Right to Rescind or Cancel

• Saura Import v. Phil. International (8 SCRA 143)

FACTS:

>On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land in Davao to
secure the payment of a promissory note of P27T.

> A building of strong materials which was also owned by Saura, was erected on the
parcel of land and the building had always been covered by insurance even before the
execution of the mortgage contract.

> Pursuant to the mortgage agreement which required Saura to insure the building and
its contents, it obtained a fire insurance for P29T from PISC for a period of 1 year
starting Oct. 2, 1954.

> The mortgage also required Saura to endorse the insurance policy to PNB. The
memo stated: Loss if any, payable to PNG as their interest may appear, subject to the
terms, conditions and warranties of this policy.

> The policy was delivered to PNB by Saura.

> On Oct. 15, 1954, barely 13 days after the issuance of the fire insurance, PISC
canceled the same, effective as of the date of issue. Notice of the cancellation was sent
to PNB in writing and was received by the bank on Nov. 8, 1954.
> On Apr. 6, 1955, the building and its contents worth P4,685 were burned. On April
11, 1985, Saura filed a claim with PISC and mortgagee bank.

> Upon presentation of notice of loss with PNB, Saura learned for the first time that the
policy had been previously canceled by PISC, when Saura’s folder in the bank’s file was
opened and the notice of the cancellation by PISC was found.

ISSUE:

1. W/N Philippine International Surety should be held liable for the claim because notice
to only the mortgagee is not substantial

2. Whether or not there was proper cancellation of the policy?

HELD:

1. YES. Appealed from is hereby reversed. Philippine International Surety Co., Inc.,
to pay Saura Import & Export Co., Inc., P29,000

It was the primary duty of Philippine International Surety to notify the insured, but it did
not

If a mortgage or lien exists against the property insured, and the policy contains a
clause stating that loss, if any, shall be payable to such mortgagee or the holder of such
lien as interest may appear, notice of cancellation to the mortgagee or lienholder alone
is ineffective as a cancellation of the policy to the owner of the property.

liability attached principally the insurance company, for its failure to give notice of the
cancellation of the policy to Saura

it is unnecessary to discuss the errors assigned against appellee bank

 2. NO.

The policy in question does NOT provide for the notice of cancellation, its form or
period. The Insurance Law does not likewise provide for such notice. This being the
case, it devolves upon the Court to apply the generally accepted principles of insurance,
regarding cancellation of the insurance policy by the insurer.

Actual notice of cancellation in a clear and unequivocal manner, preferably in writing

should be given by the insurer to the insured so that the latter might be given an
opportunity to obtain other insurance for his own protection. The notice should be
personal to the insurer and not to and/or through any unauthorized person by the policy.
Both the PSIC and the PNB failed, wittingly or unwittingly to notify Saura of the
cancellation made.

The insurer contends that it gave notice to PNB as mortgagee of the property and that
was already substantial compliance with its duty to notify the insured of the cancellation
of the policy. But notice to the bank, as far as Saura herein is concerned, is not
effective notice. PISC is then ordered to pay Saura P29T, the amount involved in the
policy subject matter of this case.

• Malayan Insurance v. Arnaldo (154 SCRA 672)

FACTS:

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property
for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982.
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the
premium and sent the corresponding notice to Pinca.

On December 24, 1981, payment of the premium for Pinca was received by Domingo
Adora, agent of MICO. On January 15, 1982, Adora remitted this payment to MICO,
together with other payments. On January 18, 1982, Pinca's property was completely
burned.

DECISION OF LOWER COURTS:

(1) Insurance Commission: granted claim for compensation for burned property.

ISSUE:

Whether there was a valid insurance contract at the time of the loss.

RULING:

Yes.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured;

(2) The notice must be based on the occurrence, after the effective date of the policy, of
one or more of the grounds mentioned;

(3) The notice must be

(a) in writing,

(b) mailed, or delivered to the named insured,

(c) at the address shown in the policy;

(4) It must state

(a) which of the grounds mentioned in Section 64 is relied upon and

(b) that upon written request of the insured, the insurer will furnish the facts on which
the cancellation is based.

MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment
of premium. To support this assertion, it presented one of its employees, who testified
that "the original of the endorsement and credit memo" —presumably meaning the
alleged cancellation — "were sent the assured by mail through our mailing section"
However, there is no proof that the notice, assuming it complied with the other
requisites mentioned above, was actually mailed to and received by Pinca.

The court also look askance at the alleged cancellation, of which the insured and
MICO's agent himself had no knowledge, and the curious fact that although Pinca's
payment was remitted to MICO's by its agent on January 15, 1982, MICO sought to
return it to Adora only on February 5, 1982, after it presumably had learned of the
occurrence of the loss insured against on January 18, 1982. These circumstances make
the motives of the petitioner highly suspect, to say the least, and cast serious doubts
upon its candor and bona fides.

• Areaola v. CA (236 SCRA 643)

Facts:

Prudential Guarantee cancelled Areola’s personal accident insurance on the grounds

that the latter failed to pay his premiums 7 months after issuing the policy. Areola was
supposed to pay the total amount of P1,609.65 which included the premium of
P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. The
statement of account had a stipulation not considering it a receipt. It also reminded the
customer to ask for a receipt after payment. There was also a stipulation calling for a
demand for a provisional receipt after payment to an agent. A provisional receipt was
sent to petitioner telling him that the provisional receipt would be confirmed by an official
one. The company then cancelled the policy for non-payment of premiums. After being
surprised, Areola confronted a company agent and demanded an official receipt. The
latter told him that it was a mistake, but never gave him an official receipt. Areola sent a
letter demanding that he be reinstated or he would file for damages if his demand was
not met. The company then told him that his payments weren’t in full yet. The company
replied to Areola by telling him that there was reason to believe that no payment has
been made since no official receipt was issued. The company then told him that they
would still hold him under the policy. The company then confirmed that he paid the
premium and that they would extend the policy by one year.

Thereby, the company offered to reinstate same policy it had previously cancelled and
even proposed to extend its lifetime on finding that the cancellation was erroneous and
that the premiums were paid in full by petitioner-insured but were not remitted by the
company's branch manager, Mr. Malapit.

However, they were too late for Areola already filed an action for breach of contract in
the trial court.

The company’s defense lay in rectifying its omission; hence, there was no breach of
contract.

The court ruled in favor of Areola and asked Prudential to pay 250,000 pesos in moral
and exemplary damages. The court held that the company was in bad faith in cancelling
the policy. Had the insured met an accident at that time, he wouldn’t be covered by the
policy.

This ruling was challenged on appeal by respondent insurance company, denying bad
faith in unilaterally cancelling the policy. The AC absolved Prudential on the grounds
that it was not motivated by negligence, malice or bad faith in cancelling subject policy.
Rather, the cancellation of the insurance policy was based on what the existing records
showed. The court even added that the errant manager who didn’t remit the profits was
forced to resign. Areola then filed for a petition in the Supreme Court.
Issue:

1. Whether or not the erroneous act of cancelling subject insurance policy entitled
petitioner-insured to payment of damages?(Yes)

2. Whether or not the subsequent act of reinstating the wrongfully cancelled insurance
policy by respondent insurance company, in an effort to rectify such error, obliterate
whatever liability for damages it may have to bear, thus absolving it?(No)

Ruling:

1. Petitioner alleged that the manager’s misappropriation of his premium payments is

the proximate cause of the cancellation of the insurance policy. Subsequent
reinstatement could not possibly absolve respondent insurance company from liability,
due to the breach of contract. He contended that damage had already been done.

Prudential averred that the equitable relief sought by petitioner-insured was granted to
the filing of the complaint, petitioner-insured is left without a cause of action.
Reinstatement effectively restored petitioner-insured to all his rights under the policy.

The court held that Malapit's fraudulent act of misappropriating the premiums paid by
petitioner-insured is directly imputable to respondent insurance company. A corporation,
such as respondent insurance company, acts solely thru its employees. The latters' acts
are considered as its own. Malapit represented its interest and acted in its behalf. His
act of receiving the premiums collected is well within the province of his authority. Thus,
his receipt of said premiums is receipt by private respondent insurance company who,
by provision of law is bound by the acts of its agent.

Article 1910 thus reads:

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.

Malapit's failure to remit the premiums he received cannot constitute a defense for
private respondent insurance company; no exoneration from liability could result
therefrom. The fact that private respondent insurance company was itself defrauded
due to the anomalies that took place does not free the same from its obligation to
petitioner Areola. As held in Prudential Bank v. Court of Appeals

“A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside
the scope of their authority. Accordingly, a banking corporation is liable to innocent third
persons where the representation is made in the course of its business by an agent
acting within the general scope of his authority even though the agent is secretly
abusing his authority and attempting to perpetrate a fraud upon his principal or some
other person.”

Prudential is liable for damages for the fraudulent acts committed by Malapit.
Reinstating the insurance policy cannot obliterate the injury inflicted. A contract of
insurance creates reciprocal obligations for both insurer and insured. Reciprocal
obligations are those which arise from the same cause and in which each party is both a
debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other.

2. Due to the agreement to enter into a contract of insurance where Prudential promised
to extend protection to petitioner-insured against the risk insured, there was a debtor
creditor relationship between the two parties. Under Article 1191, the injured party is
given a choice between fulfillment or rescission of the obligation in case one of the
obligors fails to comply with what is incumbent upon him. However, said article entitles
the injured party to payment of damages, regardless of whether he demands fulfillment
or rescission of the obligation.

The damages would be nominal because the insurance company took steps to rectify
the contract . There was also no actual or substantial damage inflicted. Nominal
damages are "recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of any kind, or
where there has been a breach of contract and no substantial injury or actual damages
whatsoever have been or can be shown.”

• Tan v. CA (174 SCRA 403)

FACTS:

Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of
P80,000.00 with respondent company Philippine American Life Insurance Company.
Said application was approved and a corresponding policy was issued effective
November 5, 1973, with petitioners as the beneficiaries. On April 26, 1975, Tan Lee
Siong died of hepatoma. Hence, petitioners filed with respondent company their claim
for the proceeds of the life insurance policy. However, the insurance company denied
the said claim and rescinded the policy by reason of the alleged misrepresentation and
concealment of material facts made by the deceased Tan Lee Siong in his application
for insurance. The premiums paid on the policy were thereupon refunded. The
petitioners contend that the respondent company no longer had the right to rescind the
contract of insurance as rescission must allegedly be done during the lifetime of the
insured within two years and prior to the commencement of action.

ISSUE: Whether or not the insurance company has the right to rescind the contract of
insurance despite the presence of an incontestability clause

RULING:
YES. The so-called “incontestability clause” precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as health and
previous diseases are concerned if the insurance has been in force for at least two
years during the insured’s lifetime. The phrase “during the lifetime” found in Section 48
of the Insurance Law simply means that the policy is no longer considered in force after
the insured has died. The key phrase in the second paragraph of Section 48 is “for a
period of two years”. The policy was issued on November 6, 1973 and the insured died
on April 26, 1975. The policy was thus in force for a period of only one year and five
months. Considering that the insured died before the two-year period has lapsed,
respondent company is not, therefore, barred from proving that the policy is void ab
initio by reason of the insured’s fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums
paid on November 11, 1975, previous to the commencement of this action on
November 27, 1975. WHEREFORE, the petition is hereby DENIED for lack of merit.
The questioned decision of the Court of Appeals is AFFIRMED.

• Great Pacific Life v. CA 184 SCRA 501)

GRIÑO-AQUINO, J.:

Facts:
Private respondent Teodoro Cortez, upon the solicitation of Margarita Siega an
underwriter for the petitioner Great Pacific Insurance Corporation, applied for a 20-year
endowment policy for P30,000. His application, with the requisite medical examination,
was accepted and approved by the company and in due course, Endowment Policy No.
221944 was issued in his name. It was released for delivery on January 24, 1973, and
was actually delivered to him by the underwriter, Mrs. Siega on January 25, 1973. The
effective date indicated on the face of the policy in question was December 25, 1972.
The annual premium was P1,416.60. Mrs. Siega assured him that the first premium may
be paid within the grace period of thirty (30) days from date of delivery of the policy. The
first premium of P1,416.60 was paid by him in three (3) installments, to wit:
(1) P400 evidenced by Temporary Receipt No. 19422, dated February 5, 1973 issued
by Mrs. Siega (Exh. B) and confirmed by Official Receipt No. 43543 dated March 6,
1973, issued by the Home Office of the defendant in Makati, Rizal (Exh. B-1);

(2) P350 evidenced by Temporary Receipt No. 19448 dated February 17, 1973 issued
by Mrs. Siega (Exh. C) and confirmed by Official Receipt No. 43559 dated March 28,
1973 issued by defendant's Home Office (Exh. C-1); and

(3) P666.60 evidenced by Temporary Receipt No. 19702 dated February 21, 1973,
issued by the underwriter Mrs. Siega (Exh. D), and confirmed by Official Receipt No.
43563 dated March 28, 1973 issued by defendant's Home Office (Exh. D-1).

In a letter dated June 1, 1973 defendant advised plaintiff that Policy No. 221944 was not
in force. To make it enforceable and operative, plaintiff was asked to remit the balance
of P1,015.60 to complete his initial annual premium due December 15, 1972, and to see
Dr. Felipe V. Remollo for another full medical examination at his own expense.

Cortez' reaction to the company's act was to immediately inform it that he was
cancelling the policy and he demanded the return of his premium plus damages.

When the company ignored his demand, Cortez filed on August 14, 1973, a complaint
for damages in the Court of First Instance of Negros Oriental, docketed as Civil Case
No. 5709, entitled "Teodoro Cortez vs. Pacific Life Assurance Corporation." He prayed
for the refund of the insurance premium of P1,416.60 which he paid, plus P45,000 as
moral damages, and P2,000 as attorney's fees.
After trial, the court a quo rendered judgment on September 9, 1977 in favor of the
plaintiff and against the defendant.

The insurer appealed to the Court of Appeals and on March 10, 1981, the latter court
rendered a modified decision.

It filed a motion for reconsideration, but the same was denied by the Appellate Court on
June 11, 1981. Hence, this petition for review.

Issue: Whether or not Cortez is entitled to a refund of his premium

Ruling:

Yes.

In the instant case, the policy was issued on December 25, 1972 and was delivered on
January 25, 1973 and the appellee was given by the appellant thru its underwriter Mrs.
Margarita Siega a grace period of 30 days from said date within which the premium was
to be paid. Record shows that the premium was paid fully on February 21, 1973 or
within the grace period. This being so, the policy was already enforceable. The
company had sufficient time to examine the result of their medical examination on the
person of the appellee. They would not have delivered the policy on January 24, 1973 if
the appellee was unacceptable. Moreover, if premiums were to be paid within 90 days
then the reckoning period should be the date the policy was delivered and not the date
the appellee was physically examined. The 90-day period from the date of physical
examination as provided for in the receipts of payment is of' no moment, since said
receipts are an integral part of the insurance policy (contract). The official receipts
issued by the company's agent can only mean that the company ratified the act of Mrs.
Margarita Siega in giving the appellee a grace period of 30 days from January 25, 1973
within which to pay the annual premium.
Indeed, record shows that the three (3) installment payments were paid for within 30-
days period and all 3 partial payments were officially acknowledged by the company, on
March 6, 1973, and the 2 other installments on March 28, 1973. To the mind of this
Court, this acknowledgments are the most eloquent proofs that at such time the policy
was already in full force and effect. We have no doubt at all that when the appellant
wrote the letter in question in June 1973, understandably, the appellee must have been
shocked to know that after all the matter about his coverage or the security that he
provided for his family was after all empty or, to say the least, made debatable by the
very company the appellant has sought security from.

When the petitioner advised private respondent on June 1, 1973, four months after he
had paid the first premium, that his policy had never been in force, and that he must pay
another premium and undergo another medical examination to make the policy
effective, the petitioner committed a serious breach of the contract of insurance.

Petitioner should have informed Cortez of the deadline for paying the first premium
before or at least upon delivery of the policy to him, so he could have complied with
what was needful and would not have been misled into believing that his life and his
family were protected by the policy, when actually they were not. And, if the premium
paid by Cortez was unacceptable for being late, it was the company's duty to return it.
By accepting his premiums without giving him the corresponding protection, the
company acted in bad faith.

Sections 79, 81 and 82 of P.D. 612 of the Insurance Code of 1978 provide when the
insured is entitled to the return of premium paid.

SECTION 79. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium, if no part of his interest in the thing insured be exposed to
any of the perils insured against.

(b) Where the insure is made for a definite period of time and the insured surrenders his
policy, to such portion of the premium as corresponds with the unexpired time, at a pro
rata rate, unless a short period rate has been agreed upon and appears on the face of
the policy, after deducting from the whole premium any claim for loss or damage under
the policy which has previously accrued: Provided, That no holder of a life insurance
policy may avail himself of the privileges of this paragraph without sufficient causes as
otherwise provided by law.

SECTION 81. A person insured is entitled to a return of the premium when the contract
is voidable on account of the fraud or misrepresentation of the insurer or of his agent or
on account of facts the existence of which the insured was ignorant without his fault; or
when, by any default of the insured other than actual fraud, the insurer never incurred
any liability under the policy.

SECTION 82. In case of an over-insurance by several insurers, the insured is entitled to

a ratable return of the premium, proportioned to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of the thing at risk.

Since his policy was in fact inoperative or ineffectual from the beginning, the company
was never at risk, hence, it is not entitled to keep the premium.
The award of moral damages to Cortez was proper for there can hardly be any doubt
that he must have suffered moral shock, serious anxiety and wounded feelings upon
being informed by the petitioner six (6) months after it issued the policy to him and four
(4) months after receiving the full premium, that his policy was in fact worthless for it
never took effect, hence, he and his family never received the protection that he paid
for.

WHEREFORE, the petition for review is denied for lack of merit. In the interest of
justice, in view of the serious delay the private respondent's claim has suffered on
account of the petitioner's intransigence in refusing to pay its just debt, the petitioner is
ordered to pay legal rate of interest of 6% per annum on the premium of P1,416.60
refundable to the private respondent from the filing of the complaint until the judgment is
fully paid. As thus modified, the decision of the Court of Appeals is affirmed. Costs
against the petitioner. This decision is immediately executory.

SO ORDERED.

• Del Rosario v. Equitable Insurance (8 SCRA 343)

FACTS:

 April 13, 1957: Simeon del Rosario, father of the insured who died from drowning
filed a claim for payment with Equitable Ins. and Casualty Co., Inc. but it refused to pay
more than P1,000 php so a case was filed with the RTC for the P2,000 balance stating
that under the policy they are entitled to P1,000 to P3,000 as indemnity

 RTC: entitled to recover P3,000 - policy does not positively state any definite
amount, there is an ambiguity in this respect in the policy, which ambiguity must be
interpreted in favor of the insured and strictly against the insurer so as to allow greater
indemnity
ISSUE: W/N Simeon is entitled to recover P3,000

RULING:

YES.

 terms in an insurance policy, which are ambiguous, equivocal or uncertain are to

be construed strictly against, the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a
forfeiture is involved

 reason for this rule is that the "insured usually has no voice in the selection or
arrangement of the words employed and that the language of the contract is selected
with great care and deliberation by expert and legal advisers employed by, and acting
exclusively in the interest of, the insurance company

• Sun Insurance v. CA (211 SCRA 554)

Facts:

Felix Lim, Jr. had a life insurance policy with Sun Insurance, with his wife Nerissa Lim,
as beneficiary. Two months after its issuance, Lim died of gunshot. His secretary
testified that, on the eve of his mother’s birthday, Lim was playing with his handgun, he
removed the magazine thereon and playfully pointed that gun at her, the secretary
pushed it aside saying the gun might be loaded. Lim assured her that the gun was
empty, he pointed it to his temple, what followed was a fatal explosion. Nerissa filed a
claim with Sun Insurance. The latter denied on ground that the cause of Lim’s death
was not an accident, i.e. it was a death consequent upon “[t]he insured person
attempting to commit suicide or willfully exposing himself to needless peril.”

Nerissa thus filed a complaint for the recovery of the face value of the policy.
The CFI ruled in favor of Lim. The CA affirmed. The SC affirmed with modification,
deleting the award for damages and attorney’s fees.

Issues:

1. Whether or not Sun Insurance be absolved of liability on ground that Lim willfully
exposed himself to needless peril?
2. Whether or not Lim is entitled to recover damages?

Ruling:

1. No. Suicide and willful exposure to needless peril are in pari materia because
they both signify a disregard for one’s life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act
indicates a reckless risking of it that is almost suicidal in intent.

In this case, as the secretary testified, Lim had removed the magazine from the gun and
believed it was no longer dangerous. He expressly assured her that the gun was not
loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do
so.

What bars the insured from recovering from the insurer on account of his own acts is a
deliberate exposure to a known peril.

While Lim was unquestionably negligent, this negligence does not bar his wife from
recovering from proceeds of the policy from the insurer. Contributory negligence is not
one of the grounds enumerated in the policy exonerating the insurer from liability.
Indeed, most accidents are caused by negligence.
2. NO.

Sun Insurance was acting in good faith when it resisted the Lim’s claim on the ground
that the death of the insured was covered by the exception. Thus, the award of moral
and exemplary damages and of attorney’s fees is unjust and so must be disapproved.

Decision affirmed, but modified.

Liability of insurer for loss

• Bonifacio Bros. v. Mora (20 SCRA 261)

FACTS:

Enrique Mora, owner of an Olds Mobile sedan model 1956, mortgaged the same to H.S.
Reyes Inc., with the condition that the former would insure the automobile with the latter
as beneficiary. The automobile was insured on June 23, 1959 with the State Bonding &
Insurance Co., Inc. and a motor car insurance was issued to Enrique Mora

During the effectivity of the insurance contract the car met an accident. Mora, without
knowledge of the H. S. Reyes Inc., authorized the Bonifacio Bros., Inc. to repair the car
with some materials supplied by the Ayala Autoparts Co.

ISSUE:

Whether there is privity of contract between the Bonifacio Bros. Inc and the Ayala
Autoparts Co. on the one hand and the insurance company on the other.

RULING:
No. A policy of insurance is a distinct and independent contract between the insured
and insurer. A third person has no right in law or equity to the proceeds of an insurance
unless there is a contract or trust, express or implied between the insured and the third
person.

The Appellants are not mentioned in the contract as parties thereto, nor is there any
clause or provision thereof from which we can infer that there is an obligation on the
part of the insurance company to pay the cost directly to them.

The clause is an insurance policy, authorizing the owner of the damaged vehicle to
contract for its repairs does not mean that the repairman is entitled to collect the cost of
the repair out of the proceeds of the insurance. It merely establishes the procedure that
the insured has to follow in order to be entitled to indemnity for repair.

On the other hand, the “loss payable” clause of the insurance policy stipulates “Loss, if
any, is payable to H. S. Reyes, Inc.” indicating that it was only the H. S. Reyes Inc.
which intended to be benefited.

Where the mortgagee is the beneficiary in a car insurance, it has a better right than the
repairman to the insurance proceeds.

• Finman General Assurance v. CA (213 SCRA 493)

FACTS:

On October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman
General Assurance Corporation with his parents, spouses Julia and Carlos Surposa,
and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as
beneficiaries. While said insurance policy was in full force and effect, the insured, Carlie
Surposa, died on October 18, 1988 as a result of a stab wound inflicted by one of the
three (3) unidentified men. Private respondent and the other beneficiaries of said
insurance policy filed a written notice of claim with the petitioner insurance company
which denied said claim contending that murder and assault are not within the scope of
the coverage of the insurance policy. Private respondent filed a complaint with the
Insurance Commission which rendered a favorable response for the respondent. The
appellate court ruled likewise. Petitioner filed this petition alleging grave abuse of
discretion on the part of the appellate court in applying the principle of "expresso unius
exclusio alterius" in a personal accident insurance policy, since death resulting from
murder and/or assault are impliedly excluded in said insurance policy considering that
the cause of death of the insured was not accidental but rather a deliberate and
intentional act of the assailant. Therefore, said death was committed with deliberate
intent which, by the very nature of a personal accident insurance policy, cannot be
indemnified.

ISSUE: Whether or not the insurer is liable for the payment of the insurance premiums

RULING:

Yes, the insurer is still liable. Contracts of insurance are to be construed liberally in
favor of the insured and strictly against the insurer. Thus ambiguity in the words of an
insurance contract should be interpreted in favor of its beneficiary. The terms "accident"
and "accidental" as used in insurance contracts have not acquired any technical
meaning, and are construed by the courts in their ordinary and common acceptation.
Thus, the terms have been taken to mean that which happen by chance or fortuitously,
without intention and design, and which is unexpected, unusual, and unforeseen. Where
the death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death or injury
from accident. In the case at bar, it cannot be pretended that Carlie Surposa died in the
course of an assault or murder as a result of his voluntary act considering the very
nature of these crimes. Neither can it be said that where was a capricious desire on the
part of the accused to expose his life to danger considering that he was just going home
after attending a festival. Furthermore, the personal accident insurance policy involved
herein specifically enumerated only ten (10) circumstances wherein no liability attaches
to petitioner insurance company for any injury, disability or loss suffered by the insured
as a result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" — the mention of one thing implies the exclusion of another thing — is
therefore applicable in the instant case since murder and assault, not having been
expressly included in the enumeration of the circumstances that would negate liability in
said insurance policy cannot be considered by implication to discharge the petitioner
insurance company from liability for, any injury, disability or loss suffered by the insured.
Thus, the failure of the petitioner insurance company to include death resulting from
murder or assault among the prohibited risks leads inevitably to the conclusion that it
did not intend to limit or exempt itself from liability for such death.

• Fortune Insurance v. CA (244 SCRA 308)

Facts:

Producers Bank’s money was stolen while it was being transported from Pasay to
Makati. The people guarding the money were charged with the theft. The bank filed a
claim for the amount of Php 725,000, and such was refused by the insurance
corporation due to the stipulation:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any
officer, employee, partner, director, trustee or authorized representative of the Insured
whether acting alone or in conjunction with others. . . .

In the trial court, the bank claimed that the suspects were not any of the above
mentioned. They won the case. The appellate court affirmed on the basis that the bank
had no power to hire or dismiss the guard and could only ask for replacements from the
security agency.

Issue: Did the guards fall under the general exceptions clause of the insurance policy
and thus absolved the insurance company from liability?

Held: Yes to both. Petition granted.

Ratio:

The insurance agency contended that the guards automatically became the authorized
representatives of the bank when they cited International Timber Corp. vs. NLRC
where a contractor is a "labor-only" contractor in the sense that there is an employer-
employee relationship between the owner of the project and the employees of the
"labor-only" contractor.

They cited Art. 106. Of the Labor Code which said:

Contractor or subcontractor. — There is "labor-only" contracting where the person

supplying workers to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others, and the workers
recruited and placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him.

The bank asserted that the guards were not its employees since it had nothing to do
with their selection and engagement, the payment of their wages, their dismissal, and
the control of their conduct.

They cited a case where an employee-employer relationship was governed by (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.

The case was governed by Article 174 of the Insurance Code where it stated that
casualty insurance awarded an amount to loss cause by accident or mishap.

“The term "employee," should be read as a person who qualifies as such as generally
and universally understood, or jurisprudentially established in the light of the four
standards in the determination of the employer-employee relationship, or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the party
employing them and not of the party who supplied them to the employer.”

But even if the contracts were not labor-only, the bank entrusted the suspects with the
duty to safely transfer the money to its head office, thus, they were representatives.
According to the court, “a ‘representative’ is defined as one who represents or stands in
the place of another; one who represents others or another in a special capacity, as an
agent, and is interchangeable with ‘agent.’”

• DBP Pool of Accredited Insurance Cos. v. Radio Mindanao Network (G.R. No.
147039, January 2006)

Facts:

In the evening of July 27, 1988, the radio station of Radio Mindanao Network located at
the SSS Building in Bacolod City was burned down causing damage in the amount of
over one million pesos. Respondent sought to recover under two insurance policies but
the claims were denied on the basis that the case of the loss was an excepted risk
under condition no. 6 (c) and (d), to wit:

6. This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly, of any of the following consequences, namely:

(c) War, invasion, act of foreign enemies, hostilities, or warlike operations (whether war
be declared or not), civic war.

(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or
usurped power.

The insurers maintained that based on witnesses and evidence gathered at the site, the
fire was caused by the members of the Communist Party of the Philippines/New
People’s Army. Hence the refusal to honor their obligations.

The trial court and the CA found in favor of the respondent. In its findings, both courts
mentioned the fact that there was no credible evidence presented that the CCP/NPA did
in fact cause the fire that gutted the radio station in Bacolod.

Issue:

WON the insurance companies are liable to pay Radio Mindanao Network under the
insurance policies?

Ruling:

Yes.

The Court will not disturb the factual findings of the appellant and trial courts absent
compelling reason. Under this mode of review, the jurisdiction of the court is limited to
reviewing only errors of law.

– Particularly in cases of insurance disputes with regard to excepted risks, it is the

insurance companies which have the burden to prove that the loss comes within the
purview of the exception or limitation set up. It is sufficient for the insured to prove the
fact of damage or loss. Once the insured makes out a prima facie case in its favor, the
duty or burden of evidence shifts to the insurer to controvert said prima facie case.

Disposition Petition dismissed. Decision of the CA is affirmed.

• FGU Insurance Corp. vs. CA, (454 SCRA 337 (2005))

FACTS:

 Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To,
was engaged in the shipping business operating two common carriers

• M/T ANCO tugboat

• D/B Lucio barge - no engine of its own, it could not maneuver by itself and had to
be towed by a tugboat for it to move from one place to another.

 September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue City,
Cebu, on board the D/B Lucio, for towage by M/T ANCO:

• 25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMC’s
Beer Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo

• 15,000 cases Pale Pilsen and 200 cases Cerveza Negra - consignee SMC’s
BMD-San Jose Beer Sales Office, San Jose, Antique

 September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived and M/T
ANCO left the barge immediately

• The clouds were dark and the waves were big so SMC’s District Sales
Supervisor, Fernando Macabuag, requested ANCO’s representative to transfer the
barge to a safer place but it refused so around the midnight, the barge sunk along with
29,210 cases of Pale Pilsen and 500 cases of Cerveza Negra totalling to P1,346,197
 When SMC claimed against ANCO it stated that they agreed that it would not be
liable for any losses or damages resulting to the cargoes by reason of fortuitous event
and it was agreed to be insured with FGU for 20,000 cases or P858,500

 ANCO filed against FGU

• FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the
diligence of a good father of the family in the care and supervision of the cargoes

 RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes

 CA affirmed

ISSUE: W/N FGU should be exempted from liability to ANCO for the lost cargoes
because of a fortuitous event and negligence of ANCO

HELD: YES. Affirmed with modification. Third-party complainant is dismissed.

 Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.

Such extraordinary diligence in vigilance over the goods is further expressed in Articles
1734, 1735, and 1745 Nos. 5, 6, and 7 . . .

 Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

. . .

 Art. 1739. In order that the common carrier may be exempted from responsibility,
the natural disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent or minimize loss
before, during and after the occurrence of flood, storm, or other natural disaster in order
that the common carrier may be exempted from liability for the loss, destruction, or
deterioration of the goods . . .

 Caso fortuito or force majeure

• extraordinary events not foreseeable or avoidable, events that could not be

foreseen, or which though foreseen, were inevitable

• not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid - not in this
case

• other vessels in the port of San Jose, Antique, managed to transfer to another
place

 To be exempted from responsibility, the natural disaster should have been the
proximate and only cause of the loss. There must have been no contributory negligence
on the part of the common carrier.

• there was blatant negligence on the part of M/T ANCO’s crewmembers, first in
leaving the engine-less barge D/B Lucio at the mercy of the storm without the
assistance of the tugboat, and again in failing to heed the request of SMC’s
representatives to have the barge transferred to a safer place

 When evidence show that the insured’s negligence or recklessness is so gross

as to be sufficient to constitute a willful act, the insurer must be exonerated.
 ANCO’s employees is of such gross character that it amounts to a wrongful act
which must exonerate FGU from liability under the insurance contract

• both the D/B Lucio and the M/T ANCO were blatantly negligent

Notice of Loss

• Travellers Insurance v. CA G.R. No. 82036, May 1997)

Facts:

At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the name
of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral.
While walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a
taxi that was running fast. Several persons witnessed the accident, among whom were
Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the old
woman was seen sprawled on the pavement. Right away, the good Samaritan that he
was, Marvilla ran towards the old woman and held her on his lap to inquire from her
what had happened, but obviously she was already in shock and could not talk. At this
moment, a private jeep stopped. With the driver of that vehicle, the two helped board
the old woman on the jeep and brought her to the Mary Johnston Hospital in Tondo.
The victim was brought to the U.S.T. Hospital where she expired at 9:00 oclock that
same morning. Death was caused by traumatic shock as a result of the severe injuries
she sustained. The evidence shows that at the moment the victim was bumped by the
vehicle, the latter was running fast, so much so that because of the strong impact the
old woman was thrown away and she fell on the pavement. The trial court in it’s
decision held Travellers Insurance to be solidarily liable against private respondent with
the taxicab driver and operator.

Issue: Whether or not the trial court’s decision is proper.

Held:
No. The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons also
or on the insured. And the test applied has been this: Where the contract provides for
indemnity against liability to third persons, then third persons to whom the insured is
liable can sue the insurer. Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer, the contract being
solely to reimburse the insured for liability actually discharged by him thru payment to
third persons, said third persons recourse being thus limited to the insured alone.

While it is true that where the insurance contract provides for indemnity against liability
to third persons, such third persons can directly sue the insurer, however, the direct
liability of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held solidarily liable with the insured and/or the other
parties found at fault. The liability of the insurer is based on contract; that of the insured
is based on tort.

We have certainly ruled with consistency that the prescriptive period to bring suit in
court under an insurance policy, begins to run from the date of the insurers rejection of
the claim filed by the insured, the beneficiary or any person claiming under an insurance
contract. This ruling is premised upon the compliance by the persons suing under an
insurance contract, with the indispensable requirement of having filed the written claim
mandated by Section 384 of the Insurance Code before and after its amendment.
Absent such written claim filed by the person suing under an insurance contract, no
cause of action accrues under such insurance contract, considering that it is the
rejection of that claim that triggers the running of the one-year prescriptive period to
bring suit in court, and there can be no opportunity for the insurer to even reject a claim
if none has been filed in the first place, as in the instant case.

• Pacific Timber Export Corp. vs. CA, (112 SCRA 199 (1982))

Facts:
The plaintiff secured temporary insurance from the defendant for its exportation of
1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from Quezon
Province to Okinawa and Tokyo, Japan.

Workmen’s Insurance issued a cover note insuring the cargo of the plaintiff subject to its
terms and conditions.

The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033. Policy No. 53
H0 1033 was for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0
1033 was for 853 pieces of logs equivalent to 695,548 board feet. The total cargo
insured under the two marine policies consisted of 1,395 logs, or the equivalent of
1,195.498 bd. ft.

After the issuance of the cover note, but before the issuance of the two marine policies
Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost
during loading operations in the Diapitan Bay.

While the logs were alongside the vessel, bad weather developed resulting in 75 pieces
of logs which were rafted together co break loose from each other. 45 pieces of logs
were salvaged, but 30 pieces were verified to have been lost or washed away as a
result of the accident.

Pacific Timber informed Workmen’s about the loss of 32 pieces of logs during loading of
SS woodlock.

Although dated April 4, 1963, the letter was received in the office of the defendant only
on April 15, 1963. The plaintiff claimed for insurance to the value of P19,286.79.

Woodmen’s requested an adjustment company to assess the damage. It submitted its

report, where it found that the loss of 30 pieces of logs is not covered by Policies Nos.
53 HO 1032 and 1033 but within the 1,250,000 bd. ft. covered by Cover Note 1010
insured for $70,000.00.

The adjustment company submitted a computation of the defendant's probable liability

on the loss sustained by the shipment, in the total amount of P11,042.04.
Woodmen’s wrote the plaintiff denying the latter's claim on the ground they defendant's
investigation revealed that the entire shipment of logs covered by the two marine
policies were received in good order at their point of destination. It was further stated
that the said loss may be considered as covered under Cover Note No. 1010 because
the said Note had become null and void by virtue of the issuance of Marine Policy Nos.
53 HO 1032 and 1033.

The denial of the claim by the defendant was brought by the plaintiff to the attention of
the Insurance Commissioner. The Insurance Commissioner ruled in favor of
indemnifying Pacific Timber. The company added that the cover note is null and void for
lack of valuable consideration. The trial court ruled in petitioner’s favor while the CA
dismissed the case. Hence this appeal.

Issues:

1. WON the cover note was null and void for lack of valuable consideration
2. WON the Insurance company was absolved from responsibility due to
unreasonable delay in giving notice of loss.

Held: No. No. Judgment reversed.

Ratio:

1. The fact that no separate premium was paid on the Cover Note before the loss
occurred does not militate against the validity of the contention even if no such premium
was paid. All Cover Notes do not contain particulars of the shipment that would serve as
basis for the computation of the premiums. Also, no separate premiums are required to
be paid on a Cover Note.
The petitioner paid in full all the premiums, hence there was no account unpaid on the
insurance coverage and the cover note. If the note is to be treated as a separate policy
instead of integrating it to the regular policies, the purpose of the note would be
meaningless. It is a contract, not a mere application for insurance.

It may be true that the marine insurance policies issued were for logs no longer
including those which had been lost during loading operations. This had to be so
because the risk insured against is for loss during transit, because the logs were safely
placed aboard.

The non-payment of premium on the Cover Note is, therefore, no cause for the
petitioner to lose what is due it as if there had been payment of premium, for non-
payment by it was not chargeable against its fault. Had all the logs been lost during the
loading operations, but after the issuance of the Cover Note, liability on the note would
have already arisen even before payment of premium. Otherwise, the note would serve
no practical purpose in the realm of commerce, and is supported by the doctrine that
where a policy is delivered without requiring payment of the premium, the presumption
is that a credit was intended and policy is valid.

2. The defense of delay can’t be sustained. The facts show that instead of invoking the
ground of delay in objecting to petitioner's claim of recovery on the cover note, the
insurer never had this in its mind. It has a duty to inquire when the loss took place, so
that it could determine whether delay would be a valid ground of objection.

There was enough time for insurer to determine if petitioner was guilty of delay in
communicating the loss to respondent company. It never did in the Insurance
Commission. Waiver can be raised against it under Section 84 of the Insurance Act.

Statute of Limitations

• Ang v. Fulton (2 SCRA 945)

FACTS:

On September 9, 1953, defendant Fulton Fire Insurance Company issued a policy No.

F-4730340, in favor of P. & S Department Store (Sally C. Ang) over stocks of general
merchandise, consisting principally of dry goods, contained in a building occupied by
the plaintiffs at Laoag, Ilocos Norte. The insurance was issued for one year, but the
same was renewed for another year on September 31, 1954. On December 17, 1954,
the store containing the goods insured was destroyed by fire. On December 30,
following, plaintiffs executed the first claim form. On April 6, 1956, the Fulton Fire
Insurance Company wrote the plaintiffs that their claim was denied. This denial of the
claim was received by the plaintiffs on April 19, 1956.

Defendant claims that under paragraph 13 of the policy, if the loss or damage is
occasioned by the willful act of the insured, or if the claim is made and rejected but no
action is commenced within 12 months after such rejection all benefits under the policy
would be forfeited, and that since the claim of the plaintiffs was denied and plaintiffs
received notice of denial on April 18, 1956, and they brought the action only on May 5,
1958, all the benefits under the policy have been forfeited.

The court below held that the bringing of the action in the Court of First Instance of
Manila on

May 11, 1956 to assert their claim, tolled the running of the 12 month period within
which the action must be filed. It said that even if the case was filed against the agent
rather than the defendant, it was merely a procedural mistake. The complaint was
dismissed by the Court without prejudice on September 3, 1957, and motion for
reconsideration dated September 21, 1957. The instant complaint was filed on May 8,
1958 therefore it is still within the one-year prescriptive period.

ISSUE:
Whether the filing of the previous suit tolled or suspended the running of the prescriptive
period.

RULING:

The condition contained in the insurance policy that claims must be presented within
one year after rejection is not merely a procedural requirement. The condition is an
important matter, essential to a prompt settlement of claims against insurance
companies, as it demands that insurance suits be brought by the insured while the
evidence as to the origin and cause of destruction have not yet disappeared. It is in the
nature of a condition precedent to the liability of the insurer, or in other terms, a
resolutory cause, the purpose of which is to terminate all liabilities in case the action is
not filed by the insured within the period stipulated.

The bringing of the action against the Paramount Surety & Insurance Company, the
agent of the defendant Company cannot have any legal effect except that of notifying
the agent of the claim.

Beyond such notification, the filing of the action can serve no other purpose. There is no
law giving any effect to such action upon the principal. Besides, there is no condition in
the policy that the action must be filed against the agent, and this Court cannot by
interpretation, extend the clear scope of the agreement beyond what is agreed upon by
the parties.

Decision of RTC reversed.

• Sun Insurance v. CA (195 SCRA 193)

J. Paras

Facts:

Tan took from Sun Insurance a Php 300,000 policy to cover his electrical store in Iloilo
city. Tan’s request for an indemnity in 1983 was repeatedly denied, firstly in 1984. He
wrote for a reconsideration in the same year. This was rejected in 1985, prompting him
to file a civil case in the same year. The insurance company filed a motion to dismiss
due to prescription in 1987, but this was denied. The company went to the court of
appeals to petition the same thing, but this was denied.

Issue:

1. WON the filing of a motion for reconsideration interrupts the twelve months
prescriptive period to contest the denial of the insurance claim.

2. WON the rejection of the claim shall be deemed final only if it contains words to the
effect that denial is final. (ie. the first letter in 1984)

3. When does the cause of action accrue?

Ruling:

1.No

2.No

3. At the time of the first rejection of the insurance company

Ratio:

1. The policy states in section 27.

Action or suit clause — If a claim be made and rejected and an action or suit be not
commenced either in the Insurance Commission or in any court of competent
jurisdiction within twelve (12) months from receipt of notice of such rejection, or in case
of arbitration taking place as provided herein, within twelve (12) months after due notice
of the award made by the arbitrator or arbitrators or umpire, then the claim shall for all
purposes be deemed to have been abandoned and shall not thereafter be recoverable
hereunder.

Respondent Tan admitted that he received a copy of the letter of rejection on April 2,
1984. Thus, the 12-month prescriptive period started to run from the said date of April 2,
1984, under section 27.

2. It was clear in the letter.

Ang v. Fulton Fire Insurance Co.- The condition contained in an insurance policy that
claims must be presented within one year after rejection is not merely a procedural
requirement but an important matter essential to a prompt settlement of claims against
insurance companies as it demands that insurance suits be brought by the insured
while the evidence as to the origin and cause of destruction have not yet disappeared.

Therefore, there was a necessity of bringing suits against the Insurer within one year
from the rejection of the claim. (1984) The contention of the respondents that the one-
year prescriptive period does not start to run until the petition for reconsideration had
been resolved by the insurer (1985), runs counter to the doctrine.

The provision in the contract was pursuant to Sec. 63.

A condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when
the cause of action accrues, is void.

3. Eagle star- The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance contract does not
accrue until the insured's claim is finally rejected by the insurer. This is because before
such final rejection there is no real necessity for bringing suit.
The cause of action, then, started when the insurer denied his claim in the first
instance(1984). This rejection of a petition for reconsideration as insisted by
respondents wasn’t the beginning of the cause of action.

Subrogation

• Coastwise Lighterage v. Court of Appeals, (245 SCRA 796)

FACTS:

The consignee entered into a contract of affreightment which is to transport molasses

from the province of Negros to Manila with the carrier using the latter’s barges. The
barges were towed in tandem by the tugboat MT Marica, also owned by the carrier.
While approaching the pier of destination, one of the barges, “Coastwise 9” was struck
and as a result, the molasses at the cargo tanks were contaminated and rendered unfit
for the use it was intended. The consignee rejected the shipment of molasses as a total
loss. The insurer paid the consignee the amount representing the value of the damaged
cargo of molasses.

Parties:

Consignee – Pag-asa Sales, Inc.

Carrier – Coastwise Lighterage Corporation (Coastwise)

Insurer of the cargo – Philippine General Insurance Company (PhilGen)

ISSUES:

1. WON Coastwise Lighterage was transformed into a private carrier, by virtue of the
contract of affreightment which it entered into with the consignee, Pag-asa Sales, Inc.
What is the extent of its liability over the lost, damaged and deteriorated cargo?
2. WON the insurer was subrogated into the rights of the consignee against the carrier,
upon payment by the insurer of the value of the consignee’s goods lost while on board
one of the carrier’s vessels.

RULING:

1. No. The contract of affreightment entered into between the consignee and the carrier
did not convert the latter into a private carrier, but remained a common carrier and was
still liable as such. The consignee only leased three of petitioner’s vessels, in order to
carry cargo from one point to another, but the possession, command and navigation of
the vessels remained with petitioner carrier.

As a common carrier, the presumption of negligence attaches to it when the goods it

transports are lost, destroyed or deteriorated. This presumption may be overcame only
by proof of the exercise of extraordinary diligence such as placing a person with
navigational skills. However, the carrier failed to overcome this presumption of
negligence as the patron did not possess the necessary license to navigate.

2. Petitioner carrier was liable for breach of the contract of carriage it entered into with
the consignee. In accordance with Art. 2207, payment by the insurer to the assured
operated as an equitable assignment to the former of all remedies which the latter may
have against the third party whose negligence or wrongful act caused the loss. If the
insured property is destroyed or damaged through the fault or negligence of a party
other than the assured, then the insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent that
the insurer has been obligated to pay.

NOTES:

The distinction between the two kinds of charter parties (i.e. bareboat or demise and
contract of affreightment) –
Under the demise or bareboat charter of the vessel, the charterer will generally be
regarded as the owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel
must completely and exclusively relinquish possession, command and navigation
thereof to the charterer, anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a contract for special service
to be rendered by the owner of the vessel and under such contract the general owner
retains the possession, command and navigation of the ship, the charterer or freighter
merely having use of the space in the vessel in return for his payment of the charter
hire. . . . . . . . . An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer for any breach of
duty as to the care, loading and unloading of the cargo. . . . – Puromines, Inc. vs. Court
of Appeals,