INSURANCE (P.D. NO. 162, AS AMENDED BY R.A. NO.

10607)Basic concepts

BASIC CONCEPTS

WHAT MAY BE INSURED

HILARIO GERCIO v. SUN LIFE ASSURANCE OF CANADA, ET AL.,

FACTS:
Gercio bought a Sunlife policy for 2000 pesos naming his wife Zialcita as the beneficiary. However,
Zialcita was convicted for adultery after Gercio bought the policy. Gercio filed for divorce and married a
new woman, Adela. He informed Sunlife that he wanted to put in his new wife as the beneficiary and
revoke Adela.  The trial court ruled in his favor and order Sun to cancel the former wife as the beneficiary
and name the new one as such. The company refused to obey. Hence, this appeal.
ISSUE:
Whether or not Gercio has the right to change the beneficiary of the policy.
RULING: 
NO.  Section 11 of the Insurance Code. “The insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in said policy. Notwithstanding the
foregoing, in the event the insured does not change the beneficiary during his lifetime, the designation
shall be deemed irrevocable.”
In this case, the wife has an insurable interest in the life of her husband. The beneficiary has an absolute
vested interest in the policy from the date of its issuance and delivery. If the policy contains no provision
authorizing a change of beneficiary without the beneficiary’s consent, the insured cannot make such
change.
A life insurance policy of a husband made payable to the wife as beneficiary, is the separate property of
the beneficiary and beyond the control of the husband. In the absence of a statute to the contrary, if a
policy is taken out upon a husband’s life and the wife is named as beneficiary therein, a subsequent
divorce does not destroy her rights under the policy.

PHILAMCARE HEALTH SYSTEMS, INC. VS CA AND JULITA RAMOS

FACTS:

Ernani Trinos applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the
application form, he answered no when asked if he had, or his family, ever consulted or treated for high
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer. The application
was approved for one year and under the agreement, Ernani was entitled to avail of hospitalization
benefits whether ordinary or emergency and “out-patient” benefits. When the agreement was terminated,
the same was extended for another year with the coverage increased to a maximum sum.

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center for one month. Julita, his wife, tried to claim the benefits under the health case agreement.
Petitioner denied saying that the Health Care Agreement was void since there was a concealment
regarding Ernani’s medical history. They allegedly discovered that he was hypertensive, diabetic, and
asthmatic, contrary to to his answer in the application form.

ISSUE:

Whether or not the health care agreement an insurance contract.

RULING:

Yes, Section 2 of the Insurance Code defines a contract of Insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage, or liability arising from an
unknown or contingent event. An insurance contract exists when the insured has an insurable interest,
that the insured is subject to a risk of loss by the happening of the designated peril, the insurer assumes
the risk and such assumption is part of the general scheme to distribute actual losses among a large
group or persons bearing a similar risk, and in consideration of the insurer’s promise, the insured pays a
premium.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest may be insured against. Every person has an
insurable interest in the life and health of himself. Section 10 also provides that every person has an
insurable interest in the life and health of himself, his spouse and children, on any person on whom he
depends on wholly or in part for education or support, or in whom he has a pecuniary interest, of any
person under a legal obligation to him for the payment of money respecting property or service, of which
death or illness might delay or prevent the performance, and of any person upon whose life any estate or
any interest vested him depends.
In this case, the insurable interest of Ernani in obtaining the health case agreement was his own health.
The health care agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs medical expenses arising from sickness, injury, or other stipulated
contingent, the health care provider must pay for the same to the extent agreed upon under the contract.

RIZAL SURETY AND INSURANCE CO. v CA

FACTS:

In 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. 45727 in
favor of Transworld Knitting Mills, Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and
eventually increased to One Million Five Hundred Thousand (P1,500,000.00) Pesos, covering the period
from August 14, 1980 to March 13, 1981. The same pieces of property insured with the petitioner were
also insured with New India Assurance Company, Ltd., (New India).

In 1981, a fire broke out in the compound of Transworld, razing the middle portion of its four-span building
and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building)
where fun and amusement machines and spare parts were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance
Company but to no avail.

Private respondent brought against the said insurance companies an action for collection of sum of
money and damages. Petitioner Rizal Insurance countered that its fire insurance policy sued upon
covered only the contents of the four-span building, which was partly burned, and not the damage caused
by the fire on the two-storey annex building.

ISSUE:

Whether or not the two-storey building was included in the coverage of the insurance policy issued by
Rizal Surety to Transworld

RULING:

The two-storey building was included in the coverage of the insurance policy issued by Rizal Surety to
Transworld. In the Resolution of the issues posited here hinges on the proper interpretation of the
stipulation in subject fire insurance policy regarding its coverage, which reads: ". . . contained and/or
stored during the currency of this Policy in the premises occupied by them forming part of the buildings
situate (sic) within own Compound . . ."

Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage
to what were stored in the four- span building.

Both the trial court and the Court of Appeals found that the so called "annex" was not an annex building
but an integral and inseparable part of the four-span building described in the policy and consequently,
the machines and spare parts stored therein were covered by the fire insurance in dispute. So also,
considering that the two-storey building aforementioned was already existing when subject fire insurance
policy contract was entered into on January 12, 1981, having been constructed sometime in 1978,
petitioner should have specifically excluded the said two- storey building from the coverage of the fire
insurance if minded to exclude the same but it did not, and instead, went on to provide that such fire
insurance policy covers the products, raw materials and supplies stored within the premises of
respondent Transworld which was an integral part of the four- span building occupied by Transworld.

Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety
Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny.
Citing the aforecited provision of law in point, the Court in Landicho vs. Government Service Insurance
System, ruled: "This is particularly true as regards insurance policies, in respect of which it is settled that
the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain . . . are to be construed
strictly and most strongly 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 forfeiture is involved' and the
reason for this 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 experts
and legal advisers employed by, and acting exclusively in the interest of, the insurance company.

INSURABLE INTEREST

PHILAMCARE HEALTH SYSTEMS INC. v CA

FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, was issued a Health Care Agreement for a
health coverage with petitioner Philamcare Health Systems Inc. During the period of Ernani’s coverage,
he suffered a heart attack and was confined in the hospital. Respondent tried to claim the benefits under
the health care agreement, but petitioner denied her claim. Petitioner asserted, among other things, that
only medical and hospitalization benefits are given under the agreement without any indemnification –
unlike in an insurance contract where the insured is indemnified for his loss. As a result, respondent
wound up paying the hospitalization expenses herself.

After Ernani’s passing, respondent filed an action for damages against petitioner and its president, Dr.
Reverente. The RTC ruled in favor of respondent and awarded damages. On appeal, the CA affirmed the
decision of the RTC but deleted all awards for damages and absolved Reverente. Now comes petitioner
raising the primary argument that a health care agreement is not an insurance contract.

ISSUE:

Whether or not the health care agreement was an insurance contract.

RULING:

Yes, the health care agreement was an insurance contract. More particularly, it was one in the nature of a
non-life insurance, which is primarily a contract of indemnity. An insurance contract exists when the
following elements concur:

(1) the insured has an insurable interest;

(2) the insured is subject to a risk of loss by the happening of the designated peril;
(3) the insurer assumes the risk;
(4) such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
(5) in consideration of the insurer's promise, the insured pays a premium.

In the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement
was his own health. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.

FELIPE v MGM MOTOR TRADING

FACTS:

Petitioner purchased a car from MGM Motors (MGM). In purchasing such, he paid a downpayment of
Php200,000 and a reservation fee of Php5,000. Then the succeeding payments we alleged to be paid in
checks. After such purchase, he registered the car, and have it insured by Ayala Insurance Corporation
(AIC).

One day, petitioner parked the car in a street, and the car was lost. He then tried to claim for the
insurance from AIC, but AIC refused to pay because the former cannot prove insurable interest over the
car. Petitioner then went to MGM to procure the documents so that he can prove his insurable interest.
MGM failed to render the documents alleging that petitioner failed to pay. MGM claimed that the
agreement was to pay in lump sum, not installments. Moreover, MGM alleged that the checks petitioner
paid bounced. Thus, the matter was brought to court.

Upon presentation of evidence, the evidence presented by petitioner were the receipt of Php200,000 and
the testimony of his father. The evidence proved the payment of such. However, respondents MGM and
AIC filed for demurrer of evidence. It was granted by the judge because insurable interest was not proved.

ISSUE:

Whether or not insurable interest was proven.

RULING:

NO. Insurable interest was not proven. What was proven was merely the payment of the Php200,000.
Partial payment is not conclusive as to the proof of insurable interest is concerned. The payment of
installment basis was not even proven in this case. Moreover, it was rebutted that MGM presented that
the sales invoice indicated was on Cash on Delivery (COD). In effect, the evidence presented by the
petitioner has failed to substantiate the proof of insurable interest. The burden of proof lies on the party
alleging the existence of insurable interest. Petitioner failed to overcome such burden.

VIOLETA R. LALICAN v THE INSULAR LIFE ASSURANCE COMPANY LIMITED

FACTS:

Eulogio Lalican applied for an insurance polity with Insular Life. The latter, through its agent, Malaluan,
issued in favor of Eulogio Policy No 9011992 which has a value of P1,500,000.00 naming his wife,
Violeta, as the primary beneficiary.
It was agreed that Eulogio pay premiums on a quarterly basis, until the end of the 20-year period of the
policy. According to the Policy Contract, there was a grace period of 31 days. In case of default, and if the
premiums remained unpaid until the end of the grace period, the policy would autotmatically lapse and
become void. Eulogio failed to pay the third installment even after the lapse of the 31-day grace period
which resulted to the policy becoming void.

Eulogio submitted to Insular Life, through Malaluan, an Application for Reinstatement. This was however
denied for failing to paid the overdue interest. Eulogio filed a second Application for Reinstatement at the
residence of the agent including the amount of the premiums due and interests. As Malaluan was not
around, her husband received Eulogio’s application and issued a receipt.

On the same day he submitted his second Application for Reinstatement, Eulogio died. Malaluan
forwarded the application to Insular Life without knowing of Eulogio’s death. However, Insular Life no
longer acted on it as it was informed of the death.

Violeta filed with Insular Life a claim for payment of the full proceeds of the policy. The latter, however, did
not grant her claim on the ground that at the time of Eulogio’s death, the policy has already lapsed and
the latter failed to reinstate the same. According to the Application for Reinstatement, the policy would
only be considered reinstated upon approval of the application by Insular Life during the applicant’s
“lifetime and good health.” However, Violeta maintains that Eulogio still had insurable interest in his own
life when he reinstated the policy just before he passed away.

ISSUES:

Whether or not Eulogio has insurable interest over his own life under Policy No 9011992.

RULING:

An insurable interest is one of the most basic and essential requirements in an insurance contract. In
general, an insurable interest is that interest which a person is deemed to have in the subject matter
insured, where he has a relation or connection with or concern in it, such that the person will derive
pecuniary benfit or advantage from the preservation of the subject matter insured and will suffer pecuniary
loss or damage from its destruction, termination, or injury by the happening of the event insured against.
The existence of an insurable interest gives a person the legal right to insure the subject matter of the
policy of insurance. Section 10 of the Insurance

Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same
code also states that an interest in the life or health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss occurs.

Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is
entirely irrelevant in the case at bar. It is actually beyond question that while Eulogio was still alive, he had
an insurable interest in his own life, which he did insure under Policy No. 9011992.

DOUBLE INSURANCE AND OVERINSURANCE

ARMANDO GEAGONIA vs.CA and COUNTRY BANKERS

FACTS:
The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del
Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-
14622 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and
women wear and other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. In 1990, fire of accidental origin broke out at
around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. The petitioner's insured stock-in-
trade were destroyed prompting him to file with the private respondent a claim under the policy. On 28
December 1990, the private respondent denied the claim because it found that at the time of the loss the
petitioner's stocks-in-trade were likewise covered by fire insurance policies No. GA-28146 and No. GA-
28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
(hereinafter PFIC).

The petitioner then filed a complaint against the private respondent with the Insurance Commission (Case
No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for attorney's fees
and costs of litigation. In its answer, the private respondent specifically denied the allegations in the
complaint and set up as its principal defense the violation of Condition 3 of the policy.
ISSUE:
Whether or not there is double insurance.
RULING:
No, there is no double insurance.
A double insurance exists where the same person is insured by several insurers separately in respect of
the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee
on the mortgaged property are distinct and separate. Since the two policies of the PFIC do not cover the
same interest as that covered by the policy of the private respondent, no double insurance exists. The
non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the private
respondent's policy. 
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in
force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume
a co-insurer's liability up to a loss not exceeding to P200,000.00. What it had in mind was to discourage
over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is
to prevent over-insurance and thus avert the perpetration of fraud. When a property owner
obtains insurance from two or more insurers in a total amount that exceeds the property's value, the
insured may have an inducement to destroy the property for the purpose of collecting the insurance. The
public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the
insured.

TEAL MOTOR COMPANY, Inc. v.THE CONTINENTAL INSURANCE CO., MANILA BUILDING AND
LOAN ASSOCIATION
FACTS:

The plaintiff in these cases is a domestic corporation engaged in the automobile business in the City of
Manila. Its principal office and storerooms, located in the Port Area of the City of Manila. Sometime in
January 1929, plaintiff’s area visited by a severe fire of unknown origin. The Teal Motor Company, Inc.,
was heavily insured with the various defendant insurance companies, and in June it filed complaints
against the insurance companies for the damage to the building and in August filed complaints against
the insurance companies on the policies covering the contents thereof.

The defendant Manila Building and Loan Association is a domestic corporation with its head office in the
City of Manila. It held a mortgage on the building and, as part security thereof, had a partial assignment of
the insurance policies covering the building.

By mutual consent the cases were tried jointly, and after an unnecessarily long and tedious trial, judgment
was given against the defendant insurance companies on the policies for damage to the building, in the
sum of P125,000, distributed as per the assignments on the policies between the plaintiff and the Building
and Loan Association. From these decisions of the trial court the insurance companies who were held
liable for the damage to the building, appealed.

ISSUE:

Whether there is overinsurance in the claims of Teal Motor Company

RULING:

Virtually nothing is known as to how the fire started, and therefore the defense of arson was rejected by
the trial court, and the assignment of error based on that finding is not worthy of comment by this court.
Counsel for appellant urges that there was overinsurance on the building's contents but does not allege
that there was overinsurance on the building, the subject we are here discussing. The intimation of
counsel for appellants that the principal owners of the Teal Motor Company, Inc., were not good risks,
does not redound to the benefit of the insurance companies. The insurance companies knew or had an
easy method of acquiring exact information of the value of the goods that were insured. They knew the
character and reputation of the principal owners of plaintiff company, as they have been business men of
prominence in the City of Manila for many years. If it were a fact that insurance companies are willing to
overinsurance hazardous cases, such companies become, instead of an asset to the community, an
actual menace to the law-abiding and honest inhabitants of the community.

PIONEER INSURANCE AND SURETY CORPORATION VS.OLIVA YAP

FACTS:
Respondent was the owner of a two-storey building where she sold bags and footwear. She took
out a fire insurance policy with a face value of P25,000 from the petitioner covering her stocks, furniture,
fixtures and fittings of every kind and description. Furthermore, the policy requires the respondent to give
petitioner notice of co-insurers giving the same subject matter under the condition that failure to give such
notice shall lead to the forfeiture of the proceeds under the policy. However, at that time, the respondent
had a P20,000 fire insurance policy with Great American Insurance Co. Subsequently, the respondent
took out another fire insurance policy with Federal Insurance Company without giving any notice to the
petitioner. A fire broke out in their building. Respondent filed an insurance claim, but the same was denied
by the petitioner on the ground of violation of the terms and conditions of the insurance policy.
ISSUE:
WON the petitioner should be absolved from liability on the fire insurance policy on account of any
violation by respondent of the co-insurance clause therein.

RULING:

YES. The petitioner should be absolved from liability on the fire insurance policy on account of any
violation by respondent of the co-insurance clause.

Jurisprudence provides that, where a policy contains a clause providing that the policy shall be void if
insured has or shall procure any other insurance on the property, the procurement of additional insurance
without the consent of the insurer avoids the policy.

In the case at hand, respondent procured another insurance policy with Great American Insurance Co.
involving the same subject matter without notice to the petitioner. Therefore, since the respondent
violated the co-insurance clause, the petitioner should be absolved from liability on the fire insurance
policy.

NO FAULT, SUICIDE, AND INCONTESTABILITY CLAUSES

MA. LOURDES S. FLORENDO v PHILAM PLANS, INC.

Pursuant to Section 27 of the Insurance Code, concealment by the insured entitles the insurer to rescind
its contract of insurance.

FACTS:

On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans). Manuel signed the application and left to Perla, who is the
agent of Philam Plans, the task of supplying the information needed in the application. Under the master
policy, Philam Life was to automatically provide life insurance coverage, including accidental death, to all
who signed up for Philam Plans' comprehensive pension plan.

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes
8led a claim with Philam Plans for the payment of the benefits under her husband's plan. 10 Because
Manuel died before his pension plan matured and his wife was to get only the bene8ts of his life
insurance, Philam Plans forwarded her claim to Philam Life. Philam Plans declined the claim because
they found out that Manuel was on maintenance medicine for his heart and had an implanted pacemaker.
Further, he suffered from diabetes mellitus and was taking insulin.

RTC ruled in favour of Lourdes. However, the CA reversed the RTC decision. Hence, this petition.

ISSUE:

Whether or not the incontestability period has already set in.

RULING:
Yes. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability
period. Incontestability period states that after it has remained in force for one (1) year, we can no longer
contest for health reasons any claim for insurance under this Agreement, except for the reason that
installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension
program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year
contestability period shall start again on the date of approval of your request for reinstatement. The above
incontestability clause precludes the insurer from disowning liability under the policy it issued on the
ground of concealment or misrepresentation regarding the health of the insured after a year of its
issuance. Since Manuel died on the eleventh month following the issuance of his plan, the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning
Lourdes’ entitlement to the benefits of her husband’s pension plan.
PERLA COMPANIA DE SEGUROS, INC. V. ANCHETA

No-fault clause

FACTS:

On December 27, 1977, in a collision between the IH Scout in which private respondents were riding and
a Superlines bus along the national highway in Sta. Elena, Camarines Norte, private respondents
sustained physical injuries in varying degrees of gravity. Thus, they filed with the Court of First Instance of
Camarines Norte on February 23, 1978 a complaint for damages against Superlines, the bus driver and
petitioner, the insurer of the bus. The bus was insured with petitioner for the amount of P50,000.00 as and
for passenger liability and P50,000.00 as and for third party liability. The vehicle in which private
respondents were riding was insured with Malayan Insurance Co.

Even before summons could be served, respondent judge issued an order dated March 1, 1978, the
pertinent portion of which stated:

The second incident is the prayer for an order of this court for the Insurance Company, Perla Compania
de Seguros, Inc., to pay immediately the P5,000.00 under the “no fault clause” as provided for under
Section 378 of the Insurance Code, and finding that the requisite documents to be attached in the record,
the said Insurance Company is therefore directed to pay the plaintiffs (private respondents herein) within
five (5) days from receipt of this order.

Petitioner denied in its Answer its alleged liability under the “no fault indemnity” provision and likewise
moved for the reconsideration of the order.

Petitioner held the position that under Sec. 378 of the Insurance Code, the insurer liable to pay the
P5,000.00 is the insurer of the vehicle in which private respondents were riding, not petitioner, as the
provision states that “[i]n the case of an occupant of a vehicle, claim shall lie against the insurer of the
vehicle in which the occupant is riding, mounting or dismounting from.” Respondent judge, however,
denied reconsideration. A second motion for reconsideration was filed by petitioner. However, in an order
dated January 3, 1979, respondent judge denied the second motion for reconsideration and ordered the
issuance of a writ of execution [Rollo, p. 69.] Hence, the instant petition praying principally for the
annulment and setting aside of respondent judge’s orders dated March 1, 1978 and January 3, 1979.

ISSUE:

Is the insurer liable to indemnify private respondents under Sec. 378 of the Insurance Code.

RULING:

No. From a reading of Sec. 378 of the Insurance Code, the following rules on claims under the “no fault
indemnity” provision, where proof of fault or negligence is not necessary for payment of any claim for
death or injury to a passenger or a third party, are established: 1. A claim may be made against one
motor vehicle only. 2. If the victim is an occupant of a vehicle, the claim shall lie against the insurer of the
vehicle in which he is riding, mounting or dismounting from. 3. In any other case (i.e. if the victim is not an
occupant of a vehicle), the claim shall lie against the insurer of the directly offending vehicle.

The law is very clear — the claim shall lie against the insurer of the vehicle in which the “occupant” is
riding, and no other. The claimant is not free to choose from which insurer he will claim the “no fault
indemnity,” as the law, by using the word “shall, makes it mandatory that the claim be made against the
insurer of the vehicle in which the occupant is riding, mounting or dismounting from. Irrespective of
whether or not fault or negligence has with the driver of the Superlines bus, as private respondents were
not occupants of the bus, they cannot claim the “no fault indemnity” provided in Sec. 378 from petitioner
which is the insurer of Superlines. The claim should be made against the insurer of the vehicle they were
riding.

SUN INSURANCE OFFICE, LTD VS. THE HON. COURT OF APPEALS AND NERISSA LIM

FACTS:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife
Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that there
was no suicide. It argued, however that there was no accident either.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed
himself to needless peril and so came under the exception. The theory is that a gun is per se dangerous
and should therefore be handled cautiously in every case.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at
about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was in a
happy mood (but not drunk) and was playing with his handgun, from which he had previously removed
the magazine. As she watched television, he stood in front of her and pointed the gun at her. She pushed
it aside and said it might he loaded. He assured her it was not and then pointed it to his temple. The next
moment there was an explosion and Lim slumped to the floor. He was dead before he fell.

ISSUE:

Was there suicide/intentional endangerment that would let the insurer avoid liability or was It an accident

RULING:
It was an accident. It should be noted at the outset that 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. To illustrate, a person who walks a tightrope one thousand meters above
the ground and without any safety device may not actually be intending to commit suicide, but his act is
nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within
the meaning of the exception in question.

However, the Court is convinced that the incident that resulted in Lim's death was indeed an accident.
The petitioner, invoking the case of De la Cruz v. Capital Insurance, says that "there is no accident when
a deliberate act is performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There was such a happening.
This was the firing of the gun, which was the additional unexpected and independent and unforeseen
occurrence that led to the insured person's death. Lim was unquestionably negligent and that negligence
cost him his own life. But it should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own
accident. Indeed, most accidents are caused by negligence.

PERFECTION OF THE INSURANCE CONTRACT

LIM V SUNLIFE

FACTS:
Luis Lim of Zamboanga applied for a Sun Life policy for Php 5,000. He designated his wife, Pilar, as
beneficiary. The first premium of P433 was paid by Lim, then the company issued a "provisional policy."
Lim died after the issuance of the provisional policy but before approval of the application. 

Pilar brought an action to recover from Sun Life the sum of P5,000, the amount named in the provisional
policy. She lost in the trial court hence this appeal.

The "provisional policy" reads as follows:

The above-mentioned life is to be assured in accordance with the terms and conditions contained or
inserted by the Company in the policy which may be granted by it in this particular case for four months
only from the date of the application, provided that the Company shall confirm this agreement by issuing a
policy on said application when the same shall be submitted to the Head Office in Montreal. Should the
Company not issue such a policy, then this agreement shall be null and void ab initio, and the Company
shall be held not to have been on the risk at all, but in such case the amount herein acknowledged shall
be returned.

ISSUE:
WON there was a perfected contract of insurance

RULING:
No. Petition dismissed.

The policy for four months is expressly made subjected to the affirmative condition that "the company
shall confirm this agreement by issuing a policy on said application when the same shall be submitted to
the head office in Montreal." 

Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the
company shall be held not to have been on the risk." This means that the agreement should not go into
effect until the home office of the company should confirm it by issuing a policy. The provisional policy
amounts to nothing but an acknowledgment on behalf of the company, that it has received from the
person named therein the sum of money agreed upon as the first year's premium upon a policy to be
issued upon the application, if the application is accepted by the company.
There can be no contract of insurance unless the minds of the parties have met in agreement. In this
case, the contract of insurance was not consummated by the parties.

The general rule concerning the agent's receipt pending approval or issuance of policy is in several
points, according to Joyce:

Where an agreement is made between the applicant and the agent whether by signing an application
containing such condition, or otherwise, that no liability shall attach until the principal approves the risk
and a receipt is given buy the agent, such acceptance is merely conditional, and it subordinated to the act
of the company in approving or rejecting; so in life insurance a "binding slip" or "binding receipt" does not
insure of itself. 

A binding receipt is a custom where temporary insurance pending the consideration of the application was
given until the policy be issued or the application rejected, and such contracts are upheld and enforced
when the applicant dies before the issuance of a policy or final rejection of the application.
 
However, there was no perfected contract because of the clause in the application and the receipt
stipulate expressly that the insurance shall become effective only when the "application shall be approved
and the policy duly signed by the secretary at the head office of the company and issued." The premium
of 433 must be returned.

GREAT PACIFIC LIFE VS. CA

FACTS:

Ngo Hing, a duly authorized agent of Pacific Life, applied for a 20-year endowment policy on the life of his
one-year old daughter, a mongoloid. He did not divulge each physical defect of his daughter. He paid the
premium and was issued a binding deposit receipt. However, despite Lapulapu D. Mondragon’s (Branch
Manager of the Pacific Life in Cebu City) favorable recommendation, the Pacific life disapproved the
application, because a 20-year endowment plan is not available for minors. Instead, it offered the Juvenile
Triple Action Plan. The manager wrote back and again strongly recommended the approval of the
application. At this point, the child died of influenza with complication of broncho-pneumonia.

In a suit filed by Ngo Hing to recover the proceeds of the insurance, the trial court rendered judgment
adverse to Pacific Life and Mondragon. The Court of Appeals in its amended decision affirmed the trial
court's decision in toto.

ISSUES:

Whether the binding deposit receipt constituted a temporary contract of the life insurance? 2. Whether
Ngo Hing concealed the state of health and physical condition of his child?

RULING:

Yes, the binding deposit receipt only constitutes a temporary contract of the life insurance.
The Supreme Court held that a "binding receipt" does not insure by itself; that no insurance contract was
perfected between the parties with the non-compliance of the conditions provided in the binding receipt
and concealment having been committed by private respondent.

Where the binding deposit receipt is intended to be merely a provisional or temporary insurance contract,
and that the receipt merely acknowledged, on behalf of the insurance company, that the latter's branch
office had received from the applicant the insurance premium and had accepted the application subject
for processing by the insurance company, such binding deposit receipt does not become in force until the
application is approved.

A binding deposit receipt which is merely conditional does not insure outright. Thus, where an agreement
is made between the applicant and the agent, no liability will attack until the principal approves the risk
and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act
of the company in approving or rejecting the application.

A contract of insurance, like other contracts, must be assented to by both parties either in person or by
their agents. The contract, to be binding from the date of the application, must

have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless
the minds of the parties have met in agreement.

The failure of the insurance company's agent to communicate to the applicant the rejection of the
insurance application would not have any adverse effect on the allegedly perfected temporary contract. In
the first place, there was no contract perfected between the parties who had no meeting of their minds.
Private respondent, being an authorized agent is indubitably aware that said company does not offer the
life insurance applied for. When he filed the insurance application in dispute he was therefore only taking
a chance that the company will approve the recommendation of the agent for the acceptance and
approval of the application in question. Secondly, having an insurable interest on the life of his daughter,
aside from being an insurance agent and office associate of the branch, the applicant must have known
and followed the progress on the processing of such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life insurance application.

ETERNAL VS PHILAM LIFE INSURANCE

Exception to Perfection (Insurance)

FACTS:

Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy with
petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal
who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of
insurance coverage depended upon the existing balance of the purchased burial lots. The insurance of
any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However,
there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with
a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all
insured lot purchasers. Eternal complied by submitting a letter dated December 29, 1982, containing a list
of insurable balances of its lot buyers for October 1982. One of those included in the list as “new
business” was a certain John Chuang. His balance of payments was 100K. on August 2, 1984, Chuang
died.

Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuang’s death. Attached
to the claim were certain documents. In reply, Philamlife wrote Eternal a letter requiring Eternal to submit
the additional documents relative to its insurance claim for Chuang’s death. Eternal transmitted the
required documents through a letter which was received by Philamlife.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim.
This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000.

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter a portion of which
reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No
application for Group Insurance was submitted in our office prior to his death on August 2, 1984

Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in favor of Eternal,
ordering Philamlife to pay the former 100K representing the proceeds of the policy. CA reversed. Hence
this petition.

ISSUE:

Whether or not Philamlife should pay the 100K insurance proceeds

RULING:

YES. An examination of the provision of the POLICY under effective date of benefit, would show
ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of
the clients of Eternal already became effective upon contracting a loan with Eternal while the second
sentence appears to require Philamlife to approve the insurance contract before the same can become
effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser
is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application. The second sentence of the Creditor Group Life Policy on the Effective Date of
Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance application must not work to
prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination
of the insurance contract by the insurer must be explicit and unambiguous.

RIGHTS AND OBLIGATIONS OF PARTIES

FIELDMEN'S INSURANCE vs. VDA. DE SONGCO, ET AL. and COURT OF APPEALS

Doctrine: The contract of insurance is one of perfect good faith (uberima fides) not for the insured alone,
but equally so for the insurer; in fact, it is more so for the latter, since its dominant bargaining position
carries with it stricter responsibility.
FACTS:
Federico Songco owned a private jeepney. On September 15, 1960, he was induced by Fieldmen's
insurance agent Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy covering his
motor vehicle. He was issued a Common Carriers Accident Insurance Policy. On the next year, he
renewed the policy by paying the annual premium. During the effectivity of the renewed policy, the
insured vehicle collided with another car while being driven by Rodolfo Songco, a duly licensed driver and
son of Federico (the vehicle owner). As a result, Federico Songco (father) and Rodolfo Songco (son)
died, along with other passengers. 
A claim was filed but was denied by the insurance company on the pretext that what was insured was a
private vehicle and not a common carrier. During the trial, it was declared by a witness that when
insurance agent Benjamin Sambat was inducing Songco to insure his vehicle, the latter butted in saying,
“Our vehicle is a private vehicle and not for passengers.” But the agent replied: “Regardless of whether
your vehicle was an owner-type or for passengers, it could still be insured because our company is not
owned by the Government. And the Government has nothing to do with our company.”
The Court of Appeals rendered a decision in favor of the claimants. It held that where inequitable conduct
is shown by an insurance firm, it is estopped from enforcing forfeitures in its favor, in order to forestall
fraud or imposition on the insured. After Fieldmen's Insurance Co. had led the insured Songco to believe
that he could qualify under the common carrier liability insurance policy, it could not, thereafter, be
permitted to change its stand to the detriment of the heirs of the insured. The failure to apply the Doctrine
of Estoppel in this case would result in a gross travesty of justice.
ISSUE:
Whether or not the insurance claim is proper.

RULING:
Yes. The fact that the insured owned a private vehicle, not a common carrier, was something which the
company knew all along. In fact, it exerted the utmost pressure on the insured, a man of scant education,
to enter into the contract of insurance. The Court of Appeals also held that since some of the conditions
contained in the policy were impossible to comply with under the existing conditions at the time, the
insurer is estopped from asserting breach of such conditions. 
The Supreme Court, in affirming the decision of the Court of Appeals, took judicial notice of the fact that
nowadays, monopolies, cartels and concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly prepared agreements that the weaker
party may not change one whit, his participation in the agreement being reduced to the alternative of “take
it or leave it” labelled since Raymond Saleilles as contracts by adherence (contrats d'adhesion), in
contrast to those entered into by parties bargaining on an equal footing, such contracts (i.e. insurance
policies & international bills of lading) obviously call for greater strictness and vigilance on the part of
courts of justice with a view to protecting the weaker party from abuses. 
Citing the case of Qua Chee Gan vs. Law Union & Rock Insurance, "The contract of insurance is one of
perfect good faith (uberima fides) not for the insured alone but equally so for the insurer; in fact, it is more
so for the latter, since its dominant bargaining position carries with it stricter responsibility."
PEDRO ARCE vs. THE CAPITAL INSURANCE
Doctrine: Section 77 of the Insurance Code provides that an insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies, or whenever under the broker and agency
agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit
extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the
policy.
FACTS:
In Civil Case No. 66466 of the Court of First Instance of Manila, the Capital Insurance and Surety Co.,
Inc., (COMPANY) was ordered to pay Pedro Arce (INSURED) the proceeds of a fire insurance policy. Not
satisfied with the decision, the company appealed to this Court on questions of law. 
The INSURED (Pedro Arce) was the owner of a residential house in Tondo, Manila, which had been
insured with the COMPANY (Capital insurance) since 1961 under Fire Policy No. 24204. On November
27, 1965, the COMPANY sent to the INSURED Renewal Certificate No. 47302 to cover the period
December 5, 1965 to December 5, 1966. The COMPANY also requested payment of the corresponding
premium in the amount of P 38.10. 
Anticipating that the premium could not be paid on time, the INSURED, thru his wife, promised to pay it
on January 4, 1966. The COMPANY accepted the promise but the premium was not paid on January 4,
1966. On January 8, 1966, the house of the INSURED was totally destroyed by fire. 
On January 10, 1966, INSURED's wife presented a claim for indemnity to the COMPANY. She was told
that no indemnity was due because the premium on the policy was not paid. Nonetheless the COMPANY
tendered a check for P300.00 as financial aid which was received by the INSURED's daughter, Evelina R.
Arce. The COMPANY reiterated that the check was given "not as an obligation, but as a concession"
because the renewal premium had not been paid, The INSURED cashed the check but then sued the
COMPANY on the policy.

ISSUE: 
Whether or not the petitioners are entitled to claim from their policy despite non-payment of their
premium.
RULING:
No, Section 77 of the Insurance Code provides that an insurer is entitled to payment of the premium as
soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies, or whenever under the broker and agency agreements with
duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly
licensed intermediary should exceed ninety (90) days from date of issuance of the policy.
Moreover, the parties in this case had stipulated: Notwithstanding anything to the contrary contained in
the within policy, this insurance will be deemed valid and binding upon the Company only when the
premium and documentary stamps therefor have actually been paid in full and duly acknowledged in an
official receipt signed by an authorized official/representative of the Company, "
It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time is of the
essence in respect of the payment of the insurance premium so that if it is not paid the contract does not
take effect unless there is still another stipulation to the contrary. In the instant case, the INSURED was
given a grace period to pay the premium but the period having expired with no payment made, he cannot
insist that the COMPANY is nonetheless obligated to him.
AREOLA V. COURT OF APPEALS
FACTS:
Seven months after the issuance of Petitioner Santos Areola’s Personal Accident Insurance Policy,
respondent Insurance company Prudential Guarantee and Assurance, Inc. unilaterally cancelled the
same since it was revealed that the insured failed to pay for his premiums. Petitioner was supposed to
pay the total amount of P1,609.65 which included the premium of P1470, documentary stamp of P110.25
and 2% premium tax of P29.40. 
Respondent insurance company issued collector’s provisional receipt to petitioner for the amount of
P1,609.65. But on June 29, 1985, the company cancelled his policy for non-payment of premium effective
as of inception dated. Shocked by the cancellation, petitioner demanded the issuance of an official receipt
and was told that the cancellation was a mistake. 
Petitioner then sent respondent company a letter demanding that he be insured under the same terms
and conditions contained in his cancelled policy and also warned that should his demand be unsatisfied,
he would sue for damages. In reply, respondent-company stated that the official receipt should have been
issued seven days from the issuance of the provisional receipt but because no official receipt had been
issued in Areola’s name, there was reason to believe that no payment had been made but would still hold
him under the policy until the matter is cleared. 
Later, Prudential wrote to Areola confirming that the amount of P1609.65 was in fact received by
Prudential and that the policy was amendable to be extended by one year. Respondent insurance
company offered to reinstate the same policy it previously cancelled and proposed to extend its lifetime
upon finding that the cancellation was erroneous and that the premiums were paid in full but were not
remitted by Teofilo M. Malapit, respondent’s company branch manager. 
However, Petitioner and his wife had already filed an action for breach of contract with damages. 
ISSUE: 
1. Did the erroneous act of cancelling the policy entitled petitioner-insured to payment of damages? 
2. Did the subsequent act of reinstating the wrongfully cancelled insurance policy obliterate
whatever liability for damages it may have bear, thus absolving it? 
RULING:
1. Yes. Malapit’s fraudulent act of misappropriating the premiums paid by petitioner-insured is
beyond doubt 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.
Prudential is liable for damages for the fraudulent acts committed by Malapit. Reinstating the
insurance policy can not 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 relation ship
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.”

RESCISSION OF INSURANCE CONTRACTS

BERNARDO ARGENTE vs. WEST COAST LIFE INSURANCE CO.

Concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld. If no inquiries are made and no fraud or design to conceal enters into the
concealment the contract is not avoided.

FACTS:

Bernardo Argente signed an application for joint insurance with his wife in the sum of P2,000. The wife,
Vicenta de Ocampo, signed for the same. Both applications, with the exception of the names and the
signatures of the applicants, were written by Jose Geronimo del Rosario, an agent for the West Coast Life
Insurance Co. But all the information contained in the applications was furnished the agent by Bernardo
Argente.

Argente was examined by Dr. Sta. Ana, a medical examiner for the West Coast. The result was recorded
in the Medical Examiner's Report, and with the exception of the signature of Bernardo Argente, was in the
handwriting of Doctor Sta. Ana. But the information or answers to the questions contained on the face of
the Medical Examiner's Report were furnished by the doctor of Argente.

Vicenta de Ocampo, wife of the plaintiff, was examined at her residence by the same doctor.
The spouses submitted to West Coast Life an amended application, increasing the amount to P15,000,
and asked that the policy be dated May 15, 1925. The amended application was accompanied by the
documents entitled "Short Form Medical Report." In both documents appear certain questions and
answers.

A temporary policy for P15,000 was issued to Bernardo Argente and his wife as of May 15, but it was not
delivered until the first quarterly premium on the policy was paid. More than thirty days had elapsed since
the applicants were examined. Each of them was required to file a certificate of health before the policy
was delivered.

Vicenta de Ocampo died of cerebral apoplexy. Argente presented a claim in due form to the West Coast
Life Insurance Co. for the payment of the sum of P15,000. It was apparently disclosed that the answers
given by the insured in their medical examinations with regard to their health were untrue. West Coast
refused to pay the claim and wrote Argente to the effect that the claim was rejected due to fraud.

The trial court held the policy null and void, hence this appeal.

ISSUE:

Whether Argente and his wife Ocampo were guilty of concealment and thereby misled the insurer into
accepting the risk under the insurance policy?

RULING:

Yes,  the court found from the evidence that the representations made by Bernardo Argente and by his
wife in their applications to the defendant for life insurance were false with respect to their state of health
during the period of five years preceding the date of such applications, and that they knew the
representations made by them in their applications were false. The court further found from the evidence
that the answers given by Bernardo Argente and his wife at the time of the medical examination by Doctor
Sta. Ana were false with respect to the condition of their health at that time and for a period of several
years prior thereto.

Vicenta de Ocampo, in response to the question asked by the medical examiner, answered no to "Have
you ever consulted a physician for or have you ever suffered from any ailment or disease of the brain or
nervous system?" She also answered “none” as to the question whether she consumed alcohol of not.

To the question, "What physician or physicians, if any, not named above, have you consulted or been
treated by, within the last five years and for what illness or ailment?" she answered "None."

But the facts show that she was taken to San Lazaro Hospital, her case was diagnosed by the admitting
physician as "alcoholism”, moreover, she was diagnosed with "phycho-neurosis."
Section 25 of the Insurance Code defined concealment as "a neglect to communicate that which a party
knows and ought to communicate."
The court held that the alleged concealment was not immaterial and insufficient to avoid the policy. In an
action on a life insurance policy where the evidence conclusively shows that the answers to questions
concerning diseases were untrue, the truth of falsity of the answers become the determining factor. If the
true facts been disclosed by the assured, the insurance would never have been granted.

Concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld. If no inquiries are made and no fraud or design to conceal enters into the
concealment the contract is not avoided.

The assurer is entitled to know every material fact of which the assured has exclusive or peculiar
knowledge, as well as all material facts which directly tend to increase the hazard or risk which are known
by the assured, or which ought to be or are presumed to be known by him. And a concealment of such
facts vitiates the policy.

If the assured has exclusive knowledge of material facts, he should fully and fairly disclose the same,
whether he believes them material or not. The determination of the point whether there has or has not
been a material concealment must rest largely in all cases upon the exact terms of the contract.

SUNLIFE ASSURANCE COMPANY OF CANADA vs.CA

DOCTRINE:
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of
the proposed contract or in making his inquiries.

FACTS:
Robert John B. Bacani procured a life insurance contract for himself from the petitioner Sunlife. He was
issued a policy for P100,000.00, with double indemnity in case of accidental death. The designated
beneficiary was his mother, Bernarda Bacani.

One year later, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner investigated and its
findings prompted it to reject the claim. Sunlife informed Bacani that the insured did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check
representing the total premiums paid in the amount of P10,172.00 was attached to said letter.

Petitioner claimed that the insured gave false statements in his application. The deceased answered
claimed that he consulted a Dr. Raymundo of the Chinese General Hospital for cough and flu
complications. The other questions were answered in the negative. Petitioner discovered that two weeks
prior to his application for insurance, the insured was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was
subjected to urinalysis tests.

Bernarda Bacani and her husband filed an action for specific performance against petitioner with the
RTC. The court ruled in favor of the spouses and ordered Sunlife to pay P100,000.00. In ruling for private
respondents, the trial court concluded that the facts concealed by the insured were made in good faith
and under a belief that they need not be disclosed. The court also held that the medial history was
irrelevant because it wasn’t medical insurance.

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled that petitioner
cannot avoid its obligation by claiming concealment because the cause of death was unrelated to the
facts concealed by the insured. Petitioner's motion for reconsideration was denied. Hence, this petition.

ISSUE:
Whether the insured was guilty of concealment which made the contract void.

RULING:
Yes, Section 26 of The Insurance Code required a party to a contract of insurance to communicate to the
other, in good faith, all facts within his knowledge which are material to the contract and as to which he
makes no warranty, and which the other has no means of ascertaining. “A neglect to communicate that
which a party knows and ought to communicate, is called concealment.”

“Materiality is to be determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of
the proposed contract or in making his inquiries.” The terms of the contract are clear. The insured is
specifically required to disclose to the insurer matters relating to his health.

The information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's action
on his application, either by approving it with the corresponding adjustment for a higher premium or
rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by
petitioner in order for it to reasonably assess the risk involved in accepting the application.

The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality
of the facts concealed, is untenable. Saturnino v. Philippine American Life Insurance " . . . the waiver of a
medical examination [in a non-medical insurance contract] renders even more material the information
required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not . . . "

Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries as held in Henson.
NG GAN ZEE V. ASIAN CRUSADER LIFE ASSURANCE CORPORATION
FACTS:
Kwong Nam applied for a 20-year endowment insurance on his life with his wife, appellee Ng Gan Zee, as
beneficiary. Appellant Asian Crusader Life Assurance Corporation, upon receipt of the required premium
from the insured, approved the application and issued the corresponding policy. Unfortunately, a year
after, Kwong Nam died of cancer of the liver with metastasis.

His widow, Ng Gan Zee, presented a claim in due form to appellant for payment of the face value of the
policy. She also submitted the required proof of death of the insured. However, appellant denied the claim
on the ground that the answers given by the insured to the questions appearing in his application for life
insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner, the Hon. Francisco Y.
Mandamos, and the latter, after conducting an investigation, wrote the appellant that he had found no
material concealment on the part of the insured and that, therefore, appellee should be paid the full face
value of the policy. This opinion of the Insurance Commissioner notwithstanding, appellant refused to
settle its obligation.

ISSUE:
Whether or not the rescission of the contract was proper?

RULING:
No, the Supreme Court (SC) held that the rescission of the contract was proper.

Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27 of
the Insurance Law nevertheless requires that fraudulent intent on the part of the insured be established to
entitle the insurer to rescind the contract.

In the absence of evidence that the insured had sufficient medical knowledge as to enable him to
distinguish between "peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer
of the stomach, " should be construed as an expression made in good faith of his belief as to the nature of
his ailment and operation.

It has been held that where, "upon the face of the application, a question appears to be not answered at
all or to be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive
the imperfection of the answer and render the omission to answer more fully immaterial.

As aptly noted by the lower court, if the ailment and operation of Kwong Nam had such an important
bearing on the question of whether the defendant would undertake the insurance or not, the court cannot
understand why the defendant or its medical examiner did not make any further inquiries on such matters
from the Chinese General Hospital or require copies of the hospital records from the appellant before
acting on the application for insurance. The fact of the matter is that the defendant was too eager to
accept the application and receive the insured's premium. It would be inequitable now to allow the
defendant to avoid liability under the circumstances.

TRANSPORTATION LAW

COMMON CARRIERS

CONCEPT

ESTRELLITA M. BASCOS vs. CA and RODOLFO A. CIPRIANO

FACTS: 
Cipriano, on behalf of CIPTRADE, entered into a hauling contract for Jibfair Shipping Agency Corporation
whereby the former bound itself to haul the latter’s 200 tons of soya bean meal from Manila to Calamba.
Cipriano subcontracted Bascos to transport and deliver 400 sacks of soya bean meal worth P156, 404 at
P50 per metric ton. Bascos failed to deliver the same. Cipriano as consequence paid Jibfair the amount of
the lost goods.

Cipriano filed a complaint for sum of money and damages against Bascos for breach of contract of
carriage. 

Bascos answered that there was no contract of carriage since CIPTRADE only leased her cargo truck to
load cargo from Manila Port to Laguna and that since the truck was hijacked, a fortuitous event, she is
exculpated from any liability to CIPTRADE.
The trial court ruled in favour of Cipriano which was then affirmed by the trial court.

ISSUE: 
Was petitioner a common carrier?

RULING:
The SC rules in the affirmative.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public." The test to determine a common carrier is "whether
the given undertaking is a part of the business engaged in by the carrier which he has held out to the
general public as his occupation rather than the quantity or extent of the business transacted." In this
case, petitioner herself has made the admission that she was in the trucking business, offering her trucks
to those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same. 

But petitioner argues that there was only a contract of lease because they offer their services only to a
select group of people and because the private respondents, plaintiffs in the lower court, did not object to
the presentation of affidavits by petitioner where the transaction was referred to as a lease contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is
instructive. In referring to Article 1732 of the Civil Code, it held thus:

"The above article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as
a "sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article
1732 deliberately refrained from making such distinctions."

CESAR L. ISAAC vs. A. L. AMMEN TRANSPORTATION CO., INC.

FACTS:
A. L. Ammen Transportation Co., Inc., hereinafter referred to as defendant, is a corporation engaged in
the business of transporting passengers by land for compensation in the Bicol provinces and one of the
lines it operates is the one connecting Legaspi City, Albay with Naga City, Camarines Sur. One of the
buses which defendant was operating is Bus No. 31. On May 31, 1951, plaintiff boarded said bus as a
passenger paying the required fare from Ligao, Albay bound for Pili, Camarines Sur, but before reaching
his destination, the bus collided with a motor vehicle of the pick-up type coming from the opposite
direction, as a result of which plaintiff's left arm was completely severed and the severed portion fell
inside the bus. Plaintiff was rushed to a hospital in Iriga, Camarines Sur where he was given blood
transfusion to save his life. After four days, he was transferred to another hospital in Tabaco, Albay,
where he underwent treatment for three months. He was moved later to the Orthopedic Hospital where he
was operated on and stayed there for another two months. For these services, he incurred expenses
amounting to P623.40, excluding medical fees which were paid by defendant.

Petitioner brought an action against defendant for damages alleging that the injury was due to the
recklessness of the driver of the bus and that defendant was liable for breach of contract for failure to
transport plaintiff safely to his destination. 

The trial court dismiss the petition and found that the collision was due to the negligence of the pick-up
car and not of the bus driver as it appeared that the latter did everything he could to avoid the collision. 

ISSUE: 
Whether or not the common carrier liable for breach of contract.

RULING:
The SC affirms the ruling of the trial court 

The principles governing the liability of a common carrier: (1) the liability of a carrier is contractual and
arises upon breach of its obligation. There is breach if it fails to exert extraordinary diligence according to
all circumstances of each case; (2) a carrier is obliged to carry its passenger with the utmost diligence of
a very cautious person, having due regard for all the circumstances; (3) a carrier is presumed to be at
fault or to have acted negligently in case of death of, or injury to, passengers, it being its duty to prove
that it exercised extraordinary diligence; and (4) the carrier is not an insurer against all risks of travel.

The evidence found that the bus of defendant was running at a moderate speed whereas the pick-up was
running at full speed at was outside its lane. Whether or not there was failure to comply with extraordinary
diligence is a question of facts which is much suited in the lower courts personally overseeing the trial.
Hence, the SC chose to adopt the facts found by the lower which held that respondent had complied with
the due diligence requirement.
 KOREAN AIRLINES CO. VS. CA

FACTS:

Juanito Lapuz was contracted for employment in Saudi Arabia through Pan Pacific Recruiting Services,
Inc. He was supposed to leave via Korean Airlines, but was initially listed as a “chance passenger”.
According to Lapuz, he was allowed to check in and was cleared for departure. When he was on the
stairs going to the airplane, a Korean airline officer pointed at him and shouted, “Down! Down!” and he
was barred from taking the flight. When he asked for another booking, his ticket was cancelled. He was
unable to report for work and so he lost his employment. Korean Airlines alleged that the agent of Pan
Pacific was informed that there are 2 seats possibly available. He gave priority to Perico, while the other
seat was won by Lapuz through a lottery. But because only 1 seat became available, it was given to
Perico. The trial court adjudged Korean Airlines liable for damages. The decision was affirmed by the
Court of Appeals, with modification on the damages awarded.

ISSUE:

Whether or not there was a contract of carriage between Korean Airlines and Lapuz?

RULING:

YES. The status of Lapuz as standby passenger was changed to that of a confirmed passenger when his
name was entered in the passenger manifest of Korean Airlines for its Flight No. KE 903. His clearance
through immigration and customs clearly shows that he had indeed been confirmed as a passenger of
Korean Airlines in that flight. The evidence presented by Lapuz shows that he had indeed checked in at
the departure counter, passed through customs and immigration, boarded the shuttle bus and proceeded
to the ramp of KAL's aircraft. In fact, his baggage had already been loaded in KAL's aircraft, to be flown
with him to Jeddah. The contract of carriage between him and KAL had already been perfected when he
was summarily and insolently prevented from boarding the aircraft.

COMMON CARRIER VS. PRIVATE CARRIER

LOADSTAR SHIPPING CO., INC. v. CA and THE MANILA INSURANCE

FACTS:
Loadstar received on board its MV Cherokee the following goods for shipment: (1) 705 bales of lawanit
hardwood; (2) 27 boxes and crates of tilewood assemblies and others and (3) 49 bundles of moulding
R&W Apitong Boldenized. The goods, amounting to P6,067,178,were insured for the same amount with
Manila Insurance Co. against various risks including total loss by total loss of the vessel. The vessel was
insured by Prudential Guarantee for P4M. On its way to Manila from Nasipit, Agusan del Norte, the vessel
and its cargo, sank of Limasawa Island. As a result of the total loss of its shipment, the consignee made a
claim with Loadstar and Prudential Guarantee, which, however, ignored the same.
As the insurer, Manila Insurance Co. paid P6,075,000 to the insured in full settlement of its claim and the
latter executed a subrogation receipt therefore. Manila Insurance then filed a Complaint against Loadstar
and Prudential, alleging that the sinking of the vessel was due to the fault and negligence of Loadstar and
its employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the loss of the
vessel directly to MIC, said amount to be deducted from MIC’s claim from Loadstar. In its Answer,
Loadstar denied any liability for the loss of the shipper’s goods and claimed that the sinking of its vessel
was due to force majeure (the strong waves brought about by two typhoons)
Loadstar claims that it was a private carrier, since it was not issued a certificate of public convenience,
and that it did not have a regular trip or schedule nor a fixed route. And, as a private carrier, it cannot be
presumed to have been negligent and the burden to prove such was with Manila Insurance.
ISSUE:
Whether or not Loadcaster is a private carrier.
RULING:
No, Loadcaster is a common carrier. LOADSTAR is a common carrier. It is not necessary that the carrier
be issued a certificate of public convenience, and this public character is not altered by the fact that the
carriage of the goods in question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., where this Court held that a common carrier transporting special cargo or
chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of
the Civil Code. Any stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent is void only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at is not involved, as in the case of a ship totally chartered for the use of a
single party.
Art. 1732 of the Civil Code makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as ancillary activity (in local
idiom, as "a sideline". Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions.

VALENZUELA HARDWOOD v. CA AND 7 BROTHERS SHIPPING CORPORATION

FACTS:
On January 16, 1984, Valenzuela Hardwood and Industrial Supply, Inc. entered into an agreement with
the Seven Brothers Shipping Corporation. The latter was to deliver the former’s lauan round logs using its
vessel, M/V Seven Ambassador. According to their charter, the shipping corporation should not be held
liable for loss, split, or breakages and any kind of damage to the cargo. On January 25, 1984, the vessel
sank, resulting in the loss of logs. Valenzuela then contended that the stipulation in the charter regarding
the non-liability of the respondents is void for being contrary to public policy in relation to Article 1745 of
the Civil Code.

ISSUE:
WON the Charter agreement entered into by Valenzuela Hardwood Inc. and the shipping company
Changes the nature of a contract into a private carrier?

RULING:
Yes. The petitioner cannot reason that the stipulation is contrary to public policy since the nature of the
job entails carrying a special cargo, making the common carrier a private carrier. 

In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests
solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo caused
even by the negligence of the ship captain. Pursuant to Article 1306 of the Civil Code, such stipulation
is valid because it is freely entered into by the parties and the same is not contrary to law, morals, good
customs, public order, or public policy. Indeed, their contract of private carriage is not even a contract of
adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in contract involving a common carrier,
private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on
common carriers protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. 

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY vs. PKS SHIPPING COMPANY

FACTS: 
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of 75,000 bags of cement. DUMC insured the
goods for its full value with petitioner Philippine American General Insurance Company (Philamgen). The
goods were loaded aboard the dumb barge Limar I belonging to PKS Shipping. 
On 22 December 1993, about 9 o’clock, while Limar I was being towed by respondent’s tugboat, MT Iron
Eagle, the barge sank a couple of miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing
down with it the entire cargo of 75,000 bags of cement. Philamgen made payment to DUMC upon filing a
formal claim; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the shipping
company refused to pay. This prompted Philamgen to file suit against PKS Shipping with the Makati RTC.
RTC – dismissed complaint after finding that the total loss of the cargo could have been caused either by
a fortuitous event, in which case the ship owner was not liable, or through the negligence of the captain
and crew of the vessel and that, under Article 587 of the Code of Commerce adopting the “Limited
Liability Rule,” the ship owner could free itself of liability by abandoning, as it apparently so did, the vessel
with all her equipment and earned freightage. 
CA ruled that evidence to establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of the shipping company’s
carrying goods for others was not generally held out as a business but as a casual occupation. It
concluded that PKS Shipping, not being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. It found that the loss of the
goods was sufficiently established as having been due to fortuitous event, negating any liability on the
part of PKS Shipping to the shipper. 
Philamgen contend that the fact that respondent has a limited clientele does not militate against
respondent’s being a common carrier and that the only way by which such carrier can be held exempt for
the loss of the cargo would be if the loss were caused by natural disaster or calamity. It avers that
typhoon “APIANG” has not entered the Philippine area of responsibility and that, even if it did, respondent
would not be exempt from liability because its employees, particularly the tugmaster, have failed to
exercise due diligence to prevent or minimize the loss. 
ISSUE: 
Whether PKS Shipping is a private carrier or a common carrier. 
RULING: 
Yes. The law makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as
‘a sideline’). Article 1732 also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither does it distinguish between a carrier offering its
services to the ‘general public,’ and one who offers services or solicits business only from a narrow
segment of the general population
In this case, PKS Shipping has engaged itself in the business of carrying goods for others, although for a
limited clientele, undertaking to carry such goods for a fee. The regularity of its activities in this area
indicates more than just a casual activity on its part. Neither can the concept of a common carrier change
merely because individual contracts are executed or entered into with patrons of the carrier. Such
restrictive interpretation would make it easy for a common carrier to escape liability by the simple
expedient of entering into those distinct agreements with clients.
Therefore, it is a common carrier. 

FGU INSURANCE CORPORATION VS. G.P. SARMIENTO TRUCKING CORPORATION

FACTS:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver thirty units of Condura white
refrigerators aboard one of its Isuzu trucks, driven by Lambert Eroles, from the plant site of Concepcion
Industries, Inc., to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north
diversion road along McArthur highway, it collided with an unidentified truck, causing it to fall into a deep
canal, resulting in damage to the cargoes.

FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the
value of the covered cargoes. FGU, in turn, being the subrogee of the rights and interests of Concepcion
Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking
company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage
against GPS and its driver Lambert Eroles with the Regional Trial Court, which dismissed the case on the
basis that GPS is not a common carrier. Thus, the laws governing the contract between the owner of the
cargo to whom the plaintiff was subrogated and the owner of the vehicle which transports the cargo are
the laws on obligation and contract of the Civil Code as well as the law on quasi delicts.

Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was
subrogated and the owner of the vehicle which transports the cargo are the laws on obligation and
contract of the Civil Code as well as the law on quasi delicts. Considering that plaintiff failed to adduce
evidence that defendant is a common carrier and defendant's driver was the one negligent, defendant
cannot be made liable for the damages of the subject cargoes.
 
ISSUE:
Whether respondent GPS may be considered as a common carrier as defined under the law
 
RULING:
Defendant GPS is not a common Carrie. GPS, being an exclusive contractor and hauler of Concepcion
Industries, Inc., rendering or offering its services to no other individual or entity, cannot be considered a
common carrier. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for hire or
compensation, offering their services to the public whether to the public in general or to a limited clientele
in particular, but never on an exclusive basis. The true test of a common carrier is the carriage of
passengers or goods, providing space for those who opt to avail themselves of its transportation service
for a fee. Given accepted standards, GPS scarcely falls within the term common carrier.

DILIGENCE REQUIRED

DANGWA TRANSPORTATION VS. CA

FACTS:
Private respondents filed a complaint for damages against petitioners for the death of Pedrito Cudiamat
as a result of a vehicular accident which occurred on March 25, 1985 at Marivic, Sapid, Mankayan,
Benguet. 

Petitioner Theodore M. Lardizabal was driving a passenger bus belonging to petitioner corporation in a
reckless and imprudent manner and without due regard to traffic rules and regulations and safety to
persons and property, it ran over its passenger, Pedrito Cudiamat. Petitioners alleged that they had
observed and continued to observe the extraordinary diligence and that it was the victim’s own
carelessness and negligence which gave rise to the subject incident.

RTC pronounced that Pedrito Cudiamat was negligent, which negligence was the proximate cause of his
death. However, Court of Appeals set aside the decision of the lower court, and ordered petitioners to pay
private respondents damages due to negligence.
ISSUE:
Whether or not the CA erred in reversing the decision of the trial court and in finding petitioners negligent
and liable for the damages claimed.

RULING:

CA Decision AFFIRMED

The testimonies of the witnesses show that that the bus was at full stop when the victim boarded the
same. They further confirm the conclusion that the victim fell from the platform of the bus when it
suddenly accelerated forward and was run over by the rear right tires of the vehicle. Under such
circumstances, it cannot be said that the deceased was guilty of negligence.

It is not negligence per se, or as a matter of law, for one attempt to board a train or streetcar which is
moving slowly. An ordinarily prudent person would have made the attempt board the moving conveyance
under the same or similar circumstances. The fact that passengers board and alight from slowly moving
vehicle is a matter of common experience both the driver and conductor in this case could not have been
unaware of such an ordinary practice.

Common carriers, from the nature of their business and reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by the according to
all the circumstances of each case. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence very cautious persons, with a due
regard for all the circumstances.

It has also been repeatedly held that in an action based on a contract of carriage, the court need not
make an express finding of fault or negligence on the part of the carrier in order to hold it responsible to
pay the damages sought by the passenger. By contract of carriage, the carrier assumes the express
obligation to transport the passenger to his destination safely and observe extraordinary diligence with a
due regard for all the circumstances, and any injury that might be suffered by the passenger is right away
attributable to the fault or negligence of the carrier. This is an exception to the general rule that
negligence must be proved, and it is therefore incumbent upon the carrier to prove that it has exercised
extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code.

ISAAC V. A.L. AMMEN TRANS. CO.

FACTS:
On May 31, 1951, plaintiff boarded said bus as a passenger from Ligao, Albay bound for Pili, Camarines
Sur, but before reaching his destination, the bus collided with a motor vehicle of the pick-up type coming
from the opposite direction, as a result of which plaintiff’s left arm was completely severed and the
severed portion fell inside the bus.

Due to the multiple operation he was in, he incurred expenses amounting to P623.40, excluding medical
fees which were paid by defendant. Plaintiff then brought an action for damages against the defendant.

Defendant set up as special defense that the injury suffered by plaintiff was due entirely to the fault or
negligence of the driver of the pick-up car which collided with the bus driven by its driver and to the
contributory negligence of plaintiff himself. Defendant further claims that the accident which resulted in the
injury of plaintiff is one which defendant could not foresee or, though foreseen, was inevitable.

Plaintiff contends in his appeal that when an action is based on a contract of carriage, as in this case, all
that is necessary to sustain recovery is proof of the existence of the contract of the breach thereof by act
or omission

ISSUE:
Whether or not defendant should be held liable.

RULING:
No. There are three pronouncements of the Court herein, to wit:

The liability of a carrier is contractual and arises upon breach of its obligation. There is breach if it fails to
exert extraordinary diligence according to all circumstances of each case as a carrier is obliged to carry
its passenger with the utmost diligence of a very cautious person, having due regard for all the
circumstances;

A carrier is presumed to be at fault or to have acted negligently in case of death of, or injury to,
passengers, it being its duty to prove that it exercised extraordinary diligence; However, the carrier is not
an insurer against all risks of travel.

The trial court had already found that the bus had already exercised extraordinary diligence on its
judgement in facing the speeding pickup truck on the opposite lane. In affirming this view, the Court ruled
that where a carrier’s employee is confronted with a sudden emergency, the fact that he is obliged to act
quickly and without a chance for deliberation must be taken into account, and he is held to the some
degree of care that he would otherwise be required to exercise in the absence of such emergency but
must exercise only such care as any ordinary prudent person would exercise under like circumstances
and conditions, and the failure on his part to exercise the best judgement the case renders possible does
not establish lack of care and skill on his part which renders the company liable.

R TRANSPORT CORPORATION vs. EDUARDO PANTE

DOCTRINE: 
Under the Civil Code, common carriers, like petitioner bus company, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case. They are bound to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with due regard for all the circumstances. In this case, the testimonial evidence of
respondent showed that petitioner, through its bus driver, failed to observe extraordinary diligence, and
was, therefore, negligent in transporting the passengers of the bus safely to Gapan, Nueva Ecija on
January 27, 1995, since the bus bumped a tree and a house, and caused physical injuries to respondent.

FACTS:
Petitioner R Transport Corporation, represented by its owner and president, Rizalina Lamzon, is a
common carrier engaged in operating a bus line transporting passengers to Gapan, Nueva Ecija from
Cubao, Quezon City and back. Respondent Eduardo Pante rode petitioner's R. L. Bus Liner in Cubao,
Quezon City bound for Gapan, Nueva Ecija. While traveling along the Doña Remedios Trinidad Highway
in Baliuag, Bulacan, the bus hit a tree and a house due to the fast and reckless driving of the bus driver,
Johnny Merdiquia. Respondent sustained physical injuries as a result of the vehicular accident. By way of
initial assistance, petitioner gave respondent's wife, Analiza P. Pante, the sum of P7,000.00, which was
spent for the stainless steel instrument used in his fractured arm. After the first operation, respondent
demanded from petitioner, through its manager, Michael Cando, the full payment or reimbursement of his
medical and hospitalization expenses, but petitioner refused payment. Four years later, respondent
underwent a second operation. He spent P15,170.00 for medical and hospitalization expenses.

In 1945, respondent filed a Complaint for damages against petitioner with the RTC for the injuries he
sustained as a result of the vehicular accident. Petitioner put up the defense that it had always exercised
the diligence of a good father of a family in the selection and supervision of its employees, and that the
accident was a force majeure for which it should not be held liable.

The trial court ruled that plaintiffs is entitled to damages and ordering defendants to pay. The trial court
held that the provisions of the Civil Code on common carriers govern this case. Article 1756 of the Civil
Code states that "[i]n case of death of or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
prescribed by Articles 1733 and 1755." The trial court ruled that since petitioner failed to dispute said
presumption despite the many opportunities given to it, such presumption of negligence stands. Petitioner
appealed the decision of the trial court to the Court of Appeals which affirmed the decision of the trial
court. Hence, this petition.

ISSUE: 
Whether or not petitioner is liable to respondent for damages.

RULING:
Yes. Under the Civil Code, common carriers, like petitioner Bus Company, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence for the safety of
the passengers transported by them, according to all the circumstances of each case. They are bound to
carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with due regard for all the circumstances. Article 1756 of the Civil Code states that
"[i]n case of death of or injuries to passengers, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence as prescribed by
Articles 1733 and 1755." Further, Article 1759 of the Civil Code provides that "common carriers are liable
for the death or injury to passengers through the negligence or willful acts of the former's employees,
although such employees may have acted beyond the scope of their authority or in violation of the orders
of the common carriers. This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and supervision of their
employees."

In this case, the testimonial evidence of respondent showed that petitioner, through its bus driver, failed to
observe extraordinary diligence, and was, therefore, negligent in transporting the passengers of the bus
safely to Gapan, Nueva Ecija on January 27, 1995, since the bus bumped a tree and a house, and
caused physical injuries to respondent. Article 1759 of the Civil Code explicitly states that the common
carrier is liable for the death or injury to passengers through the negligence or willful acts of its
employees, and that such liability does not cease upon proof that the common carrier exercised all the
diligence of a good father of a family in the selection and supervision of its employees. 

Hence, even if petitioner was able to prove that it exercised the diligence of a good father of the family in
the selection and supervision of its bus driver, it is still liable to respondent for the physical injuries he
sustained due to the vehicular accident.
 OBLIGATIONS AND LIABILITIES

VIGILANCE OVER GOODS

DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC. vs. FEDERAL PHOENIX
ASSURANCE CO., INC.

FACTS:
Berde Plants, Inc. delivered 632 units of artificial trees to C.F. Sharp, the General Ship Agent of DSR
Senator Lines, a foreign shipping corporation, for transportation and delivery to the consignee, Al-Mohr
International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued International Bill of Lading for the cargo
under which the port of discharge for the cargo was at the Khor Fakkan port and the port of delivery was
Riyadh, Saudi Arabia, via Port Dammam. The cargo was loaded in M/S "Arabian Senator.

Federal Phoenix Assurance insured the cargo against all risks in the amount of P941,429.61.
Subsequently, M/S "Arabian Senator" left the Manila South Harbor for Saudi Arabia with the cargo on
board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSR-Senator
Lines' feeder vessel, M/V "Kapitan Sakharov," bound for Port Dammam, Saudi Arabia. However, while in
transit, the vessel and all its cargo caught fire. Consequently, Federal Phoenix Assurance paid Berde
Plants P941,429.61 corresponding to the amount of insurance for the cargo. In turn Berde Plants
executed in its favor a "Subrogation Receipt". 

Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment of P941,429.61 on the basis
of the Subrogation Receipt. C.F. Sharp denied any liability on the ground that such liability was
extinguished when the vessel carrying the cargo was gutted by fire. Thus, Federal Phoenix Assurance
filed with the RTC, a complaint for damages against DSR-Senator Lines and C.F. Sharp, praying that the
latter be ordered to pay actual damages of P941,429.61, compensatory damages of P100,000.00 and
costs. RTC rendered a Decision in favor of Federal Phoenix Assurance. The CA affirmed RTC’s decision
and also denied DSR-Senator Lines and C.F. Sharp’s motion for reconsideration. 

ISSUE:
Whether petitioners DSR-Senator Lines and C.F. Sharp should be held liable.

RULING:
Yes. Respondent Federal Phoenix Assurance raised the presumption of negligence against petitioners.
However, they failed to overcome it by sufficient proof of extraordinary diligence.

Article 1734 of the Civil Code provides:

"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;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority."

Fire is not one of those enumerated under the above provision which exempts a carrier from liability for
loss or destruction of the cargo. In the case of Eastern Shipping Lines, Inc. vs. Intermediate Appellate
Court, it was ruled that since the peril of fire is not comprehended within the exceptions in Article 1734,
then the common carrier shall be presumed to have been at fault or to have acted negligently, unless it
proves that it has observed the extraordinary diligence required by low.

A common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time
the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier
for transportation until delivered to or until the lapse of a reasonable time for their acceptance by the
person entitled to receive them. When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need not be an
express finding of negligence to hold it liable.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. Accordingly, they are presumed to have been at fault or to have acted negligently if
the goods are lost, destroyed or deteriorated. There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1739. In those cases where the
presumption is applied, the common carrier must prove that it exercised extraordinary diligence in order to
overcome the presumption.
 EASTERN SHIPPING LINES, INC. V. INTERMEDIATE APPELLATE COURT
FACTS:
These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the
sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo. In G.R. No.
69044, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping Lines, Inc., (referred to
hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of
calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co.,
Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of
goods were insured against marine risk for their stated value with respondent Development Insurance
and Surety Corporation. In G.R. No. 71478, the same vessel took on board 128 cartons of garment
fabrics and accessories, in 2 containers, consigned to Mariveles Apparel Corporation, and two cases of
surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were
insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US$46,583.00, and
the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US$11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and
cargo. The respective respondent Insurers paid the corresponding marine insurance values to the
consignees concerned and were thus subrogated unto the rights of the latter as the insured.

In G.R. No. 69044, Development Insurance, having been subrogated unto the rights of the two insured
companies, filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured.
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous
event. Trial court favored Development Insurance which was affirmed by the CA. In G.R. No. 71478,
NISSHIN and DOWA, as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of
the insured value of the cargo lost imputing unseaworthiness of the ship and non-observance of
extraordinary diligence by petitioner Carrier. However, the latter denied liability. The trial court decided in
favor of Nisshin and Dowa. 

ISSUE:
Who has the burden of proof to show the negligence of the carrier.

RULING: 
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over goods, according to all the
circumstances of each case. 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; xxx xxx xxx”. Petitioner Carrier claims that the loss of the
vessel by fire exempts it from liability under the phrase "natural disaster or calamity." However, we are of
the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises
almost invariably from some act of man or by human means. It does not fall within the category of an act
of God unless caused by lightning or by other natural disaster or calamity. It may even be caused by the
actual fault or privity of the carrier.

As the peril of fire is not comprehended within the exceptions in Article 1734, supra , Article 1735 of the
Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall
be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law. In this case, the respective Insurers, as subrogees of the cargo
shippers, have proven that the transported goods have been lost. Petitioner Carrier has also proven that
the loss was caused by fire. The burden then is upon Petitioner Carrier to prove that it has exercised the
extraordinary diligence required by law.

"Pursuant to Article 1733, common carriers are bound to observe extraordinary diligence in the vigilance
over the goods. The evidence of the defendant did not show that extraordinary vigilance was observed by
the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not
likewise show the amount of diligence made by the crew, on orders, in the care of the cargoes. What
appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage. Consequently, the crew could not have even explain what could have
caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary
vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of diligence required of it under Article 1733 of
the Civil Code." Having failed to discharge the burden of proving that it had exercised the extraordinary
diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual
fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already
big; that the fire must have started twenty-four (24) hours before the same was noticed;" and that "after
the cargoes were stored in the hatches, no regular inspection was made as to their condition during the
voyage." The foregoing suffices to show that the circumstances under which the fire originated and
spread are such as to show that Petitioner Carrier or its servants were negligent in connection therewith.

ESTRELLITA M. BASCOS, v. CA and RODOLFO A. CIPRIANO

FACTS:
Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE) entered into a hauling contract
with Jibfair Shipping Agency Corporation to haul tons of soya bean meal from Manila to the warehouse of
Purefoods Corporation in Laguna. To carry out its obligation, CIPTRADE subcontracted
 with petitioner Estrellita Bascos to transport and deliver 400 sacks of soya bean meal from the Manila
Port Area to Calamba, Laguna. Petitioner failed to deliver the said cargo because the truck carrying the
cargo was hijacked along the way. As a consequence of that failure, Cipriano paid Jibfair Shipping
Agency the amount of the lost goods in accordance with the contract. Cipriano demanded reimbursement
from the petitioner but the latter refused to pay. Petitioner contends that she offered her trucks for lease to
those who have cargo to move, not to the general public but to a few customers only in view of the fact
that it is only a small business.
ISSUE:
Is the petitioner a common carrier, therefore, liable for the loss of the goods?

RULING:
Yes. Bascos Trucking is a common carrier. Under Article 1732,  a common carrier as “(a) person,
corporation or firm, or association engaged in the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation, offering their services to the public.” The test to
determine a common carrier is “whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather than the quantity or extent of
the business transacted.” In this case, the petitioner herself has made the admission that she was in the
trucking business, offering her trucks to those with cargo to move. Judicial admissions are conclusive and
no evidence is required to prove the same.

Moreover, common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. Accordingly, they are presumed to have been at fault or to have acted negligently if
the goods are lost, destroyed or deteriorated. There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734. In this case, petitioner
alleged that hijacking constituted force majeure which exculpated her from liability for the loss of the
cargo. In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in the
provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common
carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability arising from
hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat, violence,
or force. 

SAFETY OF PASSENGERS

HEIRS OF JOSE MARCIAL OCHOA VS. G & S TRANSPORT CORPORATION

FACTS:
At Manila Domestic Airport, Jose Marcial Ochoa boarded an Avis taxicab owned and operated by G & S
Corporation, a common carrier driven by its employee, Bibiano Padilla, to bring him to Teacher’s Village
in Quezon City. While passing the Santolan fly-over, however, the Avis taxicab was bumped by an on-
rushing delivery van at the right portion causing the taxicab to veer to the left, ram through the left side of
the railings of the fly-over and fall to the center of the island below. The vehicle split into two parts and
both driver Padilla and passenger Ochoa were injured and rushed to the hospital.
Later, Ochoa died.

The heirs of late Jose Marcial Ochoa filed for damages for breach of contract of carriage and alleged that
G & S, as a common carrier, is under legal obligation to observe and exercise extraordinary diligence in
transporting its passengers to their destination safely and securely. However, G & S failed to observe and
exercise this extraordinary diligence because its employee failed to transport Jose Marcial to his
destination safely. They claimed that Padilla while running at a very high speed, acted negligently when
he tried to overtake a ten-wheeler truck at the foot of the fly-over. That Padilla clearly showed that he
acted without regard to the safety of his passenger. However, G & S posited that the proximate cause
of Jose Marcial’s death is a fortuitous event and/or the fault or negligence of the driver of the delivery van
that hit the taxicab.

ISSUE:
Whether g & s is liable for damages for breach of contract of carriage.

RULING:
Yes. As a common carrier, G & S "is bound to carry Jose Marcial safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the
circumstances." However, Jose Marcial was not able to reach his destination safely as he died during the
travel.

"In a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a
passenger dies or is injured. In fact, there is even no need for the court to make an express finding of fault
or negligence on the part of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence." Unfortunately, G & S miserably failed to
overcome this presumption. Both the trial court and the CA found that the accident which led to Jose
Marcial’s death was due to the reckless driving and gross negligence of G & S’ driver, Padilla, thereby
holding G & S liable to the heirs of Jose Marcial for breach of contract of carriage.

VICTORY LINER, INC V ROSALITO GAMMAD

FACTS:
Marie Grace Pagulayan-Gammad, wife of herein respondent, was on board an air-conditioned Victory
Liner bus bound for Tuguegarao, Cagayan from Manila.  At about 3:00 a.m., the bus,  while running at a
high speed, fell on a ravine somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in
the death of Marie Grace and physical injuries to other passengers.

Respondent heirs of the deceased filed a complaint for damages arising from culpa contractual against
petitioner.  In its answer, the petitioner claimed that the incident was purely accidental and that it has
always exercised extraordinary diligence in its 50 years of operation. At the pre-trial, petitioner did not
want to admit the proposed stipulation that the deceased was a passenger of the Victory Liner Bus which
fell on the ravine and that she was issued Passenger Ticket No. 977785.  Respondents, for their part, did
not accept petitioner's proposal to pay P50,000.00.
ISSUES:
Whether or not petitioner should be held liable for breach of contract of carriage.

RULING:
Yes. Petitioner was correctly found liable for breach of contract of carriage.

A common carrier is bound to carry its passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a
contract of carriage, it is presumed that the common carrier was at fault or was negligent when a
passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an
express finding of fault or negligence on the part of the common carrier. This statutory presumption may
only be overcome by evidence that the carrier exercised extraordinary diligence.

In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of
Marie Grace's death was the negligence of petitioner. Hence, the courts below correctly ruled that
petitioner was guilty of breach of contract of carriage.

PHILIPPINE NATIONAL RAILWAYS V COURT OF APPEALS AND ROSARIO TUPANG

FACTS:
Winifredo Tupang, husband of plaintiff Rosario Tupang, boarded Train No. 516 of appellant at Libmanan,
Camarines Sur, as a paying passenger bound for Manila.  Due to some mechanical defect, the train
stopped at Sipocot, Camarines Sur, for repairs, taking some two hours before the train could resume its
trip to Manila.  Unfortunately, upon passing Iyam Bridge at Lucena, Quezon, Winifredo Tupang fell off the
train resulting in his death.  The train did not stop despite the alarm raised by the other passengers that
somebody fell from the train.  Instead, the train conductor, Perfecto Abrazado, called the station agent at
Candelaria, Quezon, and requested for verification of the information.  Police authorities of Lucena City
were dispatched to the Iyam Bridge where they found the lifeless body of Winifredo Tupang.

As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due to massive
cerebral hemorrhage due to traumatic injury.

Upon complaint filed by the deceased's widow, Rosario Tupang, the then Court of First Instance of Rizal,
after trial, held the petitioner PNR liable for damages for breach of contract of carriage and ordered it to
pay the plaintiff the sum of P12,000.00 for the death of Winifredo Tupang, plus P20,000.00 for loss of his
earning capacity, and the further sum of P10,000.00 as moral damages, and P2,000.00 as attorney's
fees, and costs.

On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not exercise the
utmost diligence required by law of a common carrier.  It further increased the amount adjudicated by the
trial court by ordering PNR to pay the plaintiff an additional sum of P5,000.00 as exemplary damages.

The petitioner moved for reconsideration but it was denied. Hence, this petition for review.

ISSUE:
Whether or not the petitioner exercises the utmost diligence required by law of a common carrier.

RULING:
No, petitioner has the obligation to transport its passengers to their destinations and to observe
extraordinary diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the
presumption that it was negligent in the performance of its obligation under the contract of carriage. 

The petitioner does not deny, that the train boarded by the deceased Winifredo Tupang was so over-
crowded that he and many other passengers had no choice but to sit on the open platforms between the
coaches of the train. It is likewise undisputed that the train did not even slow down when it approached
the Iyam Bridge which was under repair at the time, Neither did the train stop, despite the alarm raised by
other passengers that a person had fallen off the train at lyam Bridge.

But while petitioner failed to exercise extraordinary diligence as required by law, it appears that the
deceased was chargeable with contributory negligence. Since he opted to sit on the open platform
between the coaches of the train, he should have held tightly and tenaciously on the upright metal bar
found at the side of said platform to avoid falling off from the speeding train. Such contributory negligence,
while not exempting the PNR from liability, nevertheless justified the deletion of the amount adjudicated
as moral damages. By the same token, the award of exemplary damages must be set aside. Exemplary
damages may be allowed only in cases where the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.  There being no evidence of fraud, malice or bad faith on the part of
petitioner, the grant of exemplary damages should be discarded.

Thus, as correctly ruled by the respondent court, the petitioner failed to overthrow such presumption of
negligence with clear and convincing evidence.

DEFENSES AVAILABLE TO A COMMON CARRIER

PROOF OF NEGLIGENCE

CEREZO VS. ATLANTIC, GULF & PACIFIC CO.

FACTS:
The plaintiff’s son was engaged in filling in a trench in which a gas main had been laid. He entered a
portion of the trench at a point a little distance away from where he was working for purposes of his own,
and while there the trench caved in and buried him, causing suffocation before he could be rescued. The
trench was only a little over four feet deep, and its walls had stood, unshored, for over a week. There was
no evidence that the walls showed signs of giving way. Furthermore, had the deceased been erect in the
dirt and it is probable that he would have escaped without serious injury whatever. 

ISSUE:
Whether or not the employer is liable for the death of plaintiff’s son.

RULING:
NO. Article 1105 of the Civil Code provides that "No one shall be liable for events which could not be
foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly
mentioned in the law or those in which the obligation so declares."

The case under consideration does not fall within the exceptions mentioned in the above quoted article.
(Manresa, vol. 8, p. 91.) After providing a reasonably safe place in and about which the deceased was
required to work, the defendant's liability was then limited to those events which could have been
foreseen. Article 1902 provides that a person who, by an act or omission causes damage to another when
there is fault or negligence shall be obliged to repair the damage so done. Article 1903, after providing for
the liability of principals for the acts of their employees, agents, or those for whom they are otherwise
responsible, provides that such liability shall cease when the persons mentioned therein prove that they
employed all the diligence of a good father of a family to avoid the damage, We have then, on the one
hand, nonliability of an employer for events which could not be foreseen (article 1105), and where he has
exercised the care of a good father of a family (article 1903), and, on the other hand, his liability where
fault or negligence may be attributable to him (article 1902). 

The accident was a most unusual one and must be considered one that could not have been foreseen.
Hence, the employer cannot be held liable therefore.

SULPICIO LINES, INC., v. NAPOLEON SESANTE, Et Al.,

FACTS:
M/V Princess of the Orient, a passenger vessel owned and operated by the petitioner, sank near Fortune
Island in Batangas. Of the 388 recorded passengers, 150 were lost. Napoleon Sesante, then a member of
the Philippine National Police (PNP) and a lawyer, was one of the passengers who survived the sinking.

The petitioner submits that an action for damages based on breach of contract of carriage under Article
1759 only provides for a presumption of negligence, it does not envision automatic liability; and that it was
not guilty of bad faith considering that the sinking of M/V Princess of the Orient had been due to a
fortuitous event, an exempting circumstance under Article 1174 of the Civil Code.

ISSUE:
Does a presumption of negligence explicitly makes the common carrier liable in the event of death or
injury to passengers due to a fortuitous event?

RULING:
Yes. Article 1756 states that: In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755.

Clearly, the trial court is not required to make an express finding of the common carrier's fault or
negligence. Even the mere proof of injury relieves the passengers from establishing the fault or
negligence of the carrier or its employees.

The presumption of negligence applies so long as there is evidence showing that: 

a. a contract exists between the passenger and the common carrier; and 
 b. the injury or death took place during the existence of such contract. In such event, the
burden shifts to the common carrier to prove its observance of extraordinary diligence,
and that an unforeseen event or force majeure had caused the injury.

A common carrier may be relieved of any liability arising from a fortuitous event pursuant to Article 1174 of
the Civil Code.  But while it may free a common carrier from liability, the provision still requires exclusion
of human agency from the cause of injury or loss. Else stated, for a common carrier to be absolved from
liability in case of force majeure,  it is not enough that the accident was caused by a fortuitous event. The
common carrier must still prove that it did not contribute to the occurrence of the incident due to its own or
its employees' negligence.
MARIANO VS CALLEJAS
FACTS: 
Petitioner Herminio Mariano, Jr. is the surviving spouse of Dr. Frelinda Mariano who was a passenger of
a Celyrosa Express bus bound for Tagaytay when she met her death. Respondent Ildefonso C. Callejas
is the registered owner of Celyrosa Express, while respondent Edgar de Borja was the driver of the bus
on which the deceased was a passenger. 

At around 6:30 p.m. on November 12, 1991, along Aguinaldo Highway, San Agustin, Dasmariñas, Cavite,
the Celyrosa Express bus, carrying Dr. Mariano as its passenger, collided with an Isuzu truck with trailer
bearing plate numbers PJH 906 and TRH 531. The passenger bus was bound for Tagaytay while the
trailer truck came from the opposite direction, bound for Manila. The trailer truck bumped the passenger
bus on its left middle portion. Due to the impact, the passenger bus fell on its right side on the right
shoulder of the highway and caused the death of Dr. Mariano and physical injuries to four other
passengers. Dr. Mariano was 36 years old at the time of her death. She left behind three minor children,
aged four, three and two years. 

Petitioner filed a complaint for breach of contract of carriage and damages against respondents for their
failure to transport his wife and mother of his three minor children safely to her destination. Respondents
denied liability for the death of Dr. Mariano. They claimed that the proximate cause of the accident was
the recklessness of the driver of the trailer truck which bumped their bus while allegedly at a halt on the
shoulder of the road in its rightful lane. Thus, respondent Callejas filed a third-party complaint against
Liong Chio Chang, doing business under the name and style of La Perla Sugar Supply, the owner of the
trailer truck, for indemnity in the event that he would be held liable for damages to petitioner. 
In the case at bar, the trial court, in its Decision dated September 13, 1999, found respondents Ildefonso
Callejas and Edgar de Borja, together with Liong Chio Chang, jointly and severally liable to pay petitioner
damages and costs of suit. 
Respondents Callejas and De Borja appealed to the Court of Appeals, contending that the trial court erred
in holding them guilty of breach of contract of carriage. 
 
ISSUE:: 
Whether or not respondents Callejas and Borja are negligent.
 
Ruling: 
No. In accord with the above provisions, Celyrosa Express, a common carrier, through its driver,
respondent De Borja, and its registered owner, respondent Callejas, has the express obligation "to carry
the passengers safely as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances," and to observe extraordinary diligence in
the discharge of its duty. The death of the wife of the petitioner in the course of transporting her to her
destination... gave rise to the presumption of negligence of the carrier. To overcome the presumption,
respondents have to show that they observed extraordinary diligence in the discharge of their duty, or that
the accident was caused by a fortuitous event. 

While the law requires the highest degree of diligence from common carriers in the safe transport of their
passengers and creates a presumption of negligence against them, it does not, however, make the carrier
an insurer of the absolute safety of its... passengers. 

Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of the common
carrier when its passenger is injured, merely relieves the latter, for the time being, from introducing
evidence to fasten the negligence on the former, because the presumption stands in the place of
evidence. Being a mere presumption, however, the same is rebuttable by proof that the common carrier
had exercised extraordinary diligence as required by law in the performance of its contractual obligation,
or that the injury suffered by the passenger was solely due to a fortuitous event. 

Thus, it is clear that neither the law nor the nature of the business of a transportation company makes it
an insurer of the passenger's safety, but that its liability for personal injuries sustained by its passenger
rests upon its negligence, its failure to exercise the degree of diligence that the law requires. 

In the case at bar, petitioner cannot succeed in his contention that respondents failed to overcome the
presumption of negligence against them. The totality of evidence shows that the death of petitioner's
spouse was caused by the reckless negligence of the driver of the Isuzu trailer truck which lost its brakes
and bumped the Celyrosa Express bus, owned and operated by respondents.

DUE DILIGENCE IN THE SELECTION AND SUPERVISION OF EMPLOYEES

LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN VS. MARJORIE NAVIDAD
FACTS:
Nicanor Navidad, who is drunk, entered the EDSA LRT station purchasing the token (fare payment).
While standing on the platform near the LRT tracks, Junelito, the security guard, approached Navidad. An
altercation between them ensued. No evidence was adduced that led them to fight. At the exact moment
that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was struck
by the moving train, and he was killed instantaneously.

The wife of Nicanor, the respondent in this case, and the children filed a complaint for damages against
Junelito, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc., and Prudent for the death of her
husband. LRTA and Roman filed a counterclaim against Navidad and a cross-claim against Escartin and
Prudent. Prudent denied liability and averred that it had exercised due diligence in the selection and
supervision of its security guards. The LRTA and Roman presented their evidence while Prudent and
Escartin, instead of presenting evidence, filed a demurrer contending that Navidad had failed to prove that
Escartin was negligent in his assigned task. 

ISSUE:
Whether or not the Court of Appeals erred in finding that petitioners are liable for the death of Nicanor
Navidad.

RULING:
Light Rail Transit Authority is liable but Rodolfo Roman is absolved. 

Law and jurisprudence dictate that a common carrier, both from the nature of its business and for reasons
of public policy, is burdened with the duty of exercising utmost diligence in ensuring the safety of
passengers. 

The law requires common carriers to carry passengers safely using the utmost diligence of very cautious
persons with due regard for all circumstances.  Under Article 1763 of the Civil Code,  a common carrier is
liable for death of or injury to passengers (a) through the negligence or wilful acts of its employees or b)
on account of wilful acts or negligence of other passengers or of strangers if the common carrier's
employees through the exercise of due diligence could have prevented or stopped the act or omission. 
 
In case of such death or injury, a carrier is presumed to have been at fault or been negligent, and by
simple proof of injury, the passenger is relieved of the duty to still establish the fault or negligence of the
carrier or of its employees and the burden shifts upon the carrier to prove that the injury is due to an
unforeseen event or toforce majeure. In the absence of satisfactory explanation by the carrier on how the
accident occurred, which petitioners, according to the appellate court, have failed to show, the
presumption would be that it has been at fault,  an exception from the general rule that negligence must
be proved. 
The foundation of LRTA's liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required of the
common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may
choose to hire its own employees or avail itself of the services of an outsider or an independent firm to
undertake the task. In either case, the common carrier is not relieved of its responsibilities under the
contract of carriage. 

No showing that petitioner Rodolfo Roman himself is guilty of any culpable act or omission, he must also
be absolved from liability. Needless to say, the contractual tie between the LRT and Navidad is not itself a
juridical relation between the latter and Roman; thus, Roman can be made liable only for his own fault or
negligence. 

SECOSA V. HEIRS OF FRANCISCO

DOCTRINE: The employer must not merely present testimonial evidence to prove that he observed the
diligence of a good father of a family in the selection and supervision of his emplpoyeee, but he must also
support such testimonial evidence with concrete or documentary evidence. The reason for this is to
obviate the biased nature of the employer’s testimony or that of his witnesses.

FACTS:

Erwin Suarez Francisco, an eighteen year old third year physical therapy student of the Manila Central
University, was riding a motorcycle along Radial 10 Avenue, near the Veteran Shipyard
Gate in the City of Manila. At the same time, petitioner, Raymundo Odani Secosa, was driving an Isuzu
cargo truck with plate number PCU-253 on the same road. The truck was owned by petitioner, Dassad
Warehousing and Port Services, Inc.

Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was being
tailed by the Isuzu truck driven by Secosa. The three vehicles were traversing the southbound lane at a
fairly high speed. When Secosa overtook the sand and gravel truck, he bumped the motorcycle causing
Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his
instantaneous death. Fearing for his life, petitioner Secosa left his truck and
fled the scene of the collision. 
Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani
Secosa, Dassad Warehousing and Port Services, Inc. and Dassad’s president, El Buenasucenso Sy.

According to the trial court, Dassad Warehousing and Port Services Inc. did not exercise the diligence of
a good father in the selection and supervision of its employees 

ISSUE:

How does an employer prove that he indeed exercised the diligence of a good father of a family in the
selection and supervision of his employees?

RULING: 

While there is no rule which requires that testimonial evidence must be corroborated by documentary
evidence, inasmuch as the witnesses’ testimonies dwelt on mere generalities, we cannot consider the
same as sufficiently persuasive proof that there was observance of due diligence in the selection and
supervision of employees. Petitioner’s attempt to prove its “deligentissimi patris familias” in the selection
and supervision of employees through oral evidence must fail as it was unable to buttress the same with
any other evidence, object or documentary, which might obviate the apparent biased nature of the
testimony.

The failure of the defendant company to produce in court any ‘record’ or other documentary proof tending
to establish that it had exercised all the diligence of a good father of a family in the selection and
supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and the
opposing counsel, argues strongly against its pretensions.

The employer must not merely present testimonial evidence to prove that he observed the diligence of a
good father of a family in the selection and supervision of his employee, but he must also support such
testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased
nature of the employer’s testimony or that of his witnesses.

Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone witness
with documentary evidence which would have strengthened its claim of due diligence in the selection and
supervision of its employees. Such an omission is fatal to its position, on account of which, Dassad can
be rightfully held solidarily liable with its co-petitioner Raymundo Secosa for the damages suffered by the
heirs of Erwin Francisco.

FILIPINAS SYNTHETIC FIBER CORPORATION V. DE LOS SANTOS, ET AL.

DOCTRINE: In the selection of prospective employees, employers are required to examine them as to
their qualifications, experience and service records. In the supervision of employees, the employer must
formulate standard operating procedures, monitor their implementation and impose disciplinary measures
for the breach thereof. To fend off vicarious liability, employers must submit concrete proof, including
documentary evidence, that they complied with everything that was incumbent on them.

FACTS:

On September 30, 1984, Teresa Elena Legarda-de los Santos, the wife of respondent Wilfredo de los
Santos was fetched by Wilfredo’s brother Armando, husband of respondent Carmina Vda. de los Santos,
from Rizal Theater to after Teresa’s theater performance. Armando drove a 1980 Mitsubishi Galant
Sigma, a company car assigned to Wilfredo. Two other members of the cast of production joined Teresa
Elena in the Galant Sigma.

Around 11:30 p.m., while travelling along the Katipunan Road (White Plains), the Galant Sigma collided
with the shuttle bus owned by petitioner and driven by Alfredo S. Mejia (Mejia), an employee of petitioner
Filipinas Synthetic Corp. The Galant Sigma was dragged about 12 meters from the point of impact,
across the White Plains Road landing near the perimeter fence of Camp Aguinaldo, where the Galant
Sigma burst into flames and burned to death beyond recognition all four occupants of the car.

A criminal charge for reckless imprudence resulting in damage to property with multiple homicide was
brought against Mejia, which was decided in favor of Mejia (shuttle driver). A consolidated civil case was
filed by the families of the deceased against Mejia. The RTC ruled in favor of herein respondents.   After
the denial of the motion for reconsideration, petitioner appealed to the CA and the CA affirmed the
decision of the RTC. Hence this petition stating that the respondent court erred in finding Mejia negligent,
such not being supported by evidence on record.

ISSUE:

Whether the employer exercised the due diligence of a good father of a family in the selection and
supervision of its employees.
RULING:

The petition lacks merit.. Under Article 2180[12] of the New Civil Code, when an injury is caused by the
negligence of the employee, there instantly arises a presumption of law that there was negligence on the
part of the master or employer either in the selection of the servant or employee, or in supervision over
him after selection or both. The liability of the employer under Article 2180 is direct and immediate; it is
not conditioned upon prior recourse against the negligent employee and a prior showing of the insolvency
of such employee. Therefore, it is incumbent upon the private respondents (in this case, the petitioner) to
prove that they exercised the diligence of a good father of a family in the selection and supervision of their
employee.

In Metro Manila Transit Corporation v. Court of Appeals, it was held that in order that the defense of due
diligence in the selection and supervision of employees may be deemed sufficient and plausible, it is not
enough to emptily invoke the existence of said company guidelines and policies on hiring and supervision.
As the negligence of the employee gives rise to the presumption of negligence on the part of the
employer, the latter has the burden of proving that it has been diligent not only in the selection of
employees but also in the actual supervision of their work. The mere allegation of the existence of hiring
procedures and supervisory policies, without anything more, is decidedly not sufficient to overcome such
presumption.

Petitioner asserts that it had submitted and presented during trial, numerous documents in support of its
claim that it had exercised the proper diligence in both the selection and supervision of its employees.
Among those proofs are documents showing Mejia's proficiency and physical examinations, as well as his
NBI clearances. The Employee Staff Head of the Human Resource Division of the petitioner also testified
that Mejia was constantly under supervision and was given daily operational briefings. Nevertheless, the
RTC and the CA were correct in finding those pieces of evidence presented by the petitioner insufficient.
Filsyn admitted that their shuttle buses were used to ferry Filsyn's employees for three shifts. It failed to
show whether or not Mejia was on duty driving buses for all three shifts. Fylsin did not even sufficiently
prove that it exercised the required supervision of Mejia by ensuring rest periods, particularly for its night
shift drivers who are working on a time when most of us are usually taking rest. As correctly argued by the
plaintiffs-appellees, this is significant because the accident happened at 11:30 p.m., when the shuttle bus
was under the control of a driver having no passenger at all.

FORTUITOUS EVENT

EDGAR COKALIONG SHIPPING LINES, INC. vs. UCPB

DOCTRINE: Broadly speaking, force majeure generally applies to a natural accident, such as that caused
by a lightning, an earthquake, a tempest or a public enemy. Hence, fire is not considered a natural
disaster or calamity. Where loss of cargo results from the failure of the officers of a vessel to inspect
their ship frequently so as to discover the existence of cracked parts, that loss cannot be attributed to
force majeure, but to the negligence of those officials.

FACTS:
Nestor Angelia and Zosima Mercado separately delivered cargo to petitioner for transportation to Surigao
del Sur on board the M/V Tandag for which petitioner issued Bills of Lading.  

Feliciana Legaspi, as owner of both cargoes, insured them against all risks with respondent in the total
amount of P150,000.00. Unfortunately, the engine room of the vessel caught fire after it passed the
Mandaue-Mactan Bridge resulting in the loss of the vessel and its cargo. Hence, Feliciana Legaspi filed
an insurance claim from the respondent for the value of both cargoes. Respondent approved Feliciana's
claim and remitted to her the total amount of P148,000 for both cargoes, after which Feliciana executed a
Subrogation Receipts/Deeds in favor of respondent. 

Respondent as subrogee of Feliciana Legaspi, filed a complaint before the Regional Trial Court of Makati
City against petitioner for the collection of the amount which it paid to Feliciana Legaspi for the loss of the
cargo. Among others, respondent alleged that the loss of the cargo was due to the negligence of the
petitioner. On its part, petitioner contended, among others, that the cause of loss of the aforesaid cargo
was due to force majeure and that they exercised due diligence prior to, during and immediately after the
fire on its vessel.

ISSUE:
Should the common carrier be liable for the loss of the cargo? In this case, is the accident caused by fire
considered a force majeure?

RULING:
Yes.  The Court found the petitioner responsible for the loss of the subject goods. According to the Court,
where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as
to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the
negligence of those officers.

The uncontroverted findings of the Philippine Coast Guard show that the M/V Tandag sank due to a fire,
which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack and
dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was located on
the side of the fuel oil tank, which had a mere two-inch-gap-from the engine room walling, thus precluding
constant inspection and care by the crew. Having originated from an unchecked crack in the fuel oil
service tank, the fire could not have been caused by force majeure. Broadly speaking, force majeure
generally applies to a natural accident, such as that caused by a lightning, an earthquake, a tempest or a
public enemy. Hence, fire is not considered a natural disaster or calamity.

ROSITO BACARRO, WILLIAM SEVILLA AND FELARIO MONTEFALCON VS. GERUNDIO CASTAÑO
AND CA
FACTS:
A jeepney driven by petitioner Montefalcon and where private respondent was a passenger was
sideswiped by a cargo truck as both vehicles were approaching a bridge. The jeepney fell into a ditch and
the private respondent was thrown off, his right leg crushed by the weight of the jeepney. He sued
petitioners. It was undisputed that the cargo truck blew its horn to overtake the jeepney; that the jeepney
gave way but did not reduce its speed; that for a distance of 20 meters, the truck and the jeepney ran side
by side; and that the jeepney was sideswiped when the truck was in the process of overtaking the said
jeepney. The trial court rendered judgment in favor of the private respondent finding contributory
negligence on the part of the jeepney's driver and the proximate cause of the accident being the
negligence of the truck driver. The decision of the trial court was affirmed on appeal to the Court of
Appeals. One of the defenses of the petitioners was that the accident was due to a fortuitous event. 
ISSUE:  
Whether or not a fortuitous event was present. 
RULING:
No. The alleged fortuitous event in this case — the sideswiping of the jeepney by the cargo truck, was
something which could have been avoided considering the narrowness of the Sumasap Bridge which was
not wide enough to admit two vehicles. Montefalcon contributed to the occurrence of the mishap and
should thus be held liable. 
PEDRO DE GUZMAN VS. COURT OF APPEALS AND ERNESTO CENDAÑA
FACTS:
Respondent, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon
gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for
resale. He utilized six-wheeler trucks which he owned for hauling the material to Manila. On the return trip
to Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered
to differing establishments in Pangasinan. For that service, respondent charged freight rates which were
commonly lower than regular commercial rates. Respondent was transporting boxes of milk for petitioner,
a merchant of milk, on one of his trips when the boxes were hijacked by armed men who took with them
the truck, its driver, his helper and the cargo. Petitioner commenced an action against respondent to
retrieve the value of the boxes of lost milk and damages. Petitioner argued that respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required, should be held liable
for the value of the undelivered goods. While respondent denied that he was a common carrier and
argued that he could not be held responsible for the value of the lost goods, such loss having been due to
force majeure or fortuitous event.
ISSUE:  
Whether or not a fortuitous event was present.
RULING:
Yes. Under Article 1745 (6), a common carrier is held responsible — and will not be allowed to divest or
to diminish such responsibility — even for acts of strangers like thieves or robbers, except where such
thieves or robbers in fact acted "with grave or irresistible threat, violence or force." The limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence or force." In these
circumstances, the occurrence of the loss must reasonably be regarded as quite beyond the control of the
common carrier and properly regarded as a fortuitous event. Even common carriers are not made
absolute insurers against all risks of travel and of transport of goods, and are not held liable for acts or
events which cannot be foreseen or are inevitable, provided that they shall have complied with the
rigorous standard of extraordinary diligence.
In the instant case, an information for robbery in band was filed where the accused were charged with
willfully and unlawfully taking and carrying away with them the truck. The decision of the trial court shows
that the accused acted with grave, if not irresistible, threat, violence or force. Three of the five hold-uppers
were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped the
driver and his helper, detaining them for several days and later releasing them in another province. In
these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite
beyond the control of the common carrier and properly regarded as a fortuitous event. It is necessary to
recall that even common carriers are not made absolute insurers against all risks of travel and of transport
of goods, and are not held liable for acts or events which cannot be foreseen or are inevitable, provided
that they shall have complied with the rigorous standard of extraordinary diligence.
Respondent is not liable for the value of the undelivered merchandise which was lost because of an event
entirely beyond respondent's control.

CONTRIBUTORY NEGLIGENCE

ERNESTO SYKI V. SALVADOR BEGASA

FACTS:

Salvador Begasa and his three companions flagged down a passenger jeepney driven by Joaquin Espina
and owned by Aurora Pisuena. While Begasa was boarding the passenger jeepney (his right foot already
inside while his left foot still on the boarding step of the passenger jeepney), atruck driven by Elizalde
Sablayan and owned by petitioner Ernesto Syki bumped the rear end of the passenger jeepney. Begasa
fell and fractured his left thigh bone (femur). He also had lacerations and abrasions in his left leg.

Begasa filed a complaint for damages for breach of common carrier’s contractual obligations and quasi-
delict against Pisuena, the owner of the jeepney, petitioner Ernesto Syki the owner of the truck, and
Sablayan the driver of the truck. The complaint against Pisuena was dismissed but Syki and Sablayan
were made to pay damages by the trial court. Syki and Sablayan appealed to the Court of Appeals but the
appellate court found no reversible error in the decision of the trial court.

Syki contends that his liability or the award of damages given to the respondent should be decreased or
mitigated because respondent was guilty of contributory negligence. Petitioner claims that his driver was
allegedly caught unaware when the passenger jeepney hailed by respondent suddenly stopped at the
intersection of a national highway. Petitioner argues that, had respondent flagged down the passenger
jeepney at the proper place, the accident could have been avoided.

ISSUE:

Whether Begasa was guilty of contributory negligence.

RULING:

No. Petitioner’s contention has no merit. Article 2179 provides that when the plaintiff's own negligence
was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence
was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due
care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
The underlying precept of the above article on contributory negligence is that a plaintiff who is partly
responsible for his own injury should not be entitled to recover damages in full but must bear the
consequences of his own negligence. The defendant must thus be held liable only for the damages
actually caused by his negligence. 
In the present case, was respondent partly negligent and thus, should not recover the full amount of the
damages awarded by the trial court? We rule in the negative.
There was no evidence that respondent Begasa and his three companions flagged down the passenger
jeepney in a prohibited area. All the facts showed was that the passenger jeepney was near the corner of
Araneta and Magsaysay Streets, Bacolod City when petitioner's driver bumped it from the rear. No city
resolution, traffic regulation or DPWH memorandum was presented to show that the passenger jeepney
picked up respondent and his three companions in a prohibited area. In fact, the trial court dismissed the
case against the driver and owner of the passenger jeepney on the ground that they were not liable,
meaning, that no negligence could be attributed to them. The trial court also found no negligence on the
part of respondent Begasa. This factual finding was affirmed in toto by the Court of Appeals. 
SEALOADER SHIPPING CORP vs. GRAND CEMENT MANUFACTURING
Doctrine: Contributory Negligence is conduct on the part of the injured party, contributing as a legal
cause to the harm he has suffered, which falls below the standard to which he is required to conform for
his own protection

FACTS:
Sealoader executed a Time Charter Party Aggrement with Joyce Launch for the chartering of MT Viper in
order to tow its unpropelled barges for a minimum of 15 days.
   
Sealoder entered into a contract with Grand Cement for the loading of cement clinkers and the delivery
thereof to Manila. On March 31, 1994, Sealoder’s barge arrived at the wharf of Grand Cement tugged by
MT Viper. It was not immediately loaded as the employees of Grand Cement were loaded another vessel.
   
On April 4, typhoon Bising struck Cebu area. The barge was still docked at the wharf of Grand Cement.
As it became stronger, MT Viper tried to tow the barge away but it was unsuccessful because the towing
line connecting the vessels snapped since the mooring lines were not cast off, which is the ultimate
cause. Hence, the barge rammed the wharf causing significant damage.
   
Grand Cement filed a complaint for damages (P2.4M) since Sealoader ignored its demands. They allege
that Sealoader was negligent when it ignored its employee’s advice to move the vessels after it had
received weather updates. Sealoader filed a motion to dismiss on the ground that Joyce Launch is the
one liable since it was the owner of MT Viper, who’s employees were manning the vessel. Sealoader filed
a cross-claim against Joyce Launch. Joyce maintains that the damages were due to force majeure and
faulted Grand Cement’s employees for abandoning the wharf leaving them helpless and for not warning
them early on.
   
Upon testimonies, the RTC rendered judgment in favor of Grand Cement holding the two companies
liable since there was complete disregard of the storm signal, the captain of the vessel was not present
and the vessel was not equipped with a radio or any navigational facility, which is mandatory. Joyce
launch did not appeal.

On appeal, the CA affirmed the decision but on MR, it partly reversed its decision finding Grand Cement
to be guilty of contributory negligence since it was found that it was still loading the other vessel at the last
minute just before the storm hit, hence Sealoder’s vessel did not move. Damages were reduced to 50%.
Hence, petition for review to SC.
ISSUE:
Whether or not Sealoader is liable for its negligence.

RULING:
Sealoader is liable for its negligence. The Supreme Court held that, first, because it was not equipped
with a radio or a navigational facility and it failed to monitor the prevailing weather conditions. Second, it
cannot pass the responsibility of casting off the mooring lines because the people at the wharf could not
just cast off the mooring lines without any instructions from the crew of the vessel. It should have taken
the initiative to cast off the mooring lines early on.

With regard to Grand Cement’s contributory negligence, the court found that it was not guilty thereof. It
had timely informed the barge of the impending typhoon and directed the vessels to move to a safer
place. Sealoader had the responsibility to inform itself of the prevailing weather conditions in the areas
where its vessel was to sail. It cannot merely rely on other vessels for weather updates and warnings on
approaching storms. For to do so would be to gamble with the safety of its own vessel, putting the lives of
its crew under the mercy of the sea, as well as running the ricks of causing damage to property of third
parties for which it would necessarily be liable.

CANGO vs. MANILA RAILROAD CO.

Doctrine: In determining the question of contributory negligence in performing such act – that is to say,
whether the passenger acted prudently or recklessly – the age, sex, and physical condition of the
passenger are circumstances necessarily affecting the safety of the passenger, and should be
considered.

FACTS:
Jose Cangco was riding the train of Manila Railroad Company where he was an employee. As the train
drew near to his destination, he arose from his seat. When he was about to alight from the train, Cangco
accidentally stepped on a sack of watermelons which he failed to notice because it was already 7:00pm
and it was dim when it happened. As a result, he slipped and fell violently on the platform. His right arm
was badly crushed and lacerated which was eventually amputated.

Cangco sued Manila Railroad Company on the ground of negligence of its employees placing the sacks
of melons upon the platform and in leaving them so placed as to be a menace to the security of
passenger alighting from the company’s trains.

The company’s defense was that granting that its employees were negligent in placing an obstruction
upon the platform, the direct and proximate cause of the injury suffered by plaintiff was his own
contributing negligence.

ISSUE:
Whether or not there was a contributing negligence on the part of the plaintiff.

RULING:
No. There was no contributing negligence on the part of the plaintiff. The Supreme Court held that in
determining the question of contributory negligence in performing such act – that is to say, whether the
passenger acted prudently or recklessly – the age, sex, and physical condition of the passenger are
circumstances necessarily affecting the safety of the passenger, and should be considered.

The place was perfectly familiar to the plaintiff as it was his daily custom to get on and off the train at the
station. There could, therefore, be no uncertainty in his mind with regard either to the length of the step
which he was required to take or the character of the platform where he was alighting. The Supreme
Court’s  conclusion was that the conduct of the plaintiff in undertaking to alight while the train was yet
slightly under way was not characterized by imprudence and that therefore he was not guilty of
contributory negligence.

DOCTRINE OF LAST CLEAR CHANCE

 ROGELIO ENGADA   vs. CA
FACTS:
Edwin Iran was driving a blue Toyota Tamaraw jeepney bound for Iloilo City. On board was Sheila Seyan,
the registered owner of the Tamaraw. While traversing the road along Barangay Acquit, Barotac Nuevo,
the Tamaraw passengers allegedly saw from the opposite direction a speeding Isuzu pick-up, driven by
petitioner Rogelio Engada. The pick-up had just negotiated a hilly gradient on the highway. When it was
just a few meters away from the Tamaraw, the Isuzu pick-up's right signal light flashed, at the same time,
it swerved to its left, encroaching upon the lane of the Tamaraw and headed towards a head-on collision
course with it. Seyan shouted at Iran to avoid the pick-up. Iran swerved to his left but the pick-up also
swerved to its right. Thus, the pick-up collided with the Tamaraw, hitting the latter at its right front
passenger side. The impact caused the head and chassis of the Tamaraw to separate from its body.
Seyan was thrown out of the Tamaraw and landed on a ricefield. The pick-up stopped diagonally astride
the center of the road.
Seyan and Iran were brought to Barotac Nuevo Medicare Hospital. Seyan was profusely bleeding from
her nose and was in a state of shock with her eyes closed. In the afternoon of the same day, November
29, 1989, she was transferred to St. Paul's Hospital in Iloilo City where she was confined. Her medical
certificate revealed that she suffered a fracture on the right femur, lacerated wound on the right foot,
multiple contusions, abrasions, blunt abdominal injury, and lacerations of the upper-lower pole of the right
kidney. She was discharged from the hospital only on January 15, 1990.
A criminal complaint for damage to property through reckless imprudence with serious physical injuries
was filed with the Municipal Trial Court of Barotac Nuevo against petitioner Rogelio Engada and Edwin
Iran. Both the RTC and CA finds the accused guilty beyond reasonable doubt of Simple Imprudence
resulting [in] physical injuries and damage to property. Petitioner tries to extricate himself from liability
by invoking the doctrine of last clear chance. He avers that between him and Iran, the latter had the last
clear chance to avoid the collision, hence Iran must be held liable.
ISSUE:
Whether or not the doctrine of last clear chance is applicable.  
RULING: 
No. As ruled by the Supreme Court in several cases, the doctrine of last clear chance states that a
person who has the last clear chance or opportunity of avoiding an accident, notwithstanding the
negligent acts of his opponent, is considered in law solely responsible for the consequences of the
accident.  
But as already stated on this point, no convincing evidence was adduced by petitioner to support his
invocation of the above cited doctrine. Instead, what has been shown is the presence of an emergency
and the proper application of the emergency rule. 
Petitioner's act of swerving to the Tamaraw's lane at a distance of 30 meters from it and driving the
Isuzu pick-up at a fast speed as it approached the Tamaraw, denied Iran time and opportunity to ponder
the situation at all. There was no clear chance to speak of. Thus, the doctrine of last clear chance
cannot be applied in this case. 

GLAN PEOPLE’S LUMBER AND HARDWARE et al  vs. IAC et al

FACTS: 
Engineer Calibo, Roranes, and Patos were on the jeep, with Calibo at the wheel, as it approached a
bridge going towards the direction of Davao City. At about that time, the cargo truck,  Zacarias coming
from the opposite direction of Davao City had just crossed said bridge. At about 59 yards after crossing
the bridge, the cargo truck and the jeep collided as a consequence of which Engineer Calibo died while
Roranes and Patos sustained physical injuries. Zacarias was unhurt. As a result of the impact, the left
side of the truck was slightly damaged while the left side of the jeep,\ was extensively damaged. After the
impact, the jeep fell and rested on its right side on the asphalted road a few meters to the rear of the
truck, while the truck stopped on its wheels on the road.

A case for damages was filed by the surviving spouse and children of the late Engineer Calibo against the
driver and owners of the cargo truck with the CFI of Bohol. Accordingly, the Court dismissed the
complaint “for insufficiency of evidence”
The Court of Appeals saw things differently. It rendered judgment 9 on the plaintiffs’ appeal, reversing the
decision of the Trial Court. It found Zacarias to be negligent and his negligence “gave rise to the
presumption of negligence on the part of his employer, and their liability is both primary and solidary.” It
therefore ordered “the defendants jointly and solidarily to indemnify the plaintiffs
The defendants have appealed to this Court on certiorari and pray for a reversal of the judgment of the
IAC which, it is claimed, ignored or ran counter to the established facts
ISSUE:
WON the doctrine of last clear chance is applicable in this case.

RULING:
Yes, ignoring these telltale indicia of negligence on the part of Calibo, and assuming some antecedent
negligence on the part of Zacarias in failing to keep within his designated lane, incorrectly demarcated as
it was, the physical facts would still absolve the latter of any actionable responsibility for the accident
under the rule of the last clear chance.

Both drivers, as the Appellate Court found, had had a full view of each other’s vehicle from a distance of
150 meters. The truck had been brought to a stop while the jeep was still thirty meters away. From these
facts the logical conclusion emerges that the driver of the jeep had what judicial doctrine has
appropriately called the last clear chance to avoid the accident, while still at that distance of thirty meters
from the truck, by stopping in his turn or swerving his jeep away from the truck, either of which he had
sufficient time to do while running at a speed of only thirty kilometers per hour. In those circumstances,
his duty was to seize that opportunity of avoidance, not merely rely on a supposed right to expect the
truck to swerve and leave him a clear path.
The doctrine of the last clear chance provides as valid and complete a defense to accident liability today
as it did when invoked and applied in the 1918 case of Picart vs. Smith, supra, which involved a similar
state of facts. Since said ruling clearly applies to exonerate petitioner Zacarias and his employer (and co-
petitioner) George Lim, an inquiry into whether or not the evidence supports the latter’s additional defense
of due diligence in the selection and supervision of said driver is no longer necessary and wig not be
undertaken. The fact is that there is such evidence in the record which has not been controverted.
AMADO PICART vs. FRANK SMITH, JR.

FACTS:

On December 12, 1912, on the Carlatan Bridge, at San Fernando, La Union the plaintiff was riding on his
pony over said bridge. Before he had gotten half way across, the defendant approached from the
opposite direction in an automobile, going at the rate of about ten or twelve miles per hour. As the
defendant neared the bridge he saw a horseman on it and blew his horn to give warning of his approach.
He continued his course and after he had taken the bridge he gave two more successive blasts, as it
appeared to him that the man on horseback before him was not observing the rule of the road.

The plaintiff saw the automobile coming and heard the warning signals. However, being perturbed by the
novelty of the apparition or the rapidity of the approach, he pulled the pony closely up against the railing
on the right side of the bridge instead of going to the left. As the automobile approached, the defendant
guided it toward his left, that being the proper side of the road for the machine. In so doing the defendant
assumed that the horseman would move to the other side. The pony had not as yet exhibited fright, and
the rider had made no sign for the automobile to stop. Seeing that the pony was apparently quiet, the
defendant, instead of veering to the right while yet some distance away or slowing down, continued to
approach directly toward the horse without diminution of speed. When he had gotten quite near, the
defendant quickly turned his car sufficiently to the right to escape hitting the horse alongside of the railing
where it as then standing; but in so doing the automobile passed in such close proximity to the animal that
it became frightened and turned its body across the bridge with its head toward the railing. In so doing, it
has struck on the hock of the left hind leg by the flange of the car and the limb was broken. The horse fell
and its rider was thrown off with some violence.

ISSUE:

Whether Smith was guilty of negligence and liable for civil obligations.

RULING:

Yes. The control of the situation had then passed entirely to the defendant; and it was his duty either to
bring his car to an immediate stop or, seeing that there were no other persons on the bridge, to take the
other side and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing
this, the defendant ran straight on until he was almost upon the horse.

A prudent man, placed in the position of the defendant, would in our opinion, have recognized that the
course which he was pursuing was fraught with risk, and would therefore have foreseen harm to the
horse and the rider as reasonable consequence of that course. Under these circumstances the law
imposed on the defendant the duty to guard against the threatened harm.

It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent
negligence in planting himself on the wrong side of the road. But as we have already stated, the
defendant was also negligent; and in such case the problem always is to discover which agent is
immediately and directly responsible. Under these circumstances the law is that the person who has the
last fair chance to avoid the impending harm and fails to do so is chargeable with the consequences,
without reference to the prior negligence of the other party.

EXTENT OF LIABILITY

RECOVERABLE DAMAGES

SULPICIO LINES VS. DOMINGO E. CURSO

FACTS:
Dr. Curso boarded at the port of Manila the MV Doña Marilyn, an inter-island vessel owned and operated
by petitioner Sulpicio Lines, Inc., bound for Tacloban City... the MV Doña Marilyn sank in the afternoon
while at sea due to the inclement sea and weather conditions brought about by Typhoon Unsang. The
body of Dr. Curso was not recovered, along with hundreds of other passengers of the ill-fated vessel. At
the time of his death, Dr. Curso was 48 years old, and... employed as a resident physician at the Naval
District Hospital in Naval, Biliran. He had a basic monthly salary of P3,940.00, and would have retired
from government service by December 20, 2004 at the age of 65.

In 1993, the respondents, allegedly the surviving brothers and sisters of Dr. Curso, sued the petitioner in
the RTC in Naval, Biliran to claim damages based on breach of contract of carriage by sea, averring that
the petitioner had acted negligently in transporting.

Dr. Curso and the other passengers... their parents had predeceased Dr. Curso, who died single and
without issue; and that, as such, they were Dr. Curso's surviving heirs and successors in interest entitled
to recover moral and other damages. The petitioner denied liability, insisting that the sinking of the vessel
was due to force majeure which exempted a common carrier from liability. RTC dismissed the complaint
upon its finding that the sinking of the vessel was due to force majeure.
ISSUE:
Whether or not the surviving brothers and sisters of a passenger of a vessel that sinks during a voyage
entitled to recover moral damages from the vessel owner as common carrier.

RULING:
As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of
contract, unless there is fraud or bad faith.[8] As an exception, moral damages may be awarded in case
of breach of contract of carriage that results in... the death of a passenger,[9] in accordance with Article
1764, in relation to Article 2206 (3), of the Civil Code
The foregoing legal provisions set forth the persons entitled to moral damages. The omission from Article
2206 (3) of the brothers and sisters of the deceased passenger reveals the legislative intent to exclude
them from the recovery of moral damages for mental anguish by reason... of the death of the deceased.
Inclusio unius est exclusio alterius.

Essentially, the purpose of moral damages is indemnity or reparation, that is, to enable the injured party
to obtain the means, diversions, or amusements that will serve to alleviate the moral suffering he has
undergone by reason of the tragic event. The conditions for awarding moral damages are: (a) there must
be an injury, whether physical, mental, or psychological, clearly substantiated by the claimant; (b) there
must be a culpable act or omission factually... established; (c) the wrongful act or omission of the
defendant must be the proximate cause of the injury sustained by the claimant; and (d) the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil Code.

To be entitled to moral damages, the respondents must have a right based upon law. Under Article 1003
of the Civil Code they succeeded to the entire estate of the late Dr. Curso in the absence of the latter's
descendants, ascendants, illegitimate children, and surviving spouse. However, they were not included
among the persons entitled to recover moral damages

Article 2219 circumscribes the instances in which moral damages may be awarded.The provision does
not include succession in the collateral line as a source of the right to recover moral damages. The usage
of the phrase analogous cases in the provision means simply that... the situation must be held similar to
those expressly enumerated in the law in question following the ejusdem generis rule. Hence, Article
1003 of the Civil Code is not concerned with recovery of moral damages.

Article 2206 of the Civil Code entitles the descendants, ascendants, illegitimate children, and surviving
spouse of the deceased passenger to demand moral damages for mental anguish by reason of the death
of the deceased.
MECENAS V. CA

FACTS:

In 1980, the M/T “Tacloban City,” a barge-type oil tanker owned and operated by Philippine National Oil
Company (PNOC), having unloaded its cargo of petroleum products, left Negros Occidental and headed
towards Bataan. On the same day, the M/V “Don Juan,” an interisland vessel owned and operated by
Negros Navigation, left Manila bound for Bacolod with 750 passengers listed in its manifest, and a
complete set of officers and crew members. On the evening of the same day, the two vessels became
aware of each other’s presence in the area by visual contact at a distance of 6 miles. They were fully
aware that if they continued on their course, they will meet head on. Don Juan steered to the right;
Tacloban City continued its course to the left. The two vessels thus collided and as a result, the “Don
Juan” sank and hundreds of its passengers perished. Petitioners who were the children of the spouses
Perfecto and Sofia Mecenas, their parents among the passengers whose bodies were never found, filed a
complaint against Negros Navigation and its Captain Roger Santisteban. The trial court ruled that both
vessels were at fault in the collision and awarded petitioners actual or compensatory damages, which was
reduced on appeal. Petitioners likewise claim for exemplary damages.

ISSUE:
Whether or not petitioners herein are also entitled to exemplary damages.

RULING:

Yes, In respect of the petitioners’ claim for exemplary damages, it is only necessary to refer to Article
2232 of the Civil Code “Article 2332. In contracts and quasi-contracts, the court may exemplary damages
if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.”

There is, therefore, no question that the “Don Juan” was at least as negligent as the M/T “Tacloban City”
in the events leading up to the collision and the sinking of the “Don Juan.” The remaining question is
whether the negligence on the part of the “Don Juan” reached that level of recklessness or gross
negligence that our Civil Code requires for the imposition of exemplary damages. Our own review of the
record in the case at bar requires us to answer this in the affirmative.

M/S Don Juan’s Master, Capt. Rogelio Santisteban, was playing mahjong before and up to the time of
collision. Moreover, after the collision, he failed to institute appropriate measures to delay the sinking M/S
Don Juan and to supervise properly the execution of his order of abandonship. As regards the officer on
watch, Senior 3rd Mate Rogelio Devera, he admitted that he failed or did not call or inform Capt.
Santisteban of the imminent danger of collision and of the actual collision itself. Also, he failed to assist
his master to prevent the fast sinking of the ship. The record also indicates that Auxiliary Chief Mate
Antonio Labordo displayed laxity in maintaining order among the passengers after the collision. There is
also evidence that the “Don Juan” was carrying more passengers than she had been certified as allowed
to carry.

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is
socially deleterious in its consequence by creating negative incentives or deterrents against such
behaviour. In requiring compliance with the standard which is in fact that of the highest possible degree of
diligence, from common carriers and in creating a presumption of negligence against them, the law seeks
to compel them to control their employees, to tame their reckless instincts and to force them to take
adequate care of human beings and their property. The Court will take judicial notice of the dreadful
regularity with which grievous maritime disasters occur in our waters with massive loss of life. The bulk of
our population is too poor to afford domestic air transportation. So it is that notwithstanding the frequent
sinking of passenger vessels in our waters, crowds of people continue to travel by sea. This Court is
prepared to use the instruments given to it by the law for securing the ends of law and public policy. One
of those instruments is the institution of exemplary damages; one of those ends, of special importance in
an archipelagic state like the Philippines, is the safe and reliable carriage of people and goods by sea.
Considering the foregoing, we believe that an additional award in the amount of P200,000.00 as
exemplary damages is quite modest.

DAY VS. AIR FRANCE VS. CARRASCOSO

FACTS:
On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc.,
issued to plaintiff a “first class” round trip airplane ticket from Manila to Rome. From Manila to Bangkok,
plaintiff traveled in “first class”, but at Bangkok, the Manager of the defendant airline forced plaintiff to
vacate the “first class” seat that he was occupying because there was a “white man”, who, the Manager
alleged, had a “better right” to the seat. When asked to vacate his “first class” seat, the plaintiff, as was to
be expected, refused, and told defendant’s Manager that his seat would be taken over his dead body; a
commotion ensued, and they came all across to Mr. Carrascoso and pacified Mr. Carrascoso to give his
seat to the white man” and plaintiff reluctantly gave his “first class” seat in the plane.

ISSUE:
Whether there is a breach of contract of carriage between Air France and Carrascoso that would hold Air
France liable for damages.

RULING:
Yes. Petitioner’s contract with Carrascoso is one attended with public duty. The stress of Carrascoso’s
action as we have said, is placed upon his wrongful expulsion. This is a violation of public duty by the
petitioner air carrier — a case of quasi-delict. Damages are proper.

STIPULATIONS LIMITING LIABILITY

SWEET LINES, INC v. HON. BERNARDO TEVES

FACTS: 
Atty. Leovigildo Tandog and Rogelio Tiro bought tickets for Voyage 90 at the branch office of Sweet
Lines, Inc., a shipping company transporting inter-island passengers and cargoes. They were to board
vessel M/S "Sweet Hope" bound for Tagbilaran City via the port of Cebu. It was later on learned that the
vessel was not proceeding to Bohol since many passengers were bound for Surigao. As such, Tandog
and Tiro went to the same branch office for proper relocation to M/S "Sweet Town". However, because
the said vessel was already filled to capacity, they were forced to agree to hide at the cargo section to
avoid inspection of the officers of the Philippine Coastguard. 
Tandog and Tiro later on filed a case against Sweet Lines for damages and for breach of contract of
carriage before the Court of First Instance of Misamis Oriental. They alleged that during the trip, they
were exposed to the scorching heat of the sun and the dust coming from the ship's cargo of corn
grits. Moreover, the tickets they initially bought were not honored and were constrained to pay for other.
Sweet Lines, on the other hand, moved to dismiss the complaint on the ground of improper venue. This is
premised on Condition No. 14 printed at the back of the tickets which provides that any and all actions
arising out of the ticket, irrespective of where it is issued, shall be filed before the courts of Cebu City. 

Sweet Lines contends that Condition No. 14 is valid and enforceable since Tandog and Tiro acceded to it
when they purchased the tickets and took its vessel for passage. It is an accepted principle that venue
may be validly waived. As such, since Condition No. 14 is printed in bold and capital letters and not in fine
print, this is an effective waiver of venue. On the other hand, Tandog and Tiro claim that Condition No. 14
is not valid. They had no say in the tickets’ preparation and had no capacity to refuse the condition. Sweet
Lines has been exacting too much from the public by inserting impositions in the tickets that are too
burdensome to bear. 

ISSUE: 
Whether Condition No. 14 is valid and enforceable.

RULING: 
No, there is no question that there was a valid contract of carriage and that the tickets are the best
evidence thereof. Such ticket has all the elements of a written contract, namely: (1) the consent of the
contracting parties which is manifested by the boarding of the passenger and the consequent acceptance
of him by the carrier; (2) cause or consideration which is the fare paid by the passenger; and (3) object
which is the transportation of the passenger. 

With respect, however, to Condition No. 14 printed at the back of the tickets, the Court declared that this
is what is commonly known as contracts of adhesion, the validity and/or enforceability of which will have
to be determined by the peculiar circumstances obtaining in each case and the nature of the conditions or
terms sought to be enforced. Such contract is drafted only by one party, usually a corporation. The
signing of signature is the only participation of the other party who cannot change the same and who are
thus made to adhere thereto on a "take it or leave it" basis. As such, greater strictness and vigilance on
the part of the courts of justice is encouraged with a view of protecting the weaker party from abuses and
imposition and preventing such contracts from becoming traps for the unwary. 

In the case at bar, the Court found Condition No. 14 as void and unenforceable for 2 reasons: 

First, it is not just and fair to bind passengers to the conditions printed in fine letter at the back of the
tickets. It is hardly proper to expect the passengers to examine their tickets after they received them from
crowded counters. No reasonable opportunity is given to them in order to carefully examine the said
condition prior to the purchase of the tickets. Moreover, it must be noted that the shipping companies are
franchise holders of certificates of public convenience and therefore possess a virtual monopoly of the
business of transporting passengers. As such, they may dictate the terms of passage, leaving the
passengers with no choice but to buy tickets and avail of their vessels and facilities. 

Second, Condition No. 14 subverts the public policy on transfer of venue of proceedings since the same
will prejudice the rights and interests of innumerable passengers. Although venue may be changed by
agreement, such an agreement will not be held valid where it practically negates the action of the
claimants. Considering the expense and trouble a passenger residing outside of Cebu City would incur to
prosecute a claim in the said city, he would most probably decide not to file the action at all. On the other
hand, Sweet Lines has offices in the respective ports of call of its vessels and can afford to litigate in any
of these places. 

BELGIAN OVERSEAS CHARTERING AND SHIPPING vs PHILIPPINES FIRST INSURANCE CO.,

FACTS:
CMC Trading A.G. shipped on board the MN ‘Anangel Sky’ at Hamburg, Germany 242 coils of various
Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading
Corporation. On July 28, 1990, MN Anangel Sky arrived at the port of Manila and, within the subsequent
days, discharged the subject cargo. Four (4) coils were found to be in bad order. Finding the four (4) coils
in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel Trading
Corporation declared the same as total loss.
 
Despite receipt of a formal demand, Phil. First insurance refused to submit to the consignee’s claim.
Consequently, Belgian Overseas paid the consignee P506,086.50, and was subrogated to the latter’s
rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant instituted this
complaint for recovery of the amount paid by them, to the consignee as insured.
 
Impugning the propriety of the suit against them, Belgian imputed that the damage and/or loss was due to
pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and
accidents of the sea, or to insufficiency of packing thereof, or to the act or omission of the shipper of the
goods or their representatives. Belgian further argued that their liability, if there be any, should not exceed
the limitations of liability provided for in the bill of lading and other pertinent laws. Finally, Belgian averred
that, in any event, they exercised due diligence and foresight required by law to prevent any damage/loss
to said shipment. Hence, the Regional Trial Court dismissed the complaint.
 
The Court of Appeals reversed and ruled that Belgian were liable for the loss/damage of the goods
shipped because they had failed to overcome the presumption of negligence imposed on common
carriers. As to the extent of Belgian’s liability, the Court held that the package limitation under COGSA
was not applicable since the higher valuation of the cargo had been declared by the shipper.
 
ISSUE:
Whether or not a stipulation limiting the common carrier’s liability allowed by law.
 
RULING:
 
Yes, stipulation limiting liability is allowed by law.

A stipulation in the bill of lading limiting to a certain sum the common carrier’s liability for loss or
destruction of a cargo – unless the shipper or owner declares a greater value – is sanctioned by law.
There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the
circumstances, and (2) it has been fairly and freely agreed upon by the parties. The rationale for, this rule
is to bind the shippers by their agreement to the value of their goods.

It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed
amount per package. In all matters not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and special laws. Thus, the COGSA,
which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill
of lading. The provisions on limited liability are as much a part of the bill of lading as though physically in it
and as though placed there by agreement of the parties. In the case before us, there was no stipulation in
the Bill of Lading limiting the carrier's liability. Neither did the shipper declare a higher valuation of the
goods to be shipped. This fact notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be
the basis for petitioners' liability. Thus, petitioner cannot escape liability for the damage to the four coils.

EASTERN AND AUSTRALIAN STEAMSHIP CO., LTD. and F. E. ZUELLIG, INC. v. GREAT
AMERICAN INSURANCE CO.

FACTS: 
Jackson and Spring (Sydney) Pty. Ltd. shipped from Sydney 1 case of impellers for warman pump on
board SS "Chitral", a vessel owned and operated by Eastern & Australian Steamship Co., Ltd. through its
agent F.E. Zuellig, Inc. The shipment is to be delivered to Manila in favor of consignee Benguet
Consolidated, Inc. and was insured with Great American Insurance, Co. 

When SS "Chitral" arrived in Manila, the shipment or any part thereof was not discharged. Demand was
thus made on the petitioners for the delivery of the same. For having failed comply with the demand, a
claim was presented against it for the value of the shipment. Since the petitioners failed to make good the
claim also, Great American Insurance Co. was compelled to pay the consignee P 35,921,81. As
subrogee, the insurer filed a complaint against the petitioners for the recovery of the said amount. In their
answer, petitioners alleged that their liability is only limited to L100 Sterling or its peso equivalent of
P1,544.40 as per Clause 17 of the Bill of Lading. 

The trial court found that under Section 4 (5) of the Carriage of Goods by Sea Act, the carrier and the
shipper may, in the absence of a declaration in the Bill of Lading of the value of the goods shipped, fix a
maximum liability of the shipper for the cargo lost or damaged but such maximum shall not be less than
$500.00 per package. Consequently, the agreement for a maximum liability of only L100 Sterling
contained in Clause 17 of the Bill of Lading was declared void for being contrary to law.

ISSUE: 
Whether Clause 17 of the Bill of Lading is contrary to law and, therefore, void. (NO) 

RULING: 
There is no inconsistency between Section 4 (5) of the Carriage of Goods by Sea Act and Clause 17 of
the Bill of Lading. The first part of the provision of Section 4 (5) of the Carriage of Goods by Sea Act limits
the amount that may be recovered by the shipper in the absence of an agreement as to the nature and
value of goods shipped. Said provision does not prescribe the minimum. Hence, it could be any amount
which is below $500.00. In the case at bar, Clause 17 of the Bill of Lading provides that the carrier may
only be held liable for an amount not more than L100 Sterling which is below the limit required in the
Carriage of Goods by Sea Act. 

The second paragraph of Section 4 (5) of the Carriage of Goods by Sea Act prescribing an amount of not
less than $500.00, on the other hand, refers to a situation where there is an agreement other than that set
forth in the Bill of Lading. In the case at bar, it is apparent that there had been no such agreement
between the parties. It should be noted that both the Carriage of Goods by Sea Act and Clause 17 of the
Bill of Lading allow the payment beyond the respective limit imposed therein provided that the value of the
goods have been declared in the Bill of Lading. 
Significantly, Article 1749 of the New Civil Code expressly allow the limitation of the carrier's liability. It
provides: A stipulation that the common carrier's liability is limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is binding. 

Pursuant to such provision, where the shipper is silent as to the value of his goods, the carrier's liability
for loss or damage thereto is limited to the amount specified in the contract of carriage. Where the shipper
states the value of his goods, the carrier's liability for loss or damage thereto is limited to that amount.
Under a stipulation such as this, it is the duty of the shipper to disclose, rather than the carrier's, to
demand the true value of the goods. 

LIMITATIONS UNDER THE WARSAW CONVENTION

CARMELO LABBADIA V ALITALIA

FACTS:
The claimant was a passenger aboard Alitalia’s flight from London to Milan on 5 February 2015, which
landed in poor weather conditions; there was a mixture of snow and rain at the airport that morning and it
was still snowing as the aircraft landed. As the Claimant disembarked the aircraft on a set of mobile stairs,
he slipped on compacted snow suffering injuries to his right shoulder and pelvis for which he claimed
compensation. Crucially, there was no canopy to protect the steps from the weather. The airline defended
the claim, contesting liability on the basis that there was no ‘accident’ within the meaning of the Montreal
Convention 1999.

The term ‘accident’ set out in the article 17(1) of the Montreal Convention 1999 received a well-known
and now almost universally accepted interpretation by the US Supreme Court judgment in Air France v
Saks [1985] as “an unexpected or unusual event or happening that is external to the passenger”, also
holding that “Any injury is the product of a chain of causes, and we require only that the passenger be
able to prove that some link in the chain was an unusual or unexpected event”.

Against Alitalia, the Claimant argued that the use of uncovered steps in the presence of snow or ice was
unusual from the perspective of the passenger. Further, on the evidence of the airport’s head of
operations, the presence of compacted snow was unusual since the airport adopted special measures to
ensure that the steps were free of contamination. As such, there was an active decision to use uncovered
stairs, without ensuring that they were free from contamination.

ISSUE:
Whether or not there was an accident.

RULING:
The judge decided that there was an accident: the event was a series of acts and omissions by airport
personnel for deciding to use stairs without a canopy, with authority being given to the passengers to use
them without first clearing the stairs of ice and snow. The event was unusual and external to the Claimant
because use of stairs without a canopy did not comply with the airport’s safety manual and so was not
part of “normal operations of the aircraft’. Further, the passenger should reasonably expect that the stairs
would be free of ice and snow.

It is worth noting that the judge dismissed the carrier’s argument under the contributory negligence
provision at Article 20 of the Montreal Convention, that the injury was caused or contributed to by the
Claimant’s failure to immediately reach for the handrail; the judge found that the Claimant did nothing
other than descend the stairs on the instruction of the carrier and consequently he was not the author of
his own misfortune.

DOE v. ETIHAD AIRWAYS

FACTS:
Plaintiff Jane Doe and her eleven-year-old daughter flew aboard Etihad Airways from Abu Dhabi to
Chicago. During the flight, she reached into the seatback pocket to retrieve the fallen knob. But when she
stuck her hand into the pocket, she was unexpectedly pricked by a hypodermic needle that lay hidden
within. She gasped, and the needle drew blood from her finger.

Doe claims damages from Etihad for both her physical injury and her “mental distress, shock,
mortification, sickness and illness, outrage and embarrassment from natural sequela of possible exposure
to” various diseases. Her husband claims loss of consortium. The Montreal Convention of 1999, an
international treaty under which these claims arise, imposes strict liability (up to a monetary cap) upon
Etihad “for damage sustained in case of death or bodily injury of a passenger upon condition only that the
accident which caused the death or injury took place on board the aircraft.” Etihad concedes that an
accident onboard its aircraft caused Doe to suffer a bodily injury. But Etihad argues that “damage
sustained in case of bodily injury” means only “damage caused by bodily injury,” and thus does not
include Doe's fear of contagion and other emotional-distress and mental-anguish damages—damages
that Etihad claims were caused not by Doe's bodily injury (the small hole in her finger) but by the nature of
the instrumentality of that injury (the needle).

ISSUE:
Whether or not Etihad is liable under the Montreal Convention.

RULING:
Article 17(1) of the Montreal Convention provides that the carrier is liable for damage sustained in case of
death or bodily injury of a passenger upon condition only that the accident which caused the death or
injury took place on board the aircraft or in the course of any of the operations of embarking or
disembarking.

To prevail on a claim for damages under Article 17(1), a plaintiff must prove that (1) there was an
“accident,” defined as “an unexpected or unusual event or happening that is external to the passenger,”;
(2) the accident happened either “on board the aircraft” or during “the operations of embarking or
disembarking”; and (3) the accident caused “death or bodily injury of a passenger.” The carrier is then
liable for damage sustained, which we interpret to include emotional or mental damages, so long as they
are traceable to the accident, regardless of whether they are caused directly by the bodily injury.

Here, the accident was the needle pricking Doe's finger. The accident happened on board Etihad's
aircraft. And the accident caused bodily injury, as Etihad has conceded. Etihad is therefore liable for
Doe's damage sustained, which includes both her physical injury and the mental anguish that she is able
to prove that she sustained. Assuming that, on remand, Doe is able to prove fear of contagion or other
mental anguish, Etihad is liable for damages arising from that anguish regardless of whether the anguish
was directly caused by the physical hole in Doe's finger or by the fact that Doe was pricked by a needle. 

DAY V. TRANS WORLD AIRLINES, INC.

FACTS:
Passengers for *219 TWA Flight 881/5, bound for New York, were assembled in the transit lounge of
Hellenikon Airport in the vicinity of Gate 4 and were lining up for the hand baggage check and physical
search conducted by the local Greek police prior to boarding. At 3:10 P.M., after approximately seven
passengers had been screened and had passed through Gate 4 to buses which would transport
passengers for this flight to the TWA airplane that was parked on the traffic apron, two or more terrorists
commenced a violent attack on the passengers and others in the transit lounge. The terrorists threw three
grenades in rapid succession which exploded in the vicinity of the lines of passengers which had formed
for final processing for boarding the TWA flight. They followed this with several gunshots fired into the
crowd at random. The terrorists took up a position behind a bar in the transit lounge and held 32 people
as hostages. At approximately 5:20 P.M., after lengthy, tense and strident negotiations with the local
officials, the terrorists surrendered and were arrested.

Before the incident, TWA announced that Flight 881 was ready for departure. Plaintiffs were told by TWA
personnel to form a line at Gate 4 for the searches abovementioned. Plaintiffs along with the other
passengers were then to proceed through the lounge to a bus, owned and operated by Olympic Airways,
*220 which was to take them approximately 100 yards across the traffic apron to their plane.

Plaintiff Helen Rose had passed through the search area when the attack occurred. Aristedes and
Constantine Day, escorted by a TWA passenger relations agent were told to proceed with this agent to
the plane just before the incident took place. All other plaintiffs at Gate 4 were standing in line to be
searched. In the Court's view of the case, these minor differences are not outcome determinative. The
issue as to any plaintiff is not where his feet were planted when the killing began, but rather, in what
activity was he engaged.

ISSUE:
Whether or not the passengers sustained their injuries "in the course of any of the operations of
embarking or disembarking

RULING:
Under the Montreal Agreement, liability for injuries described by Article 17 of the Warsaw Convention
became absolute and the maximum damages were increased to $75,000. It is undisputed, moreover, that
a terrorist attack is considered an "accident" within the purview of these provisions.

TWA contended, both before Judge Brieant and on this appeal, that the application of Article 17 should be
determined by reference only to the area where the accident occurred. Liability under the Convention
should not attach, it urges, while the passenger is inside the terminal building. The very earliest time at
which liability can commence, the appellant argues, is when the passenger steps through the terminal
gate. Judge Brieant, however, believed that "the issue . . . is not where [the plaintiff's] feet were planted
when the killing began, but, rather, in what activity was he engaged."

It is clear that Article 17 does not define the period of time before passengers enter the interior of the
airplane when the "operations of embarking" commence. It is, nevertheless, appropriate to consider the
activities of the plaintiffs in this case as falling within the purview of this somewhat cryptic phrase. The
facts disclose that at the time of the terrorist attack, the plaintiffs had already surrendered their tickets,
passed through passport control, and entered the area reserved exclusively for those about to depart on
international flights. They were assembled at the departure gate, virtually ready to proceed to the aircraft.
The passengers were not free agents roaming at will through the terminal. They were required to stand in
line at the direction of TWA's agents for the purpose of undergoing a weapons search which was a
prerequisite to boarding. Whether one looks to the passengers' activity (which was a condition to
embarkation), to the restriction of their movements, to the imminence of boarding, or even to their position
adjacent to the terminal gate, we are driven  to the conclusion that the plaintiffs were "in the course of
embarking.

Moreover, a relatively broad construction of Article 17, affording protection to the plaintiffs under the
Warsaw liability umbrella, is in harmony with modern theories of accident cost allocation. The airlines are
in a position to distribute among all passengers what would otherwise be a crushing burden upon those
few unfortunate enough to become "accident" victims. Finally, the administrative costs of the absolute
liability system embodied in the Warsaw Convention, as modified by the Montreal Agreement, are
dramatically lower than available alternatives. If Article 17 were not applicable, the passengers could
recover — if at all — only by maintaining a costly suit in a foreign land against the operator of the airport.
The expense and inconvenience of such litigation would be compounded by the need to prove fault and
the requirements of extensive pretrial investigation, travel, and other factors too difficult to anticipate.
Such litigation, moreover, would often unduly postpone payments urgently needed by the seriously
injured victim or his surviving dependents.