligations contracted
by the latter to repair, equip, and provision the vessel, provided
the creditor proves that the amount claimed was invested for the
benefit of the same.
By ship agent is understood the person entrusted with
provisioning or representing the vessel in the port in which it may
be found.
ARTICLE 587. The ship
hip agent shall also be civilly liable for 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; but he may exempt himself therefrom by
abandoning the vessel with allll her equipments and the freight it
may have earned during the voyage.
Page | 47

purpose, provided there is no time
ime to request instruction from
the ship agent.
6.
It is actually a contract of lease. It is the leasing of

the entire vessel or principal portion of the vessel to
rd
the 3 person
To order, in similar urgent cases while on a voyage, the repairs

on the hull and engines of the vessel and in its rigging and
equipment, which are absolutely necessary to enable it to
continue and finish its voyage; but if he should arrive at a point
where there is a consignee of the vessel, he shall act in
concurrence with the latter.
There are 2 parties in the contract

Shipowner or ship agent
Charterer - the party leasing the entire vessel or a
portion of the vessel
What is the difference between a charter party contract and a
bill of lading?
Charter party is a contract of lease
Bill of lading is a contract to transport goods from
one place to another. It is not a contract of lease. It
is a contract of transportation of goods
What are the liabilities of the captain?

ARTICLE 618. The captain shall be civilly liable to the ship agent, and
the latter to the third persons who may have made contracts with
the former;
1.
For all the damages suffered by the vessel and its cargo
by reason of want of skill or negligence on his part. If a
misdemeanor or crime has been committed, he shall be
liable in accordance with the Penal Code.
2.
For all the thefts committed by the crew, reserving his

right of action against the guilty parties.
3.
For the losses, fines, and confiscations imposed an

account of violation of customs, police, health, and
navigation laws and regulations.
4.
For the losses and damages caused by mutinies on

board the vessel or by reason of faults committed by the
crew in the service and defense of the same, if he does
not prove that he made timely use of all his authority to
prevent or avoid them.
5.
For those
ose caused by the misuse of the powers and the
nonfulfillment
fulfillment of the obligations pertaining to him in
accordance with Articles 610 and 612.
6.
For those arising by reason of his going out of his course

or taking a course which he should not have taken
without
ut sufficient cause, in the opinion of the officers of
the vessel, at a meeting with the shippers or
supercargoes who may be on board.
Standard contents of a charter party

ARTICLE 652. A charter party must be drawn in duplicate and
signed by the contracting parties, and when either does not know
how or is not able to do so, by two witnesses at his request.
The charter party shall contain, besides the conditions freely
stipulated, the following circumstances:
1.
The kind, name, and tonnage of the vessel.
2.
Its flag and port of registry.
3.
The name, surname, and domicile of the captain. ...
4.
The name, surname, and domicile of the ship agent, if
the latter should make the charter party.
5.
The name, surname, and domicile of the charterer; and
if he states that he is acting by commissio
commission, that of the
person for whose account he makes the contract.
6.
The port of loading and unloading.
7.
The capacity, number of tons or the weight or
measurement which they respectively bind themselves
to load and to transport, or whether the charter party is
total.
8.
The freightage to be paid, stating whether it is to be a
fixed amount for the voyage or so much per month, or
for the space to be occupied, or for the weight or
measure of the goods of which the cargo consists, or in
any other manner whatsoever agreed upon.
9.
The amount of primage to be paid to the captain.
10. The days agreed upon for loading and unloading.
11. The lay days and extra lay days to be allowed and the
demurrage to be paid for each of them.
No exceptions whatsoever shall exempt him from this

obligation.
7.
For those arising by reason of his voluntarily entering a

port other than that of his destination, outside of the
cases or without the formalities referred to in Article
612.
8.
For those arising by reason of non-observance

non
of the
provisions contained in the regulations on situation of
lights and maneuvers for the
he purpose of preventing
collisions.
There are 3 kinds of charter party contract

Bareboat charter
er a contract where the possession
and control of a vessel are relinquished by the owner
in favor of the charterer. And the charterer has the
right to appoint the master of the vessel and the
crews. He has also the right to provision the vessel
and to choose
hoose the voyages that it will undertake.
CHARTER PARTIES
What is a charter party contract?
Page | 48
Time charter the charter of a vessel for a definite

period of time. The owner of the vessel does not
relinquish the control and possession of the vessel.
Voyage Charter the charter of a vessel for a
particular voyage. Example: from manila to palawan
and from Palawan to manila
ARTICLE 667. The goods loaded shall be liable in the first place for the freight
and expenses thereof during twenty days, to be counted from the date of their
the
delivery or deposit. During this period, the sale of the same may be requested,
even though there be other creditors and the bankruptcy of the shipper or
consignee should occur.
Time charter and Voyage charter is collectively called

contract of affreightment
This right may not he made use of, however, on the goods which, after being
bein
delivered, were turned over to a third person without malice on the part of the
latter and for a valuable consideration.
If it is a charter party contract of a vessel, what kind of carrier

is involved?
If it is a time or voyage
ge charter, a common carrier
If it is a bareboat charter, a private carrier
ARTICLE 670. If the person from whom the vessel is chartered, after receiving a
part of the freight, should not find sufficient to make up at least three-fifths of
the amount which the vessel may hold, at the price he may have fixed, he may
substitute for the transportation another vessel inspected and declared
suitable for the same voyage, the expenses of transfer and the increase in the
price of the charter, should there be any, being for his account. Should he not
be able to make this change, he shall undertake the voyage at the time agreed
upon; and should no time have been fixed, within fifteen days from the time
the loading began,, unless otherwise stipulated.
If it is a bareboat charter, as between the charterer and the

owner of the vessel, what law shall govern?
Bareboat charter is not govern by the laws on
common carriers
If the owner of the part of the freight already loaded should procure some
more at the same price and under similar or proportionate conditions to those
accepted for the freight received, the person from whom the vessel is
chartered
hartered or the captain can not refuse to accept the rest of the cargo; and
should he do so, the shipper shall have a right to demand that the vessel put to
sea with the cargo which it may have on board.
A charter party contract, the charterer may lease the whole

vessel or a portion of the vessel. If it is a bareboat charter, it
is a charter of the entire vessel because the owner is
relinquishing the possession and control of the vessel. So
bareboat charter necessarily
ily implies, the leasing of the entire
vessel.
This is a case where the ship owner, the portion of the vessel
is being chartered. A portion chartered by A, a portion
chartered by B. if it does not reach 3/5 of the vessel, the
owner of the vessel can tell the charterers, I will look for
another vessel because it might be a losing proposition on
the part
rt of the owner of the vessel if he will proceed. The
charterer cannot complain
If it is a leasing of a part of or a portion of the vessel, it cannot

be a bareboat anymore. This will still be under the control of
the owner or ship agent. The contract between the 2 is still
that of a common carrier
ARTICLE 655. Charter parties executed by the captain in the absence of the ship
agent shall be valid and effective, even though in executing them he should
have acted in violation of the orders and instructions of the ship agent or
shipowner; but the latter shall have a right of action against the captain for
indemnification of damages.
ARTICLE 671. After three-fifths

fifths of the vessel has been loaded, the person from
whom she is chartered may not, without the consent of the charterers or
shippers, substitute thee vessel designated in the charter party by another one,
under the penalty of making himself thereby liable for all the losses and
damages occurring during the voyage to the cargo of those who did not
consent to the change.
This is a case where the vessel is found in a place where there

is no ship agent and the owner is not there also. Only the
captain of the vessel is around. If that is the case, does the
captain of the vessel have the authority to enter into a charter
party contract?
No, the captain must be authorized by the ship agent
or shipowner, but in case the captain does so, or
even assuming that he is authorized and he did
di not
follow the instruction, that contract between the
rd
captain and the 3 person shall be valid.
ARTICLE 679. The charterer of an

n entire vessel may sub-charter
sub
the whole or
part thereof on such terms as he may consider most convenient, the captain
not being allowed to refuse to receive on board the freight delivered by the
second charterers, provided that the conditions of the first
firs charter are not
change, and that the price agreed upon is paid in full to the person from whom
the vessel is chartered, even though the full cargo is not embarked, with the
limitation established in the next article.
If the vessel has been subject of a charter party contract, can

the charterer sub-charter
charter a portion of the vessel?
The charterer of the entire vessel can sub
sub-lease the
vessel, provided that it does not contradict with the
stipulations contained in the charter party contract
The general public can assume that the captain has

the doctrine of apparent authority. If the shipowner
or ship agent is not around, the general public can
assume that the captain has the authority. That is
the reason of the law why the contract is valid
Page | 49

If the new owner of the vessel should not load it for his
own account, the charter party shall be respected, and
the vendor shall indemnify the purchaser if the former
did
and full payment of the agreed price for the

charterer is paid
Art 688 rescission by the charterer
ARTICLE 688. A charter party may be rescinded at the request of
the charterer:
1.
If before loading the vessel he should not agree with
that stated in the certificate of tonnage,
ton
or if there
should be an error in the statement of the flag under
which she sails.
2.
If the vessel should not be placed at the disposal of the

charterer within the period and in the manner agreed
upon.
3.
If after the vessel has put to sea, she should return

r
to the
port of departure, on account of risk from pirates,
enemies, or bad weather, and the shippers should agree
to unload her.
ARTICLE 690. The charter party shall be rescinded and all actions arising
therefrom shall be extinguished, if, before the vessel puts to sea from the port
of departure, any of the following cases should occur:
1.
A declaration of war or interdiction of commerce with the power to
whose ports the vessel was to make its voyage.
2.
A condition of blockade of the port of destination of said vessel, or
the breaking out of an epidemic after the contract was executed.
3.
The prohibition to receive at the said port the merchandise
constituting
tituting the cargo of the vessel.
4.
An indefinite detention, by reason of an embargo of the vessel by
order of the government, or for any other reason independent of
the will of the ship agent.
5.
The inability of the vessel to navigate, without fault of the captain
ca
or
ship agent.
The unloading shall be made for the account of the charterer.
In the second and third cases the person from whom

the vessel was chartered shall indemnify the charterer
for the voyage out.
Can the captain of the vessel borrow money by way of a loan

on respondentia?
no
If the charter should have been made by the months,

the charterers shall pay the full freightage for one
month, if the voyage is for a port in the same waters,
and for two months, if for a port in different waters.
From one port to another of the Ph
Philippines and adjacent
islands, the freightage for one month only shall be paid.
4.
5.
There are 2 kinds of loans

Bottomry loan
Respondentia
If the vessel should make a port during the voyage in

order to make urgent repairs, and the charterers should
prefer to dispose of the merchandise.
Does the captain have the power to

t enter into a loan
(respondentia)?
The captain of the vessel does not have the authority
rd
because the goods belongs to 3 persons. The goods
do not belong to the shipowner or ship agent.
xceed thirty days, the shippers shall

When the delay does not exceed
pay the full freightage for the voyage out.
Should the delay exceed thirty days, they shall only pay the
freightage in proportion to the distance covered by the vessel.
Respondentia using the goods as a collateral

But in loan on Bottomry,
Bott
the captain can do so only
in case it is necessary, but with a corresponding
permission of a competent officer (judge in a
particular jurisdiction)
Art 689 rescission by ship owner

ARTICLE 689. At the request of the person from whom the vessel is
chartered the charter party may be rescinded:
1.
If the charterer, at the termination of the extra lay days,
does not place the cargo alongside the vessel.
Bottomry the collateral is the vessel

In such case the charterer must pay half the freight
fre
stipulated, besides the demurrage due for the lay days
and extra lay days.
2.
LOAN ON BOTTOMRY AND RESPONDENTIA

These are 2 kinds of loanss that are peculiar because they are
only found in the code of commerce.
If the person from whom the vessel was chartered

should sell it before the charterer has begun to load it,
and the purchaser should load it for his own account.
When we speak of loan on Bottomry, the object here is the

vessel. The vessel is the one being mortgage
In such case the vendor shall indemnify the charterer for

the losses he may suffer.
When we speak of Respondentia, what is the subject matter?

What is the thing being
eing offered as collateral?
Page | 50

The goods
is pledge, the collateral is entrusted to the lender.

The pledgor entrust the collateral to the pledgee. So
the pledgee is the one in possession of the collateral.
The goods in loan on respondentia is not given in
pledge, the goods here remain
rema in the possession of
the owner/borrower of the goods.
These are different kind of loan because this is practiced only

in maritime commerce
In the case of loan on Respondentia, how do we define the
loan on respondentia?
This is a kind of loan, the payment of which depend
depends
upon the safe arrival of the vessel or the goods
Is the owner/borrower free to dispose the goods at any time

even without the consent of the lender?
Yes
How does it differ from a simple loan?

In loan of bottomry, there is no limit as to the
amount of interest charged. The usury law does not
apply. It depends upon the agreement of the parties
In effect, the lender does not have anymore control

over the goods. So much so, the primary collateral is
the very person himself who will be the one to
respond to the obligee
he rationale of the agreement on interest?

What is the
The risk of the money lender because, in a loan of
bottomry, if the thing is lost, the loan is
extinguished. So if the vessel is lost while on voyage,
the loan extended by the lender to the order of the
vessel is extinguished. No more cause of action. That
is why the money lender can charge a much higher
interest rate than what current or legal
You have a contract, you give the goods as

collaterals but you keep the goods, you can sell the
goods.
Loan on bottomry is extinguished by the loss of the vessel.
Loan on
n respondentia is extinguished by the loss of the
goods.
If it is a simple loan, does the loss of the collateral extinguish

the simple loan?
The loan subsist
There are certain incidents relative to the case of loan on

bottomry or respondetia:
If the vessel or the goods have never been exposed
to any risk. Example: the owner of the vessel
borrowed 1M but the vessel never left the port. The
owner of the goods borrows 500k but the goods
where never transported. That loan is not a loan on
bottomry or respondentia. It is a simple loan, then
the borrower should pay the legal rate not the
extraordinary interest usually charged for a loan on
bottomry or respondentia
Another point of distinction

stinction is that under the code of
commerce, the loan on bottomry must be written and should
be recorded in the registry of vessel. In simple loan, no such
requirement
In the manner of payment, the so called degree of preference
(1st, 2nd or 3rd mortgage),
), in the application of any amount
st
available for ___ payment, the 1 mortgage shall always have
the priority. It shall have precedence. That is simple loan. But,
in the case of loan on bottomry, the last loan has precedence
over the previous ones.
ARTICLE 729. Should the goods on which money is taken not be

subjected to risk, the contract shall be considered a simple loan,
with the obligation on the part of the borrower to return the
principal and interest at the legal rate, if that agreed upon should
not be lower.
What is the reason? Why give preference to the last loan?

The last loan might have contributed to the saving of
the vessel
If the owner of the vessel or goods obtained a loan, the value

of which is greater than the value of the vessel or goods,
whatever excess shall be considered a simple loan. If the value
v
of the vessel is 2M and the owner of the vessel obtained a
loan of 3M. The vessel was lost. Is the obligation of the
borrower extinguished in total?
Only the 2M corresponding to the value of the vessel
shall be considered as the subject on the loan on
bottomry. The 1M excess shall be considered as
simple loan, the owner of the vessel is still liable. The
same is true with respect to goods
The loan on respondentia is different from the loan on

bottomry, why do we call it respondentia?
We call it respondentia because the personal
pe
obligation of the borrower (owner of the goods) is
the primary collateral.
Why is the person of the owner/borrower the primary
collateral and not the goods?
In civil law, when personal property is given as
collateral, we call it pledge or chattel mortgage.
m
If it
Page | 51

provisions, wages, and expenses of the vessel detained during the
time the settlement or redemption is being made.
2.
The goods jettisoned to lighten the vessel, whether they belong to
the cargo, to the vessel, or to the crew, and the damage suffered
through said act by the goods which are kept on board.
3.
The cables
es and masts which are cut or rendered useless,' the
anchors and the chains which are abandoned, in order to save the
cargo, the vessel, or both.
4.
The expenses of removing or transferring a portion of the cargo in
order to lighten the vessel and place it in condition to enter a port or
roadstead, and the damage resulting therefrom to the goods
removed or transferred.
5.
The damage suffered by the goods of the cargo by the opening
made in the vessel in order to drain it and prevent its sinking.
6.
The expenses caused
ed in order to float a vessel intentionally stranded
for the purpose of saying it.
7.
The damage caused to the vessel which had to be opened, scuttled
or broken in order to save the cargo.
8.
The expenses for the treatment and subsistence of the members of
the crew
rew who may have been wounded or crippled in defending or
saying the vessel.
9.
The wages of any member of the crew held as hostage by enemies,
privateers, or pirates, and the necessary expenses which he may
incur in his imprisonment, until he is returned to the vessel or to his
domicile, should he prefer it.
10. The wages and victuals of the crew of a vessel chartered by the
month, during the time that it is embargoed or detained by force
majeure or by order of the government, or in order to repair the
damage caused
sed for the common benefit.
11. The depreciation resulting in the value of the goods sold at arrival
under stress in order to repair the vessel by reason of gross average.
12. The expenses of the liquidation of the average
AVERAGES
Article 806. The following shall be considered averages:
1.
All extraordinary or accidental expenses which may be incurred
2.
during the voyage in order to preserve the vessel, the cargo, or

both.
Any damages or deteriorations which the vessel may suffer from
the time it puts to sea from the port of departure until it casts
anchor in the port of destination, and those
hose suffered by the
merchandise from the time they are loaded in the port of shipment
until they are unloaded in the port of their consignment.
ARTICLE 809. As a general rule, simple or particular averages shall include all
the expenses and damages caused
d to the vessel or to her cargo which have not
inured to the common benefit and profit of all the persons interested in the
vessel and her cargo, and especially the following:
1.
The losses suffered by the cargo from the time of its embarkation
until it is unloaded,
loaded, either on account of inherent defect of the
goods or by reason of an accident of the sea or force majeure, and
the expenses incurred to avoid and repair the same.
2.
The losses and expenses suffered by the vessel in its hull, rigging,
arms, and equipment,
ipment, for the same causes and reasons, from the
time it puts to sea from the port of departure until it anchors and
lands in the port of destination.
3.
The losses suffered by the merchandise loaded on deck, except in

coastwise navigation, if the marine ordinances
dinances allow it.
4.
The wages and victuals of the crew when the vessel is detained or
embargoed by legitimate order or force majeure, if the charter
has been contracted for a fixed sum for the voyage.
5.
The necessary expenses on arrival at a port, in order to make repairs

or secure provisions.
6.
The lowest value of the goods sold by the captain in arrivals under
stress for the payment of provisions and in order to save the crew,
or to meet any other need of the vessel, against which the proper
amount shall be charged.
7.
There are 2 kinds of averages:

General Average
Particular Average
It is important to distinguish one another from the point of
view of liability because if it is a general average, everybody
shall participate. Everybody has the share for whatever
expenses that might have been incurred. The owner
owne of the
vessel, owners of the cargo in proportion to their exposure.
They have to share with the general average.
The victuals and wages of the crew while the vessel is in

quarantine.
The loss inflicted upon the vessel or cargo by reason of an impact or

collision with another, if it is accidental and unavoidable.
If the accident should occur through the fault
ult or negligence of the captain,
the latter shall be liable for all the losses caused.
8.
9.
On the other hand, if it is a particular average, that is only for

the account of the owner of the goods or for account of the
owner of the vessel. If the vessel suffered damages and this is
particular average, that is exclusively for the account of the
shipowner. If the owner of the goods suffered damages and
the cause of the damage is particular, that is for his own
account, his insurer is liable.
iable. The other owners of the cargo
will not participate.
Any loss suffered by the cargo through the fault,

negligence, or barratry of the captain or of the crew, without
prejudice to the right of the owner to recover the corresponding
cor
indemnity from the captain, the vessel, and the freightage.
ARTICLE 811. As a general rule, general or gross averages shall include all the
damages and expenses which are deliberately caused in order to save the
vessel, its cargo, or both at thee same time, from a real and known risk, and
particularly the following:
1.
The goods or cash invested in the redemption of the vessel or of the
cargo captured by enemies, privateers, or pirates, and the
What is a general average?

Extraordinary expenses to save the cargo or vessel
Page | 52

shall be entered in the minutes in order that they may make use thereof in the
manner they may consider advisable.
What are the requisites in order that an average may be

classified as general average?
The expenses or damages are iincurred for the
common safety of either the vessel or cargo or both
The generals was decided upon to be undertaken
after following the procedure provided for by law
(deliberate sacrifice)
Successful saving of either vessel or cargo or both as
the case may be
Arrival under stress this is arrival when

wh the captain of the
vessel has decided to proceed to the nearest and most
convenient port in case of sea accident; in case the vessel is
seriously damage and needs some repairs.
What are the reasons? Causes of arrival under stress
Lack of provision and they have to proceed in the
nearest and most convenient port
The fear of seizure, privateers or pirates
Any accident of the sea disabling the vessel
Example of a general average is Jettisoning of goods to

lighten the vessel
Supposing the vessel has suffered serious damage. Supposing
there was a typhoon and the vessel suffered serious damage.
To save the vessel, one of the remedial measures suggest
suggested
by the captain was to lighten the vessel. They will lighten the
vessel by unloading part of the cargo. There was jettison of a
cargo. The cargo was worth 500k. That is what we call general
average. That was the expenses incurred in order to save the
vessel
sel and the cargo and everybody shall participate in
proportion to their exposure. The insurance companies are
liable.
Arrival under stress may be classified into 2:

Arrival under stress that is lawful
Arrival under stress that
th is unlawful
If the arrival under stress is lawful, the shipowner is not liable
for damages
If the arrival under stress is unlawful, the owner of the vessel
is liable for damages
ARTICLE 821. The expenses of an arrival under stress shall always be
for the account of the shipowner or agent, but they shall not be
liable for the damages which may be caused the shippers by reason
of the arrival provided the latter is legitimate.
Particular average, this is expense or damage caused not for

the common benefit of vessel owner or cargo owners.
The damage by sea water,
ter, and due to the negligence of the
crew of the vessel, will you consider this as a general
average?
No, that damage is caused by particular average. It is
a damage not voluntary done for the common
benefit of all. The owner of the goods shall bear the
loss
oss alone and his insurer shall answer for it alone. It
did not redound to the benefit of all.
Otherwise, the ship agent and the captain shall be jointly liable.
When is arrival
rival under stress considered unlawful?
ARTICLE 820. An arrival shall not be considered lawful in the following
cases:
1.
If the lack of provisions should arise from the failure to take
the necessary provisions for the voyage according to usage
and customs, orr if they should have been rendered useless or
lost through bad stowage or negligence in their care.
2.
If the risk of enemies, privateers, or pirates should not have
been well known, manifest, and based on positive and
provable facts.
3.
If the defect of the vessel
ve should have arisen from the fact that
it was not repaired, rigged, equipped, and prepared in a
manner suitable for the voyage, or from some erroneous
order of the captain.
4.
When malice, negligence, want of foresight, or lack of skill on
the part of the captain exists in the act causing the damage.
If a vessel, by force majure, suffers damage while on

navigation, that is particular damage, that is for the
account of the owner of the vessel
ARRIVAL UNDER STRESS
ARTICLE 819. If during the voyage the captain should believe that the vessel
ves
cannot continue the trip to the port of destination on account of the lack of
provisions, well-founded fear of seizure, privateers, or pirates
pira
or by reason of
any accident of the sea disabling it to navigate, he shall assemble the officer and
shall summon the persons interested in the cargo who may be present, and
who may attend the meeting without the right to vote; and if, after examining
the circumstances of the case, the reason should be considered well-founded,
well
the arrival at the nearest and most convenient port shall be agreed upon,
drafting and entering the proper minutes, which shall be signed by all, in the log
book.
COLLISSION
What is a collision?
Collision is the impact of 2 moving vessels, as
distinguished from allision, but under the code of
commerce Allision is included in the term collision
The captain shall have the deciding vote, and the persons interested in the
cargo, may make the objections and protests they may deem proper, which
Page | 53

Collision includes not only when 2 moving vessels
strike each other but it also includes a moving vessel
striking a stationary vessel
In overland transportation, which is the privilege vehicle? The

kalesa or the jeep?
kalesa
Allision is when a moving vessel hits a stationary vessel
Is the doctrine of last clear chance in a torts and damages

applicablee to maritime collision?
In the doctrine of last clear chance, if you have the
chance to avoid and you did not do so, you are
liable.
Collision an impact or sudden contact of a vessel with

another whether both are in motion or one stationary
Take note that the code of commerce is a suppletory law.
The doctrine of last clear chance is not applicable

In the case of collision, what kind of vessels contemplated in
collision as provided for in the code of commerce?
Only merchant vessels in the open seas
rd
The most dangerous zone is the 3 zone. If 2 vessels are

about to strike
trike each other, the sail boat has the clear chance
to avoid the collision but the sail boat made a stay. Will the
doctrine of last clear chance apply here?
The doctrine of last clear chance does not apply in
maritime collision because the rule of liability
liabili in this
jurisdiction for maritime accidents the evidence
disclosing that both vessels were blameworthy, the
owners of neither can successfully maintain an
action against the other for the loss or injury of his
vessel (827)
isions in the code of commerce, the 2

To apply the provisions
vessels must be merchant vessels and navigating in the open
seas
Collision in river navigation not covered
Collision in inland waters like lakes not covered
ARTICLE 826. If a vessel should collide with another, through
thro
or the fault,
negligence, or lack of skill of the captain, sailing mate, or any other member
of the complement, the owner of the vessel at fault shall indemnify the
losses and damages suffered, after an expert appraisal.
Contributory negligence shall not be applicable because if 2

vessels are at fault each one shall suffer their own damages.
Also the code of commerce does not speak who is more
negligent and who is less negligent
Under this article, the vessel at fault is the one liable for
damages.
ARTICLE 827. If the collision is imputable to both vessels, each one

shallll suffer its own damages, and both shall be solidarity
responsible for the losses and damages occasioned to their
cargoes.
In maritime commerce, there are 3 zones in law in collision. In

deciding collision cases, the 3 zones are important:
First Zone: All the time up to the moment the risk of
collision made have begun
Second Zone: from
om time risk of collision begins up to
the moment it becomes a practical certainty
Third Zone: from the time of practical certainty to
the moment of actual contact
In torts and damages, we determine the proximate cause or

the principal cause of the accident but if the mere fact that
the negligence
nce is merely contributory, there is liability but the
damages that will be imposed will be equitably reduced. In
maritime commerce, both of them shall suffer damages
ARTICLE 828. The provisions of the preceding article are applicable to the use
in which it cannot be determined which of the two vessels has caused the
collision.
In collision, there is what we call a privilege vessel and a non

nonprivilege vessel
When it cannot be determined who is at fault, both of them

shall suffer their own damages.
Suppose the 2 vessels involved are a steam boat and sail boat,
which of the 2 is the privilege vessel?
Sail boat
ARTICLE 830. If a vessel should collide with another, through fortuitous event
or force majeure, each vessel and its cargo shall bear its own damages.
Why is a sail boat a privilege vessel?

Because it does not have the sophisticated
mechanism that a steam boat has. You have to give
way to the privilege vessel
ARTICLE 831. If a vessel should be forced by a third vessel to collide with

another, the owner of the third vessel shall indemnify the losses and
damages caused, the captain thereof being civi
civilly liable to said owner.
ARTICLE 832. If by reason of a storm or other cause of force majeure, a vessel
which is properly anchored and moored should collide with those nearby,
causing them damages, the injury occasioned shall be considered as
particular average of the vessel run into.
This is important when we are going to apply the doctrine of

the last clear chance
Page | 54

What provisions of the Public service law still applies?
ARTICLE 834. If the vessels colliding with each other should have pilots on
board discharging their duties at the time of the collision, their presence shall
not exempt the captains from the liabilities they incur, but the latter shall
have the right to be indemnified by the pilots, without prejudice to the
criminal liability which the latter may incur.
How
w about jurisprudence derived from the application of the
public service act? Will these decisions still applies?
The grant of certificate of public convenience is assigned now
to DOTC and LTFRB
If the vessels collided with one another, while under the

command of a pilot, is the captain be free from liability?
The captain
aptain is still liable without prejudice with his
right of action against the pilot
With respect to water transportation, we have the MARINA.

What is the job of MARINA?
To issue certificate of public convenience to those
engaged in water transportation
Why call them pilot?

If a foreign vessel will dock in manila bay, of course
the captain of the vessel is not familiar with manila
bay. Maritime rules and regulations requi
require that a
pilot be employed. A pilot is a marine officer familiar
with a particular port. So before entering the port,
the vessel will be under the command of the pilot
Board of Telecommunications, they supervise and regulate

telephone companies, celfones, telegraphs and other means
of communications
Board of energy,
nergy, for power or electric supply
ARTICLE 837. The civil liability incurred by the shipowners in the case
prescribed in this section, shall be understood as limited to the value of the
vessel with all its appurtenances and freightage earned during the voyage.
These new entities have been created during the time of

president marcos by virtue of executive order no. 1
In cases of collision, if the vessel is lost, all the obligations of

the shipowner and the ship agent shall be considered
con
as
extinguished. This is the doctrine of limited liability. The
liability of the shipowner is limited to the value of the vessel
Remember, there is no more public service commission. The

functions originally assigned to the public service commission
had been given to various councils, boards and commissions
under and by virtue of executive no.1
Ratio: because of the amount of exposure that the owner of

the vessel may have in maritime commerce. The exposure
amounts to milions
Exceptions to the doctrine of limited liability:
Where the injury or death to a passenger is due
either to the fault of the shipowner or to the
concurring negligence of the shipowner and the
captain
Where the vessel is insured
In workmens compensation claims
If the collision takes place in a river or lake
When the vessel is unseaworthy
If a vessel is not a merchant vessel
There are certain provisions found in the public service that

can still find application. The rule is the public service law is
still a suppletory law insofar as matters not covered by the
new entities are concerned. The primary law is the law
provided for the new agencies
What is the primary purpose of the enactment of the public
service law?
To provide efficient service to the general public
To protect
otect private investments
Example: the issuance of the certificate of public
convenience. The agencies above is empowered to issue a
certificate of public convenience
PUBLIC SERVICE LAW
Aside from the certificate of public convenience, there is

another certificate known as,
as the certificate of public
convenience and necessity.
The Public Service law is an old law. It was enacted during the
commonwealth days.
Public Service Law has been amended drastically. Various
public utilities now are supervised and regulated by their own
agencies.
The certificate of public convenience is one issued to private

persons or entities by the various agencies of moment. So if a
person or a private corporation would like to operate a public
utility, they
hey have to secure first a certificate of public
convenience from the proper commission, board or entity as
the case may be
But the subsequent legislation did not repeal in toto the

public service act.
Page | 55

The certificate of public convenience and necessity is issued
not by any of these agencies that were discussed above, this
is issued
d only by way of a legislative charter. A public
corporation, a corporation wholly owned by the government.
If it wanted to operate a public utility, the entity entrusted to
grant the certificate of public convenience and necessity is
none other than congress.
ess. Aside from government owned
corporation, there is another called government controlled
corporation. Both have to get a certificate of public
convenience and necessity from congress by way of a
legislative franchise
If the same is sold at public auction the 10 buses

without the certificate, it cannot command a good
price. Whoever wins in the bidding, the same is still
subject to the approval of the regulatory board
boar as to
whether the winning bidder is qualified to operate.
If the bus company is sued for damages, can the certificate of
public convenience be attached?
yes
in a liberal sense, a certificate of public convenience can be
considered a property because th
the holder of the certificate
can assign, mortgage it. The creditors of the holder can attach
the certificate of public convenience
Is a certificate of public convenience

nce a property? Can we
consider a certificate of public convenience as a specie of
property?
It is not a property in its strict sense. It is neither a
franchise not a contract. It is a privilege granted by
the government to the owner. Being a privilege, it
can be revoked at anytime. It can be amended,
altered or modified at anytime by the state. This
provision is not found in the public service law but in
the constitution.
Can it be a subject matter of lease?

Yes, but with the approval of the corresponding
agency
Why do we consider it, in the liberal
lib
sense, a property?
The law sees to it that the right of the holder of a
certificate of public convenience is protected. That is
why, if you are assigned from a particular territory or
route by a governmental agency, nobody can
operate it without the certificate
c
of public
convenience. The certificate of public convenience
becomes a special property that is entitled for
protection from the government
The constitution provides for the limitations for the grant of

the franchise, what these limitations// requirements?
requirements
Citizenship requirement - He must be a Filipino
Citizen or a corporation 60% of the capital of which
is owned by Filipinos
It is subject to revocation, amendment, alterations
It must not be exclusive. It should create a mono
monopoly
It should not exceed for 50 years
The certificate of public convenience can be viewed in 2 ways

From the 1st view point, it is not a franchise
franc
or a
contract, it is a mere privilege. It is a mere grant that
can be revoked, withdrawn, altered or modified by
the state at anytime if public interest so requires
2nd view point, it is a special property because it has
value and it can be a subject of sale, assignment,
mortgage; it can be attached or levied upon.
What kind of franchise is a certificate of public convenience?

Secondary franchise
What is the difference between a primary franchise and a
secondary franchise?
Can you sell/transfer a primary franchise? Can a pri
primary
franchise be a subject of attachment or levy?
no
Remember that a when a primary franchise is given to

persons, that becomes an integral part of the juridical body
When you apply for a certificate of public convenience, what
are the factors
rs taken into account by the commission?
Citizenship a constitutional requirement
Financial capacity
Is it for public interest? Will the public interest be
benefitted?
How about a certificate of public convenience (secondary

franchise)?
Yes, but with the approval of the regulatory agency
Can that franchise be mortgage?
In actual practice, if you are the operator of a public
utility, let say a bus company and you borrow money
from a bank. Lets say 10 units of buses is the
collateral but when you borrow a money, the
collateral is not only the 10 buses alone but it will
also include the certificate of public convenien
convenience.
The 10 buses without the certificate are useless.
The various agencies of the government charged for a

function of issuing a certificate
certifica
of public convenience,
supervision, regulation and etc. these we call the private
aspect of a case.
Page | 56

What is this private aspect of the case? Supposing it involves
the determination of ownership, there are 2 parties and the
question of ownership is invoked,
ked, do these agencies have the
power to determine who is the lawful owner?
None, only the court can determine this issue
The reason is to protect private investment

It is a given that when you venture into this kind of business,
it involves substantial capital. To encourage private
participation in the public utility business,
busine we have the so
called the prior operator rule. Before we admit a new
franchisee, we have to take it into account whether or not
this will amount to what we call ruinous competition. If it will
amount to ruinous competition, it will destroy private capital.
capi
How about the interpretation of a contract, its terms and

conditions of a contract?
The SC said, these agencies do not have the power.
powe
That should be left to the ordinary courts
The private operator rule is subject to exceptions:

If the prior operator is not giving satisfactory service
to the community. The service is not efficient. If
there is a complain in the community that the prior
operator is not efficient, the commission
commi
will open
the area to other applicants
The operator applying for the operation of 10 buses,
but in reality, the operator has only 5 buses. The
operator failed to comply with the number of units
that he is going to provide, the commission is free to
accept
ccept new applicants
If there is an existing operator but due to the volume
of people being served, there is a need for additional
public utilities, the commission will consider the
entry of a new one provided it will not affect the fair
return of the investment
inve
of the prior operator
because healthy competition promotes efficiency.
The job of these agencies is only to regulate, supervise and

their jurisdiction is limited only to holders of the franchise
and people using the utility covered by the franchise.
When a corporation applies forr a certificate of public
convenience, is it necessary that there will be already a
showing relative to the requirements for the grant of the
franchise? Are the requirements necessary in the application
of the franchise or when you file the articles of inc
incorporation
in case of corporation?
The SC said that at the time to make a showing
relative to compliance with the requisites of
citizenship is when you apply a certificate of public
convenience not when you file you articles of
incorporation
Supposing, the equipment or infrastructure is owned by the
foreign company, but the operator is the government, will you
apply the citizenship requirement?
The SC said no, because that foreign company is not
the one operating the public utility. The foreign
company owns only the equipment and
infrastructure
How does the commission determine what is the fair return of

a particular operator?
It depends.
For a particular business, the commission may say,
12% is a fair return
The mere fact the equipment or infrastructure is

owned by a foreign company does not violate the
constitution relative to citizenship. The citizenship
requirement applies only to operators
If the entry of the new franchisee will reduce the

12%, that is already ruinous competition, the
commission may not allow it
With respect to the certificate

rtificate of public convenience, there is
what we call the prior operator rule
We have also the prior applicant rule if all things made

equal, the prior applicant should be given the franchise. But
not just because
use you are the applicant, you will be given the
franchise
What is the prior operator rule? Does it mean that if a

particular area is already given to one public utility, others
can longer apply for a franchise or a certificate of public
pu
convenience, the moment the existing operator invokes the
prior operator rule?
That is not the exact meaning of the prior operator
rule because if that will be the interpretation, it will
violate the constitution. The constitution prohibits
monopoly
Is the certificate of public convenience subject to revocation?

Yes, it can be revoked by the commission upon
complaint based on a valid cause
Can the operation be suspended?
Yes
Can a certificate
te of public convenience be the subject of
rd
assignment or sale to 3 person for consideration together
with the equipments?
What is the reason behind the prior operator rule?

Page | 57

There is no prohibition but upon approval of the
commission. For good and valid reason, why are you
selling? The commission will takee it into account, not
only the reason for selling but also the qualification
of the buyer
A taxi cab, the driver

dri
pays the operator lets say for
2000php for a day. It is a case where the driver of
the taxicab, under the boundary system, shall be
considered as an employee of the operator or
franchisee
If a sale is made by the holder of a franchise without the prior

approval of the commission, what is the legal effect?
The sale of franchise without prior approval of the
commission is valid as between the parties but not
binding as against 3rd person, general public and the
commission.
CARRIAGE OF GOODS BY SEA ACT

Why was this law enacted?
acted?
For purposes of uniformity in issuance of bill of
lading
The COGSA contains new maritime rules not found
in the code of commerce
Those engaged in maritime business during the time
requested for the adoption of this law
It means to say that if something happens, if there are

violations or infractions, who shall be held by the
commission?
The original
al franchisee because the sale is not valid
as against the commission
When does COGSA apply? Does this

t
law apply to domestic
maritime commerce?
No, it does not. It applies to maritime commerce
between the Philippines and other foreign countries.
Goods transported from the Philippines to foreign
country or from a foreign country to the Philippines.
Supposing there is an approval later on by the commission,

will it validate the contracts entered into?
It will be valid
It can also be leased, but with the approval of the commission
Some of the COGSA provision have been impliedly repealed

or superseded
Under the public service act, the commission can audit the
accounts of any public utility. The commission or agency may
request the commission on audit to conduct an examination
on the ___ of the public utility, when is this necessary?
What is the provision that is still applicable?

The provision of bringing an action against the
carrier for damage or lost for goods transported
Supposing there is an application to increase the rate

(transportation fare) the commission or agency can request
the COA to audit the books if the allegation of the applicant
that they are receiving less that the fair return is correct.
Also, audit is important in applying the prior operator rule to
determine if there is fair return of investment
Under COGSA, the period is 1 year. Within 1 year from

delivery, any affected party should file the necessary action. If
you are the shipper or consignee of goods and the goods
have been damage or lost, you have 1 year from delivery to
file a case in court
Kabit System and Boundary System: these are 2 systems

being practiced by the franchisees.
Can this one year period be shortened by stipulation?

The SC said that one period cannot be shortened
For example, a person is a holder of a franchise to operate 10

units of taxicab, what willll the franchisee do?
If there are persons who want to avail of the kabit
system, they can make use of the franchise of the
holder. The motor vehicle will be registered in the
name of the franchisee, not in the name of the kabit.
In case of damage, injury, who may be held liable?
The registered owner, not the kabit
The matter of delivery, shall the one year period be counted

from the time the goods are delivered to the consignee?
The SC said that the one year period shall be
counted from the time the goo
goods are delivered to
the arrastre because the goods might have been
delivered to the arrastre by the shipping company,
but the consignee does not claim it, the one year
period can ____
As to whether the registered owner who is the franchisee is

made to pay, can he seek reimbursement from the kabit?
No, that is his own look out
Arrastre shipping warehouse

Supposing the goods have not been damage
damag or lost but goods
had been misdelivered,
What is this boundary system?

Page | 58
The SC said that the COGSA applies only to cases

involving loss or damage to the goods. If it a case of
misdelivery, other laws shall apply and the
prescriptive period is not one year, the prescriptive
period is 10
0 years for a violation of contract or 4
years in cases involving a quasi-delict
delict
Service is voluntarily rendered, not required as a

duty or contractual obligation
The success of the operation either wholly or in part
Under the salvage

alvage law, if the captain or the ship agent of the
vessel is still on board, no salvage operation can be done
without the consent of the captain or ship agent
SALVAGE LAW
Sec. 2. If the captain of the vessel, or the person acting in his stead, is
present, no one shallll take from the sea, or from the shores or coast
merchandise or effects proceeding from a shipwreck or proceed to the
salvage of the vessel, without the consent of such captain or person acting in
his stead.
The code of commerce relative to maritime law does not

have any provision regarding salvage
What do we understand by the term Salvage?
Salvage may either be an act constituting service or
compensation for service rendered. But in the
salvage law, Salvage means service
How is compensation for salvage operation computed

comp
or
determined? Remember that there was no prior agreement
because this is voluntary
The law does not call it compensation but a reward
Another classification of salvage is what we call

voluntary or contractual. A salvage operation may
either be a voluntary service or a contractual service.
If it is done not as a duty or a contractual obligation,
that is voluntary service or voluntary salvage. And
this kind of salvage is the one treated under the
salvage law
What do we understand by contractual salvage?
Supposing a shipping company has a vessel and the
vessel is stranded or a shipwrecked and the
company wanted to retrieved their vessel, the
shipping company contracted for the salvage of the
vessel.
Sec. 6. If, while the vessel or things saved are at the disposition of the
authorities, the owner or his represent
representative shall claim them, such
authorities shall order their delivery to such owner or his representative,
provided that there is no controversy over their value, and a bond is given by
the owner or his representative to secure the payment of the expenses and
an
the proper reward. Otherwise, the delivery shall nor be made until the
matter is decided by the Court of First Instance of the province.
Sec. 7. No claim being presented in the three months subsequent to the
publication of the advertisement prescribed in sub-section (c) of Section five,
the things save shall be sold at public auction, and their proceeds, after
deducting the expenses and the proper reward shall be deposited in the
insular treasury. If three years shall pass without anyone claiming it, one-half
on
of the deposit shall be adjudged to him who saved the things, and the other
half to the insular government.
Sec. 12. If in the salvage or in the rendering of assistance different persons
shall have intervened the reward shall be divided between them
th
in
proportion to the services which each one may have rendered, and, in case
of doubt, in equal parts.
Voluntary Salvage: it is when a person extended service to

another by saving a vessel
el or its cargo or both, not being a
duty or a contractual obligation that is salvage under the
salvage law
Those who, in order to save persons, shall have been exposed to the same
dangers shall also have a right to participation in the reward.
Section 1. When in case of shipwreck, the vessel or its cargo shall be beyond
the control of the crew, or shall have been abandoned by them, and pi
picked
up and conveyed to a safe place by other persons, the latter shall be entitled
to a reward for the salvage.
What is thee reward for a salvage operation?

The reward is 50% of the value of the thing saved
shall go to the owner of the vessel, will go to the
captain, and the remaining will go to the crew
Those who, not being included in the above paragraph, assist in saving a
vessel or its cargo from shipwreck, shall be entitled to a like reward.
rewar
This shall be fixed by the court
What kind of vessel may be the subject of salvage under this

law?
A shipwrecked or an abandoned vessel
When is a vessel considered a shipwrecked?
When a vessel has suffered injuries to such an extent
that it would no longer navigate, that vessel can be
classified as a shipwrecked
Sec. 13. If a vessel or its cargo shall have been assisted or saved, entirely or
partially, by another vessel, the reward for salvage or for assistance shall be
divided between the owner, the captain, and the remainder of the crew of
the latter vessel, so as to give the owner a half, the captain a fourth, and all
the remainder of the crew the other fourth of the reward, in proportion to
their respective salaries, in the absence of an agreement to the contrary. The
express of salvage, as well as the reward for salvage or assistance, shall be
b a
charge on the things salvaged on their value.
What are the requisites for Salvage operation?

Existence of a marine peril
What are the factors that may be taken into account in

determining the amount of the reward?
Page | 59
Extent of the operation

how long did it last;
the time consumed;
the effort exerted;
the kind of the equipments used;
the danger encountered;
the number of people who conducted the salvage
operation
Under the NCC,

Art. 2140. By a chattel mortgage,
mortgage personal property is recorded in the
Chattel Mortgage Register as a security for the performance of an obligation.
If the movable, instead of being recorded, is delivered to the creditor or a
third person, the contract is a pledge and not a chattel mortg
mortgage.
Instead of a sale, the NCC made it clear that it is not sale, but
a security
Sec. 9. If, during the danger, an agreement is entered into concerning the
amount of the reward for salvage or assistance, its validity may be impugned
because it is excessive, and it may be required to be reduced to an amount
proportionate to the circumstances.
Chattel mortgage vs pledge

CM there is a need for a recording of an
instrument in the registry to become effective as
rd
against 3 person
Pledge there is no need to reco
record a contract of
pledge
Sec. 10. In a case coming under the last preceding section, as well as in the
absence of an agreement, the reward for salvage or assistance shall be fixed
fixe
by the Court of First Instance of the province where the things salvaged are
found, taking into account principally the expenditures made to recover or
save the vessel or the cargo or both, the zeal demonstrated, the time
employed, the services rendered, the excessive express occasioned the
number of persons who aided, the danger to which they and their vessels
were exposed as well as that which menaced the things recovered or
salvaged, and the value of such things after deducting the expenses.
CM there is a need for an affidavit of good faith

Pledge does not need an affidavit of good faith
CM the consent to transfer should be written in
the instrument itself
Pledge the consent may be oral
he following shall have no right to a reward for salvage or assistance:

Sec. 8. The
a.
b.
c.
The crew of the vessel shipwrecked or which was is danger of

shipwreck;
He who shall have commenced the salvage in spite of opposition
of the captain or his representative; and
He who shall have failed to comply with the provisions of Section
three.
CM consensual: the mortgagor

m
retains the
possession
Pledge a real contract: there must be a delivery of
the thing to the pledgee
Sec. 3. He who shall save or pick up a vessel or merchandise at sea, in the

absence of the captain of the vessel, owner, or a representative of either of
them, they being unknown, shall convey and deliver such vessel or
merchandise, as soon as possible, to the Collector of Customs, if the port has
a collector, and otherwise to the provincial treasurer or municipal mayor.
CM the mortgagee is entitled to deficiency

judgment except in sales of personal property by
installments
Pledge the pledgee is not entitled to deficiency
judgment
CHATTEL MORTGAGE ACT 1508
What is the subject matter of chattel mortgage?

Personal properties
Are there provisions in the old CC relative

lative to chattel
mortgage?
No provisions
Can a building be a subject of chattel mortgage?

It cannot be a subject of chattel mortgage
If a person constructs a building on the land belonging to
another, can that building be a subject matter of chattel
mortgage?
GR: no, because it is a real property
What is the purpose?

To promote trade and commerce because this is one
mechanism that can be used by banks or money
lenders
How does the old law defines chattel mortgage?
It is a conditional sale
EXP: if the mortgagor and the mortgagee agreed to

consider the building as personal property, they are
in estoppel, as between the 2 of them, the contract
is binding.
ing. It does not bind 3rd persons
When does the sale becomes effective under the old law?
If there is a failure on the part of the obligor or
principal debtor to pay, the sale becomes an
absolute one in favor of the creditor
Can a machinery that is attached to a real estate be a subject

to chattel mortgage?
The machinery is a real property
This was changed by the NCC

Page | 60

Affidavit of good faith, why does the law require the
execution of an affidavit of good faith in a case
ca of chattel
mortgage?
To prevent the commission of fraud on the part of
the mortgagor. When we have an affidavit of good
faith, the mortgagor is made to described clearly
what is the subject matter of the chattel mortgage.
The affidavit of good faith is under oath
Supposing, there is no affidavit of good faith, what will be the
effect of the absence of affidavit of good faith in the validity
of the contract?
The contract is valid as between the parties but not
rd
as against 3 persons. If a particular piec
piece of
personal property is a subject of a chattel mortgage,
and the chattel mortgage is binding only as to the
parties, that piece of property can still be attached
by creditor because the mortgage is not valid as
rd
against 3 person
xecuted a chattel mortgage contract
Supposing the parties executed
but not recorded in the registry, what will be effect?
The contract is still valid as between the parties but
rd
not as against 3 persons
Can future properties be the subject of chattel mortgage?
GR: it cannot be becausee you have to describe in the
affidavit of good faith, what you are giving as
collateral
EXP: future crops, stock in trade, goods sold in the
warehouse that can be replenished, perishable
goods
Page | 61

Marx Notes - Mercantile Law Review 2 (Dimayuga)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Marx Notes - Mercantile Law Review 2 (Dimayuga)

Uploaded by

Copyright:

Available Formats

Professor: Dean Amado L.

Marc Roby de Chavez (MARX)

MERCANTILE LAW REVIEW 2 NOTES by MARX

elements found in the Civil Code namely the consent, object

What was the governing law at that time?

Consent - is the meeting of the minds of the contracting

When the Americans came, the first Insurance Act was

es. But the contracting parties are

Then in 1974, the Phil. Legislature enacted P.D.

When is there a meeting of the mind between insurer and

Insurance is a contact wherein the two contracting

Another repository of applicable principles is Decisions of the

But the Insurer will accomplish the application form

In the year 1829, there was already a branch of an Insurance

How is the insured notified by the insurer that the application

Insurance is a contract. There are 3 essential elements of a

When the policy is delivered to the insured, there is the

The same three elements are duly present in a contract of

MERCANTILE LAW REVIEW 2 NOTES by MARX

Characteristics/features of a Contract of Insurance

There is constructive knowledge if the policy has already

When can we say that a contract is aleatory?

Acceptance of the offer is made known to the insured. And

The insurance is an aleatory contract because there

Object - the contract of Insurance is a special contract. This is

Is sale an aleatory contract?

There are two kinds of insurance

If it is life insurance,, the subject matter is the life of a person.

life insurance? Will it still be considered as

There is an element of insurable interest. It is not only the

Cause or Consideration - dual obligation

X has a warehouse. But the insurer found out that he is

The cause or consideration on the part of the

Executory and Conditional

The consideration in so far as contract of insurance is

if the peril insured against happened, the insurer has

The contact of insurance is a special contract.

conditional because it depends upon the happening

MERCANTILE LAW REVIEW 2 NOTES by MARX

future. But the Insurance Code says, past or future. Does it

Utmost Confidence (Uberrima Fides)

Example: when the vessel is insured, the insurer has

when there is an application for insurance, the

er of the vessel acted in good faith, he

The insurance here is valid because the insured

When we speak of insurable interest, there is piece of

policy is printed by the insurer.

there can be two cases: if the owner for ex has already an

Sec. 3 provides, Any

MERCANTILE LAW REVIEW 2 NOTES by MARX

Supposing the insurance was obtained by the mortgagee

In the case of a mortgage executed to secure a loan

Up to how much amount can the

Supposing the mortgagee is the one who applied in the name

How about the balance?

What if he violates a provision

In case of loss, to whom shall the proceeds will go?

The benefit should be qualifiedit

What will be the effect of the payment of the proceeds to the

When we speak of insurable interest, under the Insurance

The interest of the mortgagee is separate from the

MERCANTILE LAW REVIEW 2 NOTES by MARX

Of any person upon whose life any estate or interest vested

Unlike in Property Insurance, there must be a Pecuniary Value