VII Warranties

A. Warranty vs Representation
1. Representations while they precede the contract, are collateral thereto and not a
part thereof, whereas warranties actually are and must be part of the contract itself.
2. Materiality of warranty is presumed, while representation must be shown to be
material.
3. Misrepresentation sets aside a policy on the ground of fraud, while falsity or non
fulfillment of a warranty operates as a breach of contract.
4. Representation may be made by both the insured and the insurer, while warranty
is made only by the insured.
B. Violation of warranties entitles other party to rescind.

SEC. 74. The violation of a material warranty, or other material provision of a

policy, on the part of either party thereto, entitles the other to rescind.
SEC. 75. A policy may declare that a violation of specified provisions thereof
shall avoid it, otherwise the breach of an immaterial provision does not avoid
the policy.
SEC. 76. A breach of warranty without fraud merely exonerates an insurer
from the time that it occurs, or where it is broken in its inception, prevents
the policy from attaching to the risk.
Insurance; Double Insurance; effect (1993)

Julie and Alma formed a business partnership. Under the business name Pino
Shop, the partnership engaged in a sale of construction materials. Julie
insured the stocks in trade of Pino Shop with WGC Insurance Co for P350th.
Subsequently, she again got an insurance contract with RSI for P1m and then
from EIC for P200th. A fire of unknown origin gutted the store of the
partnership. Julie filed her claims with the three insurance companies.
However, her claims were denied separately for breach of policy condition
which required the insured to give notice of any insurance effected covering
the stocks in trade. Julie went to court and contended that she should not be
blamed for the omission, alleging that the insurance agents for WGC, RSI and
EIC knew of the existence of the additional insurance coverages and that she
was not informed about the requirement that such other or additional
insurance should be stated in the policy. Is the contention of Julie tenable?
Explain. May she recover on her fire insurance policies?
Explain.
2) No, because she is guilty of violation of a warranty/condition.
Warranty (2010)

To secure a loan of P10 million, Mario mortgaged his building to Armando. In accordance with the loan
arrangements, Mario had the building insured with First Insurance Company for P10 million,
designating Armando as the beneficiary.
Armando also took an insurance on the building upon his own interest with Second Insurance
Company for P5 million.
The building was totally destroyed by fire, a peril insured against under both insurance policies. It was
subsequently determined that the fire had been intentionally started by Mario and that in violation of
the loan agreement, he had been storing inflammable materials in the building.
a. How much, if any, can Armando recover from either or both insurance companies? (2%)

UNION MANUFACTURING CO., INC. VS. PHILIPPINE GUARANTY CO.,

INC.
Petitioner:
Republic Bank
Respondent:
Philippine Guaranty Co.. Inc.
J. Fernando:
FACTS:
On January 12, 1962, the Union Manufacturing Co., Inc. obtained
certain loans from the Republic Bank in the total sum of 415,000.00. To
secure the payment thereof, UMC executed real and chattel mortgage on
certain properties.
The Republic Bank procured from the defendant Philippine Guaranty Co., Inc.
an insurance coverage on loss against fire for 500,000.00 over the
properties of the UMC, as described in defendants cover note dated
September 25, 1962, with the annotation that loss or damage, if any, under
said cover note is payable to Republic Bank as its interest may appear,
subject however to the printed conditions of said defendants Fire Insurance
Policy Form.
On September 6, 1964, a fire occurred in the premises of UMC and on
October 6, 1964, UMC filed its fire claim with the PGC Inc., thru its adjuster,
H.H. Bayne Adjustment Co., which was denied by said defendant in its letter
dated November 26, 1964 on the following ground: Policy Condition No. 3
and/or the Other Insurance Clause of the policy was violated because you
did not give notice to us of the other insurance which you had taken from
New India for 80,000.00. Sincere Insurance for 25,000.00 and Manila
Insurance for 200,000.00 with the result that these insurances of which we
became aware of only after the fire, were not endorsed on our policy.
ISSUE:

Whether Republic Bank can recover.

HELD:
Without deciding- whether notice of other insurance upon the
same property must be given in writing, or whether a verbal notice is
sufficient to render an insurance valid which requires such notice, whether

oral or written, we hold that in the absolute absence of such notice when it is
one of the conditions specified in the fire insurance policy, the policy is null
and void. (Santa Ana vs. Commercial Union Ass. Co., 55 Phil. 128).
If the insured has violated or failed to perform the conditions of the contract,
and such a violation or want of performance has not been waived by the
insurer, then the insured cannot recover. Courts are not permitted to make
contracts for the parties. The functions and duty of the courts consist simply
in enforcing and carrying out the contracts actually made.
While it is true, as a general rule, that contracts of insurance are construed
most favorably to the insured, yet contracts of insurance, like other
contracts, are to be construed according to the sense and meaning of the
terms which the parties themselves have used. If such terms are clear and
unambiguous they must be taken and understood in their plain, ordinary and
popular sense.
The annotation then, must be deemed to be a warranty that the property
was not insured by any other policy. Violation thereof entitles the insurer to
rescind. xxx The materiality of non-disclosure of other insurance policies is
not open to doubt.
The insurance contract may be rather onerous, but that in itself does not
justify the abrogation of its express terms, terms which the insured accepted
or adhered to and which is the law between the contracting parties.