NEGOTIABLE INSTRUMENTS LAW

SIGNATURE OF DECEASED SHOWN; PRIMA FACIE PRESUMED TO BE A PARTY TO A

CHECK FOR VALUE

FELICITO SANSON, ET AL. VS. COURT OF APPEALS

G.R. No. 127745. April 22, 2003

Facts: Felicito Sanson filed a special proceeding for the settlement of the estate of
Juan See. Sanson claimed that the deceased was indebted to him in the amount of
Php 603, 000.00 and to his sister Caledonia Sanson-Saquin in the amount of Php
320,000.00. also petitioner Eduardo Montinola and his mother filed separate claims
against the estate alleging that the deceased owed them Php50,000 and Php 150,
000, respectively. During the trial, Caledonia and Felicito Sanson testified that they
had transaction with the deceased evidenced by six checks issued by the deceased
before he died and that after his death, Felicito and Caledonia presented the checks
to the bank for payment but were dishonored due to the closure of the account. The
same transaction happened to Eduardo and Angeles Montionola but when they
presented the check to the bank, it was dishonored. Demand letters were sent to
the heirs of the deceased but the checks remained unsettled.

Issue: Whether or not presumption of consideration may be rebutted even if the

heirs did not present any evidence to controvert it.

Held: When the fact was established by a witness that it was the deceased who
signed the checks and in fact who entered into the transaction, the genuineness of
the deceased signature having been shown, the latter is prima facie presumed to
have been a party to the check for value, following Section 24 of NIL which provides
that every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears thereon to have
become a party thereto for value.
Since the prima facie presumption was not rebutted or contradicted by the heirs, it
has become conclusive.

PROMISSORY NOTES; PRESCRIPTION OF ACTION

QUIRINO GONZALES, ET AL. VS. COURT OF APPEALS, ET AL.

G.R. No. 126568. April 30, 2003

Facts: Petitioners applied for credit accommodations with respondent bank, which
the bank approved granting a credit line of Php900,000.00. Petitioners obligations
were secured by a real estate mortgage on four parcels of land. Also, petitioners
had made certain advances in separate transactions from the bank in connection
with QGLCs exportation of logs and executed a promissory note in 1964.
Due to petitioners long default in the payment of their obligations under the credit
line, the bank foreclosed the mortgage and sold the properties covered to the
highest bidder in the auction. Respondent bank, alleging non-payment of the
balance of QGLCs obligation after the proceedings of the foreclosure sale were
applied and non-payment of promissory notes despite repeated demands, filed a
complaint for sum of money against petitioners.
Petitioners, on the other hand, asserted that the complaint states no cause of action
and assuming that it does, the same is barred by prescription or void for want of
consideration.

Issue: Whether or not the cause of action is barred by prescription.

Held: An action upon a written contract, an obligation created by law, and a

judgment must be brought within 10 years from the time the right of action accrues.
The finding of the trial court that more than ten years had elapsed since the right to
bring an action on the Banks first to sixth causes had arisen is not disputed. The
Bank contends, however, that the notices of foreclosure sale in the foreclosure
proceedings of 1965 are tantamount to formal demands upon petitioners for the
payment of their past due loan obligations with the Bank; hence, said notices of
foreclosure sale interrupted the running of the prescriptive period.
The Banks contention has no merit. Prescription of actions is interrupted when they
are filed before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt by the debtor.

The law specifically requires a written extrajudicial demand by the creditor which is
absent in the case at bar. The contention that the notices of foreclosure are
tantamount to a written extrajudicial demand cannot be appreciated, the contents
of said notices not having been brought to light.
But even assuming that the notices interrupted the running of the prescriptive
period, the argument would still not lie for the following reasons:
The Bank seeks the recovery of the deficient amount of the obligation after the
foreclosure of the mortgage. Such suit is in the nature of a mortgage action because
its purpose is to enforce the mortgage contract. A mortgage action prescribes after
ten years from the time the right of action accrued.
The law gives the mortgagee the right to claim for the deficiency resulting from the
price obtained in the sale of the property at public auction and the outstanding
obligation proceedings. In the present case, the Bank, as mortgagee, had the right
to claim payment of the deficiency after it had foreclosed the mortgage in 1965. as
it filed the complaint only on January 27, 1977, more than ten years had already
elapsed, hence, the action had then prescribed.

HOLDER IN DUE COURSE; PRESUMPTION OF ACQUISITION OF AN INSTRUMENT FOR

A CONSIDERATION

CELY YANG VS. COURT OF APPEALS, ET AL.

G.R. No. 138074. August 15, 2003

Facts: Petitioner Cely Yang agreed with private respondent Prem Chandiramani to
procure from Equitable Banking Corp. and Far east Bank and Trust Company (FEBTC)
two cashiers checks in the amount of P2.087 million each, payable to Fernando
david and FEBTC dollar draft in the amount of US$200,000.00 payable to PCIB FCDU
account No. 4195-01165-2. Yang gave the checks and the draft to Danilo Ranigo to
be delivered to Chandiramani. Ranigo was to meet Chandiramani to turn over the
checks and the dollar draft, and the latter would in turn deliver to the former Phil.
Commercial International Bank (PCIB) managers check in the sum of P4.2 million
and the dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of
HongKong. But Chandiramani did not appear at the rendezvous and Ranigo
allegedly lost the two cashiers checks and the dollar draft. The loss was then
reported to the police. It transpired, however that the checks and the dollar draft
were never lost, for Chandiramani was able to get hold of them without delivering
the exchange consideration consisting of PCIB Managers checks. Two hours after

Chandiramani was able to meet Ranigo, the former delivered to David the two
cashiers checks of Yang and, in exchange, got US $360,000 from David, who in turn
deposited them. Chandiramani also deposited the dollar draft in PCIG FCDU No.
4194-0165-2.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on the
instruments she believed to be lost. Both Banks complied with her request, but
upon the representation of PCIB, FEBTC subsequently lifted the stop payment order
on FEBTC Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU Account No.
4194-0165-2 to received the amount of US $ 200, 000.

Issue: (1) Whether or not David may be considered a holder in due course.
(2) Whether or not the presumption that every party to an instrument acquired the
same for a consideration is applicable in this case.

Held: (1) Every holder of a negotiable instrument is deemed prima facie a holder in
due course. However, this presumption arises only in favor of a person who is a
holder as defined in Section 191 of the Negotiable Instruments Law, meaning a
payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.
In the present case, it is not disputed that David was the payee of the checks in
question. The weight of authority sustains the view that a payee may be a holder in
due course. Hence, the presumption that he is a prima facie holder in due course
applies in his favor.
(2) The presumption is that every party to an instrument acquired the same for a
consideration. However, said presumption may be rebutted. Hence, what is vital to
the resolution of this issue is whether David took possession of the checks under the
conditions provided for in Section 52 of the Negotiable Instruments Law. All the
requisites provided for in Section 52 must concur in Davids case, otherwise he
cannot be deemed a holder in due course.
Section 24 of the Negotiable Instruments Law creates a presumption that every
party to an instrument acquired the same for a consideration or for value. Thus, the
law itself creates a presumption in Davids favor that he gave valuable
consideration for the checks in question. In alleging otherwise, the petitioner has
the onus to prove that David got hold of the checks absent said consideration.
However, petitioner failed to discharge her burden of proof. The petitioners
averment that David did not give valuable consideration when he took possession of
the checks is unsupported, devoid of any concrete proof to sustain it. Note that both
the trial court and the appellate court found that David did not receive the checks

gratis, but instead gave Chandiramani US$ 360,000 as consideration for the said
instruments.

LIABILITY OF MAKERS OF PROMISSORY NOTE

ASTRO ELECTRONIC CORP. & ROXAS VS. PHIL. EXPORT &FOREIGN LOAN GUARANTEE
CORP.
G.R. No. 136729. September 23, 2003

Facts: Astro Electronic Corp. (Astro) was granted several loans by Phil. Trust Co. (Phil
Trust) amounting to Php 3,000.00 with interest and secured by three promissory
notes. In each note, it appears that Roxas signed twice as president of Astro and in
his personal capacity. Thereafter, Philippine Export & Foreign Guarantee Corp. (Phil
Guarantee), with the consent of Astro, guaranteed in favor of Phil Trust the payment
of 70% of Astros loan. Upon the latters failure to pay its loan obligation, despite
demands, Phil Guarantee paid 70% of the guaranteed loan. The Phil Trust and Phil
Guarantee subsequently filed against astro and Roxas a complaint for sum of
money. The Regional Trial Court rendered its decision ordering Astro & Roxas to pay
jointly and severally Phil Guarantee the sum of Php 3, 621, 187.52 with interest and
cost.

Issue: Whether or not Roxas should be jointly and severally liable with Astro for the
sum awarded by the RTC.

Held: By signing twice, as president of Astro and in his personal capacity, Roxas
became a co-maker of the notes and cannot escape any liability arising from it.
Under the NIL, persons who write their names on the face of the note as makers,
promising that they will pay to the order of the payee or any holder according to its
tenor will be liable as such. Roxas is primarily liable as a joint and several debtor
considering that his intention to be liable is manifested by the fact that he affixed
his signature twice in each of the three promissory notes which necessarily would
imply that he is undertaking the obligation in two different capacities, official and
personal.

NOVATION; LOANS; SOLIDARY OBLIGATIONS; PROMISSORY NOTE; ACCOMODATION

PARTY

ROMEO GARCIA VS. DIONISIO LLAMAS

G.R. No. 154127. December 8, 2003

Facts: A complaint for sum of money was filed by respondent Dionisio Llamas
against Petitioner Romeo Garcia and Eduardo de Jesus alleging that the two
borrowed Php 400, 000 from him. They bound themselves jointly and severally to
pay the loan on or before January 23, 1997 with a 15% interest per month. The loan
remained unpaid despite repeated demands by respondent.
Petitioner resisted the complaint alleging that he signed the promissory note merely
as an accommodation party for de Jesus and the latter had already paid the loan by
means of a check and that the issuance of the check and acceptance thereof
novated or superseded the note.
The trial court rendered a judgment on the pleadings in favor of the respondent and
directed petitioner to pay jointly and severally respondent the amounts of Php 400,
000 representing the principal amount plus interest at 15% per month from January
23, 1997 until the same shall have been fully paid, less the amount of Php 120,000
representing interests already paid.
The Court of Appeals ruled that no novation, express or implied, had taken place
when respondent accepted the check from de Jesus. According to the CA, the check
was issued precisely to pay for the loan that was covered by the promissory note
jointly and severally undertaken by petitioner and de Jesus. Respondents
acceptance of the check did not serve to make de Jesus the sole debtor because
first, the obligation incurred by him and petitioner was joint and several; and
second, the check which had been intended to extinguish the obligation bounced
upon its presentment.

Issues: (1) Whether or not there was novation of the obligation

(2) Whether or not the defense that petitioner was only an accommodation party
had any basis.

Held: For novation to take place, the following requisites must concur: (1) There
must be a previous valid obligation; (2) the parties concerned must agree to a new
contract; (3) the old contract must be extinguished; and (4) there must be a valid
new contract.
The parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check or that the check
would take the place of the note. There is no incompatibility between the
promissory note and the check.
Neither could the payment of interests, which in petitioners view also constitutes
novation, change the terms and conditions of the obligation. Such payment was
already provided for in the promissory note and, like the check, was totally in accord
with the terms thereof.
Also unmeritorious is petitioners argument that the obligation was novated by the
substitution of debtors. In order to change the person of the debtor, the old must be
expressly released from the obligation, and the third person or new debtor must
assume the formers place in the relation. Well-settled is the rule that novation is
never presumed. Consequently, that which arises from a purported change in the
person of the debtor must be clear and express. It is thus incumbent on petitioner
to show clearly and unequivocally that novation has indeed taken place. Note also
that for novation to be valid and legal, the law requires that the creditor expressly
consent to the substitution of a new debtor.
In a solidary obligation, the creditor is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors. It is up to the former to determine
against whom to enforce collection. Having made himself jointly and severally liable
with de Jesus, petitioner is therefore liable for the entire obligation.

(2) By its terms, the note was made payable to a specific person rather than bearer
to or ordera requisite for negotiability. Hence, petitioner cannot avail himself of
the NILs provisions on the liabilities and defenses of an accommodation party.
Besides, a non-negotiable note is merely a simple contract in writing and evidence
of such intangible rights as may have been created by the assent of the parties. The
promissory note is thus covered by the general provisions of the Civil Code, not by
the NIL.
Even granting that the NIL was applicable, still petitioner would be liable for the
note. An accommodation party is liable for the instrument to a holder for value even
if, at the time of its taking, the latter knew the former to be only an accommodation
party. The relation between an accommodation party and the party accommodated
is, in effect, one of principal and surety. It is a settled rule that a surety is bound

equally and absolutely with the principal and is deemed an original promissory
debtor from the beginning. The liability is immediate and direct.

BOUNCING CHECKS LAW

QUE VS. PEOPLE

154 SCRA 160

Facts: Vicotr Que deliberately issued checks to cover accounts but the checks were
dishonored upon presentment. Que was convicted by the RTC of the crime of
violating B.P. Blg. 22 on two counts which decision was affirmed by the CA. que
alleged, among others, that he issued the checks in question merely to guarantee
the payment of the purchases by Powerhouse Supply, Inc. of which he is the
manager.

Issue: Whether dishonored checks issued merely to guarantee payment constitute

violation of B.P. Blg. 22.

Held: It is now well-settled that B.P. Blg. 22. applies even in cases where dishonored
checks are issued merely in form of deposit or a guarantee. The enactment does not
make any distinction as to whether the checks within its contemplation are issued,
in payment of an obligation or merely to guarantee said obligation. Consequently,
what are important are the facts that the accused deliberately issued the checks to
cover accounts and that the checks were dishonored upon presentment regardless
of whether or not the accused merely issued the checks as a guarantee. It is the
intention of the framers of B.P. Blg. 22. to make the mere act of issuing a worthless
check malum prohibitum and thus punishable under such law.

INSURANCE

WHITE GOLD MARINE SERVICES, INC. VS. PIONEER INSURANCE AND SURETY
CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD.
G.R. No. 154514. July 28, 2005

Facts: White Gold Marine Services, Inc. procured a protection and indemnity
coverage for its vessels from The Steamship Mutual Underwriting Association
Limited through Pioneer Insurance and Surety Corporation. White Gold was issued a
Certificate of Entry and Acceptance. Pioneer also issued receipts evidencing
payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the latters unpaid balance. White Gold on the other hand, filed a
complaint before the Insurance Commission claiming that Steamship Mutual
violated Sections 186 and 187, while Pioneer violated Sections 299, to 301 of the
Insurance Code.
The Insurance Commission dismissed the complaint. It said that there was no need
for Steamship Mutual to secure a license because it was not engaged in the
insurance business. It explained that Steamship Mutual was a Protection and
Indemnity Club. Likewise, Pioneer need not obtain another license as insurance
agent and/or a broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business. Moreover, Pioneer was already licensed; hence,
a separate license solely as agent/broker of Steamship Mutual was already
superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its
decision, the appellate court distinguished between P & I Clubs vis--vis
conventional insurance. The appellate court also held that Pioneer merely acted as
a collection agent of Steamship Mutual.

Issues: (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in
the Philippines?
(2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
Held: The test to determine if a contract is an insurance contract or not, depends on
the nature of the promise, the act required to be performed, and the exact nature of
the agreement in the light of the occurrence, contingency, or circumstances under
which the performance becomes requisite. It is not by what it is called.

Basically, an insurance contract is a contract of indemnity. In it, one undertakes for

a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.
In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. Section 99 of the
Insurance Code enumerates the coverage of marine insurance.
A P & I Club is a form of insurance against third party liability, where the third party
is anyone other than the P & I Club and the members. By definition then, Steamship
Mutual as a P & I Club is a mutual insurance association engaged in the marine
insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without
the requisite certificate of authority mandated by Section 187 of the Insurance
Code. It maintains a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. We note that Steamship Mutual even renewed its P &
I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue
doing business here, Steamship Mutual or through its agent Pioneer, must secure a
license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is
necessary. Thus, no insurer or insurance company is allowed to engage in the
insurance business without a license or a certificate of authority from the Insurance
Commission.
On the second issue, Pioneer is the resident agent of Steamship Mutual as
evidenced by the certificate of registration issued by the Insurance Commission. It
has been licensed to do or transact insurance business by virtue of the certificate of
authority issued by the same agency. However, a Certification from the Commission
states that Pioneer does not have a separate license to be an agent/broker of
Steamship Mutual. Although Pioneer is already licensed as an insurance company, it
needs a separate license to act as insurance agent for Steamship Mutual.

PHILIPPINE CHARTER INSURANCE CORPORATION VS. CHEMOIL LIGHTERAGE HITE

GOLD CORPORATION
G.R. No. 136888. June 29, 2005

Facts: Philippine Charter Insurance Corporation is a domestic corporation engaged

in the business of non-life insurance. Respondent Chemoil Lighterage Corporation is
also a domestic corporation engaged in the transport of goods. On 24 January 1991,
Samkyung Chemical Company, Ltd., based in South Korea, shipped 62.06 metric

tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT TACHIBANA

which was valued at US$90,201.57 and another 436.70 metric tons of DOP valued
at US$634,724.89 to the Philippines. The consignee was Plastic Group Phils., Inc. in
Manila. PGP insured the cargo with Philippine Charter Insurance Corporation against
all risks. The insurance was under Marine Policies No. MRN-30721[5] dated 06
February 1991. Marine Endorsement No. 2786[7] dated 11 May 1991 was attached
and formed part of MRN-30721, amending the latters insured value to
P24,667,422.03, and reduced the premium accordingly. The ocean tanker MT
TACHIBANA unloaded the cargo to the tanker barge, which shall transport the
same to Del Pan Bridge in Pasig River and haul it by land to PGPs storage tanks in
Calamba, Laguna. Upon inspection by PGP, the samples taken from the shipment
showed discoloration demonstrating that it was damaged. PGP then sent a letter
where it formally made an insurance claim for the loss it sustained.
Petitioner requested the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity
and Condition Survey of the shipment which issued a report stating that DOP
samples taken were discolored. Inspection of cargo tanks showed manhole covers of
ballast tanks ceilings loosely secured and that the rubber gaskets of the manhole
covers of the ballast tanks re-acted to the chemical causing shrinkage thus,
loosening the covers and cargo ingress. Petitioner paid PGP the full and final
payment for the loss and issued a Subrogation Receipt. Meanwhile, PGP paid the
respondent the as full payment for the latters services.
On 15 July 1991, an action for damages was instituted by the petitioner-insurer
against respondent-carrier before the RTC, Br.16, City of Manila. Respondent filed an
answer which admitted that it undertook to transport the shipment, but alleged that
before the DOP was loaded into its barge, the representative of PGP, Adjustment
Standard Corporation, inspected it and found the same clean, dry, and fit for
loading, thus accepted the cargo without any protest or notice. As carrier, no fault
and negligence can be attributed against respondent as it exercised extraordinary
diligence in handling the cargo. After due hearing, the trial court rendered a
Decision in favor of plaintiff. On appeal, the Court of Appeals promulgated its
Decision reversing the trial court. A petition for review on certiorar[ was filed by the
petitioner with this Court.

Issues: 1. Whether or not the Notice of Claim was filed within the required period.

2.Whether or not the damage to the cargo was due to the fault or negligence of the
respondent.

Held: Article 366 of the Code of Commerce has profound application in the case at
bar, which provides that; Within twenty-four hours following the receipt of the
merchandise a claim may be made against the carrier on account of damage or
average found upon opening the packages, provided that the indications of the
damage or average giving rise to the claim cannot be ascertained from the exterior
of said packages, in which case said claim shall only be admitted at the time of the
receipt of the packages. After the periods mentioned have elapsed, or after the
transportation charges have been paid, no claim whatsoever shall be admitted
against the carrier with regard to the condition in which the goods transported were
delivered.
As to the first issue, the petitioner contends that the notice of contamination was
given by PGP employee, to Ms. Abastillas, at the time of the delivery of the cargo,
and therefore, within the required period. The respondent, however, claims that the
supposed notice given by PGP over the telephone was denied by Ms. Abastillas. The
Court of Appeals declared:that a telephone call made to defendant-company could
constitute substantial compliance with the requirement of notice. However, it must
be pointed out that compliance with the period for filing notice is an essential part
of the requirement, i.e.. immediately if the damage is apparent, or otherwise within
twenty-four hours from receipt of the goods, the clear import being that prompt
examination of the goods must be made to ascertain damage if this is not
immediately apparent. We have examined the evidence, and We are unable to find
any proof of compliance with the required period, which is fatal to the accrual of the
right of action against the carrier.[27]
Nothing in the trial courts decision stated that the notice of claim was relayed or
filed with the respondent-carrier immediately or within a period of twenty-four hours
from the time the goods were received. The Court of Appeals made the same
finding. Having examined the entire records of the case, we cannot find a shred of
evidence that will precisely and ultimately point to the conclusion that the notice of
claim was timely relayed or filed.
The requirement that a notice of claim should be filed within the period stated by
Article 366 of the Code of Commerce is not an empty or worthless proviso.
The object sought to be attained by the requirement of the submission of claims in
pursuance of this article is to compel the consignee of goods entrusted to a carrier
to make prompt demand for settlement of alleged damages suffered by the goods
while in transport, so that the carrier will be enabled to verify all such claims at the
time of delivery or within twenty-four hours thereafter, and if necessary fix
responsibility and secure evidence as to the nature and extent of the alleged
damages to the goods while the matter is still fresh in the minds of the parties.
The filing of a claim with the carrier within the time limitation therefore actually
constitutes a condition precedent to the accrual of a right of action against a carrier

for loss of, or damage to, the goods. The shipper or consignee must allege and
prove the fulfillment of the condition. If it fails to do so, no right of action against the
carrier can accrue in favor of the former. The aforementioned requirement is a
reasonable condition precedent; it does not constitute a limitation of action.[31]
We do not believe so. As discussed at length above, there is no evidence to confirm
that the notice of claim was filed within the period provided for under Article 366 of
the Code of Commerce. Petitioners contention proceeds from a false presupposition
that the notice of claim was timely filed.
Considering that we have resolved the first issue in the negative, it is therefore
unnecessary to make a resolution on the second issue.

EXEMPTION SHOULD BE PROVEN IN ORDER TO QUALIFY UNDEREXCEPTION CLAUSE

OF INSURANCE POLICY

COUNTRY BANKERS INSURANCE CORP. VS. LIANGA BAY & COMMUNITY MULTIPURPOSE COOPERATIVE, INC.
G.R. No.136914, January 25, 2002

Facts: Country Bankers Insurance Corp. (CBIC) insured the building of respondent
Lianga Bay and Community Multi-Purpose Corp., Inc. against fire, loss, damage, or
liability during the period starting June 20, 1990 for the sum of Php.200,000.00. On
July 1, 1989 at about 12:40 in the morning a fire occurred. The respondent filed the
insurance claim but the petition denied the same on the ground that the building
was set on fire by two NPA rebels and that such loss was an excepted risk under
par.6 of the conditions of the insurance policy that the insurance does not cover any
loss or damage occasioned by among others, mutiny, riot, military or any uprising.
Respondent filed an action for recovery of loss, damage or liability against petitioner
and the Trial Court ordered the petition to pay the full value of the insurance.

Issue: Whether or not the insurance corporation is exempted to pay based on the
exception clause in the insurance policy.

Held: The Supreme Court held that the insurance corporation has the burden of
proof to show that the loss comes within the purview of the exception or limitation
set-up. But the insurance corporation cannot use a witness to prove that the fire

was caused by the NPA rebels on the basis that the witness learned this from others.
Such testimony is considered hearsay and may not be received as proof of the truth
of what he has learned. The petitioner, failing to prove the exception, cannot rely
upon on exemption or exception clause in the fire insurance policy. The petition was
granted.

BREACH OF CONTRACT OF INSURANCE

MALAYAN INSURANCE CO., VS. PHIL.NAILS & WIRES CORP.

G.R. No.138084, April 10, 2002

Facts: Respondent Phil. Nails & Wires Corp. insured against all risk its shipment of
10,053.40 metric tons of steel billet with petitioner Malayan Insurance Co., Inc., the
shipment delivered was short by 377.168 metric tons. For this shortage, respondent
claimed insurance for Php.5,250,000.00. Petitioner refused to pay. On July 28, 1993,
respondent filed a complaint against petitioner for the Sum of money with RTC of
Pasig. Petitioner moved to dismiss for failure to state cause of action but it was
denied. On November 4, 1994, respondent moved to declare petitioner in default
and the trial court granted and allowed the presentation of evidence ex parte.
Respondent presented its lone witness, Jeanne King. On November 11, 1993,
petitioner filed its answer but was expunged from the record for late filing. The Trial
Court rendered a judgment by default.

Issue: Whether or not there is a cause of action and whether or not King is credible
witness.

Held: The Supreme Court ruled that the respondents cause of action is founded on
breach of insurance. To hold petitioner liable, respondent has to prove, first, its, its
importation of 10,053.40 metric tons of steel billets and second, the actual steel
billets delivered to and received by the respondent. Witness Jeanne King has
personal knowledge of the goods imported steel billets received. Her testimony on
steel billets received was hearsay because she based the summary only on the
receipts prepared by the other person.

CONCEALMENT MADE IN GOOD FAITH; VALID INSURACE CONTRACT

PHILAMCARE HEALTH SYSTEMS, INC. VS. CA & JULITA RAMOS

G.R. No.125678, March 18, 2002

Facts: Ernani Trinos, deceased husband of Julita Ramos, applied for a health care
coverage with the petitioner Philamcare. In the standard application form, he
delivered no to a question asking him if he had been treated of any of the family
member consulted for high blood, heart trouble, diabetes, cancer, liver disease,
asthma or ulcer. The application was approved for a period of 1 year from and thus
extended to June 1, 1990. During the period of coverage, Ernani suffered a heart
attack and was confined for one month. Respondent Julita Ramos tried to claim
saying that the health care Agreement was void as there was concealment
regarding Ernanis medical history. On July 24, 1990, after Ernani died, Julita Ramos
instituted an action for damages against Philam care with the RTC Manila, which
ruled against the latter.

Issue: Whether or not there is a valid insurance contract because of alleged

concealment of material fact.

Held: The Supreme Court ruled that there is a valid insurance contract, after all, all
the elements for an insurance contract are contract are present and alleged
concealment answers made in good faith and without intent to deceive will not
avoid the policy. The insurer, in case of material fact, is not justified in relying upon
such statement, but obligated to make further inquiry.

PAYMENT BY INSURANCE COMPANY OF INSURABLE VALUE OF THE GOODS;

INSURANCE COMPANY SUBROGATED TO THE RIGHTS OF THE ASSURED AGAINST
THE COMMON CARRIER

DELSAN TRANSPORT LINES, INC. VS. CA ET.AL.

G.R. No.127897, November 15, 2001

Facts: Caltex Phil. entered into a contract of affreightment with the petitioner,
Delsan Transport Lines, Inc. for a period of one year whereby the petitioner agreed
to transport Caltex industrial fuel oil from Batangas refinery to different parts of the
country. On August 14, 1986, MT Maysun set sail for Zamboanga City but
unfortunately the vessel in the early morning of August 16, 1986 near Panay Gulf.
The shipment was insured with the private respondent, American Home Assurance
Corporation. Subsequently, private respondent paid Caltex the sum of
Php.5,096,635.57. Exercising its right of subrogation under Art. 2207, NCC, the
private respondent demanded from the petitioner the same amount paid to Caltex.
Due to its failure to collect from the petitioner, private respondent filed a complaint
with the RTC of Makati City but the trial court dismissed the complaint, finding the
vessel to be seaworthy and that the incident was due to a force majeure, thus
exempting the petitioner from liability. However, the decision of the trial court was
reversed by the CA, giving credence to the report of PAGASA that the weather was
normal and that it was impossible for the vessel to sink.

Issue: Whether or not the payment made by private respondent for the insured
value of the lost cargo amounted to an admission that the vessel was seaworthy,
thus precluding any action for recovery against the petitioner.

Held: The payment by the private respondent for the insured value of the lost cargo
operates as waiver of its right to enforce the term of the implied warranty against
Caltex under the marine insurance policy. However, the same cannot be validly
interpreted as an automatic admission of the vessels seaworthiness by the private
respondent as to foreclose recourse against the petitioner for any liability under its
contractual obligation as common carrier. The fact of payment grants the private
respondent subrogatory right which enables it to exercise legal remedies that
otherwise be available to Caltex as owner of the lost cargo against the petitioner
common carrier.

TRANSPORTATION LAW

JAPAN AIRLINES VS. ASUNCION

G.R. No. 161730. January 28, 2005

Facts: On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on
board Japan Airlines (JAL) bound for Los Angeles. Their itinerary included a stopover in Narita and an overnight stay at Hotel Nikko Narita. Upon arrival at Narita, en
employee of JAL endorsed their applications for shore pass and directed them to the
Japanese immigration official. A shore pass is required of a foreigner aboard a vessel
or aircraft who desires to stay in the neighborhood of the port of call for not more
than 72 hours.
During their interview, the Japanese immigration official noted that Michael
appeared shorter than his height as indicated in his passport. Because of this
inconsistency, respondents were denied shore pass entries and were detained at
the Narita Airport Rest House where they were billeted overnight. A JAL employee
was instructed that the respondents were to be watched so as not to escape.
Respondents were charged US $400.00 each for their accommodation, security,
service and meals.
Subsequently, respondents filed a complaint for damages claiming that JAL did not
fully apprise them of their travel requirements and that they were rudely and
forcibly detained at the Narita Airport. The trial court rendered a decision favor of
the respondents. On appeal, the CA affirmed in toto the decision of the trial court.
Issue: Whether JAL is guilty of breach of contract.
Held: The SC found that JAL did not breach its contract of carriage with respondents.
It may be true that JAL has the duty to inspect whether its passengers have the
necessary travel documents, however, such duty does not extend to checking the
veracity of every entry in these documents. JAL could not vouch for the authenticity
of a passport and the correctness of the entries therein. The power to admit or not
an alien into the country is a sovereign act which cannot be interfered with even by
JAL. This is not within the ambit of the contract of carriage entered into by JAL and
herein respondents. As such, JAL should not be faulted for the denial of respondents
shore pass applications.

SHIP AGENT; LIABILITIES

MACONDRAY & CO., INC. VS. PROVIDENT INSURANCE CORPORATION February, 2005

Facts: CANPOTEX SHIPPING SERVICES LIMITED INC., shipped on board the vessel
M/V Trade carrier certain goods in favor of ATLAS FERTILIZER CORPORATION. Subject
shipments were insured with Provident Insurance Corp. against all risks.
When the shipment arrived, consignee discovered that the shipment sustained
losses. Provident paid for said losses. Formal claims were then filed with Trade &

Transport but MACONDRAY refused and failed to settle the same. MACONDRAY
denies liability over the losses, it, having no absolute relation with Trade &
Transport, the alleged operator of the vessel who transported the shipment; that
accordingly, MACONDRAY is the local representative of the shipper; the charterer of
M/V Trade Carrier and not party to this case; that it has no control over the acts of
the captain and crew of the carrier and cannot be held responsible for any damage
arising from the fault or negligence of said captain and crew; that upon arrival at
the port, M/V Trade Carrier discharged the full amount of shipment as shown by the
draft survey.
Issue: Whether or not MACONDRAY & CO. INC., as an agent, is responsible for any
loss sustained by any party from the vessel owned by Trade & Transport.
Held: Although petitioner is not an agent of Trade & Transport, it can still be the ship
agent of the vessel M/V Trade Carrier. A ship agent is the person entrusted with
provisioning or representing the vessel in the port in which it may be found. Hence,
whether acting as agent of the owner of the vessel or as agent of the charterer,
petitioner will be considered as the ship agent and may be held liable as such, as
long as the latter is the one that provisions or represents the vessel.
The trial court found that petitioner was appointed as local agent of the vessel,
which duty includes arrangement for the entrance and clearance of the vessel.
Further, the CA found that the evidence shows that petitioner represented the
vessel. The latter prepared the Notice of Readiness, the Statement of Facts, the
Completion Notice, the Sailing Notice and Customs Clearance. Petitioners
employees were present at the port of destination one day before the arrival of the
vessel, where they stayed until it departed. They were also present during the
actual discharging of the cargo. Moreover, Mr. de la Cruz, the representative of
petitioner, also prepared for the needs of the vessel. These acts all point to the
conclusion that it was the entity that represented the vessel at the port of
destination and was the ship agent within the meaning and context of Article 586 of
the Code of Commerce.

EXTRAORDINARY DILIGENCE; PRESUMPTION OF FAULT OR NEGLIGENCE REBUTTABLE

REPUBLIC OF THE PHIL., represented by the DEPARTMENT OF HEALTH, NATIONAL

TRUCKING AND FORWARDING CORPORATION (NTFC) and COOPERATIVE FOR
AMERICAN RELIEF EVERYWHERE, INC. (CARE) VS. LORENZO SHIPPING CORPORATION
(LSC)
G.R. No. 153563. February 7, 2005

Facts: The Philippine government entered into a contract of carriage of goods with
petitioner NTFC whereby the latter shipped bags of non-fat dried milk through
respondent LSC. The consignee named in the bills of lading issued by the
respondent was Abdurahma Jama, petitioners branch supervisor in Zamboanga
City.
On reaching the port of Zamboanga City, the respondents agent unloaded the
goods and delivered the same to petitioners warehouse. Before each delivery, the
delivery checkers of respondents agent requested Jama to surrender the original
bills of lading, but the latter merely presented certified true copies thereof. Upon
completion of each delivery, the delivery checkers asked Jama to sign the delivery
receipts. However, at times when Jama had to attend to other business before a
delivery was completed, he instructed his subordinates to sign the delivery receipts
for him.
Notwithstanding the precautions taken, petitioner NTFC allegedly did not receive
the good and filed a formal claim for non-delivery of the goods shipped through
respondent. Respondent explained that the cargo had already been delivered to
Jama. The government through the DOH, CARE and NTFC as plaintiffs filed an action
for breach of contract of carriage against respondent as defendant.
Issue: Whether or not respondent is presumed at fault or negligent as common
carrier for the loss or deterioration of the goods.
Held: Article 1733 of the Civil Code demands that a common carrier observe
extraordinary diligence over the goods transported by it. Extraordinary diligence is
that extreme measure of care and caution which persons of unusual prudence and
circumspection use for securing and preserving their own property or rights. This
exacting standard imposed on common carriers in a contract of carriage of goods is
intended to tilt the scales in favor of the shipper who is at the mercy of the common
carrier once the goods have been lodged for shipment. Hence, in case of loss of
goods in transit, the common carrier is presumed under the law to have been at
fault or negligent. However, the presumption of fault or negligence may be
overturned by competent evidence showing that the common carrier has observed
extraordinary diligence over the goods.
The respondent has observed such extraordinary diligence in the delivery of the
goods. Prior to releasing the goods to Jama, the delivery checkers required the
surrender of the original bills of lading, and in their absence, the certified true
copies showing that Jama was indeed the consignee of the goods. In addition, they
required Jama or his designated subordinates to sign the delivery receipts upon
completion of each delivery.

PROMPT NOTICE OF CLAIM MUST BE MADE WITHIN THE PRESCRIBED PERIOD AS

STATED IN THE BILL OF LADING
PROVIDENT INSURANCE CORP. (PIC) VS. COURT OF APPEALS and AZUCAR SHIPPING
CORP. (ASC)
G.R. No. 118030. January 15, 2004

Facts: The vessel MV Eduardo II received on board a shipment of plastic woven bags
of fertilizer in good order and condition which was consigned to Atlas Fertilizer
Corporation (AFC) and covered by a bill of lading. In the process of unloading at the
port of destination, certain goods were found to have fallen overboard and some
considered being unrecovered spillages. Petitioner PIC indemnified the consignee
AFC for its damages and seeks reimbursement from respondent ASC for the value of
the losses/damages to the cargo. Respondent ASC argued that the claim or demand
by petitioner had been waived, abandoned, or otherwise extinguished for failure of
the consignee to comply with the required claim for damages set forth in Stipulation
No. 7 of the Bill of Lading.
Issue: Whether or not failure to make the prompt notice of claim as required is fatal
to the right of petitioner to claim indemnification for damages.
Held: There can be no question about the validity and enforceability of Stipulation
No. 7 in the Bill of Lading. The 24-hour requirement under said stipulation is, by
agreement of the contracting parties, a sine qua non for accrual of the right of
action to recover damages against the carrier.
Considering that the prompt demand was necessary to foreclose the possibility of
fraud or mistake in ascertaining the validity of claims, there was a need for the
consignee or its agent to observe the conditions provided for in Stipulation No. 7.
Hence, petitioners insistence that respondent carrier had knowledge of the damage
because one of respondents officers supervised the unloading operations and
signed a discharging receipt, cannot be construed as sufficient compliance with the
said proviso. Moreover, a reading of the stipulation will readily show that upon the
consignee or its agent rests the obligation to make the necessary claim within the
prescribed period and not merely rely on the supposed knowledge of the damage by
the carrier.

DEFINITION: COMMON CARRIER IN GENERAL

CALVO VS. UCPB GENERAL INSURANCE TERMINAL SERVICE, INC.

G.R. No. 148496. March 19, 2002

Facts: A contract was entered into between Calvo and San Miguel Corporation (SMC)
for the transfer of certain cargoes from the port area in Manila to the warehouse of
SMC. The cargo was insured by UCPB General Insurance Co., Inc. When the
shipment arrived and unloaded from the vessel, Calvo withdrew the cargo from the
arrastre operator and delivered the same to SMCs warehouse. When it was
inspected, it was found out that some of the goods were torn. UCPB, being the
insurer, paid for the amount of the damages and as subrogee thereafter, filed a suit
against Calvo.
Petitioner, on the other hand, contends that it is a private carrier not required to
observe such extraordinary diligence in the vigilance over the goods.
As customs broker, she does not indiscriminately hold her services out to the public
but only to selected parties.

Issue: Whether or not Calvo is a common carrier liable for the damages for failure to
observe extraordinary diligence in the vigilance over the goods.

Held: The law makes no distinction between a carrier offering its services to the
general community or solicits business only from a narrow segment of the general
population. Note that the transportation of goods holds an integral part of Calvos
business, it cannot indeed be doubted that it is a common carrier.

FILING OF NOTICE OF CLAIM; ONE-YEAR PRESCRIPTIVE PERIOD

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. VS. PHIL. FIRST INSURANCE
CO., INC.
G.R. No. 143133. June 5, 2002

Facts: On June 13, 1990, CMC Trading A.G. shipped on board the M/V 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, M/V Anangel Sky arrived at the port of Manila and within the

subsequent days, discharged the subject cargo. Four coils were found to be in bad
order, and the consignee declared the same as total loss.
The respondent filed its Notice of Claim only on September 18, 1990. the complaint
was filed by respondent on July 25, 1991. Petitioners, on the other hand, claim that
pursuant to the Carriage of Goods by Sea Act (COGSA), respondent should have
filed its Notice of Loss within three days from delivery. They assert that the cargo
was discharged on July 31, 1990 but respondent filed its Notice of Claim only on
September 18, 1990.

Issue: Whether or not failure to file a Notice of Claim shall bar respondent from
recovery.

Held: First, COGSA provides that the notice of claim need not be given if the state of
the goods, at the time of their receipt, has been the subject of a joint inspection or
survey. In this case, prior to unloading the cargo, an Inspection Report as to the
condition of the goods was prepared and signed by representative of both parties.
Second, a failure to file a Notice of Claim within three days will not bar recovery if it
is nonetheless filed within one year. The one-year prescriptive period also applies to
the shipper, the consignee, the insurer of the goods or any legal holder of the bill of
lading. The cargo was discharged on July 31, 1990, while the Complaint was filed by
respondent on July 25, 1991, within the one-year prescriptive period.

FGU INSURANCE CORP. VS. G.P. SARMIENTO TRUCKING CORP. (GPS)

G.R. No. 141910. August 6, 2002

Facts: GPS is an exclusive contractor and hauler of Concepcion Industries, Inc. One
day, it was to deliver certain goods of Concepcion Industries, Inc. aboard one of its
trucks. On its way, the truck collided with an unidentified truck, resulting in damage
to the cargoes.
FGU, insurer of the shipment paid to Concepcion Industries, Inc. the amount of the
damage and filed a suit against GPS. GPS filed a motion to dismiss for failure to
prove that it was a common carrier.

Issue: Whether or not GPS falls under the category of a common carrier.

Held: Note that GPS is an exclusive contractor and hauler of Concepcion Industries,
Inc. offering its service to no other individual or entity.
A common carrier is one which offers its services whether to the public in general or
to a limited clientele in particular but never on an exclusive basis. Therefore, GPS
does not fit the category of a common carrier although it is not freed from its
liability based on culpa contractual.

STIPULATION IN THE CHARTER PARTY EXEMPTING LIABILITY

HOME INSURANCE CO. VS. AMERICAN STEAMSHIP AGENCIES

23 SCRA 24

Facts: A Peruvian firm shipped on board its vessel certain goods with San Miguel
Brewery as its consignee and Home Insurance Co. (HIC) as its insurer. The cargo was
found to have shortages when it arrived. HIC paid for said shortages and thereafter,
demanded recovery of the amount from American Steamship Agencies (ASA). The
trial court ordered ASA to reimburse HIC since according to the Code of Commerce,
the ship agent is civilly liable for damages in favor of third persons due to the
conduct of the carriers captain and that the stipulation in the charter party
exempting the owner of the ship from liability is against public policy.

Issue: Whether or not the stipulation in the charter party exempting the ship owner
from liability for negligence of its agents is valid.

Held: The stipulation in the charter party exempting the ship owner from liability for
negligence of its agents is valid and not against public policy considering that the
ship was totally chartered for the use of a single party, hence, the public at large is
not involved and strict public policy governing common carriers cannot be applied.

FORTUITOUS EVENT: EXEMPTION FROM LIABILITY

FORTUNE EXPRESS, INC. VS. COURT OF APPEALS

305 SCRA 14

Facts: A bus of Fortune Express, Inc. (FEI) figured in an accident with a jeepney
which resulted in the death of several passengers including two Maranaos. It was
found out that a Maranao owns said jeepney and certain Maranaos were planning to
take revenge by burning some of FEIs buses. The operations manager of FEI was
advised to take precautionary measures but just the same, three armed Maranaos
were able to seize a bus of FEI and set it on fire.

Issue: Whether the seizure of the bus was a fortuitous event which Fortune Express,
Inc could not be held liable.

Held: A fortuitous event is an occurrence which could not be foreseen or which

though foreseen, is inevitable. This factor of unforeseen-ability is lacking in this case
for despite the report that the Maranaos were planning to burn FEIs buses, nothing
was really done by FEI to protect the safety of the passengers.

SAN CARLOS MILLING CO., LTD vs. BANK OF THE PHILIPPINE ISLANDS AND
CHINABANKING CORPORATION
G.R. No. L-37467December 11, 1933
FACTS:
San Carlos milling,organized under the laws of the Territory of Hawaii was
authorized toengage in business in the Philippines. Thebusiness in the Philippines
was in the hands of Alfred Cooper, its agent under general power of attorney with
authority of substitution. Theprincipal employee in the Manila Office was Joseph
Wilson who had a general power of attorney but without power of
substitution.Cooper went on a vacation and gave a generalpower of attorney to
Newland Baldwin andrevoked the power of Wilson relative to thedealings with
BPI.After a year, Wilson conspired with Dolores, amessenger-clerk and sent a cable
gram in codeto the company in Honolulu requesting atelegraphic transfer to the

China BankingCorporation of Manila for $100,000. The moneywas transferred by

cable to Chinabank andupon receipt, sent to San Carlos Milling anexchange contract
for P201,000 (exchangerate then). Such contract was forged in thename of Newland
Baldwin. It further askedChinabank to send a certified check in SanCarlos Millings
favor, payable for deposit onlywith BPI. The endorsement to which the nameof
Newland Baldwin was affixed was spurious.BPI credited the current account of
plaintiff inthe sum of P201,000 and after it was cleared, itwas paid by China Banking
Corporation The next day, BPI received a letter purported tobe signed by Newland
Baldwin, directing thatthe money be paid in certain denominations. The couting and
packing of the money waswitnessed by Dolores who in turn returned witha check
purporting to be signed by NewlandBaldwin as agent. . Dolores also returned witha
forged check for P1 covering the cost of packing the money. Shortly thereafter,
thecrime was discovered but BPI refused to creditSan Carlos Milling with the amount
withdrawnby the two forged checks and brought the caseto the Trial Court. Upon the
petition of BPI,Chinabank was also impleaded as defendant. The trial court held that
the deposit of P201,000 in the BPI being the result of a forgedendorsement, the
relation of the depositor andbanker did not exist, but the bank was only a