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Marc Roby de Chavez (MARX)
MERCANTILE LAW REVIEW 2 NOTES by MARX
Historical Background of Insurance in the Philippines: elements found in the Civil Code namely the consent, object
During the Spanish regime, we had already the so and cause or consideration must be present in all kinds of
called contract of insurance. contracts.
What was the governing law at that time? Consent - is the meeting of the minds of the contracting
During that time, the governing laws were the parties. There is consent when there is the concurrence of
Spanish Code of Commerce and th the Spanish Civil offer and acceptance
Code. There were provisions found in two Codes
governing contracts of insurance. who are the parties in a contract of Insurance?
• Insurer
When the Americans came, the first Insurance Act was • Insured
enacted into law in a year 1915, it was the Philippine • Beneficiary ***
legislature that enacted a piece of legislation governing
g
insurance. es. But the contracting parties are
They are the main parties.
only the insurer and insured. The moment that there is a
Then in 1974, the Phil. Legislature enacted P.D…. meeting of the minds between the insurer and insured, there
is a consent.
And finally in 1978, we had the so called Insurance Code of
the Phil. This is the present law on insurance (Insurance Code When is there a meeting of the mind between insurer and
of 1978). The Insurance Code is the primary/principal law. On
O insured in a contract of insurance?
insuran who is the offeror and the
the other hand, the Civil Code applies suppletorily offeree?
(Supplemental Law). Provisions relative to Obligations and Offeror- the one who applies for contract of
Contracts are applicable insurance cases if there is no insurance. The insured is the one who applies for
applicable provision in the Insurance Code. insurance. Thus, the insured is the offeror and
applicant.
Insurance is a contact wherein the two contracting
co parties
namely the obligor and obligee a juridical relation is created. who solicits?
So any if there is no provision in the Insurance Code, recourse the agent of the Insurer
can be made to the general provision on on Obligations and
Contracts But who signs and accepts
epts the application
the insurer is the one who accomplish the
Another repository of applicable principles is Decisions of the application.
United States Court and more particularly the Insurance Code
of California. When the Insurance of the Philippines was But the Insurer will accomplish the application form
being drafted, it was used as the principal model. These were for the insurance policy. The application will be
the laws that can be used in resolving insurance cases. processed by the office of the Insurer. It is up for the
insurer whether to accept or to turn down. So in
In the year 1829, there was already a branch of an Insurance effect, the offeree is insurer. When the insurer
company here in the name of Lloyd’s of London. In 1898, the accepts the application, it becomes the offeror.
first life insurance company established to do business here When the insurer approves the application, the
in our country was the Sun Life Insurance Company of insured will be notified.
Canada. In 1906, Yek Tong Lin Fire and Marine Insurance
Company. In 1910, another life insurance company, Insular How is the insured notified by the insurer that the application
a
Life. has been accepted?
through the issuance of insurance policy
Insurance is a contract. There are 3 essential elements of a
contract namely: When the policy is delivered to the insured, there is the
• consent meeting of the minds. When the acceptance has come to the
• object knowledge of the offeror and when the acceptance of his
• cause or consideration application has come to the knowledge of the insured, that is
the time that you can say that there is a meeting of the mind.
The same three elements are duly present in a contract of when does it come to his personal knowledge?
insurance. In the absence of one element, you cannot have a either constructively or actually
valid contract of insurance. Remember that the three
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MERCANTILE LAW REVIEW 2 NOTES by MARX
There is actual knowledge when the policy is delivered to Characteristics/features of a Contract of Insurance
him. • Aleatory
• Personal
There is constructive knowledge if the policy has already • Executory and Conditional
been mailed but not yet received by the insured. • Utmost Confidence
• Contract of Adhesion
Offeror- insured Offeree- insurer
When can we say that a contract is aleatory?
Acceptance of the offer is made known to the insured. And The liability of the
th insurer depends upon a
the conventional way to convey this is through
ugh the delivery of contingent event which may or may not happen.
the policy.
The insurance is an aleatory contract because there
Object - the contract of Insurance is a special contract. This is is an assumption of risk.
not like a contract of sale wherein you can easily determine
what is the object. In a contract of sale, the object is the Is sale an aleatory contract?
subject matter to be sold. It is the
he thing that is being sold. But not an aleatory contract because there is no
in a contract of insurance, what is the object
ect? assumption of risk.
If it is non-life, it is thee thing that is being insured e.g. car, life insurance? Will it still be considered as
how about in a non-life
house, building. That is the object. highly personal? Will personal circumstances come into play?
Yes. It also highly personal.
There is an element of insurable interest. It is not only the
object. The object may be there but there is a qualifying Illustration: You will insure your car. Insurer found out that
element, the inured must have insurable interest in the th you figured in several car
ar accidents every year during the last
object. You cannot just insure a life of a person for instance if 4 years. Records show that you are reckless driver.
you do not have an insurable interest. The insured must have
insurable interest in the thing or object. Without insurable If you figured in several car accidents, your premium will be
interest, there would not have been a valid contract of higher than a regular premium.
insurance. In the absence of insurance interest, no valid
insurance contract. This applies to all kinds of insurance be it X has a bldg. Insurer found out that you are convicted of
life or non-life. arson. Insurer
surer will think twice.
Cause or Consideration - dual obligation X has a warehouse. But the insurer found out that he is
the cause or consideration on the part of the insurer heavily indebted. Insurer will think twice regarding your
is the premium to be paid by the insured
insured. application.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
insofar
far as the insured is concerned, it is already future. But the Insurance Code says, past or future. Does it
executed because he has already paid the premium. mean to say that a past event can be the subject
subj matter of an
He has complied already with his prestation. In so far insurance?
as the insured is concerned, the insurance contract is This is something peculiar to a maritime insurance.
fully executed because he has done his part. With respect to maritime insurance, when you
insure a vessel, the liability against a future or past
Utmost Confidence (Uberrima Fides) event can be the subject
subj matter.
contract that involvess utmost good faith on the part
of both parties Example: when the vessel is insured, the insurer has
no obligation
igation to examine the vessel because
bec it might
when there is an application for insurance, the be on the high seas. A vessel in North America is
applicant must divulge info like when he has been insured here by a local insurer, at the time that it
hospitalized before, the insurer will rely on his was insured, the vessel was already lost. The vessel
personal statement. The insurance company is not sank before the issuance of the policy.
mandated byy law to conduct an investigation before
a policy is issued. No presumption. The presumption But the owner er of the vessel acted in good faith, he
here is that the insurer will rely on the personal does not have any knowledge whatsoever that his
statements/assertions of the insured. vessel has already been lost. The coverage here is
loss or not loss. It is covered here by the insurance.
Example: have you been hospitalized before
b There is a provision of loss or not loss. Meaning to
No. There is complete reliance
relian on the say, it applies to past events.
statement of the insured.
The insurance here is valid because the insured
Contract of Adhesion acted in good faith, he did not know that his vessel
the insured practically does not have any say in the was lost.
drafting of the policy
When we speak of insurable interest, there is piece of
policy is printed by the insurer. property, which is mortgaged. It is given as a collateral to
secure
ecure an obligation to a mortgagee by way mortgage. When
Insured has no say when it comes to the terms, you borrow money ex. in a bank, the bank will ask for a
conditions of the policy. collateral. You give as collateral a piece of property. What will
the bank do? The bank will ask the buyer to get an insurance
so in casee of doubt, it will always be resolved in favor policy and make the bank a beneficiary for the amount of the
of the insured. loan.
It is a case of take it or leave it. there can be two cases: if the owner for ex has already an
existing insurance over his house. Mr. X borrowed 100k from
Sec. 3. Any contingent or unknown event, whether past or future, which may the bank. He gave as collateral a house/bldg. But at the time
damnify a person having an insurable interest, or create a liability against
he is applying for loan,
oan, the prop which is giving as collateral is
him, may be insured against, subject to the provisions of this chapter.
already insured in his name. The beneficiary of the insurance
The consent of the husband is not necessary for the validity of an insurance policy should be the bank to cover the amount of loan. Will it
policy taken out by a married woman on her life or that of her children. be necessary on the part of X who already has an existing
policy to get another policy?
cy?
Any minor of the age of eighteen n years or more, may, notwithstanding such
minority, contract for life, health and accident insurance, with any insurance There is no more need if there is already an existing
company duly authorized to do business in the Philippines, provided the policy. X can just assign his policy. Just an
insurance is taken on his own life and the beneficiary appointed
appoint is the assignment of policy. And that assignment is not
minor's estate or the minor's father, mother, husband, wife, child, brother or
assignment of the interest in the property. The
sister.
assignment is for the effect that in case of loss, the
Sec. 3 provides, “Any
Any Contingent or unknown event, whether proceeds shall go to the beneficiary which is the
past or future, which may damnify a person having an bank. Assignment of Policy to secure the obligation
insurable interest or create a liability against
st him..” to the bank.
Supposing there is no policy yet, what will Mr. X do? Supposing the insurance was obtained by the mortgagee
Mr. X will procure an insurance policy and in the himself. There is no insurance yet. Who is the real party in
policy the beneficiary should be the th bank to cover interest?
the loan. No. Because the contract is between the mortgagee
and the insurer. The mortgagee here is considered
In the case of a mortgage executed to secure a loan creditor.
obligation, the mortgagee has insurable interest to the extent
of the loan he extended. The bank can secure a policy in his Up to how much amount can theth mortgagee insure?
name to secure the credit. Property is mortgaged in the bank. only up to the extent of the credit.
So the bank by itself can obtain a policy. The insured here will
be the bank. What the bank will be insuring is his interest in If the insurance contract is for 100k but at the time of the
the mortgaged property. loss, the obligation is 50k only, he can only collect 50k
because that is the amount of the insurable interest.
Supposing the mortgagee is the one who applied in the name
of mortgagor, the beneficiary is the bank. The policy is in the How about the balance?
name of the mortgagor but assigned to the bank. What will the mortgagee cannot recover the entire amount of
be the effect in case of loss? 100k. What is recoverable only is up to the extent of
The insurance is still believed to be for the interest insurable interest.
of the mortgagor. The real party in interest is the
mortgagor. Whatever the mortgagor agor will do will Assuming that there is full payment, will the payment by the
affect the insurance policy. If he violates the policy, insurer to the mortgagee extinguish your obligation?
even though he designated the bank as beneficiary not extinguished. The bank will be subrogated in the
or has already assigned the policy in favor of the place of the mortgagee. The bank can now run after
bank, still the mortgagor is a party to the insurance. the mortgagor.
In case of loss, to whom shall the proceeds will go? The benefit should be qualified→it
qualified must be
the mortgagee shall be entitled to the proceeds to pecuniary and subject to pecuniary estimation
the extent of the credit extended.
Not all kinds of interest
erest can be the subject to pecuniary
What will be the effect of the payment of the proceeds to the interest like for example love and affection, friendship (not
mortgagee? What will be the effect on the mortgagor? Will valid insurable interest, not capable of pecuniary interest)
the loan obligation be extinguished?
the whole obligation is already extinguished because When we speak of insurable interest, under the Insurance
he has already been een paid, already received an Code, the insurable interest of a person
per consists of(Sec.10):
equivalent to the insurer. The bank cannot proceed
to the mortgagor. No subrogation. The insurance In
n what cases does a person have insurable interest
i in the life
was already paid by the mortgagor. of another?
Sec. 10. Every person has an insurable interest in the life and health:
The interest of the mortgagee is separate from the (a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wh wholly or in part for
interest of the mortgagor. education or support, or in whom he has a pecuniary
interest;
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of
which death or illness might delay or prevent the
performance; and
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MERCANTILE LAW REVIEW 2 NOTES by MARX
(d) Of any person upon whose life any estate or interest vested Unlike in Property Insurance, there must be a Pecuniary Value
in him depends.
Under the Family Code, an auntie is not duty bound to If you are the creditor, do you have insurable interest over the
support a niece or nephew. life of your debtor? To what extent?
Up to the extent of the amount of the credit. As a
Not because of blood relation. You have insurable interest general rule, Life insurance is not a contract of
because you are dependent on him for support. indemnity unlike in property insurance. But when
the creditor insures the life of the debtor, it becomes
Is it necessary that the act of supporting you is a benevolent a contract of indemnity. The purpose is to indemnify
act on the part of your auntie has a legal basis? him in case of death of the debtor.
when we speak of supporter
orter of education, there is
no need for legal basis, the mere fact that you are supposing in a partnership, partner in a business, do you have
receiving support from somebody even though he is insurable interest
rest over the life of your partner?
a complete stranger--.you
.you have insurable interest in Yes
his/her life. You have to take it into account, under the Civil Code, does a
partnership have a separate juridical personality?
What is the distinction between an insurable interest in life also has juridical personality
and insurable interest in the property
When we speak of life insurance, it is classified into two.
Life Insurance Property Insurance When a person son insures the life of another person, Is the
-legal basis is not necessary. -there
there is a need for legal consent of a another person needed for you to insure him?
basis (contract of lease) Remember the rationale why there is an insurable interest.
Ex. friend is leaving for Why does the law require that you must have insurable
abroad for 2yrs. In the interest over the life of another person.
pers
meantime, X can occupy her because it is public policy, you cannot insure
condo unit. X has no anybody because there is a temptation to end his life
insurable interest over the for you to recover. Thus, there is a need to get the
condo unit of X’s friend. consent of another if you do not have insurable
Allowed to use the prop for interest. But as long as you have insurable interest
inter in
free. The right to stay does his life, then there is no need to get his consent.
not accrue as legal basis.
Who is a beneficiary?
Sec.10 par. C is a person designated to receive the proceeds in
“Of any person under legal obligation to him for the payment case of loss or death. One who is entitled to the
of money, or respecting propertyy or services, of which death proceeds.
or illness might delay or prevent the performance.”
Example: Creditor-Debtor 2 Kinds of Beneficiary
• Ordinary/ Revocable
In the case of property insurance, there must be insurable • Irrevocable
interest
Who is an irrevocable beneficiary?
Supposing there is a stockholder, do you have insurable As a rule, every beneficiary is revocable unless there
interest in the property of the corporation? is a waiver on the part of the insured. If there is a
No, the stockholder does not have insurable interest waiver, the beneficiary becomes irrevocable.
in the property of the corporation because the
stockholder has merely an inchoate interest/right. GR: Designation is revocable. The insured has the right to
change the beneficiary
neficiary he designated in the policy
do you (stockholder) have insurable interest in the life of the
president of the corporation? EXPN: Express waiver
As stockholder, no insurable interest in the life of the
pres. of corporation. What kind of interest does irrevocable beneficiary have in the
policy?
supposing it is the other way around, it is the corporation Irrevocable beneficiary has vested right/interest in
itself that insured the life of the president? the policy. However, the insured can still use the
Corporation as a juridical person, has insurable policy as a collateral
collate provided he obtained the
interest
st over the life of the president. consent of irrevocable beneficiary. The insured can
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MERCANTILE LAW REVIEW 2 NOTES by MARX
also surrender but with the consent of the If a person is designated as irrevocable beneficiary, he
irrevocable beneficiary. acquires a vested interest in the policy. If he has acquired
vested interest, will the heirs of irrevocable beneficiary be
In life insurance, there are several privileges granted by the entitled?
insurer to the insured. First, can borrow money and use the Heirs of the beneficiary are not entitled. So the
policy as a collateral. Second, can also assign the policy. Third, nearest relatives of the insured will be entitled to
after 2 years as a rule, can surrender the policy and get the the proceeds and not the nearest relatives of the
cash surrender value- refers to the computation as to what is irrevocable beneficiary.
the value of the policy upon reaching a particu
particular year T
. The interest of irrevocable iinterest does not pass
During the first two years, it does not have any cash through succession to his relatives. In the case of
surrender value. You cannot collect and surrender the policy. death, it is the estate of the insured and not the
After 2 years, the policy has already a cash surrender value. relatives of the irrevocable interest that should
The longer the year, the higher is the cash surrender value. receive the proceeds.
If your parents do not believe in insurance, can you insure In the case of foreclosure,, a piece of property belonging to a
their properties? judgment debtor has been foreclosed. The judgment
judg debtor
No, you cannot insure. You only have an inchoate has right of redemption. But the title has been passed to the
right over the properties of your parents. The judgment creditor. Does the judgment debtor before the
acquisition of the insurable interest over the auction of prop have insurable interest?
property is based in a contingency. yes because he has still the right of redemption
Supposing Mr. X extended credit to Mr. Y. Can Mr. X insure Does contractor has an insurable interest
i in a bldg?
some of the properties of Mr. Y? yes
Mr. X is considered as unsecured creditor. So he
does not have insurable interest over the properties If you are about to suffer pecuniary loss due to the loss or
of Mr. Y. It would be different if Mr. X is a secured damage of the property, you have insurable interest
creditor. Meaning a property was used as a collateral
to secure the debt. In that case, Mr. X has an With respect to insurable interest, insurable interest in life
insurable interest over the properties of Mr.Y. and insurable interest in property,
prop there is a distinction
for example you are a merchant. Can you insure your Life insurance Property Insurance
expected profit supposing there is a shipment of goods from Extent of insurable Measure of insurable interest
abroad? interest: life of a person in the property: Amount that
Yes. It is an expectancy coupled with interest beyond pecuniary he may suffer
estimation -for example the amount of
favorite
te niece. Designated in a will as a beneficiary of a piece -the
the amount of i.i. of a property is 1m, then that is
of property, do you have an insurable interest? person he has in himself the insurable interest
no insurable interest because you only have an depends his financial -cannot recover more than
inchoate right just like in the case of insuring the capacity to pay the the insurable interest
properties of your parents. premium and the
application is acceptable to
In case of lessor and
nd lessee. Does the lessor have insurable the insurer, then he can
interest over the property subject of lease? insure himself for any
yes of course because he is the owner amount
No legal basis is needed Semblance of legal basis
does the lessee have insurable interest? e.g. friend leaves for abroad.
Yes, he has insurable interest. He is not the owner Told you can stay in his
but he has a leasehold right which is deemed a legal apartment. You do not have
title. insurable interest over the
condo unit-no legal basis
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MERCANTILE LAW REVIEW 2 NOTES by MARX
(staying bec. of mere so long as the bldg for instance and the
accommodation. It would be contents are separately insured
different if there’s ccontract of • A change in interest, by will or succession, on the
lease death of the insured, does not avoid
avo an insurance;
Existence of Insurable Insurable interest must exist and his interest in the insurance passes to the
interest at the time of the not only at the time of the person taking his interest in the thing insured.
loss: (life, health) Insurable inception of contract of • A transfer of interest by one several partners, joint
interest must exist at the insurance but also when the owners, in common, who are jointly insured, to the
time of the inception loss occurs, although it may others, does not avoid an insurance evene though it
insurance but need not not existing meantime has been agreed that the insurance shall cease upon
exist thereafter or when an alienation of the thing insured.
the time of loss
CONCEALMENT
In a valued policy,, the insured and insurer agreed beforehand
as to the amount/value. It is the neglect to communicate that which a party knows
and ought to communicate (sec.26)
In an open policy,, there is no value. In case of loss, insurer Sec. 26. A neglect to communicate that which a party
pa knows and
ought to communicate, is called a concealment.
adjusted to the necessary appraisal on to how much is the
loss
Insurance is a highly technical contract. There are various
legal devices enjoyed by the insurer to protect itself like for
Cannot recover more than the value in the policy because it is
example:
a contract of indemnity. If you are allowed to recover more
than your insurable interest, it becomes a wagering contract • concealment
with respect to the excess. If the value of your prop is 1M but • representation
you insure it for 1.5M, that is a wagering contract so as the • warranties
excess is concern-500K. • conditions
• exceptions
Sec. 20. Except in the cases specified in the next four sections, and in the
cases of life, accident,
cident, and health insurance, a change of interest in any part In the case of concealment, if you know something and that
of a thing insured unaccompanied by a corresponding change in interest in
something is material, you have to tell the insurer.
the insurance, suspends the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance are vested in the same
person. Insurance is based on utmost good faith
GR: any change in the interest in a property not accompanied when the insurer evaluates insurance application, it relies on
by corresponding change in the policy, you cannot recover. every representations made by the insured
ins
Example: X has a car, he sold to Y without assigning
the policy. New owner cannot recover if the car for if the misrepresentation is material, then there is a
instance has been stolen. concealment ground for the avoidance of the contract.
There is privity of contract between the insurer and Example: the application is going to accept the life
seller but there is no privity of contract between the application, based from the representations made, the
buyer and insurer. insurer will decide whether to aaccept it or not.
Neither the transferor nor the transferee can In the case of property insurance, it is not only the
recover on the policy at the time of the loss. acceptability but the fixing of the premium comes into play.
EXPNS:
• A change in interest in a thing insured, after the Example: vessel. The insurer is not obliged to make physical
occurrence of an injury which results in a loss, does inspection of the vessel. The insurer will only rely on the
not affect the right of the insured to indemnity for representations made by the owner. In marine insurance,
loss there is an implied warranty of sea worthiness with or
Reason: have a claim against the insurer without any misrepresentation made. If it comes out that the
• A change of interest in one or several distinct things, vessel is not seaworthy, then it is a ground for avoidance.
separately insured by one policy, does not avoid the
insurance as to the others
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MERCANTILE LAW REVIEW 2 NOTES by MARX
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MERCANTILE LAW REVIEW 2 NOTES by MARX
In property insurance, this is important not only in accepting When we speak of representations, is it necessary that it is
risk but the fixing of a premium. If it is a high-risk
high property, intentional?
the insurer will accept it but the premium will be very much No. in concealment and representations whether
whe
higher. intentional or not, it will affect consent
In life insurance, it is not a question of fixing a premium, the If the insured intentionally failed to disclose a fact or
question is whether to accept or not. intentionally misinterpreted a fact that is fraud. Why will it
vitiate consent in contract of insurance?
Because a contract of insurance is an utmost
REPRESENTATIONS confidence. The insurer relies heavily in the
representation made by the insured
What is representation in a contract of insurance?
Oral or written factual statements made by the Misrepresentation is a ground to rescind the contract or deny
insured to induced the insurer to enter into a payment
contract of insurance; to accept the application for
insurance In matters of interpretations, how are the provisions of
contract of insurance interpreted more particularly
partic in
Where is it written? where do we find the representations? representations?
In the application Sec. 38. The language of a representation is to be interpreted by
the same rules as the language of contracts in general.
The insurer will give the insured an application form to be
accomplished and any statement or fact contained
c in such Representations are liberally construed in favor of
application is a representation (written) the insured
Are representations considered as part of the insurance When we say liberal interpretation, it means substantial
contract? compliance under representation
representatio made by the insured will
No, unless it forms part of the policy suffice
Example: there is no security guard. The insured promised Example: In marine Insurance – when the insured makes a
that he will employ security guards representation that his vessel was in south Africa but at the
time the contract
ntract takes effect, the same is no longer in south
If the promise is incorporated in the policy, it becomes part of Africa but in South America – in effect, there is
the contract. But if the same is not incorporated, its legal misrepresentation
effect is that when the promissory representation is not
fulfilled and the same is material, it can be a ground for Sec. 48. Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised
rescission
previous to the commencement of an action on the contract.
Can representation qualify as an express provision? After a policy of life insurance made payable on the death of the insured shall
No. have been in force during the lifetime of the insured for a period of two years
from the date of its issue sue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of the
Sec. 40. A representation cannot qualify an express provision in a
fraudulent concealment or misrepresentation of the insured or his agent.
contract of insurance, but it may qualify an implied warranty.
The best evidence is the contract itself, but the same Sec 48 is about the incontestability clause
may qualify as an implied warranty
What are the requisites in order that this incontestability
Example of implied warranty:: in marine iinsurance - clause may apply?
seaworthiness • It applies only to life insurance policy
• It is payable upon the death of the insured
Implied warranty – although not part of the contract itself, • It must be in effect for at least 2 yrs during the
the insured warrants the same lifetime of the insured either at the time of the
inception
nception or last reinstatement
The implied warranty may be affected by representation
What is the rationale of this provision?
Can representations be altered or withdrawn? For the protection of the insured
Yes, for as long as the policy is not yet issued any
representations (oral or written) may still be What is the effect of incontestability clause?
withdrawn or altered After 2 years that the policy is in effect, the insurer
can no longer question the validity
v of the policy
Sec. 41. A representation may be altered or withdrawn before the under on the ground of concealment or
insurance is effected, but not afterwards. misrepresentation. Meaning to say, the insurer has
no right anymore to rescind the contract on the
Aside from the policy, is there another contract of insurance? ground of concealment or misrepresentation or the
None insurer cannot interpose as a defense the ground of
concealment or misrepresentation in case there is an
The terms and condition agreed upon by the parties are action for recovery under the policy
found in the policy. The policy itself contains the terms and
conditions Is there such a thing as incontestability clause in non-life
non
insurance?
The insured is not a signatory to the policy. The only signatory There is no incontestability clause in that kind of
to the policy is the insurer. The application accomplis
accomplished by insurance because non-life
non insurance is good only for
the insured is the offer. When the insurer prepares the policy 1 year
that means the application is accepted
If the insured had paid premiums 2 years in advance,
The issuance of the policy marks the acceptance of the offer the insurance policy will be treated as for 1 year
of the insured after another
Whatever representation that the insured will make, it will Does it necessarily mean that the policy is incontestable
refer to what particular date? already in all cases?
Sec. 42. A representation must be presumed to refer to the date No, there are exceptions
on which the contract goes into effect.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
There are cases where the incontestability clause does not o in life insurance – the life
apply: • cause or consideration:
• Nonpayment of premiums o the premium insofar as the insurer is
• Lack of insurable interest concerned
• If the case of the loss or if the risk is an exception o the commitment by the insurer to damnify
• Vicious fraud the insured in case of loss insofar as the
• Exception with respect to military or naval strike insurer iss concerned
• Failure to present the required proof
• If the action is filed after the prescriptive period Strictly speaking the beneficiary is not a party in a contract of
insurance
The above enumerations are defenses that will bar the
application of incontestability clause who may be an insurer?
Sec. 6. Every person, partnership, association, or corporation duly
authorized to transact insurance business as elsewhere provided
POLICY in this code,
de, may be an insurer.
What is a policy? Can a natural person be an insurer under the insurance code?
A written instrument in which the terms and Yes, as long as he is duly authorized by the office of
conditions of a contract of insurance are set forth the insurance commission
Sec. 49. The written instrument in which a contract of insurance is How is consent obtained in a contract of insurance?
set forth, is called a policy of insurance.
There is what we call offer and acceptance
accept
Is the policy the same as the contract of insurance?
Offeror make the offer
No, the policy is different from the contract of
insurance
Offeree accepts the offer
Who is the signatory to the policy?
In non-life
life insurance
Insurer only
• The offeror is the insured
Where can we find the contract of insurance? • The offeree is the insurer
The insured has not sign any written contract of
insurance, what the insured had sign is an The insured accomplishes the application. The application will
application for insurance. The same is not a contract be processed by the insurance company
of insurance
Who solicits insurance?
Remember that contracts
racts may be in writing, oral or The underwriter or the agent of the insurance
partly in writing & oral company
There is no separate contract of insurance In the application, all material information are disclosed.
Aside from the application, the insured will be interviewed by
From the contents of the application, information the underwriter
gathered by the underwriter from the insured, the
terms and conditions are formulated and set forth in What are the contents of the application?
another instrument called the policy. In the policy, Representations made to the under writer
the signatory is only the insurer
On the basis of all the info gathered, the insurer will
What kind of contract is a contract of insurance? evaluate whether they are going to accept the risk
Consensual
How does the insurer make known to the insured that his
Essential elements of contract as applied to insurance offer is accepted?
The acceptance of the offer is made known to the
t
• Consent - the meeting of the minds between the
insured thru the delivery of the policy
insured and insurer
• Object
o in property insurance – the property
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MERCANTILE LAW REVIEW 2 NOTES by MARX
The contract of insurance is perfected from the time be issued in lieu thereof, including within its terms the
the acceptance of the offer by the insurer is made identical insurance bound under the cover
c note and the
known to the insured premium therefor.
Let’s say a building is going to be insured for 500k. The policy cannot be issued by the insurer without the
Aside from the 500k, there is valuation already. It is approval of the office of the insurance commission
valued
ed of the policy is 500k because the value of the
thing is already agreed upon and the same is stated In the policy, aside from the standard provisions contained,
co
in the policy there are what we call exceptions, conditions and warranties.
These are key devices employed by the insurer to protect
In case of loss, there is no need for an adjuster. The themselves
company will not engage the services of an adjuster
anymore to evaluate how much the value of the Example of Exceptions:
thing at the time because there is already an agreed In fire insurance – earthquake is an excepted peril.
valuation. So if the proximate cause is an earth quake,
qu no
recovery
The valuation is different from the amount of
insurance Example of Condiitons
• The e residential house should always be tenanted
Open policy • Round the clock security guard
Sec. 60. An open policy is one in which the value of the thing • Fire extinguishers
insured is not agreed upon, but is left to be ascertained in case of • No installation of explosives
loss.
When the insured accomplishes the application, when the • The express warranty of the insured relative to the
insured is interviewed by the underwriter, this will form part kind of employment in the past and in the present is
of the offer to the insurer. And the insurer accepts the offer, also an express warranty
then the insurer will issue the policy containing the terms and
conditions agreed upon by the parties Example of warranties With respect to a thing
• Insurance of a building as to what kind of structure,
So the express warranties should be found in the policy or in whether the building is tenanted or not – that the
any other incorporated instrument signed by the insured building is tenanted during the past 10 years up to
present is an express warranty
Sec. 70. Without prejudice to section fifty-one,
one, every express warranty, made • The age of a building
at or before the execution of a policy, must be contained in the policy itself,
or in another instrument signed by the insured and referred to in the policy • The age of the vessel
as making a part of it. • The fact that the vessel is domestic or foreign
• The course of the vessel to take
According to the insurance Code, there is another kind of • Any statement or fact that the vessel is seaworthy,
warranty what we called implied warranty that it can take river navigation and sea navigation is
a warranty
What is an implied warranty? Where can we find this implied
warranty? Promissory warranty
There is an implied warranty in marine insurance A statement in writing on the part of the insured
that he is going to do or not to do something that is
The classic example of implied warranty is the warranty of material to the risk
seaworthiness of the vessel
Example:
Another example of an implied warranty is that the insured • No explosives or any hazardous materials shall be
warrants the nationality or neutrality of the vessel. There is deposited in the premises
an implied warranty that the vessel will carry all the • That the building will be used exclusivelyexclu for
necessary documents to show its neutrality or nationality as residential purposes
the case may be • If the building at the time of the loss is tenanted, not
being used by the owner for residential purposes –
How do we define warranty? that is a violation of a promissory warranty
It is a statement
ement or promise set forth in the policy
where incorporated with it, the untruth or non- non In insurance, the premium is lower if it is occupied by the
fulfillment of which in any respect whether affecting family of the insured. If the building is occupied by a
or not the insurer renders the policy voidable at the tenant, the rate is higher. The same is given because the
option of the insurer owner will take care of his property. The care that will be
given is better than the one expected from a tenant
How do we classify the warranty?
• Express Take note, that when we speak of warranties,
warran they are like
• Implied representations that is presented to the insurer
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MERCANTILE LAW REVIEW 2 NOTES by MARX
Sec. 73. When, before the time arrives for the performance of a warranty Sec. 76. A breach of warranty without fraud merely exoner
exonerates an insurer
relatingg to the future, a loss insured against happens, or performance from the time that it occurs, or where it is broken in its inception, prevents
becomes unlawful at the place of the contract, or impossible, the omission to the policy from attaching to the risk.
fulfill the warranty does not avoid the policy.
The violation of warranty may either be tainted with fraud or
In section 73, when the performance becomes unlawful, not. Supposing, it is fraudulent, there is fraud in making the
t
impossible or loss takes place will not affect the validity of the warranty. Supposing that the insured said that there are
policy round the clock security guards, but it turns out that the
employment of the security guards is only for daytime. There
Example: there is a warranty in the policy that within 30 days is a fraudulent violation of the warranty.
from the date of policy that the building will be guarded.
Guards will be employed by the owner of the building Example of violation of warranty without fraud:
If loss takes place
ce within the 30 days to look for an The insurer expects that the tenants will leave the
agency (during the grace period of 30 days, loss premises within 60 days. There is no fraud, the
takes place, there is no violation of warranty insured made an assurance that the tenants will
because the loss takes place before the promised leave the premises
performance)
As to legal effects (violation with fraud or without fraud)
Example (when it becomes unlawful) • w/o fraud – the insurer is merely exonerated during
There is a promissory warranty
ranty that within 2 months, the period prior to the violation
the premises will be vacated and shall be used as
residence by the owner. In other words, tenants will example: promissory warranty of employment of
vacate the premises and the owner will be the one security guards. After one month, the contract of
to use it for his residence. Then a law was passed agency is terminated. So the owner of the building is
prohibiting for a certain n period of time the looking for another agency. Loss
Los takes place. This is a
ejectment of tenants within that area, the violation of warranty without fraud
promissory warranty becomes unlawful, then there
will be no violation of the same • if the violation is fraudulent upon inception – it is
broken, prevents the policy from attaching to the
Example (when it becomes impossible) risk
In a factory, there is a promissory warranty that new
equipments, manufacturedctured in Germany will be PREMIUMS
installed within 6 months. A war broke out, the
insured cannot do the importation of the new Premiums (payment thereof) is one of the essential elements
equipments, it becomes impossible of an insurancee contract. Insofar as the insurer is concerned,
the consideration is the premium to be received from the
Sec. 74. The violation of a material warranty, or other material provision of a insured. Insofar as the insured is concerned, the
policy, on the part of either party thereto, entitles the other to rescind.
consideration is the promise of the insurer to damnify the
insured in case of loss
Supposing there is a warranty that no explosives or hazardous
material will be deposited in the premises. The building was Sec. 77. An insurer
rer is entitled to payment of the premium as soon as the
destroyed by a fire. The proximate cause of the fire was not thing insured is exposed to the peril insured against. Notwithstanding any
the explosives deposited
posited in the premises. It is electrical failure agreement to the contrary, no policy or contract of insurance issued by an
that caused the fire. So it is not the violation of the warranty insurance company is valid and binding unless an and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever
that caused the loss of the property, may the insured recover the grace period provision applies.
from the insurer?
It is not necessary that the proximate cause of the Without payment of premium, no insurance contract
loss or damage
amage a violation of a warranty. Even if the
proximate cause is some other cause other than the What is Cash and Carry rule?
rule
violation of the warranty, still that is a good ground This is a rule promulgated by the insurance
on the part of the insurer to deny liability commissioner that without payment of premium,
there is no valid insurance contract
Exceptions: If it is a non-life
life insurance policy, it is only good for
• In case of life and industrial insurance, it refers to one year and renewable. Let’s say the insured is
the grade period.
eriod. In life insurance, a grace period is leaving for abroad d and he wanted to pay in advance
given to the insured for the payment of premium the premium for 3 years. Even if the insured paid for
• If the insurer acknowledges the receipt of the 3 years, it shall be considered as a year-to-year
year
premium, although in truth and in fact, there is no policy. The insurer will consider it renewed policy.
policy
payment yet. That will not, in any way affect the
validity of the policy without prejudice to the right of The insured in a non-life
non insurance may become a __
the insurer to collect premiums if he has nott paid in full the premium. The moment
• In case of surety bonds. A surety bond is also a form the policy is issued, he is already an obligor
of insurance. When a surety bond is issued and the
rd
bond is already in the hands of a 3 person In what cases is the insured entitled to a return of premium?
regardless of the payment of premium,mium, that surety • In life insurance, if the insured surrendered his
bond is considered valid. This is for the protection of policy, there is no such a thing as return of premium
rd
a 3 person in life insurance. But there is what we call cash
• In case of motor vehicle insurance (3 party liability
rd
surrender value
insurance) when a car is registered, there is a
mandatory requirement that there is a need to get a When we speak of cash surrender value, normally, a
rd rd
3 party liability
bility insurance. This 3 party liability policy acquires a cash surrender value, after 2 years.
rd
insurance is in favor of 3 persons who might be After 2 years, the insured’s life insurance policy has
insured. Although there is no payment of premiums already a cash surrender value. value If the policy is
rd
yet, if there is a 3 party liability insurance, it is surrendered, the insured may collect from the
exception to the rule because if we apply the general insurance. But before 2 years, no cash surrender
rd
rule, innocent 3 person will be affected value. Also, after 2 years, the insured may borrow
• In Makati Tuscany case, in this case, there is an from the insurance company and used the policy as
agreement between the insurer and insured for a collateral, to the extent of the cash surrender
s value
payment of premium by installments. The SC ruled of the policy. If the policy has, let’s say, a cash
that the same is valid. It is an exception by way of surrender value of 10k, the insured can borrow 10k
jurisprudence in the insurance policy
• Cover notes
• In non-life
life insurance, there is a return of premium.
In cover notes, does the law require an immediate payment of When an insurance policy is for a definite period and
cover note? the insured
sured surrender the same prior to the expiry
The premium is not yet computed. The insured who date, he is entitled to a corresponding return of
is a holder of a cover note may not have been paid a premium
single centavo but the same is valid
Example: a fire insurance policy is good for 1 year.
Do we consider payment of premiums as an obligation on the The insured paid the premium for 1 year. After 6
part of the insured? months, the insured wants to cancel the policy, can
ca
In case of life insurance, it is for more than one year. the insured ask the insurance company to return the
After payment of premium for the first year, there is premium corresponding to the remaining half-year?
half
a need to pay for premium for the succeeding years. Yes, pro
pro-rata, in the absence of any short
Do we consider the insured as obligor with the period provision
payment of premiums for the succeeding years?
No, he is not an obligor because if the • If the policy is cancelled because of fraud,
insured failed to pay the corresponding misrepresentation on the part of the insurer
insure
premium during the grace period granted in
the policy, the policy is automatically Example: there is already a medical examination,
cancelled. There is an automatic payment of premium and the insurer said that the
st
cancellation off the policy if after the 1 policy will be issued within 30 days. No policy is
year, the insured fails to pay the required issued within 30days
premium for the succeeding year within the The insured is entitled for the return of the
grace period. premium
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MERCANTILE LAW REVIEW 2 NOTES by MARX
• Over insurance, if there is over insurance theft, the insured cannot recover because theft is not the
peril insured against
Does the law prohibit double (over) insurance? Can a property
be insured with 2 or more insurer? Let’s take a case of fire insurance policy, what is the usual
Yes covered, what is the risk covered?
Loss by fire
In case of over insurance, the insured cannot recover more
than what his insurable interest is If the loss is caused by explosion,
explosion assuming that the explosion
is an excepted risk, the cause is explosion, no recovery
If the insurable interest is only 1M, theree will be pro
pro-rata
return of premium from all insurance company whatever the If earthquake is an excepted risk and the proximate case is
excess, he is entitled. earthquake, no recovery
If there is a provision in the contract of insurance prohibiting The rule is, the peril insured against should be the proximate
double insurance, violation thereof is a ground for cause
recancellation Sec. 84. Unless otherwise provided by the policy, an insurer is
liable for a loss of which a peril insured against was the proximate
cause, although a peril not contemplated by the contract may
LOSS have been a remote cause of the loss; but he is not liable for a loss
which the peril insured against was only a remote cause.
Sec. 83. An agreement
eement not to transfer the claim of the insured against the
insurer after the loss has happened, is void if made before the loss except as It is axiomatic, in insurance, that the peril insured against
otherwise provided in the case of life insurance.
must be the proximate cause
Under sec 83, the law says that any agreement prohibiting
Example: in a fire insurance policy, earthquake and explosion
transfer of claim after loss is void. It may be made by the
is an exceptedd risk. The risk insured against is fire. Supposing
parties prior to the loss
there was an explosion and because of the explosion, there
was fire. And because of fire, the property is damage and loss
What is meant by this?
This is prohibiting the assignment of the claim in
What is the proximate cause?
case of loss, after the loss
Explosion
Why does the law declares the same is void?
Can the insured recover?
This is against public policy because after the loss,
The insured cannot
cann recover. Fire is only the
the claim is already a monetary claim and the party
immediate cause but not the proximate cause.
cause
entitled to it is free to transfer it in favor of anybody.
If there was an earthquake and because of the earthquake,
How about prohibiting the transfer of claim prior to the loss?
there was fire, the earthquake was the proximate cause,
It is valid but there is a need for the consent of the
there can be no recovery
insurer.
nsurer. The personal circumstances of the parties
will come into play. So the insured cannot transfer
How do we define proximate cause?
the claim without the consent of the insurer.
Proximate
te cause is one which in a natural and
continuous sequence producing an event which
There are some factors to be taken into account were we
should not have occurred had it not been for the
consider the term loss
said proximate cause
What is loss in insurance? When do we say that the insured is
Example: in a building that was on fire and because of the
entitled to indemnification because there was a valid loss?
debris falling, another building was damage.
damag Can the owner
of the other building that was damage recover?
In insurance, there are certain risks covered by the policy.
The damage was not caused by the fire but by the
There are certain risk that are excepted
debris falling from a building that is on fire. The
proximate cause is fire. The insured may recover
The most common risk in property insurance is fire. If the t
policy is only against fire and the property is lost because of
The most common property insurance policy
polic is fire. There are
2 kinds of fire
Page | 19
MERCANTILE LAW REVIEW 2 NOTES by MARX
There is excepted risk and the same is a proximate cause – There are cases where the act of the tenant is consid
considered the
the insurer is not liable act of the owner.
Sec. 87. An insurer is not liable for a loss caused by the willful act or through Example: the building was being rented and shall be used
the connivance of the insured; but he iss not exonerated by the negligence of exclusively as residence. The tenant shall use the building
the insured, or of the insurance agents or others.
exclusively as residence (promissory warranty). The tenant
converted the ground floor as a coffee shop. Is there
ther a breach
The insurer is not liable for loss caused by the willful act or in
of warranty?
connivance with the insured
Yes
In life insurance policy – suicide – no recovery
Is the owner liable for breach?
Yes, because the owner cannot say that he did not
Supposing the fire that
hat was the proximate cause of a loss of a
know
building was due to the negligence of the insurer. During a
black out, the insured lighted a candle and it was showed that
NOTICE OF LOSS
the same was the caused of the fire. May the insured recover?
The cause of the loss was grossoss negligence. Can the insurer Sec. 88. In case of loss upon an insurance against fire, an insurer is
invoked as a defense, negligence on the part of the insured? Is exonerated, if notice thereof be not given to him by an insured, or some
negligence a valid defense? person entitled to the benefit of the insurance, without unnecessary delay.
No, the insurer is not exonerated by the negligence
of the insured because, if otherwise, the same will In case of fire insurance, there is a requirement of submission
be the usual defense of the insurance company of notice of loss by express provision of law (sec 88)
If the notice of loss is not given by the
t insured or
some person entitled to the benefit of insurance,
without necessary delay, the insurer is exonerated
Page | 20
MERCANTILE LAW REVIEW 2 NOTES by MARX
able to get from both insurer for as long as they are not
If the insured has a piece of property and the same is covered aware
by an insurance and the property has been lost or damage,
the insured has to notify immediately the insurer without
unnecessary delay, otherwise, the claim for recovery will be
denied Requisites in order a case may be considered as double
insurance
Why is it that notice of loss should be given without • 2 or more insurers
unnecessary delay? • One insured
For the protection of the insurer. So that the insurer • The same subject matter, property and risk
can take all the necessary
essary steps to protect its
interest. If there is unnecessary delay, that can be If there is double insurance, there are cases where there will
used by the insurer to exonerate itself be over insurance, so that in case of loss, who shall be liable?
If there are 2 or more, pro
pro-rata
There are policies that require submission of preliminary
proof REINSURANCE
Sec. 89. When a preliminary proof of loss is required by a policy,
thee insured is not bound to give such proof as would be necessary Sec. 95. A contract of reinsurance is one by which an insurer procures a third
in a court of justice; but it is sufficient for him to give the best person to insure him against loss or liability by reason of such original
evidence which he has in his power at the time. insurance.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
So that there will be an automatic ceiling of Any specie or kind of damage or loss caused by
whatever excess violent winds or waves
Example: X insurer, a small insurance company, the “all risk policy” of marine insurance, this includes all kinds of
writing capacity is only for 50M (the writing capacity losses, damages whether caused by peril of the sea or ship
is determined by the capitalization). If an insurance
company is going
oing to write a policy over 50M, he has If the owner of the vessel obtains an all risk policy, the
to reinsure. Supposing there is an offer for coverage premium is very much higher that ordinary
ordi marine policy.
of 200M. X insurer cannot solely underwrite 200M. X
has to look for reinsurer who are willing to absorb Insurable interest
the excess 150M
General Rule: the general principles of insurance applicable
ver representations,
In case of facultative reinsurance, whatever to fire, life are also applicable to marine insurance.
informations that might have been received by the reinsured
should be communicated by the reinsurer because that is a Representations, warranties, exceptions–
exceptions the principles
separate policy. It is not an automatic coverage governing these devices are likewise applicable
appli to marine
insurance
In a reinsurance contract, is the original insured a party?
No What is the insurable interest of the owner of the vessel?
As owner of the vessel, the insurable interest is up to
What is the subject matter? the extent that he will be damnified by the loss and
The risk assumed by the reinsured as a rule the value of the vessel
In case of loss, does the original insured have cause of action If the vessel is worth 20M,, that is the insurable interest of the
against the reinsurer? owner of the vessel
No, there is no privity of contract between the
original insured and the reinsurer. The reinsurance Supposing that there is a charter party contract covering the
contract is strictly between the reinsured and vessel, one of the stipulations in the charter party contract is
reinsurer that the charterer shall be liable for any loss or damage to the
vessel.
sel. If there is a provision in the contract that the charterer
MARINE INSURANCE will assume the loss, is there any insurable interest to the
vessel on the part of the owner?
In Marine Insurance, there are 2 kinds of perils Sec. 100. The owner of a ship has in all cases an insurable interest
in it, even when it has been chartered by one who covenants to
• Perils of the Sea pay him its value in case of loss: Provided, That in this case the
• Perils of the Ship insurer shall be liable for only that part of the loss which the
insured cannot recover from the charterer.
Normally, the insurer is liable to the insured if the proximate
cause is peril of the sea The owner of the vessel has still an insurable
insurabl interest over the
vessel despite the fact that there is an assumption of risk on
If it is peril
eril of the ship, the insurer is not liable the part of the charterer
In marine insurance, the counter-part part of hostile fire is peril of What is the extent of the insurable interest?
the sea; friendly fire- peril of the ship Whatever is not covered by the payments that may
be made by the charterer for having assume the risk,
risk
What is the peril of the sea? this is the insurable interest of the vessel
Page | 22
MERCANTILE LAW REVIEW 2 NOTES by MARX
There is a loan of 10M, loan of bottomry, the vessel is lost, The expected freightage, the owner of the vessel
ve can also
the owner of the vessel is not liable insure the expected freightage
If there is a loan on bottomry, the vessel or goods are covered, If he is going to drive from a particular place, the freightage
does the owner of the vessel or goods still have insurable amounting to 3-4million,
4million, the same can also be covered by
interest? insurance
Yes, to the extent that the amount of loan on
bottomry is __ insofar as the value
alue of the goods or Not only the vessel or goods but also expected profits and
vessel is concerned freightage can be a subject of insurance
Example: if the vessel is worth 20B and the loan on bottomry In marine insurance, we have the so called Charter party.
is 10B, the owner of the vessel has an insurable interest There are 3 kinds of charter party contract:
equivalent to 10B • Bareboat charter
• Voyage charter
But if the entire value of the vessel is covered by the loan on • Time charter
bottomry, does
es the owner of the vessel has insurable interest?
None, because the 20B has already been advanced Sec. 107. In marine insurance each party is bound to communicate, in
to him and he does not have anymore obligation addition to whatt is required by section twenty-eight,
twenty all the information
which he possesses, material to the risk, except such as is mentioned in
Section thirty, and to state the exact and whole truth in relation to all
There are 2 phases where the insurable interest of the owner matters that he represents, or upon inquiry disclo
discloses or assumes to disclose.
of the vessel may be affected. In cases where:
• There
here is a charter party contract – when the In sec 107, we have concealment here. As we discussed a
charterer assumes the risk of loss while ago, all the devices (representation, conditions,
• When the vessel/goods is a subject of bottomry loan exceptions) are likewise applicable to marine insurance. But
insofar as concealment is concerned..
Most common, in shipment of goods; there are 2 parties
involved What is concealment
ment in marine insurance?
• Shipper/seller Failure to disclose any material fact which the
• Consignee/ buyer insured know or ought to know and the insurer has
no actual or presumptive knowledge
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MERCANTILE LAW REVIEW 2 NOTES by MARX
In ordinary non-life
life insurance, information received from What are the implied warranties in marine insurance?
third persons, the insured is not bound to disclose the same. • The vessel is seaworthy
• There will be no improper deviation
Another example: the owner of the shipyard inspected the • No illegal ventures
vessel. The shipyard owner told the owner of the vessel that • The vessel will carry all the required documents to
the vessel needs some repairs because certain parts are only show such nationality or neutrality and that it will
good for 3 months, this kind of information is material which not carry any documents which cast reasonable
must be communicated to the insurer. suspicion thereon
Sec. 110. A concealment in a marine insurance, in respect to any of the When is a vessel sea worthy?
following matters, does not vitiate the entire contract, but merely Sec. 114. A ship is seaworthy when
w reasonably fit to perform the
exonerates the insurer from a loss resulting from the risk concealed: service and to encounter the ordinary perils of the voyage
(a) The national character of the insured; contemplated by the parties to the policy.
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents;
Page | 24
MERCANTILE LAW REVIEW 2 NOTES by MARX
It does not refer merely to the kind of __ that the vessel has There must be proof that the vessel is seaworthy
but it include __ __. Like for example, the vessel should
shou have when the voyage was commenced.
commenced The moment it
a complete complement as prescribe in its registration. If the becomes unseaworthy, the law says that no
registration says that the vessel should have a master and 20 unreasonable delay in repairing the vessel.
complements.
So the requirement of seaworthiness is met for as
If the master of the vessel does not have the qualification long as there is a showing that when the vessel
required by law to become a master, that vessel is not commences the voyage, it must be seaworthy. When
seaworthy the moment the vessel becomes unseaworthy, no
unreasonable delay in repairing the same.
The vessel is properly equipped with all instruments
necessary for navigation. That the vessel carries sufficient Voyage and deviation
provision for a particular voyage.
Insofar as voyage and deviation is concerned, there are 4
Sec. 116. A warranty of seaworthiness extends not only to the condition of cases of deviation:
the structure of the ship itself, but requires that it be properly laden, and
provided with a competent master, a sufficient number of competent
• Departure from course of sailing fixed by mercantile
officers and seamen, and the requisite appurtenances and equipment, such usage
as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, The first rule is you have to follow the route
and other necessary or proper stores and implements for the voyage. fixed by mercantile usage, if you depart
from that , there is deviation.
With respect to seaworthiness of the vessel, there is another • Departure from the most natural, direct and
factor that must be taken into account. A vessel may be advantageous route.
seaworthy insofar as ocean navigation is concerned but in So in the absence of mercantile usage, the
river navigation, it is not seaworthy. most natural, direct and advantageous
route
If the voyage requires not only open sea navigation but • Unreasonablenable delay in pursuing a voyage
includes navigation to reach its destination, the vessel must • Commencement of an entirely different voyage
be seaworthy in both bodies of water.
Sec. 121. When the voyage contemplated by a marine insurance policy
How about the cargo? A cargo may be a subject matter of is described by the places of beginning and ending, the voyage insured
marine insurance. Does seaworthiness of the vessel likewise in one which conforms to the course of sailing fixed by mercantile
usage between those places.
apply to cargo? This is a marine insurance covering the cargo.
Does the implied warranty of sea worthiness likewise apply to Sec. 122. If the course of sailing is not fixed by mercantile usage, the
cargo? voyage insured by a marine insurance policy is that way between the
There is an implied warranty that the vessel I have places specified, which to a master of ordinary skill and discretion,
would mean the most natural, direct and advantageous.
employed for shipment of my cargo is seaworthy. So
if it turns out that the vessel is not seaworthy, I may Sec. 123. Deviation is a departure from the course of the voyage
not be able to collect insured, mentioned in the last two sections, or an unreasonable delay
in pursuing the voyage or the commencement of an entientirely different
Sec. 118. When the ship becomes unseaworthy during the voyage to which voyage.
an insurance relates, an unreasonable delay in repairing the defect
exonerates the insurer on ship or shipowner's interest from liability from any A deviation may either be proper or improper.
loss arising therefrom.
When is it proper?
When the vessel becomes unseaworthy and there is Sec. 124. A deviation is proper:
unreasonable delay in repairing, the insurer will be (a) When caused by circumstances over which neither the
exonerated master nor the owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a
peril, whether or not the peril is insured against;
When should the vessel
essel be seaworthy? Does the requirement (c) When made in good faith, and upon reasonable grounds of
of seaworthiness extend from point of departure to point of belief in its necessity to avoid a peril; or
destination? (d) When made in good faith, for the purpose of saving human
life or relieving another
ano vessel in distress.
When the vessel leaves the port, it must be
Example of no. 1:: typhoon
seaworthy.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
Suppose a vessel receives an SOS from another vessel. Can a Constructive loss. When the vessel incurred damage
vessel make a proper deviation to help another vessel? amounting to more than ¾ of the value of the vessel,
Saving a vessel is not found in the enumeration but if there is already
lready constructive loss. The insured can
there are human lives in that vess
vessel, that can be a already abandon the vessel and it will be treated as a
proper deviation total loss. The insured has to notify the insurer that
he is abandoning the vessel as a constructive total
loss. The notice either be oral or written.
Supposing the vessel made an improper deviation, the
improper deviation lasted for more that 1 hr. it was an honest If the owner of the vessel did not exercise his right of
mistake on the part of the master of the vessel. If for more abandonment, despite of the fact there is already more than
than 1 hour, it is improper deviation.. WhenWhe the master ¾ actual losses, how much will be the extent of his recovery?
realized that they are deviating from the usual course, he It will be the actual loss. If ¾ only, that is partial loss.
corrected, if the vessel is lost or damage after the improper But if turns out that the
t whole thing is lost, he can
deviation, can the insured recover? recover as actual total loss. But if the whole thing is
Any loss taking place after improper deviation, the not loss, he cannot recover from the insurer actual
insurer is exonerated.. The imprope
improper deviation may total loss.
not be the cause of the loss.
But if he exercise the right to abandon, the moment
Loss he realized that the loss amounted already to more
than
han ¾ of the value of the vessel, he can recover
There are 2 kinds of losses. A loss may either be from the insurer as if there is a total loss
• total
o actual Is there in other non-life
life insurance constructive total loss?
o constructive None. Constructive total loss is found only in marine
• Partial insurance. The moment the notice of abandonment
abandonme
is received, the insurer ipso facto takes all the
Sec. 127. A loss may be either total or partial. ownership of whatever remains. The insurer can
already direct the master of the vessel.
Sec. 128. Every loss which is not total is partial.
When the insured has the right to abandon don the vessel in There are 2 kinds of policies:
accordance with law, that is constructive loss • Valued policy
• Open policy
When is the insured have the right to abandon a vessel? What In valued policy,, the amount of insurance is different
d from
kind of loss? the value as contained in the policy. The amount of insurance
may be less than the agreed value. The agreed value may be
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MERCANTILE LAW REVIEW 2 NOTES by MARX
20M but the insured may collect only for 15M. If the value of
the thing is agreed upon and the same is contained in the There is no such thing as co-insurance
co in life and other non
policy
olicy that is a valued policy. With respect to the agreed life insurance. The only case of co-insurance
co is in marine
valuation, the same is conclusive as between the parties in insurance, that is section 157
the absence of fraud. Sec. 157. A marine insurer is liable upon a partial loss, only for
such proportion of the amount insured by him as the loss bears to
the value of the whole interes
interest of the insured in the property
If there is no valuation of the thing that is contained in the insured.
policy, the same is an open policy.. What is contained
containe in the
policy is only the amount of insurance. How much is the This is a case where the vessel underinsure, when the vessel
insurance. No agreed valuation. is underinsure, the owner of the vessel becomes a co-insurer
co
insofar as the amount of underinsurance is concerned.
In marine, we have averages. Particular and general
Example: supposing the vessel is worth
wo 5M but the owner of
General average: there are several conditions
condition for a general the vessel insure it for only 2.5M. This is a case of
average: underinsurance, the vessel is underinsured to the extent of
• There must be common danger, the vesselves or cargo 2.5M. If is this the case, the owner of the vessel becomes a
is subject to a common danger co-insurer
insurer insofar as the amount of underinsurance is
• Part of the vessel or cargo was deliberately sacrificed concerned.
for the common safety.
• It must be made by the master or upon his authority insurance takes place in case of partial loss.
Co-insurance
• It must be successful. It results in saving the vessel
and cargo Supposing that the partial loss is 2.5M, that is 50%. The
amount to be recovered here is only is 50% of the 2.5M. The
The classic example
ple of a general average is jettison to lighten 1.25M will be recovered because the owner of the vessel
the vessel. becomes a co-insurer.
All the parties benefited (owner of the vessel, owner of the Why is co-insurance
insurance found only in marine insurance?
cargoes) shall contribute pro-rata
rata to the loss. The insurer is The most risky kind of insurance is marine. And the
liable for general average. insurer has to protect itself so that they will be
encourage to cover full coverage if it is marine
Example: 1M worth of cargo was jettisoned to lighten the insurance
vessel. The persons benefited will contribute to the value of
1M jettisoned goods. If the vessel is covered by the insurance But it does not necessarily mean thattha we cannot have co-
and if the other cargo is covered by the insurance, the insure insurance in life. If the parties agreed (insurer and insured)
is liable for the general average that the insured will be a co-insurer
co to the extent of the
amount not covered by insurance, it is a valid agreement.
How about particular average?
In a loss or damage suffered by the vessel from the So co-insurance
insurance may take place in any other kind of insurance
ins
time it leaves the port up to the time it reaches its provided that it is expressly agreed upon. But in case of
port of destination, to which did not deliberately marine insurance, there is no need to provide the same
done to save the cargo or vessel, this is particular because it is provided for by law.
average. So any other kind of dama
damage or losses not
deliberately done in order to save the vessel, there is FIRE INSURANCE
particular average
Sec. 167. As used in this Code, the term "fire insurance" shall include
Example: because of leakage of certain goods or the goods insurance against
gainst loss by fire, lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are covered by extension to fire
are damage by the sea water because of waves, that is insurance policies or under separate policies.
particular average. Is the insurer liable?
surer of the damaged goods is liable.
The insurer Fire insurance is a contract whereby the insurer binds itself to
indemnify
nify the insured for any loss or damage caused by perils
If some of the cargo was damage because of the insured against.
miscarriage of the crew, that is particular average.
Fire insurance is a contract of indemnity. You cannot recover
In marine insurance, there is what we call co-insurance.
co more than what you insurable interest is. If the value of the
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MERCANTILE LAW REVIEW 2 NOTES by MARX
In case of co-insurance. Co- insurance is only Elements of alteration of use or condition that will avoid the
available in marine insurance. In fire insurance, there policy
is no co-insurance
insurance unless expressly agreed upon by • Limitation as to use or condition
the parties • Alteration of the use or condition of the thing
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MERCANTILE LAW REVIEW 2 NOTES by MARX
There are policies where exceptions are provided for. Like The juridical vinculum of 3rd party liability insurance is
earthquake, flood, typhoon or explosions are excepted. So if between the insured and the insurer. But that
rd
the proximate is earthquake, flood, typhoon
phoon or explosion and notwithstanding, the benefit is intended for 3 person. So
the immediate cause is fire, no recovery. The proximate much so that if there is any accident causing injury or death
cause should be hostile fire. to a third person, the third person may bring a direct action
rd
against the insurer. So the 3 person acquires a cause of
CASUALTY INSURANCE action against the insurer although he is not a party to the
casualty insurance
Casualty Insurance – it includes all forms of insurance arising
rd
from accident or mishap which are not included in other If it is not a 3 party liability insurance, like damage to
kinds of policy property, the motor vehicle hit another motor vehicle. There is
damage to property. Does the owner of the other motor
Sec. 174. Casualty insurance is insurance covering loss or liability arising from vehicle has a cause of action directed against the insurer?
accident or mishap, excluding certain types of loss which by law or custom rd
None, because
se that is not for the benefit of 3 party
are considered as falling exclusively within the scope of other types of
insurance such as fire or marine. It includes, but is not limited to, employer's
liability insurance, motor vehicle liability insurance, plate glass insurance, The cash and carry rule with respect to premiums. If the
burglary and theft insurance, personal accident and health insurance as policy is issued and there is no payment of premium that
written by non-life insurance companies,, and other substantially similar kinds
policy is not valid, that is an express provision of law. But
of insurance. rd
there are exceptions, one exception is 3 party liability
Example: Insurance coverage of a motor vehicle against theft, insurance in favor of third person. Even though the insured
rd
damage. This is casualty insurance has not paid a single centavo for 3 party liability insurance,
rd
that is valid to protect 3 persons
Authorized driver’s clause – “ the driver at the time of the
accident must be permitted in accordance w with the licensing There is a right of subrogation. If the insurer is made to pay
or other laws or regulations to drive the motor vehicle and is the insurer
surer is subrogated to the rights of the person who
not disqualified from driving such motor vehicle by order of claimed from them.
the court or by reason of any enactment or regulation in that
behalf No fault indemnity clause
Sec. 378. Any claim for death or injury to any passenger or third party
pursuant to the provisions of this chapter shall be paid without the necessity
The main purpose of such clause is to make sure
s that of proving
ing fault or negligence of any kind; Provided, That for purposes of this
a person other than the insured owner who drives section:
(i) The total indemnity in respect of any person shall not
the car on the insured’s order is a duly licensed
exceed five thousand pesos (15K by memo circular);
driver and has no disqualification to drive a motor (ii) The following proofs of loss, when submitted under oath,
vehicle shall be sufficient
fficient evidence to substantiate the claim:
(a) Police report of accident; and
(b) Death certificate and evidence sufficient to
Such clause applies only when the driver is driving
establish the proper payee; or
on the insured’s order or with his persmission (c) Medical report and evidence of medical or
hospital disbursement in respect of which refund
Theft clause – when a car is unlawfully and wrongfully taken is claimed;
(iii) Claim may be made against one motor vehicle only. In the
without the owner’s consent or knowledge, such taking
case of an occupant of a vehicle, claim shall lie against the
constitutes theft and therefore, it is the theft clause and not insurer of the vehicle in which the occupant is riding,
the authorized driver’s clause should apply. mounting or dismounting from. In any other case, claim shall
lie against the ins
insurer of the directly offending vehicle. In all
cases, the right of the party paying the claim to recover
Example: third-party liability
against the owner of the vehicle responsible for the accident
shall be maintained.
rd
What is this 3 party liability insurance?
One requirement of the motor vehicles office before rd
Such clause allows a passenger or 3 party to recover without
someone could register his motor vehicle is that the prooff of negligence on the party of the driver of the insured
vehicle must be covered by 3rd party liability vehicle. Proof of fault or negligence is not necessary for
rd
insurance. This is for the protection of 3 persons payment of any claim for DEATH or INJURY to a passenger ir
who might be injured or figured in an accident 3rd party.
involving such motor vehicle.
Conditions
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MERCANTILE LAW REVIEW 2 NOTES by MARX
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MERCANTILE LAW REVIEW 2 NOTES by MARX
What is an irrevocable beneficiary? How does the New Civil Code define a common carrier?
When the insured waives expressly his right to Art. 1732. Common carriers are persons, corporations, firms
f or
change the beneficiary and it is contained in the associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for
policy compensation, offering their services to the public.
If that is the case, the insured cannot add additional To qualify as a common carrier under our laws, is it necessary
beneficiaries; he cannot get the cash surrender value that a common
mmon carrier should possess a certificate of public
without he consent of the beneficiary; he cannot use convenience?
the same as collateral nor transfer the same No, this has been cited already by the SC. The SC said
that it is unsound to give certain rights to persons
As irrevocable beneficiary, he cannot compel the insured to who have failed to follow the law.
pay the premiums. The irrevocable beneficiary can continue
paying the premiums. Carriers who have certificate of public convenience
conveni
have to follow the line, rules and regulations of the
Life insurance is also an exception to the cash and carry rule. public service commission, whereas a carrier without
In life insurance, there is what we call a grace period a certificate of public convenience, if they will not be
classified as common carrier just because there is no
Insurable interest in the life of the beneficiary. No need for certificate of public convenience,
convenience that is unsound.
insurable interest.
So with or without a certificate of public
Insurable interest in life should exist upon incep
inception only and convenience, it falls under the definition of common
not necessary at the time of loss carrier
No need for legal basis in insurable interest Is it necessary that the business of common carrier is a
principal business of the operator?
The policy may provide for suicide as an excepted peril. Not necessary, it may be incidental to his business. If
Contrarily, the policy may also include suicide as a peril it meets all the conditions required by law, even if
insured against. However, a stipulation in the t policy is not the operator may only have one carrier or one unit,
necessary for the insurer to be liable even in the case of that is a common carrier. The law does not say that
suicide provided that the policy has been in force for period there is a need for more than one unit,
of 2 years from the date of issue or last reinstatement
Is it necessary, just like the big transportation
t companies,
Sec. 180-A. The insurer in a life insurance contract shall be liable in case of
suicides only when it is committed after the policy has been in force for a
their buses are scheduled at a time?
period of two years from the date of its issue or of its last reinstatement, Not necessary
unless the policy provides a shorter period: Provided, however, That suicide
committed
ted in the state of insanity shall be compensable regardless of the When we say serving the general public, supposing that the
date of commission.
market has a limited clientele and not the general public, can
we still call it a common carrier? Example: school Buses.
The insurer is liable in case of suicide even before the 2 year
period in any of the following cases:
• When a shorter period is provided for in the policy
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MERCANTILE LAW REVIEW 2 NOTES by MARX
They are classified as common carrier although they This is the only instance where the obligor is required by law
have limited clientele. So it is not necessary that the to exercise extra ordinary diligence.
diligenc If there is a loss or
market is for the general public. damage and there is no showing that the common carrier
employed or exercised extra ordinary diligence but only less
than extra ordinary, the common carrier is liable.
Art. 1734. Common carriers are responsible for the loss, destruction,
destr or
deterioration of the goods, unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
Colorum – let’s say somebody owns a vehicle, then it’s for calamity;
hire. Its services can be engaged. The vehicle can be
b rented for (2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
one day for a particular trip. There is no certificate of public
(4) The character of the goods or defects in the packing or in the
convenience. Is a colorum a common carrier? Let’s say Pedro containers;
owns a motor vehicle and he offers it for hire, is the colorum a (5) Order or act of competent public authority.
common carrier?
It depends In item 3, if the proximate cause of the loss can be attributed
to the act or omission of the shipper
s or owner, the carrier is
The real distinction between
een a common carrier and a not liable.
private carrier is this:
Common carrier – owes a duty to the These are the 5 causes that will exempt the carrier from
general public. The general public can liability.
employ the common carrier as a matter of
right. The common carrier cannot turn In these 5 cases enumerated by law are not the only cases
down the request that may cause damage or loss to the shipper. There are other
fortuitous events that may take place. There are other
Private carrier - although for hire, is free to fortuitous events which are the proximate cause of the loss or
choose his clients and the same is not a deterioration. Does it necessarily mean that these 5 cases are
common carrier exclusive?
There are other fortuitous events which may be a
But if the colorum without a certificate of public convenience ground for exception but in one condition.
condi The
is offered to the general public so that anybody could use it, fortuitous events other than the 5 enumerated, the
and the same is a common carrier carrier must prove extra ordinary diligence. So Aside
from these 5 enumerated cases, other fortuitous
Characteristics (summary) events may be utilized to exempt liability provided
• Not necessary that the common carrier has a that there is a proof that the carrier exercised
ex extra
certificate of public convenience ordinary diligence
• Not necessary that it is a principal business
• Not necessary that it has more than one unit Also, in these 5 cases enumerated, these must be the
• Not necessary that it caters to the general public or proximate cause.
having a limited clientele
In the 5 enumerated cases, there is no presumption of
Art. 1733. Common carriers, from the nature of their business and for negligence
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of
them, according to all the circumstances of each case. the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
Such extraordinary diligence in the vigilance over the goods is further negligently, unless they prove that they observed extraordinary diligence as
expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the required in Article 1733.
extraordinary diligence for the safety of the passengers is further set forth in
Articles 1755 and 1756.
Speaks of the presumption
resumption of negligence
Because of the nature of the business and reasons of public
policy, the law requires a common carrier to exercise extra Take note that negligence, as a general rule, is never
ordinary diligence presumed, there must be proof that the cause of the loss or
damage or injury is a negligent act
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MERCANTILE LAW REVIEW 2 NOTES by MARX
But in this article, there is a presumption of negligence. So if What kind of contract is required by law for a contract of
the injured party
arty goes to court, he only needs to prove by transportation?
way of evidence is the loss, damage or deterioration of the It may either be written or oral
goods. There is already a presumption of negligence on the
part of the carrier. If it is written contract of transportation of goods, we call the
contract bill of lading
What may be the defense of the carrier? The bill of lading may either be:
That they exercised extraordinary
nary diligence Negotiable or non negotiable
Art. 1744. A stipulation between the common carrier and the shipper or What is less than extraordinary?
owner limiting the liability of the former for the loss, destruction, or
It may be diligence of a good father of the family but
deterioration of the goods to a degree less than extraordi
extraordinary diligence shall
be valid, provided it be: if it is less than ordinary diligence, that cannot be
(1) In writing, signed by the shipper or owner; because that is against public policy
(2) Supported by a valuable consideration other than the service
rendered by the common carrier; and
So the contract relative to lessening
lessen the degree of diligence,
(3) Reasonable, just and not contrary to public policy.
this can be only ordinary diligence
There are 2 contracts of transportation
At the onset,, 2 important principles in the law on common
• Transportation of good
carriers as enunciated in the new civil code:
• Transportation of persons
• the degree of diligence required by law is
extraordinary diligence.
Parties in a contract of transportation
• the presumption of o negligence
• Goods: the carrier and shipper or consignee
• Persons: the carrier and the passenger
All provisions found from art 1733-1763
1733 in the NCC are
American provisions
In our study of transportation law, remember the
classification.
fication. This involves a contract of transportation and
Extraordinary diligence is required for 2 reasons, Because of:
there are 2 objects of the contracts:
• the nature of the business
• Transportation of goods
• for matters of public policy
• Transportation of passengers
When we speak of extraordinary diligence, it does not apply
There is also what we call classification of articles, what type
only to transportation of persons but it also applies in the
of carrier is being used in transportation:
transportation of goods.
• By land
• By sea
The law does not make any distinction
• By air
This requirement (extraordinary diligence) applies not only to
There is a part in this section in the new civil code relative to transportation of persons but also to transportation of goods.
common carriers, this transportation of goods. This involves a
contract. When we speak of transportation of goods, there is Another principle enshrined in the law on common carriers is
a contract of transportation. the presumption of negligence.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
There is a presumption of negligence not only in a case of robbers did not act with irresistible force, the carrier
transportation of goods but also in the transportation of is not liable, such provision is not valid. The only way
person. In other words, in the case e of transportation of that the carrier may escape liability is to prove that
goods, the injured party or the plaintiff has to prove only in the thieves or robbers acted with irresistible force.
case there is loss, damage or deterioration, there is a
presumption of negligence. The carrier was at fault It is duty of the carrier to maintain the good condition of the
carrier being used in the transportation. If the proximate
In the case of transportation of persons, in case of death or cause of the loss or damage is defective carrier or equipment,
injury, there is a presumption of negligence on the part of the the carrier is liable.
carrier.
Art. 1748. An agreement limiting the common carrier's liability for delay on
account of strikes or riots is valid.
As a general rule, negligence should be proven but in the law
on common carriers is an exception.
If there is a stipulation limiting the carrier's liability in case of
Art. 1745. Any of the following or similar stipulations shall be considered strikes or riots is valid. If there is a stipulation in the bill of
unreasonable, unjust and contrary to public policy: lading that the carrier is not liable in case of loss or damage
(1) That the goods are transported at the risk of the owner or caused by strike or riot, is that a valid stipulation?
shipper;
That stipulation is valid
(2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the Art. 1749. A stipulation that the common carrier's liability is limited to the
custody of the goods; value of the goods appearing in the bill of la
lading, unless the shipper or owner
(4) That the common carrier shall exercise a degree of diligence less declares a greater value, is binding.
than that of a good father of a family, or of a man of ordinary
prudence in the vigilance over the movables transported; There are separate cases that has been decided by the court
(5) That the common carrier shall not be responsible for the acts or
applying this article.
omission of his or its employees;
(6) That the common carrier's liability for acts committed by thieves,
or of robbers who do not act with grave or irresistible threat, In determining the amount of freightage to be charged by the
violence or force, is dispensed with or diminished;
diminish carrier in connection with the transportation
trans of goods, there
(7) That the common carrier is not responsible for the loss,
are 2 ways:
destruction, or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment • By volume
used in the contract of carriage. • By value
There are certain Stipulationsions considered by law as If it is based on Volume, it is the space that may be occupied
unreasonable, unjust and against public policy. And for which that may be occupied by the goods that you are transporting.
reason, these stipulations are considered null and void not So the computation is space
effective or not valid.
Other is by Value, how much is the value supposing
sup the
What are these cases provided by law? shipment involves valuable things like jewelry.
Goods transported are at the risk of the ship
shipper.
Some shipper to economized, they declare a lower value. So
What does it mean? if the value of the goods is 200k or more, the shipper may
Whatever be the proximate cause of the loss, declare only 20k to reduce the amount that they are going to
damage or deterioration, it shall be on the account pay by way of freightage.
ightage. That is why there is a provision that
of the shipper, that is null and void, that is against the shipper cannot recover damages greater than what they
public policy. have declared. If the shipper declares a different value, he
cannot recover the actual value of the shipment in case of
Item 6, supposing part of the goods were stolen. Let say the loss.
goods is entrusted to the carrier?
It depends Art 1748 applies where the t freightage is computed on the
basis of value but not on the basis of volume.
If there is evidence to that effect that the thieves did
not act with irresistible cause or threat, the carrier is Art. 1746. An agreement limiting the common carrier's liability may be
liable. But if the carrier was threatened by annulled by the shipper or owner if the common carrier refused to carry the
goods unless the former agreed
ed to such stipulation.
irresistible force or threat, the carrier is not liable. So
if there is a stipulation that even if the thieves or
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MERCANTILE LAW REVIEW 2 NOTES by MARX
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MERCANTILE LAW REVIEW 2 NOTES by MARX
the carriage of goods by sea act is the suppletory A passenger may either be:
law. • Paying passenger
• Gratuitous passenger
How about Air travel?
• Domestic: civil code on common carriers is the When does a person becomes a passenger? Does a person
primary law becomes a passenger when he actually boards the vehicle or
• International: civil code on common carriers is the after boarding the vehicle? Can a person becomes a
primary law. The warsaw convention is the passenger even before boarding the carrier?
suppletory law Actual boarding
rding does not signify the perfection of
the contract of transportation.
Art. 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of o very
The issuance of the ticket does not necessarily mean the
cautious persons, with a due regard for all the circumstances.
beginning of the commencement of the contract of
The 2 principles discussed earlier is also applied in transportation.
transportation of passengers
The payment of the fare does not signify or mean the
What kind of contract is a contract of transportation of commencement
cement of the contract of transportation
passengers? Does the law prescribe any particular
parti contract
for the contract of transportation of passenger? When does the contract of transportation of passengers
The law does not provide commence?
The contract of transportation of passenger
The contract may either be written or oral. It may be commences when a person voluntarily places
express or implied himself under the control of the carrier with the
consent of the
he latter
Who is a passenger?
A Passenger is a person who undertakes with Example: when a person is going to take a ride in bus. He
consent of the carrier to travel
avel in the conveyance goes to the bus terminal, the moment the person enters the
provided by the latter otherwise that the service of bus terminal, and goes to the ticket booth to buy ticket, that
the carrier as such person is already considered a passenger. The duty of
extraordinary
ary diligence begins. In other words, if a person is
He is the one who undertakes or agrees to be in the bus station, there is an intention to travel. If there is an
transported by a conveyance provided by the carrier, intention, he already placed himself in the control of the
with the consent of the carrier. carrier.
Any person who entrust himself elf to another person Nowadays, there is what we call promotional payers. Buying a
operating a carrier with the consent of the latter for ticket
et 3 months ahead for a scheduled trip. Is there already a
transportation in a particular place of destination is a contract of transportation?
passenger. None, that is only a contract to transport in the
future. It is not a contract of transportation. That is
Can you be classified as a passenger if you do not have a an executor contract (contract to transport).
ticket? Is a ticket necessary in order that a person may
acquired the category of a passenger under the law? We may consider a contract of transportation of passengers a
A ticket is not necessary to qualify as a passenger real contract. In other words, there must be an actual placing
although it may be an evidence of a contract of of the passenger under the control of the carrier. So in effect,
transportation it is a real contract.
How about payment of the fare? Is a payment of a fare Supposing you are an employee of a transportation company,
necessary element or essentiall condition in order that a there are perks and privileges that an employee received from
person may qualify as a passenger in the eyes of the law? his employer like free ride from and to the transportation
Payment of fare is not necessary to qualify because a office. Is he a passenger? If something happens to the
passenger may be a gratuitous passenger. A employee, can he claim the rights and privileges of a
passenger may be allowed to ride for free passenger under the law or o will he just considered an
employee?
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MERCANTILE LAW REVIEW 2 NOTES by MARX
It depends, if the transportation company charges When does a contract of transportation take effect? Is it upon
his employee a certain amount for the ride to and the consent? The moment there is an agreement between the
from the office (he is paying something or a salary parties?
deduction), he is a passenger Strictly speaking,
g, No. it becomes effective and gives
to causes of action only when there is actual
But if it is absolutely for free, as part of the perks, he transporting of the passenger. If the passenger has
is not a passenger, he is an employee. Be that as it not delivered himself to the control of the carrier,
may, although he is not classified as a passenger, the there is no contract of transportation yet.
fact remains that he has the protection of the law
insofar as the exercise of extraordinary diligence is When does the contractt of transportation commence? Is it
concerned. In otherr words, employer shall exercise upon boarding the carrier? Actual boarding? Is it when the
extraordinary diligence insofar as his employee is passenger inside the carrier ready to be transported?
concerned although he is not considered a No, actual boarding is not necessary. The moment a
passenger person entrust himself to the care of the carrier
under the control of the carrier, the contract of
The kind of passenger involve in a contract of transportation transportation is deemed to have commenced.
is immaterial insofar as the 2 general principles relating
relatin to When a passenger enters a bus station to arrive at a
common carrier is concerned. particular destination, that person is already a
passenger for as long as his arrival is within
It is not a defense on the part of the carrier that you are a reasonable time between
bet arrival and departure.
non-paying
paying passenger and hence the carrier is not bound to
observe extraordinary diligence. The carrier cannot say that More so, if he already purchased a ticket. But even
extraordinary diligence is for paying passengers
assengers only. That is without a ticket, if he is already right there inside the
against public policy bus station waiting for his ride, he is already
considered a passenger. The duty to exercise
The requirement of the law that a common carrier still extraordinary diligence commences.
observes extraordinary diligence in its discharge of its
obligation as an obligor or conveyor applies to paying and When does a person cease to be a passenger? Does a person
non-paying passengers cease to be a passenger the moment he alights from the
carrier? Does the duty to exercise extraordinary diligence ends
If a passenger is injured or dies caused by the negligence of upon when the passenger already alighted?
the common carrier, the injured party enjoys the No, the passenger might have already alighted but if
presumption of negligence. The only thing that the injured he is still in the premises of the carrier waiting for his
party has to proved is evidence that the passenger is injured baggage, he is still a passenger. The duty to exercise
or has died. The burden of proof to overcome ove this extraordinary diligence subsist
presumption is on the part of the carrier. The carrier should
prove that he exercised extraordinary diligence. Supposing the carrier arrives early in the morning, let’s say it
is a train. Thatt particular carrier will leave in the afternoon.
The 2 general principles that we have discussed is contained The passenger did not leave the carrier, he stays behind the
in Art 1755 and 1756 carrier. Will you consider him as a passenger?
He is no longer a passenger. Reasonable time after
Art. 1755. A common carrier is bound to carry the passengers leaving the carrier. If he stays behind for no purpose
safely as far as human care and foresight can provide, using the
at all, he is not a passenger anymore. If something
utmost diligence of very cautious persons, with a due regard for
all the circumstances. happens, the carrier cannot be held liable.
Art. 1756. In case of death of or injuries to passengers, common This is important to know when does the duty begins and
carriers are presumed to have ave been at fault or to have acted
ends because during the effectivity of the contract of
negligently, unless they prove that they observed extraordinary
diligence as prescribed in Articles 1733 and 1755. transportation, there is a duty to exercise
exerc extraordinary
diligence. Whatever happens to the passenger, the same
Art 1755 speaks of extraordinary diligence with respect to the might give rise to a cause of action against the carrier.
transportation of passengers.
In transportation of goods, when does the duty of
What kind of contract is a contract of transportation? Do we extraordinary diligence commence? Does it commence when
consider this as a consensual contract or a real contract?
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MERCANTILE LAW REVIEW 2 NOTES by MARX
This liability of the common carriers does not cease upon proof that they This is unlike in the case of gratuitous passenger, where the
exercised all the diligence of a good father of a family in the selection and
same can be limited
supervision of their employees.
Art. 1761. The passenger must observe the diligence of a good father of a
Like in a bus, there is a driver
iver and a conductor family to avoid injury to himself.
Supposing, in a bus station, there was a commotion or a The passenger also has a duty
dut to observe the diligence of a
quarrel between 2 passengers within the premises. One of the good father of a family.
drivers of the bus company arrives and he tried to pacify the 2
quarreling parties. In solving the issue, he injured one of Art. 1762. The contributory negligence of the passenger does not bar
them. Did the bus driver acted within the scope of his recovery of damages for his death or injuries, if the proximate cause thereof
is the negligence of the common carrier, but the amamount of damages shall be
authority?
equitably reduced.
No, he did not. He is not the security guard, he is the
bus driver but he took it upon himself to pacify the Supposing the passenger was also partly to blame for the
parties quarreling accident, but the proximate cause was the negligence of the
carrier.
Is the carrier liable? If the proximate cause was the negligence of the
The law is specific, even if nott acting within the carrier, contributory negligence on the part of the
authority. The carrier is liable passenger cannot be a defense to exculpate the
carrier from liability. But it can be a ground for the
Supposing that the same driver is off duty but incidentally he reduction of liability in accordance with the
arrived at the bus station. And he took it upon himself to circumstance
pacify the parties, then one parties got injured. Can you hold
the carrier liable?
e? Can the carrier put up as a defense that Art. 1763. A common carrier is responsible for injuries suffered by a
they are not liable because the bus driver was not on duty? passenger
er on account of the wilful acts or negligence of other passengers or
It depends of strangers, if the common carrier's employees through the exercise of the
diligence of a good father of a family could have prevented or stopped the
act or omission.
This is an act of a stranger, the carrier is liable if they
did not exercise due diligence that they could have Is the proximate of the injury of the passenger is the act of a
prevented the accident stranger, thief or a robber, can you hold the carrier liable?
The carrier is liable if through the exercise of
Under
er this article, diligence of a good father of the family in ordinary diligence, the carrier could have prevented
the selection and supervision of their employees is not a the incident
defense. Remember torts and damages (culpa aquiliana).
Art. 1764. Damages in cases comcomprised in this Section shall be awarded in
In culpa aquiliana, is that a valid defense? accordance with Title XVIII of this Book, concerning Damages. Article 2206
Yes. If the cause of action is a tortuous
rtuous act, under the shall also apply to the death of a passenger caused by the breach of contract
by a common carrier.
Civil Code, due diligence of a good father of a family
not only in the selection but also in the supervision is
a defense What are the damages ___ by the passenger?
passen If a passenger
is injured or he died as a result of the negligence of the
But the study of common carrier is not about culpa aquiliana. carrier. We are assuming here that the carrier is liable. What
It is culpa contractual. Contract of transportati
transportation, the carrier kind of damages are recoverable by the passenger from the
cannot put up as a defense the exercise of due diligence of a carrier?
good father of the family not only in the selection but also in There are 2 kinds of damages recoverable
the supervision. • Actual damages – the cost of medicine and
hospitalization
Art. 1760. The common carrier's responsibility prescribed in the preceding • Compensatory Damages – unrealized profit;
article cannot be eliminated
minated or limited by stipulation, by the posting of the net yearly income of the injured or
notices, by statements on the tickets or otherwise. deceased passenger multiplied by the
number of years ____ existence based of
This is with respect to the liability of common carrier for the
the mortality table
acts of its employees as prescribed in article 1759. This
cannot be limited by any stipulation,
pulation, statement in the ticket.
For example: the passeng
passenger died as a result of an accident
and he died at the age of 40 having involved gainful years had
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MERCANTILE LAW REVIEW 2 NOTES by MARX
he survived. According to the mortality rate, he may have 20 culpa aquilana, it is the carrier and the driver are the
years, how much could he earn net income yearly for the next respondents
20 years?
There is what we call unrealized
alized profit based on the If it is culpa criminal, based on the RPC, who will be the
mortality rate. respondents?
The driver but insofar as civil liability
lia is concerned,
Is the carrier liable for moral damages? the carrier is subsidiary liable. Under the RPC, if the
With respect to moral damages, there is a qualification. driver is convicted and he is insolvent, the employer
There are only 2 instances where a passenger is entitled is subsidiary liable.
to moral damages:
• In case of death
• When the carrier is guilty ilty of fraud or bad faith The difference between culpa contractual and culpa aquiliana
even though death did not result. So if there is Culpa Contractual – there is an agreement. There is
injury, the law qualifies, there must be bad faith a contract
on the part of the common carrier Culpa Aquiliana – there is no agreement. It is an act
or omission, there being no agreement, causing
This is different from culpa aquilana, even if there is no fraud damage or injury to another, that is a tort.
or bad faith, the injured party
rty is entitled to moral damages
but if the cause of action is culpa contractual, injury alone is Culpa Contractual – in matter of diligence,
not a ground for moral damages, it must be accompanied extraordinary diligence (contract of transportation)
transp
with bad faith or fraud. to absolve the carrier
Culpa Aquiliana – to absolve the employer, due
If a passenger is injured or died, there are 3 available causes diligence of good father of a family in the selection
of action: and supervision of its employees, that is a defense
• Culpalpa contractual based on the contract of
transportation Culpa Contractual – there is a presumption of
• Culpa Aquilana based on tortuous act negligence (contract of
o transportation)
• Culpa Criminal based on a penal clause Culpa Aquiliana – there is no presumption of
negligence. You have to prove negligence
The choice belong to the injured party
Culpa Contractual – in matter of moral damages, for
If the cause of action is culpa contractual, let’s say X is the a passenger to recover moral damages in case injury,
transportation company,
any, Y is a passenger, the Z is the driver there must be fraud or bad faith
of the bus. There was an accident. Y got injured. If it is culpa Culpa Aquiliana – there is no need for fraud or bad
contractual, who will be the respondents? faith, moral damages is recoverable even without
X, the transportation company – the carrier bad faith or fraud
Will you include the driver if the cause of action is culpa OVERLAND TRANSPORTATION (Code of Commerce)
contractual?
He cannot be included, he is not a privy to the The code of commerce speaks of overland transportation,
contract of transportation. waterways transportation and maritime commerce but
b never
transportation by air.
So of the cause of action availed of by the passenger
is culpa contractual, there is only one respondent Why is there no provision in the code of commerce relative to
and that is the common carrier, the passenger transportation by air?
cannot include the driver because the driver is not a Because when the code of commerce was enacted
privy to the contract of transportation to law, it was year 1889. Airplanes are not yet used
for commercial transportation during that
th time.
Supposing the cause of action is culpa aquilana, who will be
the respondents? Can the driver be included if the case is one But nonetheless, the SC said, the New Civil code and
of culpa aquilana? provision in overland transportation and waterways
Yes, because there is what we called
led joint tortfeasor. may have suppletory effect insofar as air
Employer and employee are solidarily liable. So if it is transportation is concerned.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
When it has for its object merchandise or any article of Some provisions in this article is still in force
commerce
In other words, when the goods are transported to If you are the shipper, you can tell the carrier, “issue me a bill
be sold and not for personal use. of lading”. If the shipper is not asking for one, the carrier may,
on its own, issue a bill of lading to cover the goods they
When the code speaks of merchandise, there is a transported.
connotation that these are goods belonging to a
merchant to be sold. Can there be a contract of transportation without a bill of
lading? Is it necessary that there should be a bill of lading?
When, whatever its object may be, the carrier is a merchant No, it is not necessary. There can be a contract of
or is habitually engaged in transportation for the public. transportation even without a bill of lading
The nature of goods
ods is immaterial if the carrier is a
merchant If it involves transportation of goods,
goods we call the contract bill
of lading
When is a carrier (the code of commerce does not speak of a
common carrier) a merchant? If it is a transportation of person, what do we call the
When the carrier is transporting goods or passenger, serving contract?
the public for compensation, that carrier is a merchant It is not bill of lading, it is the issuance of a ticket.
The ticket is equivalent of a bill of lading when it
The test is: comes to the transportation of person
• The character of the goods being carried or
• The character of the carrier The bill of lading has a 2--fold character, what are the 2-fold
characters of a bill of lading?
If the goods are merchandise, the contract of transportation
is commercial
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MERCANTILE LAW REVIEW 2 NOTES by MARX
• It is considered as a receipt meaning to say evidence In a bill of lading, usually, there are 3 common stipulations
of the receipt of the goods by the carrier. That is one encountered by the courts in a bill of lading. What are these
of the functions of a bill of lading. stipulations?
• It can be considered as a contract by itself containing • “The carrier not liable
liab for any loss or damage or the
the terms and conditions. If there is a case in court goods are carried at risk of the shipper”
involving the terms and conditions, the best • A stipulation limiting the liability of the carrier to a
evidence is the bill of lading particular amount. An unqualified limitation of the
carrier to a certain amount
Material matters contained in a bill of lading • Liability of carrier shall not exceed the amountam
• Description of the __ declared in the bill of lading. In other words, the
• Terms and conditions liability of carrier should not be more than the
• How much is the freightage amount in the bill of lading unless the shipper
• Who is the consignee declares a higher or greater amount
• Place of departure
• Place of destination “The
The carrier not liable for any loss or damage or the goods are
carried
arried at risk of the shipper”
shipper is this stipulation valid?
The code of commerce speaks of 2 kinds of Bill of lading Not valid,, if there is a stipulation in a bill of lading to
• Negotiable bill of lading refer that the carrier is not liable in case of loss or
• Non-negotiable bill of lading damage, that stipulation is null and void. It is against
public policy. According to the NCC, regarding
When is a bill of lading negotiable? prohibited provisions, the same is found in the NCC
This is more or less similar to a negotiable
instrument. When the goods are deliverable to the Supposing there is a stipulation that “the carrier is liable only
order of a particular person or to bearer, that bill of up to 20k.” is that a valid stipulation unqualified limiting the
lading is negotiable liability of the carrier?
That stipulation is not valid, that is against public
If the bill of lading says “the goods described herein policy
deliverable to the order of ___”, that is a negotiable
bill of lading A stipulation that the Liability of carrier shall not exceed the
amount declared in the bill of lading. In other words, the
What is the importance? liability of carrier should not be more than the amount in the
The negotiation of a bill is very important because bill of lading unless the shipper
shipp declares a higher or greater
without actual delivery of the object, you can amount
transact with other person. You can sell your goods The stipulation is valid. It is valid because, when we
without actual delivery of the goods that you are speak of freightage, there are 2 terms of freightage:
selling, the only thing that you have to do is to • In accordance with the volume
negotiate the bill of lading • In accordance with the value
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MERCANTILE LAW REVIEW 2 NOTES by MARX
law on common carrier in the NCC is not found in the code of • Buyer insolvent
commerce • Goods are in transit
The bill of lading is issued by the carrier. The bill of lading is When the goods are in transit,
trans the unpaid seller can order the
signed only by one party, that is the carrier. The shipper
shi does carrier to stop delivery. Stoppage in transitu cannot be done
not sign the bill of lading. If you are the shipper, can you by the shipper without surrendering the bill of lading
change the consignee as found in the bill of lading?
It can be done only upon surrender of the bill of Regarding the obligation of the carrier, the moment the right
lading. Without the surrender of the bill of lading, of stoppage in transit is exercised and the same is a valid
there can be no change of thee consignee because exercise, the responsibility of the carrier as a carrier ceases.
the bill of lading is already in the hands of a third The carrier becomes a mere depositary.
person
ARTICLE 368. The carrier must deliver to the consignee, without any delay
When the goods are delivered by the carrier to the consignee, or obstruction, the goods which he may have received, by the mere fact of
being named in the bill of lading to receive them; and if he does not do so, he
the consignee should surrender the bill of lading to the shall be liable for the damages which may be caused thereby.
carrier. Without surrendering the bill of lading, the carrier
c is
not bound to deliver the goods to the consignee. But the Suppose there was delay on the part of the carrier in the
moment the bill of lading is surrendered to the carrier, all delivery of the goods to the consignee,
consig can the consignee tell
obligations relative to the contract of transportation are the carrier that he is not going to accept the goods anymore
considered terminated. If a bill of lading is still in the hands of because there has been delay in the delivery?
the
he shipper or consignee, the presumption is that the goods The mere delay does not amount to conversion, the
have not yet been delivered. carrier may be held liable for the delay for whatever
that have caused to the consignee, but the
ARTICLE 358. If there is no period fixed for the delivery of the goods the
carrier shall be bound to forward them in the first shipment of the same or
consignee cannot refuse to accept the goods.
similar goods which he may make point where he must deliver them; and
should he not do so, the damages caused by the delay should be for his But if the delay is unreasonable, like when the delay
account. is for more than a year, then conversion will apply.
The consignee can hold the carrier liable for the
Usually, the time of delivery is not contained in bill of lading. value of the goods plus damages
dam because the delay
No carrier will do that. If you are in a province and
an you want here is unreasonable
to send something to manila, the carrier will not indicate in
the bill of lading that the goods or the effects you are Supposing a part of the goods were damaged, may the
shipping are to be delivered on or before a date, not unless, it consignee refuse acceptance of the remaining undamaged
is expressly stipulated. goods?
No, the law says that the consignee should accept
Under the code of commerce, if there re is no express the portion that is not damage and hold the carrier
car
stipulation as to the exact date of delivery, the carrier is for the damage portion.
bound to ship out the goods together with the same or
similar merchandise bound for the same destination, first Exception to the rule:
shipment. That is the obligation of the carrier. If the remaining portion cannot be used without the
damaged portion, then the consignee has the right
Remember the provisions
visions in the NCC relative to documents of to refuse acceptance the remaining goods.
title. These will also apply to bills of lading
ARTICLE 373. The carrier who makes the delivery of the merchandise to the
There is also another provision in the NCC, that is what we consignee by virtue of combined agreements or services with other carriers
call the RIGHT OF STOPPAGE IN TRANSITU. shall assume the obligations of those who preceded him in the conveyance,
reserving his right to proceed against the latter if he was not the party
directly responsible
nsible for the fault which gave rise to the claim of the shipper
When is there right of stoppage in transitu? Meaning to say or consignee.
when
hen can the shipper tell the carrier to stop delivery?
This case involves an unpaid seller and the buyer is The carrier who makes the delivery shall likewise acquire all the actions and
rights of those who preceded him in the conveyance.
in a state of insolvency and the goods are in transit
The shipper and the consignee shall have an immediate
i right of action
Conditions: against the carrier who executed the transportation contract, or against the
• Seller unpaid
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MERCANTILE LAW REVIEW 2 NOTES by MARX
other carriers who may have received the goods transported without MARITIME COMMERCE
reservation.
However, the reservation made by the latter shall not relieve them from the
t Maritime Commerce is still governed by the code of
responsibilities which they may have incurred by their own acts. commerce
In this article, there is what we call “transportation of goods Insofar as maritime commerce is concerned, what is the
by combined carriers” subject matter?
Vessels. The transportation of goods or persons by
When there is transportation of goods by combined carriers, merchant vessels from one port to another port
there is what we call “transshipment”
oes the code of commerce qualify the kind of vessel covered
Does
If there are 2 carriers, there is a transshipment from the first by the law?
st nd
to the second. It may even involved 3 carriers, from 1 to 2 , According to the commentaries, the vessels covered
nd rd
from 2 to 3 are merchant vessels manned by duly licensed
master with a floating apparatus. These are the big
The code of commerce is very clear in Art 373, who shall be vessels, whether moved by sail or steam,
st they are
liable? Assuming that there are 3 carriers invol
involved, carriers A, manned by licensed masters.
B and C. If there are 3 carriers involved, who is responsible?
The last carrier, the carrier who delivers the goods Not only the type of vessel, but also the venue. The
may be held liable by the consignee in spite the fact venue is the open sea. If the vessel is being used for
the last carrier was not the negligent one but this is river navigation, that is not covered by maritime
without prejudiceice to the right of the last carrier to commerce
hold the guilty carrier liable.
They are merchant vessels. So if it is a yacht,
yac will the code of
In spite the fact that the law says that the last carrier commerce will apply?
shall assume the responsibility, this is also without No
prejudice to right of the consignee to choose anyone
of them. So either A, B or C can be sued by the If it is a patrol boat or a boat assigned for scientific
consignee expedition?
This is not the vessel contemplated in the law
Right of Abandonment: may the consignee or shipper
abandon the goods and hold the carrier liable for the value of The qualifications is that it is strictly merchant vessels
the same? navigating in the open seas, manned
mann by licensed master with
In insurance law, the insured has the right to a floating apparatus
exercise the right of abandonment if the claim
cla more
than ¾ of the value of the vessel What kind of a property is a vessel? Does the law consider it
real property considering its value and importance in the field
In overland transportation, if there is delay and the of commerce? Considering its value, will you consider a vessel
delay is caused by the fault of the carrier, a real property?
unreasonable delay, the consignee, before the A vessel, no matter how much the value is still
arrival of the goods, exercise the right of considered personal property
abandonment.
If a vessel is a personal property and it is offered as a
After the arrival, the consignee cannot abandon the collateral for a loan to be obtained from an institution, what
goods anymore. kind of mortgage will be constituted?
Chattel Mortgage
Does the carrier have a lien on the goods?
yes If it is a chattel mortgage, where are you going to register the
mortgage? Is there a need to register it with the register of
For how long does the lien last? deeds?
Under art 375, it says 8 days. But this has been No, instead of the register of deeds, the registration
qualified by the civil code. shall be with the office of registry of vessels
Under Art 2241 of the NCC, its 30 days
ays
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MERCANTILE LAW REVIEW 2 NOTES by MARX
Affidavit of good faith must be registered in order to bind ARTICLE 590. The co-owners
owners of a vessel shall be civilly liable in the proportion
of their interests
ts in the common fund, for the results of the acts of the
third persons
captain, referred to in Article 587.
The ownership of a vessel shall likewise be acquired by possession in good ight of dominion.
Ship owner has the right
faith, continued for 3 years, with a just title duly recorded
In the absence of any of these requisites, continuouss possession for ten years Ship agent, just like in a contract of agency, the agent is just a
shall be necessary in order to acquire ownership. mere extension of the personality of the principal. He acts for
and in behalf of his principal
A captain may not acquire by prescription the vessel of which he is in
command
Can the agent act alone in his own name?
He cannot, he has to disclose hishi principal. If he does
There are several provisions governing co-ownership
co of
not disclose his principal, he is liable
vessels. Right now, vessels are co-owned
owned by big companies. A
vessel may be co-owned
owned by 2 or more persons and the
In ordinary agency in NCC, is the agent personally liable?
management shall be that through a resolution of the co- co
The agent is a mere extension of the personality of
owners. Majority vote of the co-owners
the principal. So much so, if he does not exceed the
ARTICLE 589. If two or more persons should be part owners of a merchant powers given to him, he acts ac in accordance and
vessel, a partnership
hip shall be presumed as established by the co-owners.
co within the power granted to him by his principal, he
is not personally liable.
This partnership shall be governed by the resolutions of the majority of the
members.
Is an agent subsidiarily liable in case his principal fails to …?
If the part owners should not be more than two, the disagreement of views, no
if any, shall be decided by the vote off the member having the largest
interest. If the interests are equal, it should be decided by lot.
Under the maritime laws, what is the concept of a ship agent?
The person having the smallest share in the ownership shall have one vote; Is the concept the samee as what in the NCC?
and proportionately the other part owners as many votes as they have parts Art 586, 587 mentioned about the liability of the
equal to the smallest one. shipping agent
Can a co-owner
owner assume the position of captain of the vessel? ARTICLE 586. The shipowner and the ship agent shall be civilly liable for the
acts of the captain and for the obligations contracted by the latter to repair,
Yes. Under the code of commerce, if a co-owner
co is
equip, and provision the vessel, provided the creditor proves that the
qualified to occupy that position, that co-owner
co amount claimed was invested for the benefit of the same.
should be given preference
By ship agent is understood the person entrusted with provisioning or
representing the vessel in the port in which it may be found.
For whatever be the vessel figured in an accid
accident or with the
conduct of the captain, indemnity is ___ in favor of 3rd person
arose, the partners are liable in proportion of the share in the So remember,
emember, the owner and the ship agent is liable, they are
co-ownership practically on equal footing. Liable for the acts of the captain.
Liable for the contracts of the captain unless the same said
contract redound for the benefit of the vessel, the shipping
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MERCANTILE LAW REVIEW 2 NOTES by MARX
agent in maritime
aritime commerce assumes primary liability, same
as the shipowner ARTICLE 826. If a vessel should collide with another, through or the
fault, negligence, or lack of skill of the captain, sailing mate, or any
other member of the complement, the owner of the vessel at fault
Why is there a difference between the liability of an agent in
shall indemnify the losses and damages suffered, after an expert
an ordinary contract of agency under NCC and in maritime
appraisal.
commerce?
Because of the peculiar nature of the business Aside from the 3 articles, In general, the shipowner and ship
operating a merchant vessel. In maritime commerce, agent are liable for damages for torts or quasi-delicts
quasi
the vessels have ship agents in every port wherever committed by the captain
they go. The ship agent takes of the provisioning of
the vessel. If there are equipments necessary to be ARTICLE 598. The ship agent may not order a new voyage, or make contracts
acquired, the ship agent needs it to clear with the for a new charter, or insure the vessel, without the authorization of its owner or
ship owner.
ner. The manning of the vessel, the hiring of resolution of the majority of the co-owners,
co unless these powers were granted
the crew and the master of the vessel, that job him in the certificate of his appointment.
pointment.
belongs to the ship agent.
If he insures the vessel without authorization therefore, he shall be subsidiarily
The ship agent is the one who signs the contract liable for the solvency of the insurer.
whenever the shipowner is not around. The vessel
cannot be readily attached or levied upon because ARTICLE 606. If the captain should be a co-owner
co of the vessel, he may not be
the vessel is in one port. What is the security of the discharged unless the ship agent returns tot him the amount of his interest
other party? For example, the vessel is Manila based. therein, which, in the absence of agreement between the parties, shall be
appraised by experts appointed in the manner established in the law of civil
While it was is south America, there was an incident,
procedure.
damages was incurred, the guilty party was not able
to make repairs. How can thee innocent party in South ARTICLE 607. If the captain who is a co-owner
co should have obtained the
America, get hold of the vessel? command of the vessel by virtue of a special agreement contained in the
They have to hold the shipping agent liable articles of association, he may not be deprived of his office except for the
causes mentioned in Article 605.
Considering the responsibility of the shipping agent, what will
be the remedy of the ship agent in case he was held to be What are the inherent powers of the captain of the vessel?
liable? ARTICLE 610. The following powers shall be inherent in the position of
The remedy provided forr by law is the right of captain, master or patron of a vessel:
abandonment or right of reimbursement 1. To appoint or make contracts with the crew in the absence of
the ship agent, and to propose said crew, should said agent be
present; but the ship agent
ag may not employ any member
The shipping agent is given by law the right to against the captain's express refusal.
abandon the vessel including its freght to exempt
himself from liability 2. To command the crew and direct
di the vessel to the port of its
destination, in accordance with the instructions he may have
The shipping agent, if he is made to pay, can seek received from the ship agent.
reimbursement from the ship owner
3. To impose, in accordance with the contracts and with the laws
and regulations of the merchant marine, and when on board
What are the liabilities of the shipowner and ship agent?
ARTICLE 586. The shipowner and the ship agent shall be civilly the vessel, correctional punishment upon those who fail to
liable for the acts of the captain and for the obligations contracted comply with his orders or are wanting in discipline, holding a
by the latter to repair, equip, and provision the vessel, provided preliminary hearing on the crimes committed on board the
the creditor proves that the amount claimed was invested for the vessel on the seas, which crimes shall be turned over to the
benefit of the same. authorities having jurisdiction over the same at the first port
touched.
By ship agent is understood the person entrusted with
provisioning or representing the vessel in the port in which it may
4. To make contracts for the charter of the vessel in the absence
be found.
of the ship agent or of its consignee, acting in accordance with
the instructions received and protecting the interests of the
ARTICLE 587. The ship
hip agent shall also be civilly liable for the
indemnities in favor of third persons which may arise from the owner with utmost care.
conduct of the captain in the care of the goods which he loaded
on the vessel; but he may exempt himself therefrom by 5. To adopt all proper measures to keep the vessel well supplied
abandoning the vessel with allll her equipments and the freight it and equipped, purchasing all that may be necessary for the
may have earned during the voyage.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
What are the liabilities of the captain? What is the difference between a charter party contract and a
ARTICLE 618. The captain shall be civilly liable to the ship agent, and bill of lading?
the latter to the third persons who may have made contracts with Charter party is a contract of lease
the former; Bill of lading is a contract to transport goods from
1. For all the damages suffered by the vessel and its cargo one place to another. It is not a contract of lease. It
by reason of want of skill or negligence on his part. If a is a contract of transportation of goods
misdemeanor or crime has been committed, he shall be
liable in accordance with the Penal Code.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
A charter party contract, the charterer may lease the whole If the owner of the part of the freight already loaded should procure some
vessel or a portion of the vessel. If it is a bareboat charter, it more at the same price and under similar or proportionate conditions to those
is a charter of the entire vessel because the owner is accepted for the freight received, the person from whom the vessel is
chartered
hartered or the captain can not refuse to accept the rest of the cargo; and
relinquishing the possession and control of the vessel. So
should he do so, the shipper shall have a right to demand that the vessel put to
bareboat charter necessarily
ily implies, the leasing of the entire sea with the cargo which it may have on board.
vessel.
This is a case where the ship owner, the portion of the vessel
If it is a leasing of a part of or a portion of the vessel, it cannot is being chartered. A portion chartered by A, a portion
be a bareboat anymore. This will still be under the control of chartered by B. if it does not reach 3/5 of the vessel, the
the owner or ship agent. The contract between the 2 is still owner of the vessel can tell the charterers, “I will look for
that of a common carrier another vessel” because it might be a losing proposition on
the partrt of the owner of the vessel if he will proceed. The
ARTICLE 655. Charter parties executed by the captain in the absence of the ship
charterer cannot complain
agent shall be valid and effective, even though in executing them he should
have acted in violation of the orders and instructions of the ship agent or
ARTICLE 671. After three-fifths
fifths of the vessel has been loaded, the person from
shipowner; but the latter shall have a right of action against the captain for
whom she is chartered may not, without the consent of the charterers or
indemnification of damages.
shippers, substitute thee vessel designated in the charter party by another one,
under the penalty of making himself thereby liable for all the losses and
This is a case where the vessel is found in a place where there damages occurring during the voyage to the cargo of those who did not
is no ship agent and the owner is not there also. Only the consent to the change.
captain of the vessel is around. If that is the case, does the
captain of the vessel have the authority to enter into a charter ARTICLE 679. The charterer of an n entire vessel may sub-charter
sub the whole or
party contract? part thereof on such terms as he may consider most convenient, the captain
No, the captain must be authorized by the ship agent not being allowed to refuse to receive on board the freight delivered by the
or shipowner, but in case the captain does so, or second charterers, provided that the conditions of the first firs charter are not
even assuming that he is authorized and he did di not change, and that the price agreed upon is paid in full to the person from whom
follow the instruction, that contract between the the vessel is chartered, even though the full cargo is not embarked, with the
rd limitation established in the next article.
captain and the 3 person shall be valid.
If the vessel has been subject of a charter party contract, can
The general public can assume that the captain has
the charterer sub-charter
charter a portion of the vessel?
the doctrine of apparent authority. If the shipowner
The charterer of the entire vessel can subsub-lease the
or ship agent is not around, the general public can
vessel, provided that it does not contradict with the
assume that the captain has the authority. That is
stipulations contained in the charter party contract
the reason of the law why the contract is valid
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MERCANTILE LAW REVIEW 2 NOTES by MARX
and full payment of the agreed price for the If the new owner of the vessel should not load it for his
charterer is paid own account, the charter party shall be respected, and
the vendor shall indemnify the purchaser if the former
did
Art 688 – rescission by the charterer
ARTICLE 688. A charter party may be rescinded at the request of
the charterer: ARTICLE 690. The charter party shall be rescinded and all actions arising
1. If before loading the vessel he should not agree with therefrom shall be extinguished, if, before the vessel puts to sea from the port
that stated in the certificate of tonnage,
ton or if there of departure, any of the following cases should occur:
should be an error in the statement of the flag under 1. A declaration of war or interdiction of commerce with the power to
which she sails. whose ports the vessel was to make its voyage.
2. A condition of blockade of the port of destination of said vessel, or
2. If the vessel should not be placed at the disposal of the the breaking out of an epidemic after the contract was executed.
charterer within the period and in the manner agreed 3. The prohibition to receive at the said port the merchandise
upon. constituting
tituting the cargo of the vessel.
4. An indefinite detention, by reason of an embargo of the vessel by
3. If after the vessel has put to sea, she should return
r to the order of the government, or for any other reason independent of
port of departure, on account of risk from pirates, the will of the ship agent.
enemies, or bad weather, and the shippers should agree 5. The inability of the vessel to navigate, without fault of the captain
ca or
to unload her. ship agent.
In the second and third cases the person from whom The unloading shall be made for the account of the charterer.
the vessel was chartered shall indemnify the charterer
for the voyage out.
Can the captain of the vessel borrow money by way of a loan
4. If the charter should have been made by the months, on respondentia?
the charterers shall pay the full freightage for one no
month, if the voyage is for a port in the same waters,
and for two months, if for a port in different waters.
There are 2 kinds of loans
From one port to another of the Ph Philippines and adjacent
islands, the freightage for one month only shall be paid.
• Bottomry loan
• Respondentia
5. If the vessel should make a port during the voyage in
order to make urgent repairs, and the charterers should Does the captain have the power to t enter into a loan
prefer to dispose of the merchandise. (respondentia)?
The captain of the vessel does not have the authority
When the delay does not exceedxceed thirty days, the shippers shall rd
because the goods belongs to 3 persons. The goods
pay the full freightage for the voyage out. do not belong to the shipowner or ship agent.
Should the delay exceed thirty days, they shall only pay the
freightage in proportion to the distance covered by the vessel. Respondentia – using the goods as a collateral
2. If the person from whom the vessel was chartered These are 2 kinds of loanss that are peculiar because they are
should sell it before the charterer has begun to load it, only found in the code of commerce.
and the purchaser should load it for his own account.
When we speak of loan on Bottomry, the object here is the
In such case the vendor shall indemnify the charterer for vessel. The vessel is the one being mortgage
the losses he may suffer.
When we speak of Respondentia, what is the subject matter?
What is the thing being
eing offered as collateral?
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MERCANTILE LAW REVIEW 2 NOTES by MARX
If it is a simple loan, does the loss of the collateral extinguish There are certain incidents relative to the case of loan on
the simple loan? bottomry or respondetia:
The loan subsist • If the vessel or the goods have never been exposed
to any risk. Example: the owner of the vessel
Another point of distinction
stinction is that under the code of borrowed 1M but the vessel never left the port. The
commerce, the loan on bottomry must be written and should owner of the goods borrows 500k but the goods
be recorded in the registry of vessel. In simple loan, no such where never transported. That loan is not a loan on
requirement bottomry or respondentia. It is a simple loan, then
the borrower should pay the legal rate not the
In the manner of payment, the so called degree of preference extraordinary interest usually charged for a loan on
(1st, 2nd or 3rd mortgage), ), in the application of any amount bottomry or respondentia
st
available for ___ payment, the 1 mortgage shall always have
the priority. It shall have precedence. That is simple loan. But, ARTICLE 729. Should the goods on which money is taken not be
in the case of loan on bottomry, the last loan has precedence subjected to risk, the contract shall be considered a simple loan,
over the previous ones. with the obligation on the part of the borrower to return the
principal and interest at the legal rate, if that agreed upon should
not be lower.
What is the reason? Why give preference to the last loan?
The last loan might have contributed to the saving of
If the owner of the vessel or goods obtained a loan, the value
the vessel
of which is greater than the value of the vessel or goods,
whatever excess shall be considered a simple loan. If the value
v
The loan on respondentia is different from the loan on
of the vessel is 2M and the owner of the vessel obtained a
bottomry, why do we call it respondentia?
loan of 3M. The vessel was lost. Is the obligation of the
We call it respondentia because the personal
pe
borrower extinguished in total?
obligation of the borrower (owner of the goods) is
Only the 2M corresponding to the value of the vessel
the primary collateral.
shall be considered as the subject on the loan on
bottomry. The 1M excess shall be considered as
Why is the person of the owner/borrower the primary
simple loan, the owner of the vessel is still liable. The
collateral and not the goods?
same is true with respect to goods
In civil law, when personal property is given as
collateral, we call it pledge or chattel mortgage.
m If it
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MERCANTILE LAW REVIEW 2 NOTES by MARX
AVERAGES provisions, wages, and expenses of the vessel detained during the
time the settlement or redemption is being made.
Article 806. The following shall be considered averages: 2. The goods jettisoned to lighten the vessel, whether they belong to
1. All extraordinary or accidental expenses which may be incurred the cargo, to the vessel, or to the crew, and the damage suffered
during the voyage in order to preserve the vessel, the cargo, or through said act by the goods which are kept on board.
both. 3. The cableses and masts which are cut or rendered useless,' the
2. Any damages or deteriorations which the vessel may suffer from anchors and the chains which are abandoned, in order to save the
the time it puts to sea from the port of departure until it casts cargo, the vessel, or both.
anchor in the port of destination, and those hose suffered by the 4. The expenses of removing or transferring a portion of the cargo in
merchandise from the time they are loaded in the port of shipment order to lighten the vessel and place it in condition to enter a port or
until they are unloaded in the port of their consignment. roadstead, and the damage resulting therefrom to the goods
removed or transferred.
ARTICLE 809. As a general rule, simple or particular averages shall include all 5. The damage suffered by the goods of the cargo by the opening
the expenses and damages caused d to the vessel or to her cargo which have not made in the vessel in order to drain it and prevent its sinking.
inured to the common benefit and profit of all the persons interested in the 6. The expenses caused ed in order to float a vessel intentionally stranded
vessel and her cargo, and especially the following: for the purpose of saying it.
1. The losses suffered by the cargo from the time of its embarkation 7. The damage caused to the vessel which had to be opened, scuttled
until it is unloaded,
loaded, either on account of inherent defect of the or broken in order to save the cargo.
goods or by reason of an accident of the sea or force majeure, and 8. The expenses for the treatment and subsistence of the members of
the expenses incurred to avoid and repair the same. the crew
rew who may have been wounded or crippled in defending or
saying the vessel.
2. The losses and expenses suffered by the vessel in its hull, rigging, 9. The wages of any member of the crew held as hostage by enemies,
arms, and equipment,
ipment, for the same causes and reasons, from the privateers, or pirates, and the necessary expenses which he may
time it puts to sea from the port of departure until it anchors and incur in his imprisonment, until he is returned to the vessel or to his
lands in the port of destination. domicile, should he prefer it.
10. The wages and victuals of the crew of a vessel chartered by the
3. The losses suffered by the merchandise loaded on deck, except in month, during the time that it is embargoed or detained by force
coastwise navigation, if the marine ordinances
dinances allow it. majeure or by order of the government, or in order to repair the
damage caused sed for the common benefit.
4. The wages and victuals of the crew when the vessel is detained or 11. The depreciation resulting in the value of the goods sold at arrival
embargoed by legitimate order or force majeure, if the charter under stress in order to repair the vessel by reason of gross average.
has been contracted for a fixed sum for the voyage. 12. The expenses of the liquidation of the average
5. The necessary expenses on arrival at a port, in order to make repairs There are 2 kinds of averages:
or secure provisions. • General Average
• Particular Average
6. The lowest value of the goods sold by the captain in arrivals under
stress for the payment of provisions and in order to save the crew,
or to meet any other need of the vessel, against which the proper It is important to distinguish one another from the point of
amount shall be charged. view of liability because if it is a general average, everybody
shall participate. Everybody has the share for whatever
7. The victuals and wages of the crew while the vessel is in expenses that might have been incurred. The owner owne of the
quarantine. vessel, owners of the cargo in proportion to their exposure.
They have to share with the general average.
8. The loss inflicted upon the vessel or cargo by reason of an impact or
collision with another, if it is accidental and unavoidable.
On the other hand, if it is a particular average, that is only for
If the accident should occur through the fault ult or negligence of the captain,
the latter shall be liable for all the losses caused. the account of the owner of the goods or for account of the
owner of the vessel. If the vessel suffered damages and this is
9. Any loss suffered by the cargo through the fault, particular average, that is exclusively for the account of the
negligence, or barratry of the captain or of the crew, without shipowner. If the owner of the goods suffered damages and
prejudice to the right of the owner to recover the corresponding
cor the cause of the damage is particular, that is for his own
indemnity from the captain, the vessel, and the freightage. account, his insurer is liable.
iable. The other owners of the cargo
will not participate.
ARTICLE 811. As a general rule, general or gross averages shall include all the
damages and expenses which are deliberately caused in order to save the
What is a general average?
vessel, its cargo, or both at thee same time, from a real and known risk, and
particularly the following: Extraordinary expenses to save the cargo or vessel
1. The goods or cash invested in the redemption of the vessel or of the
cargo captured by enemies, privateers, or pirates, and the
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MERCANTILE LAW REVIEW 2 NOTES by MARX
What are the requisites in order that an average may be shall be entered in the minutes in order that they may make use thereof in the
classified as general average? manner they may consider advisable.
• The expenses or damages are iincurred for the
common safety of either the vessel or cargo or both Arrival under stress – this is arrival when
wh the captain of the
• The generals was decided upon to be undertaken vessel has decided to proceed to the nearest and most
after following the procedure provided for by law convenient port in case of sea accident; in case the vessel is
(deliberate sacrifice) seriously damage and needs some repairs.
• Successful saving of either vessel or cargo or both as
the case may be What are the reasons? Causes of arrival under stress
• Lack of provision and they have to proceed in the
Example of a general average is Jettisoning of goods to nearest and most convenient port
lighten the vessel • The fear of seizure, privateers or pirates
• Any accident of the sea disabling the vessel
Supposing the vessel has suffered serious damage. Supposing
there was a typhoon and the vessel suffered serious damage. Arrival under stress may be classified into 2:
To save the vessel, one of the remedial measures suggest
suggested • Arrival under stress that is lawful
by the captain was to lighten the vessel. They will lighten the • Arrival under stress that
th is unlawful
vessel by unloading part of the cargo. There was jettison of a
cargo. The cargo was worth 500k. That is what we call general If the arrival under stress is lawful, the shipowner is not liable
average. That was the expenses incurred in order to save the for damages
vessel
sel and the cargo and everybody shall participate in
proportion to their exposure. The insurance companies are If the arrival under stress is unlawful, the owner of the vessel
liable. is liable for damages
ARTICLE 821. The expenses of an arrival under stress shall always be
Particular average, this is expense or damage caused not for for the account of the shipowner or agent, but they shall not be
liable for the damages which may be caused the shippers by reason
the common benefit of vessel owner or cargo owners.
of the arrival provided the latter is legitimate.
The damage by sea water, ter, and due to the negligence of the Otherwise, the ship agent and the captain shall be jointly liable.
crew of the vessel, will you consider this as a general
average? When is arrival
rival under stress considered unlawful?
No, that damage is caused by particular average. It is ARTICLE 820. An arrival shall not be considered lawful in the following
a damage not voluntary done for the common cases:
benefit of all. The owner of the goods shall bear the 1. If the lack of provisions should arise from the failure to take
loss
oss alone and his insurer shall answer for it alone. It the necessary provisions for the voyage according to usage
did not redound to the benefit of all. and customs, orr if they should have been rendered useless or
lost through bad stowage or negligence in their care.
2. If the risk of enemies, privateers, or pirates should not have
If a vessel, by force majure, suffers damage while on
been well known, manifest, and based on positive and
navigation, that is particular damage, that is for the
provable facts.
account of the owner of the vessel 3. If the defect of the vessel
ve should have arisen from the fact that
it was not repaired, rigged, equipped, and prepared in a
ARRIVAL UNDER STRESS manner suitable for the voyage, or from some erroneous
order of the captain.
ARTICLE 819. If during the voyage the captain should believe that the vessel ves 4. When malice, negligence, want of foresight, or lack of skill on
cannot continue the trip to the port of destination on account of the lack of the part of the captain exists in the act causing the damage.
provisions, well-founded fear of seizure, privateers, or pirates
pira or by reason of
any accident of the sea disabling it to navigate, he shall assemble the officer and COLLISSION
shall summon the persons interested in the cargo who may be present, and
who may attend the meeting without the right to vote; and if, after examining What is a collision?
the circumstances of the case, the reason should be considered well-founded,
well
Collision is the impact of 2 moving vessels, as
the arrival at the nearest and most convenient port shall be agreed upon,
drafting and entering the proper minutes, which shall be signed by all, in the log distinguished from allision, but under the code of
book. commerce Allision is included in the term collision
The captain shall have the deciding vote, and the persons interested in the
cargo, may make the objections and protests they may deem proper, which
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MERCANTILE LAW REVIEW 2 NOTES by MARX
Collision includes not only when 2 moving vessels In overland transportation, which is the privilege vehicle? The
strike each other but it also includes a moving vessel kalesa or the jeep?
striking a stationary vessel kalesa
Allision is when a moving vessel hits a stationary vessel Is the doctrine of last clear chance in a torts and damages
applicablee to maritime collision?
Collision – an impact or sudden contact of a vessel with In the doctrine of last clear chance, if you have the
another whether both are in motion or one stationary chance to avoid and you did not do so, you are
liable.
Take note that the code of commerce is a suppletory law.
The doctrine of last clear chance is not applicable
In the case of collision, what kind of vessels contemplated in
rd
collision as provided for in the code of commerce? The most dangerous zone is the 3 zone. If 2 vessels are
Only merchant vessels in the open seas about to strike
trike each other, the sail boat has the clear chance
to avoid the collision but the sail boat made a stay. Will the
isions in the code of commerce, the 2
To apply the provisions doctrine of last clear chance apply here?
vessels must be merchant vessels and navigating in the open The doctrine of last clear chance does not apply in
seas maritime collision because the rule of liability
liabili in this
jurisdiction for maritime accidents the evidence
Collision in river navigation not covered disclosing that both vessels were blameworthy, the
owners of neither can successfully maintain an
Collision in inland waters like lakes not covered action against the other for the loss or injury of his
vessel (827)
ARTICLE 826. If a vessel should collide with another, through
thro or the fault,
negligence, or lack of skill of the captain, sailing mate, or any other member
Contributory negligence shall not be applicable because if 2
of the complement, the owner of the vessel at fault shall indemnify the
losses and damages suffered, after an expert appraisal. vessels are at fault each one shall suffer their own damages.
Also the code of commerce does not speak who is more
Under this article, the vessel at fault is the one liable for negligent and who is less negligent
damages.
ARTICLE 827. If the collision is imputable to both vessels, each one
shallll suffer its own damages, and both shall be solidarity
In maritime commerce, there are 3 zones in law in collision. In responsible for the losses and damages occasioned to their
deciding collision cases, the 3 zones are important: cargoes.
• First Zone: All the time up to the moment the risk of
collision made have begun In torts and damages, we determine the proximate cause or
• Second Zone: from om time risk of collision begins up to the principal cause of the accident but if the mere fact that
the moment it becomes a practical certainty the negligence
nce is merely contributory, there is liability but the
• Third Zone: from the time of practical certainty to damages that will be imposed will be equitably reduced. In
the moment of actual contact maritime commerce, both of them shall suffer damages
ARTICLE 828. The provisions of the preceding article are applicable to the use
In collision, there is what we call a privilege vessel and a non
non- in which it cannot be determined which of the two vessels has caused the
privilege vessel collision.
Suppose the 2 vessels involved are a steam boat and sail boat, When it cannot be determined who is at fault, both of them
which of the 2 is the privilege vessel? shall suffer their own damages.
Sail boat
ARTICLE 830. If a vessel should collide with another, through fortuitous event
or force majeure, each vessel and its cargo shall bear its own damages.
Why is a sail boat a privilege vessel?
Because it does not have the sophisticated ARTICLE 831. If a vessel should be forced by a third vessel to collide with
mechanism that a steam boat has. You have to give another, the owner of the third vessel shall indemnify the losses and
way to the privilege vessel damages caused, the captain thereof being civi
civilly liable to said owner.
This is important when we are going to apply the doctrine of ARTICLE 832. If by reason of a storm or other cause of force majeure, a vessel
which is properly anchored and moored should collide with those nearby,
the last clear chance causing them damages, the injury occasioned shall be considered as
particular average of the vessel run into.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
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MERCANTILE LAW REVIEW 2 NOTES by MARX
How about a certificate of public convenience (secondary When you apply for a certificate of public convenience, what
franchise)? are the factors
rs taken into account by the commission?
Yes, but with the approval of the regulatory agency • Citizenship – a constitutional requirement
• Financial capacity
Can that franchise be mortgage? • Is it for public interest? Will the public interest be
In actual practice, if you are the operator of a public benefitted?
utility, let say a bus company and you borrow money
from a bank. Let’s say 10 units of buses is the The various agencies of the government charged for a
collateral but when you borrow a money, the function of issuing a certificate
certifica of public convenience,
collateral is not only the 10 buses alone but it will supervision, regulation and etc. these we call the private
also include the certificate of public convenien
convenience. aspect of a case.
The 10 buses without the certificate are useless.
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MERCANTILE LAW REVIEW 2 NOTES by MARX
What is this private aspect of the case? Supposing it involves The reason is to protect private investment
the determination of ownership, there are 2 parties and the
question of ownership is invoked,
ked, do these agencies have the It is a given that when you venture into this kind of business,
power to determine who is the lawful owner? it involves substantial capital. To encourage private
None, only the court can determine this issue participation in the public utility business,
busine we have the so
called the prior operator rule. Before we admit a new
How about the interpretation of a contract, its terms and franchisee, we have to take it into account whether or not
conditions of a contract? this will amount to what we call ruinous competition. If it will
The SC said, these agencies do not have the power.
powe amount to ruinous competition, it will destroy private capital.
capi
That should be left to the ordinary courts
The private operator rule is subject to exceptions:
The job of these agencies is only to regulate, supervise and • If the prior operator is not giving satisfactory service
their jurisdiction is limited only to holders of the franchise to the community. The service is not efficient. If
and people using the utility covered by the franchise. there is a complain in the community that the prior
operator is not efficient, the commission
commi will open
When a corporation applies forr a certificate of public the area to other applicants
convenience, is it necessary that there will be already a • The operator applying for the operation of 10 buses,
showing relative to the requirements for the grant of the but in reality, the operator has only 5 buses. The
franchise? Are the requirements necessary in the application operator failed to comply with the number of units
of the franchise or when you file the articles of inc
incorporation that he is going to provide, the commission is free to
in case of corporation? accept
ccept new applicants
The SC said that at the time to make a showing • If there is an existing operator but due to the volume
relative to compliance with the requisites of of people being served, there is a need for additional
citizenship is when you apply a certificate of public public utilities, the commission will consider the
convenience not when you file you articles of entry of a new one provided it will not affect the fair
incorporation return of the investment
inve of the prior operator
because healthy competition promotes efficiency.
Supposing, the equipment or infrastructure is owned by the
foreign company, but the operator is the government, will you How does the commission determine what is the fair return of
apply the citizenship requirement? a particular operator?
The SC said no, because that foreign company is not It depends.
the one operating the public utility. The foreign
company owns only the equipment and For a particular business, the commission may say,
infrastructure 12% is a fair return
The mere fact the equipment or infrastructure is If the entry of the new franchisee will reduce the
owned by a foreign company does not violate the 12%, that is already ruinous competition, the
constitution relative to citizenship. The citizenship commission may not allow it
requirement applies only to operators
We have also the “prior applicant rule” – if all things made
With respect to the certificate
rtificate of public convenience, there is equal, the prior applicant should be given the franchise. But
what we call the “prior operator rule” not just because
use you are the applicant, you will be given the
franchise
What is the prior operator rule? Does it mean that if a
particular area is already given to one public utility, others Is the certificate of public convenience subject to revocation?
can longer apply for a franchise or a certificate of public
pu Yes, it can be revoked by the commission upon
convenience, the moment the existing operator invokes the complaint based on a valid cause
prior operator rule?
That is not the exact meaning of the prior operator Can the operation be suspended?
rule because if that will be the interpretation, it will Yes
violate the constitution. The constitution prohibits
monopoly Can a certificate
te of public convenience be the subject of
rd
assignment or sale to 3 person for consideration together
What is the reason behind the prior operator rule? with the equipments?
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There is no prohibition but upon approval of the A taxi cab, the driver
dri pays the operator let’s say for
commission. For good and valid reason, why are you 2000php for a day. It is a case where the driver of
selling? The commission will takee it into account, not the taxicab, under the boundary system, shall be
only the reason for selling but also the qualification considered as an employee of the operator or
of the buyer franchisee
If a sale is made by the holder of a franchise without the prior CARRIAGE OF GOODS BY SEA ACT
approval of the commission, what is the legal effect?
The sale of franchise without prior approval of the Why was this law enacted?
acted?
commission is valid as between the parties but not • For purposes of uniformity in issuance of bill of
binding as against 3rd person, general public and the lading
commission. • The COGSA contains new maritime rules not found
in the code of commerce
It means to say that if something happens, if there are • Those engaged in maritime business during the time
violations or infractions, who shall be held by the requested for the adoption of this law
commission?
The original
al franchisee because the sale is not valid When does COGSA apply? Does this t law apply to domestic
as against the commission maritime commerce?
No, it does not. It applies to maritime commerce
Supposing there is an approval later on by the commission, between the Philippines and other foreign countries.
will it validate the contracts entered into? Goods transported from the Philippines to foreign
It will be valid country or from a foreign country to the Philippines.
It can also be leased, but with the approval of the commission Some of the COGSA provision have been impliedly repealed
or superseded
Under the public service act, the commission can audit the
accounts of any public utility. The commission or agency may
request the commission on audit to conduct an examination What is the provision that is still applicable?
on the ___ of the public utility, when is this necessary? The provision of bringing an action against the
carrier for damage or lost for goods transported
Supposing there is an application to increase the rate
(transportation fare) the commission or agency can request Under COGSA, the period is 1 year. Within 1 year from
the COA to audit the books if the allegation of the applicant delivery, any affected party should file the necessary action. If
that they are receiving less that the fair return is correct. you are the shipper or consignee of goods and the goods
Also, audit is important in applying the prior operator rule to have been damage or lost, you have 1 year from delivery to
determine if there is fair return of investment file a case in court
Kabit System and Boundary System: these are 2 systems Can this one year period be shortened by stipulation?
being practiced by the franchisees. The SC said that one period cannot be shortened
For example, a person is a holder of a franchise to operate 10 The matter of delivery, shall the one year period be counted
units of taxicab, what willll the franchisee do? from the time the goods are delivered to the consignee?
If there are persons who want to avail of the kabit The SC said that the one year period shall be
system, they can make use of the franchise of the counted from the time the goo goods are delivered to
holder. The motor vehicle will be registered in the the arrastre because the goods might have been
name of the franchisee, not in the name of the kabit. delivered to the arrastre by the shipping company,
In case of damage, injury, who may be held liable? but the consignee does not claim it, the one year
The registered owner, not the kabit period can ____
As to whether the registered owner who is the franchisee is Arrastre – shipping warehouse
made to pay, can he seek reimbursement from the kabit?
No, that is his own look out Supposing the goods have not been damage
damag or lost but goods
had been misdelivered,
What is this boundary system?
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MERCANTILE LAW REVIEW 2 NOTES by MARX
The SC said that the COGSA applies only to cases • Service is voluntarily rendered, not required as a
involving loss or damage to the goods. If it a case of duty or contractual obligation
misdelivery, other laws shall apply and the • The success of the operation either wholly or in part
prescriptive period is not one year, the prescriptive
period is 100 years for a violation of contract or 4 Under the salvage
alvage law, if the captain or the ship agent of the
years in cases involving a quasi-delict
delict vessel is still on board, no salvage operation can be done
without the consent of the captain or ship agent
SALVAGE LAW
Sec. 2. If the captain of the vessel, or the person acting in his stead, is
The code of commerce relative to maritime law does not present, no one shallll take from the sea, or from the shores or coast
merchandise or effects proceeding from a shipwreck or proceed to the
have any provision regarding salvage salvage of the vessel, without the consent of such captain or person acting in
his stead.
What do we understand by the term Salvage?
Salvage may either be an act constituting service or How is compensation for salvage operation computed
comp or
compensation for service rendered. But in the determined? Remember that there was no prior agreement
salvage law, Salvage means service because this is voluntary
The law does not call it compensation but a reward
Another classification of salvage is what we call
voluntary or contractual. A salvage operation may Sec. 6. If, while the vessel or things saved are at the disposition of the
either be a voluntary service or a contractual service. authorities, the owner or his represent
representative shall claim them, such
authorities shall order their delivery to such owner or his representative,
If it is done not as a duty or a contractual obligation, provided that there is no controversy over their value, and a bond is given by
that is voluntary service or voluntary salvage. And the owner or his representative to secure the payment of the expenses and an
this kind of salvage is the one treated under the the proper reward. Otherwise, the delivery shall nor be made until the
salvage law matter is decided by the Court of First Instance of the province.
What do we understand by contractual salvage? Sec. 7. No claim being presented in the three months subsequent to the
Supposing a shipping company has a vessel and the publication of the advertisement prescribed in sub-section (c) of Section five,
vessel is stranded or a shipwrecked and the the things save shall be sold at public auction, and their proceeds, after
company wanted to retrieved their vessel, the deducting the expenses and the proper reward shall be deposited in the
insular treasury. If three years shall pass without anyone claiming it, one-half
on
shipping company contracted for the salvage of the of the deposit shall be adjudged to him who saved the things, and the other
vessel. half to the insular government.
Voluntary Salvage: it is when a person extended service to Sec. 12. If in the salvage or in the rendering of assistance different persons
shall have intervened the reward shall be divided between them th in
another by saving a vessel
el or its cargo or both, not being a proportion to the services which each one may have rendered, and, in case
duty or a contractual obligation that is salvage under the of doubt, in equal parts.
salvage law
Those who, in order to save persons, shall have been exposed to the same
Section 1. When in case of shipwreck, the vessel or its cargo shall be beyond dangers shall also have a right to participation in the reward.
the control of the crew, or shall have been abandoned by them, and pi picked
up and conveyed to a safe place by other persons, the latter shall be entitled What is thee reward for a salvage operation?
to a reward for the salvage. The reward is 50% of the value of the thing saved
shall go to the owner of the vessel, ¼ will go to the
Those who, not being included in the above paragraph, assist in saving a
vessel or its cargo from shipwreck, shall be entitled to a like reward.
rewar
captain, and the remaining ¼ will go to the crew
What kind of vessel may be the subject of salvage under this This shall be fixed by the court
law?
Sec. 13. If a vessel or its cargo shall have been assisted or saved, entirely or
A shipwrecked or an abandoned vessel partially, by another vessel, the reward for salvage or for assistance shall be
divided between the owner, the captain, and the remainder of the crew of
When is a vessel considered a shipwrecked? the latter vessel, so as to give the owner a half, the captain a fourth, and all
When a vessel has suffered injuries to such an extent the remainder of the crew the other fourth of the reward, in proportion to
their respective salaries, in the absence of an agreement to the contrary. The
that it would no longer navigate, that vessel can be express of salvage, as well as the reward for salvage or assistance, shall be
b a
classified as a shipwrecked charge on the things salvaged on their value.
What are the requisites for Salvage operation? What are the factors that may be taken into account in
• Existence of a marine peril determining the amount of the reward?
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