Академический Документы
Профессиональный Документы
Культура Документы
' 1.
2.
3.
SeC 36).
4.
Sec. 31).
5.
That the failure was not due to any fault bn the part
of the warehouseman, as by showing that, prior to
demand for delivery and refusal, the goods were
stolen o r destroyed by Are, flood, etc. without any
negligence on his part; unless he has contracted so as
to be liable in such case, or th a t the goods have been
taken by the mistake of a third person without the
knowledge or implied assent of the warehouseman,
o r some other justifiable ground for \non-
deliveryfPWWppfrie NationalBanovs. Hon. Marcelino
Basis
Governing
Law
NON-NGGOTIARi.l. 'INSTRHMKNT
The Civil Code or
pertinent
special
laws should apply
(GSISv. CA,
G.R. No. 1-40824,
Februaty23,1989).
M annerof
Transfer-
21
:NI-GOTIARI,K
INSTRUMENT
NIL
Can
be Can be transferred
transferred by., only by assignm ent
negotiation or
by
assignment
Un i v e r s i t y of S anto T omas
JL
-------------------------
X
------------
Mercantile
Status o f
Transferee .
The transferee
can
be
a
holder in due
course if all
the
requirements
of Section 52
of the NIL are
complied with.
Defenses
Available-
rw
rkl
Issue
Negotiation
Presentment foracceptance (in certain kinds of
BOEs)
|
>
4. Acceptance
5. Dishonor by non-acceptance
6 / Presentment for payment
7. Dishonor by non-payment
8. Notice of dishonor
9. Protest in case of foreign bill10. Discharge;..
2)
M anila, June 3,1993
P10,000.00
For value received, I prom ise to pay Sergio Dee o r
o rd e r th e sum o f P10,000.00 in five (5) installm ents,
w ith th e firs t in stallm en t payable on O ctober 5 ,1993
and th e o th e r installm ents on o r before th e fifth day
o f th e succeeding m onth o r thereafter.
(Sgd.) U to Villa
of
S anto T omas
1 1 .
;b
.: f..
;o r '
2.
$ R'
: r
22,
VI
A:
1) The instrument is negotiable because it complied with
die requirements provided by section 1 of die NIL namely
that it is in writing signed by the maker or drawer,
contaips^n unconditional pgqmjse or order to pay a sum
certem fn money, payable oh demand or at a fixed or
determfnale future time and payable to order or to bearer.
It is signed by Noel Castro as maker or drawer, it contains
an unconditional promise to pay a sum certain in money
in the amount of P2.500 and it is payable on demand since
there was no date stated.
Un i v e r s i t y
law
if
A
I
M
'-
k *\ t
UL .
mon
'W
4 ..
m ya
;1 j
e.
. noon
-Li I
Fora
An ii
f~Mov
: n
I r
3.
ft
f
4. i i,
Accumulation
o f secondary contracts- A
characteristic of a negotiable instrum ent where
additional parties become involved as they are
transferred from one person to another. Once an
instrum ent is issued, additional parties can
become involved (De Leon, 2010).
5.
1.
As to promissory note
a.
b.
(2012 Bar)
c.
A:
2.
w ritten,
b.
2.
^ .
If undated, instrument is considered dated as of the'
time it was issued
*
3.
2.
3.
4.
23
5.
t-
As to bill of exchange
a.
U n i v e r s i t y of S anto T oma s
F aculty op Civil Law
I
&
Mercantile L aw
6.
7.
nhg otiabiuty
1.
2.
!: m
F U N D F O R
m I l l s i- m
F U N D
F O R
iA Y M F ' N T
h n t
.instrum ent
2.
3.
<
:j *'
t
.i
Instrument is
nonnegotiable. The fund
specified is toe direct
source of payment;
therefore, it is subject to
toe availability of fund,
hence conditional.
5.
With Interest; or
By Stated installments; or
By stated installments, with a provision upon Refault
in payment of any installment or of interest, the
whole shall become due ( acceleration dause);
With Exchange, whether at a fixed rate or a t the
current rate; or
With cost of collection or an Attorneys fees, in case
payment shall not be made at maturity (NIL, Sec 2).
i
In the absence of a date as to which interest is to run, it
Leon, 2010).
2009).;
Paym ent w ith an acceleration clause
(RA 8183).
1.
2.
3.
4.
.Extension d a u se
1.
Payable on demand - The holder may call for
payment any time, likewise, the maker may also pay any
time and the refusal of die holder to accept paynjent shall
stop die running of interest should there be any, but
obligation to pay die note subsist
3.
At a determinable future time-An instrum ent is
payable a t a determinable future time which is expressed
to be payable:
a. At a fixed period after date or sight; or
b. On or before a fixed or determinable future time
specified therein; or
c. On or a t a fixed period after the occurrence, of a
specified event which is certain to happen, though
25
U n iv ersity of S a n to Tomas
-----------------F aculty . of C iv il L aw
Jm
Mercantile Law
tlie time of happening be uncertain (Nil, Sea 4).
Payable to o rd er
The instrum ent is payable to order where It is drawn
payable to the order of a specified person .or to him o r to
his order, (t m aybe drawn payable to the order oh (PaDD
JofnSH)
1. A Payee who is n ot a m aker, drawer* or drawee;
2. The firatoer or m aker; o r
3. The firawee; or
4. TWo orm ore payees Jointly; or
5. One or some ofSeveral payees; or
6. The Holder of an office for the time being (Sea 8, NIL).
Payable to b ea rer (1997,2002 Bar) (ENaFPaLa)
When it is Expressed to b e so payable; (e.g. tjjrom ise to
pay to bearer P10.000.00)
2. When it is payable to a person Him ed therein or bearer;
(e.g. Pay to P or b earer P1Q,000.Q0)
3. When it is payable to th e order of a fictitious person or
non-existing person,, and such fact was known to the
person making it so payable; (e.g. Pay to John Doe o r
. order) .
4. When the name of th e Payee does not purport to be thenatne of any person; (Pay to cash)
5. When tile only o r the la s t indorsement is an
indorsement in blank (NIL, Sec 9).
Illustration:
Back of NF(indorsement)
PaytoA
Sgd.P
* w Pay to B
Sgd.A
Sgd.B
of
S anto T omas
Application o f th e flctitious-payeenile
A "fictitious payee is not limited to person having no real,
existence; An actual, existing, andliving payee may also be
"fictitious" if the maker of the checkdid not intend for the
payee to in feet receive the proceeds ofthe check (PNB v,
Rodriguez, supm).
t
, As to w h o b ears th e loss in a fictitious-payee situation
Exception to th e fictitious-payee ra le
A showing of commercial bad frith on the p art of the
drawee or any transferee of the check for thatm atter, will
w orkto strlp ft of this defense (HrfrfJ.
As
a. Paragraph!: NOTAFFECTED. Date is not one ofthe
requirements for negotiability therefore it is not essential
except when the date is necessaiy to determine when the
note isdue
2.
3.
. 1. Omission offiate
- 2. Non-specification of Xalue given or th at any value, had .
been given
3. Non-spedfication of place where itisdraw n or payable
4 . B earsaeaI
5. Designation of particular kind of Currency in which
payment is to be m ade (Sec. 6, NIL)
Additional provisions which:
1. Authorizes the sale of collateral Securities on default
2. Gives tiie. h o ld er an JEIection to require something to
. . be done in Heu of payment of money.
3. Authorizes Confession ofjudgment on default
4. Waives th e benefit of the Lawintended for the
. p ro tectio n o fth e obligor (NIL Sec. 5).
27
*5
L
f .
The
subject.
m atter is a sum
certain
in
money
Capable
of
accumulating
Capability o f secondaiy
Accumulatin 9 contracts
.Secondary
resulting from
Contracts
indorsements
at tiie bade
'thereof
Subject
Mutter
Actually stands
for the goods it
covers
Not capable of
accumulating
secondaiy
contracts
resulting from
Indorsements
at the back
thereof.
Sea l(d]).
Q: .D istinguish a n egotiable docum ent from a
negotiable instru m en t (2005 Bar)
NEGOTIABLE/
US-NEGOTIABLE
DOCUMENT
/ /INSTRUMENT
A
written Held to be noncontract which negotiable in
is intended as a the technical
Substitute fo r substitute for sense because
money
money
like they do not
have
the
prom issory
notes and bill of requisites
under the NIL
exchange
It may either be It has various
a
bill
of forms such as
.
Foriris *'- exchange or a but not limited
to bill of lading,
prom issory
note
stock
V " BASIS
certificates,
warehouse
receipts
and
pawntickets.
Sec 128).
Instances w hen a bill o f exchange m ay be trea ted as
prom fssoiynote
1. Where In a bill die drawer and die drawee are the same
person (NilSec 130)
BA.SIS X PARTI KS
M aker
' -VV M
* *aLVa
X & l;
Payee
v .^ s v .
D rawer
'-Xv
Drawee
::H:
****** *.***. ?*/
Payee
:.*:** *'*
As ..
a. Postal Money Order is not a negotiable instrum ent
because, as held in PM EducationCo. vs Soriano, there are
many restrictions which make them incompatible with
concepts of negotiable instruments, thereby making the
order conditional, in contrast to Sec. 1 of the NIL
Furthermore, such is governed by postal rules and
regulation and it may only be negotiated once.
b. The certificate of time deposit is a negotiable
instrum ent because it is an acknowledgement in writing
by the bank of the amount of deposit with a promise to
repay the same to the depositor or bearer thereof at a
specific time (Caltex v. CA, supra.).
Acceptor
) \ i:t i o \"
One who
makes the
promise and
signsthe
instrum ent
The party to
whom
payment is
originally
payable.
r
The person
who issues
and draws
the bill
The party
upon whom
the bill is
drawn.
The party to
whom
payment is
originally .
payable.
The acceptor
is the drawee
who accepts
the bill
I.I.ABH.ITV
Primarily .
liable
Secondarily
liable, except
when drawee
refused to
accept
. Not liable *
until he .
becomes
atceptor I
The party ty
whom
payment is
originally
payable.
Prim arily.
liable
29
U n i v e r s i t y of S a n To T omas
F achltv op f ivii. Law
*4*i
MERCAN l iL t L-AW
D raw erv.M akeif
-.
BA S I S
DRAWEE
involved
L ia b ility _
. M AKER*-"V
IssuesaBOE
Issues a PN
Only secondarily
liable
Primarily liable
Cannot
liability
limit
IS)
1. Incomplete!instrument
a. Delivered j
\ i. With forgery and alteration
ii. Without forgery and alteration
b. Not delivered
i. With forgery and alteration
ih Without forgery aiid alteration
2. Complete instrument
a. Delivered
L With forgery and alteration
iL Without forgery and alteration
b. Not delivered
L With forgery and alteration
ii. Withbut forgery and alteration
I NS E RT I O N OF DA T E
A:
a. Yes. When a delivered instrum ent is wanting in any
m aterial particular (NIL, Sec 14), the person in possession
thereof has prim a fecie authority to complete ft by filling
up the blanks. But if it was n ot filled up strictly in
accordance with the authority given, it cannotbe enforced
against any person who became party there to prior to its
completion. However, ifit is negotiated to a holder in due
University
of
S anto T omas
30
(1997,2005,2008Bar)
Instance w hen a holder tnay in sert the date in an
instram ent
,,
Incomplete
Instrument
which has been
delivered by the
maker or the
drawer to the
payee or holder.
1. Where the
instrument is
wanting in any
material
particular,
the
person
in
possession has
prima
fade
31
Incomplete
and
undelivered
instrument
SEC 16 \ 0
Complete
instrament but
undelivered.
Instrument
1. If instrument
not
in
will not be a is
valid contract possession of
who
in tiie hands party
of any holder, signed, a valid
if completed and intentional
1'delivery by him
and
negotiated
U n i v e r s i t y of S a n t o T omas
________ ; F aculty of Civil Law
MERCANTILE LAW
; ^authority ' to without
complete it by authority.
filing up blanks
therein.
i
2. When the
instrument
is
merely
a
signature.
on.
blank
paper
delivered
.b y
person making
the signature ift
order that the
paper may be
converted into a
NI, the person in
possession has
prima
fa d e
authority to fill up
as such for any
am ount
is prima fa d e
presumed.
2. If holder is
HIDC,
valid
delivery, by all
parties prior to
him so as to
make
them
liable to him is
conclusively .
presumed.
Q:
a)
PN makes a promissory note for PS,000.00, but
leaves the name o f the payee in blank because he
w anted to verity Its correct spelling first He
mindlessly left foe note on top of bis desk a t the end
of th e workday. When he returned die following
morning, the note was missing. It turned up later
when X presented It to PN for paym ent Before X, T
w ho turned put to have filched die note from PNs
office, b a d endorsed the note after inserting his own
nam e in the blank space as th e payee. PN dishonored
th e note, contending that he did not authorize its
completion and delivery. But X said he had no
participation in, o r knowledge about the pilferage
and alteration of foe note and therefore he enjoys the
rights of a holder in due course under the Negotiable
Instrum ents Law. Who is correct and why?
NOTE:
The
holder must only
act in accordance
with
th&
authority granted
him, otherwise it
may be used as a
defense against
him.
Q: Lorenzo signed several blank checks instructing
Nicky, h |s secretary, to fill them as paym ent for his .
obligations. Nicky filled one check with h e r hme as
payee, placed P30,000.00 thereon, endorsed and
delivered it to Evelyn as paym ent for goods the latter
delivered to th e former. When Lorenzo found out,
ab o u t the transaction, he directed th e drawee bank to
dishonor th e check. When Evelyn encashed the check,
it was dishonored. Is Lorenzo liable to Evelyn? (2006
Bar) '
b)
(2000 and 2006 Bar)
Rule When an
undelivered
S a n to T omas
Nnypc _________
of
32
Im m ediate p atties
Immediate parties are persons having knowledge of the
conditions or limitations placed upon the delivery of an
instrum ent Itm eans privity, and not proximity.
;
Remote parties
by his signature.
j ft
-..SIGNATURK
p i fe
>
* n
33
U n i v e r s i t y of S a n t o T o ma s
------- !------ Faculty of Civil. Law
?
6
Mercantile law
was adopted by )uan with the intent to authenticate the
instrum ent It is not necessary that the signature is the
. usual signature of the maker.
S I G N I N G IN T R A D E N A M E
June25,1980).
. Q: A executed a prom issory n o te in favor o f M w hich
reads:
P rocuration
A:
l.Ves.AcancoUe ct from M: Notwithstanding the fret that
A is a minor, the iiindorsement of P (them inor) passestitle'
to A (the holder), M cannot invoke the defense ofminority
because such defeinse would only be available to P.
30S).
EORG ER Y
(1990,1997,1999,2004,2006,2008 Bar)
I N D O R S E M E N T B Y M I N O R OR C O R P O R A T I O N ' .
defense.
Sec 23).
. B urden o f p roof in proving forgery
Forgery, as any other mechanism of fraud m ust be proven
dearly and convincingly; and the burden of proof lies on
the party alleging forgeiy (Chiang Yia Min v. CA, G.R. No.
137932, Mar.2Si2001)
Extent and effejets o f forgery
1. Only the signature forged or made without authority
Is th e one inoperative, the instrument itself and the
genuine signatures are valid.
2.- An instrum ent indorsed which on its free is payable to
bearer may be enforced by the holder to whose title
over the instrument the forged signature is not
necessary.
n eg o tia
b le instrum
ents La w
.
;_____ ^___ t__________________
3. The Instrument can be enforced against those who are
precluded from setting up forgery.
2.
Illustration
(Sgd)D, (forged by P)
ToX
P presented the instrument for acceptance. Xaccepted the
instrument without detecting the forgery. P then indorses
the bill to A, A to B, B to C, the present holder. In this case,
if after 30 days the holder presented the Instrument to X
for payment the latter Is liable despite the forgery,
because by preclusion, the acceptor admits the
genuineness of the drawer's signature (NIL, Sec 62)
A payee m ay sue die collecting ban k for th e am ount of
' th e checks it paid u n d er a forged indorsem ent even
w hen th e instrum ent h as n o t been delivered to him
The collecting bank is liable to die payee and must bear
the loss because it is its legal duty to ascertain that the
payee's indorsement (signature), its customer, was
genuine before cashing the check. That .there was no
delivery yet and therefore he never became die owner of
the dieck is immaterial since the payee merely used one
action to reach, by desirable shortcut; the person who
ought in any event to be ultimately liable as among the
innocent persons. The payee is.allowed to directly recover
from the collecting bank to simplify proceedings
(Westmont Bank v.Ong, supra).
ORDER PROMISSORY
NOTE
Prior parlies are not
bound. Forged signature
is wholly inoperative
unless estoppel sets in
with regard prior parties
(cut-offrule).
ORDER B U I OF
EXCHANGE
Prior parties are not
bound. Forged signature
i s * wholly inoperative
unless estoppel sets- in
with regard prior parties
(cut-offrule).
Effects of forgery
The payee can recover
from either the drawer or.
collecting bank, but not
from die drawee unless he
accepts the bill.
GR: It does not avoid the instrument but only the forged
signature. The signature is wholly inoperative. In other
words, rights may still exist and be enforced by virtue of
such instrument as to those signatures thereto are found
to be genuine.
'
However, a forged indorsement prevents any subsequent
parties from acquiring any right against any party prior to
the forgery. Such forged indorsement cuts off the rights
against piior parties to the forger (C ut-offrule).
XPNs:
1. If the party against whom it is sought to enforce such
light is precluded from setting up forgery or want of
authority (NIL, Sec 23).
2. Where the forged signature is not necessary to the
holder's title, in which case, the forgery may be
disregarded (NIL, Sec 48).
'BEARER INSTRUMENTS
BELL
BEARER PROMISSORY BEARER
NOTE
EXCHANGE
Prior parties liable.
Prior parties liable
However, the forged
signatory is not liable to a
party who is not a holder
in due course.
Illustration
OF
/
Maker
TTmvgpgTv
c m**** **-
Mercantile law
a. If. the instrum ent is payable to order and the
indorsem ent of one of the indorsers is forged, C can
enforce the note againstX and B but not against M, P or A,
because were it not for the foigeryofX the instrum ent will
n ot reach the possession of C
1.
When drawer's signature isforged - Drawee-bank by
accepting die check cannot set up the defense of forgery,
because by accepting the instrument; the drawee bank
admits, the genuineness of signature of draw er (BPl
signature of the draw er is forged, as hetween the draweebank and collecting bank, die drawee-bank sustains the .
iosS. sihce th e collecting bank does not guarantee the
signature of the drawer. The payment of the check by the
drawee bank constitutes die proximate negligence since
it has the duty to know the signature of its client-drawer.
A:
1. If die instn iment is payable to order,
of
S anto T omas
M .
N egotiable instruments L aw
b. XYZ Bank Is however, liable to the drawee' bank .
because of his w arranty as an indorser) (NIL, Sec 66)
c. D, the drawer, Is not liable on the check because Its
eider is to payP o r his order and not to any other person.
i
2. If die instrum ent is payable to bearer.
1
a. ABC Bank, d ie drawee-bank; may charge the amount*
thereof to the account of the drawer because die forged
indorsement did not prevent the transfer of tide. The
remedy of the draw er is against the forger.
. b. Drawer has no cause of action against collecting bank,
since the duty of collecting bank is only to the payee
(Manila Lighter. Transportation,' Inc v.CA, G.R. No. L50373February15,1990) The drawee-bank can recover
from the collecting bankbeCause even if die indorsement
on the check deposited by the bank's client is forged,
collecting bank is bound fay its warranties as an indorser
and cannot se t up defense of forgery as against drawee
bank (Associated Bank v.CA, supra).
Q: P sold to M 1.0 gram s o f shabu w orth PhpfS,000.00.
As he had no m oney a t d ie tim e o fth e safe, M w rote a
prom issory n o te prom ising to pay P o r h is o rd e r
PhpSfOQO.00. P th e n Indorsed th e n o te to X (w ho did
no t know ab o u t d ie shabu), an d X to Y. Unable to
co D ectfro iiiP ,Y th en su ed X o n d ien o te.X seti]p d ie
defense o f illegality Of consideration. Is h e correct?
(2011 Bar)
A: No, since X, a general indorser, w arrants th at die note
is valid and subsisting.
Remedy o f th e draw ee bank in case o f a forged
indorsem ent
The drawee bank may not debit the account of the draWer
but may generally pass liability back through the
collection chain to thepartyw ho took from die forgerand,
of course, to th e forger himself, if available, if d ie forgexy
is that of the *payee's or holder's indorsement; the
. collecting bank Is held liable, without prejudice to the latter proceeding against the forger.
-
Since a forged indorsem ent is inoperative, the collecting
bank had no rig h t to be paid by the drawee bank. The
former m ust necessarily return th e money paid by die
latter because it was paid wrongfully (Associated Bank v.
CA, supra).
Liability o f th e draw ee bank and th e draw er for th e
am ount paid on checks w ith forged indorsem ents. If
d ie sam e w as d u e to th e negligence of both th e draw ee
bank and th e d raw er
The loss occasioned by such negligence should be divided
equally between the draw er/deposltor and the drawee.'
Q: X en tru sted h is check books; cred it cards;
passbooks, b an k statem ents and cancelled checks to
his secretary. He also Introduced the secretary to th e
bank for purposes o f reconciliation o f his accounts.
Subsequentiy, X 's secretary forged his signature on
.i
November27,2002).
Q: The draw er's signature w as forged. T here Is,
however, a provision in to e m onthly b an k statem en t
to h tlfth e d raw er's signature w as forged, th e draw er
should rep o rt i t w ithin 10 days from receip t of to e
statem ent to to e draw ee. The draw er, how ever, felled
to do sd. W hat w ili b e its effect Insofar as th e draw er's
rig h t is concerned?
A: The failure of toe drawer to report the forgery within
ten days from.redeipt ofthe monthly bank statem ent from
die drawee bank, does not preclude die draw er from
questioning the mistake of the drawee bank despite the
provision (BPIv. CASA MnntessorilntemationaJe^ supra).
Q: If forgery w as com m itted by an em ployee o f to e
draw er whose signature w as forged, does th e
relationship am ount to estoppel such th a t to e draw er
is precluded in recovering from th e draw ee bank?
A: The bare feet th at toe foigeiy was committed by an
employee ofdie party whose signature wasforged cannot
necessarily imply that such party's negligence,was toe.
cause of the forgery in toe absence of san e circumstances'
ratting estoppel against the drawer (Samsung
Construction Ca v. FarEastBank arid Trust Comparer, G.R,
(2000,2009 Bar)
It is an inducement to a contract that Is the cause, price or
Impelling influence, which induces a party to enter into a
contract
NOTE: Every negotiable instrum ent is deemed prima
fade to have been issued for a valuable consideration
(NIL, Sec 24)
M e r c a n t i l e La w
To cover paym ent o f th e foregoing obligations, Engr.
Cayanan Issu e d !!v e checks to North Star. W hen
' p resen ted for p ay m en t tw o o f th e checks w ere
dishonored for insufficiency o f funds w hile foe o th er
th re e checks w ere dishonored because o f a sto p
paym ent o rd e r from Engr. Cayanan. North S tar
dem anded paym ent, b u t Engr. Cayanan foiled to settle
h is obligations. Hence, N orth S tar Instituted a
crim inal case, charging Engr. Cayanan w ith violation
o f fo e Bounding Checks Law. Engr. Cayanan in sists
th a t fo e US$85,000 se n t to View Sea V entures w as n o t
se n t fair fo e account o f N orth S tar b u t fo r foe account
o f V irginia as h e r in v estm en t Engr. Cayanan claim s
th a t N orth S tar d id n o t give any valuable
consideration fo r foe checks since tim US$85,000 w as
tak en from fo e p erso n al d o llar account o f V irginia
an d n o t th e corporate funds o f Norfo Star. v
F AI L UR E OF
CONSIDERATION
Sec. 28).
Effect Ofp artial failure of consideration
Accommodation party
Value
Sec 27).
'
. .
of
Santo T omas
uncot
f ma
*:i $
f
I '
ir
s
S'
r
T
s
jj 1
i
b.
liable
d Pc<
\ ; h
ofine
Q
TJ !I;
. Dagul,
it. "e i
- p i'
A C C O M M O D A TION P A R T Y
A:
a.
Section 29 of the Negotiable Instruments Law '
provides that an accommodation party is liable on the
instrument to a holder for value] notwithstanding that
such holder ht the time of taldngthe instrument knew him
to be only, an accommodation party.
As an
accommodation party, Ben Lopez is primarily and
unconditionally liable on toe promissory note to a holder
for value as if toe contract was not for accommodation.
b. Under Section 14 of the NIL, Juan Sy is primarily
liable to the extent of P5,000 in toe hands of a holder in
due course. However, if Ben Lopez paid the note, Juan Sy
has .toe obligation to reimburse the former to toe extent
of the amount paid.
Q: Dagul hah a business arrangem ent with Facundo.
The latter w ould lend money to another, through
Dagul, w hose nam e would appear In toe prom issory
note as th e lender. Dagul would then immediately
39
Signs
an
instrument
without receiving value,
therefor (NIL, Sec 29]
Purpose ofsigning Is to lend
Ills name to another person
WL> Sec 29)
May always show, by parol
evidence] that he is only
such
Cannot avail of toe defense
Df absence/failure
of
consideration against a
holder not in due course
May sue reimbursement
after
paying
toe
holder/subsequent party
R C O U U R PARTY
U niv . b r s i t y o f S a n t o T o m a s
F aculty of Civil Law
____________ Mercantile L aw
S a n to T omas
or
ir
bus.,i
<rdta
f
1
<. it i
Suit 1
E iP
tie(
accon
pf Iso
s r
*] I ;
Q:No ;
if hk
3 I
Wh J
Itskn
.W"
b. Yes, Pedro may recover from X.
When the
accommodation party makes payment to the holder of the
note, he has the rightto sue the accommodated partyfor
reimbursement; since the relation between them is in
effect that of principal and surety, the accommodation
party being the surety. Thus, after paying the holder,.
Pedro . may seek reimbursement from X, the
accommodated party.
Q: On June 1, 1990, A obtained a loan of f 100,000
from B, payable n o t later than Decem ber20,1990. B .
required A to issue him a check for th a t am ount to be
dated Decem ber 20,1990. Since h e does no t have
any checking account. A, w ith th e knowledge o f B,
requested his friend, C, President of Saad Banking
C orporation (Saad) to accommodate him. C agreed,
h e signed a check for th e aforesaid am ount dated
Decem ber 20, 1990, draw n against Saad's account
w ith the ABC Commercial Banking Co. The By-laws of
Saad requires th a t checks Issued by it m ust be signed
by th e P resident and the T reasurer o r th e ViceP resid en t !Since the T reasurer was absent, C
requested the Vice-President to co-sign the check,
which th e jla tte r reluctantly did. The check was
delivered to B. The check was dishonoured upon presentm ent on due date for insufficiency of fends.
Un iv e r s i t y
40
w fwi
*
instithat si
hi ' r t
a i i 1
uncb.i
B?nk,
TH is
cc P
ac-v !
has t
ar im
cc P
(C.J I
Negoti
{X p f
he *
NOTE:
WJ A
19 | ;
I !
A:
a. No, Saad is not liable as an accommodation party.
This is because the issue or indorsement of negotiable
. paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who
has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a
corporation where i t is only an accommodation party.
While it may be legally possible for a corporation whose
business is to provide financial accommodations in the
ordinary course of business; such as one given by a
financing company, to be an accommodation party, this
situation, however, is not the case at bar. .
t
i!
D I S T I N G U I S H E D F R OM A S S I G N M E N T
,
Only
a
instrument
negotiated.
fa. Considering that both the President and the VicePresident were signatories to die accommodation, they
themselves can be subject to the liabilities of
accommodation parties to the instrument in their
personal capacity (Crisologo-Jase v. CA, G.R No. 80499,
September15,1989).
Q: Nora applied for a loan of Phpl00,Q00.00 with BUR
Bank. By way of accommodation, Nora's sister, Vilma,
executed a prom issory note In favor of BUR Bank.
When Nora defaulted, BUR bank sued Vilma, despite
its knowledge d ial Vflraa.recelved no p a rt of the loan.
May Vilma be held liable? Explain. (1996 Bar)
A: Yes, Vilma may be held liable. A person who has signed
the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of
lending his name to some other person is liable on the.
Instrument to a holder for value, notwithstanding the fact
. that such holder at the time oftaking the instrument knew
him to be only an accommodation parly. Thus, as an
accommodation maker, Vilma is primarily and
unconditionally liable on the promissory note to BUR
Bank, a holder for value.
' ASSIGNMENT
. N E G O T I A T I O N
negotiable
may be
Noil-negotiable
Instrument may be
assigned absent any
prohibition
against
assignment written on its
fate.
The transferee, if he is a
HIDC may acquire better
rights
than
his
transferor.
M O D E S OF N E G O T I A T I O N
Modes of negotiation
A1
Un iv e r s ity
of
S anto T omas
Mercantile Law
means th at the offender m ust be able to obtain money or
property from the offended party by reason of the
issuance of-the check; w hether dated or postdated. In
other words, the Prosecution m ust show that the person
to whom the check was delivered would not have parted
with his money or property were it not for the issuance of
the check by the offender.
Under die NIL (Sec 9 and Sec 30), a check made payable
to cash is payable to the bearer and could be negotiated
by m eredeliveiy w ithout theneed ofindorsem ent
ThisW ndered it highly probable that Wagas had issued
the check not to. Ligaray, but to somebody else Uke
Canada, h is brother-in-law, who then negotiated it to
Ugaray. Relevantly, Ligaray confirmed that he did not
himself see or m eet Wagas a t the time of die transaction
and thereafter, and expressly stated that the person who
signed for and received th e stocks of rice was Cafiada.
It bears stressing th at the accused, to be guilty of estafa as
charged, m ust have used th e check in order to defraud the
com plainant W hat the law punishes is the fraud dr deceit,
not the m ere issuance of the worthless check. Wagas
could not be held guilty, of estafa simply because he had
issued the check used to defraud Ugaray. The proof of
guilt m ust still dearly show that it had been Wagas as the
drawer who had defrauded Ligaray by means of the check
(People v. GUbert Wagas, R No. 157943, September 4,
2013).
Delivery o f negotiable instrum ent
Delivery . . means transfer of possession, actual. or
constructive, from one person or another (NIL, Sec. 191).
\ :
NOTE: Where the instrum ent is no longer in the
possession of the party whose signature appears thereon,
there is a prima facie presumption of a valid and
intentional delivery by him. (ML Sec. 16).
Effect if a b e a re r in stru m en t is negotiated by
indorsem ent an d delivery
of indorsements
Indorsemi.ejnt
It is he signing of die name of the indorser on the
instrument; with the intent to transfer tide to the same.
Sec 32). j
"Payable to C. Signed: B.n
XPN: When the instrum enthas been paid in part.
law
1. Forgery;
2. Lack of good title on the part of the indorser;
3. Lack of capacity to indorse on the part of the prior
parties; or
4. The fact that at the time of the indorsement the
instrument was valueless or not valid at the time of the
indorsement which fact was known to him.
/
J.
43
Un i v e r s i t y of S anto T o m a s
P aomitv rtP fll/II I MI
Mercantile Law
RI GHT S OF T H L H O L D E R
* H older
The payee o r| indorsee of a bill or note who is in
possession of it or die bearer thereof (NIL, Sec 191).
Classes of holders
XPNs:
1, When die instrum ent' has been restrictively
indorsed;
2. When discharged by payment or otherwise (NIL, Sec
47)
1. Right to su e
2. Right to receive payment (NIL, Sec SI).
NOTE: |f the payment Is in due course, the Instrument is
discharged.
The holder may, a t any tim e, strike out any indorsem ent
which is n o t necessary to his title. Indorser whose
indorsem entis struck out; and all indorsers subsequent to
him are relieved fromlfability on the instrum ent (NIL, Sec
48).
1. That is Complete and regular upon its face;
N egotiation by a p rio r p a rty
Where an instrum ent is negotiated back to a prior party,
such party may reissue and further negotiate die same.
But; he is no t entitled to enforce payment thereof against
any intervening party to whom he w as .personally liable
(NIL, Sec. SO). However, he may strike out the intervening
indorsem ents because they,are not necessary for his tide
and he is liable to diem because of his initial indorsem ent
2.
Sec 121(b)).
Sec 54).
3.
fa*
Baby could enforce the note against Larry the same way
as Dew could enforce i t
Q: X borrow ed m oney from Y in file am ount o f Php 1
Million and as paym ent; issued a check. Y then
indorsed th e check to bis sister Z for no consideration.
When Z deposited th e checkto h e r account th e check
was dishonored for insufficiency o f fiends. .Is Z a
holder in due course? Explain your answ er. (012
Bar)
A:
a. Yes. The check can be considered as a negotiable
instrum ent since it compiled with the requirements of
negotiability under Sec. 1 of die Negotiable Instruments
law. The unlawful consideration for the issuance of the
check is of no moment and will not affect the negotiability
of the check as itm erely constitutes a defect oftitle under
Sec. 55 of the NIL
A:
AS
Un i v e r s i t y
of
S anto T omas
Mercantile Law
S helter p rinciple
_________________
previously
Effect o f notice before th e full am ount is paid
Refers to those th at
vitiate the instrum ent
itself
University
DFT-TCT
Refers to how he
obtained the instrum ent
or the signature thereto,
as by fraud, duress, or
force and fear, or other
of
S a n t o T om a s
46
2.
3.
.
'
PERSONAL DEFENSES
Incomplete
and
undelivered
instrument
Minority
(available
only to the minor)
Incapacity as for as
incapacitated persons
are concerned
W ira -vires acts of a
corporation
Want of Authority,
apparent and real
fraudulent alteration
Forgery
Duress amounting to
Forgery
Erescription
fither
infirmities
appearing on the face
of the Instrument
1. Discharge
in
insolvency
Illegal Contract
U niversity
of
Innocent alteration or
spoliation
Discharge of party
Secondarily liable fay
discharge pf prior
party.
Set-off
between
immediate parties
Filling up .of blanks not
in accordance with file
Authority given
Acquisition
of
instrument by Duress
or force and fear;
unlawful means or for
an illegal consideration
Discharge by payment
or renunciation or
release before maturity
Eailure or absence of
consideration.
Undelivered complete
instrument
S anto T omas
Mercantile Law
3. fra u d in Factum. o r .
Esse Contractus
NOTE: Awinf in factum
exists in those cases In
which a person, without
negligence, has signed an
instrum ent; but was
deceived* as to foe
character
of
foe
instrum ent and w ithout
knowledge of it, as where
. a note was signed by one
under the belief that he
w as signing as a witness
to a deed. This kind of
fraud is a real defense
because there is no
contract; since foe person
did notknow what he was
signing (iDeLeon, 2010).
Insertion of a wrong
date
0. Fraud in inducement
o r simple fraud
NOTE:
Fraud
in
fnducem entrelates to foe
quality, quantity, value or
character
of
foe
consideration of foe
instrum ent Here, deceit
Is not In foe character" of
foe instrum ent but in its
amount or terms. This
existswhen a person Is
induced to sigh a note for
foe p rice'o f'a worthless
stock
which
was
fraudulently represented
by the payee' as to its
value. Such type of fraud
is only a personal defense
because it does not
prevent a contract (t)e
BaW j^
Leon, 2010).'
Q; Brad w as in d esp erate need o f m oney to pay his
d e b t to Pete, a loan shark. Pete threatened to tak e
B rads life If h e failed to pay. B rad and P ete w ent to
se e S enorita Isobel, B rads rich cousin, an d asked h er
if sh e could sign a prom issory note to h is favor in th e
am ount o f P10,000.00 to pay Pete. Fearing th a t Pete
w ould k ill Brad, S efioiita Isobel acceded to th e
re q u e s t She affixed h e r signature on a piece o f p ap er
W ith th e assurance o f B rad th a t h e w ill Just fill it up
la te r. B rad th en filled o p th e blank pap er, m aking a
p ro m issory n ote for th e am ount o f P1OO,0O0.OO. Re
then, indorsed and delivered d ie sam e to Peite who
W hat defense o r defenses can S efiorita Isobel s e t up
ag a in st P ete? Explain. (2005 Bar)
A: Sefiorita Isobel can se tu p both real and personal
defenses against Petewho cannot claim to be a holder in
due course because he knew of the compulsion used upon
Sefiorita Isobel, thus:
a) . the real defenses available are incompleteness of the
instrum ent because Senorita Isobel only signed on a blank
piece of paper, duress amounting to forgeiy, alteration of
the holder by changing the amount to a higher figure; and
b) th e personal defenses of fraud in inducement
incompleteness when;the paper was delivered, and lack
of consideration.
Q: A b ill o f exchange h as T for its draw ee, If as draw er,
an d F a s holder. W hen F w ent to T fo r presentm ent; F
learn ed th a tT is only 15 years old; F w ants to recover
front U b u t th e la tte r in sists th at a n o tice o f dishonor
m u st firs t be m ade, th e instrum ent being a bill o f
exchange. Is h e correct? (2011 Bar)
We^at_
-in
and
. LIABILITIES OF P A R T I E S
S E C O N D A R I L Y LIABLE
Unconditionally bound
Absolutely required to
pay die instrument
upon m aturity
u
4 s
*f
c. If the instrument is
dishonored and the necessaiy proceedings on
dishonor be duly taken, he
will pay the holder. (NIL,
Sec66.)
a. In an order instrument,
liable to the payee and all
subsequent parties
b. If bearer instrument or
payable;to order of maker
or drawer, liable to all
parties' subsequent to tile
maker or drawer
c. If he signs for
accommodation of the
payee, liable to all parties
subsequent to payee. (NIL,
Sec 64.)_______________ _
MAKER
Maker
The maker of a negotiable instrument, by making such
instrument:
1. Engages that he will pay it according to its tenor, and *,
2. Admits the existence, of the payee and his then capacity
to indorse (NIL, Sec 60; 1995,2001 Bar).
L I M I T E D LI ABILI TY
Drawer o f dBOB
Q ddl(fiefiinddir^
Warrants:
a. The existence of payee
and his then capacity to
Indorse;
b. Thatthe instrument wiU
be accepted or paid upon
due presentment by the
party primarily liable
according to its tenor; and
c. That if dishonored, he
will pay the party entitled
to be paid. (NIL, Sec 61.)
Warrants thatthe:
a. Instrument is
genuine;
b. He has good title to it;
c. Capacity to contract
of all prior parties; and;
d. No knowledge of any
fact which would impair
the validity of the
instrument
(NIL,
Sec6S)
NOTE: He is liable to all
parties who derive their
titiethrough
his
indorsement
Person negotiating by
\ dedWety ] : , .;
Same warranties as a
qualified indorser. But
unlike a qualified indor
ser,' a person negotiating
by mere delivery is liable
only to his immediate
General indorser
a..Warrants that:
I. Instrument is genuine
ii. He had good title to it
Hi. All prior parties had
capacity to contract
Irregular indorser
1.
2.
49
U n iv e rsity of S a n to Tomas
___________ EAULLXE n r Civil. I. a w
Mercantile Law
B as a general indorser Is secondarily liable to F. By
placing bis signature on the bearer instrument, he
w arrants th at die instrum ent is genuine and in all
respects w h atlt purports tobe; that he has good tide to it;
th a t all prior parties had capacity to Contract; th at he has
no knowledge of any fact which would impair the validity
of die Instrum ent orrenderltvalueless; that at the tim e of
indorsem ent; the instrum ent is valid and subsisting; and
th at on due presentment; it shall be accepted or paid, or
both, according to its tenor, and that if It be dishonored
and the necessary proceedings on dishonor be duly taken,
he will pay the am ount-thereof to the holder, or to any
subsequent Indorser who m aybe compelled to pay,
0 R.UVl-R
D raw er
nto
T om a s
INDORSER
Endorser
A person placing his signature upon an instrument
otherwise than .as maker or acceptor is deemed to'be an
Indorser, unless he dearly Indicates by appropriate words
his intention to be bound in some other capacity (NIL, Sec
63).
.Acr;j-:p r o i i
NOTE: A person who plates his indorsement on a bearerinstrument incurs all liabilities of an indorser (NIL, Sec -
Acceptor
..
x "
..
67).
pMdiUHUllHfflfiMM
IRREGULAR INDORSE I
[ is
i ;
Drawer v. Indorser
w iim
Party only to a bill
Makes admission as to
the existence of the payee
and his capadty to
indorse
Makes no warranties, but
engages to pay after
certain conditions are
complied with
JL
' INDORSER .
Has warranties
U n i v e r s i t y m? S *MTn
i
Vi!
Mercantile L aw
W A R R A N T I E S '
(1995,2001,2005 Bar)
f
The following are the warranties a person provides in
negotiating an instrument:
Manner of presentment
GR: Instrument must be exhibited to the person from
whom payment is idemanded; when paid, it must be
delivered to the person paying it (NIL, Sec 74).
XPNs: When exhibition is excused:.
1. Debtor does not demand to see the instrument and
refuses payment on some other grounds; or
2. Instrumentislost or destroyed,
i
Q;
of
S a n t o T omas
J. ,
52
A:
*
A. Since the instrum ent became a bearer instrument, EF
could ho longer claim payment from AB. EF is not a
holder of the prom issoiy note. To make the presentment
for payment; it is necessary to exhibit die Instrument;
whidi EF cannot do because he is not in possession
thereof
TI ME KOR P R E S E N T M E N T
INSTRUMENT
B5)
Payable a t a
fbcedor
determinable
future time
Promissory note
Within a reasonable time after its
ayableon
issue.
Sec 70).
NOTE: Presentm ent for payment is not necessaty in order
to charge the person prim arily liable on the instrum ent
demand
On a Sunday or holiday
On a Saturday
NIL).
53
U n i v e r s i t y o f S a n t o T o ma s
. F aculty of Civil Law
!v
MERCANTILE LAW
NOTE: Only th e delay in presentm ent is excused and not
die presentm ent itself. Hence, a s soon as the. cause of
delay ceases to operate* presentm ent m ust be made with
reasonable diligence (ibid.).
1.
Dead - payment m ust be made to his personal
representative {JWL&c 76).
May 7,1992).
an
y Sec 80).'
2. When presentment for payment is dispensed with
of1**
(N ILSecfa).
b. Indorser - When the NI was made or accepted for
.p a ; r t j ES
IP12
Sec 82).
Tim
of
S a n t o T o m As
N O N - P A Y M E N T V V/ OU T
PRESENTATION
Presentment is excused
and the instrum ent Is
overdue and unpaid
Notice o f dishonor
It Is a notice given by die holder to the parties secondarily
. liable, draw er and each indorser, that die instrum ent was
dishonored by non-payment o r non-acceptance by the
drawee/maker.
v
'
, ; .
NOTE: Persons primarily liable need not be given notice
of dishonor because they are the ones who dishonored die
Instrum ent
*. * *
*
Purposes fo r requiring notice o f dishonor-
I;
*1
1.
2.
103)
3. Parties reside in differentplaces
a. Bymail - Deposited in the post office in time to go by'
mail (actual departure in the course of mall from the
post office in which the notice was deposited) the day
followingthe day of dishonor.
*.
104) .
4. Time of notice to antecedent parties - Same time for
giving notice that the holder has after the dishonor
(NIL,Secl07)I
NOTE: Actual receipt of the party' within the time
specified bylaw is sufficient though not sent in the places
* spedfied above (NIL, Sec 108).
/^
Instances w hen a negotiable instrum ent is considered
dishonored
A. For BOE,
1. If not accepted.when presented for acceptance; or
2. If presentment for acceptance is excused and the bill
is not accepted (NIL, Sec 149).
B.ForPN,
.
.1.
Not paid (that is, payment is refused or not
obtained) when pretonted for paym entat maturity; or
.
2. Where presentment-is excused or waived and the
instrument is overdue and unpaid (NIL, Sec 83). '
Liability of a person secondarily liable w hen th e
instrum ent is dishonored
After the necessary proceedings for dishonor had been
duly-taken, an immediate right of recourse to all parties
secondarily liable thereon accrues to the holder (NIL, Sec
84).
V
P A R T IE S TO RE NOTITIED'
Mercantile Law
4.
5.
6.
7.
l.O ral; or
2. In writing;
.3. It may be giver by personal delivery, or by mail (NIL,
Sec96)
|
4. Must contain the following:
a. Description of the instrument;
b. Statement that it has been presented for payment or
for acceptance and that it has been dishonored (If
Sec 95).
or
1.
2.
3pW
p a r t ie s w h o m a y tiyt: no tice
&
FORM OF NOTIOF
101)
i i n
dishoi
d i .s' i i o n o i
4f , D
I f > n<
IL ,
ma
Hi
ct :
3 f 1 D;
if.
4. a
WAIVER
s / J*
1. Holder;
2. Another in behalf of the holder;
3. Any party to the instrum ent, who may be compelled to
pay and who, upon taking it up, would have a right to
reim bursem ent from the party to whom notice is given
(NIL, Sec 90). .
W aiver o f notice
EFFECT OF NOTICE
e>
101
an
PhpU
iiy^m
iri
b iH
necboj
r
1.
Q:Jfcoi
fo lie
to p
dishoc
gi h
W aiver of p ro test
I f }
A: No,
ch ks,
dfc n
. iWB.l U n i v e r s i t y o f S a n t o T o m a s :
b(
cani ;
109).
Nf
56
n
1.
3.
necessary).(NII+Sec 116.)
Instances w hen a notice o f dishonor to d ie draw er
m ay be dispensed w ith
i
:v
101163,January11,1993)
Q: P authorized A to sign a negotiable instru m en t in
' h is (P's) nam e. It reads: 'P a y to B o r o rd e r th e sum o f
P h p l m illion. Signed, A (for and in beh alf of F).* H ie
instrum ent show s th a t I t w as draw n on P. B then
; Indorsed to C, C toD , and D to E E then treated Ita s a
bill o f exchange. Is presentm ent fo r acceptance
; necessary in th is case? (2011 Bar)
i.
A: No, since the drawer and drawee are the same person.
Q: Juben issued to Y two post-dated checks as security
. for pieces of jew eliy to be sold. Y negotiated th e check
to S. When Juben failed to sell th e jew eliy, he
w ithdrew all his funds from th e draw ee bank. After
dishonor, Iiiben contends th a t the h o ld er failed to
give him a notice o f dishonor. Is notice o f dishonor
necessaiy?
,
,. < I
2 .
University
of
S anto T omas
Mercantile Law
unequivocal !term s as novation is never presumed.
Secondly, the old and tire new obligations must, be
incompatiblejon every point
discharge
s e c o n d a r i l y lia ble
NOTE: (a) and (b) has the same effect as payment by the
party primarily liable.
.4. Person paying is remitted to his former rights (as
regards prior parties) and he may strike out his own and
all subsequent indorsements (NIL, Sec 121).
ns
(instrum ent is
it may be
of
parti
University
or
sa
3.
4.
5.
6.
7.
%
_ DTE: The change in the date of indorsement is not
material where the date is not necessary to fix the
maturity of the instrum ent
XPNs:
1. Where it is payable to the order of a third person,
and has been paid by the drawee; and
2. It was made o r accepted for accommodation, and
has been paid by the party accommodated.
Spoliation
It refers to material alteration of an instrument done by a
stranger. It has the same effect as alteration.
Rl:.NUi\(MATiOi\ BY IIOl.OKK
Renunciation
1. Must be w ritten
2'. If oral, the instrum ent m ust be surrendered to the
person primarily liable (NIL, Sec 122).
Effects of renunciation
\
CONCEPT
I *
'
M aterial alteratio n
It is any change in the instrum ent which affects or changes
the liability of the parties in any way.
Instances th a t constitute m aterial alteratio n
59
Un i v e r s i t y of S anto T om as
__________ F aculty of Civil Law
K E M E D IA L L A W
4.
5.
When filed
The parties shall file their respective pre-trial briefs in
such a manner as shall ensure their receipt thereof at least
3 days before the date of the pre-trial (Sec. 6, Rule 18).
Contents of a pre-trial brief
1.
2.
3.
fmfc\
GRf"Vh
<*ra |H
bill I
NO/
acc( JH
accept
accentaj
m
t wqer
hof
2.SuL<
3 -1 '!]*
to tilJ I
anotLJ
NO! m
quaJ ,i
express
h rn ra s
Acu.t !
Acc ita
.by! H
oven (
accepta
Effi
Certific;
suf jei
bee i
appli. 1
Where
dra
Sec ! t
417L}t
U n iv e rs ity o f S a n to Tomas
---301 C o rc
P RE S EN TM EN T FOR AC CE P TA NCE
?'
XPNs:
EUI.E.S G O V E R N I N G A C C E P T A N C E
h) acceptance
par.l).
NOTE: The holder must either presentit foracceptance or
negotiate it within a reasonable time, otherwise, the
drawer and all indorsers are discharged (NIL, Sec 144).
,-XPNsj
1. When they have expressly or impliedly authorized the
holder to .take a qualified acceptance; or
TIiME/PLACE/ M A N N E R OER RI CS KN TM EN T
BUtaddnssed to 2
or more drawees
who are not
partners
14S,[aJ).
Drawee is dead
61
Un i v e r s i t y
----... -
of
S anto T omas
**. I .lit
Mercantile L aw
EFFECT 01- FAILURE TO MAKE PRESENTMENT
1. Must be in Writing
2. Must Indicate that it is an acceptance for honor;
3. Must be Signed by the acceptor for honor (NIL, Sec 162)
m atte
PROMISSORY NOTES
- DISHONOR RYNON-ACCEPTENCE
62
a deposit
subf 1 1
Com f t
2011, i I
'CHECKS
DEFINITION
(1991,1994-1996,2002,2004,2005Bar)
It is a bill of exchange drawn on a .bank and payable on
demand (NIL, Sec. 185).
63
Un i v e r s i t y
of
S a n t o T omas
Mercantile Law
Check v. BUI o f exchange
- - BASIS
Drawee
Payability
..t
CHECKS . , v
Always drawn on a
bank or banker
against a previous
deposit of funds *
Always payable on
demand
BOB ;
AA.
May or may not be
drawn on a bank
aihd need not be
drawn against a
deposit
Either payable on
demand dr a t a fixed
or determinable
future time (NIL,
Sec4)
Function
Presentmentfirr
Payment
Ordinarily intended
for immediate
payment
Must be presented
for payment within
a reasonable time
Intended for
circulation as
instrum ent of credit
Must be presented
for payment within
a reasonable time
discharged from
liability thereon
Presentm entfbr
Accep
tance .
Must be.presented
for acceptance in
certain cases (NIL,
Sec.185)
Sec 143)
..
fc
al
.
;
2. The check may be negotiated only once to one who
GatchaHan, supra).
Q: PCIB Hied an action against Balmaceda, it alleging
that betw een 1991 and 1993, by taking advantage of
his position as branch manager, he fraudulently
obtained and encadied 31 Managers checks In toe
P10,782,150.00. PCIB moved to be allow ed to file an
am ended com plaint to Im plead Rolando Ramos as
one of th e recipients o f a portion o f to e proceeds from
Balmacedas alleged fraudd Since Balm aceda did not
file an A nsw er,.he w as declared in d e fa u lt On toe
o th er hand, Ramos filed an Answer denying any
knowledge of Balmacedas schem e The RTC Issued a
decision in favor o f PCIB. On appeal, to e CA dism issed .
to e com plaint agalnstRamos.AccordJng to to e CA, the
m ere fact th at Balmaceda m ade R am os'the payee in
som e of to e M anagers checks does nbtsufficeto prove
th a t Ramos was com plidt In Balmacedas fraudulent
schem e Is PCIB Itself a t fault as em ployer?
.,
A: Yes. While its manager forged toe signature of the
authorized sifgnatortes of clients in the application for
managers checks and forged toe signatures of the payees
thereof, the drawee bank also failed to exercise 'toe
highest degree of diligence required of banks In the case
at bar. It allowed its manager to encash .toe Manager's
checks that were plainly crossed checks A crossed check
is one where two parallel lines are drawn across jts face
or across its corner. Based on jurisprudence, toe crossing
of a check has the following effects: (a) the check may not
be encashed but only deposited in the bank; (b) the check
may be, negotiated only once to toe one who has an
account with the bank; and (c) toe act of crossing the
check serves as a warning to toe holder toatthe check has
been issued for a definite purpose and he m ust inquire if'
he received the check pursuant to this purpose;
otherwise, he is not a holder in due course. In other words,
tire crossing of a dreck is a warning that the check should
be deposited only in toe account of toe payee. When a
check is crossed, it is the duty of the collecting, bank to
ascertain that toe check is only deposited to the payee's
account In complete dis-regard of tills duty, PCIB's
systems allowed Balmaceda to encash 26 Manager's
checks which were all crossed checks, or checks payable
to toe "payee's account only." (PCIB v. Balmaceda and
of
S anto T omas
f ir i
Jem
Mercantile Law
o f a third partys* oral representations of having a good
title thereto.
The fact th at a person, other than the named payee of the
crossed check, w as presenting it for deposit should have
p u t the bank on guard. lt should have verified if the payee
authorized tiie holder to present the same In its behalf or .
indorsed it to'him . The bank's reliance on the holder's
. assurance th at he had good title to th e.th ree checks
constitutes gross negligence even though the holder was
related to the majority stockholder ofthe payee. While the
check was not delivered to the payee, the siiite* may still
propser because the payee did not assert a right based on
the Uhdelivered check b ut on quasi-delict (Equitable
Banking Corporation v. Special Steel Products, C.R No.
M em orandujn check
A memorandum check is an evidence of debt against the
drawer and although may not be intended to be
presented, has the same effect as an ordinary chedc and if
passed on to a third person, will be valid In his hands like
any other chejdc (People v. Nitafan, G.R. No. 75954, October
22,1992). !
V * P R E S E N T M E N T FOR P A Y M E N T
TIME
A check must be presented for payment within a
'Rea. j f i
Q: T ^en
req;
to U ej j
. before*,
w er'-j ri
covi eA
PuzL ij i
SMC, tWi
D urfrg c
Offii
176b/^ r
27903 vs 1
w ltirS PI *
le ftt i f
w ith ih
re tu rn oi
hemHSIV
inve!
o f th e
agreed ft
th e O jc
A:Ye& 1
paym ent'
th e!/ Vu
ched ;C1check v(
give effect
was i t
The evil
given in p;
proyi
am or Jj i
the doc.. J
EFFECTS OF DELAY
Effects o f d d ay
1. The drawer will be discharged from liability thereon to
th e extent of the loss caused by the' delay, (ibid)
2. The indorser shall be discharged from liability (PNB vs.
mac it
o r injur
effected,
as c 'id^
Furti W
"Asp :
to be cC.<
deviated |
check m
issuat :
the terina
Corpo^tic
Septet P*r
Insurance Law
, Q: W hen w ill th e dellveiy o f a check produce th e effect
of paym ent even if th e sam e had n o t been encashed?
INSURANCE LAW
C O N C E P T OF I NS U R A N C E
C ontractofinsurance
.i
d.
j
*
*
/
"Doing an insurance business o r "transacting an
insurance business
ibid).
NOTE: In the application of the provisions of the
Insurance Code, the fact that no profit is derived from the
making of the insurance contracts, agreements or
transactions or that no separate or direct consideration is
received therefor, shall NOT be deem ed conclusive to
show that the making thereof does not constitute the
doing or transacting of an insurance business (Ibid).
Un i v e r s i t y
of
S a nto T omas
JB
M ercantile Law
P arties to th e contract ofinsurance
*1
i f!
i
Anyc
does
i.;
in&<
Ip
tC
L
polic
j!MtlC
Li
e^fin
S anto T omas
Sepb
of
{Ibid].
University
the^
. .?nsi
i
1*0:
prov
tr J p :
Decei
ft
t-
/ 1
Subj<
depri
p !*f
I :
Insurance Law
by itls Philippine Health Care Providers, Inc. a health
m aintenance organization o r an insurance company?
Dictionary).
L/V, NOTE: If majority of the stockholders of the respondent
corporation w ere German subjects who became an enemy
corporation upon the outbreak of the w ar between the
United States and Germany, it stands to reason th at an
insurance policy ceases to be afiowable as soon as an
insured becomes a public enemy. The respondent having
/ become an enemy corporation on December 10,1941, the
insurance policy issued in its favor on October 1,1941, by
a Philippine corporation had ceased to be valid and
enforceable, and since the insured goods were bunted
.after December 10, 1941, and during die war, the
respondent w as not entitled to any indemnity under said
policy from th e petitioner. However, elementary rules of.
justice (in the absence of specific provision in the
Insurance Law) require that the premium paid by the
respondent for the period covered by its policy from
December 11,1941, should be returned by the petitioner
(Filipinos Compana de Seguros v. Christem, Huenfeld and
Ca, Inc, aR No. L-2294 May25,1951).
Subject m atter o f a contract of insurance
Anything having an appreciable pecuniaiy value, which is
subject to loss or deterioration or of which one ihay be
deprived so th at his pecuniary interest is or may be
prejudiced.
(SPEAR)
. 1. Scheme to distribute losses - Such assumption of risk is
p art of a general scheme to distribute actual losses
among a large group or substantial number of persons
bearing a similar risk
U n i v e r s i t y o r S a n t o T o ma s
* .g i
Mercantile law
On the other hand, no contract o f policy of insurance on
p roperty shall be enforceable except for die benefit of
some person-having an insurable interest in the property
insured (1994,1997,2000,2001 Bar)I The lessor cannot
be validly a beneficiary o f an insurance policy taken by a
. lessee over his merchandise, and the provision in the
lease contract for such autom atic assignment is void for
being contrary to law an d /o r public policy - the insurer
cannot be compelled to pay the proceeds of the policy to
a person who has. no insurable interest in the property
insured (Cha v. Court o f Appeals, GR. ffo. 124S20, August
18,1997).
4. Assumption o f Risk - The insurer assumes that risk of
loss for a consideration.
5. Risk o f loss - The insured is subject to a risk of loss
through the destruction or impairment ofthat interest
by the happening of designated periL.
NOTE: The inherent uncertainty of events is normally
described in term s of risk. A contract possessing only the
last threeeleraents enum erated above is a risk-shifting
device, but NOT.a contract of insurancewW ch is a riskdistributing device [De Leon, 2006).
Consequently, however, the existence of insurance could
have the perverse effect of increasing the probability o f
loss. This is when die insured, having in mind the
indemnification for loss o r damage 'caused by t&e
happening of die event insured against; would have
reduced incentive to take steps to protect himself or his
property, subject of insurance. This phenomenon is called
m oral hazard (ibid).
C H A R A C T E R I S T I C S A N D N A T U R E OR AN I N S U R A N C E :
'
CONTRACT '
i i
C.i
SJ i
?r
. r tov
(SL.
n
m
^
Jr.
Itltn
Hew
. if**
Id*
dtipc
n
kD
ris
t H
legal contemplation
ins i
0t o
ir uiy
3.
w *?th
4.' f j r
traiiWp
ti: r
si rji-
1. Life insurance
a. Individual life
b. Group Ipfe
c Industrial life
2. Non-Life insurance
a. Marine
: //
fa itii
H
b .l
it
loir
N< E:
In: P ai
tnal W
Insurance Law
b. Fire'
c. Casualty
3. Contracts o f suretyship or bonding [DeLeon, supra).
4. Compulsory Motor Vehicle Liability Insurance
5. Microinsurance
.
'
M A R I N E I N S U R A N C E
(DeLeon, supra).
*-*
101).
NOTE: From the foregoing enumeration, marine
Insurance now includes, not only risks connected with
marine navigation, but which are otherwise connected
71
University
of
S anto T omas
Mercantile law
wind, water, and salt conditions. Moreover, it isa cardinal
rule in the interpretation of contracts that any ambiguity
therein
should
be . construed
against the
m aker/issuer/drafter thereof, namely, the insurer.
Besides the precise purpose of insuring caigo during a
voyage would be rendered fruitless (CathayInsurance Co.,
tOur
*T
.!+
tek
XPNs:
!
1. As otherwise exduded in toe policy; or
parq
paf !
onto
1. Ship-owner
a. Over toe value of toe vessel, even when it has been
chartered by one who covenants to pay him Its value in
case of loss. In such a case, the insurer shall be liable for
only th at jpart of the toss which toe insured cannot
recover from toe charterer (IC, Sec 102).
b. If hypothecated by a bottomry loan, the insurable
interest is only the excess of toe value of the vessel over
the amount secured by bottomry (1C, Sec 103).
c. He also has an insurable interest on expected
freightage (IQ Sec 104).
3. Charterer
i.#
*-yro.
Un iv e r sit y
of
S ant o T omas
72
INSURANCE L aw
a. Over the vessel, to the extent of-the amount he is liable
to the shipowner, if the ship is lost or dameged during the
voyage (IC, Sec 108).
b. Over hfs expected profits or freightage if he accepts
cargoes'from other persons for a fee (Sundiang Sr. &
Aquino, 2014).
c. Over his own caigo.or his clients cargo (Sundiang Sr. &
Aquino, 2014).
Special m arine insurance contracts and clauses
'th e y are basically the same. The only distinction is, a loan
on bottomry involves a vessel as a security, while a
respondentia has cargo as its security (Perez 2010).
Freightage
party
charter party
(DeLeon, 2010).
NOTE: Information of the belief or expectation of a third
person, in reference to a material fact, is material (IC, Sec
110).
Presum ption o f knowledge o f p rio r loss in m arine
insurance
A
in9Jred by a contract of marine Insurance is
presumed to have knowledge, at the time of insuring, of a
prior loss, if the information might possibly have reached
him in the usual mode of transmission and at the usual
73
University
of
S a n t o T o ma s
Mercantile
rate of communication (IQ Sec 111).The presumption,
however, is rebuttable.
Concealm ent in re sp ect to any o f th e following
m atters does n o t v itiate th e en tire contract but
m erely exonerates th e In su re r from a loss resulting
from the risk concealed
1. National character of die insured;
2. The liability of the tiling insured to capture and
detention;
3. The liability to seizure from breach of foreign laws of
trade; '
4. The want of necessary documents; and
5. The use of false and simulated papers (IQ Sec 112).
NOTE: Ordinarily the matters concealed need not be the
cause, of the loss. In marine insurance, the abovementioned matters, although concealed, will not vitiate
the contract except when they caused the loss.
Concealm ent in m arine insurance y. Concealment In
o th e r p roperty Insurance
MARINE INSURANCE
.. O T H E R P R O P E R T Y
INSURANCE
Concealment of any
material fact will vitiate
the entire contract;
whether o r not the loss
results from the risk
concealed.'
la w
-I
IIMOUrtMINV^e. IMW
insured (PM American General Insurance Co. v. CA, G.R.
No. 116940, June I t 1997}
2.
3.
4.
Sec 126}
Im proper deviation
/
NOTE: In improper deviation, an insurer is not liable for .
any loss happening to the tiling insured subsequent to an
improper deviation (IC, Sec 128,2005 Bar}
Kinds o f losses
1. Total, which may be (1992 Bar):
a. Actual total loss
b. Constructive total loss
2. Partial
AcfijAi;-;roT.Ai.
loss
1331
' Abandonment by the
insured is necessary in
order to recover for a total
loss f/C, Sec 141) in the
absence of any provision to
the contrarv in the policy.
137}
75
* Un i v e r s i t y
of
l? . . . . .
S anto T omas
- - r>
A.AMI
JIb .
Mercantile L aw
there Is no constructive total loss to speak of.
An insurance confined in terms to an actual loss does not
cover a constructive total loss, but covers any loss,-which
necessarily results in depriving the insured of the
possession, at the port of destination, of the entire thing
insuredflC, Sec 139).
, .
Constructive to tal lo ss
There is constructive total loss when: .
1. More than V* thereof in value is actually lost; or
would have to be.expended to recover it from the.
. peril;
2. . The thing insured is injured to such extent as to
reduce its value more than 44;
3. The thing insured is a ship, and die contemplated
voyage cannot be lawfully performed without
incurring either an expense to the insured of more
than % the value of the thing abandoned or a risk
which a prudent man would not take under the
circumstances; or
4. The thing insured, being cargo or freightage, and the
voyage cannot be performed, nor another ship
procured by the master, within a reasonable time
and with reasonable diligence, to forward the cargo,
without incurring the like expense or risk mentioned
in no. (3). But freightage cannot in any case be
abandoned (and thus declared constructively lost)
unless the ship is also abandoiied (1C Sec 141).
Q: M/V P early Shells, passenger and cargo vessel, w as
insured for P40,000,000.00 against constructive
to tal loss. Due to a typhoon* it sank n ear Palawan.
Luckily, th e re w as no casualties, only injured
passengers. The shipow ner-: sen t a notice o f
abandonm ent o f h is in te re st o ver th e vessel to the
insurance com pany which th en hired professionals to
afloat d ie vessel fo r P900,000.00. W hen re-floated,
th e
vessel
needed
re p a irs
estim ated
at
P2,000,000.00. The. insurance com pany refused to
pay d ie d a l m o f th e shipow ner, stating th a t th ere w as
no constructive to tal loss.
a. W as th e re constructive to tal loss to en titie th e
shipow ner to recover from d ie insurance company?
Explain.
b. W as it p ro p er for th e shipow ner to send a notice
o f abandonm ent to the insurance company? Explain
c.
___ _ L p
Kinds o f
Si
1. Grt fqfat
are u e j^
uponhL
. o r f lth
f<* r f ,
NOTE:
ail f ]thi ,
201
2. Simple
an<f xpi
hav apt,
thepeij |
ofComi...
f%
*i< 9k,
alone ,
' case L .
f1
Requi ft*
contruw
a.
Thefhm
b. Part of 1
c The s a c .
benpjto
d. It moil |
J
ie. It mf i b
I yes; fit;
' \ 1
f. It must, i
Liabili m l
* > ]
GR:The.-J
andpa'"cu
' i
XPN: \A i
Clause ii. :!
genera* we:
. m
NOTE: . j
Clause) : A
insurai sit
liable f
XPN L
effe of t
porf ^Sic
Average
it is any extraordinary or accidental expense incurred
during the voyage for the preservation of the vessel,
cargo, or both and all damages to the vessel and cargo
from the time it is loaded and the voyage commenced
until it ends and the cargo unloaded (Code o f Commerce,
A rt 806).
(1C, j( [j
Aband im
if . It is the ., t
total loss ..e
his inte st
I nsurance L aw
W hdsofaverage.
2010).
ibid).
3. The abandonment must neither be Tpartial nor
conditional (Sec 142, ibid).
4.
5.
ibid).
It m ust be factual (Sec 144, ibid).
X. Express
2. Implied from the conduct of the insurer
Abandonment
the act of th e insured by which, after a constructive
!loss he declared the relinquishment to the insurer of
interest in the thing insured (Sec 140, ibid).
_________ ________________________
77
U n i v e r s i t y of S anto T omas
Faculty of Civil Law
Mercantile L aw
all rights which insured possessed in the thing
insured (Sec 148, ibid)I
2.
3.
16 Wall [US]378).
4.
M easure o f indem nity 1. Valued polity - the parties are bound by-die valuation.
If the insured had some interest at risk and there is no
fraud (Sec. 158, ibid).
NOTE: Overvaluation of property by the insured may
take place either at the time of making the contractor
at the time of submission of the proof of loss. In either
event, such overvaluation, if fraudulent, entirely avoids
the insurance. However, such fraudulent intent must be
alleged and clearly proven by the insurer (Perez, 2006).
Un i v e r s i t y
of
S anto T omas
uRa n g e 1
There is (co-insurance by There has to he an express
virtue of Section 159 of stipulation to that effect
the Insurance Code, as
long as the aboveenumerated requisites
are present.
: MAr in e i
INSURANCE Law
Co-Insurance v. Reinsurance (1994 Bar)
I
. CO - I N S U R A N C E
; ' :/v'R E I N S U R A N C E ,
A plan of indemnity
It is a contract through
insurance under which
which the insurer
the reinsurer assumes
procures a thirdperson
the obligation on the
to isnure him against loss
amount reinsured, in the or liability by reason of
same fashion as the
such original insurance.
insurer is obligated to
In eveiy reinsurance, the
the.insured (excluding
original contract of
. policy loans). For this
insurance and the
risk, the insurer the
contract of reinsurance
insurer usually pays to
are separate and distict
the reinsurer the gross
from each other and
premium (less
covered by separate *
commissions and
. policies..
expense, aDowances) it
has collected from the
insured on the amount
Insured (it should be
noted that the insurer
has no relationship with
the insured or
beneficiary!.
NOTE: If the loss is total, the insurer is liable for the full
amount of P800,000. On the other hand, if the property is
insured to its full value, the insured is entitled to recover
the full amount of the partial loss of P400,000.
Amount the insured is entitled to recover in case of
loss if profits to be realized are separately insured
Where profits are separately insured in a contract of
marine insurance, the insured is entitled to recover, in
case of loss, a proportion of such profits equivalent to the
propprtion which the value of the property lost bears to
the value of the whole (JC, Sec 160).
Conclusive presumption of loss of profits
1 When profits are valued and Insured by a contract of
marine insurance, a loss of them is conclusively presumed
from a.loss of the property out.of which they were
expected to arise, and the valuation fixes their amount (IC,
Sec 162).
T o rt of refuge expenses
(Diaz e t al 2014)
: . CO-INSURANCE ; 1
The insurer remains as
the insurer of the original
insured
The subject of insurance'
is the property
An insurance of the same
interest
The'insured party is the
party in interest in all
contracts
. REINSURANCE
|
The insurer becomes the
insured, insofar as the
reinsurer is concerned
The subject is the original
insurer's risk
Insurance of a different
Interest
The original insured has
no interestin die contract
of reinsurance which is
independent
of the
original: contract of
insrurance
Consent of the original
insured (who is hardly
even aware of the
reinsurance transaction)
is hot necessary.
Secl6S).
FIRE I NSURANCE
(DeLeon, 2014).
Formula to determ ine th e am ount recoverable in coinsurance
'
Indirect losses
Illustration
If a vessel valued at P1M is insured for only P800,000 and
Is damaged to the extent of P400,000, the insurer will be
required to pay only 80% of the loss suffered, or
P320.000; the other 20% or P80.000 being home by the
insured himself.
(Insurer's Liability)
Value of thing Insured
1.
2.
79
U n iv e r s ity o f S a n t o Tomas
F a c u l t y of Civil Law
fa
M ercantile L aw
3.
FRIENDLY EIRE
HOSTILE EIRE
-tin
i i
fit
Fjf
I P
equi (
2.
3.
4.
5.
sn t
2J1
fo jr.st
cc hoi
u p
A:Y(
wctelc
tn sfe
Ft; j H
of la'
therisl
dh
of
stipd \
remove
sui ;r i
2014).
6.
OCEAN marine:
EIRE
A policy of insurance on a
vessel
engaged
in
navigationis a contract of
marine
insurance
although
it
insures
against fire risks only.
Sec 1591
(DeLeon, 2010).
hi
has it i
Rules on constructive
total loss O'C, Secs. 133,
141): and abandonment
( 1C, Sec. 140) apply
Efi 'tft
of H
lo iP
XP" B
2. In^ >
acts dr
affi tsl
_an pE
Me air
fin P a
11
tfr
fire I
at ..it
1r f
i I a
wU
JMer.
t.
l. in
LthLo
(Sur^iat
fnsi m
m l
INSURANCE Law
lire. BCP Corporation filed a fire insurance claim with
Freedom which denied th e d aira upon the ground
th at at the tim e o f loss, d ie insured m achineries and
equipment w ere transferred by BCP Corporation to a
.location different from th a t indicated In the policy.
The insured m achineries w ere transferred from the
Tower 1 Bidding to theTow er 2 Building also found in
Concepcion* Tarlac which was used as a w arehouse
for storing old and unused m achineries of the
corporation. W as the refrisal of Freedom fustified?
XPNs:
1. Actually known to the insured or
2. Insured is presumed to know of the alteration when the
acts or circumstances, permanently and substantially
effects the conditions of (he property so as to constitute
an increase in risk (De Leon, supra, 2010).
VALUED POLICIES
(ibid).
GASUALTVINSURANCE ' -'-.V-
81
U n i v e r s i t y o f S a n t o Tomas
Faculty of Civil Law
M e r c a n t il e
within the scope of other types of insurance such as fire
or marine (IC, Sec 176).
Coverage of casualty insurance
1. Employer's liability and workmen's insurance - the
risk insured against is the liability of the assured to
make compensation or pay damages for an accident,
injuiy, or death, occurring to a servant or other
employee, in die course of his employment under
statutes imposing such liability on employers.
2. Public utility insurance - indemnifies against liability
on account of injuries to the person or property of
another. It may extend to automobiles, elevators, fly
wheels, libel, theaters, and vessels.
3. Motor vehicle liability insurance - is a contract of
insurance against passenger and third-party liability
for death or bodily Injuries and damage to property
arising from, motor vehicle accidents.
4. Plateglass insurance - an insurance against loss from
accidental breaking of plate-glass windows, doors,
showcases, etc.
' .
5. Burglaiy and tiieft insurance - an insurance against
loss of property by the depredations of burglars and
thieves.
6. Personal accident insurance - a form of insurance
which undertakes to indemnity the assured against
the expense, loss oftime, and suffering resulting from
accidents causing him physical Injury, usually by
payment at a fixed rate per weak while the
consequent disability lasts, and sometimes including
the payment of a fixed sum to his heirs in case of his
death byaccident within the term of the polity.
7. Health insurance - an indemnity to persons for
expense and loss of time occasioned by disease.
8. Other substantially sim ilar kinds of insurance (Perez,
2006).
Two divisions of casualty insurance
robbery/theft insurance)
2. Thirdparty liability insurance (.TPL) - Insurance against
specified perils whicti may give rise to liability on the
part of the insured of claims for injuries or damage to
property of others (De Leon, 2010).
"Accidental .Intentional" as used in insurance
..ACCIDENTAL-;-'^
; intentional v
Intentional as used in an
accident
policy
excepting
intentional
injuries inflicted by the
insured or any other
person, implies the
exercise of the reasoning
faculties, consciousness,
and volition. Where a
provision of the policy
excludes
intentional
of
S a nto T omas
N otes
law
(H frsl
20, ik
Insurance Law
liability actually discharged by him through payment
to third persons, said third person's recourse being
thus limited to the insured alone (Guingon us. Del
Monte, G.R. No. L-22042, August 17, 1967) Prior
payment by the insured Is necessary to give rise to
the obligation of the insurer.
Judge, supra).
Liability of insurer if the insured was'committing a
felony
1992).
RTCJudge, supra.).
I NS UR E!
. . .
. I N S U R E D * .
2.
3.
Contract of suretyship
83
U n i v e r s i t y of S anto T omas
_________ Faculty of Civil Law
T.
M ercantile Law
I
Sec 177).
The extent of surety's liability is determined by the
language of die suretyship contract or bond itself. It
cannot he extended y Implications beyond the term s of
the contract Having accepted the bond, the creditor is
bound by the redta) in the surety bond that the terms and
conditions of distributorship contract be reduced in
writing or at the very least communicated in writing to
the surety. Such non-compliance by die creditor impacts
not on the validity or legality ofdie surety-contract but on
the creditor's right to demand performance. (First
2.
3.
3. /udttr
rpoi
- im
3.
LoUr
Leon, 2010).
178).
Suretyship v. P roperty Insurance
SURETYSHIP
PROPERTY INSURANCE
It is an accessory contract
f J F j i l Un i v e r s i t y o f S a n t o T o m a s
2 0 1 5 Golden N otes
Tire
f an
I 3T
M 1
acco;
. i Te-
tu (
Fuml
?S sl
r
delft
r% *
d ifl
|-
<*p
I-id
bone
(DeLeon, 2,010).
!in
4.
2.
1994);
Tatsf
AM
th ep
t' -ba
ai>*
know
s' ert
Uj
comr
defl j
Chevi
his sv
* ft
Nii
annu
: n
84
t
n
i
Insurance Law
b. Publicofficialbond - One required of public officers
for the faithful performances of their duties and as a
condition.of entering upon die duties of their offices,
2010) .
>*
85
U n i v e r s i t y o f S a n t o Tomas
Faculty of Civil Law
>
M ercan tile L aw
5. Industrial life - entitles the insured to pay premiums
weekly, or where premiums are payable monthly or
oftener (Sundiang Sr. &Aquino, 2014).
C ontract o f life annuity
It is a contract to pay the insured, o r a named person or
persons, a sum o r sums periodically during life or certain
period (Perez, 2006).
M easure o f indem nity u n d e r a policy o f Insurance
u p o n life o r health
GR: The measure of indemnity under a policy of insurance
upon life or health is the sum fixed in the policy.
a U n iv e rs ity of S a n to Tomas
20 15 GOLDEN N o t e s
- LIFE INSURANCE
It is a contract of
investment not contract of
indemnity.
Always regarded as valued
doHcv.
May be transferred or
assigned to any person
even if he has no insurable
interest
!
The consent cif the insurer
is not esseijitial to the
.validity of th e assignment
of a life p(olicy unless
expressly req uired.
Insurable ini Merest in the
life.or health of the person
insured nee d not exist
after the insnuance takes
effect or when loss occurs.
Insurable interest need
not have any legal basis.
Contingency
that
is
contemplated is a certain
event; the only uncertainty
being the time when itwid
take place. >
The liability Of the Insurer
to make payment is
certain, the only uncertain
element being when such
payment must be made.
May be terminated by the
insured but cannot be
cancelled by the insurer
and is usuajily a long term
contract. I
The
"loss"
to
the
beneficiary caused by the
death of the insured can
seldom be . measured
accurately in terms of cash
value.
. riRi;/MARlNE
INSURANCE
p ;iir>
It is a contract of
indemnity.
May be open or valued.
iiip r =
injur i [
The
transferee
or
assignee must have an
insurable interest in the
thinE insured.
Consent, in the absence
of waiver by the insurer,
is essential in the
assignment of the policy.
Insurable interest in the
property insured must
exist not only when the
insurance takes effect but
also when the loss
occurs. '
Insurable interest must
have a legal basis.
Sr
p .
I*
Ni
tlie :
liab le
jut mi
V.!
* i !
D^nt
1)
Aniv.ve
po er
f:i
The contingency insured
against may or may not
occur.
Liability is uncertain
because the happening of
the peril insured against
is uncertain.
May be cancelled by
either party and is
usually for a term of one
year
The reverse is generally
true of the loss of
property, i.e., it is capable
of pecuniary estimation.
ro[ r%
moij ir
and cn
rui or.
tra j^n
agri" II
NQ E:
pn p il
mo^ ft
withnc
2.!!"%
j
i
In s u r a n c e L a w
The beneficiary is under
no obligation to prove
actual financial loss as a
result of the death of the
insured in order to collect
the insurance.
C O M P U L S O R Y M O TO R VlilI1CLL LIABILITY
'
INSURANCE"
i
i
'vij
2. Passenger
87
H
U n i v e r s i t y of S a n to T o mas
F aculty of Civil Law
. >
::JI L
_Pr
Mercantile L aw
Rules under tiuj "no fault Indemnity clause"
2. Proof of loss:
a. Police report of accident
b. Death certifica^ and evidence sufficient to
establish (proper payee
c. Medical report and evidence of medical or hospital
disbursement (IQ Sec 391 [3]).
(ibid).
vehide
Itl
against
wf au
tal R
auttL.
policy.
cannot
ai
*_ j ;
AfoLi
supra).
idamage" coverage
p r- v- "
of
NOfEt
olden
(Sundi
permit
||y $ .s ,T y
nTK
liL j \
M l
Audio
an^J
Compa
A h
insu.i
several
th? p i
ev I 'f
there !
unlawf
tai p
pe t s
(ParJi
173771
p
Tt
There
wi P i
th- I!
88
Insurance Law
Authorized driver clause
198174, September2,2013);
3. The vehicle was taken to die owner ofa repair shop for
the purpose of repair and in order to attach
accessories (Paramount Insurance v. Spouses
54171, October28,1980).
' An. Irish citizen whose 90-day tourist visa had expired,
, cannot recover on his car insurance policy, not being
authorized to drive a motor vehicle without a Philippine
drivers license {Stokes v. Malayan Insurance Co., Inc. GR
A: Yes. The fact that the driver was merely holding a TVR /
does not violate die condition that the driver should have I
a valid and existing drivers license. Besides, such a
condition should be disregardedbecause what is involved
is a passenger Jeepney, and what is involved here is not
own damage insurance but third party liability where the
injured party is a third party not privy to the contract of
insurance.
. Theft clause
It is that which includes theft as among the risks.insured
against Where* a car is unlawfully and wrongfully taken
without the knowledge and consent of the owner, such
taking constitutes "theft and it is the theft clause, not the
authorized driver clause which should apply (Perla
: CompaniadeSeguras,Incv.CA,supra).
-MICROINSURANCE
173773, November28,2012).
Theft
89
U n i v e r s i t y of S anto T omas
Faculty of Civil Law
>
Mercantile Law
|
f
----- - - - -s.
. . . *-
j"-.V have
insurable
"v
interest over the
.........
... life of tiie insured.
(De Leon, 20i0; Sundiang Sr. &Aquino, 2014).
. I N S U R A B L E IN T E R E S T
As.to extent
When m ust
insurable
interest
-exist.
LIFE
PROPERTY
limited to the
actual value of the
property
| U n i v e r s i t y ojf S a n t o T o m a s
p i 5 G olden N otes
Insurance Law
XPN; If the insured expressly waived this right In the said
policy.
(DeLeon, 2010).
Effect o f the irrevocable designation of the
beneficiary to the assignment o f the policy
of benefidaiy
is
deemed
2.
3.
Under the Article 739 of the New Civil Code, the following
are prohibited designation of beneficiaries:
1.
Those made between persons who were guilty
(finding of guilt in a civil case is sufficient) of
. adultery or concubinage at the time of donation
f
2.' Those made between persons found guilty of the
same criminal offense, in consideration thereof
3.
2012) .
91
Un i v e r s i t y o f S a n t o T o m a s
F aculty of C ivil Law
>
Jki
Mercantile Law
beneficiary is like a donee, because from the premiums of
the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said
insurance (The Insular Life Assurance Company; Ltd., v.
Carponia T. Ebrado and Pascuala Vda. De Ebrado, G.R.
No.L-44059, October28,1977).
Because no legal proscription exists in naming as
beneficiaries children of illicit relationships by the
insured, the shares of the common-law spouse in the
insurance proceeds, whether forfeited by the Court in
view of the prohibition on donation under Article 739 of
the Civil Code or by the insurers themselves for reasons
based on the insurance contracts, must be awarded to the
said illegitimate children, the designated beneficiaries, to
the exclusion of the legitimate heirs (Heirs o f Loreto
Maramag vs. Maramag, G.R. No. 181132, June 5,2009).
Extent of the creditor's recovery from the insurance
h e procured upon the life of die debtor, if the latter
dies
It is limited only to the extent of the amount of the debt at
the time of debtor's death and the cost of carrying the
insurance on the debtor's life.
Consent o f d ie person insured Is not essential to the
validity of th e policy
X P N s:
(2000 Bar)
Every interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such
nature that contemplated peril mightdirectly damnify the
insured, is insurable interest (IC, Sec. 13).
Insurable interest In property may consist of the
following (1991 Bar):
N on
j.
\
,c
4, ** *
durin
c m
a j f
boLJi
over
r f-p
t
>
J i .U N iv E Rs i T Y of S a n t o T o m a s
j ^ ^ , . 0 1 S.Golden N otes
______
> m
e ;
Insurance Law
Examples of insurable interest arising from legal tide:
a. Trustee, as in the case of the seller of property not yet
delivered;
b. Mortgagor of the property mortgaged;
c. Lessor of the property leased (De Leon, supra).
2.
93
U n iv ersity of S a n to Tomas
,______ F aculty of Ci vi l Law
Mercantile L aw
D O U B L E I N S U R A N C E A N D OVER IN SURANCE.
_____________
;
Rules when die insured in a policy other than life is
over Insured by double insurance
Co. vs. Philippine First Insurance Co., G.R. No. 184300, July
11, 2012.)
.Double insurance is not prohibited by law
It is not contrary to law and hence, in case of double
insurance, the insurers,may still be made liable up to the
extent of the value of the thing insured but not to exceed
the amount of the policies issued (Perez, 2006).
NOTE: A provision in the policy that prohibits double
insurance is valid. However, in the absence of such
prohibition, double insurance is allowed (ibid).
V '
the Insu j
dec
shafi
pro*
'
'
i i i s ^ D O UB L E I N S U R A N C E ' :
-$|tere maybe no over
ce as when the
tftotal of the amounts
ie-ptilicles issued.
Jes not exceed die
i^leinterest of the
insurers.
"
wiVERsiTV o f S a n to T o ma s
^ olobn N otes
94
An iiisti
pro' lire
jOverinsurance
[Malaya
Co/ -ic
184 r ?
i
:
TheSjj i
wiUprol j
theflwu
and H
insure
cover'd:
sin(* Vthi
hay p
instity 1
disi f p
Philip] I
equitaoi
maflr
(ibiajj
Afar ]tc<
con
When"
noti '*si
otiu P
abseij ;
to give'i
sanf
dec!
know )
the sain
desf red
Can H?
insfo i
S ec' 4 c
disc Pr
totaii *
insured,
pro iec
oco Pc
Q: The
insi e l
sun p
with] 1
months
insf Thi
sub p i
issiii^ c
INSURANCE Law
A: No.The interest of Wyeth over the property subject
matter of both insurance contracts is different and
'distinct from that of Reputables. The policy issued by
Philippines First was in consideration of the legal and/or
equitable interest of Wyeth over its own goods. On the
other hand, what was issued by Malayan to Reputable was
over the latter's insurable interest over the safety of the
goods, which may become the basis of the latters liability
in case of lossor damage to the property and falls within
the contemplation of Section 15 of the Insurance
Code.Therefore, even though the two concerned
insurance policies were issued over the same goods and
-cover the same risk, there arises no double insurance
since they were issued to two different persons/entities
^having distinct insurable interests. Necessarily, over
insurance by double insurance cannot likewise exist
(Malayan Insurance Co., Inc, v. Philippine First Insurance
Co, Inc and Reputable Forwarder Services, Inc, G.R No.
Waiver of violation
o r se v e r a im n t e r e st s on sa m e
PROPERTY
95
U n i v e r s i t y o f S a n t o Tomas
Faculty of Civil Law
If
Mercantile L aw
Extent of insurable interest of mortgagor and
mortgagee (1999 Bar)
AM
mocrtgage redemption insurance" is simply a kind of life
Insurance procured by the mortgagor with the mortgagee
as benefidaryj up to the extent of the mortgage
indebtedness. Its rationale Is to give protection to both the
mortgagee and the mortgagor. In case the mortgagor'
insured dies, toe proceeds of such insurance will be
applied to the payment of the mortgage debt to the
; mortgagee, thereby relieving the heirs of the mortgagor of
the burden of baying the debt (Perez,-2006 citing Great
Pacific Assur. Carp. v. Court of Appeals, et al, G.R No.
2014).
NOTE: In case of an insurance taken by the mortgagee
alone and for his benefit; the mortgagee, after recovery
from the insurer, is not allowed to retain his claim against
tiie mortgagor but it passes by subrogation to the insurer
to the extent ofthe insurance money paid (De Leon, 2010).
113899, October13,1999).
i
Policy of insurance
It Is the written instrument in which the contract of
. insurance jis set forth (IC, Sec 49.). It is.the written
document embodying the terms and stipulations of the
contract of Insurance between the insured and Insurer.
NOTE: The policy isnot necessary for the perfection of the
contract (Sundiang Sr. &Aquino, 2014).
Form of an insurance contract
1. The | policy shall be in printed form which may
contain blank spaces to be filled in;
2. Any rider, clause, warranty or endorsement
purporting to be part of the contract of insurance and
which is pasted or attached to said polity 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.
Un i v e r s i t y
of
S anto T omas
96
Insurance Law
3. Unless applied for by the insured or owner, any
rider, clause, .warranty or endorsement issued after the
original policy shall be countersigned by the insured or
owner.
1. Parties;
2. Amount of insurance, except in open or running
policies;
3. Rate of premium;
4. Property or life insured;
5. Interest of the insured in the property if he is not the
absolute.owner;
6. Risk insured against; and
7. th e period during which the insurance is to continue
(IC,SecSl).
Rider
97
$*'*'*>
" - - r f f
M e r c a n tile La w
b. By agent -If delivered to the agent of the insurer,
whose duty is ministerial, or delivered to the agent of
toe insured, toe policy is considered constructively
delivered (DeLeon, 2010).
Im portance of delivery
1. It becomes the evidence of the making of a contract
and of its terms;
D L L A V 'IN A C C EPT A N C E
Premium!
Kind o f acceptance t h a t m u st b e given
jre< price for assuming and canying the risk , It isan agreed
that is, the consideration paid an insurer for undertaking
to indemnify toe insured against a specified peril (De
Leon, 2010). o
2010i
Effect o f d elay
PREMIUM
Assessment
when
properly levied, unless
otherwise
expressly
agreed, is a debt
i:\(
D E L I V E R Y 0 1' P O L IC Y
ho
&Aquino, 2014).
The m ere delivery o f an insurance polity to someone does
not give rise to the formation of a contract in the absence
",' of proof to at he had agreed to be insured.
jfTwo ty p es o f delivery
g|j_Actual - delivery to toe person of toe insured.
Constructive
. 'By mail -If policy was mailed already and premium
p U
1 n iv er sity
. I- f.2 . 0 . 1 5 G o l d e n
of
Santo T omas
N otes
ASSESSMENT
98
1
l f*
uL
Insurance Law
Non-payment of balance of premiums does not cancel
the policy
XPN:
99
Un i v e r s i t y of S anto T o ma s
F aculty of C ivil Law
<1
i
p
Mercantile Law
The continuance of the insurer's obligation is conditioned
upon the payment ofthe premium, so that no recovery can
be had upon a lapsed policy, the contractual relation
between the parties having ceased. If the peril insured
against had occurred, die insurer would have had a valid
defense against recovery undo* the policy.
Q: Is the insurance company liable when a car, bought
on installm ent basis, m et an accident but the car is not
y et fully paid? (2006 Bar)
A: Yes, when insured and insurer have agreed to the
payment of premium by installments and pardal payment
has been made* at the time of loss, then the insurer
becomes liable. When the car loss happened on the 5th
. month, the six months agreed period of payment had not
yet elapsed. Hie owner may recover from Peninsula
Insurance Company, but the latter has the light to deduct
the amount of unpaid premium from the insurance
proceeds.
"Cash and c a n y rule (2003 Bar)
GRt No policy or contract of Insurance issued by an
insurance company is valid and binding unless and until
the premium thereof has been paid. Any agreement to the
Contraiy is void.
XPN: Apolicy is valid and binding even when there is non
payment of premium:
1. In case of life or industrial life policy whenever die
grace period provision applies, or whenever under die
broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extendon is
given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date
of issuance of the policy (IC, Sec 77).
2. When there is acknowledgment in a policy of a receipt
of premium, which the law declares to be conclusive
evidence of payment, even if there is stipulation therein
thatit shall not be binding until the premium is actually
paid. This is witiiout prejudice however to right of
insurer to collect corresponding premium (Sec 77,
ibid).
3. When there is an agreementallowingthe insured to pay
die premium in installments and partial payment has
beeii made at die time of loss (Makati Tuscany
: rf"*
Ini i
io.
'p<y
Hon
Oh
off I
Jr
Asl
ie;
S if!
a:
?^|de
R ev j
\ p*i
tV
1th
Q: Stable Insurance Co. (SIC) and S t Peter Manufacturing Co. (SPMC) have had a long-standing
insurance relationship with each other; SPMC secures
the comprehensive fire insurance on Its plant and '
facilities from SIC The standing business practice
between them has been to allow SPMC a credit period
of 90 days from the renewal ofthe policy within Which
to pay the premium.
Soon after the new policy was issued and before
premium payments could be made, a fire gutted the
covered plant and facilities to the ground. The day
after the fire, SPMC issued a manager's check to SIC
for the fire Insurance premium, for which It was
issued a receipt; a week later SPMC issued Its notice
of loss. SIC responded by issuing its own manager's
check for die amount of the premiums SPMChad paid,
and denied SPMC's daim on the ground that under the
"cash and cany principle governing fire insurance,
no coverage existed a t the time die fire occurred
because the insurance premium had not been paid.Is
'SPMC endded to recover for die loss from SIC? (2003,
2013 Bar)
fl
u ?
.'vJ
' elf
.* *
hPc
. -wi
H
3
At
ui
co
rr
Re
'
H1
Insurance Law
Insurance Company, Inc v. Masagano Telemart, Inc, G.R.
No. 137172, April4,20011
. Effect of acknowledgment of receipt of premium In
polity .
INSURANCE
N O N -D E F A U L T O P T IO N S IN LIFE IN SU R A N C E /
Evidence of insurability
101
U n i v e r s i t y of S an t o T omas
F aculty of Civi l Law
C*"**
*
<
Mercantile La w
2. Pro rata:
|
a. When the insurance is for a definite period and the
insured surrenders his policy before die termination
thereof, (IC, Sec. 80 [b]); except:
i. Policy not made for a definite period of time;
ii. Short periodrate is agreed upon;
iii. Life insurance policy.
b. When there is over-insurance. The premiums to be
returned shall be proportioned to the amount by which
the aggregate sum insured in all the policies exceeds the
insurable value of the filing at risk (IC, Sec 83).
i. In case of over-insurance by double insurance, the
insurer is not liable for the total amount of the
insurance taken, his liability being limited to the
property insured. Hence, the insurer is not entitled
to thatportipri of the premium corresponding to the
excess of the insurance over the insurable interest
of the insured (1990 Bar).
ii. In case of over-insurance by several insurers, the
insured i s )entitled to a ratable retyrp of the
premium, proportioned to the amount by which the
aggregate slim insured in all the policies exceedsthe
insurable value of the thing insured (IC, Sec. 83).
illustration
rficfn
nr
2.Mtsi
3pre;
: '
supra).
Instances whenj the insured is not entttiedto return of
premiums paid I
. REFUND OF PREMIUMS
1. Whole:.
a. When iio part of the thing Insured has been exposed to
any of the perils insured against (IC, Set 80).
b. When the contract is voidable because of the fraud or
misrepresentations of the insurer of his agent (IC, Sec
82).
c. When the insurance is voidable because of the
existence of facts of which the insured was ignorant
without his fault (IC,Sec 82).
d. When the insurer never incurred any liability under
the policy because of file default offiieinsured other than
actual fraud (IC, Sec 82).
e. When rescission is granted due to insurer's breach of
contract (IC, Sec. 74).
NOTE: When the contract is voidable, a person insured is
entitled to a return of the premium when such contract is
subsequently annulled under the provisions of the New
Civil Code.
A person insured is not entitied to a return of premium if
the policy is annulled, rescinded or if a claim is denied by
reason of fraud (IC, Sec 82).
U n i v e r s i t y of S a n t o T o m a s
2 0 1 S G olden N otes
N? TE:
to*"
eflfecth
efl a h
al
ft
102
insurance
complied with what was needful and would not have been
misled into believing that his life and his family were
protected by the polity, when actually they were not And,
if die premium paid by Cortez was unacceptable for being
late, it was die company's duty to return i t Since his policy
was in feet inoperative or ineffectual from the beginning,
the company was never at risk, hence, it is not entided to
keep the premium (Great Pacific Life Insurance
Corporation v. CA, etai, CR. No. L-S7308, April23,1990).
Law
RESCISSION OF INSU R A N C E C O N TR A C TS
1.
A party knows a fact which he neglects to
communicate or disclose to the other party
.2. Such party concealing is duty bound to disclose such
feet to the other
3. Such party concealing makes no warranty as to the
feet concealed
4. The other party has no means of ascertaining the
fact concealed
5. The feet must be material
T- C 0 NCE A LMEN T- :
. Concealment
Concealment is a neglect to communicate that which a
party knows and ought to communicate (IC, Sec. 26).
103
U n i v e r s i t y of S anto T omas
Faculty of Civil Law
Mercantile Law
was a typical mongoloid child upon filling out the
application form. It is evident that he withheld a fact
material to the risk to be assumed by the insurance
company had the plan be approved.
Rules on concealment
1. If there is concealment under Section 27, the remedy
of the insurer is rescission since concealment vitiates the
contract of insurance (1996 Bar).
U n i v e r s i t y of S a n t o T o m a s
2 0 1 S G o l en N otes
104
INSURANCE Law
i 3. Good faith is not a defense in concealment
I' Concealment, whether intentional or unintentional
I entities the injured party to rescind the contract of
insurance (!C, Sec. 27).
r; 4.
*
Any allegation as to the existence or non-existence of a
feet when the contract begins {eg. the statement of the
insured that the house .to be insured is used only for
residential purposes is an affirmative representation).
Promissoiy representation
Misrepresentation
Misrepresentation is an affinnative defense. To avoid
liability; , the insurer has the duty to establish such a
defense by satisfactory and convincing evidence (Ng Can
Zee y Asian Crusader Life 'Assn. Corp*. GJL No. L- 30665,
May 30,1983). [See also Sec 44 (when the facts fail to. .
correspond to the assertions or stipulations), Insurance
Code].
: NOTE: In the absence of evidence that the insured has
sufficient medical knowledge to enable him to distinguish
between 'peptic ulcer* and "tumor", the statement of
deceased that said tumor was associated with ulcer of
the stomach should be considered an expression in good
faith. Fraudulent Intent of insured must be established to '
entitle insurer to rescind the insurance contract
Misrepresentation, as a defense of insurer, is an
affinnative defense which must be proved (Ng Can Zee v.
Asian Crusader Life Assn. Corp., G.R. Ate L- 30685, May 30,
Mfev. CA supra).
4
1983).
1053r
U n iv e rs ity o f S a n to Tomas
F a c u l t y of Ci vi l Law
I
\
1.
ij
|
s
. 1
M ercan tile L aw
R equisites o f m isrepresentation
1.
2.
2.
Oral or written
3.
Made at the time of, or before issuing the polity and
notafter
;
4. Altered or |withdrawn before the insurance is
effected but not afterwards
5. Must be presumed to refer to .the date the contract
goes into effect (IC, Sec 42).
Similarities o f concealment and representation'
1.
Both refer to the same subject matter and both take
place before the contracts entered.
2. Concealment or representation prior to loss or
death gives rise to the same remedy; teat is rescission or
cancellation
3.
4.
T est o f m ateriality 0
It is to be determ ined not by the event but solely by t h e '
probable and reasonable influence of die facts upon the
p arty to whom th e representation is made, in forming his
estim ates of die disadvantages of the proposed contract
o r in making his inquiries (similar with concealment) (IQ
Sec 46).
Effects o f m isrepresentation
1. It renders the Insurance contract voidable a t the option
o f die insurer, although die policy Is not thereby rendered
void ab Initio.The injured partyentitled to resdnd from
th e time w hen the representation becomes false;
Concealment v. Misrepresentation
-
Oinceahnent '
Misrepresentation
1. Non-payment of premiums.
2.
Violation of condition (IQ Secs. 233 [b], 234 (bj).
3. No insurable interest
4.
Cause oildeath was excepted or not covered
5.
Fraud ojfa vicious type
6.
Proof of death was not given (IQ Sec 248)
7. That the conditions of the polity relating to military
or naval service (IQ Secs. 233 [b], 234 [b]).
C haracteristics o f representation
1.
Not a p art of the contract but merely a collateral
inducem ent to it
Un iv e r s it y
2015GOLDEN
S an t o T
Notes
of
omas
*M :
comn
r~r^n
; I
106
i*".
INSURANCE LAW
Omission
BREACH 01'WARRANTIES
Basis o f warranties
Kinds of warranties
233(b), 236(b));
4. That die conditions of the policy relating to militaiyor
naval service have been viplated 0C, Secs. 233(b), 234(b));
5. That the fraud is of a particularly vidous type;
6. That the benefidaiy foiled to furnish proof of death or
to comply with any condition imposed by'the polity after
die loss has happened; or .
7. That the action was not brought within the time
spedfied (Sundiang Sr. &Aquino, 2014).
Remedy of the
misrepresentation
injured
party
in
case
of
107
U n iv e rsity of S a n to Tomas
F aculty of Civi l Law
*1
\ >
Mercantile La w
/ : v - C l.A iM S .S E T T I,H M E N T A N D .S U H K ()G A T IO N
W arranty v. Representation
\
'. W A R R A N T Y
r e pr e se n t a t io n
Loss In insurance
The injury, damage or liability sustained by the insured in
consequence of the happening of one or more of die perils
against which me insurer, in consideration of the
premium, has undertaken to indemnity the insured. It
maybe total, partial, or constructive in marine insurance.
Conditions before die insured may recover on the
policy after the loss
1. Material
2,'Immaterial
GR: It will not avoid the policy.
I
Notice of loss
It is the more or less formal notice given die insurer by the
insured or claimant underapolicy of the occurrence of the
loss insured against
Purposes of notice of loss (JR )
, Q TH ER TYPES ()E I N S U R A N C E ..
mmmj j
Clair Set
Clairii P :
the frLi
reins >ec
third
Rules ..i *
1. N i^ i
Pi/ p
pa^ oi
b; ts
u e tr
Insurance L aw
5. Makes Objection on any ground other than the formal
defect inthe preliminary proof.
Instances when delay in the presentation of notice or
proof of loss deemed waived
If caused by:
L Any act of die insurer, and
2; By failure to take objection promptly and specifically
upon that ground (IC, Sec 93).
Proof of loss
LIFE POLICIES
1.
2.
NON-LIFE POLICIES
3.
4.
5.
dalm Settlement
the insured. The claimant may be the insured or
reinsured, the insurer who is entitled to subrogation, or a
third party who has a claim against the insured.
Purpose of the rule
To eliminate unfair claim settiement practices.
109
Un i v e r s i t y of S anto T omas
F aculty of Ci vi l Law
(***>
v-
Mercantile Law
under COGSA, the suit will not be dismissed if the delay
was not diiejto the claimant's fault The insurer therefore
should bearihe loss with interest on accountofsuch delay
(New World lntemational Development Phils. Inc vs. NYK-
>/
Prescriptive period in motor vehide insurance
It is one year from denial of the daim and not from the
date of the Ucddent
P R E S C R IP T IO N OF A C T IO N S
SUBROGATION
Prindple of Subrogation
1. The parties to a contract of Insurance may validly agree
that an action on the policy should be brought within a
limited period of time, provided such period is not less
than 1 year from the time the cause of action accrues. If
the period agreed upon is less than 1 year from the time
the cause of action accrues, such agreement is void (1C,
Sec 63,1996Bar).
.
a. The stipulated prescriptive period shall begin to run
from the date of the insurers rejection of die daim filed
by the insured or benefidaiy and not from .the time of
loss.
b. In case the claim was denied by the insurer but the
insured filed a petition for reconsideration, the
prescriptive period should be counted from the date the
daim was denied at the first instance and not from the
denial of the reconsideration (Sun Life Office, Ltd. vs. CA,
supra).
Sept 26,1988).
Incapacity of the insured will not affect the capacity of the
4 subrogee because capacity is personal to the holder
Purposes of subrogation
1.
2.
U n i v e r s i t y of S a n t o T omas
201S^Goi, dbn N otes
110
INSURANCE L a w
3.
6.
Rules on subrogation
1.
2.
Rules on Indemnity
Q: Malayan Insurance Company Issued a car
insurance polity in favor of First Malayan Leasing and
Finance Corporation (First Malayan), insuring a
Mitsubishi Galant against third party liability, own
damage and theft, among others. Unfortunately, the
Galant encountered a vehicular accident at the comer
of EDSA and Ayala Avenue, Makati. The accident
involves a Nissan Bus operated by Aladdin Transit, an
Isuzu Tanker, and a Fuzo Cargo Truck. Because of this,
Malayan Insurance was constrained to pay First
Malayan of the damages sustained by i t Maintaining
that it has been subrogated to the rights and interests
of the assured, Malayan Insurance' sent several
demand letters to Rodelio Alberto (Alberto) and
Enrico Alberto Reyes (Reyes), the registered owner
and the driver, respectively, of the Fuzo Cargo Truck;
requiring them to pay the amount It had paid to the
assured. No settlement of liability was made, thus,
Malayan Insurance filed a complaint for damages for
gross negligence against Alberto, et aL Is Malayan
Insurance entitled to the right of subrogation?
2.
3.
4.
5.
Life insurance
Ill
Un i v e r s i t y of S ant o T omas
F aculty of C ivi l Law
Mercantile L aw
Zarates' claim against the Pereiias was upon breach of
the contract of carriage for the safe transport of
Aaron; butthatjagainstPNR was based on quasi-delict
under Article 2176, Civil Code.
TRANSPORTATION LAW
Laws that govern contracts of transportation
A :'
p
of
S anto T omas
2 0 1 5 G o Cden N otes
112
T ransportation Laws
It Is not required that the carrier's principal activity
is carriage of persons or goods in order to be a
common carrier
2.
No. AM Trucking may not set up the hijacking as
a defense to defeat Reynaldos claim as the facts given do
not indicate that the same was attended by the use of
grave or irresistible threat, violence, or force. It would
appear that the truck was left unattended by its driver
and was taken while he was visiting his girlfriend (Pedro
de Guzman v. CA, 1-47822 Dec27,1988).
A:
1. Yes. Reynaldo may hold AM Trucking liable as a
common carrier. The feet that AM Trucking operates
only two trucks for hire on a selective basis, caters only
to a few customers, does not make regular or scheduled
trips, and does not have a certificate of public
convenience are of no moment as:
A:
1. Invalid. Article 1745 provides that the following
or similar stipulations shall be considered unreasonable.
113
U n i v e r s i t y of S anto T omas
F aculty of Civi l L aw
Mercantile law
unjust and contrary to public policy, among which is the
common carriers liability for acts committed by thieves or
robbers who do not act with grave and irresistible force,
threat or violence is dispensed with or diminished.
of or injuries' to
passengers (NCC,
... -
' -
S iK S S
f.v
,*** *r
COMMON
CARRIER
Undertakes
to
carry passengers
or goods for the
public
(First Philippine
Industrial Pipeline
vs. CA, supra).
PRIVATE
CARRIER
Carriage
is
generally
undertaken
by
special .agreement
and it does not hold
itself out .to carry
goods for ' toe
general public
(Loadmasters
Customs Services,
Inc vs. Glodel
Brokerage GR No.
179446, January 10,
20111
-JT
Civil Provisions on
i i t e l S p p l j Common Carriers,
Public Service Act;
and other special
laws relating to
transportation
Civil
Code
provisions
on
ordinary contracts
(ibid).
I fiB S I
lost, destroyed or
deteriorated.
2. In case of death
-to
Public utility ,
A business or service engaged in supplying the public with
some commodity or service of public consequence, or
essential to the general public (Perez, 2006, citing Albano
vs. Reyes, G.R 83551, July 1,1989; KMU Labor Center vs.
Garda, G.R 115381, December23,1994).
! .
Public service
Every person that may own, operate, manage, control in
the Philippines, for hire/compensation, with
general/limited clientele whether permanent, occasional
or accidental, and done for general business purposes,
any common carrier, with or without fixed route and
whatever may be its classification, engaged in the
transportation of passengers or freight or both, canal,
irrigation system, gas, electric light; heat and power,
water supply power, petroleum, sewerage system, wire or
wireless communication systems, wire or wireless
broadcasting stations and stetions and other similar,
public services (PublicServiceAct, Sec 13 (b)).
A casual or incidental service devoid of public character
and interest !$ not brought within the category. The
question depenjds on such factors as the extent of services,
whether such person or company has held himself or
itself out as ready to serve the public or a portion of the
public generally (Luzon Stevedoring v. PSC, G.R. 1-5458,
September161953).
Ordinaiy diligence
or diligence of a
good father of the
family
(Spouses
Perena v. Spouses
Zarate, supra].
tfreM m ptife 1. If the goods are
NOT subject
regulation by a
regulatory agency
Private carrier
jC.
No presumption as
to
negligence
(Planters Products
vs. CA GR No.
i BJBj l U n i v e r s i t y o f S a n t o T o ma s
2 0 1 5 G olden N otes
4
|
NOTE: The terms "public utility and "public service" are
used interchangeably (Perez, 2006).
Certificate of public convenience (CPC)
it is an authorization issued for the operation of public
services for which no franchise, either municipal or
legislative, is required bylaw, such as a common carrier.
T ransportation
laws
- CPCN
Warehouses
'
Animal-drawn vehicles or banco powered by oar or
by sail; tug boats and lighters
Radio companies, except as to fixing of rates
Eubilc market
Ice plants
Public utilities operated by the nati onal government
or political subdivision except as to rates.
Airships except as to fixing rates
115
U n i v e r s i t y of S a n t o T o m a s
F aculty of Ci vi l Law
M ercantile Law
to justifiable exceptions. The primary consideration in the
grant of a certificate of public convenience must always be
public convenience. (Fortunato F. Halili v. Ruperto Cruz,
G.R No. L-21061, June 27, 1968). In this case, Bayan Bus
Lines had been given an opportunity to improve its
service but despite its efforts, its services still proved
inadequate' which rendered the need to avail of the.
services of Pasok Transportation, Inc. as the addition
would better serve public convenience, which is the
paramount consideration in the granting of a certificate of
public convenience.
2.
3.
4.
5.
6.
7.
8.
9.
" U n i v e r s i t y o f S a n t o T om
2 0 1 5 G olden N otes
as
While in the old law, the sale without the approval of the
Public Utility Commission was declared null and void,
under PSA, the new law, the sale may not only be
negotiated but completed before said approval In other
116
T ransportation Laws
words, the approval by the Commission is not a condition
precedent to the validity of the contract The approval Is
. only necessary to protect public interest (Darang vs.
NOTE: Thus, this duty remains in full force and effect even
when they are temporarily unloaded or stored in transit,
unless the shipper or owner had made use of the right or
stoppage in transit (Art 1737, NCC),
30,2001).
(2002,2008 Bar)
The diligence required of common carriers is
extraordinary diligence (NCQArt 1733). The nature of the
business of common carriers and the exigencies of public
policy demand that they observe extraordinary diligence
(Martin, 198).
It is that extreme measure of care and caution which
persons bf unusual prudence and circumspection use for
securing and preserving tiieir own property or rights. The
law requires common carriers to render service with the
greatest skill and utmost foresight (JLoadmasters Services
117
U n iv ersity of S a n to Tomas
F a c u l t y o f C i v il - La w
i
^
.>
Mercantile Law
Exercise of extraordinary diligence in the carriage of
goods v. Exercise of extraordinary- diligence in the
transport of passengers
* E X T R A O R D IN A R Y D IU G K N C Ii in.
C n ir in jt.'of G o o d s V T l ' n i n s p o r t o i P a s s e n g e r s
1736).
b.
Continues
until
the
| passenger has been landed
1 at tiie port of destination
I and has left the vessel
owner's dopk or premises
I (Aboitiz, supra).
A:
a) A complaint for breach of contract of carriage can be
filed against Fil-Asia Air for failure to exercise
extraordinary diligence in transporting the passengers
safety from their point of embarkation to their destination
unloadedorstored in transit
unless the shipper or owner
had made use of the right or.
stoppage in transit (NCQ
i
Art 1737). j
1735)
XPNs: 1. Natural disaster or
calamity Which is the
proximate,cause of the loss
' (flood, storm, earthquake,
lightning)
2. Acts of public enemy in
war, whether international
or civil;
!
3. Act of, omission of the
shipper or passenger;
4. Character of the goods or
defects in the packing or
container;
I IPS J U n i v e r s i t y of S a n t o T omas
2015GOLDBN N otes
118
T ransportation Laws
5. Order or act of competent
public authority;
6. Exercise of extraordinary
diligence.
The carrier and shipper Cannot be dispensed with
may
agree
on
the or lessened by stipulation.
observance of diligence to a
degree
less
than
extraordinary (but not total
exemption), provided the
stipulation is:
(1) In writing;
(2) Supported by a.valuable
consideration other titan
service rendered by the
carrier; and
(3) Reasonable, just and not
contrary to public policy #
'
Culpa criminal
Note: If the driver is
convicted and it turns out
that he iis insolvent; the
heirs/ passengers may run
after the employer of the
driver, pursuant to the
employer's
subsidiary
liability under Article 103, in
relation to Arts. 100 and
102. RPC
Tort
LIABILITIES OF C O M M O N CARRIERS
BA S I S OF CAUSE OF AC TI ON
A G A I N S T T H E C OM MO N V
CARRIER
Tort
BASIS 0E CAUSE OF
/. . ACTI ON
..
Third p e r S d n who
suffereddamages. ...
Shipper o f the goods
damaged '
. Heir/s o f the deceased
passengers or the
passenger him selffor.
the Injuries sustained
by him
THE INJURED
; . PASSENGER OR 11IS
. HEIRS.. IF THE V,.:
- PASSENGERDIES:T'-,v
.T E R S O N W H O H A S
CA US E 0 E ACTI ON
). CAUSE OF ACTION 0E
(extra-contractual
negligence)
Breach of the contract of
carriage fCulpa Contractual)
Breach of the contract of
carriage (Culpa Contractual)
119
U n iversity of S a n to Tomas
Faculty of C ivil Law
i >
Mercantile Law
order to overcome the'presumption, the plaintiff must
still, before the burden is shifted to the defendant prove
that the subject shipment suffered actual shortage. This
can only be done If the weight of the shipment at the port
of origin and its subsequent weight at the port of arrival
have been proven by a preponderance of evidence, and it
can be seen that the former weight is considerably greater
than the latter weight; taking into consideration the
.exceptions provided in Article 1734 of the Civil Codeln
this case, respondent -failed to prove that the subject
shipment suffered shortage, for it was not able to
. establish that the subject shipment was. weighed at the
port of origin at Darrow, Louisiana, U.SA and that the
actual Weight of the said shipment was 3,300 metric tons.
(Asian Terminate, Inc. v. Simon Enterprises, fnc, G.R No.
1960).
. XPNs: Moral damages may be recovered even in case of
breach of contract of transportation in the following
cases:
1. Where the mishap results in the death of the
passenger (M. Ruiz Highway Transit Inc vs. CA, G.R
L-16086, May29,1964).
2. Where it is proved that the carrier was guilty of
fraud or bad faith, even if death does not result (Rex
Taxicab Co. vs. Bautista, GR No. L-15392, September
30,1960).
177116, February27,2013). .
Q: Peter so hailed a taxicab owned and operated by
Un iv er sity
of
Santo T omas
2 0 1 5 GOLDCN N o t b s
120
T ransportation L aws
liability. (British Airways v. CA, G.R. 121824, January 29,
1998)
Boundary system
! .' Under this system the driver is. engaged to drive the
pwner/operator's unit and pays the latter a fee commonly
; called boundaiy for the iise of the unit Whatever he
earned in excess of that amount is his income (Paguto
Kabitsystem
>/
1997).
0
160286, July30,2004).
Q: Baldo is a driver of Yellow Cab Company under
die boundary system . While cruising along the
South Expressway, Baldo's cab figured In a collision,
kfllinghis passenger, Pietro. The heirs of Pietro sued
Yellow Cab Company for damages, but the latter
refused to pay d ie beirs, insisting that it Is not liable
because Baldo is not its employee. Resolve with
reasons. (2005 Bar)
160286, July30,2004).
Q: X owns a fleet of taxicabs. He operates it through
what is known as boundaiy system. Y drives one of
such taxicabs and pays X a fixed amount of P h p l ,000
daily under the boundaiy system. This means that
anything above P hpl,000 would be die earnings of Y.
Y, driving recklessly, hit an old lady crossing the
street Which statem ent is most accurate? (2012 Bar)
121
Un iv e r s it y of S anto T omas
F aculty of C ivil Law
Mercantile L a w .
to escape civil liability caused by a negligent use of a
vehicle owned by another and operated under his license.
supra).
Q: Can the grantee of CPC engaged in a "kabit system
be held liable for damages arising from the crime of
reckless im prudence resulting to the death and
injuries to third persons, to which the driver was
convicted? \
A: Yes. The driver, the operator, and the real owner of the
vehicle are jointly and severally liable for damages.
However, the registered owner or operator has the right
to be indemnified by the real or actual of the amount that
he may be required to pay as damage for the injury
caused. Recovery by the registered owner or operator
may be made in any forxneither by a cross-claim, third
party complaint, or an independent action,and the result
is the same (Perez, 2009, citing Jereos v. CA, G.R. L-48747,
VIGILANCE OVER G OO DS
'
Presumption on the
deterioration of goods
S anto T omas
destruction,
or
Un iv e r sit y
doss,
'
2 0 1 5 Golden Notes
EXEMPTING-CAUSES
122
T ransportation Laws
2. Defective brakes cannot be considered fortuitous in
character (Vergara v. CA, G.R. No. 77679, September 30,
198.).
Occurrence of a typhoon as a fortuitous event
GR: If all the elements of a natural disaster or calamity
concur and there was no contributory negligence or delay,
the occurrence of a typhoon as a fortuitous event. This
holds true especially if the vessel was seaworthy at the
time it undertook that fateful voyage and that it was
confirmed with the Coast Guard that the weather
condition would permit safe travel of the vessel to its
destination (Philippine American General Insurance Co.,
'
2002).
1988).
. NOTE: In all cases other than those enumerated above,
there is presumption of negligence, even if there is an
agreement limiting the liability of the common carrier in
.the vigilance over the goods.
R E Q U I R E M E N T OF A B S E N C E OF NEGLIGENCE
97412,July12,1994)
1.
< 2.
-. 3.
4.
A:
a) The insurance company is liable. It is an instance of
a valid deviation because the strong typhoon is a
fortuitous event over which neither the master nor the
owner has any controL Deviation is likewise proper in
order to avoid a peril. (Sec.124 (b)) Art 1734 of the New
Civil Code further provides that common carriers are
responsible for the loss, destruction, deterioration of the
goods unless the same Is due to any of1the following
123
v X-
Mercantile Law
A bus operator is not liable for the.injuiy suffered by a
passenger when a bystander stoned the bus, because, a
common carrier is not liable for the injury of passengers
caused by strangers over whom it had no control and the
bus operator is only responsible if the bus operator could
have prevented such Injury by the exercise of the
diligence of a good father of a family, for the bus operator
is not an jsurer of the absolutely safety of passengers
March 23,1992).
50076, September14,1990).
124
T ransportation Law s
(Martin, 1989).
Q: Nelson owned and controlled the Sonnet
Construction Company. Acting for the company,
Nelson contracted the construction of a building.
Without-flrst installing a protective net atop the
sidewalks adjoining die construction ' site, tbe
company proceeded with the construction work. One
day, a heavy piece of lumber fell from die buildings It
smashed a taxicab which a t that time had gone
offroad and onto die sidewalk in order to avoid the
traffic. The taxicab passengers died as a result
1995).
Effect to the limited liability In case of an unjust delay
In die transportation o f goods or a deviation from
stipulated or usual route
If the common carrier, Without just cause, delays the
transportation of the goods or changes the stipulated or
usual route, die contract limiting die common carrier's
.liability cannot be availed of in case of die loss,
destruction, or deterioration of the goods (NCC, Art 1747).
1748).
D U E DfLIGENCE-TO P R E V E N T OR I,ESSEN LOSS
:^TsvV.-'CONTRIBUTORY'NEGLIGENCE!.
125
Un i v e r s i t y o f S a n t o T o m a s
' F aculty , of C i vi l Law
M e r c a n t il e L a w
liability while the taxi cab driver is liable solely and
personally for criminal prosecution.
Rule if there is contributory negligence on the part of
the shipper
If the shipper or owner merely contributed to the loss,
destruction or deterioration of the goods, the proximate
cause thereof being the negligence ofthe common carrier,
the latter shall be liable for damages^ which however, shall
be equitably reduced (NCC, Art 1741).
Rule if there is contributory negligence on the part of
thesblpper
(Artl736,NCC).
NOTE: Deiivety of the cargo to the customs authorities is
not delivery to the consignee, orto die person who has a
right to receive diem (Lu Do &LuYm Corp. vs. Blnamira,
v'J k
A
c m
* pr
NOTI
T
j
U n iv e rs ity o f S a n to Tomas
2 015G olden Notes
-0
T ransportation Laws
Rule as to unloading, storage and stoppage in transitu
GR: The common carrier's duty to observe extraordinary
diligence in the vigilance over the goods remains in full
force and effect even when they are temporarily unloaded
or stored.in transit'
XPN: When the shipper or owner has made use of the
right of stoppage in transit (NCC, A rt 1737).
Diligence required to be exercised by the carrier if the
right of stoppage in transit was exercised
The .diligence required is Ordinary diligence because of
the following:
a. It is holding the gbods in the capacity of an ordinary
bailee or warehouseman and not as a carrier
b. There is a change of contract from a contract of carriage
to a contract of deposit (NCC, A rt 1737).
Obligation required of the common* carrier in case of
stoppage In transitu
When notice of stoppage in transitu is given by the seller
to tiie carrier, he mustredeliver the goods to, or according
to the directions of, the seller. The expenses of such
delivery must be borne by the seller (NCC, Art 1532).
NOTE: If the seller instructs to deliver it somewhere else,
a new contract of carriage is formed and the carrier must
be paid accordingly.
- S TI P UL AT I ON FOR L I MI TA TI O N OF LIABILI TY'1
:!
;
il
|
jj
S
M ercantile Law
Q: Discuss whether o r not the following stipulations
in a contract of carriage of a common carrier are
valid:
A:
j
1. . Invalid. IArticle 1745 provides that the following
or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy, among which is the
common carriers liability for acts committedoy thieves or
robbers who do not act with grave and irresistible force,
threat or violence is dispensed with or diminished.
(NCC, A rt 1752).
VOID STIPULATIONS
(CR*UELED)
1. That the common carrier need notobserve any
3.
4.
5.
6.
1750).
LIMITATION OF LIABILITY IN ABSENCE OF
' -DECLARATION OF GREATER VALUE
.8.
of
S anto T omas
The
] i
theif
shan be
1.1 s i
N lH
them <
gue*+s;
pre ^
sub.
tiieiri I
Rule! ;
cus*od
128
4. Thj t
the loss
sen
lfc
thin n
T ransportation La w s
But when the goods being shipped are packed in cartons
placed in containers supplied by the carrier and the
number of cartons is disclosed in the shipping documents,
it Is the number of cartons and not of the containers that
should be used in computing the liability of the carrier for
die loss ofdie goods, as itisthe cartons that constitute the
packages (Eastern Shipping Lines, Inc vs. Intermediate
Appellate Court R No. L-71478, May29,1987).
Art 2000).
3. The act of a thief or robber, who has entered the carrier
is not deemed force majeure, unless it is done with the use
of arms or through an irresistible force (NCCpArL2001).
129
U n iv e rs ity o f S a n to Tomas
Faculty of Civil Law
>
M e r c a n t il e
SAFETY OF PASSENGERS
law
D U R A T I O N OF LIABILITYv.
2.
3.
4.
, g of
passengers
VOID STIPULATIONS
Bar).
XPN to th e XPN: Notwithstandingthe exception, common
carriers will be liable nevertheless forwillful acts or gross
negligence (ibid).
Assumption of risk on the part of passengers
Passengers must take such risks incident to the mode of
travel. The passenger must observe the diligence of a good
father of a family to avoid injury to himself (NCC, Art
October 7,1991).
Q: City Railways, Inc. (CRI) provides train service, for
a fee, to commuters from Manila to Calamba, Laguna.
Commuters a re required to purchase tickets and then
proceed to designated loading a n d . unloading
facilities to board the train. Ricardo Santos purchased
the ticket for Calamba and entered the station. While
1761).
NOTE: Carriers are not insurers of any and all risks to
passengers and goods. It merely undertakes to perform
certain duties to the public as the law imposes, and holds
University
2015G olden
Santo T omas
N otes
of
130
,)lr.
T ransportation Laws
The passenger is not considered negligent If the bus
started moving dowdy when the passenger is
boarding the same
A R R I V A L A T DE S TI NA TI O N
131
U n iv e rs ity o f S a n to Tomas
F a c u l t y o f Civil Law
fr
M ercantile La w
had a reasonable time or reasonable opportunity to leave
the current premises (la Mallorca v. CA, CR L-20761,July
271966).
' LIARILITYFOR ACTS OF OTHERS
EMPLOYEES
Art 1759).
NOTE: The liability of die common carrier to the personal
Valence of its employees or agents upon its passengers
extends only to those acts which die carrier could foresee
or avoid through the exercise of the diligence required.
Liability of die common carrier as regards to the acts
of employees may not be limited by stipulation
22272,June26,1967).
Q: H ie AAA Bus Company picks np passengers along
EDSA. X, th e conductor, while on board toe bus, drew
his gun and randomly to o t toe passengers inside. As a
result, Y, a passenger, was to o t and died instantly. Is
AAA Bus Company liable? (2012 Bar)
A: Yes. The bus company is liable because common
carriers are liable for the negligence or willful act of its
employees even though they acted beyond the scope of
their responsibility.
OTHER PASSENGFRS AND STRANGERS
UNiVEKsrrv o f S a n t o T o m a s
2 0 1 5 G olden N o t e s
22,1989)1
The registered owner of the vehicle may be held liable
for damages suffered by a third person in the course
of the operation of the vehicle
servi
nfth.* !**
J i I
1H
T r a n s p o r t a t i o n La w s
Also, the liability of the registered owner of a public
service vehicle for damages arising from the tortious acts
of the driver is primary, direct; and joint and several or
solidary with the driver (Philtnanco Service Enterprises,
2.
3.
Moral damages;
4.
Exemplary damages;
5.
6.
Noyember.22004).
Formula for computing the indemnity for lost
'earnings in case of death of a victim
The formula for the computation of unearned income is;
1. Net Earning Capacity = Life Expectancy x (Gross annual
income - Reasonable and necessary living
expenses).
2. Life expectancy is determined in accordance with the
formula: 2 /3 x (80 - age of deceased atthe time of
death)(Hefts of Ochoa vs. VS.G & S Transport
133
U n iv e rs ity of S a n to Tomas
F a c u l t y of C i v i l Law
{ ?
ypr?*
M e r c a n t i l e La w
Defenses available in culpa contractual (FEC)
BASIS OF
: 'CIVIL'
... . .."
Assurance Co., Ltd. v. United States Lines, G.R. No* L24033, Feb.22,1968).
If the owner is an
employer erf the driver,
then die former has a
subsidiary liability (Art
brought oh the ground of
civil liability arising from
crime under. Art. 100 of
Un iv e r s i t y
S anto T omas
Notes
of
201SGolden
Employer :| Is
only
subsidiarily liabla
There must hje a judgment
of conviction against the
negligent driver otherwise
the action against the
employer
would
be
premature. I
The defense ojfdue diligence
In selection and supervision
of employees cannot be
invoked.
[
f.
If file owner is an
employer of the driver,
still file former has a
primary liability for an
action brought on the
ground of quasi delict
under A rt 2180, NCC.
3. Culpa
criminal
...
LIABILITY
(Damages)
....
134
T ransportation Laws
6. Through- Issued by a carrier who is obliged to use die
facilities of other carriers as well as his own facilities
for die purpose of transporting the goods from the
city of the seller to the city of the buyer, which bill of
lading is honored by the second and other interested
carriers who do not issue their own lading.
DELIVERY 0 P . G 0 0 D S
Technical jargon
'
1.
2.
1 35
U n iv e rsity of S a n to Tomas
F aculty of C ivil L aw
Mercantile L aw
Period o f delivery of goods
1.
2.
Ins. Co, ltd. v. Choa Joy, G.R. No. L-7311, Sept 30,
. 19SS).
j
3S8).
3.
4.
Art 373).
The carrier may then file a third-party complaint against
the one who is really responsible. The carrier is an
indispensable party. But the shipper or consignee may
sue all of them as alternative defendants.
Commencement of action if delivery was made to
arrastre operator
1.
1989).
apparent; or
2.
RB
HB
Char
Un iv e r s it y
2015G olden
S anto T omas
N otes
of
136
n
t 1
T ransportation Laws
must be filed within thirty days from the filing of the entry
A: D. Philippine Law
Q: Assuming Philippine law to be applicable and Juan
.fails to file a claim with the carrier, may he still
-commence an action to recover damages with the
court? (2013 Bar)
i from delivery.
MARITIME COMMERCE
Voyage charter
Avoyage charter is a contract wherein the ship was leased
for a. single voyage for the conveyance of goods, in
consideration of the payment of freight. The shipowner
retains the possession, command and navigation of the
ship, the charterer merely having use of the space in die
vessel in return for his payment of freight
Supercargoes
: Persons especially employed by the owner of a cargo to
take charge of and sell to the best advantage merchandise
which has been shipped, and to purchase returning
cargoes and to receive freight; as he may be authorized.
CH AR TE R P A R T I E S T
137
U n iv e r s it y o f S a n t o Tomas
Faculty of Civil Law
\
*;
Mercantile L aw
-
.......... 1-
1 1 ...........
.......
a. Mfar - There Is a governmental prohibition of
commercial intercourse, intended to bring about an.
entire cessation for the time- being of all trade
whatever.
b. Embargo - A proclamation or order of State,
usually issued in times of war or threatened
hostilities, | prohibiting the departure of ships or
goods from some or all the ports of such State until
further oraer; or
c. Blockade - Asort of circumvallation around a place
by which all foreign connection and correspondence
is, as far as human power can effect it, to be cut off.
d. PROhibltion to receive cargo atportof destination.
e. Inability of the vessel to Navigate (Code of
CONTRACT
AI-TREiGHTMENT
OF
1.
2.
3.
; i
I r :
>
TRANSPomrATioN Laws
8.
9.
10.
11.
12.
13.
14.
15.
16.
Art 612).
A: No. The appeal of Coca-Cola will not prosper. Under
Article 587 of the Code of Commerce, the shipping agent
is civilly liable for damages in favor m third persons due
to. the conduct of the carrier's captain, and the shipping
agent can exempt himself therefrom only by abandoning
tire vessel with all his equipment and the freight he may
have earned during the voyage. On the other hand,
assuming there is bareboat charter,-tiie stipulation in the
charter party exempting the owner from liability is not
against public polity because the public at large is not
involved (Home Insurance Co. vs. American Steamship
61S)
139
U n iv ersity of S an to Tomas
Facul ty
of
Civil Law
>
Mercantile L aw
contracts, except by reason of insubordination in
serious matters, robbety, theft, habitual
drunkenness, or damage caused to the vessel or to
its cargo through malice or manifest or proven
negligence (CC, A rt 605).
Shipowner of a vessel
The person in possession, management, control over the
vessel, and the right to direct her navigation. While in
their possession, the ship owners also receive freight
earned and paid.
#
Doctrine of limited liability (1991,1994,1997,2000,
2008 Bar)
Ship agent
The person entrusted with provisioning or representing
the vessel in the port in which it may be found. Hence,
whether acting as agent of die ownerof die vessel or as
agent of the charterer, he will be considered as the ship
agentand may be held liable as such, as long as he is the
one that' provisions or represents the vessel (Macondray
&Co., Inc. v. Provident Insurance Corp, G.R. No. 154305, Dec
9,2004).
Civil liabilities of ship owners and agents
1. Damages suffered by a 3rdperson for tort committed by
the captain;
2. Contracts entered for provisioning and repair of vessel;
3. Indemnities in favor of 3rd persons arising from the
conduct of the captain from the care of goods; and
4. Damages in case of collision due to fault or negligence
or want of skill of the captain.
5. Damages for the acts of the captain.
VTW
Un i v e r s i t y of S a nt o T o ma s
2015 GOLDEN N otes
140
TRANSPORTATION LAWS
Cases In which the doctrine .of limited liability Is
allowed (1994,2004 Bar) (SOLE)
A:
a) No. The principle of limited liability will apply because
the exclusively real and hypothecaiy nature of maritime
law operates to limit the liability of die ship owner to the
' value of Ae vessel, earned freightage and proceeds of the
insurance,.if any "No vessel, No liability,'' expresses in a
nutshell die limited liabilityrule (Monarch Insurance v. CA,
G.R No. 92735, June.8,2000). The total destruction of the
vessel extinguishesmaridmelienasthere isnolongerany
res to which it can attach. In this case, die ship was
seaworthy. It exercised extraordinary diligence when it
changed its course to avoid the typhoon but
unfortunately, it was hit fay huge waves and sank. Since ,
the vessel sank a t no fault by CSC, it cannot be held liable
by virtue of "No vessel, ho liability rule
b) No. The insurance company is not liable for loss if
the vessel is not seaworthy (Tiangco Company v. Hanson,
(CC,ArL643)ar
4. Extinction of dvil liability incurred by the shipowner or
agent in cases of maritime collisions (CC Art 837).
i
Exceptions to the doctrine of limited liability 1. Repairs and provisioning of die vessel before the loss of
the vessel; (CC.Art 586)
s
$
I9
4. Private carrier; or
t
2011).
141
U n i v e r s i t y o f S a n t o T o mas
F aculty of Civil Law
.... .
~
<
1
"I- -. ..
;
- ....- *
Mercantile Law
G E N E R A L AV E R A G E
Averages
Jettison (2000,2009 Bar)
All extraordinary or accidental expenses which may be
incurred during the voyage for the preservation of the
vessel or cargo or both.
Kinds of averages
1. General average - Damages or expenses deliberately
caused in order to save die vessel, its cargo or both from
real and known risk.
2. Particularaverage - Damages or expenses caused to the
vessel or cargo that did not inure to die common benefit,
and borne by respective owners.
General average v. Particular average
GEN ER AL A V E R A G E .
P A R T I C U L A R AVE RA GE /
| Univeksity
2 0 1 S G olden
S anto T omas
N otes
of
Act of throwing overboard part of a vessel's cargo or hull in hopes of saving a ship from sinking
Goods, jettisoned for the common safety, shall not pay
freight; but its latter amount (freight lost) shall be
considered as general average, computing the same in
proportion to the distance covered when they were
jettisoned (Code of Commerce, A rt 660).
Orderof goods to be cast overboard In case of jettison
1. Those on deck, preferring the bigger bulk with least
value.
2. Those below upper deck, beginning with the heaviest
with least utility.
s .1-n rd
los^
*jjj
A:
1. In case Of overseas trade, the York-Antwerp Rules
prohibit the loading of cargo on deck. In case such
cargo is jettisoned, the owner will not be entitled to
reimbursement in view of the violation. If the cargo
were saved, the owner must contribute to general
average.
2.
Collision
I
It is the impact of two moving vessels.
Allision
It is the impact between a moving vessel and a stationary
one.
Error in extremis
The sudden movement made by a faultless vessel during
the third zone of collision with another vessel which is at
fault under the second zone. Even if sudden movement is
wrong, no responsibility will fall on the faultless vessel.
CO
n
Ev(j
cargo!
the shij
ex<!
Coi
1959
T ransportation Laws
Rules governing liabOides o f parties in case of
collision
5. Third vessel atfa u lt- The third vessel shall be liable for
losses and damages sustained.
Zones of time in die collision of vessel
collision begins.
NOTE: One vessel is a .privileged vessel and the
other is a vessel required to take action to avoid
collision.
2. Second zone - time between moment when risk of
collision begins and moment it becomes practically a
certainty.
NOTE: In this aone, the conduct of the Vessels is
primordial. It is in this zone that vessels must
observe nautical rules, unless a departure therefrom
becomes necessaiy to avoid imminent danger. The
vessel which, does not make such strict observance
isliable. '
143
U n i v e r s i t y of S anto T omas
Faculty of Civil Law
4*^
M ercantile Law
Person who shall bear th e losses in shipwreck
GR: The loss of a ship and her cargo shall fall upon their
respective owners (CC, A rt 840)
DM)
1.
of cogsa
1989).
The Carriage of Goods by Sea Act applies up to the final
port of destination even if the transhipment was made on
an inter-island vessel (Sea LandServiceInc. vs. IAC, G.R No.
75118, August31,1987).
'
***enl
i '
1 I1
(NT*
M I
owiu
b">wt
iJ
f U n iv e rsity of S an to Tomas
2015GOLDEN N o t e s
144
T ransportation Laws
the loss and damage that the goods on board his
vessel suffered.
February27,1987).
- Persons who can give notice to, and bring suit against .
, the carrier (SCA)
I*'- The Shipper
.. 2. The Consignee; or
3. Any legal holder ofthe bill of lading like the indorsee,
subrogee, or the insurer of die goods (Kuy vs. Everett.
/
Steamship Corporation, HR No. L-55S4/ May 27,
)
19S3).
14 c
145
U n i v e r s i t y of S anto T omas
F aculty of C ivil L aw
J*'*"*!
Mercantile Law
With respect to Seaboard's liability, the marine open
policy that Seaboard issued to New World was an all-risk
policy. Such a policy insured against all causes of
conceivable* loss or damage except when otherwise
excluded or when the loss or damage was due to fraud or
intentional misconduct committed by the insured. The
policy covered all losses during die voyage whether or not
arising from a marine peril (New World International
1144)
2. Oral contract - 6 years (NCC, Art 1145)
3. For quasi-delict - 4 years (NCC, Art 1146)
APPLICABILITY\
(FDUD)
1.
2.
3.
4.
U n iv ersity of S an to Tomas
2015GbLDEN N o t e s
146
T ransportation Laws
" 1 -- .
3. Delay in the transport by air of passengers baggage or
goods.
LIMITATION OF UARILITY
Jdflllful misconduct
3.
4.
147
n
Un i v e r s i t y o f S a n t o T o m a s
Faculty of C i vi l Law
M ercantile L aw
Time when the right to damages will be extinguished
November27,1992).
' of the
1 carrier In- guessing which luggage
The act
contained the firearm constitutes willful misconduct
Theguessfry of which luggage contained the firearms
Iavvfi I
attrtb
120334,January20,1998).
The allegation of willful misconduct resulting in a
to rt Is insufficient to exclude the case from the realm
of Warsaw Convention
-vs
149547,July4,2008).
However; the action filed by a passenger of an airline
company for loss of his luggage is not haired by the twoyear prescriptive period under the Warsaw Convention,
where the passenger immediately made a demand upon
the airline company and the action was delayed because
of the evasion of the airline company (UnitedAirLines, Inc.
k Courto f Appeals, G.R No. 124110, April20,2001).
Where an airline company failed to deliver the baggage of
a passenger on time, a passenger may maintain an action
for damages under the Civil Code even if he did not-file a
claim with the airline company within fourteen days as
required by the Warsaw Convention, for he may still sue
under the Civil Code (Luna v. CA, G.R No. 100374-75,
NOT
No c
November27,1992).
-
'WILLFULL MISCONDUCT
fc
corj
cor