Monday, January 16, 2006

NEGOTIABLE INSTRUMENTS LAW

COURSE OUTLINE

A. NEGOTIABLE INSTRUMENTS IN GENERAL

a-1. Definition – is a written contract for the payment of money which by its form and on its face is intended as a substitute for money and passes from hand to hand as money, so as to give the holder in due course the right to hold the instrument and collect the sum for himself. [Bar, 1946; Bar, 1949]

a-2. Essential Features [Bar, 1967]

  1. Negotiability
  2. Accumulated of contracts
  3. Provisional payment for obligation

a-3. Functions of negotiable instruments [Bar, 1951]

  1. Substitutes for money
  2. Increases purchasing power in circulation
  3. Increases credit circulation
  4. Monetary equivalent

a-4. Requisites for negotiability [Section 1; Bar, 1953; Bar, 1954; Bar, 1964; Bar, 1968; 1988; Bar, 1989; Bar, 1993; Bar, 1996]

  1. In writing signed by maker or drawer
  2. Contains an unconditional promise or order to pay a sum certain in money

2-a. Unconditional Promise or Order [Section 3]

1. An indication of a particular fund out of which reimbursement is to be made

2. An indication of a particular account to be debited with the amount

3. A statement of the transaction giving rise to the instrument

2-b. Sum Certain in Money [Section 2]

  1. With interest
  2. By stated installment
  3. By stated installment with escalation clause
  4. With exchange, whether at a fixed rate or at the current rate

a. see Ponce vs. Court of Appeals, 90 SCRA 533

b. see Kalalo vs. Luz, 34 SCRA 337

  1. With costs of collection or an attorney’s fees in case of non-payment at maturity

2-c. Test of Negotiability: Whether or not the promise or order would give rise to a separate cause of action for breach of contract if the additional act is not performed or done

2-d. Provisions Not Affecting Negotiability [Section 5]

1. Authorizes sale of collateral securities in case instrument is not paid at maturity

2. Authorizes confession of judgment if instrument is not paid at maturity [see however Traders Insurance vs. Dy Eng Biok, 104 Phil. 806]

3. Waives benefit of any law intended for the advantage or protection of the obligor; or

4. Gives the holder an election to require something to be done in lieu of money

  1. Payable on demand, or at a fixed, or determinable future time [Section 1]

3-a. Payable on Demand [Section 7]

  1. Expressed to be payable on demand, at sight or presentation
  2. No time for payment is expressed
  3. Instrument is issued, accepted or indorsed when overdue with regards to the person issuing, accepting or indorsing

3-b. Payable at a Determinable Future Time [Section 4]

  1. Fixed period after date or sight
  2. On or before a fixed or determinable future time
  3. On or at a fixed period after occurrence of a specified event certain to happen
  1. Payable to order or bearer

4-a. Payable to Order [Section 8]

1. To a Payee who is not the maker, drawer or drawee

2. The Maker or Drawer [To be complete, must be indorsed by maker or drawer, Section 184]

3. The drawee

4. Two or more payees jointly

5. One or some of several payees

6. Holder of an office for the time being

4-b. Payable to Bearer [Section 9]

  1. Expressed to be payable to bearer
  2. Payable to named person or bearer
  3. Payable to fictitious person and such fact is known to the person making it so payable
  4. Name of payee does not purport to be a name of any person
  5. Last indorsement is an indorsement in blank
  1. Where instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty

5-a. May be addressed to two or more drawees jointly

5-b. But not to two or more drawees in the alternative or in succession [Section 128; Bar, 1997]

a-5. Forms

  1. Promissory note [Bar, 1953; Bar, 1965]

1-a. Definition – an unconditional promise in writing made by one person to another, signed by maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer [Section 184]

1-b. Option of the Holder

1. Bills of exchange where the drawer and the drawee are the same person

2. Bills of exchange where the drawee is a fictitious person

3. Bills of exchange where the drawee is a person not having capacity to contract [Section 130]

  1. Bill of exchange [Bar, 1947; Bar, 1953; Bar, 1965]

2-a. Definition – an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time a sum certain in money to order or to bearer [Section 126]

2-b. Kinds

1. Inland bill of exchange – one drawn and payable within the Philippines [Section 129]

2. Foreign bill of exchange – one drawn within the Philippines but payable outside, or one drawn outside but payable within the Philippines [Ibid]

3. If instrument is ambiguous that there is doubt whether it is a bill of exchange or a promissory note, the holder may treat it either at his election [Section 17(e); Bar, 1998]

a-6. Parties

  1. Promissory note

1-a. Maker

1.b. Payee/indorser

1-c. Subsequent indorser

1-d. Holder

  1. Bill of Exchange

2-a. Drawer

2-b. Drawee/Acceptor

1. Drawee is not liable on the bill unless and until he accepts the same [Section 127; Bar, 1979; Bar 1999]

2. The moment he accepts the bill of exchange, he becomes an acceptor

2-c. Payee/indorser

2-d. Subsequent indorser

2-e. Referee in case of need [Section 131]

2-f. Holder

B. ISSUANCE OF NEGOTIABLE INSTRUMENT

b-1. Definition – the first delivery of the instrument complete in form to a person who takes it as a holder [Section 191]

b-2. Requisites of Issuance

  1. Delivery of the instrument
  2. To a person who takes it as a holder

b-3. Delivery

1. Definition – transfer of possession with intent to transfer title thereto, thus making the transferee a HOLDER of the instrument

2. Instances -

2-a. Complete delivered instrument

2-b. Incomplete delivered instrument [Section 14]

1. Possessor is deemed to have prima facie authority to fill-up blanks

2. Personal defense to a holder for value

3. Holder in due course can enforce full payment

2-c. Complete undelivered instrument [Section 16]

1. Holder in due course, delivery conclusively presumed

2. Holder for value, personal defense

2-d. Incomplete undelivered instrument [Section 15; Bar 2000]

1. Real defense by maker/drawer

2. Binding to persons who became parties after its unauthorized completion and delivery

b-4. Consideration

1. Definition – any consideration sufficient to support a simple contract

  1. Presumptions

2-a. Every negotiable instrument is deemed issued for a valuable consideration [Section 24]

2-b. Every person whose signature appears thereon is deemed a party for value [Section 24]

3. Effect of Want of consideration

3-a. What constitutes

  1. Absence
  2. Failure

a. Total

b. Partial, a defense pro tanto [Section 28]

3-b. Effect : Personal defense

3-c. Exception: Accommodation party [Section 29]

1. Nature of Accommodation [Bar, 1952]

a. Lends name to others without any consideration

b. Liability is either primary or secondary. He is a surety of the party accommodated

2. Instances

a. Maker [Bar, 1964; Bar, 1971; Bar, 1993; Bar, 1996; Bar, 1998]

b. Drawer [Bar, 1975; Bar, 1991]

    1. Indorser [Bar, 1964; Bar, 1976; Bar, 1985; Bar, 1990]
  1. Cases –

a. see Town Savings & Loan Bank, Inc. vs. Court of Appeals, G.R. 106011, 17 June 1993]

b. see Ang Tiong vs. Ting, 22 SCRA 713

c. see Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351

b-5. Holders of negotiable instruments

1. Holder in due course [Bar, 1946; Bar, 1952; Bar, 1996]

1-a. Presumption: Every holder is presumed to be a holder in due course [Section 59]

1-b. Requisites [Section 52]

1. Complete and regular upon its face

2. He became the holder of it before it was overdue and without notice that it had been previously dishonored if such was the fact

3. He took it in good faith and for value

  1. At the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

1-c. Rights [Bar, 1946]

1. Hold instrument free from any defect of title of prior parties [Section 57]

2. Hold instrument free from personal defenses of prior parties among themselves [Ibid]

  1. Right to enforce payment for the full amount against all parties [Ibid]
  2. Right to enforce payment for the original tenor in case of material alteration [Section 58]
  3. Right to sue on the instrument in his own name [Section 51]
  4. Right to receive payment in due course [Ibid]

1-d. Cases –

1. see Atlantico vs. Auditor General, 81 SCRA 335

2. see De Ocampo vs. Gatchalian, 113 SCRA 574

2. Holder for Value [Bar, 1962; Bar, 1977]

2-a. Definition – one who gives valuable consideration for the instrument

2-b. Rights [Bar, 1946]

1. Right to sue on the instrument in his own name

2. Right to receive payment in due course [Section 51]

b-6. Defenses

1. Real Defenses –

1-a. Incomplete undelivered instrument [Section 15; Bar, 1972; Bar, 1978; Bar, 1985]

1-b. Forgery [Section 23; Bar, 1976; Bar, 1977; Bar, 1982; Bar, 1983; Bar, 1984; Bar, 1987; Bar, 1989; Bar, 1990; Bar, 1992; Bar, 1995]

  1. Effects

a. Signature is wholly inoperative

    1. No right to retain instrument
    2. No right to enforce payment
  1. Not Applicable

a. Forgery of a bearer instrument [Section 23; Bar, 1980; Bar, 1997]

    1. Forgery of drawer’s signature insofar as the acceptor is concerned [Section 62]
  1. Cases –

a. see PNB vs. National City Bank, 63 Phil. 711

    1. see PNB vs. Quimpo, 158 SCRA 582
    2. see Metropolitan Waterworks vs. Court of Appeals, 143 SCRA 20
    3. see Republic Bank vs. Court of Appeals, 196 SCRA 100

1-c. Minority [Section 22; Bar, 1989; Bar, 1998]

1-d. Incapacity [Section 22]

1-e. Fraud in factum

2. Personal/Equitable Defenses

2-a. Want of consideration [Section 28; Bar, 1971; Bar, 1978; Bar, 1995]

2-b. Complete undelivered instrument [Section 16; Bar, 1961]

2-c. Incomplete delivered instrument [Section 14; Bar, 1972; Bar, 1993; Bar, 1997]

2-d. Fraud in inducement

2-e. Defective title –

1. Definition - He obtained the instrument or any signature thereto by fraud, duress, force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances amount to a fraud [Section 55; Bar, 1966]

2. Reasons for Defect

a. By acquisition

b. By negotiation

3. Notice of defect requires actual knowledge of the infirmity [Section 56]

2-f. Material Alteration [Bar, 1983; Bar, 1995; Bar, 1996; Bar 1999]

1. What consists: Alteration that changes

a. The date

b. Sum payable, either principal or interest

    1. Time or place of payment
    2. Number or the relation of the parties
    3. Medium or currency in which payment is to be made [Section 125]

2. Effects

a. Instrument is avoided

b. Except as to persons who made, authorized or assented to the alteration and subsequent indorsers

c. Holder in due course may enforce payment according to the original tenor [Section 124]

C. NEGOTIATION

c-1. Modes of Transfer of Instrument

  1. By assignment

1-a. Definition – a sale by the assignor of his rights under the contract in favor of the assignee

1-b. Instances

1. Transfer of an order instrument without proper indorsement [Section 49]

2. But where the holder has lien on the instrument, he is deemed a holder for value to the extent of his lien [Section 27]

3. see Caltex (Phil.) vs. Court of Appeals, 212 SCRA 448

  1. By operation of law

2-a. Death of the holder

2-b. Bankruptcy of the holder

  1. By negotiation

3-a. Order instrument – effected through indorsement completed by delivery

3-b. Bearer instrument – effected through delivery

c-2. Negotiation

1. Definition – transfer of an instrument in such form that the transferee becomes a holder

2. Methods

2-a. Order instruments

1. Definition [see Section 8]

2. How Negotiated –

a. In general, through indorsement and completed by delivery

b. If indorsed in blank, it becomes a bearer instrument [Section 9]

c. Blank indorsement may be converted to a special indorsement by writing contract consistent with the character of the indorsement [Section 35]

2-b. Bearer instruments

1. Definition [see Section 9]

2. How Negotiated –

a. In general, by delivery [Bar, 1967; Bar, 1975]

b. If indorsed specially, person indorsing is liable only as indorser to such holders as to make title through his indorsements [Section 40; Bar, 1975; Bar, 1979; Bar, 1988; ]

c. Holder may strike out indorsement not necessary to his title. Indorser whose signature is struck out and all indorsers subsequent to him are relieved from liability [Section 48]

3. When to Negotiate

3-a. Promissory Note – reasonable time after issuance

3-b. Bill of Exchange – reasonable time after its last negotiation [see PNB vs. Seeto, 91 Phil. 756]

c-3. Indorsements

1. As to Person Indorsing

1-a. Regular indorsement – indorsement of a person who is a party to the instrument

1-b. Irregular indorsement – indorsement by a person not party to the instrument [Section 64; Bar, 1975]

2. As to Nature/Effect of Indorsement [Bar, 1960; Bar, 1969]

2-a. Qualified Indorsement [Sections 38, 65; Bar, 1968]

a. Constitutes indorser as a mere assignor of the title to the instrument

b. Does not impair negotiability of the instrument

2-b. Unqualified/ General Indorsement [Section 66]

a. Special indorsement [Section 34]

b. Blank indorsement [Section 35; Bar, 1948]

2-c. Conditional Indorsement

a. Party required to pay may disregard condition. But person to whom payment is made will hold proceeds thereof subject to the rights of the person indorsing conditionally

b. Party required to pay respect condition and hold payment until compliance or non-compliance thereof [Section 39]

2-d. Restrictive Indorsement

a. Effects –

1. Prohibits further negotiation of the instrument

2. Constitutes indorsee as agent of the indorser

3. Vests title in indorsee in trust for or for the use of some other person [Section 36]

b. Rights of Indorsee/Transferee

1. Receive payment of the instrument

2. Bring any action thereon that indorser could bring

3. Transfer rights as indorsee to other persons [Section 37]

3. Striking Out Indorsements

3-a. When Applicable – Bearer instruments only

3-b. How Made – Striking out indorsements not necessary to the title of the holder

3-c. Effects

a. Indorser whose indorsement is striken out is discharged from liability on the instrument

b. All indorsers subsequent to him are discharged from liability [Section 48]

c-4. Warranties and Liabilities

  1. Maker [Section 60; Section 192; Bar, 1967; Bar, 1975; 1981; Bar, 1986]

1-a. Admits existence of payee and his capacity to indorse

1-b. Warrants to pay instrument according to its tenor

  1. Drawer [Section 61; Bar, 1986; Bar, 1997]

2-a. Admits existence of payee and his capacity to indorse

2-b. Warrants that instrument be paid or accepted or both upon presentment

2-c. Warrants to pay instrument if dishonored

  1. Drawee-Acceptor [Section 62; Section 192; Bar, 1998]

3-a. Admits existence of payee and his capacity to indorse

3-b. Admits existence of drawer, genuiness of his signature and capacity and authority to draw the instrument

3-c. Warrants to pay instrument according to the tenor of his acceptance

  1. Qualified Indorser/Person Negotiating by Deliver [Section 65; Bar, 1946; Bar, 1979; Bar, 1981; Bar, 1988]

4-a. Instrument is genuine and in all respects what it purports to be

4-b. He has good title to it

4-c. All prior parties had capacity to contract

4-d. He has no knowledge of any fact which would impair the validity of instrument or render it valueless

4-e. Warranty of person negotiating by delivery extends only to his immediate transferee

  1. General Indorser [Section 66; Bar, 1981; Bar, 1987; Bar, 1988; Bar, 1990; Bar, 1991]

5-a. Instrument is genuine and in all respects what it purpots to be

5-b. He has good title to it

5-c. All prior parties had capacity to contract

5-d. Instrument at the time of his indorsement is valid and subsisting

5-e. Warrants to pay instrument if dishonored

5-f. see Republic Bank vs. Ebrada, 65 SCRA 680

D. PRESENTMENT FOR ACCEPTANCE

d-1. When Required [Section 143]

  1. Bill is payable after sight
  2. Presentment is necessary to fix maturity
  3. Express stipulation
  4. Bill is drawn in a particular place but payable to a place other than the residence or business of drawee

d-2. Purpose

  1. Fix maturity of instrument
  2. Comply with stipulation
  3. Willingness of the drawee

d-3. Effect of Non-Presentation – Drawer and all indorsers are discharged [Section 144]

d-4. Manner of Presentment

1. By whom: Holder himself or authorized agent

2. To whom

2-a. Drawee himself or authorized agent

2-b. If two or more drawees, all of them

2-c. If drawee is dead, personal representative or excused

2-d. If drawee is insolvent, drawee himself or trustee or assignee

3. When Presented: Within a reasonable hour on a regular business day and before the bill is overdue

  1. Where Presented

4-a. Place of business or residence of drawee if known

4-b. If residence is different from place of business, in either place

4-c. If place of payment is designated and drawee’s residence or place of business is unknown, at the place of payment

4-d. Otherwise, excused

d-5. When presentment excused [Section 148]

  1. Effect: Instrument is treated as dishonored
  2. Grounds

2-a. Drawee is dead, absconded or a fictitious person or person not having capacity to contract

2-b. After exercise of reasonable diligence, presentment cannot be made

2-c. Presentment is irregular, but refused on some other ground

d-6. When Dishonored by Non-Acceptance [Section 149]

  1. When duly presented but refused or cannot be obtained
  2. When presentment for acceptance is excused
E. ACCEPTANCE

e-1. Definition – It is the signification by the drawee of his assent to the order of the drawer

e-2. How acceptance made

  1. Form

1-a. Must be in writing signed by the drawee

1-b. Except: Constructive acceptance

  1. Manner of Acceptance

2-a. Writing on face of bill “Accepted”

2-b. Separate paper [Section 134]

1. Does not bind acceptor

2. Except in favor of a person to whom paper is shown and on faith thereof receives bill for value

    1. Separately even before bill is drawn [Section 135]

e-3. Kinds of acceptance

  1. Actual acceptance [Section 132]
  2. Constructive acceptance [Section 137]

2-a. Manner

1. Drawer destroys the bill

2. Refuses to return the bill within 24 hours or such other period allowed by the holder after its delivery for acceptance

2-b. Effect: Even if no actual acceptance, bill is deemed to have been accepted

  1. General acceptance – acceptance without qualifications [Section 139]
  2. Qualified acceptance [Section 141]

4-a. Instances [Section 141]

1. Conditional

2. Partial

3. Local

4. Qualified as to time

5. Acceptance of some, one or more of the drawees but not all

4-b. Rights of Parties [Section 142]

1. May refuse qualified acceptance and treat bill as dishonored by non-acceptance

2. May accept qualified acceptance

a. Holder to notify parties secondarily liable, failure of which, such parties are discharged from liability

b. Parties secondarily liable if notified must express assent or dissent, failure of which, they are deemed to have given their assent

e-4. Effect of acceptance

  1. Drawee assents to the order of the drawer
  2. Drawee becomes an acceptor primarily liable to the instrument
F. DISHONOR BY NON-ACCEPTANCE

f-1. When Instrument Dishonored by Non-Acceptance [Section 149]

  1. When duly presented but refused or cannot be obtained
  2. When presentment for acceptance is excused

f-2. Notice of Dishonor

  1. By whom Given [Section 90]

1-a. Holder

1-b. Agent of the holder [Section 94]

1-c. Any party secondarily liable notified by the holder

1-d. Agent of any party secondarily liable notified by the holder [Section 91]

  1. To Whom Given

2-a. General –

1. Persons secondarily liable

2. Agents of persons secondarily liable [Section 97]

2-b. Special Cases –

1. Party who is dead [Section 98]

a. Personal representative

b. If none, last residence or last place of business of decedent

2. Partners [Section 99]

a. Any one of the partners even if there has been a dissolution

b. Any surviving partner if one is dead

3. Persons Jointly Liable [Section 100]

a. Each of them

b. Except when one is authorized by the other

4. Bankrupt [Section 101]

a. Insolvent party himself

b. His trustee or assignee

  1. When Notice Must be Given [Section 102]

3-a. On the following day after instrument is dishonored [Section 103]

3-b. Unless notice is excused

4. Where Notice is Given

4-a. Parties reside in same place [Section 103]

1. If given in place of business, before close of business hours

2. If given in residence, before usual hours of rest

3. If given by mail, post office

4-b. Parties resident in different places [Section 104]

  1. Form of Notice [Section 96]

5-a. Either oral or in writing

5-b. Either personally or by mail

f-3. When notice dispensed with [Section 112]

  1. It cannot be given to parties secondarily liable
  2. It does not reach the parties sought to be charged

f-4. When notice excused [Section 114]

  1. As to Drawer

1-a. Drawer and drawee are the same person

1-b. Drawee is a fictitious person or person not having the capacity to contract

1-c. Drawer is a person to whom the instrument is presented for payment

1-d. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument

1-e. Drawer has countermanded payment

2. As to Indorser [Section 115]

2-a. Drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that fact at the time of his indorsement

2-b. Indorser is the same person to whom the instrument is presented for payment

2-c. Instrument was made or accepted for his accomodation

G. ACCEPTANCE FOR HONOR

g-1. Basic Considerations

1. Definition – acceptance by a stranger to a bill of exchange to pay, totally or partially, for the honor of the drawer or any indorser after the bill has been protested for dishonor by non-acceptance or for better security and before the instrument is overdue [Section 161]

2. Requisites

2-a. Instrument previously protested for non-acceptance or for better security

2-b. Instrument not yet overdue at the time of acceptance for honor

2-c. Acceptor is a stranger to the bill of exchange

2-d. Acceptance for honor must be in writing, signed by the acceptor for honor and indicates for whose honor the acceptance is made

2-e. Holder must give consent to acceptance

2-f. Acceptance may be total or partial

3. Presumption – Unless expressly made, acceptance is deemed for the honor of the drawer [Section 163]

g-2. Effects

  1. Warranties of acceptor for honor [Section 165]

1-a. Engages that will pay the bill according to the terms of his acceptance

1-b. Provided that necessary steps were taken

1. Instrument was duly presented for payment to the drawee

2. Drawee dishonored the instrument and notice of dishonor given to acceptor for honor

3. Instrument was duly protested for non-payment [Section 167]

4. Presented for payment to the acceptor for honor

a. In the place where protest for non-payment is made not later than the day following its maturity

b. In other place, see Section 104

  1. Liability of acceptor for honor [Section 164]

2-a. Acceptor for honor becomes secondarily liable on the instrument

2-b. Acceptor for honor becomes liable to all parties subsequent to the party for whose honor he has accepted

g-3. How made

  1. Must be in writing
  2. Indicating that it is an acceptance for honor
  3. Signed by the acceptor for honor
  4. Appears before a Notary and declare that the instrument was accepted for honor [Section 162]
H. PROTEST

h-1. Basic considerations

1. Definition – a formal statement of the presentment and dishonor of the bill, made under the hand and seal of a Notary making it and contains facts necessary to identify the bill and show that it was duly presented but dishonored

2. Purpose – to hold persons secondarily liable to the instrument

h-2. When Required/applicable – Applies only to foreign bills which were

  1. Dishonored by non-acceptance [Section 152]
  2. Dishonored by non-payment [Ibid]. But if the foreign bill was previously protested for non-acceptance, it no longer necessary to have the same protested for non-payment [Section 157]
  3. Before a bill is accepted for honor, it must first be protested for dishonor by non-acceptance or protested for better security [Section 161]
  4. Acceptor has been adjudged bankruptcy or insolvent or has made an assignment for the benefit of creditors, bill must be protested for better security [Section 158]

h-3. Manner of Making Protest

  1. How Made

1-a. Protest annexed to the bill or must contain a copy thereof [Section 153]. But where the bill is lost, destroyed or wrongfully detained, protest may be made on a copy or written particulars thereof [Section 160]

1-b. Under hand and seal of a Notary Public

1-c. Must specify the following:

1. Time and place of presentment

2. Fact that presentment was made and the manner of presentation

3. Reason or cause for protesting the bill

4. Demand made and the answer given or the fact that drawee or acceptor cannot be found [Section 153]

2. By Whom Made

2-a. A Notary Public

2-b. Respectable resident of the place where the bill is dishonored in the presence of two or more credible witnesses [Section 154]

3. Place of Protest

3-a. Place of dishonor

3-b. Place where bill is payable where

1. Bill is drawn payable at the place of business or residence of some person other than the drawee

2. Bill is dishonored by non-acceptance [Section 156]

  1. Time to Protest

4-a. If bill is not noted, protest be made on the day of dishonor unless excused

4-b. If bill is noted, protest may be subsequently extended as the date of noting [Section 155]

h-4. When Protest is Dispensed with [Section 159]

1. It cannot be given to parties secondarily liable or does not reach the parties sought to be charged [Section 112]

  1. As to Drawer

2-a. Drawer and drawee are the same person

2-b. Drawee is a fictitious person or person not having the capacity to contract

2-c. Drawer is a person to whom the instrument is presented for payment

2-d. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument

2-e. Drawer has countermanded payment

3. As to Indorser [Section 115]

3-a. Drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that fact at the time of his indorsement

3-b. Indorser is the same person to whom the instrument is presented for payment

3-c. Instrument was made or accepted for his accomodation

h-5. When Delay is Excused

  1. Due to circumstances beyond the control of the holder
  2. Delay is not imputable to holder’s default, misconduct or negligence [Section 159]
I. PRESENTMENT FOR PAYMENT

i-1. Basic considerations

1. Definition – is the formal demand for the payment of the instrument

2. Purposes

2-a. To charge the persons secondarily liable to the instrument, that is, the drawer and indorsers [Section 70]

2-b. Not to charge the person primarily liable to the instrument

i-2. Manner of Presentment

  1. By whom:

1-a. Holder himself

1-b. Holder’s authorized agent [Section 72]

2. To whom

2-a. In general, to the person primarily liable, that is, the maker in case of promissory notes and the acceptor in case of bills of exchange [Ibid]

2-b. In case persons primarily liable are partners, to anyone of them [Section 77]

2-c. In case persons primarily liable are not partners, to all of them [Section 78]

  1. When Presented [Section 71]

3-a. Generally, at the date of maturity

3-b. If instrument is payable on demand, presentment must be made

1. In case of promissory note, within a reasonable time after issue

2. In case of bill of exchange, within a reasonable time after the last indorsement or negotiation

3-c. At a reasonable hour on a business day [Section 72]

3-d. Where instrument is payable at a bank, it must be presented during banking hours [Section 75]

  1. Where Presented [Section 73; Bar 2000]

4-a. Place of payment or address given in the instrument

4-b. In the absence, at the usual place of business or residence of the party primarily liable

4-c. If party primarily liable expressed his ability and willingness to pay instrument at a special place specified in the instrument, such is deemed a tender of payment [Section 70]

  1. How Made [Section 74]

5-a. Presentation or exhibition of the instrument to the person primarily liable for verification purposes

5-b. If paid, instrument must be delivered to party paying the same

i-3. When Presentment is Dispensed with

  1. In General [Section 82]

1-a. Where after the exercise of reasonable diligence, presentment cannot be made

1-b. Where the drawee is a fictitious person

1-c. Waiver of presentment, express or implied

  1. As to Drawer [Section 79]

2-a. He has no right to expect or require that the drawee or acceptor will pay the instrument

2-b. Examples:

1. Drawer stops payment of the check

2. Drawer’s bank balance is less than amount of the check he issued

3. Drawer committed fraud by issuing check knowing that he has no funds to meet it

2-c. Effect: Drawer becomes liable to the instrument without need of presentment for payment

3. As to Indorser [Section 80]

3-a. Instance: Where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented

3-b. Effect: Indorser becomes liable to the instrument without need of presentment for payment

i-4. When Delay is Excused

1. Due to circumstances beyond the control of the holder

2. Delay is not imputable to holder’s default, misconduct or negligence [Section 81]

J. DISHONOR BY NON-PAYMENT

j-1. Basic Considerations

1. When Instrument Dishonored by Non-Payment [Section 83]

1-a. When duly presented for payment but refused or cannot be obtained

a. When a party primarily liable refuses to pay

b. When party primarily liable expresses willingness to pay but has no available money or funds

1-b. Presentment is excused and the instrument is overdue and unpaid

2. Effect – An immediate right of recourse to all parties secondarily liable on the instrument accrues to the holder [Section 84]

j-2. Notice of Dishonor [Bar, 1952; Bar, 1984; Bar, 1994; Bar, 1996]

1. By whom Given [Section 90]

1-a. Holder

1-b. Agent of the holder [Section 94]

1-c. Any party secondarily liable notified by the holder

1-d. Agent of any party secondarily liable notified by the holder [Section 91]

2. To Whom Given

2-a. General –

1. Persons secondarily liable

2. Agents of persons secondarily liable [Section 97]

2-b. Special Cases –

1. Party who is dead [Section 98]

a. Personal representative

b. If none, last residence or last place of business of decedent

2. Partners [Section 99]

a. Any one of the partners even if there has been a dissolution

b. Any surviving partner if one is dead

3. Persons Jointly Liable [Section 100]

a. Each of them

b. Except when one is authorized by the other

4. Bankrupt [Section 101]

a. Insolvent party himself

b. His trustee or assignee

  1. When Notice Must be Given [Section 102]

3-a. On the following day after instrument is dishonored [Section 103]

3-b. Unless notice is excused

4. Where Notice is Given

4-a. Parties reside in same place [Section 103]

1. If given in place of business, before close of business hours

2. If given in residence, before usual hours of rest

3. If given by mail, post office

4-b. Parties resident in different places [Section 104]

5. Form of Notice [Section 96]

5-a. Either oral or in writing

5-b. Either personally or by mail

j-3. When notice dispensed with [Section 112]

1. It cannot be given to parties secondarily liable

2. It does not reach the parties sought to be charged

j-4. When notice excused

1. As to Drawer [Section 114]

1-a. Drawer and drawee are the same person

1-b. Drawee is a fictitious person or person not having the capacity to contract

1-c. Drawer is a person to whom the instrument is presented for payment

1-d. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument

1-e. Drawer has countermanded payment

2. As to Indorser [Section 115]

2-a. Drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that fact at the time of his indorsement

2-b. Indorser is the same person to whom the instrument is presented for payment

2-c. Instrument was made or accepted for his accomodation

K. PAYMENT FOR HONOR

k-1. Basic Considerations

1. Definition – It is the payment of a bill of exchange which has been previously dishonored for non-payment and protested for non-payment by any person for the honor of the drawer or any indorser [Section 171]

2. Requisites

2-a. Bills has been previously protested for non-payment

2-b. Notice of dishonor has been given to parties secondarily liable

2-c. Payment for honor must be attested by a Notarial Act appended to the protest or form an extension to it [Section 172]

3. Preference – If two or more persons offer to pay a bill for the honor of different parties, the person whose payment will discharge most parties to the bill shall be given preference [Section 174]

k-2. Procedures

1. After bill has been protested for non-pament, any person who desires to pay the instrument must go to a Notary Public and declare that he is paying for honor

2. Declaration must state that payor is paying for honor and indicates name of the party for whose honor is he paying [Section 173]

  1. Declaration is recorded by the Notary Public under seal in the protest itself or in a separate instrument appended to the protest
  2. After such declaration, the payor for honor will notify the party for w


  3. hose honor he is paying within a reasonable time
  4. Upon payment, payor for honor is entitled both the bill itself and the protest [Section 177]

k-3. Effects

  1. If formalities are followed

1-a. All parties subsequent to the party for whose honor it is paid are discharged

1-b. Payor for honor is subrogated for and succeeds both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter [Section 175]

1-c. If holder refuses to receive payment, he loses his right of recourse against any party who would have been discharged by the payment for honor [Section 176]

  1. If fornalities are not strictly followed, payment will not operate as payment for honor, but a mere voluntary payment. Payor acquires only the rights under Articles 1236 and 1237 of the New Civil Code
L. DISCHARGE

l-1. Grounds for Discharge of Instrument [Section 119]

  1. Payment in due course

1-a. By Whom

1. By or on behalf of the principal debtor

2. By the party accommodated, where instrument is made or accepted for accommodation

1-b. When: At or after the maturity of the instrument

1-c. To Whom

  1. Holder thereof
  2. His authorized representative [Section 88]

1-d. Conditions

1. In good faith

2. Person making the payment has nonotice of defect in his title [Ibid]

2. Intentional cancellation thereof by the holder

  1. Any other act which will discharge a simple contract for the payment of money

3-a. Condonation or remission such as the voluntary surrender of instrument by the holder to person primarily liable without

3-b. Rescission of the contract for which the negotiable instrument has been issued

3-c. Renunciation [Section 122]

1. By the Holder

2. In favor of any party to the instrument

a. Person primarily liable

1. Must be absolute and unconditional

2. Made at or after maturity of the instrument

3. Instrument is discharged

b. Person secondarily liable -

1. Before, at or after maturity of the instrument

2. Party renounced and all parties subsequent to him are discharged from liability

3. Must be in writing unless instrument is delivered to person primarily liable

3-d. Compensation

3-e. Novation

3-f. Prescription

  1. Merger or confusion such as when the principal debtor becomes the holder of the instrument at or after maturity in his own right

l-2. Discharge of Persons Secondarily Liable [Section 120]

  1. Any act which discharges the instrument
  2. Intentional cancellation of drawer or indorser’s signature by the holder [see Section 48]

2-a. Not applicable if cancellation is unintentional, through mistake or fraud or without the authority of the holder

2-b. Burden of proof lies on the party who alleges cancellation [Section 123]

  1. Discharge of a prior party
  2. Valid tender of payment made by a prior party
  3. Release of the principal debtor unless holder’s right of recourse against party secondarily liable is expressly reserved
  4. Any agreement binding upon the holder to extend the time of payment [Section 85] or postpone holder’s right to enforce the instrument, unless made with the assent of the party secondarily liable or right of recourse is expressly reserved

l-3. Rights of Party Making the Payment

  1. If Person Primarily Liable

1-a. Right to receive the instrument

1-b. Instrument itself is discharged

  1. If Person Secondarily Liable [Section 121]

2-a. Right to collect from prior parties

2-b. Right to negotiate instrument to new parties (but not subsequent indorsers)

2-c. Right to strike out his own and subsequent indorsements

  1. Instrument is Discharged and cannot be Re-negotiated:

3-a. Where instrument is payable to the order of a third person and was paid by the drawer

3-b. Where instrument was made or accepted for accommodation and has been paid by the party accommodated

PREPARED BY:

ATTY. HENRY C. FILOTEO, CPA

Professor

INSURANCE LAW

Course Outline

A. BASIC PRINCIPLES

  1. Insurance Defined

1-a. Definition – Agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability

1-b. Limitation – Excludes life insurance which is a contract upon condition, not one of indemnification

  1. Laws Applicable

2-a. Main Law – Insurance Code (P.D. 612)

2-b. Suppletory Laws

1. Civil Code of the Philippines (Arts. 789, 2011-2012)

2. GSIS Law

3. SSS Law

4. Act 2573 (Mutual Insurance on Work Animals)

  1. RA 656 (Property Insurance Law)
  2. RA 3124 (Industrial Life Insurance)
  3. PD 317 (Insurance Cooperatives)
  4. PD 1461 (Crop Insurance)
  1. Implementing Office – Insurance Commissioner
  1. Jurisdiction

4-a. Insurance Commissioner

1. Adjudicate claims/complaints for amounts not exceeding P100,000/claim

  1. Liability of Reinsurer
  2. Liability under Suretyship
  3. Liability of a Mutual Benefit Association
  4. Counterclaims against Insured
  5. Cross-claims against co-party
  6. Third-party claims by insurer against another

4-b. Regular Courts

  1. Claims above 100T but less than 300T – Municipal Trial Court
  2. Claims above 300T – Regional Trial Court
  3. see Republic Act 7691

5. Classes of Insurance

5-a. Life Insurance

1. Classifications

    1. Individual [Secs. 179-183; 227, I.C.]
    2. Group Life [Secs. 50; 228, I.C.]
    3. Industrial Life [Secs. 229-231, I.C.]
  1. Kinds –
    1. Ordinary – payment every year until death
    2. Limited Payment Policy – payment for a limited period. If the insured dies, his beneficiary claims. If he survives, no claim
    3. Endowment Policy – payment for a limited period. If the insured dies, his beneficiary claims. If he outlives policy, he claims.
    4. Term Insurance – payment once that covers a specified period. If insured dies, beneficiary claims. If he survives, no claim.

5-b. Non-Life Insurance

  1. Marine [Secs. 99-166, I.C.]
  2. Fire [Secs. 167-173, I.C.]
  3. Casualty [Sec. 174, I.C.]

5-c. Suretyship and Bonding [Secs. 175-178, I.C.]

6. Characteristics of Insurance Contract

6-a. Aleatory

6-b. Voluntary

6-c. Executory

6-d. Compensatory

6-e. Personal

6-f. Perfect good faith

6-g. Synallagmatic

7. Construction of Insurance Contracts

7-a. Laws/Jurisprudence

  1. California Insurance Code
  2. Statute is adopted along with its Construction

7-b. Provisions/Stipulations

  1. Contract of Adhesion
  2. Article 1377, Civil Code

7-c. Cases:

1. Constantino vs. Asia Life [87 Phil. 248]

2. Insular Life vs. Ebrado [80 SCRA 181]

3. Del Rosario vs. Equitable Insurance [118 Phil. 349]

B. ELEMENTS OF INSURANCE CONTRACT

  1. Consent

1-a. Meeting of minds

1-b. Concurrence of offer and acceptance both as to the object and consideration

1-c. Cognitive theory

2. Object

2-a. Assumption of loss, damage or liability by the insurer [Art. 1174, Civil Code]

2-b. What May be Insured Against [Section 3, I.C.]

  1. Contingent Event
    1. Future
    2. Resulting to loss, damage or liability
  2. Unknown Event
    1. Past, unknown to the parties
    2. Resulting to loss, damage or liability

2-c. Kinds of Insurable Risks

  1. Personal risks – life, health, accident
  2. Property risks – loss, damage
  3. Liability risks – liability for injury to third persons

3. Cause or Consideration – Payment of Premium

4. Insurable Interest – necessary to prevent contract from being waggering

C. PARTIES TO INSURANCE CONTRACT

  1. Insurer

1-a. Definition [Sec. 184, I.C.]

1-b. Authorized to Transact Insurance Business [Sec. 6, I.C.]

1-c. Penal Provisions [Secs. 299; 419, I.C.]

  1. Insured

2-a. Capacity to enter into contract

2-b. Insurable Interest

2-c. Not a public enemy [Section 7, I.C.]

1. Public enemy refers to a nation where the Philippines is at war

2. It includes every citizen or subject of such nation [Filipinas Cia de Seguros vs. Christian Huenefeld & Co., 89 Phil. 54]

3. Beneficiary

3-a. Rule

  1. Designation of beneficiary is discretionary
  2. Absence, payable to estate of insured

3-b. Kinds of Beneficiary –

  1. As to Succession
    1. Primary beneficiary who is first entitled to the proceeds of insurance
    2. Secondary beneficiary who is entitled to the proceeds of insurance in case the primary beneficiary dies

2. As to Revocability

a. Revocable – the insured reserves the right to make future changes in the designation

b. Irrevocable – such beneficiary cannot be changed by the insured or other person without the consent of the beneficiary

3-c. In Life Insurance

1. Designation of beneficiary is akin to donations and subject to proscriptions on donations [Art. 739, Civil Code]

2. Grounds for Forfeiture – if he participated in willfully bringing about the death of insured as

    1. Principal
    2. Accomplice
    3. Accessory [Sec. 12, I.C.]

3. Designation of disqualified beneficiary is void but does not avoid insurance

3-d. In Property Insurance, beneficiary is required to have an Insurable Interest in the property insured [Sec. 18, I.C.]

D. INSURABLE INTEREST

  1. Definition/Elements

1-a. Relation, connection or concern of one person to another, a thing or property

1-b. He derives pecuniary advantage/benefit from its preservation

1-c. He suffers pecuniary loss or damage from its destruction, termination or injury

  1. Distinctions

2-a. Pecuniary vs. non-pecuniary

2-b. Partial Loss

2-c. Amount of insurance coverage

  1. Life – no limit
  2. Property – extent to which the insured might be damnified by the loss or injury [Section 17, I.C.]

2-d. Incontestability clause

2-e. Existence

  1. Life – at the time insurance takes effect
  2. Property – at the time insurance takes effect and at the time of loss [Section 19, I.C.]

2-f. Subrogation

  1. Insurable Interest in Life

3-a. Coverage – In the life and health of

1. Himself, his spouse or his children;

2. Any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;

3. Any person under legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and

4. Any person upon whose life any estate or interest vested in him depends [Section 10, I.C.]

3-b. When considered property – Outside himself, spouse or children, insurable interest must be pecuniary

  1. Insurable Interest in Property

4-a. Definition – any interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might damnify the insured [Sec. 13, I.C.]

4-b. Coverage

  1. Existing interest
  2. Inchoate interest founded on existing interest
  3. Expectancy, coupled with an existing interest out of which expectancy arises [Sec. 14, I.C.]

4-c. Inchoate Rights vs. Expectancy

1. Right is inchoate when the transmission of the property depends on a period or an event that is certain to occur

2. Right is expectancy when the realization of income or acquisition of right is conditional

5. Change of Interest

5-a. General Rule: Suspends policy [Sections 20 and 55, I.C.]

5-b. Exceptions –

  1. After occurrence of injury
  2. One or more distinct things separately insured under one policy
  3. By will or succession
  4. Transfer of interest from one partner, joint owner, co-owner to others [Sections 21-22, I.C.]
  5. Insurance is for the benefit of whomsoever during the continuance of the policy [Section 57, I.C.]

E. POLICY

  1. Types of Insurance Contract

1-a. Policy – written instrument in which a Contract of Insurance is set forth [Section 49, I.C.]

1-b. Binding Receipt – acknowledgment that branch received premium and accepted application subject to processing by Head Office [Great Pacific Life vs. Court of Appeals, 89 SCRA 543]

1-c. Cover Note – receipt whereby insurer agrees to contract good for 60 days pending issuance of a regular policy [Section 52, I.C.]

  1. Kinds of Policy

2-a. Open Policy – value of thing insured is determined at the time of loss [Section 60, I.C.]

2-b. Valued Policy – value of property or life insured is determined at the time insurance is taken [Section 61, I.C.]

2-c. Running Policy – contemplates successive insurance, object defined from time to time [Section 62, I.C.]

  1. Contents of Policy

3-a. Parties

3-b. Amount of insurance

3-c. Amount of Premium

3-d. Property or life insured

3-e. Insurable interest

3-f. Risks insured against

3-g. Insurance period [Section 51, I.C.]

  1. Riders in Policy

4-a. Defined – printed or typed stipulation contained on a slip of paper attached to policy forming an integral part thereof

4-b. Requirements for Validity

  1. Title or name of rider mentioned in the policy
  2. Counter-signed by the insured
  3. If insured prepared the rider or made upon his request, no signature necessary

4-c. Construction

1. In case of conflict between policy and rider, rider prevails

2. Reason: It is a more deliberate _expression of parties’ agreement

5. Renewal of Policy

5-a. Non-life Insurance – the insured has the right to renew insurance contract under same terms and conditions unless the insurer sent notice not to renew within 45 days prior to its expiration

5-b. Life Insurance –

6. Double Insurance and Over-Insurance

6-a. Double Insurance

1. Defined – Exists where the same person is insured by several insurers separately in respect to the same subject and interest [Section 93, I.C.]

2. Requisites:

    1. One and the same insured
    2. One and the same insurable interest
    3. One and the same risk or peril insured against
    4. Two or more insurers separately

3. Prohibitions

a. Double insurance may be prohibited under a policy

b. Purpose is to prevent over-insurance and thus avert the perpetuation of fraud [Pioneer Insurance and Surety Corp. vs. Yap, 61 SCRA 426]

4. Effects of Double Insurance

a. Insured can recover, before or after the loss, from the insurers the excess premium paid

b. In case of loss, insurers are liable severally to the extent of their coverage. Insured can recover from any of the insurers to the extent of his loss

6-b. Over-Insurance

1. Defined – There is over-insurance when the amount of the insurance is beyond the value of the insured’s insurable interest

2. Distinctions with Double Insurance

a. Double insurance does not always result to over-insurance

b. Double insurance involves two or more insurers while there may be over-insurance with one insurer only

6-c. Over-Insurance by Double Insurance [Section 94, I.C.]

7. Reinsurance

7-a. Defined – one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance [Section 95, I.C.]

7-b. Distinction with Double Insurance

1. In double insurance, original insurer remains as insurer; in reinsurance, the original insurer becomes an insured;

2. In double insurance, subject is property (same interest); in reinsurance, subject is the original insurer’s risk (different interest);

3. In double insurance, insured is the party to all the contracts; in reinsurance, insured has no interest therein

7-c. Principles

1. Original insured has no interest in reinsurance [Section 98, I.C.]

2. Insurer is duty-bound to –

a. Communicate to reinsurer all the representations of the original insured and all the knowledge and information the insurer possesses material to the risk

b. Exception: Automatic reinsurance treaty being a self-executing agreement between two or more insurance companies whereby one will reinsure part of any line of insurance taken by the other [Section 96, I.C.]

2. Reinsurer is entitled to avail of every defense which the insurer can interpose against the person originally insured

3. If reinsurance is one of indemnity for losses suffered by the insurer, original insured has no interest in the reinsurance contract [Artex Development Co. vs. Wellington Insurance Company, 51 SCRA 352]

  1. If reinsurance contains a provision whereby the reinsurer binds himself to pay the insured for any loss which the insurer may become obliged to pay under the original policy, then the reinsurer becomes liable to the insured who may go against both the insurer and the reinsurer.

F. PREMIUM

1. Premium defined – agreed price for assuming and carrying the risk

2. Effects of Non-payment of Premium

2-a. First Premium

1. Prevents contract from becoming binding notwithstanding acceptance of the application [Constantino vs. Asia Life Insurance Co., 87 Phil. 248;

2. But the non-payment of the balance of the premium does not avoid the policy [Philippine Phoenix Surety & Insurance, Inc. vs. Woodworks, Inc., 20 SCRA 1270]

3. Acknowledgment in the policy of receipt of premium is conclusive evidence of payment [Section 78, I.C.]

2-b. Subsequent Premium

1. Does not ipso facto avoids the policy

2. It only entitles the insurer to cancel the contract of insurance [Section 64, I.C.]

3. Return of Premiums

3-a. Total Refund

1. In property insurance where no part of interest in thing insured was exposed to peril [Section 79(a), I.C.]

2. Contract is voidable due to fraud or misrepresentation by insurer [Section 81, I.C.]

3. Contract is voidable because of the existence of facts of which the insured was ignorant without his fault [Ibid]

  1. Insurer never incurred liability [Ibid]
  2. Rescission is granted due to the insurer’s breach of contract

3-b. Partial Refund

1. Insurance is for a definite period and insured surrenders policy prior to expiration of such period [Section 79(b), I.C.]

2. Pursuant to a short-period clause provision in the policy

3. In case of Over-Insurance

3-c. Cases:

1. Great Pacific Life Insurance Corporation vs. Court of Appeals [184 SCRA 501]

2. Sison vs. Sun Life Assurance Company of Canada [47 O.G. 1954 (1949)]

G. DEFENSES

  1. Defenses That Avoids Policy – Insurer need not cancel the policy. Any of these grounds ipso facto negates a valid insurance contract. Thus –

1-a. Lack of any of the essential requisites of contract

1. Consent, through the vices of consent

2. Insurable interest

3. Non-payment of first premium except when there is a written acknowledgment thereof [Sections 77 and 78, I.C.]

1-b. Prescription – failure to commence an action from accrual of the right of action, that is, from denial of claim by the insurer

1. If no stipulation, 10 years [Art. 1144, Civil Code]

2. If there is stipulation, same valid but in no case that it shall be less than 1 year [Section 63, I.C.]

1-c. Violation of double insurance clause provision in a policy [Pioneer Insurance and Surety Corporation vs. Yap, 61 SCRA 426]

  1. Defenses that Give Ground to Cancel Policy – Insurer must first cancel the policy prior to the commencement of an action thereon [Section 48, I.C.]. If the policy is cancelled, no recovery can be made by the insured or his beneficiary

2-a. Grounds for Cancellation

  1. Concealment [Section 27, I.C.]

a. Defined – Neglect to communicate that which a party knows and ought to communicate [Section 26, I.C.]

b. Characteristics –

1. This is an omission

2. Must be shown to be material, that is, affects insurer’s decision to enter into contract, in estimating degree of risk or fixing the premium

3. Within the knowledge of insured but he makes no warranty

4. May be intentional or unintentional

  1. Misrepresentation [Section 45, I.C.]

a. Defined – oral or written statement of a fact or condition affecting risk made by insured to insurer tending to induce the insurer to assume the risk

b. Characteristics –

  1. This is commission
  2. Inducing factor to a contract
  3. Must be shown to be material by the insurer
  4. Insured makes no warranty
  5. Always intentional
  6. Requires substantial compliance
  7. May be waived by acceptance of premium despite knowledge thereof [Section 45, I.C.]
  1. Violation of Warranty

a. Warranty Defined – Statement in a policy of a matter relating to the person or thing insured or to the risk as a fact

b. Characteristics –

1. This is commission

2. It is part of the contract

3. Presumed material and requires strict compliance

4. Violation of a material warranty entitles either party to rescind while violation of an immaterial warrants does not avoid policy unless expressly declared [Sections 74 and 75, I.C.]

c. Kinds of Warranty –

  1. Express – stated in the policy itself as a fact [Section 71, I.C.]
  2. Implied – derived from the very nature of the contract
  3. Affirmative – asserts the existence of fact or condition at the time it is made
  4. Promissory – referring to future acts partaking the nature of a condition subsequent [Section 72, I.C.]

d. Cases:

1. Young vs. Midland Textile Ins. Co. [30 Phil. 617]

2. Qua Chee Gan vs. Law Union & Rock Insurance Co. [90 Phil. 85]

3. General Insurance & Surety Corp. vs. Ng Hua [106 Phil. 1117]

  1. Non-payment of subsequent premium
  2. Conviction of a crime arising out of acts increasing the hazard insured against
  3. Discovery of fraud or material misrepre-sentation
  4. Discovery of willful or reckless acts or omissions increasing the hazard insured against
  5. Physical changes in the property insured which resulted in property becoming uninsurable
  6. Determination of Insurance Commis-sioner that the continuation of policy violates or places the insurer in violation of Insurance Code [Section 64, I.C.]

2-b. Procedures

  1. Occurrence of a valid ground after effectivity of the policy
  2. Written notice delivered to insured
    1. At the address stated in policy
    2. Stating the valid ground
  3. Furnish facts to insured upon request [Section 65, I.C.]

2-c. Cases:

1. Saura Import-Export Company vs. Philippine International Surety [8 SCRA 143]

2. Malayan Insurance Company vs. Arnaldo [154 SCRA 672]

3. Paulino vs. Capital Insurance [105 Phil. 1315]

3. Grounds to Defeat Recovery by Insured

3-a. Loss, damage or injury caused by an excepted risk [Section 86, I.C.]

1. Losses Insurer Liable [Sections 84-86, I.C.]

a. Loss where the proximate cause is the insured peril [Section 84, I.C.]

b. Loss caused by efforts to rescue the thing insured from insured peril [Section 85, I.C.]

c. Loss caused by a peril not insured against to which the thing insured was exposed in the course of its rescue from the insured peril [Section 85, I.C.]

    1. Loss, the immediate cause of which was the insured peril if the proximate cause is not an excepted peril [Section 86, I.C.]
    2. Loss caused by the negligence of the insured [Section 87, I.C.]

2. Losses Insurer Not Liable

a. Loss where the remote cause is an insured peril [Section 84, I.C.]. Remote cause is one where the effect is uncertain, vague or does not necessarily follow [Black’s Law Dictionary, p. 1164].

b. Loss where the proximate cause is an excepted peril even if the immediate cause is not an excepted peril [Section 86, I.C.]

    1. Loss where the proximate cause is not an excepted peril but the immediate cause is an excepted peril
    2. Loss caused by the willful act or through the connivance of the insured [Section 87, I.C.]

3-b. Lack of notice/proof of loss [Section 88, I.C.]

1. Conditions

    1. Notice of loss must given to insurer
    2. When required by policy, a preliminary proof of loss must likewise be given
    3. Cases:

1. Bachrach vs. British American Assurance [17 Phil. 455]

2. Malayan Insurance vs. Arnaldo [154 SCRA 672]

2. Waiver of Insurer to Notice/Proof of Loss

a. Insurer recognizes liability

b. Insurer denies liability under policy

c. Failure to object [Section 90, I.C.]

d. Cases:

1. Pacific Timber vs. Yap, [112 SCRA 199]

2. Fernandez vs. National Life Insurance Company [105 Phil. 59]

3-c. Filing of fraudulent claim

1. Effect – Operates to defeat recovery upon any part of the policy [Tuason vs. North China Insurance Co., 47 Phil. 14]

2. Cases:

a. An honest overvaluation is not a fraudulent claim [Carreron vs. Agcaoili, L-11156, 23 February 1961]

b. Claims more than 50% of actual loss is in bad faith and/or fraudulent. Thus, the insured cannot recover [Tan It vs. Sun Insurance, 51 Phil 212]

3-d. Suicide

  1. Rules [Section 180-A, I.C.]

a. Insurer liable only after policy has been in force for a period of two (2) years from date of issue or last reinstatement unless policy provides a shorter period

b. Suicide in state of insanity is always compensable

  1. Exceptions – The insurer is not liable if suicide occurred within two (2) years after policy issuance of policy or its last reinstatement

3-e. Grounds for cancellation of insurance contract may be invoked to defeat recovery where the insurer failed to cancel the contract prior to the commencement of an action thereon by the insured [Argente vs. West Coast Life, 51 Phil. 725].

H. MARINE INSURANCE

  1. Two Major Divisions of Transportation Insurance

1-a. Ocean Marine Insurance – provides protection for

1. Ships or hulls

2. Goods or cargoes

3. Earnings such as freightage, passage, profits and commissions [Sections 102, 105, I.C.]

4. Liability incurred by owner or any party interested in or responsible for the insured property by reason of perils of the sea

1-b. Inland Marine Insurance – provides protection for

  1. Property in transit
  2. Bailee’s (persons having temporary custody of the goods or property of others such as carriers, warehouseman, laundrymen, keepers of garage) liability
  3. Fixed transportation property – covering bridges, tunnels and other instrumentalities of transportation and communication
  4. Floater – insurance on property wherever they may be located

2. Perils of the Sea

2-a. Principle: The insurer undertakes to insure against perils of the sea, against perils of the ship. For perils of the sea, the insured can hold the insurer liable. For perils of the ship, the injured party must look to the shipowner for redress.

2-b. Coverage –

1. Unusual violence or extraordinary action of wind and waves

2. Other extraordinary causes connected with navigation

2-c. Perils of the Ship – loss in the ordinary course of events resulting from

  1. Natural and inevitable action of the sea
  2. Wear and tear of the ship
  3. Negligent failure of the shipowner to provide the vessel with proper equipment to convey cargo under ordinary conditions

3. Insurable Interest of:

3-a. Shipowner –

1. General Rule: His insurable interest on the vessel is up to the extent of its value [Section 100, I.C.]

2. Exceptions:

a. Loan on bottomry

1. Nature – it is a loan secured by vessel payable only if the vessel safely completed a contemplated voyage

2. Liability – In case of loss of the vessel, the shipowner receives no indemnity for loss but acquires immunity from payment of the loan

3. Insurable Interests of Shipowner – Excess of the value of the vessel over the amount of bottomry loan [Section 101, I.C.]

b. Chartered vessels

1. Kinds of Charter Contracts –

a. Affreightment – use of the vessel only, either in whole or in part, which may be: Time charter, that is, for a fixed period of time or a Voyage charter, that is, for a particular voyage

b. Demise or Bareboat – use of the whole vessel including control over navigation and command of its master and crew

2. Insurable Interests – The insurable Interest of the shipowner on the:

a. Vessel – to the extent of the loss which cannot be recovered from the charterer

b. Freightage [Sections 102-103, I.C.]

3-b. Creditor or lender in bottomry – Insurable interest is up to the extent of the loan on bottomry

3-c. Charterer: His insurable interest on the –

a. Vessel – to the extent he is liable to be damnified by the loss of the vessel [Section 106, I.C.]

b. Freightage

3-d. Cargo Owner – over the cargoes and on expected profits on his cargoes

a. When ship is prevented from completing voyage due to peril insured against, liability of insurer continues after cargoes are reshipped [Section 133, I.C.]

b. Insurer is liable for damages, expenses of discharging, storage, reshipment, extra freight and other expenses in saving cargo thus reshipped [Section 134, I.C.]

4. Concealment

4-a. Definition – Failure to disclose any material fact or circumstance which is within or ought to be within the knowledge of one party and of which the other has no actual or presumptive knowledge [Section 107, I.C.]

4-b. Broader Concept – Insured is bound to communicate the following:

1. Facts within his knowledge material to the contract or risk [Section 28, I.C.]

2. Beliefs or opinions of third persons

3. Expectations of third persons [Section 108, I.C.]

4-c. Effects of Concealment

1. General Rule: Entitles insurer to rescind the contract [Section 27, I.C.]

2. Exception: Merely exonerates insurer from loss resulting from the risk concealed –

a. National character of the insured

b. Liability of the thing insured to capture and detention

c. Liability to seizure from breach of foreign laws

    1. Want of necessary documents
    2. Use of false and simulated papers [Section 110, I.C.]

5. Representation

5-a. Definition – Statements made to give information to the insurer and otherwise induct him to enter into the contract

5-b. False Representation

1. Coverage –

a. Material fact with fraudulent intent

b. Material fact with no intent to defraud

c. As to expectation with fraudulent intent [Section 112, I.C.]

2. Effect – Entitles insurer to rescind the contract [Section 110, I.C.]

5-c. Distinguished with Misrepresentation as to other Insurance Contracts -

1. Coverage – The insurer must show that the representations of the insured must be material AND fraudulent [Insular Life Assurance Co. vs. Pineda, 40 O.G. 285]

2. Effect – Entitles insurer to rescind the contract [Section 45, I.C.]

6. Implied Warranties

6-a. Nature – These are warranties which are implied from the very nature of maritime venture. Thus, these would no necessity to have them explicitly mentioned in the contract

6-b. Four implied warranties –

1. Vessel is seaworthy

2. Carriage of documents showing nationality or neutrality when the same are expressly warranted [Section 120, I.C.]

3. Non-deviation from agreed voyage

4. Non-engagement in illegal venture

6-c. Seaworthiness

1. Definition – a Ship is seaworthy when it is reasonably fit to perform the service, and to encounter the ordinary perils of the voyage contemplated by the parties to the policy [Section 114, I.C.].

2. When seaworthiness exists

a. General Rule: At the commencement of the risk [Section 115, I.C.]

b. Exceptions:

1. Time Policy – Vessel must be seaworthy at the commencement of every voyage

2. Transshipment of Cargoes – each vessel upon which the cargo is shipped/transshipped must be seaworthy at the commencement of each particular voyage

3. Voyage Policy that contemplates different stages, the vessel must be seaworthy at the commencement of each stage

3. Criteria in determining seaworthiness

a. Nature of Vessel – must be fit as to repair, equipment, crew, cargoes and other respects to perform the voyage and encounter the ordinary perils of the sea

b. Nature of Voyage

c. Nature of Service – reasonably capable of safely carrying the cargo to its port of destination

d. Cases:

1. Madrigal, Tiangco & Company vs. Hanson, Orth & Stevenson, Inc., 103 Phil. 345

2. Roque vs. Intermediate Appellate Court, 139 SCRA 596

4. Scope of Implied Warranty

a. Seaworthiness must exist at the time of the commencement of the risk

b. There is no implied warranty that vessel will remain seaworthy throughout the voyage

c. If it becomes unseaworthy during the voyage, it is the duty of the master to exercise diligence to make it seaworthy again through avoidance of unnecessary delay in the repair of the defects [Section 118, I.C.]

d. A ship may be seaworthy for purposes of insurance on the ship but may be unseaworthy for purposes of insurance upon the cargo [Section 119, I.C.]. In this case, the insurer of the cargo is not liable [Go Tiaco vs. Union Society of Canton, 40 Phil. 40].

5. Effects of Unseaworthiness

a. At Commencement of the risk – insurer is exonerated from any liability arising from violation of the implied warranty

b. During the voyage and there is unreasonable delay in the repair – only the insurer on ship or shipowner’s interest are exonerated from liability from any loss arising therefrom [Ibid]

6-d. Voyage and Deviation

  1. Course of Voyage –

a. In conformity to the course of sailing fixed by mercantile usage [Section 121, I.C.]

b. If no fixed mercantile usage, the most natural, direct and advantageous way according to the ordinary skill and discretion of the master of the vessel [Section 122, I.C.]

  1. Deviation

a. Defined – any unexcused departure from the regular course or route of the insured voyage or any other act which substantially alters the risk

    1. How Deviation Made –

1. Departure from the course of sailing fixed by mercantile usage [Section 121, I.C.]

2. Departure from the most natural, direct and advantageous route if the course of sailing is not fixed by mercantile usage [Section 122, I.C.]

3. Unreasonable delay in pursuing the voyage [Section 123, I.C.]

4. Commencement of an entirely different voyage [Ibid]

c. Classification of Deviation as to its Cause or Purpose –

  1. Proper deviation

a. Caused by circumstances over which neither the master nor the shipowner has any control;

b. Necessary to comply with a warranty, to avoid peril, whether or not such peril is insured against;

c. Made in good faith and upon reasonable grounds of belief in its necessity to avoid a peril;

d. Made in good faith for the purpose of saving human life or relieving another vessel in distress [Section 124, I.C.]

  1. Improve deviation – all other deviations not specified above [Section 125, I.C.]

d. Effect of Improper Deviation – Insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation [Section 126, I.C.]

7. Loss

7-a. A thing is lost –

  1. When it perishes
  2. Goes out of commercial
  3. Disappears in such away that its existence is unknown or cannot be recovered [Art. 1189, Civil Code]

7-b. Classification of Losses

1. Total Loss, which may either be:

a. Actual loss

b. Constructive Loss

2. Partial Loss – one which is not total [Section 129, I.C.]

7-c. Actual Loss

1. Nature – Exists when the subject matter of the insurance is wholly destroyed, lost or when it is so damaged as no longer to exist in its original character. Complete physical destruction is not necessary to constitute actual total loss.

2. Presumption – a vessel not heard of at all within a reasonable time after sailing or after last seen is presumed actual loss [Section 132, I.C.]

3. Causes of actual total loss

a. Total destruction of the thing insured;

b. Irretrievable loss of the thing by sinking or by being broken up;

    1. Damage to the thing that renders it valueless to the owner for the purpose for which he held it;
    2. Any event which effectively deprives the owner of the possession of the thing insured at the port of destination [Section 130, I.C.]
  1. Effect – Insurer is liable for the whole of the amount insured even without notice of abandonment [Section 135, I.C.]
  1. Cases:

a. PMC vs. Union Insurance Society of Canton, 42 Phil. 378

b. Pan Malayan Insurance Corporation vs. FAO, 201 SCRA 382

7-d. Constructive Total Loss

1. Nature – One in which the loss, although not actually total, is of such a character that the insured is entitled, if he thinks fit, to treat it as a total loss by abandonment [Section 131 in relation to Section 139, I.C.].

2. Principles –

a. There is only a constructive total loss if there is abandonment.

b. If there is constructive total loss without abandonment, loss is treated as partial loss only [Section 155, I.C.] EXCEPT when the insurer pays for an actual total loss [Section 147, I.C.]

c. Freightage cannot be abandoned unless the vessel is also abandoned.

3. Grounds of Constructive Total Loss -

a. More than ¾ in value is actually loss or would have to be expended to recover it from the peril

b. At least ¾ in value is reduced

c. Contemplated voyage of vessel cannot be lawfully performed without incurring either an expense of more than ¾ value of the thing insured or a risk a prudent man would not take under the circumstances

d. Cargo cannot be forwarded without incurring either an expense of more than ¾ of its value or a risk a prudent man would not take under the circumstances [Section 139, I.C.]

4. Abandonment

a. Defined – Act of the insured by which, after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured [Section 138 I.C.]

b. Requisites –

1. Constructive total loss [Section 139, I.C.]

2. Actual relinquishment by insured of thing insured to the insurer [Section 138, I.C.]

3. Absolute, that is, not partial nor conditional [Section 140, I.C.]

4. Within a reasonable time after reliable information of the loss [Section 141, I.C.]

5. Basis of abandonment is factual; otherwise, it is ineffectual [Sections 142 and 145, I.C.]

6. Notice of abandonment to the insurer, either oral or written. In case of oral notice, written notice must be given within 7 days from such oral notice [Section 143, I.C.]

7. Notice of abandonment must be explicit specifying the particular cause [Section 144, I.C.]

c. Effects –

1. Interest of the insured on the subject matter of insurance is transferred to the insurer who becomes entitled to all the rights which the insured possessed in the property insured [Section 146, I.C.]

2. Agents of the insured become the agents of the insurer, the latter becoming responsible for all their in connection with the insured property and for all the expenses and liabilities in respect thereto [Section 148, I.C.]

3. Insurer becomes liable as if there was an actual total loss

5. Acceptance of Abandonment

a. How Made –

  1. Express, which may either oral or written
  2. Implied from the conduct of insurer such as silence for an unreasonable length of time from notice [Section 150, I.C.]

b. Effects –

1. Conclusive upon the parties

2. Irrevocable unless the ground upon which the abandonment is made proves to be unfounded [Section 152, I.C.]

  1. If abandonment is properly made, acceptance of insurer is not necessary. Rights of insured cannot be prejudiced by refusal of insurer to accept [Section 149, I.C.]

6. Cases –

a. Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459

b.

7-e. Average

1. Defined – Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo or both

2. Kinds of Averages –

a. Gross or General – include damages and expenses which are deliberately caused by the master of the vessel or upon his authority in order to save the vessel, cargo or both from a real and known risk

b. Simple or Particular – include damages and expenses caused to the vessel or to her cargo which have not inured to the common benefit and profit of all the persons interested in the vessel and cargo

3. Liability for Averages –

a. Gross or General – loss is borne equally by all the interests concerned in the venture [Section 136, I.C.]. Principle: sacrifice some to save the rest.

1. Rule : Insurer is liable to insured with right to subrogation [Section 165, I.C.]

2. Exceptions: Where insured waived or neglected his right to contribution or after separation of the interest liable to contribution [Ibid]

b. Simple or Particular –

1. General Rule : Insurer is liable to the loss suffered by the owner of the cargo or of the vessel, as the case may be

2. Exception : If the policy excepted simple or particular average.

3. Exception to Exception: Insurer is liable to simple average even if excluded by policy if the insured is deprived of possession of property insured at the port of destination [Section 136, I.C.]

4. Requisites of General Average –

a. Common danger to vessel or cargo

b. Deliberate sacrifice of part of vessel or cargo

c. For common safety and benefit of all

d. Made by master or upon his authority

    1. Not caused by party asking for contribution
    2. Successful, that is, resulted in the saving of the vessel and/or cargo and

g. Necessary [Jarque vs. Smith Bell and Company, 56 Phil. 758]

8. Measure of Indemnity

8-a. Kinds of Marine Insurance Policies

  1. Valued Policy – Value of the property insured is determined at the time the insurance is taken
    1. Rules:

1. Valuation in the policy is conclusive upon the parties

2. Exception : Insurer may show real value if the thing insured was hypothecated by bottomry or respondentia before it was insured without the knowledge of the person who procured the insurance [Section 156, I.C.]

    1. Total Loss –

1. Valuation in policy is basis of recovery by the insured

2. In loss of profits, loss is conclusively presumed from loss of the property of which the profits are expected to arise [Section 160, I.C.]

3. In loss of cargo, valuation is followed except where only part of the cargo or freightage is exposed to peril, the valuation applies only in proportion to such part [Section 159, I.C.]

c. Partial Loss –

1. If a property is insured less than its value, the insured becomes a reinsurer for the difference [Section 157, I.C.]

FORMULA: Partial Loss/Value of Property x Insurance

2. In loss of profits, recovery is based on the portion of such profits as the value of the property lost bears to the value of the whole property [Section 158, I.C.]

FORMULA: Value of Property lost/Value of the Whole Property x Profits

  1. Open Policy – Value of property is left to be ascertained at the time of loss
    1. Rules in Valuation in Case of Total Loss [Section 161, I.C.]:

1. Value of ship is its value at the beginning of the risk including articles or charges adding to its permanent value or necessary to prepare it for voyage plus the insurance

2. Value of cargo is its actual cost to the insured when loaded, in the absence, the FMV thereof, plus the insurance in both cases

3. Value of freightage is the gross freightage exclusive of primage, plus insurance

b. In case of partial loss –

1. If a property is insured less than its value, the insured becomes a reinsurer for the difference [Section 162, I.C.]

FORMULA: Loss In Value/Value before Loss x Insurance

2. In case of general average, liability of insurer is limited to the proportion which the general average bears to the ratio of the insurance over the total value of properties insured [Section 165, I.C.]

FORMULA: Insurance/total value of Properties covered by Insurance x value of property lost thru general average

3. Vessel –

a. Anchors – full liability of the insurer

b. Cost of the old materials is deducted towards the cost of the new materials. Insurer is liable for only 2/3 of the remaining cost of repairs after such deduction [Section 166, I.C.]

I. FIRE INSURANCE

I. Definition – Contract of indemnity by which the insurer agrees to indemnify the insured against loss or damage arising from fire.

2. Extended Coverage –

2-a. When Applicable – applies when explicitly extended by policy

2-b. Scope of Extension –

1. Lightning, windstorm, tornado, earthquake and other risks [Section 167, I.C.]

2. Not only to direct, but also to indirect and consequential losses like:

a. Physical damage – caused to other property which is not covered by the basic insurance policy

b. Loss of earnings due to interruption of business due to damage to property insured

c. Extra expense or additional charges incurred by the insured following the damage or destruction of property insured

3. Alterations –

3-a. Kinds of Alteration

  1. Alteration Entitling Insurer to Rescind Contract [Section 168, I.C.]
    1. Use or condition of thing is specifically limited or stipulated in policy.
    2. Use or condition is altered
    3. Alteration is without consent of insurer
    4. Alteration is made by means within the control of the insured
    5. Alteration increases the risk

2. Alteration Not Affecting Insurance [Section 169, I.C.]

a. Alteration not affecting the risk

    1. Alteration not limited or specified in the policy [Section 170, I.C.]
    2. Alteration with the consent of the insurer, there being novation
    3. Alteration beyond the control of the insured

3-b. Measure of Indemnity

1. Valued Policy –

a. Valuation of property at the time insurance is taken is conclusive to the parties [Section 171, I.C.]

b. If property is insured for less than its value, there is no co-insurance unless provided in the policy

2. Open Policy – Valuation of property is made at the time of loss which is the cost to replace the property insured in the condition immediately preceding the peril insured against [Ibid]

3-c. Other Considerations

1. Clauses Common to Fire Insurance

a. Co-insurance clause

b. Option to Rebuild clause

2. Limitations to Transfer

a. Applies to pledge, hypothecation or other transfer of fire insurance policy or rights thereunder

b. In favor of any person or company acting as agent or otherwise representing the insurer in so far as it affects the creditors of the insured [Section 173, I.C.]

3. Kinds of Fire

a. Friendly fire

b. Hostile or enemy fire

3-c. Cases –

1. Galian vs. State Assurance Company, 29 Phil. 413

2. General Insurance vs. Ng Hua, 106 Phil. 117

J. CASUALTY INSURANCE

I. Definition – Includes all forms of insurance against loss or liability arising from accident or mishap which are not within the scope of other types of insurance, namely: marine, fire, suretyship and life [Section 174, I.C.]

2. Terminologies –

2-a. Accident or mishap means an event that takes place without one’s foresight or expectation. It proceeds from an unknown cause, or an unusual effect of a known cause, and therefore not expected.

2-b. Liability is the financial responsibility of one party to another as a consequence of doing or failing to do something. This may arise from negligence or a contractual obligation.

3. Two (2) General Divisions of Casualty Insurance –

3-a. Loss/Damage Insurance – insurance against specified perils which may bring about loss or damage to the person of the insured or to his property like:

1. Personal accident

2. Motor vehicle loss or damage

3-b. Liability Insurance – insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to others or damage to their property such as Employees’ Compensation and Motor vehicle liability.

4. Insurable Liability – those arising from commission of quasi-delict and contractual obligation are insurable. If liability arises from a crime, qualify:

4-a. If commission is accidental, covered.

4-b. If deliberate, not covered.

5. Cases:

5-a. Villacorta vs. Insurance Commissioner, 100 SCRA 470 [Authorized Driver Clause vs. Theft]

5-b. Association of Baptists vs. Fieldman’s Insurnace Co., 124 SCRA 618 [Theft and Necessity of Conviction]

5-c. Stokes vs. Malayan Insurance Company, 124 SCRA 766 [Driver’s License of Aliens]

5-d. Palermo vs. Pyramid Insurance Company, 161 SCRA 677 [Applicability of Authorized Driver Clause]

5-e. CCC Insurance Corporation vs. Court of Appeals, 31 SCRA 264 [Presumption on License]

5-f. Pan Malayan Insurance Corporation vs. Court of Appeals, 184 SCRA 54 [Subrogation]

5-g. Filipino Merchants Insurance Company vs. Court of Appeals, 179 SCRA 638 [Burden of Proof on ‘All Risks’ Clause]

5-h. Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554 [Negligence Resulting to Death]

5-i. Finman General Assurance Corporation vs. Court of Appeals, 213 SCRA 493 [Death due to Stabbing]

K. SURETYSHIP

  1. Definition – agreement whereby a party called the surety guarantees the performance by another called the principal or obligator, of an obligation or undertaking in favor of a third person called the obligee [Section 175, I.C.]
  2. Nature of Liability – liability is joint and several. This means that upon default of the obligor in complying with his obligation, the surety becomes primarily liable to the obligee who has the right to demand payment under the terms and conditions agreed upon [Ibid, see also Art. 2047-2084, 1207-1222, Civil Code].
  3. Rules on Premiums –

3-a. Contract of suretyship not valid and binding unless and until payment of the premium.

3-b. Premium becomes a debt as soon as the contract of suretyship or bond is perfected and delivered to the obligor.

3-c. Where contract of suretyship or bond was accepted by obligee, it is valid even if premium has not been paid.

3-d. Where contract of suretyship or bond was not accepted by obligee, the surety shall collect only a reasonable amount of premium, except where such non-acceptance is due to the fault of surety, no service fee, stamps and taxes may be collected.

3-e. In continuing bond, either for a term exceeding one year or with no fixed expiration date, obligor shall pay annual premium as it falls due until the contract is cancelled [Section 177, I.C.]

  1. Cases:

4-a. National Shipyards & Steel Corporation vs. Torrento, 20 SCRA 427

4-b. Leyson vs. Rizal Surety and Insurance Company, 16 SCRA 551

L. LIFE INSURANCE

  1. Definition

1-a. Insurance on human lives and insurance appertaining thereto or connected therewith [Section 179, I.C.]

1-b. Mutual agreement by which a party agrees to pay a given sum on the happening of a particular event contingent on the duration of human life, in consideration of the payment of a smaller sum immediately or on periodical payments by the other party.

1-c. Essentially, it is a contract to make specific payments upon the death of a person whose life is insured.

  1. When Payable –

2-a. Upon the death of a person

2-b. Upon the survival of the insured during a specified period

2-c. Contingently, on the cessation of life or on the continuance of life [Section 180, I.C.]

  1. Parties to Life Insurance –

3-a. Owner of Policy who

1. Has the power to name or change beneficiary, if designation is not irrevocable. Otherwise, the consent of beneficiary irrevocably designated is required.

2. Has the power to assign policy

3. Has the obligation to pay premiums

3-b. Person whose life is subject of policy, also known as the Cestui Que Vie

3-c. Beneficiary, to whom the proceeds are payable. However, the policy upon life or health may pass by transfer, will or succession to any person and such person may recover upon it whatever the insured might have recovered [Section 182, I.C.]

  1. Types of Insurance Policy

4-a. Ordinary Life Policy – one in which the insured is required to pay a certain fixed premium annually or at more frequent intervals throughout the life of the insured and the beneficiary is entitled to proceeds thereof upon death of the insured.

4-b. Limited Payment Life Policy – premium is payable only during a limited period, after which the insurance is fully paid for. If insured dies within the specified period, his beneficiary collections.

4-c. Term Insurance Policy – one which provides coverage only if the insured dies during a limited period. If insured dies within the period specified, policy is paid to beneficiary. If insured survives within such period, contract is terminated.

4-d. Endowment Policy – the insurer binds himself to pay a fixed sum to the insured if he survives for a specified period, or if he dies within such period, to some other person indicated.

4-e. Life Annuity – contract whereby the insurer binds himself to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income.

  1. Cases:

5-a. Biagtan vs. Insular Life Assurance Company, 44 SCRA 58 [Accidental Benefit Clause]

5-b. Kanapi vs. Insular Life Assurance Company, 94 Phil. 397 [Double Indemnity Clause]

5-c. Calano vs. Court of Appeals, 98 Phil. 79 [Military and Naval Service Clause]

5-d. Abella Vda. De Diaz vs. Asia Life Insurance Company, 48 OG 4435 [Exemption from Execution]

5-e. Nario vs. Philamlife, 20 SCRA 434

5-f. Bank of the Philippine Islands vs. Posadas, 56 Phil. 215 [Refund of Premium]

5-g. Del Val vs. Del Val, 29 Phil. 234 [Entitlement to the Insurance Proceeds]

  1. Suicide

6-a. When Insurer Liable –

1. If policy is silent, insurer is liable if policy has been in force for a period of two years from issuance or last reinstatement

2. If policy provides for shorter period, such provision applies

3. Regardless of the period, if committed during state of insanity

6-b. When Insurer Not Liable –

1. Suicide committed during the period of sanity, provided, it is within the two (2) year period from issuance of policy or its last reinstatement, if policy does not provide for a shorter period

2. Suicide committed during the period of sanity and within a period not exceeding two (2) years as specified in the policy

PREPARED/SUMMARIZED BY:

ATTY. HENRY C. FILOTEO, CPA