BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT JUSTICE DIMAAMPAO

TABLE OF CONTENTS NOTES:

NEGOTIABLE INSTRUMENTS LAW ............................................. 2 All case rulings came from Justice Dimaampao.
FORM AND INTERPRETATION .......................................................................... 2 Also, portions in red font pertain to topics not discussed, not clearly
RULES OF NEGOTIABILITY .................................................................................................. 2 discussed, or were inaudible.
SUM CERTAIN IN MONEY ................................................................................................... 2
UNCONDITIONAL PROMISE OR ORDER .............................................................................. 2
DETERMINABLE FUTURE TIME ........................................................................................... 2
ADDITIONAL PROVISIONS .................................................................................................. 3
OMISSIONS ........................................................................................................................ 3
PAYABLE ON DEMAND ....................................................................................................... 3
PAYABLE TO ORDER ........................................................................................................... 3
PAYABLE TO BEARER .......................................................................................................... 3
MORE THAN ONE DRAWEE ................................................................................................ 4
NEGOTIATION .................................................................................................. 4
NEGOTIATION .................................................................................................................... 4
RESTRICTIVE INDORSEMENT .............................................................................................. 4
SPECIAL INDORSEMENT OF BEARER INSTRUMENT ............................................................ 4
RIGHTS OF THE HOLDER................................................................................... 5
HOLDER .............................................................................................................................. 5
HOLDER IN DUE COURSE .................................................................................................... 5
RIGHTS OF A HOLDER ......................................................................................................... 6
SHELTER RULE .................................................................................................................... 6
LIABILITIES OF PARTIES .................................................................................... 7
PRIMARILY LIABLE.............................................................................................................. 7
SECONDARILY LIABLE ......................................................................................................... 7
ASSIGNEES ......................................................................................................................... 7
DEFENSES ......................................................................................................... 8
PERSONAL AND REAL DEFENSES ........................................................................................ 8
INCOMPLETE BUT DELIVERED ............................................................................................ 8
COMPLETE BUT UNDELIVERED ........................................................................................... 8
INCOMPLETE AND UNDELIVERED ...................................................................................... 8
FORGERY ............................................................................................................................ 9
MATERIAL ALTERATION ..................................................................................................... 9
JURISPRUDENCE............................................................................................. 10
FAILURE TO CHECK ............................................................................................................10
FAILURE TO ADOPT PREVENTIVE MEASURES ....................................................................10
FAILURE TO REPORT ..........................................................................................................10
ESTRUSTING TO A SECRETARY, FAILURE TO ESTABLISH.....................................................10
CASE: MANAGER’S CHECK..........................................................................................................10

INSURANCE ............................................................................ 11
INTRODUCTION.............................................................................................. 11
GOVERNING LAWS ............................................................................................................11
CHARACTERISTICS OF AN INSURANCE CONTRACT ............................................................11
GENERAL CONCEPT ........................................................................................ 11
PERFECTION OF INSURANCE CONTRACT ....................................................... 11
RIGHTS OF PARTIES ........................................................................................ 11
INSURABLE INTEREST ..................................................................................... 11
LIFE INSURANCE ................................................................................................................11
PROPERTY INSURANCE .....................................................................................................11
FRAMED ............................................................................................................................12
PREMIUMS ..................................................................................................... 12
PAYMENT OF PREMIUM....................................................................................................12
PARTIAL PAYMENT............................................................................................................12
GRACE PERIOD ..................................................................................................................12
ACKNOWLEDGMENT.........................................................................................................12
CREDIT EXTENSION ...........................................................................................................12
ESTOPPEL ..........................................................................................................................12
INCONTESTABILITY CLAUSE ........................................................................... 13
RESCISSION OF INSURANCE CONTRACT ........................................................ 13
CONCEALMENT .................................................................................................................13
FALSE REPRESENTATION ...................................................................................................13
OMISSION .........................................................................................................................13
BREACH OF WARRANTY ....................................................................................................13
LOSS ............................................................................................................... 13
SUICIDE .......................................................................................................... 13
BENEFICIARY .................................................................................................. 13
REVOCABILITY ...................................................................................................................13
FORFEITURE OF INTEREST .................................................................................................14
LIABILITY ........................................................................................................ 14
INSURER LIABLE ................................................................................................................14
INSURER NOT LIABLE.........................................................................................................14
TYPES OF INSURANCE .................................................................................... 14
DOUBLE INSURANCE .........................................................................................................14
OVERINSURANCE ..............................................................................................................14
UNDER INSURANCE ...........................................................................................................15
REINSURANCE ...................................................................................................................15
NO PROVE CLAUSE ......................................................................................... 15
ALL RISK CLAUSE ............................................................................................ 15
PROPER DEVIATION ....................................................................................... 15
CORPORATION LAW ............................................................... 16

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BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT
NEGOTIABLE INSTRUMENTS LAW
FORM AND INTERPRETATION
RULES OF NEGOTIABILITY
SECTION 1. Form of Negotiable Instruments. — An instrument
to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty.
JD: Memorize!!!
Requisites of a negotiable promissory note
1. W- Must be in writing and signed by the MAKER;
2. U- Must contain an unconditional PROMISE to pay a sum certain
in money;
3. D- Must be payable on demand or at a fixed or determinable
future time; and
4. O- Must be payable to order or bearer.
Requisites of a negotiable bill of exchange
1. W- Must be in writing and signed by the DRAWER;
2. U- Must contain an unconditional ORDER to pay a sum certain
in money;
3. D- Must be payable on demand or at a fixed or determinable
future time;
4. O- Must be payable to order or bearer; and
5. D- The DRAWEE must be named or otherwise indicated therein
with reasonable certainty.
JD: Rephrase the provision to impress the examiner
Requisites of a negotiable check
1. W- Must be in writing and signed by the DRAWER;
2. U- Must contain an unconditional ORDER to pay a sum certain
in money;
3. D- Must be payable on DEMAND;
JD: A check is always payable on demand
4. O- Must be payable to order or bearer; and
5. B- The BANK must be named or otherwise indicated therein
with reasonable certainty.
JD: The drawee of a check is always a bank
SUM CERTAIN IN MONEY
SECTION 2. Certainty as to Sum; What Constitutes. — The sum
payable is a sum certain within the meaning of this Act,
although it is to be paid —
(a) With interest; or
(b) By stated installments; or
(c) By stated installments, with a provision that upon default
in payment of any installment or of interest the whole shall
become due; or
(d) With exchange, whether at a fixed rate or at the current
rate; or
(e) With costs of collection or an attorney's fee, in case
payment shall not be made at maturity.
RASF!
JUSTICE DIMAAMPAO
(a) With interest
• I promise to pay to the order of X P10,000 payable with interest
after a year – NEGOTIABLE
JD: It is negotiable because the sum payable is ascertainable.
Though the interest rate is not specified, under Art. 2209 of Civil
Code, where there is an obligation to pay interest but the rate is
not specified, the legal rate of interest is the rate. Thus, after a
year, the rate of interest is 6%.
(b) By stated installments
• I promise to pay to the order of X P10,000 payable in
installments – NOT NEGOTIABLE
• I promise to pay to the order of X P10,000 payable in 2 equal
monthly installments – NOT NEGOTIABLE
• I promise to pay to the order of X P10,000 payable in 2 equal
monthly installments with the first installment being due on
June 15, 2019 – NEGOTIABLE
Requisites to be considered payable by stated installments
1. Maturity date of each installment must be fixed or
determinable; and
2. Amount of each installment must be fixed or determinable.
UNCONDITIONAL PROMISE OR ORDER
SECTION 3. When Promise is Unconditional. — An unqualified
order or promise to pay is unconditional within the meaning of
this Act, though coupled with —
(a) An indication of a particular fund out of which
reimbursement is to be made, or a particular account to be
debited with the amount; or
(b) A statement of the transaction which gives rise to the
instrument.
But an order or promise to pay out of a particular fund is not
unconditional.
(a) Particular fund for reimbursement
• Pay to the order of X P10,000 out of my deposit with you
(addressed to a specific drawee) – NOT NEGOTIABLE
JD: Order to pay is conditional
• Pay to the order of X P10,000 and reimburse yourself out of my
deposit with you (addressed to a specific drawee) –
NEGOTIABLE
JD: The order to pay is unconditional. The deposit is not the
primary source of payment. It is just the source of reimbursement.
(Do NOT cite Section 1 because it is not what the examiner is
questioning)
• Pay to the order of X P10,000 and charge the same against my
account with you (addressed to a specific drawee) –
NEGOTIABLE
JD: The order to pay is unconditional. The account is not the
primary source of payment. It is just the source of reimbursement.
DETERMINABLE FUTURE TIME
SECTION 4. Determinable Future Time; What Constitutes. —
An instrument is payable at a determinable future time, within
the meaning of this Act, which is expressed to be payable —
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified
therein; or
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(c) On or at a fixed period after the occurrence of a specified
event, which is certain to happen, though the time of
happening be uncertain.
An instrument payable upon a contingency is not negotiable,
and the happening of the event does not cure the defect.
(c) Fixed period after the occurrence of a specified event certain
to happen
• I promise to pay to the order of X P10,000 on the death of his
father – NEGOTIABLE
JD: It is negotiable because it is payable at a determinable future
time (Do NOT say fixed). Death is an event which is certain to
happen though the time of happening is uncertain.
• I promise to pay to the order of X P10,000 10 days after the
death of his father – NEGOTIABLE
• I promise to pay to the order of X P10,000 10 days before the
death of his father – NOT NEGOTIABLE
JD: It is not negotiable because the date of payment is not
determinable. The law uses “after”. “Before” makes it uncertain.
ADDITIONAL PROVISIONS
SECTION 5. Additional Provision Not Affecting Negotiability. —
An instrument which contains an order or promise to do any
act in addition to the payment of money is not negotiable. But
the negotiable character of an instrument otherwise
negotiable is not affected by a provision which —
(a) Authorizes the sale of collateral securities in case the
instrument be not paid at maturity; or
(b) Authorizes a confession of judgment if the instrument be
not paid at maturity; or
(c) Waives the benefit of any law intended for the advantage
or protection of the obligor; or
(d) Gives the holder an election to require something to be
done in lieu of payment of money.
But nothing in this section shall validate any provision or
stipulation otherwise illegal.
(d) Election of alternative obligation
• I promise to pay to the order of X P10,000 and to deliver 5 sacks
of rice – NOT NEGOTIABLE
• I promise to pay to the order of X P10,000 or to deliver 5 sacks
of rice on December 5, 2019 – NOT NEGOTIABLE
JD: Right of choice must belong to the holder.
• I promise to pay to the order of X P10,000 or to deliver 5 sacks
of rice on December 5, 2019 at the option of the holder -
NEGOTIABLE
OMISSIONS
SECTION 6. Omission; Seal; Particular Money. — The validity
and negotiable character of an instrument are not affected by
the fact that —
(a) It is not dated; or
(b) Does not specify the value given, or that any value has been
given therefor; or
(c) Does not specify the place where it is drawn or the place
where it is payable; or X
(d) Bears a seal; or
(e) Designates a particular kind of current money in which
payment is to be made.
RASF!
JUSTICE DIMAAMPAO
But nothing in this section shall alter or repeal any statute
requiring in certain cases the nature of the consideration to be
stated in the instrument.
Rationale
JD: These are not a requisites for negotiability under Section 1.
Exclusio unius est expressio alterius.
PAYABLE ON DEMAND
SECTION 7. When Payable on Demand. — An instrument is
payable on demand —
(a) Where it is expressed to be payable on demand, or at sight,
or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when
overdue, it is, as regards the person so issuing, accepting, or
indorsing it, payable on demand.
(b) No time for payment expressed
• I promise to order of X P10,000 – NEGOTIABLE
JD: Negotiable, although the instrument does not specify the
maturity date, as it is considered payable on demand.
PAYABLE TO ORDER
SECTION 8. When Payable to Order. — The instrument is
payable to order where it is drawn payable to the order of a
specified person or to him or his order. It may be drawn
payable to the order of —
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order the payee must be
named or otherwise indicated therein with reasonable
certainty.
PAYABLE TO BEARER
SECTION 9. When Payable to Bearer. — The instrument is
payable to bearer —
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing
person, and such fact was known to the person making it so
payable; or
(d) When the name of the payee does not purport to be the
name of any person; or
(e) When the only or last indorsement is an indorsement in
blank.
(a) Payable to bearer
• I promise to pay to the order of X, bearer, P10,000 – NOT
NEGOTIABLE
JD: “Bearer” is descriptive of X.
• I promise to pay bearer – NEGOTIABLE
• I promise to pay possessor – NEGOTIABLE
• I promise to pay to any holder – NEGOTIABLE
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(c) Payable to the order of a fictitious person (Fictitious Payee
Rule)
• Effect: instrument is considered payable to bearer
• Bearer of loss: Issuer bears the loss as then the instrument can
be encashed by any person when he could have issued such
payable to the order of a specific person.
JD: Maker or drawer must know that the payee is fictitious. Such
is fraudulent. The “fictitious” payee does not literally mean he
does not exist.
CASE: PNB V. SPS. RODRIGUEZ, 566 SCRA 513
Issue: Whether the checks are considered payable to bearer or
payable to order
Ruling: The checks were not considered payable to bearer but
payable to order. The person issuing did not know they were not
the intended payees.
MORE THAN ONE DRAWEE
SECTION 128. Bill Addressed to More Than One Drawee. — A
bill may be addressed to two or more drawees jointly, whether
they are partners or not; but not to two or more drawees in
the alternative or in succession.
Joint drawees
• A and B – NEGOTIABLE
JD: drawee is certain where the bill of exchange is addressed to
them jointly
Alternative or successive drawees
• A or B – NOT NEGOTIABLE
JD: drawee is uncertain
RASF!
JUSTICE DIMAAMPAO
NEGOTIATION
NEGOTIATION
SECTION 30. What Constitutes Negotiation. — An instrument
is negotiated when it is transferred from one person to another
in such manner as to constitute the transferee the holder
thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the
holder completed by delivery.
Payable to bearer
Negotiated by mere delivery
Payable to order
Negotiated by indorsement and completed by delivery
RESTRICTIVE INDORSEMENT
SECTION 36. When Indorsement Restrictive. — An
indorsement is restrictive which either —
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of
some other persons.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
SECTION 47.Continuation of Negotiable Character. — An
instrument negotiable in its origin continues to be negotiable
until it has been restrictively indorsed or discharged by
payment or otherwise.
(a) Prohibitive restriction
• Pay to X only
• Pay to X and no one else
Effect: Renders the instrument non-negotiable
(b) Agency restriction / indorsee as agent
Effect: Merely restricts the rights of the subsequent holder
(c) Trust restriction / indorsee as trustee
• In trust for X
Effect: Merely restricts the rights of the subsequent holder
SPECIAL INDORSEMENT OF BEARER INSTRUMENT
SECTION 40. Indorsement of Instrument Payable to Bearer. —
Where an instrument, payable to bearer, is indorsed specially,
it may nevertheless be further negotiated by delivery; but the
person indorsing specially is liable as indorser to only such
holders as make title through his indorsement.
JD: Asked no less than 15 times in the Bar!! Regarded as favorite.
• M made a promissory note payable to bearer. P specially
indorsed the instrument to A “Pay to A. Sgd. P.” May A
negotiate the instrument by delivery to B?
JD: A bearer instrument is always a bearer instrument even if it is
specially indorsed. It can still be negotiated by delivery.
JD: Correlate Section 40 with these
SECTION 65. Warranty Where Negotiation by Delivery and So
Forth. — Every person negotiating an instrument by delivery
or by a qualified indorsement warrants —
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(a)That the instrument is genuine and in all respects what it
purports to be;
(b)That he has a good title to it;
(c)That all prior parties had capacity to contract;
(d)That he has no knowledge of any fact which would impair
the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply to
persons negotiating public or corporation securities, other
than bills and notes.
SECTION 66. Liability of General Indorser. — Every indorser
who indorses without qualification, warrants, to all
subsequent holders in due course —
(a)The matters and things mentioned in subdivisions (a), (b),
and (c) of the next preceding section; and
(b)That the instrument is at the time of his indorsement valid
and subsisting.
And, in addition, he engages that on due presentment, it shall
be accepted or paid, or both, as the case may be, according to
its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.
SECTION 67. Liability of Indorser Where Paper Negotiable by
Delivery. — Where a person places his indorsement on an
instrument negotiable by delivery he incurs all the liabilities of
an indorser.
• M made a promissory note payable to bearer. P specially
indorsed it to A. A negotiated it by delivery to B. B specially
indorsed it to C. Discuss the liabilities of the parties.
JD: M is primarily liable on the promissory note. P is liable on the
instrument under Section 67. In addition, B is considered a general
indorser thus is secondarily liable. A, who negotiated by delivery,
is liable only for violation of his warranty under Section 65.
RASF!
JUSTICE DIMAAMPAO
RIGHTS OF THE HOLDER
HOLDER
SECTION 191. Definition and Meaning of Terms . — In this Act,
unless the context otherwise requires —
xxxxx
"Holder" means the payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof;
xxxxx
Holder
Must be the payee or indorsee. May be the holder of a bearer
instrument or order instrument.
Bearer
Possession will suffice.
Payee as holder in due course
Affirmative view: There can be no doubt that a proper
interpretation of the Act as whole leads to the conclusion that a
payee may be a holder in due course under any of the
circumstances in which he meets the requirements of Sec. 52
Contrary view: Holder in due course must have acquired the
instrument through negotiation and an instrument is issued and
not negotiated to a payee
Drawee as holder in due course
A drawee cannot be a holder in due course. A holder refers to one
who has taken the instrument as it passes along in the course of
negotiation towards the drawee and not the drawee who, on the
acceptance and payment of the instrument, thereby strips it of all
the negotiability and reduces it to a mere voucher or proof of
payment.
HOLDER IN DUE COURSE
SECTION 52. What Constitutes a Holder in Due Course. — A
holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice
of any infirmity in the instrument or defect in the title of the
person negotiating it.
JD: Memorize!! Favorite question for enumeration.
Requisites of a holder in due course
1. Holder of a complete instrument;
2. Holder of an instrument regular on its face;
3. Became the holder before it was overdue;
4. No notice of previous dishonor;
5. Took it in good faith;
6. Took it for value;
7. No notice of any infirmity of the instrument; and
8. No notice of any defect in the title of the person negotiating it
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BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT JUSTICE DIMAAMPAO

Effects of a crossed check SHELTER RULE

• D – may only be deposited in a bank; may not be encashed
• O – may be negotiated only once to a person who has an
account in the bank; restricts negotiation
• W – serves as a warning to the holder that the check has been
issued for a definite purpose thus the holder must inquire
whether he received the check pursuant to such purpose
otherwise he is not a holder in due course
BATAAN CIGAR V. COURT OF APPEALS, 230 SCRA 643
One-liner: A holder is not in due course where there is failure to
inquire into the title of the indorser which gives rise the absence
of the requisite of good faith.
Facts: Bataan Cigar issued post-dated crossed checks to George
King, its supplier. The checks were sold to State Investment
House. George King failed to deliver the promised
consideration. Due to the failure of consideration, the drawer
issued a stop payment order. A complaint was filed against the
drawer. The holder claimed to be one in due course thus failure
of consideration is just a personal defense which cannot be
interposed.
SECTION 58. When Subject to Original Defenses. — In the
hands of any holder other than a holder in due course, a
negotiable instrument is subject to the same defenses as if it
were non-negotiable. But a holder who derives his title
through a holder in due course, and who is not himself a party
to any fraud or illegality affecting the instrument, has all the
rights of such former holder in respect of all parties prior to the
latter.
JD: Not part of the syllabus but asked no less than 3 times
previously so might have been overlooked
Shelter Rule / Holder in due course by subrogation
One is not a holder in due course under Section 52 yet can exercise
the rights of a holder in due course
Requisites for the Shelter Rule
1. Derives title through a holder in due course
2. Not himself a party to any fraud or illegality affective the
instrument
JD: Do NOT equate knowledge with participation

Question: Is the holder considered a holder in due course
Ruling: State Investment House never inquired into the title of
the indorser. State Investment House should have inquired as to
whether the consideration had been delivered. Failing in this
respect, the holder is deemed guilty of gross negligence
amounting to legal absence of good faith contrary to Section
62(c). Thus, State Investment House is not a holder in due
course. The drawer may validly raise the defense of failure of
consideration as it is a defense which can be interposed against
a holder not in due course.
RIGHTS OF A HOLDER
SECTION 51.Right of Holder to Sue; Payment. — The holder of
a negotiable instrument may sue thereon in his own name; and
payment to him in due course discharges the instrument.
• M made a promissory note payable to the order of P. Admitted
in the problem that he acquire the instrument through fraud so
it is defective. P negotiated it to A who negotiated it to B. B is a
holder of a promissory note acquired by P through fraud
therefore his title is defective. B had notice of P’s defective title.
May B exercise the rights of a holder in due course?
JD: B is not a holder in due course under Section 52 because of
such notice. A, however, is presumed to be a holder in due course
under Section 59. Thus, B acquired title through a holder in due
course. Furthermore, even if B has knowledge of the defect, since
he was not a party to such fraud, he may exercise the rights of a
holder in due course. B may exercise the rights of A.

SECTION 57.Rights of Holder in Due Course. — A holder in due

course holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties
among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties liable
thereon.

Rights of a holder
1. Right to sue
2. Right to receive payment

Rights of a holder in due course

1. Right to sue
2. Right to receive payment
3. Right to hold the instrument free from defective title
JD: referring to Sec. 55)
4. Right to hold the instrument free from defenses (personal)
5. Right to enforce payment for the full amount
JD: partial consideration is a mere personal defense

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LIABILITIES OF PARTIES
PRIMARILY LIABLE
SECTION 60.Liability of Maker. — The maker of a negotiable
instrument by making it engages that he will pay it according
to its tenor, and admits the existence of the payee and his then
capacity to indorse.
SECTION 62.Liability of Acceptor. — The acceptor by accepting
the instrument engages that he will pay it according to the
tenor of his acceptance; and admits —
(a)The existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the
instrument; and
(b)The existence of the payee and his then capacity to indorse.
Parties liable
• Parties primarily liable
• Parties secondarily liable
• Assignees
Parties primarily liable
• Maker of a promissory note (Sec. 60)
• Drawee-acceptor: subject to the condition that the drawee
accepts (Sec. 62)
o Bill of exchange: drawee liable only upon acceptance
unless and until he cancels (Sec. 127)
o Check: the bank is liable only upon certification (Sec. 189)
JD: Correlate Section 62 with
SECTION 127. Bill Not an Assignment of Funds in Hands of
Drawee. — A bill of itself does not operate as an assignment of
the funds in the hands of the drawee available for the payment
thereof, and the drawee is not liable on the bill unless and until
he accepts the same.
SECTION 189. When Check Operates as an Assignment. — A
check of itself does not operate as an assignment of any part
of the funds to the credit of the drawer with the bank, and the
bank is not liable to the holder, unless and until it accepts or
certifies the check.
SECONDARILY LIABLE
SECTION 61.Liability of Drawer. — The drawer by drawing the
instrument admits the existence of the payee and his then
capacity to indorse; and engages that on due presentment the
instrument will be accepted or paid, or both, according to its
tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may
be compelled to pay it. But the drawer may insert in the
instrument an express stipulation negativing or limiting his
own liability to the holder.
SECTION 66.Liability of General Indorser. — Every indorser
who indorses without qualification, warrants, to all
subsequent holders in due course —
(a)The matters and things mentioned in subdivisions (a), (b),
and (c) of the next preceding section; and
(b)That the instrument is at the time of his indorsement valid
and subsisting.
And, in addition, he engages that on due presentment, it shall
be accepted or paid, or both, as the case may be, according to
its tenor, and that if it be dishonored, and the necessary
RASF!
JUSTICE DIMAAMPAO
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.
Parties secondarily liable
• Drawer (Sec. 61)
• General indorser (Sec. 66)
Basis for secondary liability
“Engages that on due presentment the instrument will be
accepted or paid, or both, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it” (common
provision)
JD: There has to be due presentment for payment and there must
be proper notice if dishonored
ASSIGNEES
SECTION 65.Warranty Where Negotiation by Delivery and So
Forth. — Every person negotiating an instrument by delivery
or by a qualified indorsement warrants —
(a) That the instrument is genuine and in all respects what it
purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair
the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply to
persons negotiating public or corporation securities, other
than bills and notes.
Assignees
Persons negotiating by delivery or by qualified indorsement
JD: Those who negotiated the instrument by delivery are NOT to
be considered secondarily liable because they are liable only for
violation of warranties carried. There is no provision for secondary
liability.
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BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT
DEFENSES
PERSONAL AND REAL DEFENSES
Personal defenses
Defenses which cannot be interposed against a holder in due
course
1. F- Failure of consideration (Sec. 28)
2. I- Insertion of a wrong date (sec. 13)
3. D- Defective title (Sec. 55)
4. I- Incomplete but delivered instrument (Sec. 14)
JD: Most important defense for purposes of the Bar. Pertains to
an instrument wherein there is a blank filled up not in accordance
with the authority given.
5. L- Lack of consideration (Sec. 28)
6. A- Absence of due delivery (Sec. 16)
Real defenses
Defenses which can be interposed against the whole world,
including a holder in due course.
1. F- Forged signature (Sec. 23)
2. I- Incomplete and undelivered (Sec. 15)
JD: Most defective instrument
3. L- Lack of authority on the part of an agent (Sec. 23)
JD: Defense which can be raised by the principal
4. I- Insanity
JD: According to jurisprudence
5. A- Alteration which is material (Sec. 125)
6. M- Minority (Sec. 22)
INCOMPLETE BUT DELIVERED
SECTION 14. Blanks; When May Be Filled. — Where the
instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it
by filling up the blanks therein. And a signature on a blank
paper delivered by the person making the signature in order
that the paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when
completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion,
is negotiated to a holder in due course, it is valid and effectual
for all purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given
and within a reasonable time.
JD: Pertains to an instrument incomplete upon delivery.
ONE-LINER: A holder in due course can enforce such defective
instrument, completed without authority, because it is valid and
effectual for all purposes in his hands.
• M made a promissory note wherein the amount was left in
blank. The instrument was negotiated to P, A, B, then C. M
authorized the amount of P10,000 be filled up. It was filled up in
the amount of P100,000.
JD: C, presumably a holder in due course, can collect the entire
P100,000. It is as if the instrument was filled up strictly in
accordance with the authority given. For P, A and B, they warrant
RASF!
JUSTICE DIMAAMPAO
that the instrument is genuine and in all respects what it purports
to be thus liable for their warranty.
COMPLETE BUT UNDELIVERED
SECTION 16. Delivery; When Effectual; When Presumed. —
Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties, and as
regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or
under the authority of the party making, drawing, accepting,
or indorsing, as the case may be; and in such case the delivery
may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer
in the possession of a party whose signature appears thereon,
a valid and intentional delivery by him is presumed until the
contrary is proved.
JD: Pertains to an instrument which was stolen or delivered
without authority. It is as if there was no delivery.
ONE-LINER: A holder in due course can enforce an instrument not
duly delivered because, to him, there is a conclusive presumption
of delivery.
Conclusive presumption of delivery
To a holder in due course, there is a conclusive presumption of
delivery. Thus, delivery cannot be disputed and no contrary
evidence can be presented to refute the same.
• M made a promissory note which was stolen from his drawer. It
was negotiated to P, A, B, and C. C is now the holder of a
defective instrument. M raises the defense of absence of due
delivery.
JD: M cannot raise such defense against C, presumed a holder in
due course, as there is a conclusive presumption of delivery. P, A,
and B are liable on their warranties as indorsers.
INCOMPLETE AND UNDELIVERED
SECTION 15. Incomplete Instrument Not Delivered. — Where
an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid
contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery.
ONE-LINER: A holder in due course cannot enforce such
instrument because, to him, it is not a valid contract.
• Instrument with the sum payable in blank was stolen from the
drawer. It was completed without authority and negotiated
without authority. P negotiated to A, then A to B, B to C.
JD: M can validly raise the defense that the blank was completed
without authority and the instrument was negotiated without
authority. Thus, the contract is invalid in the hands of any holder,
which includes a holder in due course. P, A, and B as liable as
indorsers.
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FORGERY
SECTION 23.Forged Signature; Effect of . — When a signature
is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right
to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.
Drawer’s signature forged
General rule: Drawee-acceptor is liable
JD: Drawee is supposed to know the signature of its depositor and
if it makes payment on a forged check it is considered making
payment out of its own funds thus it must restore such amount
Exception: Doctrine of comparative negligence
JD: Drawer may not compel the drawee bank to restore such
amount fraudulently obtained if the drawer is guilty of negligence
• Drawer’s signature was forged and the forger then deposited
the forged checks with the collecting bank. The collecting bank
cleared the check with the drawee bank (bank of drawer). Which
bank shall bear the loss?
JD: Jurisprudence tells us that the drawer has the right to compel
the drawee bank to credit back such amount to his account
because the drawee bank is supposed to know the signature of its
depositors. By accepting the instrument, the drawee bank
warrants its genuineness. When the bank pays a forged check, it
must be considered as paying out of its own funds and cannot
ordinarily charge it against the account of its depositor. On the
other hand, the collecting bank does not warrant the signature of
the drawer. Thus, if what was forged is the signature of the
drawer, it is the drawee bank which is liable. Except under the
doctrine of comparative negligence. When both are guilty of
negligence, and one must bear the loss, it is the one which is guilty
of active negligence which is liable.
Payee’s signature forged
General rule: Collecting bank is liable
JD: Breach of actual and contractual duty to pay only the person
to whom it is made payable. When payment is made to the forger
who has not right to such, on the basis of such breach, the drawer
can compel the collecting bank to restore such amount. The
drawee bank can recover from the collecting bank as it is the latter
which is liable.
• Payee’s signature was forged. The forger then deposited the
forged check with his collecting bank. The collecting bank
cleared the check with the drawee bank. Which bank shall bear
the loss?
JD: Jurisprudence tell us that when a collecting bank clears a check
with the drawee bank, it indorses the check therefore it becomes
an indorser. Thus, it warrants the signature of the payee and that
all prior indorsements are genuine. On the other hand, the drawee
bank does not admit the genuineness of the signature of the
payee.
RASF!
JUSTICE DIMAAMPAO
MATERIAL ALTERATION
SECTION 124.Alteration of Instrument; Effect of. — Where a
negotiable instrument is materially altered without the assent
of all parties liable thereon, it is avoided, except as against a
party who has himself made, authorized, or assented to the
alteration, and subsequent indorsers.
But when an instrument has been materially altered and is in
the hands of a holder in due course, not a party to the
alteration, he may enforce payment thereof according to its
original tenor.
SECTION 125.What Constitutes a Material Alteration. — Any
alteration which changes —
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment
is specified, or any other change or addition which alters the
effect of the instrument in any respect, is a material alteration.
• Drawer issued a check in the amount of P1,000. Payee altered
such amount to P10,000 and deposited it to the collecting bank
which then cleared it with the drawee bank. How much is the
liability?
JD: Drawee can only charge up to P1,000. If the drawee charges
P10,000 the drawee can be compelled by the drawer to credit
back the excess. As between the drawee and collecting bank, the
collecting bank is liable as an indorser upon clearing the
instrument thus it is the collecting bank which bears the loss as it
warrants genuineness.
• Payee’s name on a check was erased and another name was
superimposed. Then the impostor deposited the materially
altered check with his bank who cleared the check with the
drawee bank. As between the drawee bank and collecting bank,
who is liable?
JD: As indorser, the collecting bank warrants that the instrument
is genuine and in all respects what it purports to be thus it is liable.
AREZA V. EXPRESS SAVINGS BANK, 734 SCRA 588
Ruling: The 24 hour clearing period does not apply to materially
altered checks. The applicable prescriptive period, since it is in
the nature of a written contact, is the one prescribed under
Article 1144 of the Civil Code which is now 10 years.
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BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT JUSTICE DIMAAMPAO

JURISPRUDENCE CASE: MANAGER’S CHECK

1. C- Failure to check
2. A- Failure to adopt preventive measures
3. R- Failure to report
4. E- Entrusting to a secretary, Failure to establish
FAILURE TO CHECK
BANK OF COMMERCE V. CA, 269 SCRA 695
Ruling: The bank was negligent because the teller failed to
validate and never checked the second page which did not
contain a name but only a bank account. The bank was made to
shoulder 60% of the loss. The drawer shouldered 40% because
of failure to check bank statements. Had the drawer checked, he
could have discovered the forgery
METROPOLITAN BANK V. CHIOK, 742 SCRA 431
Ruling: A manager’s check is as good as cash. In addition, a
manager’s check is not subject to countermanding payment.
Thus, a stop payment order cannot be issued. Last, to prevent
material alteration, manager’s checks are still subject to the
clearing period rule or appropriate clearing by the Central Bank.
Effects of manager’s check
1. N- Not subject to countermanding payment
2. S- Subject to clearing period rule
3. C- As good as cash

FAILURE TO ADOPT PREVENTIVE MEASURES

MWSS V. CA 143 SCRA 20
Ruling: Failure to adopt measures which could have prevented
the fraudulent encashments. This involved an inside job.
Personalized checks were printed by a private company. The
drawer should have sent representatives to the company to
check but the drawer never did so. Thus, the drawer cannot
recover for being grossly negligent.

FAILURE TO REPORT
SECURITY BANK V. CA, 301 SCRA 537
Ruling: Drawer was declared guilty of negligence for failure to
report such burglary inside the office including a cabinet
containing the subject checks. The drawer never reported such
robbery to the police nor the drawee. The checks were
fraudulently encashed. The drawer was held liable for the entire
amount.

ESTRUSTING TO A SECRETARY, FAILURE TO ESTABLISH

GEMPENSAW V. CA, 218 SCRA 682
Ruling: There was failure on the part of the drawer to establish
accounting systems and business procedure. The drawer
practically entrusted all her transactions to her secretary. Had
such been established, the fraudulent encashment of 82 checks
could have been prevented. 50% of the loss was shouldered by
the drawer. 50% shouldered by the bank for failure to adopt and
failure to follow internal banking procedure because there was
a lack to observe the procedure of a second indorsement by a
bank manager.

SAMSUNG V FEBTC, 436 SCRA 402

Ruling: The signature of the general manager was forged by an
assistant accountant. The mere fact that a forgery was
committed by an employee of the party whose signature was
forged cannot necessarily imply that such party’s negligence
was the cause for such forgery. Employers do not possess the
preternatural gift of cognition as to the evil that may lurk inside
the hearts and minds of employees. The drawee bank must bear
the loss not the drawer, Samsung, the employer in this case.

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BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT
INSURANCE
INTRODUCTION
GOVERNING LAWS
• Primary: RA 10607 amending PD 612
• Suppletory: Civil Code
MARAMAG V. MARAMAG, 558 SCRA 774
Facts: The illegitimate children were designated as beneficiaries.
The legitimate family claimed they were not entitled to such.
Ruling: Illegitimate children are entitled to the insurance
proceeds as it is the Insurance Law which applies with Section
53 as the basis because they are not disqualified as
beneficiaries. The Civil Code will not apply. First, illegitimate
children are not disqualified. Second, Section 53 of the
Insurance Law provides that the insurance proceeds shall be
applied exclusively to the proper interest of the party in whose
benefit it is made. In Article 2012 of the Civil Code, only those
enumerated are disqualified as donees. Thus, illegitimate
children may be designated as beneficiaries and they are
entitled to the proceeds to the exclusion of the legitimate
children.
CHARACTERISTICS OF AN INSURANCE CONTRACT
• Uberrimae Fides: contract of utmost good faith
• Reciprocal contract: both are obliged to do acts
• Aleatory contract: contract is dependent on the happening of a
contingent event
• Contact of adhesion: what is essential is that the insured is
given opportunity to examine the contract
• Synallagmatic contract: involves mutual rights and obligations
• Personal contract: privity of contract
• Contract of indemnity: can only recover up to the extent of the
loss sustained
Illustration
A person insured his property with an insurance company and the
insurance company then reinsured the risk with another
company. Can the original owner recover from the reinsurer?
JD: In case of loss, the property owner cannot recover from the
reinsurer because there is no privity of contract. Except in two
instances: (1) if the original owner has been designated as the
beneficiary because he has insurable interest or (2) if there has
been an assignment of such contract. The subject of reinsurance
is the risk but it necessarily pertains to the property.
Illustration
Property valued at P1,000,000 insured for P2,000,000. In case of
loss of 50%, how much can be recovered?
JD: You can only recover up to the amount of loss sustained
because insurance is a contract of indemnity.
GENERAL CONCEPT
Principal object test
If the principal object of the business is rendition of services then
that does not amount to insurance business.
RASF!
JUSTICE DIMAAMPAO
PHILIPPINE HEALTH CARE PROVIDERS V. CIR, 600 SCRA 413
Ruling: Philippine Health Care Providers is not engaged in an
insurance business as it is a health maintanence organization
whose principal object is rendition of services.
From ALPO-ABA: As an HMO it is its obligation to maintain the
good health of its members. Accordingly, its health care
programs are designed to prevent or minimize the possibility of
any assumption on its part. The curative medical services are
incidental to the principal activity of providing them medical
care. A health care provider, HMO, is not engaged in insurance
business, therefore the health care agreement is basically a
contract between the HMO and its client is not an insurance
contract contemplated under sec. 185
PERFECTION OF INSURANCE CONTRACT
NCC: Article 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which
are to constitute the contract.
JD: Insurance contracts are perfected through recognition. The
acceptance must be known by the insured otherwise there can be
no insurance contract.
RIGHTS OF PARTIES
Rights of insured
[Not discussed]
Rights of insurer
[Not discussed]
Rights of beneficiary
[Not discussed]
INSURABLE INTEREST
LIFE INSURANCE
Section 10. Every person has an insurable interest in the life
and health:
(a) Of himself, of his spouse and his children
(b) Of any person on whom he depends wholly or in part
for education or support, or in whom he has a
pecuniary interest
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of
which death or illness might delay or prevent the performance;
and
(d) Of any person upon whose life any estate or interest vested
in him depends.
Existence of insurable interest in life
JD: In case of death or loss, insurable interest in life insurance must
exist at the time of commencement of the policy. It need not exist
thereafter because it may be transferred.
PROPERTY INSURANCE
Sec. 14. An insurable interest in property may consist in:
a) An existing interest;
b) An inchoate interest founded on an existing interest; or
c) An expectancy, coupled with an existing interest in that out
of which the expectancy arises.
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Existence of insurable interest in property
GENERAL RULE: There can only be property recovery if such
insurable interest exists at the time of the effectivity of the policy
AND at the time of the loss.
EXCEPTIONS:
1. F- Framed
2. A-
3. C- Co-owner
4. T- Two or more things
5. S- Succession
FRAMED
SECTION 57. A policy may be so framed that it will inure to the
benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured
JD: After the loss, you can transfer that. You have distant interest.
SECTION 21. A change of interest in a thing insured, after the
occurrence of an injury which results in a loss, does not affect
the right of the insured to indemnity for the loss.
JD: Transfer to a co-owner or partner reduces the risk.
SECTION 22. A change of interest in one or more of several
distinct things, separately insured by one policy, does not
avoid the insurance as to the others.
JD: When there are two or more things covered by a policy, the
transfer of one will not affect such recovery.
SECTION 23. A change of interest, by will or succession, on the
death of the insured, does not avoid an insurance; and his
interest in the insurance passes to the person taking his
interest in the thing insured.
Note: This topic was not clearly discussed.
PREMIUMS
PAYMENT OF PREMIUM
SECTION 77. An insurer is entitled to payment of the premium
as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance company
is valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies, or whenever
under the broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is given. No
credit extension to a duly licensed intermediary should exceed
ninety (90) days from date of issuance of the policy.
JD: Though it is not included in the syllabus, it is the lifeblood of
insurance.
Payment of premium
GENERAL RULE: Premiums must be paid so that, in case of death
or loss, there can be recovery. Otherwise if unpaid, there can be
no recovery. This is the cash and carry rule which was asked thrice
in the Bar.
RASF!
JUSTICE DIMAAMPAO
EXCEPTIONS: There can be recovery even if no premiums are paid
1. P- Partial payment
2. L- Life and industrial life insurance grace period
3. A- Acknowledgment
4. C- Credit extension
5. E- Estoppel
PARTIAL PAYMENT
MAKATI TUSCANY V. CA
Ruling: Partial payment is declared as a valid stipulation.
GRACE PERIOD
SECTION 233. In the case of individual life or endowment
insurance, the policy shall contain in substance the following
conditions:
"(a) A provision that the policyholder is entitled to a grace
period either of thirty (30) days or of one (1) month within
which the payment of any premium after the first may be
made, subject at the option of the insurer to an interest charge
not in excess of six percent (6%) per annum for the number of
days of grace elapsing before the payment of the premium,
during which period of grace the policy shall continue in full
force, but in case the policy becomes a claim during the said
period of grace before the overdue premium is paid, the
amount of such premium with interest may be deducted from
the amount payable under the policy in settlement;
XXXXX
JD: If no premiums have been paid but death occurred within the
grace period, there can be recovery by way of exception.
ACKNOWLEDGMENT
SECTION 79. An acknowledgment in a policy or contract of
insurance or the receipt of premium is conclusive evidence of
its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid.
JD: Estoppel applies thus an act or admission is rendered
conclusive upon the person making it and cannot be denied as
against the person relying thereon.
CREDIT EXTENSION
JD: Pertains to the credit extension of 90 days which is
unextendible. (Sec. 77)
ESTOPPEL
JD: When the doctrine of estoppel applies, other than through
acknowledgment.
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INCONTESTABILITY CLAUSE
SECTION 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract. After a policy of
life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a
period of two (2) years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void
ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
JD: As to the incontestability clause, there are conflicting
decisions. You can adopt any of these as these are all decisions in
division. As long as there is no decision by the court en banc, such
decisions, though in conflict with each other, are still prevailing.
Under Article 8, Section 4, paragraph 3, last sentence, it says “No
doctrine or principle of law laid down by the decision rendered en
banc or by division may be reversed, modified except by the
Supreme Court. However, we should adopt the recent decisions
of the court.
TAN V. CA, 174 SCRA 403; FLORENDO V. PHIL AM PLANS, 666
SCRA 618
Ruling: It is the key phrase “2 year period” that prevails. Even if
the insured dies, the plan may still be contested
MANILA BANKERS V. ABAN 701 SCRA 417; SUN LIFE CANADA V.
CEDIA, 793 SCRA 45
JD: This is the prevailing rule.
Ruling: There can be recovery from insurance company even if
there was concealment because the law says “during the
lifetime”
Applying Section 48, it is the phrase “during the lifetime” which
is key. Thus, once the insured dies, the plan may no longer be
contested.
• The insured made a material concealment by failing to disclose
that he is suffering from a pre-existing disease. He died 3 days
thereafter.
JD: Following the Aban and Cedia case, the insurer can no longer
contest that. What prevails under these is that the insured must
be alive when the contract is contested. This is very unfair. The
entire provision should have been construed . Thus, if the insured
dies, the contract may still be contested within the 2 year period.
RESCISSION OF INSURANCE CONTRACT
Grounds for rescission
1. C- Concealment
2. R- Representation which is false
3. O- Omission
4. W- Warranty breach
CONCEALMENT
Sec. 27 A concealment whether intentional or unintentional
entitles the injured party to rescind a contract of insurance.
RASF!
JUSTICE DIMAAMPAO
FALSE REPRESENTATION
Sec. 45 If a representation is false in a material point, whether
affirmative or promissory, the injured party is entitled to
rescind the contract from the time when the representation
becomes false.
OMISSION
Sec. 29 An intentional and fraudulent omission, on the part of
one insured, to communicate information of matters proving
or tending to prove the falsity of a warranty, entitles the
insurer to rescind.
BREACH OF WARRANTY
Sec. 74 The violation of a material warranty, or other material
provision of a policy, on the part of either party thereto,
entitles the other to rescind.
LOSS
[Not discussed]
SUICIDE
SECTION 183. The insurer in a life insurance contract shall be
liable in case of suicide only when it is committed after the
policy has been in force for a period of two (2) years from the
date of its issue or of its last reinstatement, unless the policy
provides a shorter period: Provided, however, That suicide
committed in the state of insanity shall be compensable
regardless of the date of commission.
Suicide clause
JD: If there is a suicide clause, such is a valid stipulation so there is
always recovery. Thus, there is no qualification. Sane or insane,
there is always recovery.
No suicide clause
JD: If there is no suicide clause, we have to check whether the
insured was sane or insane. If insane, there must be recovery
under Section 183. If sane, this may be contested. If it has become
incontestable, then there can be recovery. If the policy has been
contested, there can be no recovery. This is the only instance
where there can be no recovery.
KEY PHRASE: NO SECURITY COUNCIL
No Suicide Clause
Sane + Contested
BENEFICIARY
REVOCABILITY
SECTION 11. The insured shall have the right to change the
beneficiary he designated in the policy, unless he has expressly
waived this right in said policy. Notwithstanding the foregoing,
in the event the insured does not change the beneficiary during
his lifetime, the designation shall be deemed irrevocable.
JD: Take note of the change introduced under RA 10607. Before,
as a rule, the designation of a beneficiary is revocable, unless
otherwise expressly provided. However, there is now a provision
saying it is irrevocable. That is when the insured has not changed
the beneficiary during his lifetime.
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General rule INSURER NOT LIABLE

• Revocable 1. C- Connivance between insured and a third person
2. E- Act which must be willful on the part of the insured
Exceptions JD: Insured willfully destroys the property insured against
• Otherwise expressly provided 3. N- No notice of loss
• Insured does not change beneficiary during lifetime 4. N- No probable cause as required
5. No insurable interest
6. No payment of premiums
FORFEITURE OF INTEREST
7. Gross negligence
SECTION 12. The interest of a beneficiary in a life insurance
JD: No recovery as this is an implied excluded risk
policy shall be forfeited when the beneficiary is the principal,
accomplice, or accessory in willfully bringing about the death
FROM 2017-2018 ARANAS NOTES
of the insured. In such a case, the share forfeited shall pass on
to the other beneficiaries, unless otherwise disqualified. In the
absence of other beneficiaries, the proceeds shall be paid in 1. There is a willful or intentional loss;
accordance with the policy contract. If the policy contract is 2. The peril insured against is the remote cause;
silent, the proceeds shall be paid to the estate of the insured. 3. If the peril insured against is the immediate cause but
the proximate cause is an excepted peril;
Persons entitled to proceeds upon forfeiture 4. If there is loss due to connivance of the insured;
1. Any other qualified beneficiary; 5. The excepted peril is the proximate cause.
JD: Contemplates multiple beneficiaries
2. Policy; TYPES OF INSURANCE
3. Estate of the insured 1. D- Double insurance
2. O- Over insurance
LIABILITY 3. U- Under insurance
INSURER LIABLE JD: This is not mentioned in the syllabus.
1. P- Proximate cause of the loss is the risk insured against 4. R- Reinsurance
2. I- Immediate cause of the loss is the risk insured against
JD: Except if the proximate cause is excepted DOUBLE INSURANCE
3. O- Ordinary negligence SECTION 95. A double insurance exists where the same person
JD: There can be recovery as this is implied insurable risk is insured by several insurers separately in respect to the same
subject and interest.
FROM 2017-2018 ARANAS NOTES
SECTION 96. Where the insured in a policy other than life is
1. The loss is the proximate cause of which the peril is overinsured by double insurance.
insured against;
2. The liability is present even if the loss is accompanied JD: Favorite in the Bar. This is the difficult portion of Insurance because
computation is unavoidable.
by a remote cause or an immediate cause and whether
or not such causes are excepted perils;
Requisites for double insurance
3. If the thing insured is damaged because it was being
1. Same subject matter;
rescued from the peril insured against; 2. Same insured;
4. Insurer is liable for damages if the peril not insured 3. Same risk;
against to which the thing was exposed while the same 4. Same insurable interest; and
is being rescued from the peril insured against; 5. Different insurers
5. If the peril insured against is the immediate cause of
the loss if the proximate cause is not an excepted peril; Effect of double insurance
6. Loss through negligence of the insured unless it JD: Given that there are two or more insurers, you can recover from either
amounts to gross negligence which amounts to willful of them. However, you can only recover up to the extent of your insurable
or intentional act. interest or actual loss because an insurance contract is a contract of
indemnity.

If one insurer has overpaid, then such insurer can recover from the other
insurers who have underpaid.

Difference between double insurance and reinsurance

In double insurance, there may be two or more insurers over the same
interest. It reinsurance, it involves different interest.

OVERINSURANCE
SECTION 83. In case of an over insurance by several insurers
other than life, the insured is entitled to a ratable return of the
premium, proportioned to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of
the thing at risk.

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BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT JUSTICE DIMAAMPAO

Effect of overinsurance PROPER DEVIATION

JD: If you have a property worth P10M insured for P15M, you can only SECTION 126. A deviation is proper:
recover P10M. (a) When caused by circumstances over which neither the
master nor the owner of the ship has any control;
As to the premium, the portion pertaining to overinsurance can be
(b) When necessary to comply with a warranty, or to avoid a
recovered.
peril, whether or not the peril is insured against;
UNDER INSURANCE (c) When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a peril; or
SECTION 159. A marine insurer is liable upon a partial loss, only
(d) When made in good faith, for the purpose of saving human
for such proportion of the amount insured by him as the loss
life or relieving another vessel in distress.
bears to the value of the whole interest of the insured in the
property insured.
JD: Favorite question in the Bar.
JD: This only applies to marine insurance.
Proper deviation
1. S- Save a vessel or human lives
Requisites for under insurance
2. C- Comply with a warranty
1. Under insurance 3. A- Avoid the peril insured against
2. Partial loss 4. N- Neither the master nor the owner has control

REINSURANCE
SECTION 97. A contract of reinsurance is one by which an
insurer procures a third person to insure him against loss or
liability by reason of such original insurance.

SECTION 98. Where an insurer obtains reinsurance, except

under automatic reinsurance treaties, he must communicate
all the representations of the original insured, and also all the
knowledge and information he possesses, whether previously
or subsequently acquired, which are material to the risk.

SECTION 99. A reinsurance is presumed to be a contract of

indemnity against liability, and not merely against damage.

SECTION 100. The original insured has no interest in a contract

of reinsurance.

• O insured his property with A Company. A Company insured the same

with B Company.
JD: The interests insured are different. Here, the insurer, B Company,
becomes the reinsurer. There is no privity of interest between the original
owner and the reinsurer. Thus, in case of loss, the original owner cannot
recover from the reinsurer. Except if the owner is made the beneficiary in
the reinsurance contract in which case there may be recovery because of
the rule that the beneficiary in property insurance must have insurable
interest. Another exception is when there is assignment.

NO PROVE CLAUSE

JD: To provide immediate relief or compensation, there is no need to

prove negligence. By virtue of a 2006 Insurance Commission circular, the
amount is now P15,000.

Note: Not sure as to the name of the clause

ALL RISK CLAUSE

JD: Not included in the syllabus but this is a favorite question in the Bar.

Exceptions to all risk clause

1. F- Fraud
2. E- Excepted or excluded risk
3. W- Willful or malevolent act or conduct

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BATCH BRAVEHEART MERCANTILE LAW TRANSCRIPT JUSTICE DIMAAMPAO

CORPORATION LAW

Start: Recording of April 11, Part 1, 37:00

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