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Commercial Law Memory Aid Guide

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San Beda College of Law 1

MEMORY AID IN
COMMERCIAL LAW

INSURANCE
CODE
(P.D. No. 1460)

I. GENERAL CONCEPTS the insurer promises to make good

only the loss of the insured.
CONTRACT OF INSURANCE
 An agreement whereby one
undertakes for a consideration to
indemnify another against loss,
damage or liability arising from an
unknown or contingent event. (Sec.
2, par. 2, IC)

“DOING AN INSURANCE
BUSINESS OR TRANSACTING AN
INSURANCE BUSINESS” (Sec. 2,
par. 4)
1. Making or proposing to make, as
insurer, any insurance contract;
2. Making or proposing to make, as
surety, any contract of
suretyship as a vocation, not as
a mere incident to any other
legitimate business of a surety;
3. Doing any insurance business,
including a reinsurance
business;
4. Doing or proposing to do any
business in substance equivalent
to any of the foregoing

II. CHARACTERISTICS OF AN
INSURANCE CONTRACT (The
Insurance Code of the Philippines
Annotated, Hector de Leon, 2002
ed.)
1. Consensual – it is perfected by
the meeting of the minds of the
parties.
2. Voluntary – the parties may
incorporate such terms and
conditions as they may deem
convenient.
3. Aleatory – it depends upon some
contingent event.
4. Unilateral – imposes legal duties
only on the insurer who promises
to indemnify in case of loss.
5. Conditional – It is subject to
conditions the principal one of
which is the happening of the
event insured against.
6. Contract of indemnity – Except
life and accident insurance, a
contract of insurance is a
contract of indemnity whereby
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 2
MEMORY AID IN
COMMERCIAL LAW
7. Personal – each party having in 4. Contract of Adhesion (Fine Print
view the character, credit and Rule)
conduct of the other.

REQUISITES OF A CONTRACT OF
INSURANCE (The Insurance Code
of the Philippines Annotated,
Hector de Leon, 2002 ed.)
1. A subject matter which the
insured has an insurable interest.
2. Event or peril insured against
which may be any future
contingent or unknown event, past
or future and a duration for the
risk thereof.
3. A promise to pay or indemnify
in a fixed or ascertainable amount.
4. A consideration known as
“premium”.
5. Meeting of the minds of the
parties.

5 CARDINAL PRINCIPLES IN
INSURANCE
1. Insurable Interest
2. Principle of Utmost Good Faith
 An insurance contract requires
utmost good faith (uberrimae
fidei) between the parties. The
applicant is enjoined to disclose
any material fact, which he knows
or ought to know.
 Reason: An insurance contract is
an aleatory contract. The insurer
relies on the representation of the
applicant, who is in the best
position to know the state of his
health.
3. Contract of Indemnity
 It is the basis of all property
insurance. The insured who has
insurable interest over a property
is only entitled to recover the
amount of actual loss sustained
and the burden is upon him to
establish the amount of such loss
(Reviewer on Commercial Law,
Professors Sundiang and Aquino)
Rules:
a. Applies only to property
insurance except when the
creditor insures the life of
his debtor.
b. Life insurance is not a
contract of indemnity.
c. Insurance contracts are not
wagering contracts. (Sec.
4)

COMMERCIAL LAW COMMITTEE

 Most of the terms of the contract covered by the policy. (Pan Malayan
do not result from mutual Insurance Company v. CA, 184 SCRA
negotiations between the parties as 54)
they are prescribed by the insurer in d. In life insurance
final printed form to which the
insured may “adhere” if he chooses
but which he cannot change. (Rizal
Surety and Insurance Co., vs. CA,
336 SCRA 12)
5. Principle of Subrogation
 It is a process of legal substitution
where the insurer steps into the
shoes of the insured and he avails of
the latter’s rights against the
wrongdoer at the time of loss.
 The principle of subrogation is a
normal incident of indemnity
insurance as a legal effect of
payment; it inures to the insurer
without any formal assignment or
any express stipulation to that effect
in the policy. Said right is not
dependent upon nor does it grow
out of any private contract. Payment
to the insured makes the insurer a
subrogee in equity. (Malayan
Insurance Co., Inc. v. CA, 165 SCRA
536; see also Art. 2207, NCC)
 Purposes: (The Insurance Code of
the Philippines Annotated, Hector de
Leon, 2002 ed.)
1. To make the person who caused
the loss legally responsible for it.
2. To prevent the insured from
receiving a double recovery from
the wrongdoer and the insurer.
3. To prevent tortfeasors from
being free from liabilities and is
thus founded on considerations
of public policy.
 Rules:
1. Applicable only to property
insurance.
2. The insurer can only recover from
the third person what the insured
could have recovered.
3. There can be no subrogation in
cases:
a. Where the insured by his own act
releases the wrongdoer or third
party liable for the loss or damage;
b. Where the insurer pays the
insured the value of the loss
without notifying the carrier who
has in good faith settled the
insured’s claim for loss;
c. Where the insurer pays the
insured for a loss or risk not
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 4
MEMORY AID IN
COMMERCIAL LAW
e. For recovery of loss in excess of Co. of Canada, 41 Phil. 269)
insurance coverage
Binding Receipt
CONSTRUCTION OF  A mere acknowledgment on behalf
INSURANCE CONTRACT of the company that its branch office
 The ambiguous terms are to be had
construed strictly against the
insurer, and liberally in favor of
the insured. However, if the terms
are clear, there is no room for
interpretation. (Calanoc vs. Court
of Appeals, 98 Phil. 79)

III. DISTINGUISHING ELEMENTS

OF AN INSURANCE CONTRACT
1. The insured possesses an
insurable interest susceptible of
pecuniary estimation;
2. The insured is subject to a risk
of loss through the destruction
or impairment of that interest
by the happening of designated
perils;
3. The insurer assumes that risk of
loss;
4. Such assumption is part of a
general scheme to distribute
actual losses among a large
group or substantial number of
persons bearing somewhat
similar risks; and
5. The insured makes a ratable
contribution (premium) to a
general insurance fund.
 A contract possessing only the
first 3 elements above is a risk-
shifting device. If all the elements,
it is a risk- distributing device.
(The Insurance Code of the
Philippines Annotated, Hector de
Leon, 2002 ed.)

IV. PERFECTION OF AN
INSURANCE CONTRACT
 An insurance contract is a
consensual contract and is
therefore perfected the moment
there is a meeting of minds with
respect to the object and the
cause or consideration.
 What is being followed in
insurance contracts is what is
known as the “cognition theory”.
Thus, “an acceptance made by
letter shall not bind the person
making the offer except from the
time it came to his knowledge”.
(Enriquez vs. Sun Life Assurance

COMMERCIAL LAW COMMITTEE

received from the applicant the 4. Property or life insured;

insurance premium and had
accepted the application subject to
processing by the head office.

Cover Note (Ad Interim)

 A concise and temporary written
contract issued to the insurer
through its duly authorized agent
embodying the principal terms of an
expected policy of insurance.
Purpose: It is intended to give
temporary insurance protection
coverage to the applicant pending
the acceptance or rejection of his
application.
 Duration: Not exceeding 60 days
unless a longer period is approved
by Insurance Commissioner (Sec.
52).

Riders
 Printed stipulations usually
attached to the policy because they
constitute additional stipulations
between the parties. (Ang Giok Chip
vs. Springfield, 56 Phil. 275)
 In case of conflict between a rider
and the printed stipulations in the
policy, the rider prevails, as being a
more deliberate expression of the
agreement of the contracting
parties. (C. Alvendia, The Law of
Insurance in the Philippines, 1968
ed.)

Clauses
 An agreement between the insurer
and the insured on certain matter
relating to the liability of the insurer
in case of loss. (Prof. De Leon,
p.188)

Endorsements
 Any provision added to the
contract altering its scope or
application. (Prof. De Leon, p.188)

POLICY OF INSURANCE
 The written instrument in which a
contract of insurance is set forth.
(Sec. 49)

 Contents: (Sec. 51)

1. Parties
2. Amount of insurance, except in
open or running policies;
3. Rate of premium;
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 6
MEMORY AID IN
COMMERCIAL LAW
5. Interest of the insured in the 3. Contracts of bonding or suretyship
property if he is not the (Secs. 175–178)
absolute owner; Note:
6. Risk insured against; and 1. Health and accident insurance
7. Duration of the insurance. are either covered under life (Sec.
180) or casualty insurance. (Sec.
 Persons entitled to recover 174).
on the policy (sec. 53): The 2. Marine, fire, and the property
insurance proceeds shall be aspect of casualty insurance are
applied exclusively to the proper also referred to as property
interest of the person in whose insurance.
name or to whose benefit it is
made, unless otherwise specified
in the policy.
 Kinds:
1. OPEN POLICY – value of thing
insured is not agreed upon, but
left to be ascertained in case of
loss. (Sec. 60)
 The actual loss, as
determined, will represent the
total indemnity due the insured
from the insurer except only
that the total indemnity shall
not exceed the face value of
the policy. (Development
Insurance Corp. vs. IAC, 143
SCRA 62)
2. VALUED POLICY – definite
valuation of the property insured
is agreed by both parties, and
written on the face of policy. (Sec.
61)
 In the absence of fraud or
mistake, the agreed valuation
will be paid in case of total loss
of the property, unless the
insurance is for a lower
amount.
3. RUNNING POLICY –
contemplates successive
insurances and which provides
that the object of the policy may
from time to time be defined (Sec.
62)

V. TYPES OF INSURANCE
CONTRACTS
1. Life insurance
a. Individual life (Secs. 179–183,
227)
b. Group life (Secs. 50, last par.,
228)
c. Industrial life (Secs. 229–231)
2. Non-life insurance
a. Marine (Secs. 99–166)
b. Fire (Secs. 167–173)
c. Casualty (Sec. 174)

COMMERCIAL LAW COMMITTEE

VII. INSURABLE INTEREST

A. In General
 A person has an insurable
interest in the subject matter if he
is so connected, so situated, so
circumstanced, so related, that by
the preservation of the same he
shall derive pecuniary benefit, and
by its destruction he shall suffer
pecuniary loss, damage or
prejudice.
B. Life
 Every person has an insurable

COMMERCIAL LAW COMMITTEE

c. of any person under a legal

obligation to him to pay exist at the time of when the loss
money or respecting property loss occurs
or services, of which death or Unlimited except in Limited to actual
life value of interest
illness might delay or prevent in property
performance; and insurance effected insured.
d. of any person upon whose by creditor on life
life any estate or interest of debtor.
vested in him depends. (Sec. The expectation of An expectation
10) benefit to be of a benefit to be
 When it should exist: When the derived from the derived from the
insurance takes effect; not continued continued
thereafter or when the loss occurs. existence of life existence of the
need not have any property
 Amount:
legal basis
GENERAL RULE: There is no limit in whatever. A insured must
the amount the insured can insure reasonable have a legal
his life. probability basis.
EXCEPTION: In a creditor-debtor is
relationship where the creditor sufficient
insures the life of his debtor, the
limit of insurable interest is equal to without more.
the amount of the debt. The beneficiary The
need not have an beneficiary
Note: If at the time of the death of must have
insurable interest
the debtor the whole debt has over the life of the insurable interest
already been paid, the creditor can insured if the over the thing
no longer recover on the policy insured insured.
because the principle of indemnity
applies. himself secured
the policy.
C. Property However, if the life
 Every interest in property whether insurance
was
real or personal, or any relation
obtained by the
thereto, or liability in respect beneficiary, the
thereof, of such nature that the latter must have
contemplated peril might directly insurable interest
damnify the insured (Sec. 13), which over the life of the
may consist in: insured.
1. an existing interest;
2. any inchoate interest SPECIAL CASES
founded on an existing 1. In case of a carrier or depositary
interest; or  A carrier or depository of any kind
3. an expectancy coupled has an insurable interest in a thing
with an existing interest held by him as such, to the extent of
in that out of which the his liability but not to exceed the
expectancy arises. (Sec. value thereof (Sec. 15)
14) 2. In case of a mortgaged property
 When it should exist: When the  The mortgagor and mortgagee
insurance takes effect and when the each have an insurable interest in
loss occurs, but need not exist in the the property mortgaged and this
meantime. interest is separate and distinct from
 Amount: The measure of insurable the other.
interest in property is the extent to a. Mortgagor – As owner, has an
which the insured might be damnified insurable interest therein to the
by loss or injury thereof. (Sec. 17) extent of its value, even though
the mortgage debt equals such
INSURABLE INSURABL value. The reason is that the loss
INTEREST IN E or destruction of the property
LIFE INTEREST insured will not extinguish the
COMMERCIAL LAW COMMITTEE IN
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
PROPERT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws); Y
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 1
0
MEMORY AID IN
COMMERCIAL LAW
mortgage debt.
b. Mortgagee – His interest is
only up to the extent of the
debt. Such interest continues
until the mortgage debt is
extinguished.

 The lessor cannot be validly a

beneficiary of a fire insurance
policy

COMMERCIAL LAW COMMITTEE

taken by a lessee over his insurer. (Palileo vs. Cosio)

merchandise, and the provision in
the lease contract providing for such VIII. RISK
automatic assignment is void for  What may be insured against:
being contrary to law and public 1. Future contingent event resulting
policy. (Cha vs. Court of Appeals, in loss or damage – Ex. Possible
227 SCRA 690) future fire

STANDARD OPEN OR
OR UNION LOSS
MORTGAGE PAYABLE
CLAUSE MORTGAGE
CLAUSE
Subsequent acts Acts of the
of the mortgagor
mortgagor affect the
cannot affect
the rights of the mortgagee.
assignee Reason:
Mortgagor
does not
cease to be a
party to the
contract.

(Secs. 8 and 9)

Effects of Loss Payable Clause

a. The contract is deemed to be
upon the interest of the mortgagor;
hence, he does not cease to be a
party to the contract.
b. Any act of the mortgagor prior to
the loss, which would otherwise
avoid the insurance affects the
mortgagee even if the property is in
the hands of the mortgagee.
c. Any act, which under the contract
of insurance is to be performed by
the mortgagor, may be performed
by the mortgagee with the same
effect.
d. In case of loss, the mortgagee is
entitled to the proceeds to the
extent of his credit.
e. Upon recovery by the mortgagee
to the extent of his credit, the debt
is extinguished.

 In case a mortgagee insures his

own interest and a loss occurs, he is
entitled to the proceeds of the
insurance but he is not allowed to
retain his claim against the
mortgagor as the claim is
discharged but it passes by
subrogation to the insurer to the
extent of the money paid by such
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 1
2
MEMORY AID IN
COMMERCIAL LAW
2. Past unknown event resulting any stipulation therein that it shall
in loss or damage – Ex. Fact of not be binding until the premium is
past sinking of a vessel actually paid. (Sec. 78)
unknown to the parties
3. Contingent liability – Ex.
Reinsurance

[Link] PAYMENTS
 Consideration paid an insurer for
undertaking to indemnify the
insured against a specified peril.
 Basis of the right of the insurer
to collect premiums: Assumption
of risk.

GENERAL RULE: No policy issued

by an insurance company is valid
and binding until actual payment
of premium. Any agreement to the
contrary is void. (Sec. 77)

EXCEPTIONS:
1. In case of life or industrial life
insurance, when the grace
periods applies; (Sec. 77)
2. When the insurer makes a
written acknowledgment of
the receipt premium; (Sec.
78)
3. Section 77 may not apply if
the parties have agreed to the
payment of the premium in
installments and partial
payment has been made at
the time of the loss. (Makati
Tuscany Condominium Corp.
v. CA, 215 SCRA 462)
4. Where a credit term has been
agreed upon. (UCPB vs.
Masagana Telemart, 308
SCRA 259)
5. Where the parties are barred
by estoppel. (UCPB vs.
Maagana Telemart, 356 SCRA
307)

 Section 77 merely precludes the

parties from stipulating that the
policy is valid even if the
premiums are not paid. (Makati
Tuscany Condominium Corp. v.
CA, 215 SCRA 462)

Effect of Acknowledgment of
Receipt of Premium in Policy:
Conclusive evidence of its
payment, so far as to make the
policy binding, notwithstanding

COMMERCIAL LAW COMMITTEE

ENTITLEMENT OF INSURED TO
RETURN OF PREMIUMS PAID
Payment is Payment
not is
A. Whole:
enforceable enforceable once
1. If the thing insured was never against the levied
exposed to the risks insured insured. unless
against; (Sec. 79) otherwise
2. If contract is voidable due to
the fraud or agreed upon.
misrepresentation of insurer
or his agents; (Sec. 81) Not a debt. It becomes a debt
3. If contract is voidable once
because of the existence of
properly
facts of which the insured levied
was ignorant without his
fault; (Sec. 81) unless otherwise
4. When by any default of the agreed.
insured other than actual
fraud, the insurer never X. TRANSFER OF POLICY
incurred liability; (Sec. 81) 1. Life Insurance
5. When rescission is granted  It can be transferred even without
due to the insurer’s breach of the consent of the insurer except
contract. (Sec. 74) when there is a stipulation requiring
B. Pro rata: the consent of the insurer before
1. When the insurance is for a transfer. (Sec. 181)
definite period and the  Reason: The policy does not
insured surrenders his policy represent a personal agreement
before the termination between the insured and the
thereof; insurer.
 Exceptions: 2. Property insurance
a. policy not made for  It cannot be transferred without
a definite period of the consent of the insurer.
time  Reason: The insurer approved the
b. short period rate is policy based on the personal
agreed upon qualification and the insurable
c. life insurance policy interest of the insured.
2. When there is over-insurance 3. Casualty insurance
(Sec. 82);  It cannot be transferred without
the consent of the insurer. (Paterson
Instances when premiums are cited in de Leon p. 82)
not recoverable:  Reason: The moral hazards are as
1. When the risk has already great as those of property
attached and the risk is entire insurance.
and indivisible.
2. In life insurance. CHANGE OF INTEREST IN THE
3. When the contract is THING INSURED
rescindable or rendered void ab  The mere (absolute) transfer of the
initio by the fraud of the insured. thing insured does not transfer the
4. When the contract is illegal policy, but suspends it until the
and the parties are in pari same person becomes the owner of
delicto. both the policy and the thing
insured. (Sec. 58)
 Reason: Insurance contract is
personal.
GENERAL RULE: A change of
interest in any part of a thing
insured

COMMERCIAL LAW COMMITTEE

EXCEPTIONS:
1. In life, health and accident c. Such party concealing makes
insurance.(Sec. 20); no warranty as to the fact
2. Change in interest in the concealed.
thing insured after d. The other party has not the
occurrence of an injury which means of ascertaining the
results in a loss. (Sec. 21); fact concealed.
3. Change in interest in one or e. Material
more of several distinct  Effects: Entitles insurer to rescind,
things separately insured by even if the death or loss is due to a
one policy. (Sec. 22); cause not related to the concealed
4. Change of interest, by will or matter (Sec. 27).
succession, on the death of Note: Good Faith is not a defense in
the insured. (Sec. 23); concealment. Sec. 27 clearly
5. Transfer of interest by one of provides that, “the concealment
several partners, joint whether intentional or unintentional
owners, or owners in entitles the injured party to rescind
common, who are jointly the contract of insurance.”
insured, to others. (Sec. 24);
6. When a policy is so framed Test of Materiality: Determined
that it will inure to the benefit not by the event, but solely by the
of whomsoever, during the probable and reasonable influence
continuance of the risk, may of the facts upon the party to whom
become the owner of the the communication is due, in
interest insured. (Sec. 57); forming his estimate of the
7. When there is an express advantages of the proposed
prohibition against alienation contract, or in making his inquiries
in the policy, in case of (Sec. 31).
alienation, the contract of  Exception to Sec. 31:
insurance is not merely a. Incontestability clause
suspended but avoided. (Art. b. Matters under Sec.110 (marine
1306, NCC). insurance)

XI. ASCERTAINMENT AND  The waiver of medical examination

CONTROL OF RISK AND LOSS in a non-medical insurance contract
renders even more material the
A. Four Primary Concerns of the information required of the applicant
Parties: concerning the previous conditions
1. Correct estimation of the risk; of health and diseases suffered.
2. Precise delimitation of the risk; (Sunlife v. Sps. Bacani, 246 SCRA
3. Control of the risk; 268).
4. Determining whether a loss
occurred and if so, the amount of  The right to information of material
such loss. facts may be waived, either by the
terms of the insurance or by neglect
B. Devices used for ascertaining to make inquiries as to such facts
and controlling risk and loss: where they are distinctly implied in
1. Concealment – A neglect to other facts of which information is
communicate that which a party communicated. (Sec.33)
knows and ought to communicate
(Sec. 26)  Where matters of opinion or
 Requisites: judgment are called for, answers
a. A party knows a fact which made in good faith and without
he neglects to communicate intent to deceiver will not avoid the
or disclose to the other. policy even though they are untrue.
b. Such party concealing is duty Reason: The insurer cannot rely on
bound to disclose such fact to those statements. He must make
the other. further inquiry. (Philamcare Health
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 1
6
MEMORY AID IN
COMMERCIAL LAW
Systems vs. CA, G.R. No. 125678,
March 18, 2002).

COMMERCIAL LAW COMMITTEE

2. Representations – Factual 3. Warranties – Statement or

statements made by the insured at promise by the insured set forth in the
the time of, or prior to, the issuance policy or by reference incorporated
of the policy to give information to therein, the
the insurer and induce him to enter
into the insurance contract. They are
considered an active form of
concealment.
 Requisites of a false
representation (misrepresentation):
a. The insured stated a fact
which is untrue.
b. Such fact was stated with
knowledge that it is untrue
and with intent to deceive or
which he states positively as
true without knowing it to be
true and which has a
tendency to mislead.
c. Such fact in either case is
material to the risk.
 Characteristics:
a. It is not a part of the contract but
merely a collateral inducement to it.
b. It may be oral or written.
c. It is made at the same time of
issuing the policy or before but not
after.
d. It may be altered or withdrawn
before the insurance is effected but
not afterwards.
e. It always refers to the date the
contract goes into effect.
 Kinds:
a. AFFIRMATIVE – affirmation of a
fact when the contract begins;
and
b. PROMISSORY – promise to be
performed after policy was
issued.
 Effect of Misrepresentation: the
injured party is entitled to rescind
from the time when the
representation becomes false.

Test of Materiality: Same as that

in concealment.

 Where the insured merely signed

the application form and made the
agent of the insurer fill the same for
him, it was held that by doing so,
the insured made the agent of the
insurer his own agent and he was
responsible for his acts for that
purpose. (Insular Life Assur. Co. vs.
Feliciano, 74 Phil. 469)

COMMERCIAL LAW COMMITTEE

CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 1
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MEMORY AID IN
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untruth or non-fulfillment of which
in any respect, and without
reference to whether insurer was
in fact prejudiced by such untruth
or non-fulfillment, renders the
policy voidable by the insurer.
 Purpose: To eliminate potentially
increasing hazards which may
either be due to the acts of the
insured or to the change to the
condition of the property.
 Kinds:
a. EXPRESS – an agreement
expressed in a policy whereby the
insured stipulates that certain
facts relating to the risk are or
shall be true, or certain acts
relating to the same subject have
been or shall be done.
b. IMPLIED - it is deemed included
in the contract although not
expressly mentioned. Example: In
marine insurance, seaworthiness
of the vessel.
 Effects of breach of warranty:
a. Material
GENERAL RULE: Violation of
material warranty or of a material
provision of a policy will entitle the
other party to rescind the
contract. (Sec. 74)
EXCEPTIONS:
a. Loss occurs before the time
of performance of the
warranty.
b. The performances becomes
unlawful at the place of the
contract.
c. Performance
becomes impossible. (Sec.
73)
b. Immaterial (ex. Other
insurance clause)
GENERAL RULE: It will not avoid the
policy.
EXCEPTION: When the policy
expressly provides or declares that
a violation thereof will avoid it.
(Sec. 75)

WARRANTY REPRESENTATI
ON
Part of the contract Mere collateral
inducement
Written on the May be written
policy, actually or in the policy or
by reference may be oral.

COMMERCIAL LAW COMMITTEE

4. Conditions – Events signifying to “incontestability.” (Sec. 48)

in its broadest sense either an
occurrence or a non-occurrence that
alters the previously existing legal
relations of the parties to the
contract. They may be conditions
precedent or conditions subsequent.
 Effect of breach:
a. Condition precedent –
prevents the accrual of cause
of action
b. Condition subsequent –
avoids the policy or entitles
the insurer to rescind
 The insurer may also protect
himself against fraudulent claims of
loss and this he attempts to do by
inserting in the policy various
conditions which take the form of
conditions precedent. For instance,
there are conditions requiring
immediate notice of loss or injury
and detailed proofs of loss within a
limited period.

5. Exceptions – Provisions that

may specify excepted perils. It
makes more definite the coverage
indicated by the general description
of the risk by excluding certain
specified risk that otherwise would
be included under the general
language describing the risks
assumed.
 Effect: Limit the coverage of the
contract.

RESCISSION
 Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. Breach of a condition
subsequent
 Waiver of the right to rescind:
Acceptance of premium payments
despite the knowledge of the ground
for rescission. (Sec. 45)
 Limitations on the right of the
insurer to rescind:
1. Non-life – such right must be
exercised prior to the
commencement of an action on the
contract;
2. Life – such right must be availed
of during the first two years from the
date of issue of policy or its last
reinstatement; prior
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 2
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MEMORY AID IN
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CANCELLATION OF NON-LIFE be shortened but it cannot be
INSURANCE POLICY extended by stipulation.
 Right of the insurer to abandon
the contract on the occurrence of
certain grounds after the
effectivity date of a non-life policy.
 Grounds:
1. Non-payment of premium;
2. Conviction of a crime out of
acts increasing the hazard
insured against;
3. Discovery of fraud or material
misrepresentation;
4. Discovery of willful or reckless
acts of omissions increasing
the hazard insured against;
5. Physical changes in property
making the property
uninsurable; and
6. Determination by the
Insurance Commissioner that
the continuation of the policy
would violate the Insurance
Code. (Sec. 64)
 Requirements:
1. Prior notice of cancellation
to the insured;
2. Notice must be in writing,
mailed or delivered to the
named insured at the
address shown in the
policy;
3. Notice must state which of
the grounds set forth in
Sec. 64 is relied upon and
upon request of the
insured, the insurer must
furnish facts on which the
cancellation is based;
4. Grounds should have
existed after the effectivity
date of the policy.

XII. INCONTESTABILITY CLAUSE

 Clause in life insurance policy
that stipulates that the policy shall
be incontestable after a stated
period.
 Requisites:
1. Life insurance policy
2. Payable on the death of the
insured
3. It has been in force during the
lifetime of the insured for a
period of at least two years
from the date of its issue or of
its last reinstatement
Note: The period of 2 years may

COMMERCIAL LAW COMMITTEE

 Incontestability only deprives the the property lost;

insurer of those defenses which 2. The insured is entitled to recover
arise in connection with the the amount of premium
formation and operation of the
policy prior to loss. (Prof. De Leon,
p. 173 citing Wyatt and Wyatt, p.
878)

BARRED DEFENSES
DEFENS NOT
ES BARRED
OF THE
INSURER
1. Policy is void 1. That the person
ab initio taking the
2. Policy is insurance lacked
rescindable by insurable interest
reason of the as required by
fraudulent law;
concealment or 2. That the cause
misrepresentation of the death of the
of the insured or insured is an
his agent excepted risk;
3. That the
premiums have
not been paid
(Secs. 77, 227[b],
228[b], 230[b]);
4. That the
conditions of the
policy relating to
military or naval
service have been
violated (Secs.
227[b], 228[b]);
5. That the fraud
is of a particularly
vicious type;
6. That the
beneficiary failed
to furnish proof of
death or to
comply with any
condition imposed
by the policy after
the loss has
happened; or
7. That the action
was not brought
within the time
specified.

XIII.
A. OVER-INSURANCE – results
when the insured insures the same
property for an amount greater than
the value of the property with the
same insurance company.
 Effect in case of loss:
1. The insurer is bound only to pay
to the extent of the real value of
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 2
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MEMORY AID IN
COMMERCIAL LAW
corresponding to the excess in under his contract.
value of the property;
Additional or “Other Insurance”
B. DOUBLE INSURANCE – exists Clause
where same person is insured by  A condition in the policy requiring
several insurers separately in the insured to inform the insurer of
respect to same subject and any other insurance coverage of the
interest. (Sec. 93) property
 Requisites:
1. Person insured is the same;
2. Two or more insurers
insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is
likewise the same.

 Effects: Where double

insurance is allowed, but over
insurance results: (Sec. 94)
1. The insured, unless the policy
otherwise provides, may claim
payment from the insurers in
such order as he may select,
up to the amount for which the
insurers are severally liable
under their respective
contracts;
2. Where the policy under which
the insured claims is a valued
policy, the insured must give
credit as against the valuation
for any sum received by him
under any other policy without
regard to the actual value of
the subject matter insured;
3. Where the policy under which
the insured claims is an
unvalued policy he must give
credit, as against the full
insurable value, for any sum
received by him under any
policy;
4. Where the insured receives
any sum in excess of the
valuation in the case of valued
policies, or of the insurable
value in the case of unvalued
policies, he must hold such
sum in trust for the insurers,
according to their right of
contribution among
themselves;
5. Each insurer is bound, as
between himself and the other
insurers, to contribute ratably
to the loss in proportion to the
amount for which he is liable

COMMERCIAL LAW COMMITTEE

insured. It is lawful and specifically reinsured is bound to cede and the

allowed under Sec. 75 which reinsurer is obligated to accept a fixed
provides that “(a) policy may share of the risk which has to be
declare that a violation of a specified
provision thereof shall avoid it,
otherwise the breach of an
immaterial provision does not avoid
it.”
 A stipulation against double
insurance.
 Purposes:
1. To prevent an increase in the
moral hazard
2. To prevent over-insurance
and fraud.
 To constitute a violation of the
clause, there should have been
double insurance.

C. REINSURANCE – a contract by
which the insurer procures a third
person to insure him against loss or
liability by reason of an original
insurance (also known as
“Reinsurance Cession”). (Sec. 95)
 In every reinsurance, the original
contract of insurance and the
contract of reinsurance are covered
by separate policies.

DOUBLE REINSURANC
INSURANCE E
Involves the same Involves different
interest interest
Insurer remains in Insurer becomes
such capacity the insured in
relation
to reinsurer
Insured is the Original insured
party in interest has no interest in
in the 2 contracts the reinsurance
contract.
Subject of Subject of
insurance is insurance is the
property original
insurer’s risk
Insured has to give Insured’s consent
his consent not necessary

TERMS:
1. Reinsurance treaty – Merely
an agreement between two
insurance companies whereby one
agrees to cede and the other to
accept reinsurance business
pursuant to provisions specified in
the treaty. (Prof. De Leon, p. 306)

2. Automatic reinsurance – The

COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 2
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MEMORY AID IN
COMMERCIAL LAW
reinsured under the contract.
(Prof. De Leon, p. 305)
3. Facultative reinsurance –
There is no obligation to cede or
accept participation in the risk
each party having a free choice.
But once the share is accepted,
the obligation is absolute and the
liability thereunder can be
discharged only by payment.
(Equitable Ins. & Casualty Co. vs.
Rural Ins. & Surety Co., Inc. 4 SCRA
343)

4. Retrocession – A transaction
whereby the reinsurer in turn,
passes to another insurer a portion
of the risk reinsured. It is really the
reinsurance of reinsurance. (Prof.
De Leon, p. 305)

XIV.
A. LOSS, IN INSURANCE
 Injury or damage sustained by
the insured in consequence of the
happening of one or more of the
accidents or misfortune against
which the insurer, in consideration
of the premium, has undertaken to
indemnify the insured. (Bonifacio
Bros. Inc. vs. Mora, 20 SCRA 261)

Loss for Loss for

which which
insurer is insurer is
liable not
liable
1. Loss the 1. Loss by
proximate cause insured’s willful
of which is the act;
peril insured 2. Loss due to
against (Sec. 84); connivance of
2. Loss the the insured (Sec.
immediate cause 87); and
of which is the 3. Loss where
peril insured the excepted
against peril is the
except proximate cause.

where proximate
cause is an
excepted peril;
3. Loss through
negligence of
insured except
where there was
gross negligence
amounting to
willful acts; and
4. Loss caused
by efforts to
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 2
6
MEMORY AID IN
COMMERCIAL LAW
rescue the thing
from peril insured
against;
5. If during the
course of rescue,
the thing is
exposed

COMMERCIAL LAW COMMITTEE

to a peril not
insured against,
which
permanently
deprives the
insured of its
possession, in
whole or in part
(Sec. 85).

Proximate Cause – An event that term – after the receipt

sets all other events in motion The by the insurer of
without any intervening or proceeds are proof of loss,
independent case, without which the immediately
payable to the and
injury or loss would not have
insured, ascertainment of
occurred. unless the loss or
they are damage by
REQUISITES FOR made agreement of the
RECOVERY payable in parties or by
UPON INSURANCE installments or arbitration but
1. The insured must have insurable as not
interest in the subject matter;
2. That interest is covered by the
policy;
3. There must be a loss; and
4. The loss must be proximately
caused by the peril insured against.

NOTICE OF LOSS
In fire In other types
insurance of
insurance

Required Not required

Failure to give Failure to give

notice will defeat notice will not
the right of the exonerate
insured to the
recover. insurer,
unless
there is a
stipulation in the
policy requiring
the insured to do
so.

B. CLAIMS SETTLEMENT
 The indemnification of the loss of
the insured.

TIME FOR PAYMENT OF CLAIMS

NON-
LIFE LIFE
POLICIES POLICI
ES

a. Maturing The proceeds

upon the shall be paid
expiration of the within 30 days
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
annuity, in which later than 90 days
case, from such receipt
of proof of loss
San Beda College of Law the whether or not 2
installments or ascertainment 8 is
annuities Mshall AIDorINmade.
EMORYhad
be paid asCOMMERCIAL
they LAW
become due.
b. Maturing
at the death of
the insured,
occurring prior to
the
expiration of the
term stipulated –
The proceeds
are payable to
the
beneficiaries
within 60

 In case of an unreasonable delay in

the payment of the insured’s claim
by the insurer, the insured can
recover: 1) attorney’s fees; 2)
expenses incurred by reason of the
unreasonable withholding;
3) interest at double the legal
interest rate fixed by the Monetary
Board; and 4) the amount of the
claim. (Zenith Insurance Corp. vs. CA,
185 SCRA 398)

XV. PRESCRIPTIVE PERIOD

(Secs. 63 & 384)
 Rules:
1. In the absence of an express
stipulation in the policy, it being
based on a written contract, the
action prescribes in 10 years.
2. However the parties may validly
agree on a shorter period provided
it is not less than one year from
the time the cause of action
accrues.
3. The cause of action accrues
from the rejection of the claim of
the insured and not from the time
of loss.
It shall commence from the
denial of the claim, not from the
resolution of the motion for
reconsideration, otherwise it can
be used by the insured as a
scheme or device to waste time
until the evidence which may be
used against him is destroyed.
(Sun Insurance Office, Ltd.
v. CA, 195 SCRA)
4. In CMVLI, the written notice of
claim must be filed within 6
months from the date of the
accident otherwise the claim is
deemed waived. The suit for
damages either with the proper
court or with the

COMMERCIAL LAW COMMITTEE

Insurance Commissioner should be 3. Fixed transportation property –

filed within 1 year from the date of they are so insured because
the denial of the claim by the they are held to be an essential
insurer, otherwise claimant’s right of part
action shall prescribe. (Sec. 384)

PARTICULAR KINDS OF
INSURANCE
CONTRACTS

XVI. MARINE INSURANCE

 Insurance against risks connected
with navigation, to which a ship,
cargo, freightage, profits or other
insurable interest in movable
property, may be exposed during a
certain voyage or a fixed period of
time. (Sec. 99)
 Coverage:
A.
1. Vessels, goods, freight, cargo,
merchandise, profits, money,
valuable papers, bottomry and
respondentia, and interest in
respect to all risks or perils of
navigation;
2. Persons or property in
connection with marine
insurance;
3. Precious stones, jewels, jewelry
and precious metals whether in
the course of transportation or
otherwise; and
4. Bridges, tunnels, piers, docks
and other aids to navigation and
transportation. (Sec. 99)
 Cargo can be the subject of
marine insurance, and once it
is entered into, the implied
warranty of seaworthiness
immediately attaches to
whoever is insuring the
cargo, whether he be the
shipowner or not. (Roque v.
IAC, 139 SCRA 596)
B. Marine Protection and Indemnity
Insurance
 Classes of inland marine
insurance:
(Prof. De Leon, p. 325)
1. Property in transit – provides
protection to property
frequently exposed to loss
while it is transportation form
one location to another.
2. Bailee liability - insurance for
those who have temporary
custody of the goods.
COMMERCIAL LAW COMMITTEE
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HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 3
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MEMORY AID IN
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of the transportation insurable, since a loan on bottomry
system such as bridges, partakes of the nature of an
tunnels, etc. insurance coverage to the extent of
4. Floater – provides the loan accommodation. The same
insurance to follow the rule would apply to the
insured property wherever hypothecation of the cargo by
it may be located, subject respondentia. (Pandect of
always to the territorial Commercial Law and Jurisprudence,
limits of the contract. Justice Jose Vitug, 1997 ed.)
 Insurable interest:
A.
1. Shipowner
a. Over the vessel to the
extent of its value,
except that if
chartered, the
insurance is only up to
the amount not
recoverable from the
charterer. (Sec. 100).
b. He also has an
insurable interest on
expected freightage.
(Sec. 103).
c. No insurable interest
if he will be
compensated by
charterer for the
value of the vessel, in
case of loss.
2. Cargo owner
 Over the cargo and
expected profits (Sec. 105).
3. Charterer
 Over the amount he is
liable to the shipowner, if
the ship is lost or damaged
during the voyage (Sec.
106).

B.
In loans on bottomry and
respondentia
 Repayment of the loan is subject
to the condition that the vessel or
goods, respectively, given as a
security, shall arrive safely at the
port of destination.
1. Owner/Debtor
 Difference between the
value of vessel or goods
and the amount of loan.
(Sec. 101)
2. Creditor/lender
 Amount of the loan

Note: If a vessel is hypothecated

by bottomry, only the excess is

COMMERCIAL LAW COMMITTEE

PERILS OF PERILS OF 1. Negligence of the captain,

THE THE engineers, etc.
SEA SHIP 2. Explosions, breakage of shafts; and
Includes only those A loss which in the 3. Latent defect of machinery or
casualties due to ordinary course hull. (Bar Review Materials in
the: of events, results Commercial Law, Jorge Miravite,
1. unusu from the: 2002 ed.)
al 1. natural and
violence; inevitable action
or of the sea D. Sue and Labor Clause
2. extraordinary 2. ordinary wear  A clause under which the insurer
action of wind and and tear of the may become liable to pay the
wave; or ship or insured, in addition to the loss
3. Other 3. Negligen actually suffered, such expenses as
extraordinary t failure of the he may have incurred in his efforts
causes connected ship’s owner to to protect the property against a
with provide the peril for which the insurer would
navigation. vessel with
have been liable. (Sec. 163)
proper
equipment to
convey the cargo MATTERS ALTHOUGH
under ordinary CONCEALED, WILL NOT VITIATE
conditions. THE CONTRACT EXCEPT WHEN
THEY CAUSED THE LOSS (Sec.
Note: It is only perils of the sea 110)
which may be insured against unless 1. National character of the insured;
perils of the ship is covered by an 2. Liability of the thing insured to
all-risk policy. capture or detention;
3. Liability to seizure from breach
SPECIAL MARINE of foreign laws;
INSURANCE 4. Want of necessary documents; and
CONTRACTS AND 5. Use of false or simulated papers.
CLAUSES Note: This should be related to the
A. All Risks Policy – insurance general rule regarding
against all causes of conceivable material concealment.
loss or damage, except: 1) as
otherwise excluded in the policy; or DISTINCTIONS ON CONCEALMENT
2) due to fraud or intentional (Commercial Law Reviewer, A.F.
misconduct on the part of the Agbayani, 1988 ed.)
insured.
 The insured has the initial burden of
proving that the cargo was in good
condition when the policy attached and
that the cargo was damaged when
unloaded from the vessel; MARINE OTHER
thereafter, the burden then shifts to INSURANCE PROPERT
the insurer to show the exception to Y
the coverage. (Filipinas Merchants INSURAN
Insurance vs. Court of Appeals, 179 CE
SCRA 638) The information of The information
the or
belief or belief of a 3rd
B. Barratry Clause expectation of 3rd party is not
 A clause which provides that there persons is material material and
can be no recovery on the policy in and must be need not be
case of any willful misconduct on the communicated communicated
part of the master or crew in unless it
pursuance of some unlawful or proceeds form an
fraudulent purpose without consent agent of the
of owners, and to the prejudice of insured whose
duty it is to
the owner’s interest. (Roque vs. IAC,
give
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The concealment
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando of Aldrich
Llave (Insurance); Concealment
Del of
Rosario (Transportation Laws); any fact in relation any material fact
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law);toKarl Steven
any Coof(Special
theLaws);
willJohnvitiate
Lemuel the
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
matters stated in entire contract,
Sec. 110 does not whether or not
San Beda College of Law 3
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MEMORY AID IN
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139 SCRA 596)

C. Inchamaree Clause
 A clause which makes the insurer
liable for loss or damage to the hull
or machinery arising from the:

COMMERCIAL LAW COMMITTEE

IMPLIED WARRANTIES be seaworthy at the commencement

1. Seaworthiness of the ship at the of each particular voyage
inception of the insurance (Sec.
113);
2. Against improper deviation (Sec.
123, 124, 125);
3. Against illegal venture;
4. Warranty of neutrality: the ship
will carry the requisite
documents of nationality or
neutrality of the ship or cargo
where such nationality or
neutrality is expressly
warranted; (Sec. 120)
5. Presence of insurable interest.

 While the payment by the insurer

for the insured value of the lost
cargo operates as a waiver of the
insurer’s right to enforce the term of
the implied warranty against the
assured under the marine insurance
policy, the same cannot be validly
interpreted as an automatic
admission of the vessel’s
seaworthiness by the insurer as to
foreclose recourse against the
common carrier for any liability
under the contractual obligation as
such common carrier. (Delsan
Transportation Lines vs. CA, 364
SCRA 24)

Seaworthiness
 A relative term depending upon
the nature of the ship, voyage,
service and goods, denoting in
general a ship’s fitness to perform
the service and to encounter the
ordinary perils of the voyage,
contemplated by the parties to the
policy (Sec. 114).
GENERAL RULE: The warranty of
seaworthiness is complied with if the
ship be seaworthy at the time of the
commencement of the risk. Prior or
subsequent unseaworthiness is not a
breach of the warranty nor is it
material that the vessel arrives in
safety at the end of her voyage.
EXCEPTIONS:
1. In the case of a time policy, the
ship must be seaworthy at the
commencement of every voyage
she may undertake
2. In the case of cargo policy, each
vessel upon which the cargo is
shipped or transshipped, must
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 3
4
MEMORY AID IN
COMMERCIAL LAW
3. In the case of a voyage the insurer is still liable.
policy contemplating a 2. Improper - Every deviation
voyage in different stages, not specified in Sec. 124
the ship must be seaworthy (Sec. 125).
at the commencement of  Effect: In case of loss or
each portion damage, the insurer is not
liable. (Sec. 126)
 Applicability of implied
warranty of seaworthiness to
cargo owners: It becomes the
obligation of a cargo owner to
look for a reliable common
carrier, which keeps its vessels
in seaworthy conditions. The
shipper may have no control
over the vessel but he has
control in the choice of the
common carrier that will
transport his goods (Roque v.
IAC, 139 SCRA 596).

Deviation
 A departure from the course of
the voyage insured, or an
unreasonable delay in pursuing
the voyage or the
commencement of an entirely
different voyage. (Sec.123)
 Instances:
1. Departure of vessel from
the course of the sailing
fixed by mercantile usage
2. Departure of vessel from
the most natural, direct
and advantageous route
if not fixed by mercantile
usage
3. Unreasonable delay in
pursuing voyage
4. Commencement of an
entirely different voyage
(Secs. 121-123)
 Kinds:
1. Proper -
a. When caused by
circumstances outside the
control of the ship captain or
ship owner;
b. When necessary to comply
with a warranty or to avoid a
peril;
c. When made in good faith to
avoid a peril;
d. When made in good faith to
save human life or to relieve
another vessel in distress (Sec.
124)
 Effect: In case of loss,

COMMERCIAL LAW COMMITTEE

LOSS concerned in the cargo or the vessel,

1. Total: venture. as the case may be.
a. Actual - Requisites for the
i. Total destruction; right to claim
ii. Irretrievable loss by contribution:
sinking; 1. Common
iii. Damage rendering the danger to the
thing valueless; or
iv. Total deprivation of owner
of possession of thing
insured. (Sec. 130)
b. Constructive -
i. Actual loss of more than
¾ of the value of the
object;
ii. Damage reducing value
by more than ¾ of the
value of the vessel and of
cargo; and
iii. Expense of transshipment
exceed ¾ of value of
cargo. (Sec. 131, in
relation to Sec. 139)
 In case of constructive
total loss, insured may:
1. Abandon goods or
vessel to the insurer
and claim for whole
insured value (Sec.
139), or
2. Without
abandoning vessel,
claim for partial actual
loss. (Sec. 155)
2. Partial: That which is not total
(Sec. 128).

AVERAGE
 Any extraordinary or accidental
expense incurred during the voyage
for the preservation of the vessel,
cargo, or both, and all damages to
the vessel and cargo from the time
it is loaded and the voyage
commenced until it ends and the
cargo unloaded.

GENERAL PARTICULAR
Has inured to the Has not inured to
the
common benefit common benefit
and and
profit of all persons profit of all persons
interested in the interested in the
vessel and cargo vessel and her
cargo.
To be borne equally To be borne alone
by
by all of the the owner of the
interests
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 3
6
MEMORY AID IN
COMMERCIAL LAW
of marine insurance in which it is
vessel or stated that the insurer shall not be
cargo; liable for a particular average, such
2. Part of the insurer shall be free therefrom, but
vessel or he shall continue to be liable for his
cargo was proportion of all general average
sacrificed losses assessed upon the thing
deliberately; insured. (Sec. 136)
3. Sacrifice
must be for
the common
safety or for
the benefit of
all;
4. Sacrifice
must be
made by the
master or
upon
his
authority;
5. It must be
not be
caused by
any fault of
the party
asking the
contribution;
6. It must be
successful,
i.e. resulted
in the saving
of the vessel
or cargo; and
Necessary.

RIGHT OF INSURED IN CASE OF

GENERAL AVERAGE
GENERAL RULE: The insured may
either hold the insurer directly
liable for the whole of the insured
value of the property sacrificed for
the general benefit, subrogating
him to his own right of
contribution or demand
contribution from the other
interested parties as soon as the
vessel arrives at her destination
EXCEPTIONS:
1. After the separation of
interests liable to contribution
2. When the insured has
neglected or waived his right
to contribution

FPA Clause (Free From

Particular Average)
A clause agreed upon in a policy

COMMERCIAL LAW COMMITTEE

ABANDONMENT loss bears to the value of the whole

 The act of the insured by which, interest of the insured in the property
after a constructive total loss, he insured. (Sec. 157)
declared the relinquishment to the  When the property is insured for less
insurer of his interest in the thing than its value, the insured is
insured. (Sec. 138) considered
 Requisites for validity:
1. There must be an actual
relinquishment by the person
insured of his interest in the
thing insured (Sec. 138);
2. There must be a constructive
total loss (Sec. 139);
3. The abandonment be neither
partial nor conditional (Sec.
140);
4. It must be made within a
reasonable time after receipt of
reliable information of the loss
(Sec. 141);
5. It must be factual (Sec. 142);
6. It must be made by giving notice
thereof to the insurer which may
be done orally or in writing (Sec.
143); and
7. The notice of abandonment must
be explicit and must specify the
particular cause of the
abandonment (Sec. 144).

 Effects:
1. It is equivalent to a transfer by
the insured of his interest to the
insurer with all the chances of
recovery and indemnity
(Transfer of Interest)
(Sec.146)
2. Acts done in good faith by those
who were agents of the insured
in respect to the thing insured,
subsequent to the loss, are at
the risk of the insurer and for his
benefit. (Transfer Of Agency)
(Sec.148)

 If an insurer refuses to accept a

valid abandonment, he is liable upon
an actual total loss, deducting form
the amount any proceeds of the
thing insured which may have come
to the hands of the insured.
(Sec.154)

CO-INSURANCE
 A marine insurer is liable upon a
partial loss, only for such proportion
of the amount insured by him as the

COMMERCIAL LAW COMMITTEE

 Requisites:
1. The loss is partial;
2. The amount of insurance is less
than the value of the property
insured.

 Rules:
1. Co-insurance applies only to
marine insurance
2. Logically, there cannot be co-
insurance in life insurance.
3. Co-insurance applies in fire
insurance when expressly
provided for by the parties.

CO- REINSURANCE
INSURANCE
A percentage in Situation where
the value of the the insurer
insured property procures a 3rd
which the insured party called the
himself assumes to reinsurer to insure
act as insurer to him against
the extent of the liability by reason
deficiency in the of an original
insurance of the insurance.
insured property. Basically,
In case of loss or reinsurance is an
damage, the insurance against
insurer will be liability which the
liable only for such original insurer
proportion of the may incur in favor
loss or damage as of the original
the amount of the insured.
insurance bears to
the designated
percentage of the
full value of the
property insured.
(Bar Review
Materials in
Commercial Law,
Jorge Miravite,
2002 ed.)

XVII. FIRE INSURANCE

 A contract by which the insurer
for a consideration agrees to
indemnify the insured against loss
of, or damage to, property by
hostile fire, including loss by
lightning, windstorm, tornado or
earthquake and other allied risks,
when such risks are covered by
extension to fire insurance policies
or under separate policies. (Sec.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 3
9
MEMORY AID IN
COMMERCIAL LAW

 Prerequisites to recovery: without the consent of the

1. Notice of loss – must be insurer;
immediately given, unless delay is 4. The alteration is made by
waived expressly or impliedly by the means within the control of the
insurer insured;
2. Proof of loss – according to best 5. The alteration increases the
evidence obtainable. Delay may also risk; (Sec. 168) and
be waived expressly or impliedly by
the insurer

HOSTILE FIRE FRIENDLY

FIRE
One that escapes One that burns in a
from the place place where it was
where it was intended to burn
intended to burn and ought to be
and ought to be.
Insurer is liable Insurer is not
liable

Measure of Indemnity
1. Open policy: only the expense
necessary to replace the thing lost
or injured in the condition it was at
the time of the injury
2. Valued policy: the parties are
bound by the valuation, in the
absence of fraud or mistake

Note: It is very crucial to determine

whether a marine vessel is covered
by a marine insurance or fire
insurance. The determination is
important for 2 reasons:
1. Rules on constructive total
loss and abandonment –
applies only to marine
insurance;
2. Rule on co-insurance –
applies primarily to marine
insurance;
3. Rule on co-insurance applies
to fire insurance only if
expressly agreed upon.
(Commercial Law Reviewer,
Aguedo Agbayani, 1988 ed.)

ALTERATION AS A SPECIAL
GROUND FOR RESCISSION BY
INSURER
 Requisites:
1. The use or condition of the
thing is specifically limited or
stipulated in the policy;
2. Such use or condition as
limited by the policy is
altered;
3. The alteration is made

COMMERCIAL LAW COMMITTEE

Option to rebuild clause

 A clause giving the insurer the
option to reinstate or replace the
property damaged or destroyed or
any part thereof, instead of paying
the amount of the loss or the
damage.
 The insurer, after electing to
rebuild, cannot be compelled to
perform this undertaking by
specific performance because this
is an obligation to do, not to give.
Remedy: Art. 1167, NCC.

XVIII. CASUALTY OR
ACCIDENT INSURANCE
 Insurance covering loss or
liability arising from accident or
mishap, excluding those falling
under other types of insurance
such as fire or marine. (Sec. 174)

 Classifications:
1. Insurance against specified
perils which may affect the person
and/or property of the insured.
(accident or health insurance)
 Examples: personal accident,
robbery/theft insurance
2. Insurance against specified
perils which may give rise to
liability on the part of the insured
for claims for injuries to or
damage to property of others.
(third party liability insurance)
 Insurable interest is based on the
interest of the insured in the
safety of persons, and their
property, who may maintain an
action against him in case of their
injury or destruction, respectively.
 Examples: workmen’s
compensation, motor vehicle
liability
 In a third party liability (TPL)
insurance contract, the insurer
assumes the obligation by paying

COMMERCIAL LAW COMMITTEE

the insured acquires an interest in

the insurance contract which may “INTENTIONAL” vs.
be garnished like any other credit. “ACCIDENTAL” AS USED IN
(Perla Comapnia de Seguro, Inc vs. INSURANCE POLICIES
Ramolete, 205 SCRA 487) 1. Intentional – Implies the exercise
 Aside from compulsory motor of the reasoning faculties,
vehicle liability insurance, the consciousness and volition. Where a
Insurance Code contains no other provision of the policy excludes
provisions applicable to casualty intentional injury, it is the intention
insurance. Therefore, such casualty of the person inflicting the injury
insurance are governed by the that is controlling. If the injuries
general provisions applicable to all suffered by the insured clearly
types of insurance, and outside of resulted from the intentional act of
such statutory provisions, the rights the third person, the insurer is
and obligations of the parties must relieve from liability as stipulated.
be determined by their contract, (Biagtan v. the Insular Life
taking into consideration its purpose Assurance Co. Ltd., 44 SCRA 58,
and always in accordance with the 1972)
general principles of insurance law. 2. Accidental – That which happens
by chance or fortuitously, without
 In burglary, robbery and theft intention or design, which is
insurance, the opportunity to unexpected, unusual and
defraud the insurer – the moral unforeseen.
hazard – is so great that insurer
have found it necessary to fill up the NO ACTION CLAUSE
policies with many restrictions  A requirement in a policy of
designed to reduce the hazard. liability insurance which provides
Persons frequently excluded are that suit and final judgment be first
those in the insured’s service and obtained against the insured; that
employment. The purpose of the only thereafter can the person
exception is to guard against liability injured recover on the policy.
should theft be committed by one (Guingon vs. Del Monte, 20 SCRA
having unrestricted access to the 1043)
property. (Fortune Insurance vs. CA,
244 SCRA 208) XIX. COMPULSORY MOTOR
VEHICLE LIABILITY INSURANCE
Right of a third party injured to (CMVLI)
sue the insurer  A species of compulsory insurance
1. Indemnity against liability – A that provides for protection
third party injured can directly sue coverage that will answer for legal
the insurer. liability for losses and damages for
2. Indemnity for actual loss or bodily injuries or property damage
reimbursement after actual payment that may be sustained by another
by the insured – A third party has no arising from the use and operation
cause of action against the insurer of motor vehicle by its owner.
(Sec. 53, Bonifacio Bros. v. Mora, 20  Purpose: To give immediate
SCRA 261). financial assistance to victims of
motor vehicle accidents and/or their
 The insurer is not solidarily liable dependents, especially if they are
with the insured. The insurer’s poor regardless of the financial
liability is based on contract; that of capability of motor vehicle owners or
the insured is based on torts. operators responsible for the
Furthermore, the insurer’s liability is accident sustained (Shafer v. Judge,
limited by the amount of the RTC, 167 SCRA 386).
insurance coverage (Pan Malayan  Claimants/victims may be
Insurance Corporation v. CA, 184 a “passenger” or a “3rd party”
SCRA 54).  It applies to all vehicles whether
public and private vehicles.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 4
2
MEMORY AID IN
COMMERCIAL LAW
Note: It is the only compulsory
insurance coverage under the
Insurance Code.

COMMERCIAL LAW COMMITTEE

Method of coverage
1. Insurance policy  The claimant is not free to choose
2. Surety bond from which insurer he will claim the
3. Cash deposit “no fault indemnity” as the law makes
it mandatory that the claim shall lie
Passenger – Any fare-paying against the insurer of the vehicle in
person being transported and which the occupant is riding,
conveyed in and by a motor vehicle mounting
for transportation of passengers for
compensation, including persons
expressly authorized by law or by
the vehicle’s operator or his agents
to ride without fare. (Sec. 373[b])

Third Party – Any person other

than the passenger, excluding a
member of the household or a
member of the family within the
second degree of consanguinity or
affinity, of a motor vehicle owner or
land transportation operator, or his
employee in respect of death or
bodily injury arising out of and in the
course of employment. (Sec. 373[c])

“No-Fault” Clause
 A clause that allows the victim
(injured person or heirs of the
deceased) to an option to file a
claim for death or injury without the
necessity of proving fault or
negligence of any kind.
 Purpose: To guarantee
compensation or indemnity to
injured persons in motor vehicle
accidents.
 Rules:
1. Total indemnity - maximum of
P5,000
2. Proofs of loss -
a. Police report of accident;
b. Death certificate and
evidence sufficient to establish
proper payee;
c. Medical report and evidence
of medical or hospital
disbursement.
3. Claim may be made against one
motor vehicle only
4. Proper insurer from which to claim
-
a. In case of an occupant:
Insurer of the vehicle in which the
occupant is riding, mounting or
dismounting from;
b. In any other case: Insurer of
the directly offending vehicle. (Sec.
378)
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 4
4
MEMORY AID IN
COMMERCIAL LAW
or dismounting from. That said such taking constitutes theft, and
vehicle might not be the one that thus, it is the “theft clause” and not
caused the accident is of no the “authorized driver clause that
moment since the law itself should apply (Palermo
provides that the party paying v. Pyramids Ins., 161 SCRA 677).
may recover against the owner of
the vehicle responsible for the
accident. (Perla Compania de
Seguros, Inc. v. Ancheta, 169
SCRA 144)

 This no-fault claim does not

apply to property damage. If the
total indemnity claim exceeds
P5,000 and there is controversy in
respect thereto, the finding of fault
may be availed of by the insurer
only as to the excess. The first
P5,000 shall be paid without
regard to fault. (Prof. De Leon, p.
716)

 The essence of the no-fault

indemnity insurance is to provide
victims of vehicular accidents or
their heirs immediate
compensation although in limited
amount, pending final
determination of who is
responsible for the accident and
liable for the victims injuries or
death. (Ibid.)

SPECIAL CLAUSES
A. Authorized Driver Clause
 A clause which aims to indemnify
the insured owner against loss or
damage to the car but limits the
use of the insured vehicle to the
insured himself or any person who
drives on his order or with his
permission (Villacorta v. Insurance
Commissioner)
 The requirement that the person
driving the insured vehicle is
permitted in accordance with the
licensing laws or other laws or
regulations to drive the motor
vehicle (licensed driver) is
applicable only if the person
driving is other than the insured.

B. Theft Clause
 A clause which includes theft as
among the risks insured against.
 Where the car is unlawfully and
wrongfully taken without the
owner’s consent or knowledge,

COMMERCIAL LAW COMMITTEE

C. Cooperation Clause
 A clause which provides in essence XXI. LIFE INSURANCE
that the insured shall give all such  Insurance on human lives and
information and assistance as the insurance appertaining thereto or
insurer may require, usually connected therewith which includes
requiring attendance at trials or every contract or pledge for the
hearings. payment of endowments or
XX. SURETYSHIP annuities. (Sec. 179)
 An agreement whereby a surety  Kinds: (Bar Review Materials in
guarantees the performance by the Commercial Law, Jorge Miravite,
principal or obligor of an obligation 2002 ed.)
or undertaking in favor of an 1. Ordinary Life, General Life or Old
obligee. (Sec. 175) Line Policy - Insured pays a fixed
 It is essentially a credit premium every year until he
accommodation. dies. Surrender value after 3
 It is considered an insurance years.
contract if it is executed by the 2. Group Life – Essentially a single
surety as a vocation, and not insurance contract that provides
incidentally. (Sec. 20 coverage for many individuals.
 When the contract is primarily Examples: In favor of employees,
drawn up by 1 party, the benefit of “mortgage redemption
doubt goes to the other party insurance”.
(insured/obligee) in case of an 3. Limited Payment Policy – insured
ambiguity following the rule in pays premium for a limited
contracts of adhesion. Suretyship, period. If he dies within the
especially in fidelity bonding, is thus period, his beneficiary is paid; if
treated like non-life insurance in he outlives the period, he does
some respects. not get anything.
4. Endowment Policy – pays
Nature of liability of surety premium for specified period. If
1. Solidary; he outlives the period, the face
2. Limited to the amount of the value of the policy is paid to him;
bond; if not, his beneficiaries receive
3. It is determined strictly by the the benefit.
terms of the contract of suretyship 5. Term Insurance – insurer pays
in relation to the principal contract once only, and he is insured for a
between the obligor and the specified period. If he dies within
obligee. (Sec. 176) the period, his beneficiaries
benefits. If he outlives the
SURETYS PROPERTY period, no person benefits from
HIP INSURANCE the insurance.
Accessory Principal contract 6. Industrial Life - life insurance
contract entitling the insured to pay
3 parties: surety, 2 parties: insurer premiums weekly, or where
obligor and oblige and insured premiums are payable monthly
Credit Contract of or oftener.
accommodation indemnity
Surety can Insurer has no
Mortgage Redemption Insurance
recover from such right; only
principal right of  A life insurance taken pursuant to
subrogation a group mortgage redemption
Bond can be May be cancelled scheme by the lender of money on
cancelled only unilaterally either the life of a mortgagor who, to
with consent of by insured or secure the loan, mortgages the
obligee, insurer on grounds house constructed from the use of
Commissioner or provided by the proceeds of the loan, to the
court law extent of the mortgage
Requires No need of
indebtedness such that if the
acceptance acceptance by
of any
mortgagor dies, the proceeds of his
Cobligee LAW
to be
OMMERCIAL COMMITTEE
valid third party
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
Risk-shifting Risk-distributing
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
device;
Rosario premium Laws);
(Transportation device; premium
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 4
6
MEMORY AID IN
COMMERCIAL LAW
life insurance will be used to pay
for his indebtedness to the lender
assured and the deceased’s heirs
will thereby be relieved from
paying the unpaid balance of the
loan. (Great

COMMERCIAL LAW COMMITTEE

Pacific Life Assurance Corp. vs. Court considered conjugal. If the beneficiary
of Appeals, 316 SCRA 677) is other than the insured’s estate, the
source of premiums would not be
LIABILITY OF INSURER IN relevant. (Del Val v. Del Val, 29 Phil
CERTAIN CAUSES OF DEATH OF 534)
INSURED
1. Suicide
 Insurer is liable in the following
cases:
1. If committed after two years
from the date of the policy’s
issue or its last
reinstatement;
2. If committed in a state of
insanity regardless of the
date of the commission
unless suicide is an excepted
peril. (Sec. 180-A)
3. If committed after a shorter
period provided in the policy
 Any stipulation extending the 2-
year period is null and void.
2. At the hands of the law (E.g. by
legal execution)
 It is one of the risks assumed by
the insurer under a life insurance
policy in the absence of a valid
policy exception. (Vance,p.572 cited
in de Leon, p. 107) Note: Justice
Vitug believes that death by suicide
(if the insured is sane) or at the
hands of the law obviates against
recovery as being more in
consonance with public policy and
as being implicit under Section 87,
ICP. (Pandect of Commercial
Law and
Jurisprudence, 1997 ed.
P. 191)
3. Killing by the beneficiary
GENERAL RULE: The interest of a
beneficiary in a life insurance policy
shall be forfeited when the
beneficiary is the principal
accomplice or accessory in willfully
bringing about the death of the
insured, in which event, the nearest
relative of the insured shall receive
the proceeds of said insurance if not
otherwise disqualified. (Sec. 12)
EXCEPTIONS:
1. Accidental killing
2. Self-defense
3. Insanity of the beneficiary at
the time he killed the insured

 If the premiums paid came from

conjugal funds, the proceeds are
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 4
8
MEMORY AID IN
COMMERCIAL LAW
 The measure of indemnity in life
or health insurance policy is the
sum fixed in the policy except
when a creditor insures the life of
his debtor. (Sec. 183) IS THE
CONSENT OF THE BENEFICIARY
NECESSARY TO THE
ASSIGNMENT OF A LIFE
INSURANCE POLICY?
 It depends. If the designation of
the beneficiary is irrevocable, the
beneficiary’s consent is essential
because of his vested right. If the
designation is revocable, the
policy may be assigned without
such consent because the
beneficiary only has a mere
expectancy to the proceeds. (The
Insurance Code of the Philippines
Annotated, Hector de Leon, 2002
ed.)

Cash Surrender Value

 As applied to a life insurance
policy, it is the amount the
insured in case of default, after
the payment of at least 3 full
annual premiums, is entitled to
receive if he surrenders the policy
and releases his claims upon it.

LIFE FIRE
INSURANCE INSURANCE
Contract of Contract of
investment not of indemnity
indemnity
Valued policy Open or valued
policy
May be The
transferred or
assigned to any insurable interest
person even if of the transferee
he has no or
insurable assignee is
interest essential
Consent of insurer Consent of insurer
is not essential to must be secured in
validity of the absence of
assignment waiver
Contingency that Contingency
is contemplated is insured against
a certain event, may or may not
the only occur
uncertainty being
the time when
it will take place
A long-term May be cancelled
contract and by either party and
cannot is
be cancelled by usually for a term
the insurer of one year
Beneficiary is Insured is required
under no to submit proof of
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law 4
9
MEMORY AID IN
COMMERCIAL LAW
obligation to his actual
prove actual pecuniary loss as a
financial loss condition
precedent to
collecting the
insurance.

COMMERCIAL LAW COMMITTEE

XXII. VARIABLE CONTRACT

 Any policy or contract on either a  The Insurance Commissioner has
group or individual basis issued by no jurisdiction to decide the legality
an insurance company providing for of a contract of agency entered into
benefits or other contractual between an insurance company and
payments or values thereunder to its agent. The same is not covered
vary so as to reflect investment by the term “doing or transacting
results of any segregated portfolio of insurance business” under Sec 2,
investment. ICP, neither is it covered by Sec. 416
of the same Code which grants the
XXIII. INSURANCE Commissioner adjudicatory powers
COMMISSIONER (Philippine American Life Insurance
 Main agency charged with the Co.
enforcement of the Insurance Code v. Ansaldo, 234 SCRA 509).
and other related laws.
 Functions: 2. ADMINISTRATIVE/REGULATORY
1. ADJUDICATORY/QUASI-JUDICIAL a. Enforcement of insurance laws
a. Exclusive original jurisdiction b. Issuance, suspension or
– Any dispute in the enforcement of revocation of certificate of
any policy issued pursuant to authority
Chapter VI (CMVLI). (Sec. 385, par. c. Power to examine books and
2) records, etc.
b. Concurrent original d. Rule-making authority
jurisdiction (with the RTC) – Where e. Punitive
the maximum amount involved in
any single claim is P100,000 (Sec.
416), except in case of maritime
insurance which is within the
exclusive jurisdiction of the RTC. (BP
129; admiralty & maritime
jurisdiction)
 Where the amount exceeds
P100,000, the RTC has
jurisdiction.

COMMERCIAL LAW COMMITTEE

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Commercial Law Memory Aid Guide

Uploaded by

Commercial Law Memory Aid Guide

Uploaded by

San Beda College of Law 1

I. GENERAL CONCEPTS the insurer promises to make good

COMMERCIAL LAW COMMITTEE

III. DISTINGUISHING ELEMENTS

COMMERCIAL LAW COMMITTEE

received from the applicant the 4. Property or life insured;

Cover Note (Ad Interim)

 Contents: (Sec. 51)

COMMERCIAL LAW COMMITTEE

[Link] TO INSURANCE right to revoke in the

VII. INSURABLE INTEREST

COMMERCIAL LAW COMMITTEE

c. of any person under a legal

 The lessor cannot be validly a

COMMERCIAL LAW COMMITTEE

taken by a lessee over his insurer. (Palileo vs. Cosio)

Effects of Loss Payable Clause

 In case a mortgagee insures his

GENERAL RULE: No policy issued

 Section 77 merely precludes the

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

XI. ASCERTAINMENT AND  The waiver of medical examination

COMMERCIAL LAW COMMITTEE

2. Representations – Factual 3. Warranties – Statement or

Test of Materiality: Same as that

 Where the insured merely signed

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

4. Conditions – Events signifying to “incontestability.” (Sec. 48)

5. Exceptions – Provisions that

XII. INCONTESTABILITY CLAUSE

COMMERCIAL LAW COMMITTEE

 Incontestability only deprives the the property lost;

 Effects: Where double

COMMERCIAL LAW COMMITTEE

insured. It is lawful and specifically reinsured is bound to cede and the

2. Automatic reinsurance – The

Loss for Loss for

COMMERCIAL LAW COMMITTEE

Proximate Cause – An event that term – after the receipt

Required Not required

Failure to give Failure to give

TIME FOR PAYMENT OF CLAIMS

a. Maturing The proceeds

 In case of an unreasonable delay in

XV. PRESCRIPTIVE PERIOD

COMMERCIAL LAW COMMITTEE

Insurance Commissioner should be 3. Fixed transportation property –

XVI. MARINE INSURANCE

Note: If a vessel is hypothecated

COMMERCIAL LAW COMMITTEE

PERILS OF PERILS OF 1. Negligence of the captain,

COMMERCIAL LAW COMMITTEE

IMPLIED WARRANTIES be seaworthy at the commencement

 While the payment by the insurer

COMMERCIAL LAW COMMITTEE

LOSS concerned in the cargo or the vessel,

RIGHT OF INSURED IN CASE OF

FPA Clause (Free From

COMMERCIAL LAW COMMITTEE

ABANDONMENT loss bears to the value of the whole

 If an insurer refuses to accept a

COMMERCIAL LAW COMMITTEE

XVII. FIRE INSURANCE

 Prerequisites to recovery: without the consent of the

HOSTILE FIRE FRIENDLY

Note: It is very crucial to determine

COMMERCIAL LAW COMMITTEE

Option to rebuild clause

COMMERCIAL LAW COMMITTEE

the insured acquires an interest in

COMMERCIAL LAW COMMITTEE

Third Party – Any person other