DOUBLE INSURANCE

1 GEAGONIA v. CA and COUNTRY BANKERS

1.
2.

Geagonia is the owner of Normans Mart

He obtained from Country Bankers a fire insurance policy for 100k (1
year).
3. It covered stock-in-trade consisting principally of dry goods such as
RTWs and other usual to assureds business
4. Geagonia declared in the policy under the heading CO-INSURANCE that
Mercantile Insurance was the co-insurer for the 50k
5. Policy contained the condition that the insured shall give notice to the
Company of any insurance or insurances already effected, or which
may subsequently be effectedunless notice be given by the Company
before occurrence of any loss or damage, all benefits under this policy
shall be forfeited.
6. Fire of accidental origin broke out at the public market, petitioners
stock-in-trade were completely destroyed.
7. Country denied the claim because it found out that stock-in-trade were
likewise covered by PFIC.
8. Geagonia filed with the Insurance Commission (IC) recovery of 100k
9. Geagonia: Country Banker already knew that the two policies issued by
PFIC were already in existence. He was not aware and was not
informed of the insurers condition. Also, actual value of stock lost
amounted to 1M.
10. IC: Geagonia did not violate the condition, it was Cebu Tesing Textile
which procured the PFIC policies. Cebu without informing or securing
the consent of G, as his creditor, had insurable interest on the stocks.
Country Banker to pay petitioner 100k
11. CA reversed IC because it found out that Geagonia knew of the
existence of the two other policies; insurance was taken in the name of
Geagonia, the policy states that he was the assured and Cebu was only
the mortgagee of the goods, in addition premiums on both were paid
for by Geagonia and not by Cebu.

2 PACIFIC BANKING v. CA
1.

ISSUE: Whether there is double insurance so as to deny Geagonia from

recovering on the insurance policy. NONE.

2.

3.

Condition of Country Bankers is a condition which is not proscribed by

law. Its incorporation in the policy is allowed by Section 75 of IC.
However, in order to constitute a violation, the other insurance must be
upon same subject matter, interest and risk.
As to a mortgaged property, the mortgagor and the mortgagee have
each an independent insurable interest therein and both interests may
be one policy, or each may take out a separate policy covering his
interest, either at the same or at separate times.
The mortgagor's insurable interest: full value of the mortgaged
property, even though the mortgage debt is equivalent to the full value
of the property

The mortgagee's insurable interest: extent of the debt, since the

property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon.
Although the mortgagee is himself the insured, as where he applies for
a policy, fully informs the authorized agent of his interest, pays the
premiums, and obtains on the assurance that it insures him, the policy
is in fact in the form used to insure a mortgagor with loss payable
clause.
With these principles in mind, we are of the opinion that the prohibition
applies only to double insurance.
A double insurance exists where the same person is insured by
several insurers separately in respect of the same subject and
interest
As earlier stated, the insurable interests of a mortgagor and a
mortgagee on the mortgaged property are distinct and separate. Since
the two policies of the PFIC do not cover the same interest as that
covered by the policy of Country Bankers, no double insurance exists.
The non-disclosure then of the former policies was not fatal to the
petitioners right to recover on the private respondent's policy.
The rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the
perpetration of fraud.
When a property owner obtains insurance policies from two or more
insurers in a total amount that exceeds the property's value, the
insured may have an inducement to destroy the property for the
purpose of collecting the insurance.
The public as well as the insurer is interested in preventing a situation
in which a fire would be profitable to the insured.

4.
5.
6.
7.

8.

A fire police (open policy) was issued to the Paramount Shirt

Manufacturing (insured) by Oriental Assurance (P61k).
a. The stocks, materials, and supplies usual to a shirt factory,
including furniture, machinery and equipment were insured.
Paramount was then a debtor of Pacific Banking (P800k) and the goods
described were held in trust by Paramount for Pacific.
Policy was endorsed to Pacific as mortgagee/trustor of the properties
insured, with the consent of Oriental. It was made payable to Pacific.
A fire broke out destroying the goods.
Pacific sent a letter of demand to Oriental for indemnity due to the loss
of property by fire.
Oriental said it was not ready to pay pending investigation.
The insurance adjuster notified Pacific that the insured under the policy
had not filed any claim with it, nor submitted proof of loss which is a
violation of Policy Condition 11 and for that reason, determination of
the liability of Oriental cannot be ascertained.
Pacific: The records by the Bureau of Customs of the merchandise
taken into a bonded warehouse that was razed by fire should be
reliable proof.

9. Pacific filed against Oriental a claim for P61k.

10. Oriental: Lack of formal claim by insured, premature filing because no
proof of loss was submitted as required in the Policy.
11. During trial, several undeclared co-insurances were discovered
undertaken by Paramount. (Violation of Condition No. 3 but was not
pleaded in the answer/MTD).
12. TC: Oriental ordered to pay.
13. CA: Reversed. Failure to declare co-insurances was false declaration

WON Sta. Ana may claim. NO

1.

ISSUE: Whether there were violations of the Policy Conditions. YES.

RE: Policy Condition No. 3 (For Double Insurance Topic)

Policy Condition No. 3: Notice shall be given to the Company of any

insurance already effected or subsequently effected covering the
properties insured unless given, all benefit shall be forfeited.

Had the insurer known that there were many co-insurances, it could
have hesitated or desisted from entering into such contract.

Concrete evidence of fraud or false declaration by the insured was

furnished by the petitioner itself when the facts alleged in the policy
under clauses Co-Insurances Declared and Other Insurance Clause
are materially different from the actual number of co-insurances taken
over the subject property.

Representations of facts are the foundation of the contract and if the

foundation does not exist, the superstructure does not arise. Falsehood
in such representations is not shown to vary or add to the contract, or
to terminate a contract which has once been made, but to show that
no contract has ever existed.

A void or inexistent contract is one which has no force and effect from
the very beginning, as if it had never been entered into, and which
cannot be validated either by time or by ratification.

As the insurance policy against fire expressly required that notice

should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.
3 Sta. Ana vs Commercial Union
1
2
3
4

Sta. Ana built a house with an iron roof in Pasig

a He insured his house for P3000 for fire with Phoenix; P6000 for
Guardian Assurance (for 1 year)
Sta. Ana mortgaged the house to Garcia for a P5000 loan for 2 years,
however, the contract was drawn up as a retro sale
a The policies of Phoenix and Guardian were endorsed to Garcia
The house was reinsured by Sta. Ana to Globe and Rutgers Fire
Insurance Company and Commercial Union Assurance for P3K each
a And insured it again with Filipinas for P6000 for a year
12 hours before the expiration of the policy with Phoenix and Guardian,
a fire broke out and consumed the house
a The companies refused to pay because the P21k demanded by him
was in excess of the value of the property; that the fire was
intentional;

The insurance policies required insured to give written notice of any

prior insurance of the property and that there must be a necessary
endorsement by the companies to clearly show that insured has
complied with the requirement
a. Although Sta. Ana claims he gave notices to their agents, the
agents denied the same
b. The absence off the notice which is a condition in the policy
renders said policy null and void.

4 PIONEER INSURANCE v. YAP

1.

Yap was the owner of a store in a two-storey building where she sold
shopping bags and footwear.
2. Yap took out a Fire Insurance Policy from Pioneer Insurance (P25k) over
her stocks furniture, fixtures and fittings of every kind and description.
a. Condition in the Policy: Unless a notice of insurance already
effected or subsequently effected be given and the particulars be
stated in or endorsed in the Policy by or on behalf of the Company
before the occurrence of any loss damage, all benefits under this
Policy shall be forfeited.
3. An insurance policy from Great American Insurance was noted as a coinsurance.
4. Later, the parties executed an endorsement on the Policy stating that a
co-insurance exists with Northwest Insurance and not as originally
stated.
5. Yap took out another fire insurance covering the same properties with
Federal Insurance without notice to Pioneer.
6. A fire broke out in the building where Yaps store was.
7. Yap filed an insurance claim. Denied. Ground: Breach and/or violation
of any and/or all terms and conditions.
8. Yap filed with the CFI a complaint for payment of the policy.
9. Pioneer in its answer:
a. No property owned by Yap and covered by an insurance was
destroyed by the fire
b. Yaps claim was filed out of time
c. Yap took out an insurance policy from another insurance company
without Pioneers endorsement. Violated stipulations = all benefits
are deemed forfeited.
10. TC: In favor of Yap. CA affirmed.
a. Great American Insurance was substituted by Federal Insurance for
the same amount. Since it was mere substitution, no more
necessity to endorse it on the Policy.
ISSUE: Whether Pioneer should be absolved from liability because of the
policy violation by Yap. NO.
RATIO:

By the plain terms of the policy, other insurance without the consent of
petitioner would ipso facto avoid the contract.
o It required no affirmative act of election on the part of the
company to make operative the clause avoiding the contract,
wherever the specified conditions should occur.
o Its obligations ceased, unless, being informed of the fact, it
consented to the additional insurance.
The Court of Appeals would consider petitioner to have waived the
formal requirement of endorsing the policy of co-insurance since there
was absolutely no showing that it was not aware of said substitution
and preferred to continue the policy.
o A waiver must be express.
o If it is to be implied from conduct mainly, said conduct must be
clearly indicative of a clear intent to waive such right.
o Especially in the case at bar where petitioner is assumed to
have waived a valuable right, nothing less than a clear,
positive waiver, made with full knowledge of the
circumstances, must be required.
The validity of a clause in a fire insurance policy to the effect that the
procurement of additional insurance without the consent of the insurer
renders ipso facto the policy void is well-settled.
o To prevent over-insurance and thus avert the perpetration of
fraud. The public, as well as the insurer, is interested in
preventing the situation in which a fire would be profitable to
the insured.

5 New Life vs CA
1.

2.
3.

4.

Julian and Jose Sy formed New Life Enterprises (partnership) which

owned a two-storey building.
a. Julian insured the stocks in trade with Western Guaranty, Reliance
Surety and Equitable Insurance
b. The policies provided that the insured will give notice
The building was destroyed by fire.
Julian went to Reliance Insurance to file his claim and submitted fire
clearance, insurance policies and inventory of stocks and that the 3
insurance companies were sister companies
a. Equitable said that if Reliance pays, it will also pay
b. The other companies told him the same thing. And they also
denied his claim for breach of policy conditions that is, that the
insured will give notice of any insurance/ insurances already
effected covering the stocks in trade.
Julian filed an action with the RTC
a. RTC: ordered the companies to pay
b. CA reversed.

WON New Life may claim. NO

1.

The separate policies of the insurance companies did not indicate the
other insurance policies.

a.
2.

3.

4.

5.
6.

Julian was arguing that the agents of each company knew about
the existence of an insurance with the other companies.
b. However, Julians defense cannot pass judicial muster.
The terms of the policy are clear. The insured must disclose the other
insurance he as effected on the same subject matter.
a. The knowledge of the agents is not notice that would estop the
insurers from denying the claim.
b. Resort to construction in favor of the insured cannot prosper
The theory of imputed knowledge - knowledge of the agent is
knowledge of the principal; this is not applicable.
a. CA already found that the agents did not know
b. Moreover, while he claims that the agents knew, he rebutted his
own argument by saying he did not read the policy.
c. Also it is the duty of the party to exercise ordinary care in contracts
The companies are not sister companies
a. The mere fact that the two companies had the same agent does
not make them sister companies; availing of the same agent/
adjuster is a common practice
Also, the statement is deemed as warranty, violation of which entitled
the other party to rescind
a. The purpose is to prevent over-insurance and to prevent fraud
Also the claim was filed beyond a year after the denial. While the
policies require filing of the complaint within 12 months from denial
a. This is necessary for the prompt settlement of claims and to
preserve the evidence

6 La O v. The Yek Tong Lin

FACTS:
1. Action to recover of Yek Tong Lin Fire & Marine Insurance the
amount of two policies worth 100k upon leaf tobacco belonging to
La O which was damaged by fire that destroyed the warehouse
building where the tobacco was stored.
2. TC ruled in favor of La O, the defendant appealed.
3. The Yek argues that La O cannot recover under the policy as he has
failed to prove that BPI (to whom the policy was made payable), no
longer has any rights and interests on it.
ISSUE: Whether or not TC committed an error. NO.
RATIO:

Art. 3 of the Insurance policies provided that: Any insurance in force

upon all or part of the things insured must be declared in writing by the
insured and he (insured) should cause the company to insert or
mention it in the policy. Without such requisite, such policy will be
regarded as null and void and the insured will be deprived of all rights
of indemnity in case of loss.

Notwithstanding said provision, La O entered into other insurance

contracts. When he sought to claim from The Yek after the fire, the
latter denied any liability on the ground of violation of Art. 3.

La O however proved that the insurer knew of the other insurance

policies obtained by him long before the fire and the insurer did NOT
rescind the insurance policies in question but demanded and collected
from the insured the premiums.
The action by the insurance company of taking the premiums of the
insured notwithstanding knowledge of violations of the provisions of
the policies amounted to waiver of the right to annul the contract of
insurance.

PREVIOUS ISSUE:

Insured may be regarded as the real party in interest, although he has

assigned the policy for the purpose of collection, or has assigned as
collateral security any judgment he may obtain
7 GENERAL INSURANCE v. NG HUA
1.

2.
3.
4.
5.

6.

7.

General Insurance issued an Insurance Policy insuring the stock in

trade of the Central Pomade Factory owned by Ng against fire.
a. Condition in the Policy: Unless a notice of insurance already
effected or subsequently effected be given and the particulars
be stated in or endorsed in the Policy by or on behalf of the
Company before the occurrence of any loss damage, all
benefits under this Policy shall be forfeited.
The next day, Pomade Factory burned.
Ng claimed indemnity from General Insurance.
Policy covered damages up to P10k but after some negotiations, the
adjustment company, Ng reduced the claim to P5k.
General Insurance refused to pay because the action was not filed on
time, violation of warranty, submission of fraudulent claim and failure
to pay the premium.
a. The face of the policy bore the annotation: Co-Insurance
Declared NIL
b. But Ng obtained a fire insurance with General Indemnity for the
same period.
CA: No violation of the above clause inasmuch as co-insurance exists
when a condition of the policy requires the insured to bear ratable
proportion of the loss when the value of the insured property exceeds
the face value of the policy. Hence, no co-insurance in this case.
Ng Hua alleges "actual knowledge" on the part of General Insurance of
the fact that he had taken out additional insurance with General
Indemnity.

ISSUE: Whether there is co-insurance. YES.

RATIO:

Considering the terms of the policy which required the insured to

declare other insurances, the statement in question must be deemed
to be a statement (warranty) binding on both insurer and insured, that
there were no other insurance on the property.

Remember it runs "Co- Insurance declared"; emphasis on the last word.

If "Co- insurance" means what the Court of Appeals says, the
annotation served no purpose. It would even be contrary to the policy
itself, which in its clause No, 17 made the insured a co-insurer for the
excess of the value of the property over the amount of the policy.
The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy.
even if the annotation were overlooked, the defendant insurer would
still be free from liability because there is no question that the policy
issued by General Indemnity has not been stated in nor endorsed on
Policy No. 471 of defendant.
Ng does not say when such knowledge was acquired or imparted. If
General Insurance knew before issuing its policy or before the fire, such
knowledge might overcome the insurer's defense.
this concealment and violation was expressly set up as a special
defense in the answer. Yet plaintiff did not, in avoidance, reply nor
assert such knowledge. And it is doubtful whether evidence on the
point would be admissible under the pleadings.
Violation of a warranty that there were no other insurances on the
property insured entitles the insurer to rescind.

8 Union Manufacturing vs Philippine Guaranty

1.

2.

Republic Bank loaned Union Manufacturing P415K, with real and chattel
mortgages as security
a. Since Union failed to obtain an insurance, Republic Bank obtained a
fire insurance policy from Philippine Guaranty
A fire occurred.
a. Phil. Guaranty denied the claim of Republic Bank because of
violation of a condition which requires the insured to give notice as
to insurance policies with other companies that had already been
effected/ will be effected
b. That Union already insured the same properties previously with
Sincere Insurance and Manila Insurance

WON Union/ Republic Bank may claim. NO

1.

2.

Both Republic bank and Union cannot recover

a. The condition was violated to the effect that Union did not reveal
that there were already subsisting insurance policies over the same
property
Without deciding whether notice of other insurance upon the same
property must be given in writing, or whether a verbal notice is
sufficient to render an insurance valid which requires such notice,
whether oral or written, we hold that in the absolute absence of such
notice when it is one of the conditions specified in the fire insurance
policy, the policy is null and void
a. The insured not reading the policy is not a valid defense
b. If the insured has violated or failed to perform the conditions of the
contract, and such a violation or want of performance has not been

c.
d.
e.

waived by the insurer, then the insured cannot recover. Courts are
not permitted to make contracts for the parties
If such terms are clear and unambiguous they must be taken and
understood in their plain, ordinary and popular sense
The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy. Violation thereof
entitles the insurer to rescind
The insurance contract may be rather onerous ('one sided', as the
lower court put it), but that in itself does not justify the abrogation
of its express terms, terms which the insured accepted or adhered
to and which is the law between the contracting parties.

REINSURANCE
1 Fieldmens Insurance vs Asian Surety
1.

2.
3.

Asian Surety and Fieldmens entered into 7 reinsurance agreements

where Asian, as ceding company would undertake to cede to
Fieldmens (the reinsuring company), a proportionate share of the
gross rate of the premium applicable.
a. Fieldmens then sent a notice to Asian that it will not participate in
the agreement anymore because of Asians violations; and
therefore cancelled all the reinsurance treaties and cessions
One of the risks insured by Fieldmens in favor of the GSIS burned
a. Asian immediately notified Fieldmens of said loss
Fieldmens avoided liability under the reinsurance agreements and filed
a petition for DR with the CFI to declare that the insurance contracts
are all terminated
a. Asian argued that it did not receive the letter which terminated
their agreement; that Fieldmens could not terminate the
agreement because the letter was merely an expression of its
desire to terminate and not a notice of cancellation;
b. TC: declared the agreements cancelled
c. CA: affirmed

WON the cancellation of the agreements have the effect of terminating

Fieldmens liability as reinsurer.
1.

2.

The agreement provided that the liability of the reinsurer (Fieldmens),

as to agreements not cancelled in the ordinary course of business shall
continue in full force until their expiry unless Asian elects to withdraw
a. Thus since 2 of the agreements contained said provision, mere
cancellation by Fieldmens does not ipso facto cancel its liability
b. The liability shall exist until the expiration of the policy
c. Thus, Fieldmens is liable to Asian for the burning of the GSIS
property
As to the 4 other agreements it is moot
a. The said agreements have already been cancelled and there is no
claim as to these agreements.

2 PIONEER INSURANCE & SURETY CO. V. CA

FACTS:
1. Lim was engaged in airline business as owner-operator of Southern Air
Lines (SAL)
2. Japan Domestic Airlines and Lim entered into a sales contract for the
sale and purchase of two DC-3A type aircrafts and one set of spare
parts to be paid in installments, the items arrived in Manila
3. Pioneer as surety executed and issued a surety bond in favor of JDA in
behalf of its principal Lim, for the balance price of aircrafts and spare
parts
4. It appears that Bormaheco, Cervanteses, and Maglana (respondents in
both petitions) contributed some funds used in the purchase of the
items
5. The funds were supposed to be their contributions to a new corporation
porposed by Lim to expand his airline business
6. They executed 2 separate indemnity agreements in favor of Pioneer,
one signed by Maglana and other jointly signed by Lim for SAL,
Bormaheco, and Cervanteses
7. The indemnity agreements stipulated that the indemnitors principally
agree and bind themselves jointly and severally to hold and save
harmless Pioneer from and against all damages, losses, costs,
damages, taxes, penaties, charges, and expenses of whatever kind and
nature which Pioneer may incur in consequence of having become
surety upon the bond and to pay, reimburse and make good to Pioneer,
its successors and assigns, all sums and amounts of money which it or
its representatives should or may pay or cause to be paid or become
liable to pay on them of whatever kind and nature
8. Lim doing business under SAL executed in favor of Pioneer as a deed of
chattel mortgage as security for the latters suretyship in favor of the
former
a. It was stipulated therein that Lim transfer and convey to the
surety the two aircrafts
9. Lim defaulted on his payments prompting JDA to request payments
from Pioneer
10. Pioneer paid 298k
11. Pioneer then filed a petition for EJF of the chattel mortgage
12. Cervanteses and Maglana, however, filed a 3P claim alleging that they
are co-owners of the aircrafts
13. Pioneer filed judicial foreclosure with application for writ of attachment
against Lim, Cervanteses, Bormaheco, and Maglana
14. Maglana, Bormaheco, and Cervanteses filed cross-claims against Lim
alleging that they were not privies to the contract signed by Lim
15. LC- Lim liable to pay Pioneer but dismissed Pioneers complaint against
all other defendants
16. CA- modified LC, complaint against all defendants was dismissed
ISSUE: CA erred when it dismissed Pioneers complaint based solely on the
ground that Pioneer had already collected the proceeds of the reinsurance
on its bond and that it cannot represent a reinsurer to recover the amount
from Lim. NO.

Note: Pioneer reinsured its risk under the surety bond in favor of JDA
and subsequently collected the proceeds of such reinsurance in the
sum of 295k
Lims alleged obligation to Pioneer amounts to 295k, hence, instant
action for recovery will no longer prosper
Pioneer is not the real party in interest
Pioneers contention that it is representing the reinsurer is devoid of
merit no evidence was presented. Not even as an attorney-in-fact for
there are no evidence of such
In addition Pioneer was able to foreclose EJ one of the spare engines
(37k) , Pioneer should deduct this from its claims against Lim
In reality Pioneer was already overpaid since it only paid 299k,
however it already collected 295k plus it was able to foreclose one of
the engine worth 37k
Pioneer was not the real party in interest for a reinsurer, on payment of
a loss acquires the same rights by subrogation as are acquired in
similar cases where the original insurer pays a loss the reinsurer was
the real party in interest
The counter-indemnitors are not liable are not liable to Pioneer
The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of Pioneer should they
make payments to the latter
Pioneer's election of the remedy of foreclosure precludes any further
action to recover any unpaid balance of the price

7.

During sea voyage, while in the south of Japan, it encountered heavy

weather and rough seas, expenses were incurred by Lepanto relative to
the cargo while in Japan
8. Another cargo was shipped afterwards, expenses were incurred relative
to the cargo
9. Lepanto notified Malayan and another insurer, Commercial Union in
London of the accidents. Formal claims were also filed by Lepanto with
Malayan
10. These claims were denied by Malayan
11. Lepanto filed against Malayan for the interest-free loan to Lepanto as
stipulated in the policy (1.8M)
12. Malayan filed MD- dismissed
a. Not the real party in interest
b. No cause of action
c. Obligation was already extinguished
13. Pre-trial conference was held
14. Gibson then filed a motion to intervene as defendant
a. Has a legal interest because a contract of reinsurance between
Gibson and Malayan is a contract of indemnity against liability,
not merely against damage, therefore, has direct and
immediate interest
15. Motion was denied by the lower court
ISSUE: Whether or not the lower court committed error in refusing the
intervention of Gibson. NO.

3 GIBSON V. REVILLA
FACTS:
1. Lepanto Consolidated Mining Company filed a complaint against
Malayan Insurance Company, Inc.
2. The civil suit thus instituted by Lepanto against Malayan was founded
on the fact that Malayan issued a Marine Open Policy covering all
shipments of copper, gold, and silver concentrates in bulk from Poro,
San Fernando, La Union to Tacoma, Washington or to other places in
the United States
3. Thereafter, Malayan obtained reinsurance abroad through Sedgwick,
Collins & Co., Limited, a London insurance brokerage
4. The Memorandum of Insurance issued by Sedgwick to Malayan listed
three groups of underwriters or reinsurers Lloyds 62.808%,
Companies (I.L.U.) 34.705%, other companies 2.487%
5. At the top of the list of underwriting members of Lloyds is Syndicate
No. 448, assuming 2.48% of the risk assumed by the reinsurer, which
syndicate number petitioner Ivor Robert Dayton Gibson claims to be
himself
Main Story
6. A cargo of concentrates was shipped by Lepanto for Washington

We agree with the holding of the respondent court that since movant
Gibson appears to be only one of several re-insurers of the risks and
liabilities assumed by Malayan it is highly probable that other reinsurers may likewise intervene
If petitioner is allowed to intervene, We hold that there is good and
sufficient basis for the Court a quo to declare that the trial between
Lepanto and Malayan would be definitely disrupted and would certainly
unduly delay the proceedings between the parties especially at the
stage where Lepanto had already rested its case and that the issue
would also be compounded as more parties and more matters will have
to be litigated
We also hold that respondent Judge committed no reversible error in
further sustaining the ground of Lepantos Opposition to the Motion to
Intervene that the rights, if any, of petitioner are not prejudiced by the
present suit and will be fully protected in a separate action against him
and his co-insurers by Malayan
Gibsons contention that he has to pay once Malayan is finally
adjudged to pay Lepanto because of the very nature of a contract of
reinsurance and considering that the re-insurer is obliged to pay as
may be paid thereon (referring to the original policies), although this is
subject to other stipulations and conditions of the reinsurance contract,
is without merit
Sec 1238 (di ko alam kung saan galing)The general rule in the law of
reinsurance is that the re-insurer is entitled to avail itself of every

defense which the re-insured (which is Malayan) might urge in an

action by the person originally insured (which is Lepanto)
Where an action is brought against the reinsurer by the reinsured, the
former may assert any defense that the latter might have made in an
action on the policy of original insurance
As to the effect of the clause to pay as may be paid thereon
contained in petitioners re-insurance contract
o Arnould, on the Law of Marine Insurance and Average, 13th Ed
states the rule, thus:

It has been decided that this clause does not

preclude the reinsurer from insisting upon proper proof
that a loss strictly within the terms of the original policy
has taken place

This clause does not enable the original underwriter to

recover from his reinsurer to an extent beyond the
subscription of the latter
Also, Gibson himself admits that he, if finally sued in London, could
avail himself of remedies available to him

ISSUE: Whether or not a 3P (Artex) not privy to a contract that contains no

stipulation pour autrui in its favor may sue enforcement of contract. NO.

No single clause in the reinsurance contracts has been cited by

Wellington that would justify its claim that they contained a stipulation
pour autrui in favor of Artex
Intent of the contracting parties to benefit third party by means of such
stipulations pour autrui must clearly expressed
Plaintiff-insured, not being a party or privy to defendant insurer's
reinsurance contracts, therefore, could not directly demand
enforcement of such insurance contracts
Assuming that Artex could avail of the reinsurance contracts and
directly sue the reinsurers for payment of the loss, still such
assumption would not in any way affect or cancel out Wellingtons
direct contractual liability to plaintiff-insured under the insurance policy
to indemnify plaintiff for the property losses. Plaintiff's right as insured
to sue defendant as insurer directly and solely would thereby not be
affected or curtailed in any way, without prejudice to defendant in turn
filing a third party complaint or separate suit against its reinsurers

4 ARTEX DEVELOPMENT CO., INC., V. WELLINGTON INSURANCE CO.,

INC.

PERILS OF THE SHIP; PERILS OF THE SEA; ALL RISK INSURANCE

1.

1 ROQUE v. IAC and PIONEER INSURANCE

2.
3.
4.
5.
6.

7.

8.
9.

Wellington insured for 24M the buildings, stocks, and machinery of

Artex against loss or damage by fire or lightning, said properties were
insured an additional sum of 833k. later, it was insured against
business interruption (use and occupancy) for 5.2M
The buildings, stocks, and machineries of Artex spinning dept. were
burned
Total loss was 10M, total business interruption was 3M
Wellington paid the sum of 6M and 1.8M leaving a balance of 3.6M and
1.7M respectively
Artex filed a manifestation- only subject of litigation shall be 397k, the
rest having been paid
Amended document recited further
a. Artex acknowledges the receipt of 3.6M by Minet on behalf
of itself and Wellington in full and final settlement of all
claims Artex may have against Wellington and Minet
Inferred ko lang: Artex filed against Wellington for the balance of 397k.
Wellington used as a defense that since it was reinsured with Minet,
Artex action should have been directed against Mirant and not against
Wellington
LC: It is appropriate that Artex sued Wellington and not Mirant
(reinsurer)
Court agrees that the only remaining amount is 397k but such
manifestation is without prejudice to the legal question presented in
Wellingtons brief that the reinsurance contracts contained a
stipulation pour autrui in favor of Artex, and whereby Artex is deemed
to have agreed to look solely to the reinsurers for indemnity in case of
loss

1.

Manila Bay Lighterage Corporation, common carrier, entered into a

contract with Roque. It would load and carry or board its barge Mable
about 422 cubic meters of logs from Malampaya, Palawan to Manila.
2. Roque insured the logs against loss with Pioneer Insurance.
3. Roque loaded 811 pcs. of logs on the barge but the shipment never
reached Manila because the barge sank.
4. As found by the TC and CA, the barge was not seaworthy such that it
developed a leak.
a. One of the hatches was left open causing water to enter the
barge and because it was not provided with the necessary
cover, the ordinary splash of sea waves brought more water
inside the barge.
5. Roque demanded payment from Manila Bay. Ignored.
6. It then demanded from Pioneer but it also refused saying that its
liability depended upon Total loss by Total Loss of Vessel only.
7. Roque commenced a civil case against Manila Bay and Pioneer
8. TC: Ordered them to pay solidarily.
9. Pioneer appealed. Manila Bay did not (no longer in business, without
funds).
10. Manila Bay told TC that it had salvaged part of the logs and was
ordered to be sold through a bidding.
11. IAC: Absolved Pioneer from liability after finding that:
a. There was a breach of implied warranty of seaworthiness on
the part of Roque
b. The loss was caused by the perils of the ship and not by the
perils of the sea.

c.

The loss is not covered by the marine policy.

ISSUE: Whether the loss of the cargo was caused by the perils of the
ship and not by perils of the sea. PERILS OF THE SHIP

2.

3.
4.

In marine cases, the risks insured against are perils of the sea
The purpose of such insurance is protection against contingencies and
against possible damages and such a policy does not cover a loss or
injury which must inevitably take place in the ordinary course of things.
Perils of the sea has been said to include only such losses as are of
extraordinary nature, or arise from some overwhelming power, which
cannot be guarded against by the ordinary exertion of human skill and
prudence.
o At the time Mable 10 sank, there was no typhoon but
ordinary strong wind and waves, a condition which is
natural and normal in the open sea.
A loss which, in the ordinary course of events, results from the natural
and inevitable action of the sea, from the ordinary wear and tear of the
ship, or from the negligent failure of the ship's owner to provide the
vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what
has been aptly called the 'peril of the ship.' The insurer undertakes to
insure against perils of the sea and similar perils, not against perils of
the ship.
There must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary
incidents of the adventure. The purpose of the policy is to secure an
indemnity against accidents which may happen, not against events
which must happen.
Neither can Roque allege barratry on the basis of the findings showing
negligence on the part of the vessels crew.
Barratry: Any willful misconduct on the part of master or crew in
pursuance of some unlawful or fraudulent purpose without the consent
of the owners, and to the prejudice of the owner's interest.
Barratry necessarily requires a willful and intentional act in its
commission. No honest error of judgment or mere negligence, unless
criminally gross, can be barratry.
There is no finding that the loss was occasioned by the willful or
fraudulent acts of the vessel's crew. There was only simple negligence
or lack of skill. Hence, the second assignment of error must likewise be
dismissed.

2 LA RAZON SOCIAL (GO TIAOCO) v. UNION INSURANCE SOCIETY OF

CANTON, LTD.
1.

Union Insurance Society issued a marine insurance policy to Go Tiaoco

Brothers upon a cargo of rice transported from Saigon to Cebu.
a. It insures, among others, perils of the seas, men of war, fire,
enemies, pirates, rovers, barratry of the master and mariners,

5.

and of all other perils, losses, misfortunes that have come to

damage the goods or any part thereof.
On discharging the rice from one of the compartments in the after
hold, it was discovered that 1,473 sacks had been damaged by sea
water.
Go Tiaoco is now claiming for the loss under the policy.
TC: The inflow of the sea water during the voyage was due to a defect
in one of the drain pipes of the ship and concluded that the loss was
not covered by the policy.
a. The joint/elbow where the drain pipe changed its direction was
of cast iron but it had corroded until an opening had appeared
in the pipe.
b. The hole had been in existence before the voyage begun, and
an attempt to repair it was made (cement and bolting).
c. The cement filling washed out from the action of the water and
allowed the flow of the water into the rice compartment.
TC further held that the repairs that had been made on the pipe were
slovenly and defective and that, by reason of the condition of this pipe,
the ship was not properly equipped to receive the rice at the time the
voyage was begun. For this reason, the court held that the ship was
unseaworthy.

ISSUE: Whether the insurer is liable of the policy. NO.

A marine insurer upon a policy in the usual form is not liable for a loss
which, in the ordinary course of events, results from the natural and
inevitable action of the sea, from the ordinary wear and tear of the
ship, or from the negligent failure of the ship's owner to provide the
vessel with proper equipment to convey the cargo under ordinary
conditions.
Such a loss is rather due to what has been aptly called the "peril of the
ship." The insurer undertakes to insure against perils of the sea and
similar perils, not against perils of the ship.
In the present case the entrance of the sea water into the ship's hold
through the defective pipe already described was not due to any
accident which happened during the voyage, but to the failure of the
ship's owner properly to repair a defect of the existence of which he
was apprised. The loss was therefore more analogous to that which
directly results from simple unseaworthiness than to that which results
from perils of the sea.
The words "all other perils, losses, and misfortunes" are to be
interpreted as covering risks which are of like kind (ejusdem generis)
with the particular risks which are enumerated in the preceding part of
the same clause of the contract.
According to the ordinary rules of construction, these words must be
interpreted with reference to the words which immediately precede
them. They were no doubt inserted in order to prevent disputes
founded on nice distinctions.

3 CHOA TIEK SENG v. CA, FILIPINO MERCHANTS INSURANCE, BEN

LINES CONTAINER, and E. RAZON, INC.
1.
2.
3.

4.
5.
6.
7.

8.
9.
10.
11.
12.
13.

Choa imported some lactose crystals from Holland.

They were loaded on board MS Benalder as the mother vessel, and
aboard the feeder vessel of Ben Line Container.
The goods were insured by Filipino Merchants Insurance against all
risks under the terms of the insurance cargo policy.
a. This insurance is against all risks of loss or damage to the
subject matter insured but shall in no case be deemed to
extend to cover loss, damage, or expense proximately caused
by delay or inherent vice or nature of the subject matter
insured. Claims recoverable hereunder shall be payable
irrespective of percentage.
Upon arrival in Manila, the cargo was discharged to the custody of E.
Razon, Inc. (broker), prior to the delivery to Choa.
The surveys showed that the bad order bags suffered spillage and loss.
Choa filed a claim against Merchants.
Merchants rejected the claim alleging that:
a. Assuming that spillage took place while the goods were in
transit, Choa and his agent failed to avert or minimize the loss
by failing to recover spillage from the sea van, violating the
terms of the insurance policy.
b. Assuming that the spillage did not occur while the cargo was in
transit, the said 400 bags were loaded in bad order, and that in
any case, the van did not carry any evidence of spillage.
Choa filed a complaint against Merchants.
Merchants filed a third-party complaint against Ben Lines and E.
Razon.
Razon: No cause of action.
Ben Lines: Merchants was not the proper party in interest and has no
connection with ben Lines and the complaint has prescribed under the
Sea Act.
TC: Dismissed the complaint, counterclaim, third party complaint.
CA: Affirmed. MR, denied.
a. Damage to a cargo by high seas and other weather is not
covered by an all risk marine policy, since it is not fortuitous,
particularly where the bad weather occurs at a place where it
could be expected at the time in question.
b. The entrance of the sea water into the ships hold through the
defective pipe already described was not due to any accident
which happened during the voyage, but to the failure of the
ships owner properly to repair a defect of the existence of
which he was apprised. The loss was therefore more analogous
to that which directly results from simple unseaworthiness than
to that whose results, from perils of the sea.

ISSUE: Whether all risks coverage covers only losses occasioned by

extra and fortuitous events. NO.

The terms of the policy are so clear and require no interpretation. The
insurance policy covers all loss or damage to the cargo except those
caused by delay or inherent vice or nature of the cargo insured. It is
the duty of Merchants to establish that said loss or damage falls within
the exceptions provided for by law, otherwise it is liable therefor.
An all risk insurance policy insures against all causes of conceivable
loss or damage, except as otherwise excluded in the policy or due to
fraud or intentional misconduct on the part of the insured.
It covers all losses during the voyage whether arising from a marine
peril or not, including pilferage losses during the war.
An all risks provision of a marine policy creates a special type of
insurance which extends coverage to risks not usually contemplated
and avoids putting upon the insured the burden of establishing that the
loss was due to peril falling within the policys coverage.
The insurer can avoid coverage upon demonstrating that a specific
provision expressly excludes the loss from coverage.
In this case, the damage caused to the cargo has not been attributed
to any of the exceptions provided for nor is there any pretension to this
effect. Thus, the liability of respondent insurance company is clear.

4 FILIPINO MERCHANTS V. CA & CHOA TEK TENG

1.

2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Choa Tek Teng insured shipment with Filipino Merchants for the sum of
267k for goods described as 600 metric tons of fishmeal in new gunny
bags of 90 kilos each from Bangkok to Manila against all risks under
warehouse to warehouse terms
What was actually imported was 59.940 metric tons and not 600. CNF
Manila
The fishmeals in 666 new gunny bags were unloaded in Manila unto
the arrastre contractor E. Razon, Inc.
It was certified by the surveyor that 227 bags were in bad condition
Plaintiff made a formal claim against Filipino Merchants
Claim was also presented against the vessel
Insurer refused to pay the claim
Plaintiff brought an action against insurer to recover 51k representing
damages to the shipment
Insurer brought 3P complaint against Compagnie Maritime Des
Chargeurs Reunis (Shipper/vessel) and/or E. Razon Inc. (Arrastre
contractor)
LC-against Filipino Merchants. Shipper and arrastre contractor were
ordered to pay the insurer jointly and severally for reimbursement of
the amounts
CA affirmed LC but modified 3P complaint
a. Arrastre to reimburse insurer 25k
b. Claims against shipper is dismissed
Insurer contends that an all risk marine policy has a technical
meaning in insurance in that before a claim can be compensable it is
essential that there must be "some fortuity
And that failure of respondent to prove such precludes his right to
recover

ISSUE: Whether or not CA erred in the interpretation of the all risk

clause of the marine insurance. NO.

An "all risks policy" should be read literally as meaning all risks

whatsoever and covering all losses by an accidental cause of any kind
Terms "accident" and "accidental", as used in insurance contracts are
construed by the courts in their ordinary
o Thus accident is an event that takes place without one's
foresight or expectation
The very nature of the term "all risks" must be given a broad and
comprehensive meaning as covering any loss other than a willful and
fraudulent act of the insured. This is pursuant to the very purpose of an
"all risks" insurance to give protection to the insured in those cases
where difficulties of logical explanation or some mystery surround the
loss or damage to property
An "all asks" policy has been evolved to grant greater protection than
that afforded by the "perils clause," in order to assure that no loss can
happen through the incidence of a cause neither insured against nor
creating liability in the ship; it is written against all losses, that is,
attributable to external causes
The term "all risks" cannot be given a strained technical meaning, the
language of the clause under the Institute Cargo Clauses being
unequivocal and clear, to the effect that it extends to all
damages/losses suffered by the insured cargo except
o loss or damage or expense proximately caused by delay, and
o loss or damage or expense proximately caused by the inherent
vice or nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss
arose from a covered peril, but under an "all risks" policy the burden is
not on the insured to prove the precise cause of loss or damage for
which it seeks compensation
The insured under an "all risks insurance policy" 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; thereafter, the burden then shifts to the insurer to show the
exception to the coverage
Burden of the insured, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated. Thereafter, the
burden is shifted to the insurer to prove that the loss was due to
excepted perils. To impose on the insured the burden of proving the
precise cause of the loss or damage would be inconsistent with the
broad protective purpose of "all risks" insurance
In the present case, there being no showing that the loss was caused
by any of the excepted perils, the insurer is liable under the policy
There is no evidence presented to show that the condition of the gunny
bags in which the fishmeal was packed was such that they could not
hold their contents in the course of the necessary transit, much less
any evidence that the bags of cargo had burst as the result of the
weakness of the bags themselves. Had there been such a showing that

spillage would have been a certainty, there may have been good
reason to plead that there was no risk covered by the policy
Under an 'all risks' policy, it was sufficient to show that there was
damage occasioned by some accidental cause of any kind, and there is
no necessity to point to any particular cause

ISSUE: Whether or not the respondents have insurable interest. YES.

Private respondents interest over the goods is based on the perfected

contract of sale- operates to vest in him an equitable title even before
delivery
Contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this
case, is immaterial in the determination of whether the vendee has an
insurable interest or not in the goods in transit. The perfected contract
of sale even without delivery vests in the vendee an equitable title, an
existing interest over the goods sufficient to be the subject of
insurance
C & F contracts are shipment, it simply means that the seller must pay
the costs and freight necessary to bring the goods to the named
destination but the risk of loss or damage to the goods is transferred
from the seller to the buyer when the goods pass the ship's rail in the
port of shipment
Moreover, the issue of lack of insurable interest was never raised prior
to this petition with the SC

INSURABLE INTEREST IN MARINE INSURANCE

5 CALTEX PHIL. V. SULPICIO LINES
1.

MT Vector left Bataan at 8pm, enroute to Masbate, loaded with 8,800

barrels of petroleum products shipped by Caltex
2. MT Vector is a tramping motor tanker owned by Vector Shipping
Corporation engaged in transporting fuel products
3. During the voyage, Vector carried on board gasoline and other oil
products owned by Caltex by virtue of a charter contract
4. The next morning, at about 6:30 am, passenger ship MV Doa Paz left
Tacloban headed for Manila; 59 crew members and 4k passengers. MV
Paz is a passenger and cargo vessel owned by Sulpicio Lines
5. At 10:30pm the two vessels collided in open sea within the vicinity
between Marinduque and Oriental Mindoro
6. All the crew members died while the 2 survivors of Vector claimed that
they were sleeping at the time of the incident
7. Only 24 of the passengers survived after having been rescued from the
burning waters
8. Board of marine inquiry in a BMI case, after investigation, found that
Vector was registered to Soriano (its owner and actual operator) was
at fault and responsible for its collision
9. The heirs of the deceased filed with RTC a complaint for Damages
Arising from Breach of Contract of Carriage against Sulpicio
10. Sulpicio in turn, filed 3PC against Soriano, Vector, and Caltex

a.

Caltex chartered Vector with gross and evident bad faith

knowing well that Vector was improperly manned. Ill-equipped,
unseaworthy, and a hazard to safe navigation, as a result it
rammed against Paz
11. RTC against Sulpicio. Dismissed 3PC.
12. CA included Caltex as one of those liable for damages

ISSUE: Whether Caltex (The Charterer) has liability for damages under
Philippine Maritime Laws. NO.

Caltex and Vector entered into a contract of affreightment, also known

as a voyage charter
A contract of affreightment may be either time charter, wherein the
leased vessel is leased to the charterer for a fixed period of time, or
voyage charter, wherein the ship is leased for a single voyage
Under a demise or bareboat charter on the other hand, the charterer
mans the vessel with his own people and becomes, in effect, the owner
for the voyage or service stipulated, subject to liability for damages
caused by negligence
In either case, the ship owner supplies the ship's store, pays for the
wages of the master of the crew, and defrays the expenses for the
maintenance of the ship
If the charter is a contract of affreightment, which leaves the general
owner in possession of the ship as owner for the voyage, the rights and
the responsibilities of ownership rest on the owner. The charterer is
free from liability to third persons in respect of the ship

ISSUE: Whether Vector is a common carrier. YES.

Does a charter party agreement turn the common carrier into a private
one? In this case, the charter party agreement did not convert the
common carrier into a private carrier. The parties entered into a
voyage charter, which retains the character of the vessel as a common
carrier
A common carrier is a person or corporation whose regular business is
to carry passengers or property for all persons who may choose to
employ and to remunerate him. MT Vector fits the definition of a
common carrier under Article 1732 of the Civil Code
Under the Carriage of Goods by Sea Act :
o Sec. 3. (1) The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to

Make the ship seaworthy;

Properly man, equip, and supply the ship;

Carriers are deemed to warrant impliedly the seaworthiness of the
ship. For a vessel to be seaworthy, it must be adequately equipped for
the voyage and manned with a sufficient number of competent officers
and crew. The failure of a common carrier to maintain in seaworthy
condition the vessel involved in its contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code

This business is impressed with a special public duty. The public must
of necessity rely on the care and skill of common carriers in the
vigilance over the goods and safety of the passengers, especially
because with the modern development of science and invention,
transportation has become more rapid, more complicated and
somehow more hazardous
o For these reasons, a passenger or a shipper of goods is under
no obligation to conduct an inspection of the ship and its crew,
the carrier being obliged by law to impliedly warrant its
seaworthiness

ISSUE: Whether or not Caltex is liable for damages under NCC. NO.

The charterer of a vessel has no obligation before transporting its

cargo to ensure that the vessel it chartered complied with all legal
requirements. The duty rests upon the common carrier simply for being
engaged in "public service no negligence on the part of Caltex
Relationship between the parties in this case is governed by special
laws. Because of the implied warranty of seaworthiness shippers of
goods, when transacting with common carriers, are not expected to
inquire into the vessel's seaworthiness, genuineness of its licenses and
compliance with all maritime laws. By the same token, we cannot
expect passengers to inquire every time they board a common carrier,
whether the carrier possesses the necessary papers or that all the
carrier's employees are qualified
A cursory reading of the records convinces us that Caltex had reasons
to believe that MT Vector could legally transport cargo that time of the
year
Caltex and Vector Shipping Corporation had been doing business since
1985, or for about two years before the tragic incident occurred. Past
services rendered showed no reason for Caltex to observe a higher
degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume
that the ship was seaworthy as even the Philippine Coast Guard itself
was convinced of its seaworthiness. All things considered, we find no
legal basis to hold petitioner liable for damages

6 SAN MIGUEL V. HEIRS OF SABINIANO INGUITO

1.
2.

SMC entered into a Time Charter Party Agreement with Ouano, doing
business under the name of J. Ouano Marine Services
SMC chartered MV Roberta owned by Ouano for a period of 2 yrs for
the purpose of transporting SMC beverage products from Mandaue City
plant to points in Visayas and Minadanao
a. Owner warrants that the vessel is seaworthy, in the event of
defect, Charterer shall immediately notify the owner
b. Crew were still under the employ of owner
c. OWNER responsible to and shall indemnify the CHARTERER for
damages and losses arising from the incompetence and/or

3.

4.
5.
6.
7.
8.
9.

10.
11.
12.
13.

14.

15.
16.

negligence of, and/or the failure to observe the required extraordinary diligence by the crew
SMC issued sailing orders to the Master of MN Roberta, Captain Inguito
a. Sail for Cagayan
b. Observe weather condition, exercise utmost precautionary
measures
The next day after the ship sailed, typhoon Ruping was spotted in
Samar
SMC radio operator contacted Captain Inguito advising the latter to
take shelter- captain replied that they will proceed since the typhoon
was far away from them
Radio operator again contacted the Captain. The sky was cloudy and
the sea was already choppy Captain still refused
Power went out in radio operators office, when it came back, operator
made another series of calls to the Captain. He failed to get in touch
with them
The next day, Captain called Moreno and requested to contact the son
of Julius Ouano, because they needed a helicopter to rescue them
Rico (son of Julius) tried to contact the chief engineer of the vessel, the
latter told Rico that they could no longer stop the water from coming
into the vessel because the crew members were feeling dizzy from the
petroleum fumes
MV Roberta sank, out of the 25 cew mebers, only five survived
Julius Ouano, in lieu of the captain who perished filed a Marine Protest
The heirs of the deceased as well as the survivors filed a complaint
against SMC and Ouano with the RTC
Ouano filed a cross-claim alleging that loss was due to the fault and
negligence of SMC which had complete control and disposal of the
vessel as charterer and which issued order of departure despite the
impeding typhoon
SMC countered that it was Ouano who had control, supervision, and
responsibilities over the navigation of the vessel. That the proximate
cause of sinking was of Ouanos breach to provide SMC with a
seaworthy vessel duly manned by competent crew members
RTC- proximate cause was attributable to SMC
CA modified RTC SMC and Ouano jointly and severally liable to
plaintiffs, except to the heirs of the Cptain

ISSUE: Whether or not SMC is liable. NO.

A charter party may either be a (1) bareboat or demise charter or (2)

contract of affreightment
o Under a demise or bareboat charter, the charterer mans the
vessel with his own people and becomes, in effect, the owner
of the ship for the voyage or service stipulated, subject to
liability for damages caused by negligence
o In a contract of affreightment, the ship owner retains the
possession, command and navigation of the ship, the charterer
or freighter merely having use of the space in the vessel in
return for his payment of the charter hire. A contract of
affreightment may be either:

time charter, wherein the leased vessel is leased to

the charterer for a fixed period of time, or

voyage charter, wherein the ship is leased for a single

voyage

In both cases, the charterer provides for the hire of the

vessel only, either for a determinate period of time or
for a single or consecutive voyage, the ship owner to
supply the ships store, pay for the wages of the master
of the crew, and defray the expenses for the
maintenance of the ship
If the charter is a contract of affreightment, which leaves the general
owner in possession of the ship as owner for the voyage, the rights and
the responsibilities of ownership rest on the owner. The charterer is
free from liability to third persons in respect of the ship
Based on the facts mentioned in Fact no.2, Ouano was the employer of
the captain and crew of the M/V Doa Roberta during the term of the
charter, he therefore had command and control over the vessel. His
son, Rico Ouano, even testified that during the period that the vessel
was under charter to SMC, the Captain thereof had control of the
navigation of all voyages
The charterer, SMC, should be free from liability for any loss or damage
sustained during the voyage, unless it be shown that the same was
due to its fault or negligence.
The evidence does not show that SMC or its employees were amiss in
their duties. The facts indubitably establish that SMCs Radio Operator,
Moreno, who was tasked to monitor every shipment of its cargo,
contacted Captain Inguito
Considering that the charter was a contract of affreightment, the
shipowner had the clear duty to ensure the safe carriage and arrival of
goods transported on board its vessels. More specifically, Ouano
expressly warranted in the Time Charter Party that his vessel was
seaworthy
For a vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent officers and
crew. Seaworthiness is defined as the sufficiency of the vessel in
materials, construction, equipment, officers, men, and outfit, for the
trade or service in which it is employed. It includes the fitness of a ship
for a particular voyage with reference to its physical and mechanical
condition, the extent of its fuel and provisions supply, the quality of its
officers and crew, and its adaptability for the time of voyage proposed
In the assailed decision, the Court of Appeals found that the proximate
cause of the sinking of the vessel was the negligence of Captain
Sabiniano Inguito
It appears that the proximate cause of the sinking of the vessel was
the gross failure of the captain of the vessel to observe due care and to
heed SMCs advices to take shelter
It is very clear that Captain Inguito had sufficient time within which to
secure his men and the vessel. But he waited until the vessel was
already in distress to seek help in saving his men and the vessel. In
any event, Capt. Inguito had full control and responsibility, whether to

follow a sailing order or to take shelter when already at sea. In fact,

there was an incident when a sailing order was issued by SMC to
Inguito but he decided not to proceed with the voyage because of a
tropical storm
We likewise agree with the Court of Appeals that Ouano is vicariously
liable for the negligent acts of his employee, Captain Inguito
Ouano miserably failed to overcome the presumption of his negligence.
He failed to present proof that he exercised the due diligence of a
bonus paterfamilias in the selection and supervision of the captain of
the M/V Doa Roberta. Hence, he is vicariously liable
We cannot sustain the appellate courts finding that SMC was likewise
liable for the losses. The contention that it was the issuance of the
sailing order by SMC which was the proximate cause of the sinking is
untenable. The fact that there was an approaching typhoon is of no
moment. It appears that on one previous occasion, SMC issued a
sailing order to the captain of the M/V Doa Roberta, but the vessel
cancelled its voyage due to typhoon. Likewise, SMC issued the sailing
order on November 11, 1990, before typhoon Ruping was first spotted
at 4:00 a.m. of November 12, 1990

IMPLIED WARRANTIES; SEAWORTHINESS

c.
2.

3.

4.

5.

8 SUPRA
7 Philippine American General Insurance vs. CA, Felman Shipping
Lines
1.
2.
3.
4.

Coca-Cola loaded 7500 cases of soft drinks aboard MV Asilda owned by

Felman Shipping to be transported from Zamboanga to Cebu.
a. The shipment was insured with Philamgen under a marine policy
MV Asilda left the port at 8pm, the vessel sank the following morning
Coca Cola filed a claim with Philamgen for recovery of a total of P755k,
which Philamgen paid
Philamgen then sought to claim from Felman claiming that the ship MV
Asilda sank because of the vessels unseaworthiness.
a. The ship was improperly manned and officers were grossly
negligent in failing to take appropriate measures to proceed to a
nearby port after the vessel started to list
b. Felman filed MTD because Philamgen has no right to be subrogated
c. RTC dismissed the case; CA reversed and remanded
d. RTC the ship was seaworthy, thus the loss was due to a fortuitous
event; CA: the ship was not seaworthy

ISSUE: WON the ship was seaworthy. NO

1.

MV Asilda was unseaworthy

a. The statement of the captain confirmed that the weather was fine
b. The captain was suddenly awakened when they hit a log and he
saw that there were strong winds; he then saw that the ship was
slightly listing

The vessel suddenly listed to portside causing some cargo to be

thrown to the waters. The crew abandoned ship.
The report of Elite Adjusters submitted a report which said that the
vessel was top-heavy, even if there was no overloading, the
distribution of the cargo caused the ship to be unstable.
a. That the vessel was designed as a fishing vessel and not meant to
carry a substantial amount of cargo
b. The moment the ship was used to load heavy cargo, the vessel was
rendered unseaworthy
c. The proximate cause of the sinking was the top-heavy loading of
the cargo
Carrying a deck cargo raises the presumption of unseaworthiness
unless it can be shown that the deck cargo will not interfere with the
proper management of the ship. However, in this case it was
established that MV Asilda was not designed to carry substantial
amount of cargo on deck
Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their
business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the
circumstances of each case
Since the ship was unseaworthy, there was a violation of a breach of
warranty of seaworthiness.
a. Thus, Philamgen is entitled to subrogation
b. every marine insurance policy the assured impliedly warrants to
the assurer that the vessel is seaworthy and such warranty is as
much a term of the contract as if expressly written on the face of
the policy
c. (i)n every marine insurance upon a ship or freight, or freightage, or
upon anything which is the subject of marine insurance, a warranty
is implied that the ship is seaworthy.
d. Under Sec. 114, a ship is seaworthy when reasonably fit to perform
the service, and to encounter the ordinary perils of the voyage,
contemplated by the parties to the policy.
e. Thus it becomes the obligation of the cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy
condition. He may have no control over the vessel but he has full
control in the selection of the common carrier that will transport his
goods. He also has full discretion in the choice of assurer that will
underwrite a particular venture
f. Warranty of seaworthiness is implied. It can only be excluded by
implied terms in writing. In this case, even the policy provided that
Philamgen warrants seaworthiness. Thus, philamgen was liable and
he is entitled to subrogation.

9 Delsan Transport vs. CA, American Home Assurance

1.

Caltex entered into a contract with Delsan for the transport of

industrial fuel of Caltex for 1 year from Batangas to anywhere in the
Philippines

2.

3.
4.

Delsan transported industrial fuel of Caltex for delivery to Zamboanga

and the cargo was insured with American Home
a. The vessel sank
b. American Home paid Caltex P5.6M representing the insured value
of the lost cargo
c. Thus, American home filed a claim against Delsan
RTC: dismissed CA: reversed
Delsan was arguing that under the Insurance Code, there is an implied
warranty of seaworthiness. Thus, the insurer is not liable if the ship was
seaworthy. Also, the loss was due to force majeure- a sudden change of
weather.

necessary to see who may be held liable and the extent of the
insurers liability.
10 Madrigal vs Hanson
1.

2.

ISSUE: WON Delsan is liable. YES

1.

2.

3.

4.
5.

6.

7.

The payment made by American Home is a waiver of its right to

enforce the term of the implied warranty against Caltex.
a. However, such cannot be interpreted as an admission of the
vessels seaworthiness as to remove Delsans liability.
b. The payment made by American Home enables it to be subrogated
common carriers are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of passengers transported
by them, according to all the circumstance of each case.
a. In the event of loss, destruction or deterioration of the insured
goods, common carriers shall be responsible unless the same is
brought about, among others, by flood, storm, earthquake,
lightning or other natural disaster or calamity
As to the weather the weather report that day by PAGASA showed
that the wind at that time was only 10-20 knots per hour, while the
waves were from .7-2 meters contrary to the claim of Delsan that it
was about 18-20ft. high
Also, the captain and chief mate of Delsan would not testify against
Delsan.
As to seaworthiness because Delsan was arguing that the certificates
showed it was seaworthy
a. At the time of dry-docking and inspection, the ship may have
appeared fit. However, these cannot negate the presumption of
unseaworthiness because of the unexplainable sinking of the ship
b. Seaworthiness relates to a vessels actual condition. Neither the
granting of classification or the issuance of certificates established
seaworthiness
c. Also, the exoneration of the officers of the ship merely concerns
their administrative liabilities and not the common carriers.
Delsan is liable for the insured value of the lost cargo of industrial fuel
oil belonging to Caltex for its failure to rebut the presumption of fault
or negligence as common carrier occasioned by the unexplained
sinking of its vessel, MT Maysun, while in transit.
Even if the insurance policy was not presented, it does not matter as
long as the subrogation receipt is presented
a. Although in a different case, it was held to be necessary because
the shipment there passed through several parties. Thus, it was

3.
4.

Madrigal owned a motor launch called isla verde which Hanson

rented for P1750 a month
a. The contract stipulated that the motor launch shall be delivered in
a seaworthy condition
The motor launch was then put to sea, the following day, it sank
resulting to a total loss.
a. Madrigal filed this action to recover the value of the motor launch
with all the equipment
Hanson answered and denied liability as to the sinking,
RTC: dismissed, the motor launch was unseaworthy and not because of
the negligence of Hansons crew.

ISSUE: WON the ship was unseaworthy, holding Madrigal liable. YES
1.
2.
3.

4.

The motor launch lacked licenses

a. From the Burau of Customs, Bureau of Fisheries (license to engage
in deep sea fishing)
If the boat sank because of the negligence of the patron, engineer, and
crew of Hanson, then Madrigal is not liable
But in this case, the ship was found to be unseaworthy
a. There was no typhoon on that day, the waves caused by the
monsoon winds of the season, thus there were no big waves
b. Also, the crew members testified that they saw water enter the
engine room through the tail shaft
Madrigal was saying that the cause was because of the sinking was the
negligence of Hanson for putting the motor boat on an uneven keel
a. The fact that the motor launch was run and operated for 17 hours
in the bay without mishap is strong proof that the cause of the
sinking was not the uneven keel
b. Thus, it strengthens the finding that the cause was the
unseaworthiness of the boat.

11 ROQUE v. IAC and PIONEER INSURANCE

FACTS are stated above (Number 1)
ISSUE: Whether there is a warranty of seaworthiness by the cargo owner
in case of Marine Cargo Insurance. YES.

Roque contends that the implied warranty of seaworthiness provided

for in the Insurance Code refers only to the responsibility of the
shipowner who must see to it that his ship is reasonably fit to make in
safety the contemplated voyage.
SC: No merit. the petitioners state that Manila Bay has ceased
operating as a firm and nothing may be recovered from it. They are,
therefore, trying to recover their losses from the insurer.

Section 113 of the Insurance Code: In every marine insurance upon a

ship or freight, or freightage, or upon anything which is the subject of
marine insurance, a warranty is implied that the ship is seaworthy."
Section 99: Marine insurance includes:"(1) Insurance against loss of or
damage to:(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise
The term "cargo" can be the subject of marine insurance and that once
it is so made, the implied warranty of seaworthiness immediately
attaches to whoever is insuring the cargo whether he be the shipowner
or not.

The fact that the unseaworthiness of the ship was unknown to the
insured is immaterial in ordinary marine insurance and may not be
used by him as a defense in order to recover on the marine insurance
policy.
Since the law provides for an implied warranty of seaworthiness in
every contract of ordinary marine insurance, it becomes the obligation
of a cargo owner to look for a reliable common carrier which keeps its
vessels in seaworthy condition.