Outlined Memory Aid Based on the 2023 Bar Syllabus
By: Sherwin Mabanto
III. Insurance Law
*A contract of insurance is an agreement
whereby one undertakes, for a consideration, to
indemnify another against loss, damage, or
liability arising from an unknown or contingent
event
*Unknown Event - an event that is certain to
happen but the time of its happening is not
known.
*Contingent Event - An event which is not
certain to take place.
*Principal Purpose Test - In order to determine
whether a contract is that of an insurance contract
is, the Assumption of Risk, and
Indemnification of loss must be the principal
object and purpose of the organization. A contract
of insurance is a contract of indemnity.
Parties to an Insurance Contract:
1. Insurer - the one who assumes the risk of loss,
and undertakes for a consideration to indemnify
the insured upon the happening of a designated
peril
● It could be a corporation, partnership,
or association duly authorized to transact
insurance business by the Insurance
Commission
● A Natural person is not allowed to be an
insurer.
2. Insured - Person whose loss is the occasion
for the payment of the insurance proceeds
● Anyone, except a public enemy may be
insured
● A public enemy is a nation, including its
citizens or subjects with whom the
Philippines is at war
3. Beneficiary - He/she is the third person
designated by the insured to receive the
proceeds of the insurance policy. In case of
failure to designate a beneficiary, the proceeds
should accrue to the estate of the insured.
Perils that may be insured against:
Any contingent or unknown event, whether past
or future, which may damnify a person having
insurable interest, OR create a liability against
him, may be insured.
A. Basic Concepts
1. Elements of an Insurance Contract
● The insured must have insurable interest
capable of pecuniary estimation
● The insured is subject to a risk of loss by
the happening of a designated peril
● The insurer assumes the risk of loss
● Such assumption of risk is part of a
general scheme to distribute actual
losses among a large group of persons
bearing similar risks.
● In consideration of the insurer’s promise,
the insured pays a premium.
2. Characteristics/Nature of Insurance
Contracts
1. It is a risk distributing device such that the risk
of economic loss is distributed among a large
group bearing the same or similar risk.
2. It is Uberrimae Fides, or one perfect good faith
3. It is a contract of indemnity - with respect to
property insurance, the insured is entitled to
recover the amount of loss actually suffered.
However, with respect to life insurance, it is not
for the purpose of indemnification because one
cannot put a price tag on the value of human life.
4. It is a contract of adhesion - it is a ready made
contract, the insured generally adheres to the
terms and conditions thereof.
● Being a contract of adhesion, ambiguities
relative thereto shall be resolved liberally
in favor of the insured and strictly against
the insurer.
5. It is personal in nature. Thus, the insurer is only
liable to pay the person for whose benefit the
insurance policy was obtained. Dili ka demand og
payment ang 3rd person, or someone who was
not a party to the insurance contract from the
insurer.
3. Classes of Insurance
a) Marine
Marine insurance is an insurance against loss or
damage to any kind of property or loss of life or
injury to person in connection with any and all
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 Outlined Memory Aid Based on the 2023 Bar Syllabus
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risks or peril of navigation, transit or
transportation (water or inland)
Insurable Interest in Marine Insurance
1. The Shipowner has an insurable interest in the
ship even when it has been chartered by one who
undertakes to pay him provided that the insurer
shall only be liable for the loss which the
shipowner cannot recover from the charterer.
2. Shipowner has Insurable interest in freightage,
expected freightage, and goods loaded to the
ship subject to a contract of carriage.
NB: Only perils of the sea may be insured against
EXCEPT if the parties agreed on an all risk
policy(including Perils of the Ship).
Perils of the Sea - pertains to casualties arising
from the unusual violence or extraordinary
causes connected with navigation
Perils of the Ship - Losses due to ordinary wear
and tear of the ship, or negligent failure of the
shipowner to provide the vessel with adequate
crew and proper equipment. Example:
- Sinking of the vessel due to improper
loading of cargo.
- The captain was inexperience or with
expired license
- Defects in the ship due to
unseaworthiness
- Strong winds and waves are not
automatically considered perils of the sea
if they could have reasonably been
anticipated (Transimex vs Mafre
Insurance Corp)
NB: Burden of Proof to recover is upon the
insured to show that a loss arose from a covered
peril. Thereafter, burden shifts to the insurer to
show the exception to the coverage (Filipino
Merchants Insurance vs Court of Appeals G.R
85141)
Prescriptive Period: 10 years. Thus, The
insured in a marine insurance, may file a suit
against the insurer within a period of 10 years
from the accrual of the insured’s cause of action,
UNLESS the policy reduces the period to not less
than one year from the accrual of the cause of
action.
Implied Warranties in Marine Insurance
1. The ship is seaworthy
- A ship is seaworthy when it is reasonably
fit to perform the service and to
encounter the ordinary perils of the
voyage.
2. The ship shall not deviate from the voyage
insured
- Deviation is a departure from the course
of the voyage OR the commencement of
an entirely different voyage.
- If the deviation was IMPROPER, then the
insurer is not liable for any loss
subsequent to the deviation
- If the deviation was PROPER, insurer is
liable for any loss to the thing insured
Cases of Proper Deviation
1. When caused by circumstances which
neither the master or ship owner has
control.
2. Deviation was necessary to comply with
a warranty, OR to avoid a peril regardless
if the peril was insured against.
3. When made in good faith, upon
reasonable belief in the necessity to
avoid peril
4. When Made in good faith for the purpose
of saving human life, or relieving another
vessel in distress.
3. The ship shall carry the necessary
documents to show nationality or neutrality.
4. The ship will not carry contraband
NB: Breach of any of the enumerated implied
warranties is a ground for the insurer to deny the
claim of the insured.
Case: Isabela Roque vs IAC G.R L-66935
Principle: Since the law provides for an implied
warranty of seaworthiness, it becomes the
obligation of the cargo owner to look for a reliable
common carrier which keeps its vessels in
seaworthy condition. The shipper of cargo may
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 Outlined Memory Aid Based on the 2023 Bar Syllabus
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have no control over the vessel, but he/she has
full control in the choice of common carrier that
will transport his/her goods. The fact that the
unseaworthiness of the ship was unknown to the
insured is immaterial in ordinary marine
insurance.
NB: It is the shipper(owner of the goods) and not
the ship owner who will make the implied
warranty simply because he/she was the one who
procured the contract of insurance. It would be
best for the cargo owner to enter into a Contract
of Insurance which covers all risks relative to
navigation or both perils of the sea and perils of
the ship.
Kinds of loss in Marine Insurance
1. Total Loss
1.1 Actual
a. Total Destruction of the thing insured
b. The thing insured is irretrievable by
sinking
c. Any damage to the thing which renders it
valueless to the owner for the purpose for
which it was held
1.2 Constructive Total Loss
a. If more than ¾ of the thing insured is
actually lost
b. If the thing insured is injured to an
extent so as to reduce its value by more
than 3/4
2. Partial Loss
- Loss is partial if it does not satisfy any of
the conditions of Actual Total Loss or
Constructive Total Loss
- In case of Partial Loss, the insured may
only recover his ACTUAL LOSS, and not
the entire value of the thing insured.
Abandonment - In marine insurance,
abandonment is the act of the insured by which,
AFTER A CONSTRUCTIVE TOTAL LOSS, he
declares the relinquishment to the insurer of his
interest in the thing insured.
Effect of Abandonment - Abandonment made
after a constructive total loss entitles the insured
to recover for a total loss
Requisites of a Valid Abandonment
1. The loss must neither be partial or
conditional
2. Notice of abandonment must be given by
the insured to the insurer within a
reasonable time after receipt of reliable
information of the loss
3. It may be done orally or in writing
4. The notice must be explicit, and must
specify the cause of the abandonment
5. It must be accepted by the insurer
6. Abandonment, once accepted, is
irrevocable except if the ground upon
which it was made is proven to be
unfounded.
NB: Notice of Abandonment is an indispensable
requisite in order for the insured to recover total
loss AFTER a constructive total loss.
b) Fire
Fire Insurance is an insurance against loss
arising from fire, lightning, windstorm, tornados,
earthquakes and other allied risks when such
risks are covered by extension to fire insurance
*The allied risk (kanang dili fire) may only be
recovered by the insured if it is specified in the
policy.
Three Kinds of Fire Policy:
1. Open Policy - the value of the thing insured is
not agreed upon, and the amount of the
insurance merely represents the insurer’s
MAXIMUM LIABILITY. The value of such thing
insured shall be ascertained at the time of loss.
● E.g Jose constructed a house worth 5
million, after several years the value
increased to 15 million. Thereafter, ⅕ of
the house was razed by fire, how much
can jose recover? If the policy is open,
Jose can recover the amount of 3M
because the appraisal of loss is made
after the loss/fire
2. Valued Policy - expresses on its face an
agreement that the thing insured shall be valued
at a specific sum.
● In the above example, if the policy is
valued, Jose can only recover 1 Million
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 Outlined Memory Aid Based on the 2023 Bar Syllabus
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since it was the value of the property at
the time of the execution of the insurance
contract.
● If the policy is valued, the liability of the
insurer is the value as stated in the
policy. The fact that the value of the
property has increased through the
passing of time is inconsequential. Basis
for the liability is still the value as stated
in the policy.
3. Running Policy - successive insurances, and
which provides that the object of the policy may
be from time to time defined.
Alteration in the use or condition of the thing
insured
Example: Loloy insured his warehouse, the
insurance contract provides that loloy shall not
store any flammables like gasoline, paint,
varnish, inside the warehouse. After the issuance
of the insurance contract, loloy stored gasoline
and the warehouse, the warehouse was razed by
fire.
Effect: The alteration in the use of the property or
condition of the thing insured WITHOUT the
consent of the insurer, and the alteration resulted
in the increase in the risk, the insurer is entitled to
rescind the contract of fire insurance.
Elements of alteration
The ff. Must be proved in order to entitle the
insurer to rescind the contract of insurance on the
ground of alteration in the use:
1. The use or condition of the thing insured
must be stated in the policy
2. The use or condition of the thing insured
was altered.
3. The alteration was made without the
consent of the insurer
4. The alteration in the use increased the
risk insured against.
NB: Increase in risk alone will not entitle the
insurer to rescind the contract of insurance. It is
important to prove that there was a corresponding
violation of the provision of the policy, otherwise,
there is no right to rescind the policy. (There must
be a restrictive clause na dapat di gyud mag store
og flammables, if the contract merely described
nga ang warehouse walay flammables, but there
was no corresponding restriction na di gyud
pwede butangan, there is no alteration in the use
if mag butang og flammables.)
Measure of Indemnity - If there is no valuation
in the policy, the measure of indemnity in an
insurance against fire is the expense it would cost
the insured at the time of the commencement of
the fire to replace the thing lost. If there is
valuation in the policy, the measure of indemnity
is the value of the property indicated in the policy.
c) Casualty
Casualty Insurance is an insurance covering the
loss or liability arising from accident, mishap, it
also includes but not limited to burglary and theft,
personal accident, health insurance and etc.
Example: Death in a boxing match - in this case,
death in a boxing match is considered an
accident for the purpose of claiming indemnity
because the insured, by entering into a boxing
match, despite the danger of injury, does not
expect to die by entering such a contest.
d) Suretyship
Is an agreement whereby a party called the
surety guarantees the performance by another
party called the principal of an obligation
* The liability of the surety with respect to the
principal obligor is joint and several or solidary
(Direct, Primary and Absolute). Hence, the
creditor may proceed against the surety alone, or
together with the principal
* The extent of a surety's liability is determined
only by the clause of the contract of suretyship. It
cannot be extended by implication, beyond the
terms of the contract.
e) Life - reinstatement of a lapsed policy and
refund of premium page 57-58
Life insurance is an insurance on human lives
and insurance appertaining thereto or connected
therewith
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Types of Life Insurance:
1. Term Insurance - It is the simplest form of life
insurance. It pays only if the death occurs during
the term of the policy.
2. Whole Life or Permanent Insurance - It pays
a death benefit whenever the insured dies.
3. Annuity - A contract with the insurer where
individuals agree to pay the company a certain
amount of money which entitles them to receive
payment annually from the insurer, but the
obligation of the insurer to pay ends upon the
death of the annuitant.
4. Endowment - Is a life insurance that doubles
as an investment or a savings account. It pays a
lump sum to the insured after a specified number
of years, but if the insured dies before the agreed
period, the beneficiary gets the proceeds of the
policy.
5. Industrial Life - The form of life insurance
under which, the premiums payable weekly or
monthly. The face amount of the insurance does
not exceed 500 times the current statutory daily
wage in Metro Manila.
Payment of the proceeds of life insurance
policy
1. If the beneficiary is unlawfully designated,
the proceeds shall be payable to the estate of the
insured. The policy will still be valid, but the
designation is void
2. In case of joint designation, the share of the
unlawfully designated beneficiary shall be added
to the share of the one lawfully designated.
(Murag accretion)
3. If joint designation of lawfully designated
beneficiaries, proceeds shall be divided based on
the terms of the policy
4. If the beneficiary is lawfully designated, and the
insured dies ahead of the former, the proceeds
are payable to the beneficiary EXCEPT if the
former is the principal, accomplice, or accessory
in the death of the insured.
5. If beneficiary predeceases the insured,
Make a distinction between irrevocable and
revocable beneficiary. If irrevocable, proceeds
shall inure to the benefit of the legal
representative of the beneficiary. If revocable,
proceeds shall inure to the estate of the insured.
If the policy is silent as to the designation,
proceeds will inure to the estate of insured.
f) Microinsurance
Microinsurance is a financial product or service
that meets the risk protection needs of the poor
where (1) The amount of contributions,
premiums, fees or charges computed on a daily
basis does not exceed 7.5% of the current daily
minimum wage of non-agricultural workers in
metro manila AND (2) The maximum sum of
guaranteed benefits is not more than 1000 times
the current daily minimum wage rate for non-
agricultural workers in metro manila
g) Compulsory Motor Vehicle Liability
Insurance
Basis of this is Article 387 of the insurance code
which provides that ‘it shall be unlawful for any
land transportation operator or owner of a motor
vehicle to operate the same in public highways
UNLESS there is in force in relation thereto a
policy of insurance or guaranty to indemnify the
death, bodily injury, and/or damage to property of
a third-party or passenger, as the case may be
arising from the use thereof.
*Extent of Liability- measured in the terms of the
policy. Insurer is not solidarily liable with the
tortfeasor. Although the insurer in this case is not
solidarily liable with the insured, the third person
may directly sue the insurer. However, the liability
of the insurer is limited to the terms of the
insurance policy. Therefore, the insurer can be
sued and held directly liable by the injured party
to the extent of coverage but not solidarily liable
with the owner of the vehicle.
*Right of Third Party to sue Insurer - accrues
immediately upon the occurrence of injury or
event upon which the liability depends.
NB: The third party need not wait for the decision
of the court determining the liability of the Insured.
The right of the third party to go after the insurer
arises immediately after the occurrence of the
injury.
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h) Compulsory Insurance Coverage for
Agency-Hired Workers
Is an insurance mechanism made available by
law to provide insurance coverage for OFW’s. It
covers accidental death benefit, natural death
benefit, permanent total disability, repatriation
cost benefit, subsistence allowance, money claim
benefit, compassionate visit benefit, medical
evacuation, and medical repatriation.
NB: This insurance policy is MANDATORY for
OFW.
4. Insurable Interest
Insurable Interest is the interest which a person is
deemed to have in the subject matter of the
insurance such that, the person will derive a
pecuniary benefit or advantage from the
preservation of the subject matter, or will suffer
pecuniary loss or damage in its destruction.
*If the person procuring the insurance contract
has no insurable interest on the subject matter of
the insurance, the insurance is void.
Insurable Interest for LIFE INSURANCE
Interest in the life or health of a person insured
must exist at the time when the insurance
takes effect, but need not exist thereafter or
when the loss occurs.
Every person has an insurable interest in the life
and health of:
1. Himself, his spouse, and his children
* A person can take insurance on his own life and
designate anyone as beneficiary EXCEPT those
disqualified to receive donation under Art 739 of
the Civil Code (Persons in illicit relations without
need for conviction, Persons found guilty of
adultery or concubinage, public officer).
* The beneficiary need not have insurable interest
over the life of the insured.
* Under Section 53 of the Insurance Code, the
proceeds of the policy shall be applied exclusively
to the interest of the person in whose name or for
whose benefit it is made unless otherwise
specified in the policy.
E.g. A took a life insurance policy on
himself, and designated his illegitimate
child as beneficiary. Upon his death, his
legitimate children cannot question the
validity of the designation. The
Illegitimate child designated as
beneficiary is the one entitled to the
insurance proceeds to the exclusion of all
others.
* A person does not generally have an insurable
interest in the life of his parents and other
ascendants EXCEPT if he depends on them for
support and/or education. The rationale is that
parents are expected to predecease their
children.
* A person can also take an insurance on the life
of another person and designate himself as
beneficiary provided that he has
pecuniary/insurable interest over the life of the
person he is insuring.
2. Any person on whom he depends wholly or
in part for education or support, or in whom
he was pecuniary interest.
*Mere friendship alone is not the insurable
interest contemplated in life insurance. It is
important to establish that the person procuring
the insurance policy has a pecuniary interest in
the life of the insured.
3. Any person under a legal obligation to him
for the payment of money of which death or
illness might delay or prevent the
performance.
*Creditor may insure the life of his debtor to the
extent of the value of the debt.
*Mortgagee may insure the life of the mortgagor
up to the extent of the mortgage debt.
4. Any person upon whose life any estate or
interest vested in him depends
CHANGE of BENEFICIARY in the POLICY
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*Generally, the insured shall have the right to
change the beneficiary he designated in the
policy, unless he expressly waived this right in
the said policy.
*The change must be done during the lifetime of
the insured, otherwise the designation shall be
deemed irrevocable
Effect of Irrevocable Designation
The beneficiary has acquired a VESTED RIGHT
on the life insurance policy including its incident
such as the policy loan, cash surrender value.
Any act on the part of the insured which may
impair such vested right is null and void.
Effect of Revocable Designation
The insured may exchange the beneficiary during
his lifetime, add a beneficiary or exclude a
beneficiary
Insurable Interest in Property Insurance
Every interest in property, or any relation thereto,
or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the
insured is an insurable interest.
1. An existing Interest
* Both mortgagor and mortgagee may
insure the mortgaged property against
fire. Mortgagor may insure up to the
extent of its value, and the mortgagee up
to the extent of the debt.
* Car nga hinulman. Both the owner can
and the borrower can insure. Insurable
interest of the owner is his ownership of
the car, and ang sa borrower is that it
might be a source of liability incase of
loss.
2. An inchoate interest founded on an
existing interest
*Property under a contract to sell
3. An expectancy coupled with an
existing interest
*Growing crops
*Expected freightage of a common
carrier
NB: A mere contingent or expectant interest in
anything, not founded on an actual right to the
thing, nor upon any valid contract is NOT
INSURABLE.
*Children do not have an insurable interest in the
property of his/her parents because such interest
is a mere expectancy, not founded on actual right.
Interest in property insured must exist when the
insurance takes effect, AND when the loss
occurs, but need not exist in the meantime.
● Q - Loloy, owner of a condo, insured the
same against fire, made the loss payable
to Otik his brother. In case of loss by fire,
who may recover?
● A - Loloy because he has the insurable
interest as owner of the insured property.
Otik cannot recover because despite him
being designated as beneficiary, he does
not have an insurable interest in the
condominium unit.
Difference between the Insurable Interest in
Property Insurance and Life Insurance
1. In property insurance, the actual value of the
interest therein is the limit of the coverage, While
in Life Insurance, there is no limit as to the
amount except if it is the creditor who insured the
life of his debtor.
2. For property insurance, the insurable interest
must exist at the time of taking of the policy and
at the time of loss. While for Life insurance, the
insurable interest must exist only at the time of
taking.
3. In property insurance, the designated
beneficiary must have insurable interest at the
time of taking of the policy and at the time the loss
occurs. While for Life Insurance, the designated
beneficiary need not have insurable interest over
the life of the insured.
Effect of Change of Interest in the thing
Insured
A change of interest in any part of the thing
insured unaccompanied by a corresponding
change in the interest of the insurance policy,
suspends the insurance to an equivalent extent,
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until the interest in the thing and the interest in the
insurance are vested in the same person
*The change of interest contemplated by the law
is absolute transfer (kanang naa gyuy change of
ownership) of the insured’s interest therein. If dili
gani absolute change of interest like - gi lease
out, or gi mortgage, the owner still has insurable
interest therein.
5. Double Insurance and Over Insurance
Double Insurance - exists where the same
property is insured by several insurers separately
in respect to the same subject matter.
*Double insurance only applies to property
insurance, it is not applicable to life insurance.
*Double insurance presupposes that the
insurance policy covered the same subject
matter, was issued to the same person with the
same insurable interest. There is NO double
insurance if the policy covering the same subject
matter is issued to different persons with different
insurable interests.
*Double Insurance is valid, what is prohibited is
for the insured to recover more than his interest
or value of the property as this will violate the
indemnity principle of an insurance contract.
Over Insurance - Insured insures the same
property for an amount greater than the value of
the property.
Liability of several insurers in double
insurance
In case of double insurance, the insurers are
considered co-insurers. Each one is bound to
contribute RATABLY to the loss in proportion to
the amount for which he is liable.
*The insured can choose who among the several
insurers he will claim against provided that claim
will not exceed the face value.
6. No Fault, Suicide, and Incontestability
Clause
No Fault Indemnity Clause
Any claim for death or injury to any passenger or
third-party pursuant to the provisions of this
chapter shall be paid without the necessity of
proving fault or negligence of any kind: Provided,
1. The total indemnity in respect of any
person shall not be less than Fifteen
thousand pesos
2. The following proofs of loss, when
submitted under oath, shall be sufficient
evidence to substantiate the claim:"
2.1 Police report of accident; and
"(2.2) Death certificate and evidence
sufficient to establish the proper payee;
or
"(2.3) Medical report and evidence of
medical or hospital disbursement in
respect of which refund is claimed;
NB: Proof of fault or negligence is not necessary
in the claim for indemnity under the No Fault
Indemnity Clause.
Rules for claims under the No Fault Clause:
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.
Case: 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
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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. (PERLA COMPANIA de
SEGUROS, INC v. HON. CONSTANTE A.
ANCHETA G.R L-49699)
Authorized Driver’s Clause
Authorized Drivers may be either (1) The insured
himself OR (2) A person permitted to drive the
vehicle by the insured.
Requisites:
1. Driver must be permitted to drive the
vehicle by the insured
2. The driver is permitted under the law and
regulations to drive the motor vehicle,
and is not disqualified from doing so
under any enactment or regulation. (Take
into account validity of the driver’s
license, Restriction codes of a license,
Driving with a Temporary Operator’s
Permit ‘kung nadakpan sa LTO’)
NB: The requirement that the driver be permitted
in accordance with the licensing or other laws or
regulations to drive the vehicle and is not
disqualified from driving such motor vehicle
APPLIES ONLY when the driver is driving on the
insured’s order, or with his permission. The
requirement is not applicable when the person
driving is the insured himself (Andrew Palermo vs
Pyramid Insurance Co G.R L-36480)
Rules:
1. IF the person driving is the insured himself:
- The requirement under the Authorized
Driver’s Clause does not apply
- Thus, even if the insured’s driver’s
license is expired, or he is disqualified
from driving such motor vehicle by order
of the court or by reason of an enactment
of a regulation, as long as it is the insured
himself who is driving the vehicle, the
insurer is still liable to pay. (Andrew
Palermo vs Pyramid Insurance Co G.R L-
36480)
2. If the person driving is a 3rd party:
- 1st and 2nd Requisite above applies.
- Thus, In order for the insured to claim
indemnity, the Third-Party driver must be
authorized by him, and must be permitted
under the law and regulation to drive a
motor vehicle.
- In determining the qualification of
requisite number 2, consider the ff.
Factors (1) Validity of the Driver’s
License, (2) If License was confiscated
by the LTO, take note of the validity of
the Temporary Operator’s Permit or TOP
(3) Restriction code of the driver’s license
especially with regards to weight limit of
the vehicle you can drive, eligible baka
mo drive og commercial vehicle or
private ra and other factors relative
thereto.
3. If the person driving is a foreigner
- An alien is only allowed to drive in the
Philippines using his Foreign Driver’s
License for a period of 90 days from his
date of arrival.
- Beyond the 90 day period, he could no
longer drive in the Philippines without a
Philippine Driver’s License.
Theft Clause
Cover’s situations like:
1. When one takes the motor vehicle of
another without the latter’s consent, even
if the motor vehicle was later returned.
2. There is taking of a vehicle by another
person without the permission or
authority from the owner thereof.
Case: Villacorta vs Insurance Commissioner
G.R. No. 54171
Facts: Villacorta insured her vehicle with Empire
Insurance against Own Damage, Theft, and TPL.
She brought the car to the repair shop, and one
of the employees of the said repair shop took the
vehicle out for a joyride after which it figured in a
vehicular accident. The insurance company
denied the claim of Villacorta on the ground that
it did not fall within the provision of the Theft
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clause, invoking the policy provision on
Authorized Driver’s Clause.
Held: The Insurance Company is not liable under
the Authorized Driver’s Clause, BUT under the
Theft Clause.
Theft is committed When one takes the motor
vehicle of another without the latter’s consent,
even if the motor vehicle was later returned OR
There is taking of a vehicle by another person
without the permission or authority from the
owner thereof.
NB: An insurance contract is a contract of
adhesion. So when the terms of the insurance
contains limitations on liability, courts should
construe them in such a way as to preclude the
insurer from non-compliance with his obligation.
Incontestability Clause
In LIFE INSURANCE policy is based on Section
48 of the Insurance Code which provides ‘That
after a policy of life insurance made payable on
the death of the insured shall have been in force
during the lifetime of the insured for a period of
two years from the date of its issue, or of its last
reinstatement, the insurer cannot prove that the
policy is void ab initio or rescindible by reason of
fraudulent concealment or misrepresentation of
the insured or his agent’
Requisites:
1. The insurance is a LIFE INSURANCE, payable
on the death of the insured. (di ni mo apply og life
annuity kay paid mana during the lifetime of
insured)
2. Policy is in force for at least 2 years from its
date of issue as appearing in the policy or last
reinstatement
NB: The two year period is reckoned from the
date of issuance of the policy or last
reinstatement.
*If a policy of life insurance, payable on the death
of the insured have already been in force for a
period of at least 2 years from the issuance of the
policy or last reinstatement, the insurer MUST
MAKE GOOD on the policy even if it was
obtained through fraud, concealment, or
misrepresentation
* The incontestability clause precludes the insurer
from raising the defense of false representation
or concealment of material facts if the insurance
policy has been in force for at least 2 years during
the insured’s lifetime.
In the case of Manila Bankers Life Insurance
Corporation VS Aban the SC held if the insured
dies after the lapse of the 2 year period, OR when
the insured dies during the period, the insurer
must make good on the policy, even though the
policy was obtained by fraud, concealment, or
misrepresentation. This is the controlling
doctrine now
Suicide Clause - If the insured committed suicide
after the insurance policy has been in force for a
period 2 years from the date of issue or last
reinstatement, the insurer must make good on or
pay the policy.
Exception to the 2 year period: If the insured
committed suicide in the state of insanity,
insurer is liable regardless of the period. a
suicide committed in the state of insanity shall be
compensable regardless of the date of
commission. The rationale being that an insane
person cannot possibly contemplate such an
elaborate scheme of acquiring insurance with
suicide as the ultimate objective.
B. Perfection of the Insurance Contract
Pursuant to the cognition theory, an insurance
contract is perfected the moment the applicant-
insured has knowledge of the acceptance and
approval by the insurer of his application
Cash and Carry Rule - No insurance contract
issued by an insurance company is valid and
binding unless the premium thereof has been
paid. This is based on Section 77 of the Insurance
Code that an insurer is entitled to payment of the
premium as soon as the thing insured is exposed
to the peril insured against.
Exceptions to the Cash and Carry Rule:
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1. Whenever the grace period applies in the case
of a life or industrial life policy
2. Whenever under the broker and agency
agreements with duly licensed intermediaries, a
90 day credit extension is given. No credit
extension to a licensed intermediary should
exceed 90 days
3. Whenever there is an agreement allowing the
insured to pay the premium on installment, and
partial payment has been made at the time of
loss.
● Basic principle of equity and fairness
would not allow the insurer to continue
collecting and accepting the premiums,
and later on deny liability on the lame
excuse that the premiums were not paid
in full
● E.g if the premium is payable on four
installments, insured may recover the full
amount if the loss occurred after the
payment of the first installment
WITHOUT prejudice to the insured’s
obligation to pay the remaining amount of
the premium.
4. Acknowledgement in an insurance policy is
conclusive evidence of its payment, so far as to
make the policy binding.
● Acknowledgement of premium payment
when NONE was actually received is
also a form of estoppel
5. In case of estoppel, when the insurer has a
long standing practice of allowing the insured to
pay the premiums after the issuance of the policy,
and such was relied upon in good faith by the
insured.
6. When the insurer grants a credit extension
● Insurer accepts a check as payment for
the premium. Under the law, receipt of a
check is not tantamount to payment for
as long as it remains uncashed. But in
the case of Capital Insurance &Surety
vs Plastic Era, the SC held that even if
the check was uncashed, the insurer is
still liable to pay because the acceptance
of the check is tantamount to extension
of credit.
● Acceptance by the insurer of a
promissory note is tantamount to
extension of credit. Hence, the insurance
contract is valid and binding from the day
it was delivered.
NB: If the check was dishonored before or after
the loss, the insurer is not liable because the
dishonor of the check is tantamount to non-
payment of premium which prevented the
effectivity of the Insurance Contract. HOWEVER,
if the insurer granted a credit extension, and the
loss occurred during the period of extension or
before the expiration of such term, the insurer is
liable.
*Non-payment of premiums does not merely
suspend the policy, but rather it puts an end to an
insurance contract.
*An insurance company which delivers to an
insurance agent a policy or contract of insurance
shall be deemed to have authorized such agent
or broker to receive on its behalf payment of any
premium which is due on such policy. So, if the
payment was given by the insured to the agent,
the insurance policy is already valid and binding
between the Insurer and the insured.
Cover Note - cover notes are issued to bind
insurance temporarily. Within 60 days after issue
of a cover note, a policy shall be issued in lieu
thereof.
*The issuance of a cover note is tantamount to an
extension of credit. The insured may claim
payment under a cover note despite non-
payment of premium on a cover note. Settled is
the doctrine that where a policy is delivered
without requiring payment of the premium, the
presumption is that a credit was intended, and
policy is valid.
Cancellation of Insurance Contract
An insurance contract may be canceled by the
insurer provided that the insurer (1) gives prior
notice to the insured, and (2) it is based on the
occurrence of the ff: after the effective date of the
policy.
1. Non payment of premium
2. Conviction of a crime arising out of acts
increasing the hazard insured against
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3. Discovery of fraud or material
misrepresentation
4. Discovery of willful or reckless acts
increasing the hazard insured against
5. Physical changes in the property which
would render it uninsurable
6. Discovery of other insurance coverage
that makes the total insurance EXCESS
the value of the property
7. Determination by the Commissioner that
the continuation of the policy would
violate the insurance code.
C. Rights and Obligations of Parties
1. Insurer
2. Insured
3. Beneficiary
D. Rescission of Insurance Contracts
1. Concealment
Concealment is the neglect to communicate that
which a party knows and ought to communicate.
Regardless of whether intentional or
unintentional, the injured party may rescind the
contract of insurance.
* The gravamen of concealment is that it misleads
or deceives the insurer into accepting the risk, or
accepting it at the rate of premium agreed upon,
by relying upon the belief that the assured will
disclose every material fact within his actual or
presumed knowledge.
*Principal test is whether the insurer was misled
or deceived into entering a insurance contract or
in fixing the premium of insurance by withholding
material information or facts within the insured’s
knowledge?
* An insurer may be estopped from rescinding the
contract of insurance if, having known of the
concealed or misrepresented fact, still accepts
the payment of premium.
*The concealment as a ground for rescission,
must be done prior to the effectivity of the policy.
An insured, who gains knowledge of a material
fact already after the effectivity of the insurance
policy is not obliged to divulge the same.
Materiality Test - Whether the matters
concealed would have definitely affected the
insurer’s action on the application of the insured,
either approving it with the corresponding
adjustment for a higher premium or rejecting the
same
NB: The facts concealed need not be the
proximate cause of the loss in order to
constitute concealment. Ang importante ragyud is
if nidawat si insurer sa imong application tungod
kay naa kay wa gi sulti. had he known the
concealed facts ahead, the decision of the insurer
would have been affected or mausab.
2. Misrepresentation or Omissions
Representation is a statement of fact or condition
relation to the risk which induced the insurer to
enter into a contract.
*Theory of Imputed Knowledge - if the insured
furnished the agent of the insurer the needed
information, knowledge of the agent can be
attributed to the insurer. Hence, the insurer
cannot rescind of the ground of
misrepresentation.
Period to Rescind the Policy on the ground
of Concealment or Misrepresentation
The right to rescind the insurance contract must
be exercised by the insurer prior to the
commencement of an action on the contract.
Misrepresentation vs Concealment
1. In Concealment, the insured withholds
information of material facts from the insurer.
While Misrepresentation, the insured makes
erroneous statements with the intent of inducing
the insurer to enter into the insurance contract.
2. Concealment is a negative act - willful neglect
to communicate information. While
Misrepresentation is a positive act - insured
volunteers such fact
3. Concealment usually occurs prior to the
making of the insurance contract. While
Misrepresentation may be made at the time of, or
prior to the issuance of the insurance contract.
4. Proof of fraudulent intent is not necessary in
case of concealment, while proof of fraudulent
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intent is necessary in case of rescission due to
misrepresentation.

3. Breach of Warranties
A warranty is a statement or promise made by the
insured set forth in the policy itself or incorporated
in it by proper reference. The non-fulfillment of
which in any respect renders the policy voidable
by the insurer.

Kinds of Warranty
1. Express Warranty - a warranty that is made
at or before the execution of a policy. It must be
contained in the policy itself or in another
instrument signed by the insured and referred to
in the policy as making part of it

2. Implied Warranty - a warranty that is deemed

incorporated in the contract although not
expressly mentioned therein. (e.g Implied
warranty of seaworthiness in a contract of marine
insurance.

NB: A Statement in a policy, which imparts that it

is intended to do or not to do a thing which
materially affects the risk, is a warranty that such
act or omission shall take place

Example: Insured makes a warranty not to store

flammables in a warehouse covered by a fire
insurance. Incase the insured stored flammables
in the said warehouse, which was subsequently
razed by fire, Insurer may deny the claim on the
ground of breach of warranty.

Effect of Breach of Warranty

Breach of either the insurer or the insured of a
material warranty in a contract of insurance
entitles either of them to rescind the contract.

A breach of immaterial provision in a contract of

insurance does not automatically avoid the policy
EXCEPT if it is stated in the policy that a violation
of the specified provisions thereof shall avoid it
(Section 75 Insurance Code)

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IV. Transportation Law
A. Common Carriers
A common carrier is a person, corporation, 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.
Test: Does the person hold out to the public that
it is engaged in the business of transporting or
carrying passengers or goods or both as a public
employment and not a casual occupation?
NB: The law makes no distinction on (1) whose
principal business activity is the carrying of
persons or goods or does such carrying only as
an ancillary activity OR (2) between a person who
does the said activity on a regular, scheduled, or
unscheduled basis OR (3) the law does not also
make a distinction between a carrier offering its
services to the ‘general public’ or one who offers
such services only from a narrow segment of the
general population.
Case : Spouses Cruz vs Sun Holidays
Facts: LMN Inc, operates a beach resort in a
secluded place off the coast of Palawan. It
operates 3 motorized boats to ferry its guests.
One day, the boat captain decided to push
through with its trip despite a storm. The boat
capsized and sank which resulted in the death of
one of its passengers Mr X. The heirs of Mr X filed
a complaint for damages against LMN which they
alleged to be a common carrier. LMN countered
by saying that it is not a common carrier because
its boats are not available to the general public.
Rule
Ans: LMN is a common carrier. A common carrier
is a person, corporation, 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 law makes no distinction on (1) whose
principal business activity is the carrying of
persons or goods or does such carrying only as
an ancillary activity OR (2) between a person who
does the said activity on a regular, scheduled, or
unscheduled basis OR (3) the law does not also
make a distinction between a carrier offering its
services to the ‘general public’ or one who offers
such services only from a narrow segment of the
general population.
NB: It is not necessary that the transportation
service be offered to the general public, offering
the services even to a narrow segment of the
public suffices. (like a school bus).
Examples
1. Freight Forwarder - Generally not a common
carrier because it merely selects the common
carrier. Except when the forwarder undertakes to
deliver the goods to their destination, instead of
merely arranging for their transportation, it
becomes liable as a common carrier
(Unsworth Transport International vs CA G.R
166250)
2. Shipowner - Common Carrier because he is
engaged in the business of transporting goods for
compensation and offers his services to the
public
3. Arrastre Operator - Not a common carrier
because it is merely a custodian of the goods
discharged from vessels. It is only duty bound to
take care of the goods and turn them over to the
party entitled to the same.
4. Customs Broker - Generally not a common
carrier, because its principal function is to prepare
the correct customs declaration and shipping
documents required by law. EXCEPT if the
customs broker undertakes to deliver the goods
to its destination, it becomes liable as a common
carrier.
5. Trucking Company
6. Pipeline Operator - Is a common carrier
because it is engaged in the business of
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transporting or carrying of petroleum products for Private Carrier vs Common Carrier
hire as a public employment. The fact that it has
limited clientele does not exclude it from the
Private Carrier Common Carrier
definition of a common carrier (First Philippine
Industrial Pipeline vs CA G.R 125948) Offers service by Offers its services
special arrangement indistinctly to the
PRIVATE CARRIER in a particular general public
A private carrier is one who undertakes by special instance only
arrangement in a particular instance only, to
Required to exercise Required to exercise
transport persons or property from one ordinary diligence extraordinary
destination to another, either gratuitously or for diligence
hire.
Contract of Private The rights and
Examples: carriage is governed obligations of parties
1. Bareboat charter by the stipulations of are governed by law,
the contract and the terms of the
2. Funeral Car
contract of carriage
3. Exclusive Contractor for hauling the
products of one particular company and A private carrier can A common carrier
NO OTHER ENTITY stipulate that it is CANNOT stipulate
4. Company Bus ferrying employees to and exempt from liability that it is exempt from
from place of work on account of the liability on account of
negligence of its the negligence of its
employees employees
Bareboat Charter - Ship owner lets the VESSEL (stipulation is void for
AND ITS CREW. It follows that the lessee has being contrary to
control over the vessel and its crew members. In public policy)
this case, the shipowner becomes a private
carrier only required to exercise ordinary 1. Diligence Required of Common Carriers
diligence. *Common Carrier is bound to exercise
EXTRAORDINARY DILIGENCE
NB: The shipowner in a bareboat charter is not
liable as a common carrier. Article 1755. A common carrier is bound to carry
the passengers safely as far as human care and
*In a bareboat charter, the owner lets his foresight can provide, using the utmost diligence
ship/vehicle to the charteree, and the charteree of very cautious persons, with a due regard for all
shall also exercise control over the employees of the circumstances.
the owner. Effect of which is that the carrier is a
private carrier, and can stipulate that it is exempt NB: Courts are not required to make an express
from liability on account of the negligence of its finding of the common carrier’s fault or
employees. negligence. Negligence is already presumed for
as long as (1) There is evidence showing that a
NB: A certificate of public convenience is not a contract of carriage exists between the carrier
requisite for incurring liability under the civil code and the passenger and (2) The death or injury of
provision on common carriers. Such liability persons or damage to the goods took place
arises the moment a person or firm acts as a during the existence of such contract.
common carrier with or without a CPC. Common Carrier has the burden of proof to show
that it exercised extraordinary diligence, and that
an unforeseen event or force majeure had

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caused the injury in order for it to be absolved
from liability.
Article 1756. 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.
2. Liabilities of Common Carriers
Breach of Contract of Carriage - The liability of
the owner/operator is DIRECT because the
contract is between him, and the passenger. The
driver cannot be liable for breach of contract of
carriage because he is not a party thereto,
however, the driver may be sued based on quasi
delict and/or criminal negligence.
Presumption of Fault - Applies in case of any
breach in the contract of carriage including but
not limited to death or injury to passengers or
damage to goods.
Examples of Breach of Contract of Carriage
1. When an airline issues a ticket to a passenger
confirmed on a particular flight, a contract of
carriage arises, and the passenger has every
right to expect that he would fly on that flight. If
that did not happen, carrier opens itself to a suit
for breach. All that need to be proven is (1) The
existence of a contract of carriage, and (2) The
fact of the carrier’s failure to carry the passenger
to his/her destination (Alfredo S. Ramos vs China
Southern Airlines G.R 213418)
2. Downgrading a passenger’s accommodation
from first class to economy (Cathay Pacific
Airways vs Spouses Vasquez G.R 150843)
B. Vigilance Over Goods
1. Exempting Causes
The ff: are the defenses available to a common
carrier for the loss, destruction, or deterioration of
the goods in order to absolve itself from liability
1. Force Majeure - Flood, storm, earthquake,
lightning, or other natural calamities.
Requisites of force majeure to be an
exempting circumstance:
1. The natural disaster is the proximate
and only cause of the loss
2. The Common Carrier should have
exercised due diligence to prevent or
minimize the loss before, during, and
after the occurrence of the disaster
3. The common carrier was not yet in
delay at the time of the loss
Example: X shipped a box of cigarettes to a
dealer in Carcar City Cebu onboard Ceres Bus.
The Ceres bus developed engine trouble, and
was brought to the repair shop. While the bus was
in the repair shop, typhoon Odette lashed the
entire Province of Cebu. The cargo inside the bus
including the cigarettes were damaged. X sued
Ceres Bus for damages. Is ceres liable?
Ans: Yes, because the force majeure was not the
proximate AND ONLY cause of the damage.
2. Hijacking, or Robbery if it was attended by
Grave or irresistible threat, or violence or
force
Mere allegation of robbery in itself is not
sufficient. It must be proven that the hijacking or
robbery was attended by grave or irresistible
threat in order for the common carrier to be
absolved from liability.
3. Acts of public enemy in war, whether
international or civil
A public enemy is a citizen of another country
against which the Philippines is at war
4. Act or omission of the shipper or passenger
5. Character of the goods or defects in the
packing container
* If the improper packing is/are known to the
carrier or his employees or apparent upon
ordinary observation, but he nevertheless
accepts the same without protest or exception
notwithstanding the condition, the carrier is not
relieved of liability for damage. (Virgines Calvo vs
UCPB General Insurance G.R 148496)
*The carrier or its employees should have at the
very least accepted the shipment under protest or
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with reservation as to its condition in order for it
to be absolved from liability
6. Order of a competent Public authority
* The intervention of the public officials should be
of a character that would render impossible the
fulfillment by the carrier of its obligation. There
must also be proof that the order was attended by
force and intimidation sufficient to overpower the
will of the carrier’s employees. (Mauro Ganzon vs
CA)
7. It exercised extraordinary diligence
2. Contributory Negligence
Article 1741. If the shipper or owner merely
contributed to the loss, destruction or
deterioration of the goods, the proximate cause
thereof being the negligence of the common
carrier, the latter shall be liable in damages,
which however, shall be equitably reduced.
3. Duration of Liability
The extraordinary responsibility of the carrier
begins from the time the goods are ACTUALLY
DELIVERED TO THE CARRIER(not with the
mere execution of a receipt or bill of lading) for
transportation, and lasts until it is delivered
actually or constructively to the consignee or to
the person who has the right to receive it.
NB: Liability of a common carrier does not cease
by mere transfer of custody of the cargo to the
arrastre operator because the arrastre operator is
under the control and supervision of the common
carrier. It is well settled that cargoes while being
unloaded, generally remain under the custody of
the carrier. (Westwind Shipping vs UCPB
General Insurance G.R 2002289)
*The carrier does not assume liability if the
damage or loss of the cargo occurred while it was
under the custody of the bureau of customs or
other authorities.
* PROOF OF DELIVERY OF THE GOODS IN
GOOD ORDER AND THEIR ARRIVAL AT THEIR
DESTINATION IN BAD ORDER CONSTITUTES
PRIMA FACIE CASE OF FAULT OR
NEGLIGENCE AGAINST THE CARRIER.
a) Actual or Constructive Liability
b) Temporary Unloading or Storage
- The obligation of the carrier remains in full force
even when the goods are temporarily unloaded or
stored in transit UNLESS the shipper or owner
has made use of the right of stoppage in transit.
Right of Stoppage in Transit - an unpaid seller
has the right to stop the goods while they are in
transit, regain possession, and retain them till he
receives the full price.
- Further, the obligation of the carrier continues
during the time the goods are stored in the
warehouse of the carrier UNTIL the consignee
has been advised of the arrival of the goods, and
was afforded reasonable opportunity to remove
them or otherwise dispose them.
STIPULATION REGARDING THE EXERCISE
OF DILIGENCE LESS THAN
EXTRAORDINARY
In the carriage of goods, the carrier and the
shipper may stipulate on the observance of
diligence to a degree less than extraordinary but
not (total exemption, or degree less than
ordinary) provided that:
1. The stipulation is in writing
2. It is supported by valuable consideration
3. The stipulation is reasonable, just, and
not contrary to public policy.
4. Stipulation for Limitation of Liability
a) Void Stipulations(Carriage of Goods)
1. The goods are transported at the risk of
the owner or shipper
2. The common carrier will not be liable for
any loss, damage, or deterioration of the
goods
3. The common carrier need not exercise
any degree of diligence in the custody of
the goods.
4. The common carrier shall exercise a
degree of diligence lower than ordinary
diligence of a good father of a family.
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5. The common carrier is not liable for the
acts or omissions of its employees.
6. The common carrier is absolved from
liability for acts committed by robbers or
thieves who do not act with grave or
irresistible threat.
7. The common carrier is not responsible
for the loss, destruction, or deterioration
on account of the condition of the car,
vehicle, ship, airplane used in the
contract of carriage.
TN: On the interpretation of contracts of
adhesion. Case of Sweet Lines vs Teves.
b) Limitation of Liability to Fixed Amount
- A contract fixing the sum that may be recovered
by the owner or shipper for the loss, damage or
deterioration of the goods is valid PROVIDED, it
is reasonable, and just under the circumstances,
and has been fairly and freely agreed upon.
c) Limitation of Liability in Absence of
Declaration of Greater Value
- In the absence of declaration of a greater
value, the liability of the common carrier is
limited to the value of the goods appearing in the
bill of lading
- If the shipper is silent as to the value of his
goods, the carrier’s liability for loss, damage, or
deterioration is limited to the amount specified
in the contract of carriage.
- If the shipper states the value of his goods,
the liability of the carrier is limited to the
declared value.
TN: The above mentioned limitations only apply
to shipment of GOODS. With respect to contract
of carriage of persons, the common carrier’s
liability CANNOT BE ELIMINATED OR LIMITED
by stipulation.
- If the shipper declares a higher value of the
goods, he must also pay the corresponding
increase in the price of the bill of lading
- The shipper in declaring a higher value, must
EXPRESSLY DO SO IN THE BILL OF
LADING(either by declaring it on the face of the
BOL, or incorporate the invoice value of the
goods with appropriate description thereof). It has
been settled that the mere insertion of an invoice
number or reference to a letter of credit does not
in itself sufficiently and convincingly show that the
common carrier had knowledge of the value of
the cargo. Such does not amount to a higher
declaration of the value of the goods (Unsworth
Transport International vs CA G.R 166250)
- The shipper has the right to declare the actual
value of his cargoes and to recover, in case of
loss on the basis of the said value. Any stipulation
that would deny or prohibit the shipper from
declaring the actual value is VOID.
- Limitation of liability to a fixed amount must be
fairly and freely agreed upon by the shipper and
the carrier.
5. Liability for Baggage of Passengers
a) Checked-In Baggage
If the baggage is in the custody of the common
carrier (checked in) the latter is obliged to
observe extraordinary diligence.
Example: X rode a Ceres Bus from Mandaue to
Toledo. He deposited his Maleta in the baggage
compartment of the bus common to all
passengers. X did not declare his baggage nor
pay its charges contrary to the regulations of the
bus company. When X got off, he could not find
his maleta because it was stolen by another
passenger. Is Ceres Bus Liable?
Ans: Yes, Ceres bus is liable for the loss of the
Maleta. Common Carriers must exercise
extraordinary diligence in the vigilance over the
goods received by it for transportation. The fact
that it was not declared nor the charges have
been paid is inconsequential so long as it was
received by the carrier for transportation.
b) Hand-Carried Baggage
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If the baggage is in the custody of the passenger,
the carrier is liable as a depositary provided that:
1. The passenger notified the carrier or its
employees
2. The passenger took the necessary
precautions which the carrier had
advised relative to the care, and vigilance
of the baggage
*Hand carried baggage is governed by the rule on
necessary deposits.
* The carrier is only required to exercise due
diligence of a good father of a family. In case of
loss due to the fault of the passenger, the carrier
will not be held liable.
C. Safety of Passengers
Art. 1755 Civil Code - A common carrier is bound
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.
In case the passenger dies, or suffers an injury
during the effectiveness of the contract of
carriage, the common carrier is statutorily
presumed to be at fault. The statutory
presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence.
Principle: In carriage of passengers, the failure
of the common carrier to bring the passengers
safely to their destination immediately raises the
presumption that such failure is due to the
carrier’s fault or negligence.
Case: (Tiu vs Arriesgado G.R. 128060) X is a
passenger of Ceres Bus Company. The bus he
was riding collided with a jeepney. X sued Ceres
for damages. Ceres invokes as a defense that the
jeepney had the last clear chance to avoid the
injury, Hence, Ceres was not liable. Is the
doctrine of last clear chance applicable?
Ans: No, the doctrine of last clear chance applies
only in a suit between owners and drivers of two
colliding vehicles. It does not apply where a
passenger demands responsibility from the
carrier to enforce its contractual obligations.
1. Void Stipulations
1. Stipulation where the responsibility of the
common carrier for the safety of its passengers is
dispensed with or lessened by stipulation, or by
posting of notices, by statement on the tickets
2. Stipulation limiting the liability of the carrier for
willful acts or gross negligence.
* Basis for the above 2 are Article 1757 and 1758
of the Civil Code.
Article 1757. The responsibility of a common
carrier for the safety of passengers as required in
articles 1733 and 1755 cannot be dispensed
with or lessened by stipulation, by the posting
of notices, by statements on tickets, or
otherwise.
Article 1758. When a passenger is carried
gratuitously, a stipulation limiting the common
carrier’s liability for negligence is valid, but not for
willful acts or gross negligence.
The reduction of fare does not justify any
limitation of the common carrier’s liability.
2. Duration of Liability
- Utmost diligence starts once the passenger
places himself and is accepted by, and while he
remains under the proper care and charge of the
carrier. It lasts until such time that the passenger
safely alights from and is given reasonable
opportunity to leave the premises of the common
carrier, including such time that he looks for and
claims his luggage.
For LRT system - it was held that the contract of
carriage was created from the moment the
passenger paid the fare at the LRT Station, and
entered the premises of the latter, entitling
him/her to all the rights and protection under the
contractual relation (Light Rail Transit Authority
vs Marjorie Navidad G.R. 145804)
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Waiting for carrier or boarding a carrier - A bus
driver is duty bound to do no act which would
have the effect of increasing the peril to a
passenger. Carriers must stop their conveyances
for A REASONABLE LENGTH OF TIME in order
to afford passengers an opportunity to board and
enter. A passenger who steps and stands on the
platform of the bus was already considered a
passenger and was entitled to all the rights and
protection pertaining to a contract of carriage.
Arrival at destination
Example 1 - A father returned to the bus to get
one of his baggage which was not unloaded.
Racquel his child, followed him. Although the
father was still on the running board waiting for
the conductor to hand him his bag, the bus
started to run. Racquel was run over and killed.
Held: The relation of carrier and passenger does
not cease at the moment the passenger alights
from the carriers vehicle at the place of
destination, but it continues until the passenger
has had a reasonable time or a reasonable
opportunity to leave the carrier’s premises,
including such time that he looks for and claims
his luggage (La Mallorca vs CA G.R L-20761)
Example 2 - An hour after the passengers and
Viana disembarked the vessel, the crane
operator began its unloading operations. While
the crane was being operated, Viana who had
already disembarked remembered that some of
her cargoes were still loaded in the ship. He went
back, and while pointing to the crew where his
cargoes were, he was hit by the crane which
resulted in his instantaneous death. Viana’s heirs
filed an action for damages against the shipping
company. The shipping company argued that
Viana already ceased to be a passenger when he
disembarked the vessel and consequently, his
presence was no longer reasonable. Is the
shipping company liable as a common carrier?
Held: Yes, The rule is that the relation of carrier
and passenger continues until the passenger has
been landed at the port of destination and has left
the vessel owner's dock or premises. Once
created, the relationship will not ordinarily
terminate until the passenger has, after reaching
his destination, safely alighted from the carrier's
conveyance or had a reasonable opportunity to
leave the carrier's premises.
All persons who remain on the premises a
reasonable time after leaving the conveyance are
to be deemed passengers, and what is a
reasonable time or a reasonable delay within this
rule is to be determined from all the
circumstances, and includes a reasonable time to
see after his baggage and prepare for his
departure. The carrier-passenger relationship is
not terminated merely by the fact that the person
transported has been carried to his destination if,
for example, such person remains in the carrier's
premises to claim his baggage.
It is of common knowledge that, by the very
nature of petitioner's business as a shipper, the
passengers of vessels are allotted a longer period
of time to disembark from the ship than other
common carriers such as a passenger bus. With
respect to the bulk of cargoes and the number of
passengers it can load, such vessels are capable
of accommodating a bigger volume of both as
compared to the capacity of a regular commuter
bus. Consequently, a ship passenger will need at
least an hour as is the usual practice, to
disembark from the vessel and claim his baggage
whereas a bus passenger can easily get off the
bus and retrieve his luggage in a very short period
of time.
When the accident occurred, the victim was in the
act of unloading his cargoes, which he had every
right to do, from the petitioner's vessel. As earlier
stated, a carrier is duty bound not only to bring its
passengers safely to their destination but also to
afford them a reasonable time to claim their
baggage. (Aboitiz Shipping Corporation vs Court
of Appeals G.R 84458)
3. Liability for Acts of Others
a) Employees
A common carrier is liable for the death or
injuries to passengers through the negligence or
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willful acts of its employees OR its agents OR
independent contractors it contracted with.
Basis for the carrier’s liability is the (1) Doctrine of
Respondeat Superior or (2) The principle that it is
the carriers implied duty to transport the
passenger safely
TN: It is enough that the assault is done by the
employee within the course of his employment, it
need not be within the scope of his authority
Example: Marjorie, while waiting for the LRT train
to arrive, had a fistfight with the guard on duty.
For the injuries she suffered, she sued LRT for
damages. LRT denied liability on the ground that
the guard on duty was not their employee, and
that at the time of the fist fight Marjorie was not
yet a passenger. Is LRT Liable?
Ans: Yes, LRT’s liability is founded upon its
Contract of Carriage with Marjorie. 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 independent contractor to undertake the task.
Further, the contract of carriage was created from
the moment the passenger paid the fare at the
LRT Station, and entered the premises of the
latter, entitling him/her to all the rights and
protection under the contractual relation (Light
Rail Transit Authority vs Marjorie Navidad G.R.
145804)
b) Other Passengers and Strangers
1. Carrier is liable for injuries suffered by its
passenger caused by other passengers and
strangers IF the carrier’s employees through the
exercise of the diligence of a good father of a
family could have prevented or stopped the
act. (Jose Pilapil vs Court of Appeals G.R. 52159)
2. If the act was abrupt, sudden, or
unexpected, such that, the employees observed
nothing which would arouse their suspicion that
the other passengers or strangers were about to
carry out an unlawful activity, THEN the carrier
is not liable because a common carrier is not an
insurer of the absolute safety of its
passengers for torts committed by other
passengers and strangers (G.V Florida Transport
vs Heirs of Romeo L Battung G.R. 208802)
Case: Fortune Express, Inc vs CA G.R 119756
Fortune Express Bus figured an accident with a
jeepney which resulted in the death of 2
Maranaos. Certain Maranaos planned to take
revenge by burning some of FEI’s buses. The
operations manager of Fortune Express was
advised by an agent of the Philippine
Constabulary to take precautionary measures,
however, three armed Maranao’s were able to
seize a bus of FEI and set in on fire causing the
death of its passengers
Held: Fortune Express is liable. A common carrier
must also take steps to safeguard the lives and
properties of its passengers. The seizure of the
FEI bus was foreseeable and, therefore was not
a fortuitous event which would exempt Fortune
Express from liability.
4. Extent of Liability for Damages
1. Indemnity for death
2. Indemnity for loss of earning capacity
3. Moral Damages
D. The Montreal Convention of 1999
Obligations of a common carrier under a
contract of air carriage
1. Contract to deliver cargo or
merchandise to its destination
2. Contract to transport passengers to their
destination
Perfection of Contract of Air Carriage
A contract of air carriage commences when an
airline issues a ticket to a passenger, that he/she
is confirmed for a particular flight on a certain time
and date, including the type of flight
accommodation.
● A passenger has every right to expect
that he/she be transported on that flight
and on that date and it becomes the
carrier’s obligation to carry him/her and
his/her luggage safely to the agreed
destination.
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NB: If a passenger is not transported or if in the
process of transporting, he/she dies or is injured,
the carrier may be held liable for breach of
contract of carriage. The aggrieved party need
not prove that the common carrier was at fault or
was negligent. All he has to prove is the (1)
existence of the contract of carriage and (2) The
fact of its non-performance by the carrier (Ramos
vs Southern China Airlines G.R 213418)
* Non performance of the contract includes the
downgrading of the type of accommodation of the
passenger from first class to economy
Commencement of the obligation to exercise
Extraordinary Diligence
The responsibility of the Air Carrier commences
when the baggage is placed in the possession of
the carrier and/or when the passenger is within
the premises of the air carrier after checking in for
the flight.
Case: Morris vs Court of Appeals G.R 127957
Facts: Morris and Whiter booked a first class
ticket from Scandinavian Airlines. They
proceeded to the check-in counter but were
denied because there were no more seats on the
plane. Airlines claimed that they were not
accommodated in the flight because they
checked-in for the flight beyond the time allowed
for the checking in of passengers. Is the airline
liable for breach?
Held: No, For having arrived at the airport after
the closure of the flight, the airline’s employee
could not be faulted for not entertaining Morris’s
tickets and travel documents for processing as
the checking in of passengers was already
finished
Case: Pan America Airways vs Ongsiako G.R
L-68988
Facts: Ongsiako booked a first class ticket from
Manila to Hawaii. Upon arrival at Hawaii,
Ongsiako discovered that his luggage was not
carried on board, and was left in Pan Am's office
in Manila. Ongsiako brought an action for
damages against Pan Am, while the latter
countered that it is not liable because Ongsiako
checked in at the last minute and that there was
insufficient time to load his baggage on the plane.
Is the airline liable?
Held: Yes, Checking in at the last minute, and
claiming insufficient time to load the baggage on
the plane is not a valid excuse for Pan Am to be
absolved from liability. Accepting last minute
passengers and their baggage with no
definite assurance that the carrier can comply
with its obligation due to lack of time amounts
to negligence so gross and reckless as to
amount to malice or bad faith.
1. Applicability
Warsaw Convention applies to all international
carriage of PERSONS, LUGGAGE OR GOODS
performed by an aircraft for hire.
International Carriage - Any carriage in which
the Place of Departure, and the place of the
ultimate destination, whether or not there be a
break in the carriage, are situated in either within
the (1) Territories of two high contracting parties
OR (2) Within the territory of a single high
contracting party. Thus, when the place of
departure, and the place of the ultimate
destination are situated within the territories of
two high contracting parties, said carriage is
deemed an international carriage.
Case: Santos vs Northwest 210 SCRA 256
Facts: Santos bought an airline ticket in San
Francisco, USA. The flight Itinerary is SF-Tokyo-
Manila-SF. Despite reconfirmation, Santos was
informed that he had no reservation for his flight
from Tokyo to Manila, and therefore had to be
waitlisted. He sued Northwest before the RTC in
Manila
Held: Philippine Court does not have jurisdiction
because the place of departure, and the ultimate
place of destination are both in San Francisco,
USA. It is the passenger’s ultimate destination,
and not an agreed stopping place that determines
the country where the suit against the
international carrier is to be filed.
*Article 1 Section 3 of the Montreal
Convention of 99 - Carriage to be performed by
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several successive carriers is deemed, for the
purposes of this Convention, to be one undivided
carriage if it has been regarded by the parties as
a single operation, whether it had been agreed
upon under the form of a single contract or of a
series of contracts, and it does not lose its
international character merely because one
contract or a series of contracts is to be
performed entirely within the territory of the same
State.
2. Extent of Liability of Air Carrier
Carrier is liable in any of the ff. Circumstances:
1. Death or injury to the passenger while on
board, embarking, or disembarking
2. Loss, destruction, and damage to
baggage during the carriage
● Carrier is liable for simple loss of luggage
without any improper conduct on the part
of its officials or employees.
3. Delay in the flight
Period to file action
The action against the carrier will prescribe if it is
not brought within 2 years from date of arrival of
the air carrier to its destination, OR it should have
arrived OR from the date on which the
transportation stopped
Additional time limits for damage to baggage
(added by the Montreal Convention)
1. Damage to Baggage - the complainant
must file his written complaint within 7
days from the date of receipt of the
checked in baggage. (File before the
Airline)
2. Delay in the Delivery - the complainant
must file his written complaint within 21
days from the date of receipt of the
baggage. (File before the airline)
NB: Time limits above (1&2) are important since
no action can lie against the carrier if the
complaints were made beyond the period stated
EXCEPT where the carrier employed fraud.
a) Death or Injury of Passenger
Two Tier Liability
First Tier - In this tier, the airline is liable for
damage sustained in case of death or bodily
injury of a passenger on the condition 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.
Threshold of Liability: Does not exceed
113,100 SDR
NB: Under this Tier, the carrier CANNOT LIMIT
or EXCLUDE its liability provided, the damages
sustained does not exceed 113,100 Special
Drawing Rights
SDR - is a type of foreign exchange reserve asset
created by the International Monetary Fund
*The carrier may be held liable under this tier
EVEN IF it is NOT negligent or at fault. IOW,
Carrier is presumptively liable up to the amount
of 113,100 SDR’s
NB: The carrier’s liability under this tier may only
be reduced or exonerated in case where damage
was caused by (1) Contributory or Sole
negligence of the passenger or passenger
claiming compensation
Second Tier - Liability for damages higher than
113,100 SDR’s
General Rule: Carrier is liable under this tier
Exception: Carrier is not liable under this tier
ONLY IF it can prove that it was not negligent or
at fault
NB: the full defense (under the warsaw
convention) that the carrier or its agents has
taken all reasonable measures to avoid damage
IS NO LONGER AVAILABLE under the Montreal
Convention.
b) Lost or Delayed Baggage
*The carrier shall be liable for lost or delayed
baggage for as long as the destruction, loss, or
deterioration took place (1) on board the aircraft
OR (2) during any period within which the
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checked baggage was under the carrier’s
custody.

*The carrier may not be held liable to the extent

that the damage resulted from the inherent
defect, quality, or vice of the baggage.

Threshold: Airlines shall be liable only up to

1288 SDR’s for each passenger. Except if the
passenger wants to increase the value of the limit
provided he/she pays the excess charge upon
check-in

Instances when the Passenger can recover

an amount greater than the threshold
1. If at the time the luggage were handed
over to the carrier, the passenger made
a special declaration of the value AND
has paid a excess charge
2. When the air carrier failed to raise timely
objections during trial when questions
and answers regarding the actual claims
and damages sustained by the
passenger were asked.

Venue to file action for damages

1. The court where the carrier is domiciled
2. The court where the carrier has its
principal place of business
3. The court where the carrier has an
establishment by which the contract has
been made
4. The court of the place of destination
5. With respect to damage resulting from
death or injury of a passenger, the action
may be filed in the territory of a state
party to the convention in which at the
time of the accident the passenger has
his principal and permanent residence

NB: Any action for damages under the Warsaw

Convention or the Montreal
Convention(breach of contract of air carriage
covered by the convention), can only be brought
subject to the conditions and limits set out by the
convention. Thus, a claim covered by the Warsaw
Convention can no longer be recovered under a
local law if the statute of limitations of 2 years
has already lapsed.

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