MERC DC Digest

SY 2015-2016 Case Syllabus Mercantile Law
INTELLECTUAL PROPERTY CODE

A. INTELLECTUAL PROPERTY RIGHTS IN GENERAL
1. Differences between Copyrights, Trademarks and Patent
PEARL & DEAN (PHIL.), INCORPORATED vs. SHOEMART, INCORPORATED, and NORTH EDSA
MARKETING, INCORPORATED
G.R. No. 148222, August 15, 2003, CORONA, J.
Trademark, copyright and patents are different intellectual property rights that cannot be interchanged
with one another. Hence, an invention is a proper subject of patent and not copyright.
FACTS:
Pearl and Dean (Phil.), Inc. is a corporation engaged in the manufacture of advertising display units
simply referred to as light boxes. These units utilize specially printed posters sandwiched between plastic
sheets and illuminated with back lights. Pearl and Dean was able to secure a Certificate of Copyright
Registration over these illuminated display units. The application for registration of the trademark was filed
in 1983 but was approved only in 1988. Sometime in 1985, Pearl and Dean negotiated with Shoemart, Inc.
(SMI) for the lease and installation of the light boxes in SM City North Edsa which was still under construction
at that time. However, the deal did not go anywhere. And later on, Pear and Dean received reports that exact
copies of its light boxes were installed at SMI’s SM City branches. It further discovered that North Edsa
Marketing Inc. (NEMI) was set up primarily to sell advertising space in lighted display units located in SMIs
different branches. In the light of its discoveries, Pearl and Dean filed a case for infringement of trademark
and copyright, unfair competition and damages. RTC ruled in favor of Pearl and Dean but was reversed by the
CA.
ISSUE:
Whether or not SM and NEMI are guilty of infringement of trademark and copyright, unfair
competition.
RULING:
NO. During the trial, the president of Pearl and Dean himself admitted that the light box was neither a
literary not an artistic work but an engineering or marketing invention. Obviously, there appeared to be some
confusion regarding what ought or ought not to be the proper subjects of copyrights, patents and trademarks.
The three legal rights are completely distinct and separate from one another, and the protection afforded by
one cannot be used interchangeably to cover items or works that exclusively pertain to the others:
Trademark, copyright and patents are different intellectual property rights that cannot be interchanged with
one another. A trademark is any visible sign capable of distinguishing the goods (trademark) or services
(service mark) of an enterprise and shall include a stamped or marked container of goods. In relation thereto,
a trade name means the name or designation identifying or distinguishing an enterprise. Meanwhile, the
scope of a copyright is confined to literary and artistic works which are original intellectual creations in the
literary and artistic domain protected from the moment of their creation. Patentable inventions, on the other
hand, refer to any technical solution of a problem in any field of human activity which is new, involves an
inventive step and is industrially applicable.
In this case, Pearl and Dean’s copyright over the designs was in the category of prints, pictorial
illustrations, advertising copies, labels, tags and box wraps. Hence, the copyright cannot extend the light box
itself.
B. PATENTS
1. Patentable Inventions
JESSIE G. CHING v. WILLIAM M. SALINAS, SR., WILLIAM M. SALINAS, JR., JOSEPHINE L. SALINAS,
JENNIFER Y. SALINAS, ALONTO SOLAIMAN SALLE, JOHN ERIC I. SALINAS, NOEL M. YABUT (Board of
Directors and Officers of WILAWARE PRODUCT CORPORATION)
G.R. No. 161295, June 29, 2005, CALLEJO, SR.
While works of applied art, original intellectual, literary and artistic works are copyrightable, useful
articles and works of industrial design are not.
FACTS:
Jessie G. Ching is the owner and general manager of Jeshicris Manufacturing Co., the maker and
manufacturer of a utility model described as "Leaf Spring Eye Bushing for Automobile" made up of plastic. Ching and
Joseph Yu were issued by the National Library Certificates of Copyright Registration and Deposit of the said
work. Thereafter, Ching requested the National Bureau of Investigation for police/investigative assistance for
the apprehension and prosecution of illegal manufacturers, producers and/or distributors of the said utility
model. After due investigation, the NBI filed applications for search warrants in the RTC of Manila against
William Salinas, Sr. and the officers and members of the Board of Directors of Wilaware Product Corporation.
It was alleged that the respondents therein reproduced and distributed the said model in violation of the law
on copyright. Salinas et al filed a motion to quash the search warrants on the ground that the works covered
by the Certificates of Copyright issued by the National Library are not artistic in nature as they are considered
automotive spare parts and pertain to technology. They aver that the models are the proper subject of a
patent, not copyright. The trial court granted the motion and quashed the search warrant. After his motion for
reconsideration of the order having been denied, Ching filed a petition for certiorari in the CA but the court
dismissed his petition. Hence, this petition.
ISSUE:
Whether or not the Leaf Spring Eye Bushing for Automobile is a work of art thus making it the proper subject of a
copyright.
RULING:
NO. As gleaned from the specifications appended to the application for a copyright certificate filed by
the petitioner, the said Leaf Spring Eye Bushing for Automobile is merely a utility model described as
comprising a generally cylindrical body having a co-axial bore that is centrally located and provided with a
perpendicular flange on one of its ends and a cylindrical metal jacket surrounding the peripheral walls of said
body, with the bushing made of plastic that is either polyvinyl chloride or polypropylene. Likewise, the
Vehicle Bearing Cushion is illustrated as a bearing cushion comprising a generally semi-circular body having a
central hole to secure a conventional bearing and a plurality of ridges provided therefore, with said cushion
bearing being made of the same plastic materials. Plainly, these are not literary or artistic works. They are not
intellectual creations in the literary and artistic domain, or works of applied art. They are certainly not
ornamental designs or one having decorative quality or value. It bears stressing that the focus of copyright is
the usefulness of the artistic design, and not its marketability. The central inquiry is whether the article is a
work of art. Indeed, while works of applied art, original intellectual, literary and artistic works are
copyrightable, useful articles and works of industrial design are not. In this case, the petitioners’ models are
not works of applied art, nor artistic works. They are utility models, useful articles, albeit with no artistic
design or value. They are, as the petitioner himself admitted, utility models which may be the subject of a
patent.
2. Ownership of a Patent
a. Right to a Patent
PEARL & DEAN (PHIL.), INCORPORATED vs. SHOEMART, INCORPORATED, and NORTH EDSA
G.R. No. 148222, August 15, 2003, CORONA, J.
The rule is simple: No patent, no protection.
FACTS:
simply referred to as light boxes. These units utilize specially printed posters sandwiched between plastic
sheets and illuminated with back lights. Pearl and Dean was able to secure a Certificate of Copyright
Registration over these illuminated display units. The advertising light boxes were marketed under the
trademark Poster Ads. The application for registration of the trademark was filed in 1983 but was approved
only in 1988. Sometime in 1985, Pearl and Dean negotiated with Shoemart, Inc. (SMI) for the lease and
installation of the light boxes in SM City North Edsa. Since SM City North Edsa was under construction at that
time, SMI offered as an alternative, SM Makati and SM Cubao, to which Pearl and Dean agreed. However, only
the contract for SM Makati was returned signed. Later on, SMI informed Pearl and Dean that it was rescinding
the contract for SM Makati due to non-performance of the terms thereof. 2 years later, Metro Industrial
Services, the company formerly contracted by Pearl and Dean to fabricate its display units, offered to
construct light boxes for Shoemart’s chain of stores. SMI approved the proposal. After its contract with Metro
Industrial was terminated, SMI engaged the services of EYD Rainbow Advertising Corporation to make the
light boxes. Pearl and Dean received reports that exact copies of its light boxes were installed at SM City
branches. It further discovered that North Edsa Marketing Inc. (NEMI) was set up primarily to sell advertising
space in lighted display units located in SMIs different branches. In the light of its discoveries, Pearl and Dean
filed this instant case for infringement of trademark and copyright, unfair competition and damages.
RTC decided in favor of P & D. However, the Court of Appeals reversed the trial court. Hence, this petition.
ISSUES:
Whether or not SMI and NEMI are guilty of patent infringement.
RULING:
NO. Petitioner never secured a patent for the light boxes. It therefore acquired no patent rights
which could have protected its invention. And because it had no patent, petitioner could not legally prevent
anyone from manufacturing or commercially using the contraption. There can be no infringement of a patent
until a patent has been issued, since whatever right one has to the invention covered by the patent arises
alone from the grant of patent. An inventor has no common law right to a monopoly of his invention. He has
the right to make use of and vend his invention, but if he voluntarily discloses it, such as by offering it for sale,
the world is free to copy and use it with impunity. A patent, however, gives the inventor the right to exclude
all others. To be able to effectively and legally preclude others from copying and profiting from the invention,
a patent is a primordial requirement. No patent, no protection.
3. Rights Conferred by a Patent
DOMICIANO A. AGUAS vs. CONRADO G. DE LEON and COURT OF APPEALS,

G.R. No. L-32160, January 30, 1982, FERNANDEZ, J.
Any invention of a new and useful machine, manufactured product or substance, process, or an
improvement of the foregoing, shall be patentable.
FACTS:
Conrado De Leon was issued Letters Patent No. 658 for a new and useful improvement in the process
of making mosaic pre-cast tiles. Sometime thereafter, De Leon filed a complaint for patent infringement in the
CFI of Rizal against Domingo Aguas and F.H. Aquino and Sons. He alleged Aguas committed infringement by
making, using and selling tiles embodying said patented invention, and that F.H. Aquino & Sons is guilty of
infringement by making and furnishing to Aguas the engravings, castings and devices designed and intended
for use and actually used in apparatus for the making of tiles embodying De Leon’s patented invention. The
trial court rendered a decision in favor of De Leon. The Court of Appeals affirmed. Hence, this petition.
ISSUE:
Whether or not a process pertaining to an improvement of the old process of tile making is
patentable and if such, was there an infringement.
RULING:
YES. De Leon does not claim to be the discoverer or inventor of the old process of tile-making. He
only claims to have introduced an improvement of said process. Under Section 7 of Republic Act No. 165,
“Any invention of a new and useful machine, manufactured product or substance, process, or an improvement
of the foregoing, shall be patentable.” The Court of Appeals found that the private respondent has introduced
an improvement in the process of tile-making. His improvement consists in the solution to the old critical
problem by making the protrusions on his moulds attain an optimum height, so that the engraving thereon
would be deep enough to produce tiles for sculptured and decorative purposes, strong enough,
notwithstanding the deep engravings, to be utilized for walling purposes. The optimum thickness of his new
tiles of only 1/8 of an inch at the deepest easement is a most critical feature, suggestive of discovery and
inventiveness, especially considering that, despite said thinness, the freshly formed tile remains strong
enough for its intended purpose. While it is true that the matter of easement, lip width, depth, protrusions
and depressions are known to some sculptors, still, to be able to produce a new and useful wall tile, by using
them all together, amounts to an invention. The Court of Appeals thus held that De Leon has succeeded in
producing a new product – a concrete sculptured tile which could be utilized for walling and decorative
purposes. This commercial success is evidence of patentability.
The respondent's improvement is indeed inventive and goes beyond the exercise of mechanical skill.
He has introduced a new kind of tile for a new purpose. He has improved the old method of making tiles and
pre-cast articles which were not satisfactory because of an intolerable number of breakages, especially if deep
engravings are made on the tile. He has overcome the problem of producing decorative tiles with deep
engraving, but with sufficient durability.
ANGELITA MANZANO v. COURT OF APPEALS, and MELECIA MADOLARIA, as Assignor to NEW UNITED
FOUNDRY MANUFACTURING CORPORATION
G.R. No. 113388, September 5, 1997, BELLOSILLO, J.
An invention must possess the essential elements of novelty, originality and precedence, and for the
patentee to be entitled to the protection, the invention must be new to the world
FACTS:
Angelita Manzano filed with the Philippine Patent Office an action for the cancellation of Letters
Patent No. UM-4609 for a gas burner registered in the name of Melecia Madolaria who subsequently assigned
the letters patent to New United Foundry and Manufacturing Corporation (UNITED FOUNDRY, for brevity).
Petitioner alleged that (a) the utility model covered by the letters patent, in this case, an LPG gas burner, was
not inventive, new or useful; (b) the specification of the letters patent did not comply with the requirements
of Sec. 14, RA No. 165, as amended; (c) respondent Melecia Madolaria was not the original, true and actual
inventor nor did she derive her rights from the original, true and actual inventor of the utility model covered
by the letters patent; and, (d) the letters patent was secured by means of fraud or misrepresentation. In
support of her petition for cancellation, petitioner further alleged that the utility model covered by the letters
patent of respondent had been known, used by others or on sale in the Philippines for more than one year
before she filed her application for letters patent on 9 December 1979 . Director of Patents denied the
petition for cancellation holding that the evidence of petitioner was not able to establish convincingly that the
patented utility model of private respondent was anticipated. The Court of Appeals affirmed the decision of
the Director of Patents. Hence, this petition for review on certiorari.
ISSUE:
Whether or not the dismissal of the case by CA is proper.
RULING:
YES. It has been repeatedly held that an invention must possess the essential elements of novelty,
originality and precedence, and for the patentee to be entitled to the protection, the invention must be new to
the world. In issuing Letters Patent No. UM-4609 to Melecia Madolaria for an "LPG Burner”, the Philippine
Patent Office found her invention novel and patentable. The issuance of such patent creates a presumption
which yields only to clear and cogent evidence that the patentee was the original and first inventor. The
burden of proving want of novelty is on him who avers it and the burden is a heavy one which is met only by
clear and satisfactory proof which overcomes every reasonable doubt. Hence, a utility model shall not be
considered "new" if before the application for a patent it has been publicly known or publicly used in this
country or has been described in a printed publication or publications circulated within the country, or if it is
substantially similar to any other utility model so known, used or described within the country. As found by
the Director of Patents, the standard of evidence sufficient to overcome the presumption of legality of the
issuance of UM-4609 to respondent Madolaria was not legally met by petitioner in her action for the
cancellation of the patent. The decision of the Director of Patent was affirmed by the Court of Appeals. The
validity of the patent issued by the Philippine Patent Office in favor of private respondent and the question
over the inventiveness, novelty and usefulness of the improved model of the LPG burner are matters which
are better determined by the Patent Office. There is a presumption that the Office has correctly determined
the patentability of the model and such action must not be interfered with in the absence of competent
evidence to the contrary.
CRESER PRECISION SYSTEMS, INC., petitioner, vs. COURT OF APPEALS AND FLORO INTERNATIONAL
CORP., respondents.
G.R. No. 118708, February 2, 1998, MARTINEZ J.
A person or entity who has not been granted letters patent over an invention and has not acquired any
right or title thereto either as assignee or as licensee, has no cause of action for infringement because the right to
maintain an infringement suit depends on the existence of the patent.
FACTS:
In 1990, FLORO INT’L CORP. was granted by the Bureau of Patents, Trademarks and Technology
Transfer (BPTTT), a Letters Patent No. UM-6938 covering an aerial fuze. In 1993, FLORO INT’L discovered
that CRESER PRECISION SYSTEMS, INC. submitted samples of its patented aerial fuze to the AFP for testing
and was claiming the aforesaid aerial fuze as its own and planning to bid and manufacture the same
commercially without license or authority from FLORO INT’L. To protect its right, FLORO INT’L sent a letter
to CRESER advising it of its existing patent and its rights thereunder, warning petitioner of a possible court
action and/or application for injunction, should it proceed with the scheduled testing by the military. In
response, CRESER filed a complaint for injunction and damages against FLORO INT’L before the RTC. The
complaint alleged that it is the first, true and actual inventor of the disputed aerial fuze having developed the
same as early as 1981. The trial court issued a writ of preliminary injunction against FLORO INT’L. The latter
moved for reconsideration but this was denied by the trial court. Aggrieved, it filed a petition for certiorari,
mandamus and prohibition before the CA which reversed the RTC decision. The motion for reconsideration
was also denied. Hence, this present petition.
Notwithstanding absence of a patent, it is CRESER’s contention that it can file, under Section 42 of the
Patent Law (R.A. 165), an action for infringement not as a patentee but as an entity in possession of a right,
title or interest in and to the patented invention.
ISSUE:
Whether or not CRESER has the right to assail the validity of FLORO INT’L’s patented work.
RULING:
NO. Under Section 42 of R.A. 165, otherwise known as the Patent Law, only the patentee or his
successors-in-interest may file an action for infringement. The phrase anyone possessing any right, title or
interest in and to the patented invention upon which petitioner maintains its present suit, refers only to the
patentee’s successors-in-interest, assignees or grantees since actions for infringement of patent may be
brought in the name of the person or persons interested, whether as patentee, assignees or grantees, of the
exclusive right. Moreover, there can be no infringement of a patent until a patent has been issued, since
whatever right one has to the invention covered by the patent arises alone from the grant of patent. In short, a
person or entity who has not been granted letters patent over an invention and has not acquired any right or
title thereto either as assignee or as licensee, has no cause of action for infringement because the right to
maintain an infringement suit depends on the existence of the patent. CRESER PRECISION SYSTEMS admits it
has no patent over its aerial fuze. Therefore, it has no legal basis or cause of action to institute the petition for
injunction and damages arising from the alleged infringement by private respondent. While petitioner claims
to be the first inventor of the aerial fuze, still it has no right of property over the same upon which it can
maintain a suit unless it obtains a patent therefor.
ROBERTO L. DEL ROSARIO vs. COURT OF APPEALS AND JANITO CORPORATION

G.R. No. 115106, March 15, 1996, BELLOSILLO
A patentee shall have the exclusive right to make, use and sell the patented machine, article or product
for the purpose of industry or commerce, throughout the territory of the Philippines for the term of the patent,
and such making, using or selling by any person without authorization of the patentee constitutes infringement
of his patent.
FACTS:
Del Rosario filed a complaint for patent infringement against Janito Corporation. Del Rosario alleged
that he was a patentee of an audio equipment and improved audio equipment commonly known as the sing-
along System or karaoke under Letters Patent No. UM-5269 and Letters Patent No. UM-6237 issued by the
Director of Patents. The effectivity of both Letters Patents was for five (5) years and was extended for another
five (5) years. Del Rosario learned that Janito Corporation was manufacturing a sing-along system bearing the
trademark miyata or miyata karaoke substantially similar if not identical to the sing-along system covered by
the patents issued in his favor. Thus, he sought from the trial court the issuance of a writ of preliminary
injunction to enjoin private respondent, its officers and everybody elsewhere acting on its behalf, from using,
selling and advertising the miyata or miyata karaoke brand. The RTC issued a writ of preliminary injunction
against Janito Corporation but was reversed by the CA.
ISSUE:
Whether or not the the grant of preliminary injunction is proper.

RULING:
Yes. For the writ of preliminary injunction to issue, the interest of petitioner in the controversy or the
right he seeks to be protected must be a present right, a legal right which must be shown to be clear and
positive. Admittedly, petitioner is a patentee of an audio equipment and improved audio equipment
commonly known as the sing-along System or karaoke under Letters Patent No. UM-5269 and Letters Patent
No. UM-6237. In issuing, reissuing or withholding patents and extensions thereof, the Director of Patents
determines whether the patent is new and whether the machine or device is the proper subject of patent. In
passing on an application, the Director decides not only questions of law but also questions of fact. Where
petitioner introduces the patent in evidence, if it is in due form, it affords a prima facie presumption of its
correctness and validity. The decision of the Director of Patents in granting the patent is always presumed to
be correct, and the burden then shifts to respondent to overcome this presumption by competent evidence.
Respondent corporation failed to present before the trial court competent evidence that the utility models
covered by the Letters Patents issued to petitioner were not new. The rights of petitioner as a patentee have
been sufficiently established. Consequently, under Sec. 37 of The Patent law, petitioner as a patentee shall
have the exclusive right to make, use and sell the patented machine, article or product for the purpose of
industry or commerce, throughout the territory of the Philippines for the term of the patent, and such making,
using or selling by any person without authorization of the patentee constitutes infringement of his patent.
SMITH KLINE BECKMAN CORPORATION v. THE HONORABLE COURT OF APPEALS and TRYCO PHARMA
CORPORATION
G. R. No. 126627, August 14, 2003, J. Carpio-Morales
When the language of its claims is clear and distinct, the patentee is bound thereby and may not claim
anything beyond them.
FACTS:
Smith Kline Beckman Corporation, filed on October 8, 1976, as assignee, before the Philippine Patent
Office an application for patent over an invention entitled Methods and Compositions for Producing Biphasic
Parasiticide Activity Using Methyl 5 Propylthio-2-Benzimidazole Carbamate. In 1981, Letters Patent No.
14561 for the aforesaid invention was issued to petitioner for a term of seventeen years. Tryco Pharma
Corporation, on the other hand, is a domestic corporation that manufactures, distributes and sells veterinary
products including Impregon, a drug that has Albendazole for its active ingredient and is claimed to be
effective against gastro-intestinal roundworms, lungworms, tapeworms and fluke infestation in carabaos,
cattle and goats.
Petitioner sued private respondent for infringement of patent and unfair competition before the RTC
of Caloocan City. It claimed that its patent covers or includes the substance Albendazole such that private
respondent, by manufacturing, selling, using, and causing to be sold and used the drug Impregon without its
authorization, infringed Claims 2, 3, 4, 7, 8 and 9 of its letters patent. It also committed unfair competition
under Article 189, paragraph 1 of the Revised Penal Code and Section 29 of Republic Act No. 166 (The
Trademark Law) for advertising and selling as its own the drug Impregon although the same contained
petitioners patented Albendazole. The RTC dismissed the complaint. This decision was affirmed by the CA
and petitioner’s motion for reconsideration was denied.
ISSUE:
Whether or not Tryco Phrama Corporation committed patent infringement.

RULING:
No, Tryco Pharma Corporation did not commit patent infringement. From a reading of the 9 claims of
Letters Patent No. 14561 in relation to the other portions thereof, no mention is made of the compound
Albendazole. All that the claims disclose are: the covered invention, that is, the compound methyl 5
propylthio-2-benzimidazole carbamate; the compounds being anthelmintic but nontoxic for animals or its
ability to destroy parasites without harming the host animals; and the patented methods, compositions or
preparations involving the compound to maximize its efficacy against certain kinds of parasites infecting
specified animals.
When the language of its claims is clear and distinct, the patentee is bound thereby and may not
claim anything beyond them. And so are the courts bound which may not add to or detract from the claims
matters not expressed or necessarily implied, nor may they enlarge the patent beyond the scope of that which
the inventor claimed and the patent office allowed, even if the patentee may have been entitled to something
more than the words it had chosen would include.
Albendazole is admittedly a chemical compound that exists by a name different from that covered in
petitioner’s letters patent, the language of Letter Patent No. 14561 fails to yield anything at all regarding
Albendazole. And no extrinsic evidence had been adduced to prove that Albendazole inheres in petitioners
patent in spite of its omission therefrom or that the meaning of the claims of the patent embraces the same.
PHIL PHARMAWEALTH, INC. v. PFIZER, INC. and PFIZER (PHIL.) INC.

G.R. No. 167715, November 17, 2010, J. Peralta
The exclusive right of a patentee to make, use, and sell a patented product, article or process exists only
during the term of the patent.
FACTS:
Pfizer is the registered owner of Philippine Letters Patent No. 21116 which was issued on July 16,
1987. The patent is valid until July 16, 2004. It covers Sulbactam Ampicillin which is marketed under the
brand name "Unasyn." The sole and exclusive distributor of "Unasyn" products in the Philippines is Zuellig
Pharma Corporation. In 2003, Pfizer, Inc. and Pfizer (Phil.), Inc. came to know that Phil Pharmawealth, Inc.
submitted bids for the supply of Sulbactam Ampicillin to several hospitals without their consent and in
violation of their intellectual property rights.
Pfizer, Inc. and Pfizer (Phil.) filed a complaint for patent infringement against Phil Pharmawealth, Inc.
with the Bureau of Legal Affairs of the Intellectual Property Office (BLA-IPO). It issued a preliminary
injunction which was effective for ninety days from petitioner's receipt of the said order. However, it denied
for respondents motion for extension of writ of preliminary injunction. Respondents then filed a special civil
action for certiorari with the CA assailing the resolutions of the BLA-IPO. While the case was pending before
the CA, respondents filed a complaint with the RTC of Makati City for infringement and unfair competition
with damages against petitioner. The RTC of Makati City directed the issuance of a writ of preliminary
injunction. Petitioner filed a motion to dismiss the petition filed with the CA on the ground of forum shopping,
contending that the case filed with the RTC has the same objective as the petition filed with the CA, which is to
obtain an injunction. The CA rendered its presently assailed Resolution denying the motion to dismiss and the
motion for reconsideration.
ISSUE:
Whether or not an injunctive relief should be issued based on an action of patent infringement when
the patent allegedly infringed has already lapsed.
RULING:
No. It is clear from Section 37 of Republic Act No. 165 which was the governing law at the time of
issuance of respondents’ patent that the exclusive right of a patentee to make, use, and sell a patented
product, article or process exists only during the term of the patent. In the instant case, Philippine Letters
Patent No. 21116, which was the basis of respondents in filing their complaint with the BLA-IPO, was issued
on July 16, 1987. This fact was admitted by respondents themselves in their complaint. They also admitted
that the validity of the said patent is until July 16, 2004, which is in conformity with Section 21 of RA 165,
providing that the term of a patent shall be seventeen (17) years from the date of issuance thereof. On the
basis of the foregoing, the Court agrees with petitioner that after July 16, 2004, respondents no longer
possess the exclusive right to make, use and sell the articles or products covered by Philippine Letters Patent
No. 21116.
In order for an injunctive relief to be issued, there must be a clear and unmistakable right that must
be protected and an urgent and paramount necessity for the writ to prevent serious damage. In this case,
respondents no longer had a right that must be protected, considering that its letters patent had already
expired.
4. Patent Infringement
a. Tests in Patent Infringement
i. Literal Infringement
PASCUAL GODINES v. THE HONORABLE COURT OF APPEALS, SPECIAL FOURTH DIVISION and SV-AGRO
ENTERPRISES, INC.
G.R. No. 97343, September 13, 1993, J. Romero
In using literal infringement as a test, ". . . resort must be had, in the first instance, to the words of the
claim. If accused matter clearly falls within the claim, infringement is made out and that is the end of it."
FACTS:
On July 15, 1976, Magdalena Villaruz was issued letters patent which covers a utility model for a
hand tractor or power tiller. The said patent was acquired by SV-Agro Industries Enterprises, Inc. by virtue of
a Deed of Assignment. In 1979, it discovered that power tillers similar to those patented by private
respondent were being manufactured and sold by Pascual Godines. Consequently, it notified Pascual Godines
about the existing patent and demanded that the latter stop selling and manufacturing similar power tillers.
Upon petitioner's failure to comply with the demand, SV-Agro Industries filed before the RTC a complaint for
infringement of patent and unfair competition. The trial court held Pascual Godines liable for infringement of
patent and unfair competition, which was affirmed by the CA.
ISSUE:
Whether or not Pascual Godines is liable for patent infringement.
RULING:
Yes. Pascual Godines is liable for patent infringement. Tests have been established to determine
infringement. These are literal infringement and the doctrine of equivalents. In using literal infringement as a
test, ". . . resort must be had, in the first instance, to the words of the claim. If accused matter clearly falls
within the claim, infringement is made out and that is the end of it." To determine whether the particular item
falls within the literal meaning of the patent claims, the court must juxtapose the claims of the patent and the
accused product within the overall context of the claims and specifications, to determine whether there is
exact identity of all material elements.
Viewed from any perspective or angle, the floating power tiller of petitioner is identical and similar to
that of the turtle power tiller of defendant in form, configuration, design and appearance. In operation, the
floating power tiller operates also in similar manner as the turtle power tiller. The patent issued by the Patent
Office referred to a "farm implement but more particularly to a turtle hand tractor having a vacuumatic
housing float on which the engine drive is held in place, the operating handle, the harrow housing with its
operating handle and the paddy wheel protective covering." It appears from the foregoing observation of the
trial court that these claims of the patent and the features of the patented utility model were copied by
petitioner. The Supreme Court is compelled to arrive at no other conclusion but that there was infringement.
ii. Doctrine of Equivalents
PASCUAL GODINES v. THE HONORABLE COURT OF APPEALS, SPECIAL FOURTH DIVISION and SV-AGRO
ENTERPRISES, INC.
G.R. No. 97343, September 13, 1993, J. Romero
The Doctrine of Equivalents enunciates that "an infringement also occurs when a device appropriates a
prior invention by incorporating its innovative concept and, albeit with some modification and change, performs
substantially the same function in substantially the same way to achieve substantially the same result."
FACTS:
On July 15, 1976, Magdalena Villaruz was issued letters patent which covers a utility model for a
hand tractor or power tiller. The said patent was acquired by SV-Agro Industries Enterprises, Inc. by virtue of
a Deed of Assignment. In 1979, it discovered that power tillers similar to those patented by private
respondent were being manufactured and sold by Pascual Godines. Consequently, it notified Pascual Godines
about the existing patent and demanded that the latter stop selling and manufacturing similar power tillers.
Upon petitioner's failure to comply with the demand, SV-Agro Industries filed before the RTC a complaint for
infringement of patent and unfair competition. The trial court held Pascual Godines liable for infringement of
patent and unfair competition. Its decision was affirmed by the CA. Thereafter, petitioner filed a petition for
review before the Supreme Court.
ISSUE:
Whether or not Pascual Godines is liable for patent infringement.
RULING:
Yes. Pascual Godines is liable for patent infringement.
Recognizing that the logical fallback position of one in the place of defendant is to aver that his
product is different from the patented one, courts have adopted the doctrine of equivalents which recognizes
that minor modifications in a patented invention are sufficient to put the item beyond the scope of literal
infringement. Thus, according to this doctrine, "an infringement also occurs when a device appropriates a
prior invention by incorporating its innovative concept and, albeit with some modification and change,
performs substantially the same function in substantially the same way to achieve substantially the same
result." The reason for the doctrine of equivalents is that to permit the imitation of a patented invention
which does not copy any literal detail would be to convert the protection of the patent grant into a hollow and
useless thing. Such imitation would leave room for — indeed encourage — the unscrupulous copyist to make
unimportant and insubstantial changes and substitutions in the patent which, though adding nothing, would
be enough to take the copied matter outside the claim, and hence outside the reach of the law.
As observed by the trial court, a careful examination between the two power tillers will show that
they will operate on the same fundamental principles. And, according to establish jurisprudence, in
infringement of patent, similarities or differences are to be determined, not by the names of things, but in the
light of what elements do, and substantial, rather than technical, identity in the test. More specifically, it is
necessary and sufficient to constitute equivalency that the same function can be performed in substantially
the same way or manner, or by the same or substantially the same, principle or mode of operation; but where
these tests are satisfied, mere differences of form or name are immaterial.
SMITH KLINE BECKMAN CORPORATION v. THE HONORABLE COURT OF APPEALS and TRYCO PHARMA
CORPORATION
G. R. No. 126627, August 14, 2003, J. Carpio-Morales
The doctrine of equivalents requires satisfaction of the function-means-and-result test, the patentee
having the burden to show that all three components of such equivalency test are met
FACTS:
Smith Kline Beckman Corporation, filed on October 8, 1976, as assignee, before the Philippine Patent
Office an application for patent over an invention entitled Methods and Compositions for Producing Biphasic
Parasiticide Activity Using Methyl 5 Propylthio-2-Benzimidazole Carbamate. In 1981, Letters Patent No.
14561 for the aforesaid invention was issued to petitioner for a term of seventeen years. Tryco Pharma
Corporation, on the other hand, is a domestic corporation that manufactures, distributes and sells veterinary
products including Impregon, a drug that has Albendazole for its active ingredient and is claimed to be
effective against gastro-intestinal roundworms, lungworms, tapeworms and fluke infestation in carabaos,
cattle and goats.
Petitioner sued private respondent for infringement of patent and unfair competition before the RTC
of Caloocan City. It claimed that its patent covers or includes the substance Albendazole such that private
respondent, by manufacturing, selling, using, and causing to be sold and used the drug Impregon without its
authorization, infringed its letters patent. It also committed unfair competition for advertising and selling as
its own the drug Impregon although the same contained petitioner’s patented Albendazole. The RTC
dismissed the complaint. This decision was affirmed by the CA and petitioner’s motion for reconsideration
was denied. Petitioner filed a petition for review on certiorari before the Supreme Court. Petitioner urges this
Court to apply the doctrine of equivalents.
ISSUE:
Whether or not the compound methyl 5 propylthio-2-benzimidazole carbamate also covers the
substance Albendazole.
RULING:
No. The doctrine of equivalents provides that an infringement also takes place when a device
appropriates a prior invention by incorporating its innovative concept and, although with some modification
and change, performs substantially the same function in substantially the same way to achieve substantially
the same result. The doctrine of equivalents thus requires satisfaction of the function-means-and-result test,
the patentee having the burden to show that all three components of such equivalency test are met.
While Albendazole and methyl 5 propylthio-2-benzimidazole carbamate have the effect of

neutralizing parasites in animals, identity of result does not amount to infringement of patent unless
Albendazole operates in substantially the same way or by substantially the same means as the patented
compound, even though it performs the same function and achieves the same result. In other words, the
principle or mode of operation must be the same or substantially the same. Apart from the fact that
Albendazole is an anthelmintic agent like methyl 5 propylthio-2benzimidazole carbamate, nothing more is
asserted and accordingly substantiated regarding the method or means by which Albendazole weeds out
parasites in animals, thus giving no information on whether that method is substantially the same as the
manner by which petitioner’s compound works.
b. Defenses in Action for Infringement
ROSARIO C. MAGUAN (formerly ROSARIO C. TAN) v. THE HONORABLE COURT OF APPEALS and
SUSANA LUCHAN
G.R. L-45101, November 28, 1986, J. Paras
Where the plaintiff introduces the patent in evidence, and the same is in due form, there is created a
prima facie presumption of its correctness and validity.
FACTS:
Rosario Maguan is doing business under the firm name and style of “SWAN MANUFACTURING.” She
is a patent holder of powder puff. In 1974, she informed Susana Luchan, doing business under the firm name
and style of "SUSANA LUCHAN POWDER PUFF MANUFACTURING," that the powder puffs the latter is
manufacturing and selling to various enterprises particularly those in the cosmetics industry resemble
identical or substantially identical powder puffs of which the former is a patent holder. Luchan replied stating
that her products are different and countered that petitioner's patents are void because the utility models
applied for were not new and patentable and the person to whom the patents were issued was not the true
and actual author nor were her rights derived from such author.
Susana Luchan assailed the validity of the patents involved and filed with the Philippine Patent Office
petitions for cancellation of utility model letters patent issued in favor of Maguan. The latter, on the other
hand, filed a complaint for damages with injunction and preliminary injunction against private respondent
with the then CFI of Rizal. The trial court issued an order granting the preliminary injunction prayed for by
petitioner. Luchan's motion for reconsideration was denied by the trial court. The Court of Appeals denied the
petition for certiorari filed by Luchan. In her motion for reconsideration, the CA set aside its decision.
ISSUE:
Whether or not the evidence introduced by Susana Luchan is sufficient to overcome said
presumption of correctness and validity of Rosario Maguan’s patent.
RULING:
Yes. Section 37 of R.A. 165 provides that a patentee shall have the exclusive right to make, use and
sell the patented article or product and the making, using, or selling by any person without the authorization
of the patentee constitutes infringement of the patent. As stated in Section 42, any patentee whose rights have
been infringed upon may bring an action before the proper CFI now (RTC) and to secure an injunction for the
protection of his rights. Defenses in an action for infringement are provided for in Section 45 of the same law
which in fact were availed of by private respondent in this case.
The burden of proof to substantiate a charge of infringement is with the plaintiff. But where the
plaintiff introduces the patent in evidence, and the same is in due form, there is created a prima facie
presumption of its correctness and validity. The decision of the Commissioner (now Director) of Patent in
granting the patent is presumed to be correct. The burden of going forward with the evidence (burden of
evidence) then shifts to the defendant to overcome by competent evidence this legal presumption.
After a careful review of the evidence presented by private respondents before the trial court, the CA
was satisfied that there is a prima facie showing of a fair question of invalidity of petitioner's patents on the
ground of lack of novelty. It has been repeatedly held that an invention must possess the essential elements of
novelty, originality and precedence and for the patentee to be entitled to protection, the invention must be
new to the world. It was contended by Luchan that powder puffs identical with that of petitioner’s patents
existed and were publicly known and used as early as 1963 long before petitioner was issued the patents in
question. For failure to determine first the validity of the patents before issuance of the writ, the trial court
failed to satisfy the requisites necessary if an injunction is to issue, namely: the existence of the right to be
protected and the violation of the said right.
5. Licensing
BARRY JOHN PRICE, JOHN WATSON CLITHERON and JOHN BRADSHAW, Assignors to ALLEN &
HANBURYS, LTD. v. UNITED LABORATORIES
G.R. No. 82542, September 29, 1988, J. Griño-Aquino
The Director of Patents is authorized to fix the terms and conditions of the compulsory license after a
hearing and careful consideration of the evidence of the parties and in default of an agreement between them as
to the terms of the license.
FACTS:
Barry John Price, John Watson Clitheron, and John Bradshaw are the owners-assignees of Philippine
Patent No. 13540 which was granted to them on June 26,1980 for a pharmaceutical compound known as
"aminoalkyl furan derivatives." In 1982, United Laboratories, Inc. (UNILAB) filed in the Philippine Patent
Office a petition Inter Partes Case No. 1683 for the issuance of a compulsory license to use the patented
compound in its own brands of medicines and pharmaceuticals and to sell, distribute, or otherwise dispose of
such medicines or pharmaceutical preparations in the country. The petition further alleged that the patent
relates to medicine and that petitioner, which has had long experience in the business of manufacturing and
selling pharmaceutical products, possesses the capability to use the subject compound in the manufacture of
a useful product or of making dosage formulations containing the said compound. After the hearing, the
Philippine Patent Office rendered a decision on June 2, 1986, granting UNILAB a compulsory license. The
Court of Appeals dismissed patentees appeal.
ISSUE:
Whether or not the CA is correct in upholding the Director's unilateral determination of the terms
and conditions of the compulsory license and in finding that the respondent possesses the legally required
capability to make use of the petitioner's patented compound.
RULING:
Yes. The Director of Patents is authorized under Section 36 of Republic Act No. 165 and under
Section 35 of P.D. 1263, amending portions of R.A. No.165 to fix the terms and conditions of the compulsory
license after a hearing and careful consideration of the evidence of the parties and in default of an agreement
between them as to the terms of the license. Also, Section 35-B of R.A. No. 165, as amended by P.D. No. 1263,
grants to the Director of Patents the use of his sound discretion in fixing the percentage for the royalty rate.
The Court finds that the Director of Patents committed no abuse of this discretion. Also, there is always a
presumption of regularity in the performance of one's official duties.
Moreover, what UNILAB has with the compulsory license is the bare right to use the patented
chemical compound in the manufacture of a special product, without any technical assistance from herein
respondent-appellant. Besides, the special product to be manufactured by UNILAB will only be used,
distributed, and disposed locally. Therefore, the royalty rate of 2.5% is just and reasonable.
Furthermore, the Court of Appeals did not commit reversible error in affirming the Director's finding
that UNILAB has the capability to use the patented compound in the manufacture of an anti-ulcer
pharmaceutical preparation is a factual finding which is supported by substantial evidence. The patented
invention in this case relates to medicine and is necessary for public health as it can be used as component in
the manufacture of anti-ulcer medicine. The Director of Patents did not err in granting a compulsory license
over the entire patented invention for there is no law requiring that the license be limited to a specific
embodiment of the invention, or, to a particular claim.
C. TRADEMARKS
PRIBHDAS J. MIRPURI v. COURT OF APPEALS, DIRECTOR OF PATENTS and the BARBIZON

CORPORATION
G.R. No. 114508, November 19, 1999, J. Puno
Modern authorities on trademark law view trademarks as performing three distinct functions: (1) they
indicate origin or ownership of the articles to which they are attached; (2) they guarantee that those articles
come up to a certain standard of quality; and (3) they advertise the articles they symbolize.
FACTS:
On June 18, 1974, the Director of Patents rendered judgment in Inter Partes Case No. 686 giving due
course to Lolita Escobar’s application for the registration of the trademark “Barbizon” for use in brassieres
and ladies undergarments. The opposition of Barbizon Corporation, a corporation organized and doing
business under the laws of New York, U.S.A., which claims that it owns the mark BARBIZON was dismissed.
This decision became final and on September 11, 1974. She assigned all her rights and interest over the
trademark to Pribhdas Mirpuri who, under his firm name then, the "Bonito Enterprises," was the sole and
exclusive distributor of Escobar's "Barbizon" products. However, the Bureau of Patents cancelled Escobar's
certificate of registration due to her failure to file with the Bureau of Patents the Affidavit of Use of the
trademark in 1979. In 1981, Escobar reapplied for registration of the cancelled trademark docketed as Inter
Partes Case No. 2049 which was opposed by private respondent. The latter claims that it has adopted the
trademark BARBIZON sometime in June 1933 and has then used it on various kinds of wearing apparel. It was
in 1934 when it obtained from the United States Patent Office a more recent registration of the said mark
covering wearing apparel: robes, pajamas, lingerie, nightgowns and slips. Petitioner, in her reply, raised the
defense of res judicata. The DTI, Office of Legal Affairs, cancelled petitioner's certificate of registration, and
declared private respondent the owner and prior user of the business name "Barbizon International."
Meanwhile, in IPC No. 2049, the Director of Patents declared private respondent's opposition barred by res
judicata and gave due course to petitioner's application for registration. The said decision was reversed by
the CA remanding the case to the Bureau of Patents for further proceedings. It denied reconsideration of its
decision.
ISSUE:
Whether or not the director of patents correctly applied the principle of res judicata in dismissing
private respondent Barbizon's opposition to petitioner's application for registration.
RULING:
No. In Philippine jurisprudence, the function of a trademark is to point out distinctly the origin or
ownership of the goods to which it is affixed; to secure to him, who has been instrumental in bringing into the
market a superior article of merchandise, the fruit of his industry and skill; to assure the public that they are
procuring the genuine article; to prevent fraud and imposition; and to protect the manufacturer against
substitution and sale of an inferior and different article as his product. Modern authorities on trademark law
view trademarks as performing three distinct functions: (1) they indicate origin or ownership of the articles
to which they are attached; (2) they guarantee that those articles come up to a certain standard of quality;
and (3) they advertise the articles they symbolize.
Res judicata does not apply to the instant case. IPC No. 2049 raised the issue of ownership of the
trademark, the first registration and use of the trademark in the United States and other countries, and the
international recognition and reputation of the trademark established by extensive use and advertisement of
private respondent's products for over forty years here and abroad. These are different from the issues of
confusing similarity and damage in IPC No. 686. Respondent corporation also introduced in the second case
cancellation of petitioner's certificate of registration for failure to file the affidavit of use. It did not and could
not have occurred in the first case, and this gave respondent another cause to oppose the second application.
It is also noted that the oppositions in the first and second cases are based on different laws. The opposition
in IPC No. 686 was based on specific provisions of the Trademark Law while the opposition in IPC No. 2049
invoked the Article 6 of Paris Convention, E.O. No. 913, the two Memoranda of the Minister of Trade and
Industry, and the Revised Penal Code.
1. Acquisition of Ownership of Mark
ELIDAD C. KHO, doing business under the name and style of KEC COSMETICS LABORATORY v. HON.
COURT OF APPEALS, SUMMERVILLE GENERAL MERCHANDISING and COMPANY, and ANG TIAM CHAY
G.R. No. 115758 March 19, 2002 J. de Leon, JR.
Trademark, copyright and patents are different intellectual property rights that cannot be interchanged
with one another.
FACTS:
Elidad C. Kho filed a complaint for injunction and damages with a prayer for the issuance of a writ of
preliminary injunction against the respondents Summerville General Merchandising and Company and Ang
Tiam Chay. The petitioners claimed that it is the registered owner of the copyrights Chin Chun Su and Oval
Facial Cream Container/Case; that she also has patent rights on Chin Chun Su & Device and Chin Chun Su for
medicated cream after purchasing the same from Quintin Cheng, the registered owner; that respondent
Summerville advertised and sold petitioners cream products under the brand name Chin Chun Su, in similar
containers that petitioner uses, thereby misleading the public, and resulting in the decline in the petitioners
business sales and income; and, that the respondents should be enjoined from allegedly infringing on the
copyrights and patents of the petitioner.
The respondents, on the other hand, alleged that Summerville is the exclusive and authorized
importer, re-packer and distributor of Chin Chun Su products manufactured by Shun Yi Factory of Taiwan;
that the said Taiwanese manufacturing company authorized Summerville to register its trade name Chin
Chun Su Medicated Cream with the Philippine Patent Office and other appropriate governmental agencies;
that KEC Cosmetics Laboratory of the petitioner obtained the copyrights through misrepresentation and
falsification; and, that the authority of Quintin Cheng, assignee of the patent registration certificate, to
distribute and market Chin Chun Su products in the Philippines had already been terminated by the said
Taiwanese Manufacturing Company.
RTC granted the application for preliminary injunction. The motion for reconsideration of
respondents was denied. On appeal, CA ruled in favor of respondents.
ISSUE:
Whether or not the copyright and patent over the name and container of a beauty cream product
would entitle the registrant to the use and ownership over the same to the exclusion of others.
RULING:
No. Trademark, copyright and patents are different intellectual property rights that cannot be
interchanged with one another. A trademark is any visible sign capable of distinguishing the goods
(trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of
goods. In relation thereto, a trade name means the name or designation identifying or distinguishing an
enterprise. Meanwhile, the scope of a copyright is confined to literary and artistic works which are original
intellectual creations in the literary and artistic domain protected from the moment of their creation.
Patentable inventions, on the other hand, refer to any technical solution of a problem in any field of human
activity which is new, involves an inventive step and is industrially applicable.
Petitioner has no right to support her claim for the exclusive use of the subject trade name and its
container. The name and container of a beauty cream product are proper subjects of a trademark inasmuch as
the same falls squarely within its definition. In order to be entitled to exclusively use the same in the sale of
the beauty cream product, the user must sufficiently prove that she registered or used it before anybody else
did. The petitioner’s copyright and patent registration of the name and container would not guarantee her the
right to the exclusive use of the same for the reason that they are not appropriate subjects of the said
intellectual rights. Consequently, a preliminary injunction order cannot be issued for the reason that the
petitioner has not proven that she has a clear right over the said name and container to the exclusion of
others, not having proven that she has registered a trademark thereto or used the same before anyone did.
Thus, the petition was denied.
AIR PHILIPPINES CORPORATION v. PENNSWELL, INC.

G.R. No. 172835 December 13, 2007 J. CHICO-NAZARIO
To compel disclosure of a trade secrets is to cripple its holder’s business, and to place it at an undue
disadvantage.
FACTS:
On various dates, Pennswell delivered and sold to Air Philippines sundry goods in trade. For failure
of the latter to comply with its obligation under said contracts, Pennswell filed a Complaint for a Sum of
Money before the RTC. Air Phils. contended that its refusal to pay was not without valid and justifiable
reasons. It alleged that it was defrauded by Pennswell because the products, namely Excellent Rust Corrosion,
Connector Grease, Electric Strength Protective Coating, and Anti-Seize Compound, are identical with its Anti-
Friction Fluid, Contact Grease, Thixohtropic Grease, and Dry Lubricant, respectively. Said items were
misrepresented by Pennswell as belonging to a new line, but were in truth and in fact, identical with products
petitioner had previously purchased.
During trial, Air Phils. filed a Motion to Compel Pennswell to give a detailed list of the ingredients and
chemical components of the said products. RTC grated the same. Pennswell filed a MR stating that it cannot
be compelled to disclose the chemical components sought, because the matter is confidential. It argued that
what petitioner endeavored to inquire upon constituted a trade secret which Pennswell cannot be forced to
divulge. Consequently, RTC reversed itself. On appeal, CA affirmed the RTC.
ISSUE:
Whether or not the CA erred in upholding the RTC.
RULING:
No. A trade secret is defined as a plan or process, tool, mechanism or compound known only to its
owner and those of his employees to whom it is necessary to confide it. The definition also extends to a secret
formula or process not patented, but known only to certain individuals using it in compounding some article
of trade having a commercial value. A trade secret may consist of any formula, pattern, device, or compilation
of information that: (1) is used in one's business; and (2) gives the employer an opportunity to obtain an
advantage over competitors who do not possess the information. Generally, a trade secret is a process or
device intended for continuous use in the operation of the business, for example, a machine or formula, but
can be a price list or catalogue or specialized customer list. It is indubitable that trade secrets constitute
proprietary rights. The inventor, discoverer, or possessor of a trade secret or similar innovation has rights
therein which may be treated as property, and ordinarily an injunction will be granted to prevent the
disclosure of the trade secret by one who obtained the information "in confidence" or through a "confidential
relationship." American jurisprudence has utilized the following factors to determine if an information is a
trade secret, to wit:
(1) the extent to which the information is known outside of the employer's business;
(2) the extent to which the information is known by employees and others involved
in the business;
(3) the extent of measures taken by the employer to guard the secrecy of the
information;
(4) the value of the information to the employer and to competitors;
(5) the amount of effort or money expended by the company in
developing the information; and
(6) the extent to which the information could be easily or readily obtained through
an independent source.
The chemical composition, formulation, and ingredients of respondent’s special lubricants are trade
secrets within the contemplation of the law. Respondent was established to engage in the business of general
manufacturing and selling of, and to deal in, distribute, sell or otherwise dispose of goods, wares,
merchandise, products, including but not limited to industrial chemicals, solvents, lubricants, acids, alkalies,
salts, paints, oils, varnishes, colors, pigments and similar preparations, among others. It is unmistakable to
our minds that the manufacture and production of responden’ts products proceed from a formulation of a
secret list of ingredients. In the creation of its lubricants, respondent expended efforts, skills, research, and
resources. What it had achieved by virtue of its investments may not be wrested from respondent on the
mere pretext that it is necessary for petitioner’s defense against a collection for a sum of money. By and large,
the value of the information to respondent is crystal clear. The ingredients constitute the very fabric of
respondent’s production and business. No doubt, the information is also valuable to respondent’s
competitors. To compel its disclosure is to cripple respondent’s business, and to place it at an undue
disadvantage. If the chemical composition of respondents lubricants are opened to public scrutiny, it will
stand to lose the backbone on which its business is founded. This would result in nothing less than the
probable demise of respondents business. Respondents proprietary interest over the ingredients which it had
developed and expended money and effort on is incontrovertible. Our conclusion is that the detailed
ingredients sought to be revealed have a commercial value to respondent. Not only do we acknowledge the
fact that the information grants it a competitive advantage; we also find that there is clearly a glaring intent
on the part of respondent to keep the information confidential and not available to the prying public. Hence,
the petition was denied.
E.Y. INDUSTRIAL SALES, INC. and ENGRACIO YAP v. SHEN DAR ELECTRICITY ANDMACHINERY CO., LTD.
G.R. No. 184850 October 20, 2010 J. VELASCO, JR.
Under the “first-to-file” rule, the registration of a mark is prevented with the filing of an earlier
application for registration.
FACTS:
On June 9, 1997, Shen Dar filed Trademark Application with the IPO for the mark VESPA, Chinese
Characters and Device for use on air compressors and welding machines. On July 28, 1999, EYIS filed
Trademark Application also for the mark VESPA, for use on air compressors. On January 18, 2004, the IPO
issued Certificate of Registration (COR) in favor of EYIS. Thereafter, on February 8, 2007, Shen Dar was also
issued COR.
In the meantime, Shen Dar filed a Petition for Cancellation of EYIS COR with the Bureau of Legal
Affairs (BLA). In the Petition, Shen Dar argued that the issuance of the COR in favor of EYIS violated Section
123.1 paragraphs (d), (e) and (f) of the Intellectual Property Code, having first filed an application for the
mark. Shen Dar further alleged that EYIS was a mere distributor of air compressors bearing the mark VESPA
which it imported from Shen Dar. It also argued that it had prior and exclusive right to the use and
registration of the mark VESPA in the Philippines under the provisions of the Paris Convention.
Director of the BLA ruled in favor of EYIS. Later, IPO Director General upheld the COR issued in favor
of EYIS and cancelled that of Shen Dar. On appeal, CA reversed.
ISSUE:
Whether or not EYIS is the true owner of the mark “VESPA.”
RULING:
Yes. RA 8293 espouses the first-to-file rule as stated under Sec. 123.1(d) which states: Section 123.
Registrability. - 123.1. A mark cannot be registered if it:
(d) Is identical with a registered mark belonging to a different proprietor or a mark
with an earlier filing or priority date, in respect of:
(i) The same goods or services, or
(ii) Closely related goods or services, or
(iii) If it nearly resembles such a mark as to be likely to deceive or cause
confusion.
Under this provision, the registration of a mark is prevented with the filing of an earlier application
for registration. This must not, however, be interpreted to mean that ownership should be based upon an
earlier filing date. While RA 8293 removed the previous requirement of proof of actual use prior to the filing
of an application for registration of a mark, proof of prior and continuous use is necessary to establish
ownership of a mark. Such ownership constitutes sufficient evidence to oppose the registration of a mark.
Sec. 134 of the IP Code provides that any person who believes that he would be damaged by the
registration of a mark x x x may file an opposition to the application. The term any person encompasses the
true owner of the markthe prior and continuous user. In fact, prior and continuous use of a mark may even
overcome the presumptive ownership of the registrant and be held as the owner of the mark as held in
Shangri-la International Hotel Management, Ltd. v. Developers Group of Companies, Inc. Thus, the petition was
granted.
SUPERIOR COMMERCIAL ENTERPRISES, INC. v. KUNNAN ENTERPRISES LTD. AND SPORTS CONCEPT &
DISTRIBUTOR, INC.
G.R. No. 169974 April 20, 2010 J. BRION
The cancellation of registration of a trademark has the effect of depriving the registrant of protection
from infringement from the moment judgment or order of cancellation has become final.
FACTS:
SUPERIOR filed a complaint for trademark infringement and unfair competition with preliminary
injunction against KUNNAN and SPORTS CONCEPT with the RTC. It claimed to be the owner of the
trademarks, trading styles, company names and business names "KENNEX","KENNEX & DEVICE","PRO
KENNEX" and "PRO-KENNEX" (disputed trademarks). It presented as evidence of its ownership of the
disputed trademarks the preambular clause of the Distributorship Agreement it executed with KUNNAN.
KUNNAN disputed SUPERIOR’s claim of ownership and maintained that SUPERIOR as mere
distributor fraudulently registered the trademarks in its name. Even though the Distributor Agreement
clearly stated that SUPERIOR was obligated to assign the ownership of the KENNEX trademark to KUNNAN,
the latter claimed that the Certificate of Registration for the KENNEX trademark remained with SUPERIOR
because SUPERIOR’s President and General Manager misled KUNNAN’s officers into believing that KUNNAN
was not qualified.
Prior to and during the pendency of the infringement and unfair competition case before the RTC,
KUNNAN filed with the now defunct BPTTT separate Petitions for the Cancellation of Registration Trademark
in the name of SUPERIOR as well as Opposition to application involving the KENNEX and PRO KENNEX
trademarks. Consequently, upon the termination of its distributorship agreement with SUPERIOR, KUNNAN
appointed SPORTS CONCEPT as its new distributor.
RTC held KUNNAN liable for trademark infringement and unfair competition and also issued a writ of
preliminary injunction enjoining KUNNAN and SPORTS CONCEPT from using the disputed trademarks. In the
course of its appeal to the CA, KUNNAN filed a Manifestation and Motion praying that the decision of the BLA
of the IPO, cancelling the trademark "PRO-KENNEX" issued in favor of SUPERIOR, be made of record and be
considered by the CA in resolving the case. Later, SUPERIOR’s registration of the disputed trademarks stood
effectively cancelled. CA reversed the decision of the RTC.
ISSUE:
Whether or not the CA is correct in holding that petitioner SUPERIOR is not the true and rightful
owner of the trademarks "KENNEX" and "PRO-KENNEX" in the Philippines.
RULING:
Yes. Essentially, Section 22 of RA 166 states that only a registrant of a mark can file a case for
infringement. Corollary to this, Section 19 of RA 166 provides that any right conferred upon the registrant
under the provisions of RA 166 terminates when the judgment or order of cancellation has become final.
Thus, we have previously held that the cancellation of registration of a trademark has the effect of
depriving the registrant of protection from infringement from the moment judgment or order of cancellation
has become final. Hence, the petition was denied.
BIRKENSTOCK ORTHOPAEDIE GMBH AND CO. KG (formerly BIRKENSTOCK ORTHOPAEDIE GMBH) v.

PHILIPPINE SHOE EXPO MARKETING CORPORATION
G.R. No. 194307 November 20, 2013 J. PERLAS-BERNABE
The presumption of ownership accorded to a registrant yields to superior evidence of actual and real
ownership of a trademark.
FACTS:
Birkenstock, a corporation duly organized and existing under the laws of Germany, applied for
various trademark registrations before the IPO. However, registration proceedings were suspended in view
of an existing registration of the mark "BIRKENSTOCK AND DEVICE" in the name of Shoe Town International
and Industrial Corporation, the predecessor-in-interest of respondent Philippine Shoe Expo Marketing
Corporation, which was cancelled later on.
Respondent filed three separate verified notices of oppositions to the subject applications claiming
that: (a) it, together with its predecessor-in-interest, has been using Birkenstock marks in the Philippines for
more than 16 years through the mark "BIRKENSTOCK AND DEVICE"; (b) the marks covered by the subject
applications are identical to the one covered by prior registration and thus, petitioner has no right to the
registration of such marks; (c) respondent’s predecessor-in-interest likewise obtained a Certificate of
Copyright Registration for the word "BIRKENSTOCK."
BLA sustained respondent’s opposition. However, the IPO Director General reversed and set aside
the ruling of the BLA, thus allowing the registration of the subject applications. On appeal, CA reversed and
set aside the ruling of the IPO Director General and reinstated that of the BLA.
ISSUE:
Whether or not the subject marks should be allowed registration in the name of petitioner.
RULING:
Yes. Under Section 2 of RA 166, which is also the law governing the subject applications, in order to
register a trademark, one must be the owner thereof and must have actually used the mark in commerce in
the Philippines for two (2) months prior to the application for registration. Section 2-A of the same law sets
out to define how one goes about acquiring ownership thereof. Under the same section, it is clear that actual
use in commerce is also the test of ownership but the provision went further by saying that the mark must
not have been so appropriated by another. Significantly, to be an owner, Section 2-A does not require that the
actual use of a trademark must be within the Philippines. Thus, under RA 166, one may be an owner of a mark
due to its actual use but may not yet have the right to register such ownership here due to the owner’s failure
to use the same in the Philippines for two (2) months prior to registration.
Clearly, it is not the application or registration of a trademark that vests ownership thereof, but it is
the ownership of a trademark that confers the right to register the same. A trademark is an industrial
property over which its owner is entitled to property rights which cannot be appropriated by unscrupulous
entities that, in one way or another, happen to register such trademark ahead of its true and lawful owner.
The presumption of ownership accorded to a registrant must then necessarily yield to superior evidence of
actual and real ownership of a trademark.
In the instant case, petitioner was able to establish that it is the owner of the mark "BIRKENSTOCK."
It submitted evidence relating to the origin and history of "BIRKENSTOCK" and its use in commerce long
before respondent was able to register the same here in the Philippines. It has sufficiently proven that
"BIRKENSTOCK" was first adopted in Europe in 1774 by its inventor, Johann Birkenstock, a shoemaker, on his
line of quality footwear and thereafter, numerous generations of his kin continuously engaged in the
manufacture and sale of shoes and sandals bearing the mark "BIRKENSTOCK" until it became the entity now
known as the petitioner. Petitioner also submitted various certificates of registration of the mark
"BIRKENSTOCK" in various countries and that it has used such mark in different countries worldwide,
including the Philippines. Hence, the petition was granted.
TAIWAN KOLIN CORPORATION, LTD. v. KOLIN ELECTRONICS CO., INC.

G.R. No. 209843, March 25, 2015 J. VELASCO JR.
It is hornbook doctrine that emphasis should be on the similarity of the products involved and not on the
arbitrary classification or general description of their properties or characteristics.
FACTS:
Taiwan Kolin filed with IPO a trademark application for the use of “KOLIN” on a combination of
goods falling under Classes 9 of the Nice Classification (NCL), particularly: television sets, cassette recorder,
VCD Amplifiers, camcorders and other audio/video electronic equipment, flat iron, vacuum cleaners, cordless
handsets, videophones, facsimile machines, teleprinters, cellular phones and automatic goods vending
machine.
Kolin Electronics, registered owner of mark “KOLIN”, opposed the application on the ground that the
mark Taiwan Kolin seeks to register is identical, if not confusingly similar, with the products under Class 9 of
the NCL. The BLA-IPO denied petitioner’s application. Petitioner moved for reconsideration but the same was
denied. Later, the IPO Director General reversed the BLA-IPO. On appeal of Kolin Electronics, CA granted
respondent’s appeal reinstating the decision of the BLA-IPO.
Taiwan Kolin postulates, in the main, that its goods are not closely related to those of Kolin
Electronics. On the other hand, respondent hinges its case on the CA’s findings that its and petitioner’s
products are closely-related. Thus, granting petitioner’s application for trademark registration, according to
respondent, would cause confusion as to the public.
ISSUE:
Whether or not the products of the parties involved are related
RULING:
No. Whether or not the products covered by the trademark sought to be registered by Taiwan Kolin,
on the one hand, and those covered by the prior issued certificate of registration in favor of Kolin Electronics,
on the other, fall under the same categories in the NCL is not the sole and decisive factor in determining a
possible violation of Kolin Electronics’ intellectual property right should petitioner’s application be granted. It
is hornbook doctrine that emphasis should be on the similarity of the products involved and not on the
arbitrary classification or general description of their properties or characteristics. The mere fact that one
person has adopted and used a trademark on his goods would not, without more, prevent the adoption and
use of the same trademark by others on unrelated articles of a different kind.
Goods should be tested against several factors before arriving at a sound conclusion on the question
of relatedness. Among these are:
(a) the business (and its location) to which the goods belong;
(b) the class of product to which the goods belong;
(c) the product’s quality, quantity, or size, including the nature of the package, wrapper or container;
(d) the nature and cost of the articles;
(e) the descriptive properties, physical attributes or essential characteristics with reference to their
form, composition, texture or quality;
(f) the purpose of the goods;
(g) whether the article is bought for immediate consumption, that is, day-to-day household items;
(h) the fields of manufacture;
(i) the conditions under which the article is usually purchased; and
(j) the channels of trade through which the goods flow, how they are distributed, marketed,
displayed and sold.
It cannot be stressed enough that the products involved in the case at bar are, generally speaking,
various kinds of electronic products. These are not ordinary consumable household items, like catsup, soy
sauce or soap which are of minimal cost. The products of the contending parties are relatively luxury items
not easily considered affordable. Accordingly, the casual buyer is predisposed to be more cautious and
discriminating in and would prefer to mull over his purchase. Confusion and deception, then, is less likely.
Thus, the petition was granted.
2. Non-Registrable Mark
LYCEUM OF THE PHILIPPINES, INC. v. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN,
LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM,
CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN
MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC.
G.R. No. 101897 March 5, 1993 J. FELICIANO
A word or phrase originally incapable of exclusive appropriation with reference to an article on the
market, because geographically or otherwise descriptive, might nevertheless have been used so long and so
exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing
public, the word or phrase has come to mean that the article was his product.
FACTS:
Lyceum of the Philippines instituted proceedings before the SEC to compel the private respondents,
which are also educational institutions, to delete the word "Lyceum" from their corporate names and
permanently to enjoin them from using "Lyceum" as part of their respective names. Prior to the present
action, petitioner commenced a proceeding in the SEC against Lyceum of Baguio, Inc. to require it to change
its corporate name and to adopt another name not "similar to or identical" with that of petitioner. SEC ruled
in favor of the petitioner. On appeal, SC denied the Petition for Review for lack of merit. In the present action,
SEC sustained petitioner's claim to an exclusive right to use the word "Lyceum." However, the SEC En Banc
reversed and set aside the decision of the hearing officer. On appeal, CA affirmed the questioned Orders of the
SEC En Banc.
Petitioner claimed that the word "Lyceum" has acquired a secondary meaning in relation to
petitioner with the result that that word, although originally a generic, has become appropriable by petitioner
to the exclusion of other institutions like private respondents herein.
ISSUE:
Whether or not the use by petitioner of "Lyceum" in its corporate name has acquired secondary
meaning.
RULING:
No. The doctrine of secondary meaning originated in the field of trademark law. Its application has,
however, been extended to corporate names sine the right to use a corporate name to the exclusion of others
is based upon the same principle which underlies the right to use a particular trademark or tradename. The
doctrine enunciates that “a word or phrase originally incapable of exclusive appropriation with reference to
an article on the market, because geographically or otherwise descriptive, might nevertheless have been used
so long and so exclusively by one producer with reference to his article that, in that trade and to that branch
of the purchasing public, the word or phrase has come to mean that the article was his product."
We agree with the Court of Appeals. The number alone of the private respondents in the case at bar
suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity
essential for applicability of the doctrine of secondary meaning. It may be noted also that at least one of the
private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years
before the petitioner registered its own corporate name with the SEC and began using the word "Lyceum." It
follows that if any institution had acquired an exclusive right to the word "Lyceum," that institution would
have been the Western Pangasinan Lyceum, Inc. rather than the petitioner institution. Hence, the petition
was denied.
3. Prior Use of Mark as a Requirement
MATTEL, INC. v. EMMA FRANCISCO, Director-General of the Intellectual Property Office, HON.
ESTRELLITA B. ABELARDO, Director of the Bureau of Legal Affairs (IPO), and JIMMY UY
G.R. No. 166886 July 30, 2008 J.AUSTRIA-MARTINEZ
Admission of non-compliance with the requirement of filing a Declaration of Actual Use is tantamount
to a judicial admission of abandonment of trademark.
FACTS:
Jimmy A. Uy filed a trademark application with the Bureau of Patents, Trademarks and Technology
Transfer (BPTTT) for registration of the trademark "BARBIE" for use on confectionary products, such as milk,
chocolate, etc. in Class 30 of the International Classification of Goods. Mattel, Inc., a corporation organized
under the laws of the State of Delaware, United States of America, filed a Notice of Opposition against Uy's
"Barbie" trademark as the latter was confusingly similar to its trademark on dolls, doll clothes and doll
accessories, toys and other similar commercial products. While the case was pending, Republic Act (R.A.) No.
8293, otherwise known as the Intellectual Property Code of the Philippines was enacted and took effect
Director of the Bureau of Legal Affairs, IPO, dismissed Mattel's opposition and gave due course to
Uy’s application for the registration. Later, the Director General rendered a Decision denying the Mattel’s
appeal. Mattel filed a Motion for New Trial on the ground of newly discovered evidence but was denied. On
appeal, CA affirmed the decision of the Director General.
Mattel argues that that the Director General of the IPO has the power to act on a pending trademark
application considered as “withdrawn” for failure to file the DAU. On the other hand, Uy submits that the case
has become moot and academic since the records will show that no DAU was filed on or before December 1,
2001, thus, he is deemed to have abandoned his trademark application for failure to comply with the
mandatory filing of the DAU.
ISSUE:
Whether or not the case has become moot and academic.
RULING:
Yes. Uy's declaration in his Comment and Memorandum before this Court that he has not filed the
DAU as mandated by pertinent provisions of R.A. No. 8293 is a judicial admission that he has effectively
abandoned or withdrawn any right or interest in his trademark. Under Sec. 124.2 of R.A. No. 8293, “The
applicant or the registrant shall file a declaration of actual use of the mark with evidence to that effect, as
prescribed by the Regulations within three (3) years from the filing date of the application. Otherwise, the
applicant shall be refused or the marks shall be removed from the Register by the Director.”
Uy's admission in his Comment and Memorandum of non-compliance with the foregoing
requirements is a judicial admission and an admission against interest combined. A judicial admission binds
the person who makes the same. In the same vein, an admission against interest is the best evidence which
affords the greatest certainty of the facts in dispute. The rationale for the rule is based on the presumption
that no man would declare anything against himself unless such declaration is true. Thus, it is fair to presume
that the declaration corresponds with the truth, and it is his fault if it does not. Hence, the petition was
dismissed.
4. Tests to Determine Confusing Similarity between Marks
a. Dominancy Test
AMIGO MANUFACTURING, Inc. vs. CLUETT PEABODY CO., INC.

G.R. No. 139300, March 14, 2001, J. PANGANIBAN
The question at issue in cases of infringement of trademarks is whether the use of the marks involved
would be likely to cause confusion or mistakes in the mind of the public or deceive purchasers.
FACTS:
The source of the controversy that precipitated the filing by Cluett Peabody Co., Inc. (a New York
corporation) of the present case against Amigo Manufacturing Inc. (a Philippine corporation) for cancellation
of trademark is Cluett’s claim of exclusive ownership of the trademark GOLD TOE and DEVICE, consisting of a
‟plurality of gold colored lines arranged in parallel relation within a triangular area of toe of the stocking and
spread from each other by lines of contrasting color of the major part of the stockings.
On the other hand, petitioner’s trademark and device GOLD TOP, Linenized for Extra Wear has the
dominant color white at the center and a blackish brown background with a magnified design of the sock’s
garter and is labeled “Amigo Manufacturing Inc., Mandaluyong, Metro Manila, Made in the Philippines”. The
Patent office ruled in favor of Cluett because of idem sonans and the existence of a confusing similarity in
appearance between two trademarks.
ISSUE:
Whether or not there are confusing similarities on the trademark and device of the parties
HELD:
YES. The Bureau of Patents, did not rely on the idem sonans test alone in arriving at its conclusion.
The Bureau considered the drawings and the labels, the appearance of the labels, the lettering, and the
representation of a man’s foot wearing a sock. Obviously, its conclusion is based on the totality of the
similarities between the parties’ trademarks and not on their sounds alone.
As its title implies, the test of dominancy focuses on the similarity of the prevalent features of the
competing trademarks which might cause confusion or deception and thus constitutes infringement. If the
competing trademark contains the main or essential or dominant features of another, and confusion and
deception is likely to result, infringement takes place. Duplication or imitation is not necessary; nor is it
necessary that the infringing label should suggest an effort to imitate. The question at issue in cases of
infringement of trademarks is whether the use of the marks involved would be likely to cause confusion or
mistakes in the mind of the public or deceive purchasers.
The holistic test mandates that the entirety of the marks in question must be considered in
determining confusing similarity. In the present case, a resort to either the Dominancy Test or the Holistic
Test shows that colorable imitation exists between respondent‘s“ Gold Toe” and petitioner’s “Gold Top.” Both
tests apply.
SOCIETE DES PRODUITS NESTLE, S.A. and NESTLE PHILIPPINES, INC. v. COURT OF APPEALS and CFC
CORPORATION
G.R. No. 112012, April 4, 2001, J. YNARES-SANTIAGO
An ordinary purchaser is "undiscerningly rash" in buying such common and inexpensive household
products as instant coffee, and would therefore be "less inclined to closely examine specific details of similarities
and dissimilarities" between the two competing products.
FACTS:
Private respondent CFC Corporation filed with the BPTTT an application for the registration of the
trademark "FLAVOR MASTER" for instant coffee. Gazette. Petitioner Societe Des Produits Nestl e, S.A., a Swiss
company registered under Swiss laws and domiciled in Switzerland, filed an unverified Notice of Opposition,
claiming that the trademark of private respondent’s product is "confusingly similar to its trademarks for
coffee and coffee extracts, to wit: MASTERROAST and MASTER BLEND. "Likewise, a verified Notice of
Opposition was filed by Nestle Philippines, Inc., a Philippine corporation and a licensee of Societe Des
Produits Nestle S.A., against CFC’s application for registration of the trademark FLAVOR MASTER.
Nestle claimed that the use, if any, by CFC of the trademark FLAVOR MASTER and its registration
would likely cause confusion in the trade; or deceive purchasers and would falsely suggest to the purchasing
public a connection in the business of Nestle, as the dominant word present in the three (3) trademarks is
"MASTER"; or that the goods of CFC might be mistaken as having originated from the latter.
ISSUE:
Whether or not there is Trademark Infringement
HELD:
YES. This Court cannot agree that totality test is the one applicable in this case. Rather, this Court
believes that the dominancy test is more suitable to this case in light of its peculiar factual milieu. If the
ordinary purchaser is "undiscerningly rash" in buying such common and inexpensive household products as
instant coffee, and would therefore be "less inclined to closely examine specific details of similarities and
dissimilarities" between the two competing products, then it would be less likely for the ordinary purchaser
to notice that CFC’s trademark FLAVOR MASTER carries the colors orange and mocha while that of Nestle’s
uses red and brown. The application of the totality or holistic test is improper since the ordinary purchaser
would not be inclined to notice the specific features, similarities or dissimilarities, considering that the
product is an inexpensive and common household item.
MCDONALD'S CORPORATION and MCGEORGE FOOD INDUSTRIES, INC. v. L.C. BIG MAK BURGER, INC.,
FRANCIS B. DY, EDNA A. DY, RENE B. DY, WILLIAM B. DY, JESUS AYCARDO, ARACELI AYCARDO, and
GRACE HUERTO
G.R. No. 143993, August 18, 2004, J. CARPIO, J
Applying the dominancy test, the use of the "Big Mak" mark results in likelihood of confusion to the
prejudice of one of the world’s largest food chain which uses the mark “Bic Mac.”
FACTS:
Petitioner McDonald's Corporation ("McDonald's") is a US corporation that operates a global chain of

fast-food restaurants. McDonald's owns the "Big Mac" mark for its "double-decker hamburger
sandwich.Based on this Home Registration, McDonald's applied for the registration of the same mark in the
PBPTT (now IPO). PBPTT allowed registration of the "Big Mac. On the other hand, respondent L.C. Big Mak
Burger, Inc. is a domestic corporation which operates fast-food outlets and snack vans in Metro Manila and
nearby provinces. Respondent corporation's menu includes hamburger sandwiches and other food items.
On 1988, respondent applied with the PBPTT for the registration of the "Big Mak" mark for its
hamburger sandwiches, which was opposed by McDonald's. McDonald's also informed LC Big Mak chairman
of its exclusive right to the "Big Mac" mark and requested him to desist from using the "Big Mac" mark or any
similar mark. Later, petitioners sued L.C. Big Mak Burger, Inc. and its directors for trademark infringement
and unfair competition. RTC rendered a Decision finding respondent corporation liable for trademark
infringement and unfair competition. CA reversed RTC's decision on appeal.
ISSUE:
Whether or not there is trademark infringement
HELD:
YES. In determining likelihood of confusion, the SC has relied on the dominancy test (similarity of the
prevalent features of the competing trademarks that might cause confusion) over the holistic test
(consideration of the entirety of the marks as applied to the products, including the labels and packaging).
Applying the dominancy test, respondents' use of the "Big Mak" mark results in likelihood of confusion.
Aurally the two marks are the same, with the first word of both marks phonetically the same, and the second
word of both marks also phonetically the same. Visually, the two marks have both two words and six letters,
with the first word of both marks having the same letters and the second word having the same first two
letters.
Section 22 covers two types of confusion arising from the use of similar or colorable imitation marks,
namely, confusion of goods and confusion of business. Since Section 22 only requires the less stringent
standard of "likelihood of confusion," petitioners' failure to present proof of actual confusion does not negate
their claim of trademark infringement.
McDONALD’S CORPORATION v. MACJOY FASTFOOD CORPORATION.

G.R. No. 166115. February 2, 2007, J. Garcia
Applying the dominancy test to the instant case, the Court ruled that both marks are confusingly similar
with each other such that an ordinary purchaser can conclude an association or relation between the marks. The
predominant features such as the "M," "Mc," and "Mac" appearing in both easily attract the attention of would-
be customers. Most importantly, both trademarks are used in the sale of fastfood products.
FACTS:
MacJoy Fastfood Corp. is a corporation in the sale of fastfood based in Cebu filed with IPO for the
registration of their name. McDonald's Corporation filed an opposition to the application. McDonald's claims
that their logo and use of their name would falsely tend to suggest a connection with MacJoy's services and
food products, thus, constituting a fraud upon the general public and further cause the dilution of the
distinctiveness of petitioner’s registered and internationally recognized MCDONALD’S marks to its prejudice
and irreparable damage.
Respondent averred that MACJOY has been used for the past many years in good faith and has spent
considerable sums of money for said mark. The IPO held that there is confusing similarity. Court of Appeals
held otherwise stating there are predominant differences like the spelling, the font and color of the trademark
and the picture of the logo.
ISSUE:
Whether or not there is confusing similarity between Macjoy and McDonald’s products
RULING:
YES. Jurisprudence developed two tests, the dominancy and holistic test. The dominancy test focuses
on the similarity of the prevalent features of the competing trademarks that might cause confusion or
deception while the holistic test requires the court to consider the entirety of the marks as applied to the
products, including the labels and packaging, in determining confusing similarity. Under the latter test, a
comparison of the words is not the only determinant factor.
Applying the dominancy test to the instant case, the Court ruled that both marks are confusingly
similar with each other such that an ordinary purchaser can conclude an association or relation between the
marks. The predominant features such as the "M," "Mc," and "Mac" appearing in both easily attract the
attention of would-be customers. Most importantly, both trademarks are used in the sale of fastfood products.
PROSOURCE INTERNATIONAL, INC. v. HORPHAG RESEARCH MANAGEMENT SA.

G.R. No. 180073, November 25, 2009, J. Nachura
Although there were dissimilarities in the trademark due to the type of letters used as well as the size,
color and design employed on their individual packages/bottles, still the close relationship of the competing
products’ name in sounds as they were pronounced, clearly indicates that purchasers could be misled into
believing that they are the same and/or originates from a common source and manufacturer.
FACTS:
Respondent is a corporation and owner of trademark PYCNOGENOL, a food. Respondent later

discovered that petitioner was also distributing a similar food supplement using the mark PCO-GENOLS since
1996. This prompted respondent to demand that petitioner cease and desist from using the aforesaid mark.
Respondent filed a Complaint for Infringement of Trademark with Prayer for Preliminary Injunction against
petitioner, in using the name PCO-GENOLS for being confusingly similar. Petitioner appealed otherwise.
The RTC decided in favor of respondent. It observed that PYCNOGENOL and PCO-GENOLS have the
same suffix "GENOL" which appears to be merely descriptive and thus open for trademark registration by
combining it with other words and concluded that the marks, when read, sound similar, and thus confusingly
similar especially since they both refer to food supplements.CA affirmed.
ISSUE:
Whether the names PYCNOGENOL and PCO-GENOLS are confusingly similar.
RULING:
Yes. The Dominancy Test focuses on the similarity of the prevalent features of the competing
trademarks that might cause confusion and deception, thus constituting infringement. If the competing
trademark contains the main, essential and dominant features of another, and confusion or deception is likely
to result, infringement takes place. Duplication or imitation is not necessary; nor is it necessary that the
infringing label should suggest an effort to imitate. The Holistic Test entails a consideration of the entirety of
the marks as applied to the products, including the labels and packaging, in determining confusing similarity.
Not only on the predominant words should be the focus but also on the other features appearing on both
labels in order that the observer may draw his conclusion whether one is confusingly similar to the other.
SC applied the Dominancy Test. Both the words have the same suffix "GENOL" which on evidence,
appears to be merely descriptive and furnish no indication of the origin of the article and hence, open for
trademark registration by the plaintiff through combination with another word or phrase. When the two
words are pronounced, the sound effects are confusingly similar not to mention that they are both described
by their manufacturers as a food supplement and thus, identified as such by their public consumers. And
although there were dissimilarities in the trademark due to the type of letters used as well as the size, color
and design employed on their individual packages/bottles, still the close relationship of the competing
products’ name in sounds as they were pronounced, clearly indicates that purchasers could be misled into
believing that they are the same and/or originates from a common source and manufacturer.
BERRIS AGRICULTURAL CO., INC. vs. NORVY ABYADANG

G.R. No. 183404, October 13, 2010, J. Nachura
NS D-10 PLUS and D-10 80 WP pertain to the same type of goods fungicide with 80% Mancozeb as an
active ingredient and used for the same group of fruits, crops, vegetables, and ornamental plants, using the same
dosage and manner of application. They also belong to the same classification of goods under R.A. No. 8293. Both
depictions of D-10, as found in both marks, are similar in size, such that this portion is what catches the eye of the
purchaser. Undeniably, the likelihood of confusion is present.
FACTS:
Abyadang filed a trademark application with the IPO for the mark "NS D-10 PLUS" for use in
connection with Fungicide. Berris Agricultural Co., Inc. filed an opposition against the trademark citing that it
is confusingly similar with their trademark, "D-10 80 WP" which is also used for Fungicide also with the same
active ingredient. The IPO ruled in favor of Berries but on appeal with the CA, the CA ruled in favor of
Abyadang.
ISSUE:
Whether there is confusing similarity between the trademarks.
RULING:
Yes. Comparing Berris mark D-10 80 WP with Abyadangs mark NS D-10 PLUS, as appearing on their
respective packages, one cannot but notice that both have a common component which is D-10. On Berris
package, the D-10 is written with a bigger font than the 80 WP. Admittedly, the D-10 is the dominant feature
of the mark. The D-10, being at the beginning of the mark, is what is most remembered of it. Although, it
appears in Berris certificate of registration in the same font size as the 80 WP, its dominancy in the D-10 80
WP mark stands since the difference in the form does not alter its distinctive character.
Applying the Dominancy Test, it cannot be gainsaid that Abyadangs NS D-10 PLUS is similar to Berris
D-10 80 WP, that confusion or mistake is more likely to occur. Undeniably, both marks pertain to the same
type of goods fungicide with 80% Mancozeb as an active ingredient and used for the same group of fruits,
crops, vegetables, and ornamental plants, using the same dosage and manner of application. They also belong
to the same classification of goods under R.A. No. 8293. Both depictions of D-10, as found in both marks, are
similar in size, such that this portion is what catches the eye of the purchaser. Undeniably, the likelihood of
confusion is present.
This likelihood of confusion and mistake is made more manifest when the Holistic Test is applied,
taking into consideration the packaging, for both use the same type of material (foil type) and have identical
color schemes (red, green, and white); and the marks are both predominantly red in color, with the same
phrase BROAD SPECTRUM FUNGICIDE written underneath.
Considering these striking similarities, predominantly the D-10, the buyers of both products, mainly
farmers, may be misled into thinking that NS D-10 PLUS could be an upgraded formulation of the D-10 80 WP.
DERMALINE, INC. v. MYRA PHARMACEUTICALS, INC.,

GR No. 190065, August 16, 2010, J. Nachura
When one applies for the registration of a trademark or label which is almost the same or that very
closely resembles one already used and registered by another, the application should be rejected and dismissed
outright, even without any opposition on the part of the owner and user of a previously registered label or
trademark.
FACTS:
Dermaline filed with the IPO an application to register the trademark “Dermaline.” Myra opposed this
alleging that the trademark resembles its trademark “Dermalin” and will cause confusion, mistake and
deception to the purchasing public. “Dermalin” was registered way back 1986 and was commercially used
since 1977. Myra claims that despite attempts of Dermaline to differentiate its mark, the dominant feature is
the term “Dermaline” to which the first 8 letters were identical to that of “Dermalin.” The pronunciation for
both is also identical. Further, both have 3 syllables each with identical sound and appearance.
ISSUE:
Whether or not the IPO should allow the registration of the trademark “Dermaline.”
RULING:
NO. As Myra correctly posits, it has the right under Section 147 of R.A. No. 8293 to prevent third
parties from using a trademark, or similar signs or containers for goods or services, without its consent,
identical or similar to its registered trademark, where such use would result in a likelihood of confusion.
Using Dominancy Test, the IPO declared that both confusion of goods and service and confusion of
business or of origin were apparent in both trademarks. While it is true that the two marks are presented
differently, they are almost spelled in the same way, except for Dermaline’s mark which ends with the letter
"E," and they are pronounced practically in the same manner in three (3) syllables, with the ending letter "E"
in Dermaline’s mark pronounced silently. Thus, when an ordinary purchaser, for example, hears an
advertisement of Dermaline’s applied trademark over the radio, chances are he will associate it with Myra’s.
When one applies for the registration of a trademark or label which is almost the same or that very closely
resembles one already used and registered by another, the application should be rejected and dismissed
outright, even without any opposition on the part of the owner and user of a previously registered label or
trademark.
Further, Dermaline’s stance that its product belongs to a separate and different classification from
Myra’s products with the registered trademark does not eradicate the possibility of mistake on the part of the
purchasing public to associate the former with the latter, especially considering that both classifications
pertain to treatments for the skin.
SOCIETE DES PRODUITS NESTLE, S.A., v. MARTIN T. DY, JR.

G.R. No. 172276, August 8, 2010, J. Carpio
Applying the dominancy test in the present case, the Court finds that NANNY is confusingly similar to
NAN, also considering that both pertain to milk products.
FACTS:
Martin Dy Jr., imports and repackages Sunny Powdered Milk from Australia and sells them under the
name “NANNY”. NANNY retails primarily in parts of Visayas and Mindanao. Nestle, is a foreign corporation
organized under the laws of Switzerland and owns the trademark “NAN” for its line of infant formula. Nestle
allocates a substantial amount of resources for the production and promotion of the NAN product line.
Nestle wrote a letter to Dy Jr. asking him to stop using the name “NANNY”, they alleged that it
infringes upon the trademark ownership of Nestle over the trademark “NAN”. He refused to recognize
Nestle’s request and continued using the name “NANNY”. Thus, Nestle filed a case with the RTC of Dumaguete
City. The Commercial Court found Dy Jr., liable for trademark infringement on the grounds that even though it
is not apparent in the packaging of NANNY, the name itself relates to a child’s nurse, which is closely related
to the product line of NAN catering to infants. CA reversed the RTC’s ruling. It stated that even though there is
similarity in the products, the lower price range of NANNY cautions and reminds the purchaser that it is
different from NAN, which is more expensive. This does not create confusion as to the consumers because the
apparent difference in price shows that they are two different products.
ISSUE:
Whether or not the product name NANNY infringes upon the trademark of Nestle’s NAN.
RULING:
Yes, the decision of the RTC is reinstated.
There is no question that the product will cause confusion within the consuming public. The primary
test that should be used in determining trademark infringement in this case is the dominancy test. Applying
the dominancy test in the present case, the Court finds that NANNY is confusingly similar to NAN. NAN is the
prevalent feature of Nestles line of infant powdered milk products. It is written in bold letters and used in all
products. The line consists of PRE-NAN, NAN-H.A., NAN-1, and NAN-2. Clearly, NANNY contains the prevalent
feature NAN. The first three letters of NANNY are exactly the same as the letters of NAN. When NAN and
NANNY are pronounced, the aural effect is confusingly similar.
The Court agrees with the lower courts that there are differences between NAN and NANNY: (1) NAN
is intended for infants while NANNY is intended for children past their infancy and for adults; and (2) NAN is
more expensive than NANNY. However, as the registered owner of the "NAN" mark, Nestle should be free to
use its mark on similar products, in different segments of the market, and at different price levels.
SKECHERS, U.S.A., INC. v. INTER PACIFIC INDUSTRIAL TRADING CORP.

G.R. No. 164321, March 23, 2011, J. Peralta
Applying the dominancy test, the use of the stylized "S" by respondent in its Strong rubber shoes
infringes on the mark already registered by Skechers with the IPO.
FACTS:
Petitioner Skechers, U.S.A., Inc. has registered the trademark "SKECHERS" and the trademark "S"
(within an oval design). It filed with the Regional Trial Court of Manila an application for the issuance of
search warrants against an outlet and warehouse operated by respondents Inter Pacific Industrial Trading
Corp. for infringement of trademark. More than 6,000 pairs of shoes bearing the "S" logo were seized, by
virtue of the search warrants issued. Later, Respondents moved to quash the search warrants, arguing that
there was no confusing similarity between petitioner’s "Skechers" rubber shoes and its "Strong" rubber
shoes. The RTC issued an Order quashing the search warrants because Skechers rubber shoes and Strong
rubber shoes have glaring differences such that an ordinary prudent purchaser would not likely be misled in
purchasing the wrong article. The appellate court affirmed.
ISSUE:
Whether or not respondent is guilty of trademark infringement.
RULING:
YES. The essential element of infringement under R.A. No. 8293 is that the infringing mark is likely to
cause confusion. In determining similarity and likelihood of confusion, jurisprudence has developed tests, the
Dominancy Test and the Holistic or Totality Test. The Dominancy Test focuses on the similarity of the
prevalent or dominant features of the competing trademarks that might cause confusion, mistake, and
deception in the mind of the purchasing public. Duplication or imitation is not necessary; neither is it
required that the mark sought to be registered suggests an effort to imitate. Given more consideration are the
aural and visual impressions created by the marks on the buyers of goods, giving little weight to factors like
prices, quality, sales outlets, and market segments. In contrast, the Holistic or Totality Test necessitates a
consideration of the entirety of the marks as applied to the products, including the labels and packaging, in
determining confusing similarity.
Applying the Dominancy Test to the case at bar, this Court finds that the use of the stylized "S" by
respondent in its Strong rubber shoes infringes on the mark already registered by petitioner with the IPO.
While it is undisputed that petitioner’s stylized "S" is within an oval design, to this Court’s mind, the dominant
feature of the trademark is the stylized "S," as it is precisely the stylized "S" which catches the eye of the
purchaser. Thus, even if respondent did not use an oval design, the mere fact that it used the same stylized
"S", the same being the dominant feature of petitioner’s trademark, already constitutes infringement under
the Dominancy Test.
b. Holistic Test
FRUIT OF THE LOOM, INC. v. COURT OF APPEALS and GENERAL GARMENTS CORPORATION
G.R. No. L-32747, November 29, 1984, J. Makasiar
The discerning eye of the observer must focus not only on the predominant words but also on the other
features appearing in both labels in order that he may draw his conclusion whether one is confusingly similar to
the other.
FACTS:
Petitioner Fruit of the Loom, Inc. is the registrant of the trademark “FRUIT OF THE LOOM”. It was
issued two Certificates of Registration, one for underwears including women’s panties and another for
knitted, netted and textile fabrics. Respondent General Garments Corporation is the registrant of a trademark
“FRUIT FOR EVE” and was issued a Certificate of Registration covering products like women's panties and
pajamas. Fruit of the Loom filed a complaint for infringement of trademark and unfair competition alleging
that the respondent’s trademark FRUIT FOR EVE is confusingly similar to its trademark FRUIT OF THE LOOM
and that the color get-up and general appearance of private respondent's hang tag consisting of a big red
apple is a colorable imitation of its hang tag. The Regional Trial Court ruled in favor of petitioner and ordered
the Bureau of Patents to cancel the registration of the trademark "Fruit for Eve". The Court of Appeals
reversed and dismissed the complaint.
ISSUE:
Whether or not respondent's trademark FRUIT FOR EVE and its hang tag are confusingly similar to
petitioner's trademark FRUIT OF THE LOOM and its hang tag so as to constitute an infringement of the
latter's trademark rights and justify the cancellation of the former.
RULING:
No. There is infringement of trademark when the use of the mark involved would be likely to cause
confusion or mistake in the mind of the public or to deceive purchasers as to the origin or source of the
commodity. In determining whether the trademarks are confusingly similar, a comparison of the words is not
the only determinant factor. The trademarks in their entirety as they appear in their respective labels or hang
tags must also be considered in relation to the goods to which they are attached. The discerning eye of the
observer must focus not only on the predominant words but also on the other features appearing in both
labels in order that he may draw his conclusion whether one is confusingly similar to the other. In the
trademarks FRUIT OF THE LOOM and FRUIT FOR EVE, the lone similar word is FRUIT. By mere pronouncing
the two marks, it could hardly be said that it will provoke a confusion, as to mistake one for the other.
Standing by itself, FRUIT OF THE LOOM is wholly different from FRUIT FOR EVE. The similarities of the
competing trademarks in this case are completely lost in the substantial differences in the design and general
appearance of their respective hang tags. As to shape, the hang tag of petitioner is round while that of
respondent is plain rectangle without any base. As to color, that of petitioner is light brown while the other is
pink with a white colored center piece. The respondent’s tag has only an apple in the center but that of
petitioner has also clusters of grapes that surround the apple.
EMERALD GARMENT MANUFACTURING CORPORATION v. HON. COURT OF APPEALS, BUREAU OF

PATENTS, TRADEMARKS AND TECHNOLOGY TRANSFER and H.D. LEE COMPANY, INC.
G.R. No. 100098, December 29, 1995, J. Kapunan
The holistic test mandates that the entirety of the marks in question must be considered in determining
confusing similarity.
FACTS:
H.D. Lee Co. Inc, a foreign corporation organized under the laws of Delaware, U.S.A, filed a petition to
cancel the registration in the Supplemental Register of the trademark “STYLISTIC MR. LEE” issued in the
name of Emerald Garment Manufacturing Corp. H.D. Lee asserts that petitioner's trademark tends to mislead
and confuse the public and thus constitutes an infringement of its own mark, since the dominant feature
therein is the word "LEE." Petitioner contends that its trademark "STYLISTIC MR. LEE" is entirely different
from and not confusingly similar to private respondent's "LEE" trademark. Subsequently, it caused the
publication of its application for registration of the trademark "STYLISTIC MR. LEE" in the Principal Register.
H.D. Lee opposed. The Director of Patents, as affirmed by CA, granted the petition for cancellation and
opposition to registration since the word “Lee” is the dominant feature of the mark, thus petitioner’s
trademark was confusingly similar.
ISSUE:
Whether or not there is confusing similarity between the two trademarks.
RULING:
No. The essential element of infringement is colorable imitation which has been defined as such a
close or ingenious imitation as to be calculated to deceive ordinary purchasers. In determining whether
colorable imitation exists, jurisprudence has developed two kinds of tests, the Dominancy Test and the
Holistic Test. The test of dominancy focuses on the similarity of the prevalent features of the competing
trademarks which might cause confusion or deception and thus constitutes infringement. On the other side,
the holistic test mandates that the entirety of the marks in question must be considered in determining
Applying the foregoing, the Court ruled that petitioner's "STYLISTIC MR. LEE" is not confusingly
similar to private respondent's "LEE" trademark. Petitioner's trademark is the whole "STYLISTIC MR. LEE."
Although on its label the word "LEE" is prominent, the trademark should be considered as a whole and not
piecemeal. The dissimilarities between the two marks become conspicuous in view of the following variables.
First, the products involved in the case at bar are, in the main, various kinds of jeans. These are not your
ordinary household items like catsup, soysauce or soap which are of minimal cost. Maong pants or jeans are
not inexpensive. Accordingly, the casual buyer is predisposed to be more cautious and discriminating in and
would prefer to mull over his purchase. Confusion and deception, then, is less likely. Second, like his beer, the
average Filipino consumer generally buys his jeans by brand. He does not ask the sales clerk for generic jeans
but for, say, a Levis, Guess, Wrangler or even an Armani. He is, therefore, more or less knowledgeable and
familiar with his preference and will not easily be distracted. Finally, more credit should be given to the
ordinary purchaser who is not the "completely unwary consumer" but is the "ordinarily intelligent buyer"
considering the type of product involved. Thus, there is no infringement.
PHILIP MORRIS, INC., BENSON & HEDGES (CANADA), INC., and FABRIQUES DE TABAC REUNIES, S.A.,
(now known as PHILIP MORRIS PRODUCTS S.A.) v. FORTUNE TOBACCO CORPORATION
G.R. No. 158589, June 27, 2006, J. Garcia
The holistic test entails a consideration of the entirety of the marks as applied to the products, including
the labels and packaging, in determining confusing similarity.
FACTS:
Petitioner Philip Morris, Inc. is a corporation organized under the laws of the State of Virginia, United
States of America and is the the registered owner of the trademark "MARK VII" for cigarettes. Two of its
subsidiaries are the registered owner of the trademarks, “MARK TEN” and “LARK”. On the other hand,
respondent Fortune Tobacco, a domestic corporation, manufactures and sells cigarettes using the trademark
“MARK”.
Petitioner filed a Complaint for Infringement of Trademark and Damages against respondent arguing
that the latter’s use of the trademark "MARK" is likely to cause confusion or would deceive purchasers and
the public in general into buying these products under the impression and mistaken belief that they are
buying petitioners’ products. The trial court ruled that there is no infringement of trademark as the petitioner
failed to pass the test in an infringement case which is the likelihood of confusion or deception. The trial court
stated that the general rule is that an infringement exists if the resemblance is so close that it deceives or is
likely to deceive a customer exercising ordinary caution in his dealings and induces him to purchase the
goods of one manufacturer in the belief that they are those of another. The appellate court affirmed the
decision.
ISSUE:
Whether or not there is likelihood of confusion resulting in infringement arising from the
respondent’s use of the trademark "MARK" for its particular cigarette product.
RULING:
No. The "likelihood of confusion" is the gravamen of trademark infringement. In determining

similarity and likelihood of confusion, jurisprudence has developed two tests: the dominancy test and the
holistic test. The dominancy test sets sight on the similarity of the prevalent features of the competing
trademarks that might cause confusion and deception, thus constitutes infringement. Under this norm, the
question at issue turns on whether the use of the marks involved would be likely to cause confusion or
mistake in the mind of the public or deceive purchasers. In contrast, the holistic test entails a consideration of
the entirety of the marks as applied to the products, including the labels and packaging, in determining
In light of the peculiarity of this case, we rule against the likelihood of confusion. For one, as rightly
concluded by the CA after comparing the trademarks involved in their entirety as they appear on the
products, the striking dissimilarities are significant enough to warn any purchaser that one is different from
the other. Indeed, although the perceived offending word "MARK" is itself prominent in petitioners’
trademarks "MARK VII" and "MARK TEN," the entire marking system should be considered as a whole and
not dissected, because a discerning eye would focus not only on the predominant word but also on the other
features appearing in the labels. Only then would such discerning observer draw his conclusion whether one
mark would be confusingly similar to the other and whether or not sufficient differences existed between the
marks. The CA correctly relied on the holistic test.
VICTORIO P. DIAZ v. PEOPLE OF THE PHILIPPINES AND LEVI STRAUSS [PHILS.], INC.
G.R. No. 180677, February 18, 2013, J. Bersamin
It is the tendency of the allegedly infringing mark to be confused with the registered trademark that is
the gravamen of the offense of infringement of a registered trademark. The acquittal of the accused should
follow if the allegedly infringing mark is not likely to cause confusion.
FACTS:
Levi Strauss and Company (Levi’s), is a foreign corporation based in the State of Delaware and is the
owner of trademarks and designs of Levi’s jeans like LEVI’S 501 which has the registered trademark of a
leather patch showing two horses pulling a pair of pants and an arcuate pattern with the inscription "LEVI
STRAUSS & CO. Levi Strauss Philippines, Inc., as a licensee of Levi’s, received an information that Victorio Diaz
was selling counterfeit LEVI’s 501 jeans. It sought assistance from National Bureau of Investigation for the
issuance of the search warrants. After obtaining it, NBI agents searched the tailoring shops of Diaz and seized
several fake LEVI’S 501 jeans from them. Diaz admitted being the owner of the shops searched, but he denied
any criminal liability. Diaz stated that he did not manufacture Levi’s jeans, and that he used the label "LS Jeans
Tailoring" in the jeans that he made and sold, and such label was registered with the Intellectual Property
Office, which stood for Latest Style. The Department of Justice filed two informations against Diaz for
violation of the IP Code. The RTC and CA found him guilty.
ISSUE:
Whether or not Diaz is liable for the crimes of infringement of trademark
RULING:
No. The likelihood of confusion is the gravamen of the offense of trademark infringement. There are
two tests to determine likelihood of confusion, namely: the dominancy test, and the holistic test. The
dominancy test focuses on the similarity of the main, prevalent or essential features of the competing
trademarks that might cause confusion. Infringement takes place when the competing trademark contains the
essential features of another. The holistic test considers the entirety of the marks, including labels and
packaging, in determining confusing similarity. The focus is not only on the predominant words but also on
the other features appearing on the labels.
The holistic test is applicable here considering that the herein criminal cases also involved trademark
infringement in relation to jeans products. Accordingly, the jeans trademarks of Levi’s Philippines and Diaz
must be considered as a whole in determining the likelihood of confusion between them. The maong pants or
jeans made and sold by Levi’s Philippines, which included LEVI’S 501, were very popular in the Philippines.
The consuming public knew that the original LEVI’S 501 jeans were under a foreign brand and quite
expensive. Such jeans could be purchased only in malls or boutiques as ready-to-wear items, and were not
available in tailoring shops like those of Diaz’s as well as not acquired on a "made-to-order" basis. The
consuming public could easily discern if the jeans were original or fake LEVI’S 501, or were manufactured by
other brands of jeans. Confusion and deception were remote. Diaz used the trademark "LS JEANS
TAILORING", which was visually and aurally different from the trademark "LEVI STRAUSS & CO" appearing
on the patch of original jeans under the trademark LEVI’S 501. There was no likelihood of confusion between
the trademarks involved. Thereby, the evidence of guilt did not satisfy the quantum of proof required for a
criminal conviction. Consequently, Diaz should be acquitted of the charges.
c. Doctrine of Unrelated Goods
HICKOK MANUFACTURING CO., INC. v. COURT OF APPEALS ** and SANTOS LIM BUN LIONG
G.R. No. L-44707, August 31, 1982, J. Teehankee
The mere fact that one person has adopted and used a trademark on his goods does not prevent the
adoption and use of the same trademark by others on unrelated articles of a different kind.
FACTS:
Petitioner Hickok Manufacturing Co. Inc., is a registered owner of the trademark HICKOK used in the
sale of leather wallets, key cases, money folds made of leather, belts, men's briefs, neckties, handkerchiefs and
men's socks. It filed a petition to cancel respondent Santos Lim Bun Liong registration of the same trademark
for its Marikina shoes. The Court of Appeals reversed the patent director’s decision and instead dismissed the
petition to cancel the registration.
ISSUE:
Whether or not the Court of Appeals correctly upheld respondent’s registration of the trademark
HICKOK for an unrelated and non-competing product of Marikina shoes
RULING:
Yes. An examination of the trademark of petitioner and that of registrant reveals that there is a
difference in the design and the coloring of the two trademarks. For instance, in petitioner’s trademark for
handkerchiefs, the word 'HICKOK' is in red with white background in the middle of two branches of laurel in
light gold. In contrast, in respondent's trademark, the word 'HICKOK' is in white with gold background
between the two branches of laurel in red, with the word 'SHOES' also in red below the word 'HICKOK. The
ribbon is in red with the words 'QUALITY AT YOUR FEET,' likewise in red. While the law does not require that
the competing trademarks be identical, the two marks must be considered in their entirety, as they appear in
the respective labels, in relation to the goods to which they are attached. Thus, there must be not only
resemblance between the trademark of the plaintiff and that of the defendant, but also similarity of the goods
to which the two trademarks are respectively attached.
Since in this case the trademark of petitioner is used in the sale of leather wallets, key cases, money
folds made of leather, belts, men's briefs, neckties, handkerchiefs and men's socks, and the trademark of
registrant-appellant is used in the sale of shoes, which have different channels of trade, the Director of
Patents ought to have reached a different conclusion. The mere fact that one person has adopted and used a
trademark on his goods does not prevent the adoption and use of the same trademark by others on unrelated
articles of a different kind. Since petitioner registered the trademark for its diverse articles which are all
manufactured here but are so labelled as to give the misimpression that the said goods are of foreign
manufacture while respondent secured its trademark registration exclusively for shoes (which neither
petitioner nor the licensee ever manufactured or traded in) and which are clearly labelled in block letters as
"Made in Marikina, Rizal, Philippines," no error can be attributed to the appellate court in upholding
respondent's registration of the same trademark for his unrelated and non-competing product of Marikina
shoes.
FABERGE, INCORPORATED v. THE INTERMEDIATE APPELLATE COURT and CO BENG KAY

G.R. No. 71189, November 4, 1992, J. Melo
One who has adopted and used a trademark on his goods does not prevent the adoption and use of the
same trademark by other for products which are of different description.
FACTS:
The Director of Patents authorized private respondent Co Beng Kay to register the trademark
"BRUTE" for the briefs by his Corporation. Petitioner Faberge Inc. opposed due to similarity with its own
symbol "BRUT" previously registered for after shave lotion, shaving cream, deodorant, talcum powder, and
toilet soap. The appellate court reconsidered its first decision and ruled in favor of respondent. Petitioner said
that it has an application for registration of the trademark "BRUT 33 DEVICE" for briefs as an explicit proof
that it intended to expand its mark "BRUT" to other goods, thus the ruling in Sta. Ana vs. Maliwat and Evalle
(24 SCRA (1968) 101) stating that relief is available where the junior user's goods are not remote from any
product that the senior user would be likely to make or sell should be controlling. Respondents argued that
petitioner has never used its trademarks for briefs in commerce in the Philippinesand as such, respondent
seeks to register his trademark "BRUTE" only for briefs which is a product non-competitive to and entirely
unrelated with petitioner's aforementioned products.
ISSUE:
Whether or not the Court of Appeals correctly affirmed the ruling of the Director of Patents which
authorized respondent to register the trademark “BRUTE” for an unrelated product
RULING:
Yes. Private respondent may be permitted to register the trademark "BRUTE" for briefs produced by
it. In as much as petitioner has not ventured in the production of briefs, an item which is not listed in its
certificate of registration, petitioner should not be allowed to feign that respondent had invaded its exclusive
domain. It failed to annex the proof of its intention to expand the mark to other goods. Even then, a mere
application by petitioner may not vest an exclusive right in its favor that can ordinarily be protected by the
Trademark Law. Paraphrasing Section 20 of the Trademark Law, the certificate of registration issued by the
Director of Patents can confer upon petitioner the exclusive right to use its own symbol only to those goods
specified in the certificate, subject to any conditions and limitations stated therein. Justice Escolin cited the
case of American Foundries vs. Robertson (269 U.S. 372, 381, 70 L ed 317, 46 Sct. 160) stating that one who
has adopted and used a trademark on his goods does not prevent the adoption and use of the same trademark
by other for products which are of different description. To reconcile the apparent conflict between Section
4(d) which was relied upon by Justice JBL Reyes in the Sta. Ana case, as cited by petitioner and Section 20 of
the law, the Court said that Section 4(d) does not require that the goods manufactured by the second user be
related to the goods produced by the senior user while Section 20 limits the exclusive right of the senior user
only to those goods specified in the certificate of registration. Section 20 is controlling and, therefore, private
respondent can appropriate its symbol for the briefs it manufactures. Considering the products of petitioner
and respondent, there can be no doubt that confusion or the likelihood of deception to the average purchaser
is unlikely since the goods are non-competing and unrelated.
CANON KABUSHIKI KAISHA v. COURT OF APPEALS and NSR RUBBER CORPORATION
G.R. No. 120900, July 20, 2000, J. Gonzaga-Reyes
The certificate of registration confers upon the trademark owner the exclusive right to use its own
symbol only to those goods specified in the certificate, subject to the conditions and limitations stated therein.
FACTS:
Respondent NSR Rubber Corporation filed an application for registration of the mark CANON for
sandals. Petitioner Canon Kabushiki Kaisha opposed alleging that it will be damaged by such registration. It
presented as evidence its certificates of registration for the mark CANON in various countries covering goods
belonging to class 2 (paints, chemical products, toner, and dye stuff) and its Philippine Trademark
Registration. The dismissal of the opposition was affirmed by the Court of Appeals since the products of the
parties are dissimilar. Petitioner counters that notwithstanding the dissimilarity of the products of the
parties, the trademark owner is entitled to protection when the use of by the junior user "forestalls the
normal expansion of his business". It insists that it will be precluded from using the mark CANON for various
kinds of footwear, when in fact it has earlier used such mark for said goods.
ISSUE:
Whether or not the Court of Appeals correctly affirmed the dismissal of the opposition on the ground
that the products of the parties are unrelated or dissimilar.
RULING:
Yes. Petitioner failed to attach evidence that it embarked in the production of footwear products. The
Court reiterates the principle that the certificate of registration confers upon the trademark owner the
exclusive right to use its own symbol only to those goods specified in the certificate, subject to the conditions
and limitations stated therein. Thus, the exclusive right of petitioner in this case to use the trademark CANON
is limited to the products covered by its certificate of registration.
In cases of confusion of business or origin, the question that usually arises is whether the respective
goods or services of the senior user and the junior user are so related as to likely cause confusion of business
or origin, and thereby render the trademark or tradenames confusingly similar. Goods are related when they
belong to the same class or have the same descriptive properties; when they possess the same physical
attributes or essential characteristics with reference to their form, composition, texture or quality. They may
also be related because they serve the same purpose or are sold in grocery stores.
The products involved here are so unrelated that the public will not be misled that there is the
slightest nexus between petitioner and the goods of private respondent. Undoubtedly, the paints, chemical
products, toner and dyestuff of petitioner that carry the trademark CANON are unrelated to sandals, the
product of private respondent and also, the two classes of products in this case flow through different trade
channels. The products of petitioner are sold through special chemical stores or distributors while the
products of private respondent are sold in grocery stores, sari-sari stores and department stores. Thus, the
evident disparity of the products of the parties in the case at bar renders unfounded the apprehension of
petitioner that confusion of business or origin might occur if private respondent is allowed to use the mark
CANON.
MIGHTY CORPORATION v. E. & J. GALLO WINERY

G.R. No. 154342, 14 July 2004, Third Division, (Corona, J.)
The fact that one person has adopted and used a particular trademark for his goods does not prevent
the adoption and use of the same trademark by others on articles of a different description.
FACTS:
Gallo Winery is a foreign corporation not doing business in the Philippines but organized and
existing under the laws of California. Andresons has been Gallo Winery’s exclusive wine importer and
distributor in the Philippines since 1991, selling these products in its own name and for its own account.
Mighty Corporation and La Campana are engaged in the cultivation, manufacture, distribution and sale of
tobacco products for which they have been using the GALLO trademark for their cigarettes. E. & J. Gallo sued
Mighty Corporation sued Mighty Corporation for trademark infringement and unfair competition, when one
of their employees saw the Gallo cigarettes displayed together with Gallo wines in a supermarket. The
Regional Trial Court ruled that Mighty Corporation was liable for infringement and unfair competition and
permanently enjoined the using the GALLO trademark.
ISSUE:
Are GALLO cigarettes and GALLO wines identical, similar or related goods for the reason alone that
they are forms of vice?
RULING:
No. Confusion of goods is evident where the litigants are actually in competition; but confusion of
business may arise between non-competing interests as well. Wines and cigarettes are not identical or
competing products, neither do they belong to the same class of goods. Product classification alone cannot
serve as the decisive factor to determine if wines and cigarettes are related goods. Emphasis should be on the
similarity of the products involved and not on the arbitrary classification or general description of their
properties or characteristics. The mere fact that one person has adopted and used a particular trademark for
his goods does not prevent the adoption and use of the same trademark by others on articles of a different
description. Non-competing goods may be those which, though they are not in actual competition, are so
related to each other that it can reasonably be assumed that they originate from one manufacturer, in which
case, confusion of business can arise out of the use of similar marks. There is no trademark infringement if the
public does not expect the plaintiff to make or sell the same class of goods as those made or sold by the
defendant.
To determine whether goods are related, several factors come into play: the business (and its
location) to which the goods belong; the class of product to which the goods belong; the product's quality,
quantity, or size, including the nature of the package, wrapper or container; the nature and cost of the
articles; the descriptive properties, physical attributes or essential characteristics with reference to their
form, composition, texture or quality; the purpose of the goods; whether the article is bought for immediate
consumption, that is, day-to-day household items; the fields of manufacture; the conditions under which the
article is usually purchased; and the channels of trade through which the goods flow, how they are
distributed, marketed, displayed and sold.
5. Well-Known Marks
PRIBHDAS J. MIRPURI v. COURT OF APPEALS

G.R. No. 114508, 19 November 1999, First Division, (Puno, J.)
The essential requirement under the Paris Convention is that the trademark to be protected must be
“well-known” in the country where protection is sought.
FACTS:
Lolita Escobar, the predecessor-in-interest of Pribhdas Mirpuri (Mirpuri) sought for the registration
of the mark Barbizon for use in ladies undergarments. Barbizon Corporation, a corporation organized in the
United States opposed the registration because it was confusingly similar to the trademark Barbizon it owns
and has not abandoned. The Director of Patents dismissed the opposition in IPC No. 686. Escobar was issued
a certificate of registration for the trademark Barbizon. However due to non-compliance with certain
requirements, the certificate was cancelled. When Mirpuri tried to register again, Barbizon Corporation
opposed the application again. The Director of Patents dismissed the case since the case was barred by res
judicata. The Court of Appeals reversed the decision of the Director of Patents, rationating that there was no
res judicata since Barbizon raised new issues not found in the first case, also they raised rights protected
under a different law, the Paris Convention.
ISSUE:
Is the trademark of Barbizon which was previously registered in the United States protected by
Article 6bis of the Paris Convention?
RULING:
Yes. Article 6bis of the Paris Convention protects well-known trademarks. Each country of the Union
bound itself to undertake to refuse or cancel the registration, and prohibit the use of a trademark which is a
reproduction, imitation or translation, or any essential part of which trademark constitutes a reproduction,
liable to create confusion, of a mark considered by the competent authority of the country where protection is
sought, to be well-known in the country as being already the mark of a person entitled to the benefits of the
Convention, and used for identical or similar goods.
The essential requirement under Article 6bis is that the trademark to be protected must be “well-
known” in the country where protection is sought. The power to determine whether a trademark is well-
known lies in the “competent authority of the country of registration or use. Criterions were set by the
Minister Roberto Ongpin for the determination of well-known marks: (a) a declaration by the Minister of
Trade and Industry that the trademark being considered is already well-known in the Philippines such that
permission for its use by other than its original owner will constitute a reproduction, imitation, translation or
other infringement; (b) that the trademark is used in commerce internationally, supported by proof that
goods bearing the trademark are sold on an international scale, advertisements, the establishment of
factories, sales offices, distributorships, and the like, in different countries, including volume or other
measure of international trade and commerce; (c) that the trademark is duly registered in the industrial
property office(s) of another country or countries, taking into consideration the date of such registration; (d)
that the trademark has long been established and obtained goodwill and international consumer recognition
as belonging to one owner or source; (e) that the trademark actually belongs to a party claiming ownership
and has the right to registration under the provisions of the aforestated PARIS CONVENTION. Case is
remanded back to the Bureau of Patents for further proceedings.
MIGHTY CORPORATION AND LA CAMPANA FABRICA DE TABACO, INC. v. E. & J. GALLO WINERY AND
THE ANDRESONS GROUP, INC.
G.R. No. 154342, 14 July 2004, Third Division, (Corona, J.)
The Paris Convention for the Protection of Industrial Property does not automatically exclude all
countries of the world which have signed it from using a tradename which happens to be used in one country.
FACTS:
Gallo Winery is a foreign corporation not doing business in the Philippines but organized and
existing under the laws of California. Andresons has been Gallo Winery’s exclusive wine importer and
distributor in the Philippines since 1991, selling these products in its own name and for its own account. Gallo
Winery’s GALLO trademark was registered in 1971. Mighty Corporation and La Campana are engaged in the
cultivation, manufacture, distribution and sale of tobacco products for which they have been using the GALLO
trademark in the principal register of the then Philippine Patent Office since 1973. E. & J. Gallo sued Mighty
Corporation sued Mighty Corporation for trademark infringement and unfair competition, when one of their
employees saw the Gallo cigarettes displayed together with Gallo wines in a supermarket. The Regional Trial
Court ruled that Mighty Corporation was liable for infringement and unfair competition and permanently
enjoined the using the GALLO trademark.
ISSUE:
Is GALLO Wine trademark a well-known mark in the context of the Paris Convention in this case
since wines and cigarettes are not identical and similar goods?
RULING:
No. First, the records bear out that most of the trademark registrations took place in the late 1980s
and the 1990s, that is, after Tobacco Industries‘ use of the GALLO cigarette trademark in 1973 and
petitioners‘ use of the same mark in 1984. GALLO wines and GALLO cigarettes are neither the same, identical,
similar nor related goods, a requisite element under both the Trademark Law and the Paris Convention.
Second, the GALLO trademark cannot be considered a strong and distinct mark in the Philippines. Third and
most important, pursuant to our ruling in Canon Kabushiki Kaisha vs. Court of Appeals and NSR Rubber
Corporation, ―GALLO cannot be considered a ―well-known mark within the contemplation and protection of
the Paris Convention in this case since wines and cigarettes are not identical or similar goods:
Regarding the applicability of Article 8 of the Paris Convention, this Office believes that there is no
automatic protection afforded an entity whose tradename is alleged to have been infringed through the use of
that name as a trademark by a local entity. The Paris Convention for the Protection of Industrial Property
does not automatically exclude all countries of the world which have signed it from using a tradename which
happens to be used in one country. A set of guidelines in the implementation of Article 6bis of the Treaty of
Paris has been provided. These conditions are: the mark must be internationally known; the subject of the
right must be a trademark, not a patent or copyright or anything else; the mark must be for use in the same or
similar kinds of goods; and the person claiming must be the owner of the mark.
SEHWANI, INCORPORATED v. IN-N-OUT BURGER, INC.

G.R. No. 171053, 15 October 2007, Third Division, (Ynares-Santiago, J.)
The scope of protection initially afforded by Article 6bis of the Paris Convention has been expanded via a
nonbinding recommendation that a well-known mark should be protected in a country even if the mark is
neither registered nor used in that country.
FACTS:
IN-N-OUT Burger, Inc. is a foreign corporation organized under the laws of California and not doing
business in the Philippines. It is the owner of the trademark IN-N-OUT which is used in its business since
1948. IN-N-OUT Burger tried to register its trademark here, where it found out that Sehwani, Inc had
obtained Trademark Registration for the “IN N OUT” without its authority. IN-N-OUT Burger demanded that
Sehwani voluntarily cancel its trademark registration, which Sehwani refused. IN-N-OUT Burger filed a case
against Sehwani before the Bureau of Legal Affairs of the Intellectual Property Office. Sehwani alleged that IN-
N-OUT Burger lack the legal capacity to sue because it was not doing business in the Philippine and that it has
no cause of action because its mark is not registered or used in the Philippines. The Bureau Director found
that IN-N-OUT Burger has the capacity to sue and is the owner of the internationally well-known trademark
IN-N-OUT.
ISSUE:
Does IN-N-OUT Burger have legal capacity to sue?
RULING:
Yes. Section 160 in relation to Section 3 of R.A. No. 8293 provides that foreign nationals or juridical
persons who meet the requirements under Section 3 whether or not licensed to do business in the Philippines
may bring a civil or administrative action. The implementing rules of Republic Act 8293, specifically Section
(e) Rule 102 Criteria for determining whether a mark is well known, also takes into account the extent to which
the mark has been registered in the world in determining whether a mark is well known. IN-N-OUT Burger
submitted evidence consisting of articles about IN-N-OUT Burger appearing in magazines, newspapers and
print-out of what appears to be printed representations of its internet website, as well as videotapes of
famous celebrities mentioning IN-N-OUT burgers in the course of their interviews.
The scope of protection initially afforded by Article 6bis of the Paris Convention has been expanded
in the 1999 Joint Recommendation Concerning Provisions on the Protection of Well-Known Marks, wherein the
World Intellectual Property Organization (WIPO) General Assembly and the Paris Union agreed to a
nonbinding recommendation that a well-known mark should be protected in a country even if the mark is
neither registered nor used in that country. Part I, Article 2(3) thereof provides: (3) [Factors Which Shall Not
Be Required] (a) A Member State shall not require, as a condition for determining whether a mark is a well-
known mark: (i) that the mark has been used in, or that the mark has been registered or that an application
for registration of the mark has been filed in or in respect of, the Member State; (ii) that the mark is well
known in, or that the mark has been registered or that an application for registration of the mark has been
filed in or in respect of, any jurisdiction other than the Member State; or (iii) that the mark is well known by
the public at large in the Member State.
FREDCO MANUFACTURING CORPORATION v. PRESIDENT AND FELLOWS OF HARVARD COLLEGE

(HARVARD UNIVERSITY)
G.R. No. 185917, 1 June 2011, Second Division, (Carpio, J.)
A mark which is considered by the competent authority of the Philippines to be well-known

internationally and in the Philippines, whether or not it is registered here, cannot be registered by another in the
Philippines.
FACTS:
Fredco Manufacturing Corporation (Fredco) filed before the Intellectual Property Office a Petition for
Cancellation of Registration issued to Harvard University for the mark “Harvard Veritas Shield Symbol”.
Fredco claims that as early as 1982 the mark was already used in the Philippines by its predecessor-in-
interest. Harvard University claimed that the name and mark “Harvard” was adopted in 1639 as the name of
Harvard College of Cambridge, Massachusetts, USA. The marks had been used in commerce since 1872, and
was registered in more than 50 countries. The Bureau of Legal Affairs ruled in favor of Fredco and ordered
the cancellation of the mark. It found Fredco to be a prior user of the mark Harvard in the Philippines. The
Director General reversed the ruling on the ground that Fredco was not the owner of the mark sought to be
registered. The Court of Appeals affirmed the decision of the Director General.
ISSUE:
Did the Court of Appeals commit a reversible error in affirming the decision of the Office of the
Director General of the Intellectual Property Office?
RULING:
No. "Harvard" is the trade name of the world famous Harvard University, and it is also a trademark of
Harvard University. Under Article 8 of the Paris Convention, as well as Section 37 of R.A. No. 166, Harvard
University is entitled to protection in the Philippines of its trade name "Harvard" even without registration of
such trade name in the Philippines. This means that no educational entity in the Philippines can use the trade
name "Harvard" without the consent of Harvard University. Likewise, no entity in the Philippines can claim,
expressly or impliedly through the use of the name and mark "Harvard," that its products or services are
authorized, approved, or licensed by, or sourced from, Harvard University without the latter's consent.
To be protected under the two directives of the Ministry of Trade, an internationally well-known
mark need not be registered or used in the Philippines. All that is required is that the mark is well-known
internationally and in the Philippines for identical or similar goods, whether or not the mark is registered or
used in the Philippines. Section 123.1(e) of R.A. No. 8293 now categorically states that "a mark which is
considered by the competent authority of the Philippines to be well-known internationally and in the
Philippines, whether or not it is registered here," cannot be registered by another in the Philippines. Section
123.1(e) does not require that the well-known mark be used in commerce in the Philippines but only that it
be well-known in the Philippines.
6. Rights Conferred by Registration
BERRIS AGRICULTURAL CO., INC. v. NORVY ABYADANG

G.R. No. 183404, 13 October 2010, Second Division, (Nachura, J.)
The owner of a registered mark shall have the exclusive right to prevent all third parties not having the
owner's consent from using in the course of trade identical or similar signs or containers for goods or services
which are identical or similar to those in respect of which the trademark is registered where such use would
result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a
likelihood of confusion shall be presumed.
FACTS:
Norvy Abyadang (Abyadang) filed with the Intellectual Property Office (IPO) a trademark application
for the mark NS D-10 PLUS for use in connection with Fungicide with active ingredient 80% Mancozeb. The
application was given due course and was published with the IPO e-Gazette for opposition. Berris Agricultural
Co., Inc. (Berris) filed with the IPO its opposition against the mark under application allegedly because NS D-
10 PLUS is similar to its registered trademark D-10 80 WP also a fungicide with 80% Mancozeb. Berris has
established that it was using its mark “D-10 80 WP” since June 20, 2002 and filed for its registration on
November 2002. While Abyadang’s product “NS D-10 PLUS” had been in the market since July 30, 2003, after
its registration with the Fertilizer and Pesticide Authority (FPA). Abyadang claims that Berris only registered
with FPA on November 2004, therefore Abyadang is an earlier user compared to Berris.
ISSUE:
Whether or not Abyadang has a better right than Berris.
RULING:
No. Berris, as prior user and prior registrant, is the owner of the mark "D-10 80 WP.
Sec. 147. Rights Conferred.—
147.1. The owner of a registered mark shall have the exclusive right to prevent all third parties not
having the owner's consent from using in the course of trade identical or similar signs or containers for goods
or services which are identical or similar to those in respect of which the trademark is registered where such
use would result in a likelihood of confusion. In case of the use of an identical sign for identical goods or
services, a likelihood of confusion shall be presumed.
147.2. The exclusive right of the owner of a well-known mark defined in Subsection 123.1(e) which is
registered in the Philippines, shall extend to goods and services which are not similar to those in respect of
which the mark is registered: Provided, That use of that mark in relation to those goods or services would
indicate a connection between those goods or services and the owner of the registered mark: Provided,
further, That the interests of the owner of the registered mark are likely to be damaged by such use.
7. Infringement and Remedies
CONRAD AND COMPANY, INC. v. COURT OF APPEALS

G.R. No. 115115, 18 July 1995, Third Division, (Vitug, J.)
An application with BPTTT for an administrative cancellation of a registered trade mark cannot per se
have the effect of restraining or preventing the courts from the exercise of their lawfully conferred jurisdiction.
FACTS:
Fitrite, Inc. and Victoria Biscuit Co., Inc. are engaged in the business of manufacturing, selling and
distributing biscuits and cookies bearing the trademark “SUNSHINE” in the Philippines. Conrad and Company
is also engaged in the business of importing, selling, and distributing cookies and biscuits in the Philippines.
Fitrite discovered that Conrad and Company had been importing, selling and distributing biscuits and
cookies, and other food items bearing the “SUNSHINE” trademark in the Philippines. Fitrite demanded Conrad
to cease and desist from continuing with those acts, but the demand was ignored. Fitrite filed a case for
injunction with damages with the trial court and cancellation of trademark before the Bureau of Patents.
Conrad sought the dismissal invoking litis pendentia and the doctrine of primary jurisdiction. The trial court
granted the motion to dismiss. The Court of Appeals reversed the decision of the trial court and reinstated the
dismissed case before the trial court.
ISSUE:
Did the Court of Appeals err in allowing the trial court proceed with the case for injunction with
damages notwithstanding the pendency of an administrative case for the cancellation of the trademark?
RULING:
While an application for the administrative cancellation of a registered trademark on any of the
grounds enumerated in Section 17 of Republic Act No. 166, as amended, otherwise known as the Trade-Mark
Law, falls under the exclusive cognizance of BPTTT, an action, however, for infringement or unfair
competition, as well as the remedy of injunction and relief for damages, is explicitly and unquestionably
within the competence and jurisdiction of ordinary courts.
An application with BPTTT for an administrative cancellation of a registered trade mark cannot per
se have the effect of restraining or preventing the courts from the exercise of their lawfully conferred
jurisdiction. A contrary rule would unduly expand the doctrine of primary jurisdiction which, simply
expressed, would merely behoove regular courts, in controversies involving specialized disputes, to defer to
the findings or resolutions of administrative tribunals on certain technical matters.
It is apparent from the record that the invasion of the right FITRITE sought to protect is material and
substantial; that such right of FITRITE is clear and unmistakable; and that there is an urgent necessity to
prevent serious damage to FITRITE's business interest, goodwill and profit, thus under the authority of Sec.
23 of said Republic Act No. 166, as amended, a preliminary injunction may be issued in favor of FITRITE to
maintain the status quo pending trial of the action a quo on the merits without prejudice to the suspension of
such action if the aforesaid cancellation proceeding before the BPTTT has not been concluded."
SHANGRI-LA INTERNATIONAL HOTEL MANAGEMENT LTD. V. COURT OF APPEALS

G.R. No. 111580, 21 June 2001, First Division, (Ynares-Santiago, J.)
The filing of a suit to enforce the registered mark with the proper court or Bureau shall exclude any
other court or agency from assuming jurisdiction over a subsequently filed petition to cancel the same mark. On
the other hand, the earlier filing of petition to cancel the mark with the Bureau shall not constitute a prejudicial
question that must be resolved before an action to enforce the rights to same registered mark may be decided.
FACTS:
Shangri-La International Hotel Management Ltd. filed with the Bureau of Patents, Trademarks and
Technology Transfer (BPTTT) a petition for the cancellation of the registration of the “Shangri-La” mark and
“S” logo issued to the Developers Group of Companies, Inc. The Shangri-La Group filed with the BPTTT its
own application for registration of the subject mark and logo. The Developers Group opposed the application.
Three years later, the Developers Group instituted with the Regional Trial Court a complaint for infringement
and damages with prayer for injunction. The Shangri-La group moved for the suspension of the proceedings
in the infringement case on account of the pendency of the administrative proceedings before the BPTTT. The
trial court denied the motion. The Court of Appeals dismissed the petition for certiorari.
ISSUE:
Whether, despite the institution of a case for cancellation of a mark with the BPTTT (now the Bureau
of Legal Affairs, Intellectual Property Office) by one party, the adverse party can file a subsequent action for
infringement with the regular courts of justice in connection with the same registered mark?
RULING:
Yes. Rule 8, Section 7, of the Regulations on Inter Partes Proceedings, provides to wit -
Section 7. Effect of filing of a suit before the Bureau or with the proper court. - The filing of a suit to enforce the
registered mark with the proper court or Bureau shall exclude any other court or agency from assuming
jurisdiction over a subsequently filed petition to cancel the same mark. On the other hand, the earlier filing of
petition to cancel the mark with the Bureau shall not constitute a prejudicial question that must be resolved
before an action to enforce the rights to same registered mark may be decided.
Hence, as applied in the case at bar, the earlier institution of an Inter Partes case by the Shangri-La
Group for the cancellation of the "Shangri-La" mark and "S" device/logo with the BPTTT cannot effectively
bar the subsequent filing of an infringement case by registrant Developers Group.
The rationale is plain: Certificate of Registration No. 31904, upon which the infringement case is based,
remains valid and subsisting for as long as it has not been cancelled by the Bureau or by an infringement
court. As such, Developers Group's Certificate of Registration in the principal register continues as "prima
facie evidence of the validity of the registration, the registrant's ownership of the mark or trade-name, and of
the registrant's exclusive right to use the same in connection with the goods, business or services specified in
the certificate." Since the certificate still subsists, Developers Group may thus file a corresponding
infringement suit and recover damages from any person who infringes upon the former's rights.
MELBAROSE R. SASOT AND ALLANDALE R. SASOT v. PEOPLE OF THE PHILIPPINES, THE HONORABLE
COURT OF APPEALS, AND REBECCA G. SALVADOR, PRESIDING JUDGE, RTC, BRANCH 1, MANILA
G.R. NO. 143193, June 29, 2005, J. Austria-Martinez
A foreign corporation not doing business in the Philippines has capacity to sue for unfair competition
under Article 189 of the Revised Penal Code.
FACTS:
Allandale and Melbarose Sasot of Allandale Sportslines, Inc. were charged with a violation of Article
189 of the Revised Penal Code on unfair competition. The information alleges that the accused are engaged in
the manufacture, printing, sale, and distribution of counterfeit “NBA” garment products, thus inducing the
public to believe that the goods offered by them are those of NBA Properties, Inc. In their motion to quash, the
Sasots argue that the complainant is a foreign corporation not doing business in the Philippines, and cannot
be protected by Philippine patent laws.
ISSUE:
Whether a foreign corporation not engaged and licensed to do business in the Philippines may
maintain a cause of action for unfair competition
RULING:
Yes. The crime of Unfair Competition punishable under Article 189 of the Revised Penal Code is a
public crime. It is essentially an act against the State and it is the latter which principally stands as the injured
party, although there is a private right violated. Petitioner's capacity to sue would become, therefore, of not
much significance. Thus, the complainant’s capacity to sue in such case becomes immaterial. We cannot allow
a possible violator of our criminal statutes to escape prosecution upon a far-fetched contention that the
aggrieved party or victim of a crime has no standing to sue. Moreover, in upholding the right of the petitioner
to maintain the present suit before our courts for unfair competition or infringement of trademarks of a
foreign corporation, we are moreover recognizing our duties and the rights of foreign states under the Paris
Convention for the Protection of Industrial Property to which the Philippines and France are parties.
LEVI STRAUSS & CO., & LEVI STRAUSS (PHILS.), INC. v. CLINTON APPARELLE, INC.
G.R. NO. 138900, September 20, 2005, J. Tinga
Trademark dilution is the lessening of the capacity of a famous mark to identify and distinguish goods
or services, regardless of the presence or absence of: (1) competition between the owner of the famous mark and
other parties; or (2) likelihood of confusion, mistake or deception.
FACTS:
LS & Co. and LSPI filed a complaint for Trademark Infringement, Injunction and Damages against
Clinton Apparelle, Inc. for allegedly manufacturing jeans under the brand name "Paddocks" with a design
which is substantially similar to "Dockers and Design" trademark of the former. The trial court granted the
writ of preliminary injunction. Thereafter, Clinton Apparelle filed a Motion to Dismiss and a Motion for
Reconsideration of the Order granting the writ. Both motions were denied. Thus, Clinton Apparelle filed with
the CA a Petition for certiorari, assailing the orders of the trial court. The CA granted the petition, ruling that
the issuance of the injunctive writ is questionable; the petitioners having failed to sufficiently establish its
material and substantial right to have the writ issued, and the implementation of the questioned writ would
effectively shut down respondent's business. Hence, LS & Co. filed the present petition asserting that a
trademark owner does not have to wait until the mark loses its distinctiveness to obtain injunctive relief, and
that the mere use by an infringer of a registered mark is already actionable even if he has not yet profited
thereby or has damaged the trademark owner.
ISSUE:
Whether erosion or dilution of trademark is protectable by injunction
RULING:
Yes, the owner of a famous mark is entitled to an injunction against another person's commercial use
in commerce of a mark or trade name, if such use begins after the mark has become famous and causes
dilution of the distinctive quality of the mark. This is intended to protect famous marks from subsequent uses
that blur distinctiveness of the mark or tarnish or disparage it. However, in the case at bar, petitioners have
yet to establish whether "Dockers and Design" has acquired a strong degree of distinctiveness and whether
Clinton Apparelle began using its mark after the petitioners' mark became famous and such subsequent use
defames petitioners' mark. The Survey Report which petitioners presented to establish that there was
confusing similarity between two marks is not sufficient proof of any dilution that the trial court must enjoin.
Accordingly, the Court finds that petitioners did not adequately prove their entitlement to the injunctive writ.
In the absence of proof of a legal right and the injury sustained by the applicant, an order of the trial court
granting the issuance of an injunctive writ will be set aside for having been issued with grave abuse of
discretion.
TANDUAY DISTILLERS, INC. v. GINEBRA SAN MIGUEL, INC.

G.R. No. 164324, August 14, 2009, J. Carpio
The right to the exclusive use of the word "Ginebra" has yet to be determined in a full-blown trial, hence,
it is not proper to issue an injunctive writ in favor of San Miguel.
FACTS:
Tanduay developed and started selling a new gin product under the brand name “Ginebra Kapitan."
Later, it received a letter from San Miguel's counsel which states that it immediately cease and desist from
using the mark "Ginebra" owned by San Miguel. Then, San Miguel filed a complaint for trademark
infringement with applications for issuance of TRO and Writ of Preliminary Injunction against Tanduay. After
hearing, the trial court issued a TRO and later granted the Writ of Preliminary Injunction, concluding that San
Miguel had demonstrated a clear, positive, and existing right to be protected by injunctive relief. So, Tanduay
filed a petition for certiorari with the CA. Such petition was later dismissed by the CA which ruled that based
on San Miguel's extensive, continuous, and substantially exclusive use of the word "Ginebra," it has become
distinctive of San Miguel's gin products; thus, a clear and unmistakable right was shown. Thereafter, Tanduay
elevated the case before the Supreme Court. Tanduay asserts that not one of the requisites for the valid
issuance of a preliminary injunction is present in this case. Tanduay argues that San Miguel cannot claim the
exclusive right to use the generic word "Ginebra" since other liquor companies also use "Ginebra" as part of
their brand names such as Ginebra Pinoy and Ginebra Presidente, among others. It further claims that the CA
has prejudged the merits of the case since nothing is left to be decided by the trial court
ISSUE:
Whether San Miguel is entitled to the writ of preliminary injunction granted by the trial court as
affirmed by the CA
RULING:
No. Before an injunctive writ is issued, it is essential that the following requisites are present: (1) the
existence of a right to be protected and (2) the acts against which the injunction is directed are violative of the
right. In this case, it is not evident whether San Miguel has the right to prevent other business entities from
using the word "Ginebra." The right to the exclusive use of the word "Ginebra" has yet to be determined in the
main case. San Miguel's claim to the exclusive use of the word "Ginebra" is clearly still in dispute because of
Tanduay's claim that it has, as others have, also registered the word "Ginebra" for its gin products. This issue
can be resolved only after a full-blown trial.
While generally the grant of a writ of preliminary injunction rests on the sound discretion of the
court, courts should avoid issuing a writ of preliminary injunction which would in effect dispose of the main
case without trial. In this case, the issuance of the writ of preliminary injunction had the effect of granting the
main prayer of the complaint such that there is practically nothing left for the trial court to try except the
plaintiff's claim for damages.
a. Trademark Infringement
DEL MONTE CORPORATION AND PHILIPPINE PACKING CORPORATION v. COURT OF APPEALS AND
SUNSHINE SAUCE MANUFACTURING INDUSTRIES
G.R. No. 78325, January 25, 1990, J. Cruz
The question is not whether the two articles are distinguishable by their label when set side by side but
whether the general confusion made by the article upon the eye of the casual purchaser who is unsuspicious and
off his guard, is such as to likely result in his confusing it with the original.
FACTS:
In 1965, Philippine Packing was authorized by Del Monte to manufacture and sell catsup under the
Del Monte trademark. In 1980, Sunshine Sauce registered its logo for catsup which is contained in various
kinds of bottles, including the Del Monte bottle it buys from junk shops. Del Monte, upon learning that
Sunshine was using its bottles and a logo confusingly similar to it, filed a complaint against Sunshine for
infringement of trademark. After hearing, the trial court dismissed the complaint, ruling that there were
substantial differences between the logos. The shape, brand, words, lettering, color, shape, of the logos and
the color of the products were different.
ISSUE:
Whether or not there is infringement.
RULING:
Yes, side-by-side comparison is not the final test of similarity. The question is not whether the two
articles are distinguishable by their label when set side by side but whether the general confusion made by
the article upon the eye of the casual purchaser who is unsuspicious and off his guard, is such as to likely
result in his confusing it with the original. As a general rule, an ordinary buyer does not exercise as much
prudence in buying an article for which he pays a few centavos as in this case, catsup. In the present case,
even if the labels were analyzed together, it is not difficult to see that the Sunshine label is a colorable
imitation of the Del Monte trademark. The predominant colors used in the Del Monte label are green and red-
orange, the same with Sunshine. The word "catsup" in both bottles is printed in white and the style of the
print/letter is the same. Although the logo of Sunshine is not a tomato, the figure nevertheless approximates
that of a tomato. The inevitable conclusion is that it was guilty of infringement.
With regard to bottle use, the Court ruled that Sunshine is not guilty of infringement for having used
the Del Monte bottle since the patent for the bottle was only registered under the Supplemental Register.
Under the law, registration under the Supplemental Register is not a basis for a case of infringement because
unlike registration under the Principal Register, it does not grant exclusive use of the patent. However, such
use may constitute unfair competition since Sunshine may be considered passing off its own product as that
of Del Monte.
ASIA BREWERY, INC. v. THE HON. COURT OF APPEALS AND SAN MIGUEL CORPORATION
G.R. No. 103543, July 05, 1993, J. Grino-Aquino
Infringement is determined by the "test of dominancy", that is, similarity in the dominant features of the
trademarks. If the competing trademark contains the main or essential or dominant features of another, and
confusion and deception is likely to result, infringement takes place.
FACTS:
San Miguel Corporation filed a complaint against Asia Brewery, Inc. for infringement of trademark on
account of the latter’s BEER PALE PILSEN or BEER NA BEER product which has been competing with SMC’s
SAN MIGUEL PALE PILSEN. The registered trademark of SMC for its beer is a rectangular design bordered by
minute grains arranged in rows of three in which there appear in each corner hopdesigns. The dominant
feature is the phrase 'San Miguel’ written horizontally at the upper portion. Below are the words 'Pale Pilsen'
written diagonally across the middle of the rectangular design. In between is a coat of arms and the phrase
'Expertly Brewed.' The 'S' in 'San' and the 'M' of 'Miguel,' 'P' of 'Pale' and 'Pilsen' are written in Gothic letters.
Below 'Pale Pilsen' is the statement 'And Bottled by San Miguel Brewery Philippines.’ On the other hand, ABI's
trademark consists of a rectangular design bordered by buds of flowers with leaves. The dominant feature is
'Beer' written across the upper portion of the rectangular design. The phrase 'Pale Pilsen' appears
immediately below in smaller block letters. Immediately below 'Pale Pilsen' is the statement written in three
lines 'Especially brewed and bottled by Asia Brewery Incorporated Philippines.'
ISSUE:
Whether ABI infringes SMC's trademark
RULING:
No. Infringement is determined by the "test of dominancy" rather than by differences or variations in
the details of one trademark and of another. If the competing trademark contains the main or essential or
dominant features of another, and confusion and deception is likely to result, infringement takes place. In the
present case, the dominant feature of SMC's trademark is the name of the product, SAN MIGUEL PALE
PILSEN, written in white Gothic letters. On the other hand, the dominant feature of ABI's trademark is the
name, BEER PALE PILSEN, with the word "Beer" written in large amber letters, larger than any of the letters
found in the SMC label. As can be observed, the word "BEER" does not appear in SMC's trademark, just as the
words "SAN MIGUEL" do not appear in ABI's trademark. Hence, there is absolutely no similarity in the
dominant features of both trademarks. Besides this dissimilarity, the competing products differ in appearance
such that SMC’s bottle has a slender tapered neck and which carries the SMC logo, while ABI’s bottle has a fat,
bulging neck and carries no logo, and the names of the manufacturers are prominently printed on their
respective bottles, among others. Finally, there is a substantial price difference between BEER PALE PILSEN
currently at P4.25 per bottle and SAN MIGUEL PALE PILSEN at P7.00 per bottle. One who pays only P4.25 for
a bottle of beer cannot expect to receive San Miguel Pale Pilsen from the storekeeper or bartender.
PEARL & DEAN (PHIL.), INCORPORATED v. SHOEMART, INCORPORATED, AND NORTH EDSA
G.R. No. 148222, August 15, 2003, J. Corona
One who has adopted and used a trademark on his goods does not prevent the adoption and use of the
same trademark by others for products which are of a different description.
FACTS:
simply referred to as light boxes which were marketed under the trademark Poster Ads. Later, it was engaged
by SM for the lease and installation of the light boxes in SM City North Edsa. However, SM rescinded the
contract. Two years later, Metro Industrial Services, the company formerly contracted by P & D to
manufacture its display units, was engaged by SM to construct light boxes for its chain of stores. After its
contract with Metro Industrial was terminated, SM engaged the services of EYD Rainbow Advertising
Corporation to make the light boxes. It advertises the lighted display units under the mark Poster Ads. Later,
P & D received reports that exact copies of its light boxes were installed in some branches of SMI. It filed a
case for infringement of trademark. In its answer, SM argued that the P & D’s registration of the mark Poster
Ads was only for stationeries such as letterheads, envelopes, and the like. Besides, according to SM, the word
Poster Ads is a generic term which cannot be appropriated as a trademark, and, as such, registration of such
mark is invalid
ISSUE:
Whether can the owner of a registered trademark legally prevent others from using such trademark
if it is a mere abbreviation of a term descriptive of his goods, services or business
RULING:
No, "Poster Ads" was generic and incapable of being used as a trademark because it was used in the
field of poster advertising, the very business engaged in by petitioner. It could not distinguished P & D’s goods
from the goods and services of other entities. Although a name or phrase originally incapable of
appropriation as a trademark may, by long and exclusive use by a business, be entitled to protection or the
so-called secondary meaning, there was no evidence that P D's use of "Poster Ads" was distinctive or well-
known. Thus, such words could not be appropriated by P & D.
Moreover, the trademark certificate secured by P & D was for stationeries such as letterheads,
envelopes, calling cards and newsletters. The light boxes were not at all specified in the trademark certificate.
The certificate of registration confers upon the registered owner the exclusive right to use its own symbol
only to those goods specified in the certificate. One who has adopted and used a trademark on his goods does
not prevent the adoption and use of the same trademark by others for products which are of a different
description. Assuming arguendo that “Poster Ads” could validly qualify as a trademark, the failure of P & D to
secure a trademark registration for specific use on the light boxes meant that there could not have been any
trademark infringement since registration was an essential element thereof.
WILLIAM C. YAO, SR., LUISA C. YAO, RICHARD C. YAO, WILLIAM C. YAO JR., AND ROGER C. YAO v. THE
PEOPLE OF THE PHILIPPINES, PETRON CORPORATION AND PILIPINAS SHELL PETROLEUM CORP., AND
ITS PRINCIPAL, SHELL INT'L PETROLEUM CO. LTD.
G.R. NO. 168306, June 19, 2007, J. Chico-Nazario
Mere unauthorized use of a container bearing a registered trademark in connection with the sale,
distribution or advertising of goods or services which is likely to cause confusion, mistake or deception among
the buyers or consumers can be considered as trademark infringement.
FACTS:
Masagana Gas Corporation is engaged in the refilling, sale and distribution of LPG products. Upon
investigation, it was found to be refilling LPG steel cylinders bearing the trademarks GASUL and SHELLANE
which belong to Petron and Pilipinas Shell respectively, and consequently distributing the same to its
customers.
ISSUE:
Whether there is trademark infringement
RULING:
Yes. As can be gleaned in Section 155.1, mere unauthorized use of a container bearing a registered
trademark in connection with the sale, distribution or advertising of goods or services which is likely to cause
confusion, mistake or deception among the buyers or consumers can be considered as trademark
infringement. In the present case, Masagana is not authorized to sell, use, refill or distribute GASUL and
SHELLANE LPG cylinder containers. It is utilizing the cylinders in violation of the intellectual property rights
of Petron and Pilipinas Shell.
GEMMA ONG A.K.A. MARIA TERESA GEMMA CATACUTAN v. PEOPLE OF THE PHILIPPINES
G.R. No. 169440, November 23, 2011, J. Leonardo-De Castro
Any person who shall, without the consent of the owner of the registered mark, counterfeits a registered
mark or a dominant feature thereof and apply such counterfeit to packages intended to be used in commerce is
liable for infringement regardless of whether there is actual sale of goods using the infringing material.
FACTS:
Gemma Ong was charged with Trademark Infringement. She was allegedly offering for sale
counterfeit Marlboro cigarettes in violation of the rights of La Suerte Cigar and Cigarettes Factory, the
exclusive manufacturer of Marlboro Cigarette in the Philippines and that of Philip Morris Products, Inc., the
registered owner and proprietor of the MARLBORO trademark. Counterfeit goods were not only found in her
possession and control, but also in the building registered under her business, Fascinate Trading.
ISSUE:
Whether or not there is infringement.
RULING:
Yes. All the elements to establish trademark infringement are present in this case. The trademark
“Marlboro” is not only valid for being neither generic nor descriptive, it was also exclusively owned by PMPI,
as evidenced by the certificate of registration issued by the Intellectual Property Office. Also, the counterfeit
cigarettes were intended to confuse and deceive the public as to the origin of the cigarettes intended to be
sold. They not only bore PMPI’s mark, but they were also packaged almost exactly as PMPI’s product.
Moreover, under the law, any person who shall, without the consent of the owner of the registered mark,
counterfeits a registered mark or a dominant feature thereof and apply such counterfeit to packages intended
to be used in commerce is liable for infringement regardless of whether there is actual sale of goods using the
infringing material.
REPUBLIC GAS CORPORATION v. PETRON CORPORATION, PILIPINAS SHELL PETROLEUM
CORPORATION, and SHELL INTERNATIONAL PETROLEUM COMPANY LIMITED
G.R. No. 194062, June 17, 2013, J. Peralta
Mere unauthorized use of a container bearing a registered trademark in connection with the sale,
distribution or advertising of goods or services which is likely to cause confusion, mistake or deception among
the buyers or consumers can be considered as trademark infringement.
FACTS:
Petron Corporation and Pilipinas Shell Petroleum Corporation are two of the largest bulk suppliers
and producers of LPG in the Philippines. Petron is the registered owner in the Philippines of the trademarks
GASUL and GASUL cylinders used for its LGP products. Pilipinas Shell, on the other hand, is the authorized
user including the marks SHELLANE and SHELL device in connection with the production, sale and
distribution of SHELLANE LPGs of Republic Gas Corporation ("REGASCO"), an entity duly licensed to engage
in, conduct and carry on, the business of refilling, buying, selling, distributing and marketing at wholesale and
retail of Liquefied Petroleum Gas ("LPG"). LPG Dealers Associations, such as the Shellane Dealers Association,
Inc., Petron Gasul Dealers Association, Inc. and Total gaz Dealers Association, received reports that certain
entities were engaged in the unauthorized refilling, sale and distribution of LPG cylinders bearing the
registered tradenames and trademarks of the petitioners. The associations filed a letter-complaint in NBI
regarding the alleged illegal trading of petroleum products.
NBI operatives, then conducted a test-buy operation. They brought with them four (4) empty LPG
cylinders bearing the trademarks of SHELLANE and GASUL and included the same with the purchase of J&S, a
REGASCO’s regular customer The LPG cylinders refilled by REGASCO were likewise found later to be
underrefilled. The NBI agent applied for the issuance of search warrants against REGASCO.
The Department of Justice dismissed the complaint for insufficiency of evidence. However, CA
reversed the ruling of DOJ. Hence, this petition.
ISSUE:
Whether or not there was trademark infringement in the case at bar.
RULING:
The Court in a very similar case, made it categorically clear that the mere unauthorized use of a
container bearing a registered trademark in connection with the sale, distribution or advertising of goods or
services which is likely to cause confusion, mistake or deception among the buyers or consumers can be
considered as trademark infringement. Here, petitioners have actually committed trademark infringement
when they refilled, without the respondents’ consent, the LPG containers bearing the registered marks of the
respondents.
CENTURY CHINESE MEDICINE CO., MING SENG CHINESE DRUGSTORE, XIANG JIAN CHINESE DRUG
STORE, TEK SAN CHINESE DRUG STORE, SIM SIM CHINESE DRUG STORE, BAN SHIONG TAY CHINESE
DRUG STORE and/or WILCENDO TAN MENDEZ, SHUANG YING CHINESE DRUGSTORE, and BACLARAN
CHINESE DRUG STORE v. PEOPLE OF THE PHILIPPINES and LING NA LAU
G.R. No. 188526, November 11, 2013, J. Peralta
A.M. No. 02-1-06-SC, which provides for the Rules on the Issuance of the Search and Seizure in Civil
Actions for Infringement of Intellectual Property Rights, is not applicable in this case as the search warrants
were not applied based thereon, but in anticipation of criminal actions for violation of intellectual property
rights under RA 8293.
FACTS:
Ling Na Lau is the sole distributor and registered trademark owner of TOP GEL T.G & DEVICE OF A
LEAF Papaya whitening soap for a period of 10 years. Ling Na Lau wrote a letter to NBI requesting assistance
for an investigation on several drugstores which are selling counterfeit whitening papaya soaps bearing the
general appearance of their product which found out that there is such counterfeiting scheme that was
happening. NBI then applied for issuance of search warrants before the RTC of Makati against the Century
Chinese Medicine for violation of Intellectual Code of the Philippines particularly the provisions on trademark
infringement.
The respondent moved to quash the said warrant due to forum shopping and prejudicial question on
who between Yu and the respondent is the owner of the trademark. However, during the pendency of the
case, there was a compromise agreement entered into by the parties. Thereafter, the RTC sustained the
Motion to Quash the search warrant. The respondent went to CA which reversed the quashal of the search
warrant. Hence, this petition.
ISSUE:
Whether or not the the quashal of the search warrant is valid.
RULING:
No. The Supreme Court agrees with the CA that A.M. No. 02-1-06-SC, which provides for the Rules on
the Issuance of the Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights, is not
applicable in this case as the search warrants were not applied based thereon, but in anticipation of criminal
actions for violation of intellectual property rights under RA 8293. It was established that respondent had
asked the NBI for assistance to conduct investigation and search warrant implementation for possible
apprehension of several drugstore owners selling imitation or counterfeit TOP GEL T.G. & DEVICE OF A LEAF
papaya whitening soap. Also, in his affidavit to support his application for the issuance of the search warrants,
NBI Agent Furing stated that "the items to be seized will be used as relevant evidence in the criminal actions
that are likely to be instituted." Hence, Rule 126 of the Rules of Criminal Procedure applies.
The affidavits of NBI Agent Furing and his witnesses, clearly showed that they are seeking protection
for the trademark "TOP GEL T.G. and DEVICE OF A LEAF" registered to respondent as issued by the IPO and
no other. While petitioners claim that the product they are distributing was owned by Yu with the trademark
TOP GEL MCA and MCA DEVISE it was different from the trademark TOP GEL T.G. and DEVICE OF A LEAF
subject of the application of warrant to which the protection of the said trademark is asked. In the case at bar,
the requisites for the issuance of the search warrants had been complied with and that there is probable
cause to believe that an offense had been committed and that the objects sought in connection with the
offense were in the places to be searched.
8. Unfair Competition
ASIA BREWERY, INC. v. THE HON. COURT OF APPEALS and SAN MIGUEL CORPORATION
G.R. No. 103543,July 5, 1993, J.Grino-Aquino
Unfair competition is the employment of deception or any other means contrary to good faith by which
a person shall pass off the goods manufactured by him for those of another who has already established goodwill
for his similar goods.
FACTS:
On September 15, 1988, San Miguel Corporation (SMC) filed a complaint against Asia Brewery Inc.
(ABI) for infringement of trademark and unfair competition on account of the latter's BEER PALE PILSEN or
BEER NA BEER product which has been competing with SMC's SAN MIGUEL PALE PILSEN for a share of the
local beer market.
On August 27, 1990, a decision was rendered by the trial Court dismissing SMC's complaint because
ABI "has not committed trademark infringement or unfair competition against" SMC. On appeal, the Court of
Appeals reversed and set aside the decision of the trial court. However, upon motion for reconsideration, the
CA found ABI guilty of infringement. Hence, this petition.
ISSUE:
Whether or not ABI committed unfair competition against the SMC.
RULING:
ABI is not guilty of unfair competition for unfair competition is the employment of deception or any
other means contrary to good faith by which a person shall pass off the goods manufactured by him for those
of another who has already established goodwill for his similar goods. The universal test for this is whether
the public is likely to be deceived. Actual or probable deception and confusion on the part of the customers by
reason of defendant’s practices must appear. However, this is unlikely to happen in the case at bar for
consumers generally order beer by brand. Also, the fact that ABI also uses amber-colored steinie bottles
cannot constitute unfair competition for ABI did not copy SMC’s bottle. SMC did not invent but merely
borrowed the steinie bottle from abroad. Likewise, amber is the most effective color in preventing
transmission of light thus providing maximum protection to beer. 320 ml is likewise the standard prescribed
under Metrication Circular No. 778. The fact that it is the first to use the steinie bottle does not give SMC a
vested right to use it to the exclusion of everyone else. Nobody can acquire any exclusive right to market
articles supplying the simple human needs in containers or wrappers of the general form, size and character
commonly and immediately used in marketing such articles. There is no confusing similarity between the
competing beers therefore ABI neither infringed SMC’s trademark nor did it commit unfair competition.
Considering further that SAN MIGUEL PALE PILSEN has virtually monopolized the domestic beer
market for the past hundred years, those who have been drinking no other beer but SAN MIGUEL PALE
PILSEN these many years certainly know their beer too well to be deceived by a newcomer in the market. If
they gravitate to ABI's cheaper beer, it will not be because they are confused or deceived, but because they
find the competing product to their taste. There is no confusing similarity between the competing beers for
the name of one is "SAN MIGUEL" while the competitor is plain "BEER" and the points of dissimilarity
between the two outnumber their points of similarity. Petitioner ABI has neither infringed SMC's trademark
nor committed unfair competition with the latter's SAN MIGUEL PALE PILSEN product. Thus, there is no
unfair competition in the case at bar.
MCDONALD’S CORP. v. L.C. BIG MAK BURGER, INC.

August 18, 2004,G.R. No. 143993, J. Carpio
The essential elements of an action for unfair competition are (1) confusing similarity in the general
appearance of the goods, and (2) intent to deceive the public and defraud a competitor. The confusing similarity
may or may not result from similarity in the marks, but may result from other external factors in the packaging
or presentation of the goods.
FACTS:
Petitioner McDonald's Corporation ("McDonald's") is a US corporation that operates a global chain of

fast-food restaurants which owns the "Big Mac" mark for its "double-decker hamburger sandwich" registered
with the US Trademark Registry and likewise applied and granted registration here in the Philippines.
Respondent L.C. Big Mak Burger, Inc. is a domestic corporation which operates fast-food outlets and
snack vans in Metro Manila and nearby provinces. Respondent corporation's menu includes hamburger
sandwiches and other food items where it applied for the registration of the mark “Big Mak”. This application
was opposed by McDonald’s for being an infringement to its registered mark and such constitutes unfair
competition.
RTC rendered a Decision finding respondent corporation liable for trademark infringement and
unfair competition but it was reversed by CA who applied the holistic test in the case at bar.
ISSUE:
Whether or not respondent L.C. Big Mak Burger, Inc. committed unfair competition.
RULING:
Yes. The essential elements of an action for unfair competition are (1) confusing similarity in the
general appearance of the goods, and (2) intent to deceive the public and defraud a competitor. The confusing
similarity may or may not result from similarity in the marks, but may result from other external factors
in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from the
similarity of the appearance of the goods as offered for sale to the public. Actual fraudulent intent need not be
shown.
Unfair competition is broader than trademark infringement and includes passing off goods with or
without trademark infringement. Trademark infringement is a form of unfair competition. Trademark
infringement constitutes unfair competition when there is not merely likelihood of confusion, but
also actual or probable deception on the public because of the general appearance of the goods. There can be
trademark infringement without unfair competition as when the infringer discloses on the labels containing
the mark that he manufactures the goods, thus preventing the public from being deceived that the goods
originate from the trademark owner.
The dissimilarities in the packaging are minor compared to the stark similarities in the words that
give respondents' "Big Mak" hamburgers the general appearance of petitioners' "Big Mac" hamburgers.
Section 29(a) expressly provides that the similarity in the general appearance of the goods may be in the
"devices or words" used on the wrappings. Respondents have applied on their plastic wrappers and bags
almost the same words that petitioners use on their styrofoam box. What attracts the attention of the buying
public are the words "Big Mak" which are almost the same, aurally and visually, as the words "Big Mac." The
dissimilarities in the material and other devices are insignificant compared to the glaring similarity in the
words used in the wrappings. Section 29(a) also provides that the defendant gives "his goods the general
appearance of goods of another manufacturer." Respondents' goods are hamburgers which are also the goods
of petitioners. If respondents sold egg sandwiches only instead of hamburger sandwiches, their use of the
"Big Mak" mark would not give their goods the general appearance of petitioners' "Big Mac" hamburgers. In
such case, there is only trademark infringement but no unfair competition. However, since respondents chose
to apply the "Big Mak" mark on hamburgers, just like petitioner's use of the "Big Mac" mark on hamburgers,
respondents have obviously clothed their goods with the general appearance of petitioners' goods.
SONY COMPUTER ENTERTAINMENT, INC. v. SUPERGREEN, INCORPORATED

G.R. No. 161823, March 22, 2007, J. Quisimbing
Unfair competition is a transitory or continuing offense under Section 168 of Republic Act No. 8293. As
such, petitioner may apply for a search warrant in any court where any element of the alleged offense was
committed, including any of the courts within Metro Manila and may be validly enforced in Cavite.
FACTS:
The case stemmed from the complaint filed with the National Bureau of Investigation (NBI) by
petitioner Sony Computer Entertainment, Inc., against respondent Supergreen, Incorporated. The NBI found
that respondent engaged in the reproduction and distribution of counterfeit "PlayStation" game software,
consoles and accessories in violation of Sony Computer’s intellectual property rights. Thus, NBI applied wit
RTC of Manila warrants to search Supergreen’s premises in Parañaque City and Cavite.
On August 4, 2001, respondent filed another motion to quash, this time, questioning the propriety of
the venue. But in an Order3 dated October 5, 2001, the trial court affirmed the validity of Search Warrants
covering respondent’s premises in Parañaque City, but quashed Search Warrants covering respondent’s
premises in Cavite.
ISSUE:
Whether or not the quashal of search warrants covering the premises in Cavite is valid.
RULING:
No. Petitioner further asserts that even granting that the rules on search warrant applications are
jurisdictional, the application filed either in the courts of the National Capital Region or Fourth Judicial Region
is still proper because the crime was continuing and committed in both Parañaque City and Cavite.
We agree with petitioner that this case involves a transitory or continuing offense of unfair
competition under Section 168 of Republic Act No. 8293. Respondent’s imitation of the general appearance of
petitioner’s goods was done allegedly in Cavite. It sold the goods allegedly in Mandaluyong City, Metro Manila.
The alleged acts of unfair competition would constitute a transitory or continuing offense. Thus, clearly,
under Section 2 (b) of Rule 126, Section 168 of Rep. Act No. 8293 and Article 189 (1) of the Revised Penal
Code, petitioner may apply for a search warrant in any court where any element of the alleged offense was
committed, including any of the courts within the National Capital Region (Metro Manila).
COCA-COLA BOTTLERS, PHILS., INC. (CCBPI), Naga Plant v. QUINTIN J. GOMEZ, a.k.a. "KIT" GOMEZ and
DANILO E. GALICIA, a.k.a. "DANNY GALICIA"
G.R. No. 154491, November 14, 2008, J. Brion
Hoarding does not relate to any patent, trademark, trade name or service mark that the respondents
have invaded, intruded into or used without proper authority from the petitioner. Nor are the respondents
alleged to be fraudulently "passing off" their products or services as those of the petitioner. Hence, hoarding is
not an act that would constitute unfair competition.
FACTS:
Coca-Cola applied for a search warrant against Pepsi for hoarding Coke empty bottles in Pepsi's yard
in Concepcion Grande, Naga City, an act allegedly penalized as unfair competition under the IP Code. Coca-
Cola claimed that the bottles must be confiscated to preclude their illegal use, destruction or concealment by
the respondents. The MTC issued a search warrant, but it was voided by the RTC for lack of probable cause.
ISSUE:
Whether or not hoarding of bottles constitutes an offense of unfair competition.
HELD:
NO. The act alleged to violate the petitioner's rights under Section 168.3 (c) is hoarding which we
gather to be the collection of the petitioner's empty bottles so that they can be withdrawn from circulation
and thus impede the circulation of the petitioner's bottled products. This, according to the petitioner, is an act
contrary to good faith - a conclusion that, if true, is indeed an unfair act on the part of the respondents. The
critical question, however, is not the intrinsic unfairness of the act of hoarding; what is critical for purposes of
Section 168.3 (c) is to determine if the hoarding, as charged, "is of a nature calculated to discredit the goods,
business or services" of the petitioner. We hold that it is not. Hoarding as defined by the petitioner is not even
an act within the contemplation of the IP Code.
We conclude that the "hoarding" - as defined and charged by the petitioner - does not fall within the
coverage of the IP Code and of Section 168 in particular. It does not relate to any patent, trademark, trade
name or service mark that the respondents have invaded, intruded into or used without proper authority
from the petitioner. Nor are the respondents alleged to be fraudulently "passing off" their products or
services as those of the petitioner. The respondents are not also alleged to be undertaking any representation
or misrepresentation that would confuse or tend to confuse the goods of the petitioner with those of the
respondents, or vice versa. What in fact the petitioner alleges is an act foreign to the Code, to the concepts it
embodies and to the acts it regulates; as alleged, hoarding inflicts unfairness by seeking to limit the
opposition's sales by depriving it of the bottles it can use for these sales.
REPUBLIC GAS CORPORATION v. PETRON CORPORATION, PILIPINAS SHELL PETROLEUM

CORPORATION, and SHELL INTERNATIONAL PETROLEUM COMPANY LIMITED
G.R. No. 194062, June 17, 2013, J. Peralta
By refilling and selling LPG cylinders bearing their registered marks of the Petron and Shell, REGASCO
are selling goods by giving them the general appearance of goods of another manufacturer which constitutes as
unfair competition.
FACTS:
Petron Corporation and Pilipinas Shell Petroleum Corporation are two of the largest bulk suppliers
and producers of LPG in the Philippines. Petron is the registered owner in the Philippines of the trademarks
GASUL and GASUL cylinders used for its LGP products. Pilipinas Shell, on the other hand, is the authorized
user including the marks SHELLANE and SHELL device in connection with the production, sale and
distribution of SHELLANE LPGs of Republic Gas Corporation ("REGASCO"), an entity duly licensed to engage
in, conduct and carry on, the business of refilling, buying, selling, distributing and marketing at wholesale and
retail of Liquefied Petroleum Gas ("LPG"). LPG Dealers Associations, such as the Shellane Dealers Association,
Inc., Petron Gasul Dealers Association, Inc. and Total gaz Dealers Association, received reports that certain
entities were engaged in the unauthorized refilling, sale and distribution of LPG cylinders bearing the
registered tradenames and trademarks of the petitioners. The associations filed a letter-complaint in NBI
regarding the alleged illegal trading of petroleum products.
NBI operatives, then conducted a test-buy operation. They brought with them four (4) empty LPG
cylinders bearing the trademarks of SHELLANE and GASUL and included the same with the purchase of J&S, a
REGASCO’s regular customer The LPG cylinders refilled by REGASCO were likewise found later to be
underrefilled. The NBI agent applied for the issuance of search warrants against REGASCO.
The Department of Justice dismissed the complaint for insufficiency of evidence. However, CA
reversed the ruling of DOJ. Hence, this petition.
ISSUE:
Whether or not there was unfair competition in the case at bar.
RULING:
Yes. As to the charge of unfair competition it is said that by passing off (or palming off) or attempting
to pass off upon the public of the goods or business of one person as the goods or business of another with the
end and probable effect of deceiving the public constitutes unfair competition. In the present case,
respondents pertinently observed that by refilling and selling LPG cylinders bearing their registered marks,
petitioners are selling goods by giving them the general appearance of goods of another manufacturer. CA
correctly pointed out that there is a showing that the consumers may be misled into believing that the LPGs
contained in the cylinders bearing the marks "GASUL" and "SHELLANE" are those goods or products of the
petitioners when, in fact, they are not.
SHANG PROPERTIES REALTY CORPORATION (formerly THE SHANG GRAND TOWER CORPORATION)
and SHANG PROPERTIES, INC. (formerly EDSA PROPERTIES HOLDINGS, INC.) v. ST. FRANCIS
DEVELOPMENT CORPORATION
G.R. No. 190706 July 21, 2014 J. Perlas-Bernabe
The "true test" of unfair competition has thus been whether the acts of the defendant have the intent of
deceiving or are calculated to deceive the ordinary buyer making his purchases under the ordinary conditions of
theparticular trade to which the controversy relates.
FACTS:
St. Francis filed separate complaints against Shang before the IPO an intellectual property violation
case for unfair competition, false or fraudulent declaration, and damages arising from Shang’s use and filing
of applications for the registration of the marks "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS
SHANGRI-LA PLACE," and an inter partes case opposing the petitioners’ application for registration of the
mark "THE ST. FRANCIS TOWERS" for use relative to the latter’s business, particularly the construction of
permanent buildings or structures for residential and office purposes and (c) an inter partes case opposing
the petitioners’ application for registration of the mark "THE ST. FRANCIS SHANGRI-LA PLACE,"
St. Francis alleged that it has used the mark "ST. FRANCIS" to identify its numerous property
development projects located at Ortigas Center. They added that as a result of its continuous use of the mark
"ST. FRANCIS" in its real estate business, it has gained substantial goodwill with the public that consumers
and traders closely identify the said mark with its property development projects. Accordingly, St. Francis
claimed that Shang could not have the mark "THE ST. FRANCIS TOWERS" registered in their names, and that
Shang’s use of the marks given above in their own real estate development projects constitutes unfair
competition as well as false or fraudulent declaration.
Shang denied committing unfair competition and false or fraudulent declaration, maintaining that
they could register the marks above under their names. They contended that St Francis cannot claim
ownership and exclusive use ofthe mark "ST. FRANCIS" because the same is geographically descriptive ofthe
goods or services for which it is intended to be used as both of their real estate projects located along the
streets bearing the name "St. Francis," particularly, St. FrancisAvenue and St. Francis Street (now known as
Bank Drive), both within the vicinity of the Ortigas Center.
ISSUE:
Whether or not there is unfair competition.
RULING:
No. There is no unfair competition. The statutory attribution of the unfair competition concept is well
supplemented by jurisprudential pronouncements. In the recent case of Republic Gas Corporation v. Petron
Corporation,25 the Court has echoed the classic definition of the term which is "‘the passing off (or palming
off) or attempting to pass off upon the public of the goods or business of one person as the goods or business
of another with the end and probable effect of deceiving the public.’ Passing off (or palming off) takes place
where the defendant, by imitative devices on the general appearance of the goods, misleads prospective
purchasers into buying his merchandise under the impression that they are buying that of his competitors. In
other words, the defendant gives his goods the general appearance of the goods of his competitor with the
intention of deceiving the public that the goods are those of his competitor." The "true test" of unfair
competition has thus been "whether the acts of the defendant have the intent of deceiving or are calculated to
deceive the ordinary buyer making his purchases under the ordinary conditions of the particular trade to
which the controversy relates." Based on the foregoing, it is therefore essential to prove the existence of
fraud, or the intent to deceive, actual or probable, determined through a judicious scrutiny of the factual
circumstances attendant to a particular case.
Here, the Court finds the element of fraud to be wanting; hence, there can be no unfair competition.
ROBERTO CO v. KENG HUAN JERRY YEUNG AND EMMA YEUNG

G.R. No. 212705, September 10, 2014, J. Perlas-Bernabe
A distinction should be made between suits for trademark infringement and unfair competition: (a) the
former is the unauthorized use of a trademark, whereas the latter is the passing off of one’s goods as those of
another; (b) fraudulent intent is unnecessary in the former, while it is essential in the latter; and (c) in the
former, prior registration of the trademark is a pre-requisite to the action, while it is not necessary in the latter.
FACTS:
Spouses Jerry and Emma Yeung filed a civil complaint for trademark infringement and unfair
competition before the Regional Trial Court against Ling Na Lau, her sister Pinky Lau (the Laus), and Co for
allegedly conspiring in the sale of counterfeit Greenstone products to the public. Co denied having supplied
counterfeit items to Royal and maintained that the stocks of Greenstone came only from Taka Trading.
Meanwhile, the Laus denied selling Greenstone and claimed that the seven items of Tienchi were left by an
unidentified male person at the counter of their drug store and that when Yeung came and threatened to
report the matter to the authorities, the items were surrendered to him.
The Regional Trial Court (RTC) ruled in favor of the spouses, stating that Sps. Yeung had proven by
preponderance of evidence that the Laus and Co committed unfair competition through their conspiracy to
sell counterfeit Greenstone products that resulted in confusion and deception not only to the ordinary
purchasers but also to the public. It, however, did not find the Laus and Co liable for trademark infringement
as there was no showing that the trademark “Greenstone” was registered at the time the acts complained of
occurred.
The Court of Appeals (CA) sustained the RTC’s finding of unfair competition, considering that Sps.
Yeung’s evidence preponderated over that of the Laus and Co which was observed to be shifty and
contradictory. Resultantly, all awards of damages in favor of Spouses Yeung were upheld.
ISSUE:
Did the CA incorrectly upheld the RTC’s decision of unfair competition?
RULING:
No. Unfair competition is defined as the passing off (or palming off) or attempting to pass off upon
the public of the goods or business of one person as the goods or business of another with the end and
probable effect of deceiving the public. This takes place where the defendant gives his goods the general
appearance of the goods of his competitor with the intention of deceiving the public that the goods are those
of his competitor.
In this case, it has been established that Co conspired with the Laus in the sale/distribution of
counterfeit Greenstone products to the public, which were even packaged in bottles identical to that of the
original, giving rise to the presumption of fraudulent intent. It is thus clear that Co, together with the Laus,
committed unfair competition, and should, consequently, be held liable for it.
Although liable for unfair competition, the Court deems it apt to clarify that Co was properly
exculpated from the charge of trademark infringement considering that the registration of the trademark
“Greenstone”– essential as it is in a trademark infringement case – was not proven to have existed during the
time the acts complained of were committed. A distinction should be made between suits for trademark
infringement and unfair competition: (a) the former is the unauthorized use of a trademark, whereas the
latter is the passing off of one’s goods as those of another; (b) fraudulent intent is unnecessary in the former,
while it is essential in the latter; and (c) in the former, prior registration of the trademark is a pre-requisite to
the action, while it is not necessary in the latter.
9. Trade Names or Business Names
CONVERSE RUBBER CORPORATION v. UNIVERSAL RUBBER PRODUCTS, INC. and TIBURCIO S. EVALLE,
DIRECTOR OF PATENTS
G.R. No. L-27906, January 8, 1987, J. Fernan
A corporation is entitled to the cancellation of a mark that is confusingly similar to its corporate name.
FACTS:
Universal Rubber Products, Inc. filed an application with the Philippine Patent office for registration
of the trademark "UNIVERSAL CONVERSE AND DEVICE" used on rubber shoes and rubber slippers. The
application was opposed by Converse Rubber Corporation on the grounds that the trademark sought to be
registered is confusingly similar to the “Converse” in Converse Rubber Corporation which they claim will
cause great and irreparable injury to the business. The Director of Patents dismissed the petition of Converse
Rubber Corp., and granted the application of Universal Rubber Products, Inc. reasoning that the “Converse” in
Converse’s corporate name has not been proven to have become so identified with the corporation that
whenever used, it designates to the mind of the public that particular corporation.
Its motion for reconsideration having been denied by the Director of Patents, Converse Rubber
instituted the instant petition for review.
ISSUE:
Does the partial appropriation of Converse’s corporate name calculated to deceive or confuse the
public?
RULING:
Yes. It is evident that the word "CONVERSE" is the dominant word which identifies Converse Rubber
from other corporations engaged in similar business. Universal Rubber, in the stipulation of facts, admitted
converse Rubber's existence since 1946 as a duly organized foreign corporation engaged in the manufacture
of rubber shoes. This admission necessarily betrays its knowledge of the reputation and business of Converse
Rubber even before it applied for registration of the trademark in question. Knowing, therefore, that the word
"CONVERSE" belongs to and is being used by Converse Rubber, and is in fact the dominant word in its
corporate name, Universal Rubber has no right to appropriate the same for use on its products similar to the
former. A corporation is entitled to the cancellation of a mark that is confusingly similar to its corporate
name.
Universal Rubber's witness had no idea why it chose "UNIVERSAL CONVERSE" as trademark and the
record discloses no reasonable explanation for its use of the word "CONVERSE" in its trademark. Such
unexplained use of the dominant word of Converse Rubber's corporate name lends itself open to the
suspicion of fraudulent motive to trade upon its reputation.
The Court reasons that the application should be denied also because of the confusing similarity
between its trademark "UNIVERSAL CONVERSE AND DEVICE" and Converse's corporate name and/or its
trademarks "CHUCK TAYLOR" and "ALL STAR DEVICE" which could confuse the purchasing public to its
prejudice. The similarity in the general appearance of respondent's trademark and that of Converse would
evidently create a likelihood of confusion among the purchasing public. But even assuming that the
trademark sought to be registered by Universal is distinctively dissimilar from those of the Converse, the
likelihood of confusion would still subsists, not on the purchaser's perception of the goods but on the origins
thereof. By appropriating the word "CONVERSE," Universal's products are likely to be mistaken as having
been produced by Converse. "The risk of damage is not limited to a possible confusion of goods but also
includes confusion of reputation if the public could reasonably assume that the goods of the parties
originated from the same source.
COFFEE PARTNERS, INC. v. SAN FRANCISCO COFFEE & ROASTERY, INC.

G.R. NO. 169504, March 3, 2010, J. Carpio
It is the likelihood of confusion that is the gravamen of infringement. But there is no absolute standard
for likelihood of confusion. Only the particular, and sometimes peculiar, circumstances of each case can
determine its existence.
FACTS:
Coffee Partners, Inc. (CPI) is a local corporation engaged in the business of establishing and
maintaining coffee shops in the Philippines. By virtue of a franchise agreement with Coffee Partners Ltd., it
obtained a non-exclusive right to use the trademark “SAN FRANCISCO COFFEE.” Subsequently, San Francisco
Coffee & Roastery Inc., also a local corporation engaged the wholesale and retail sale of coffee, discovered that
CPI was about to open a coffee shop under the name of “SAN FRANCISO COFFEE”. Accordingly, San Francisco
Coffee &Roastery filed a complaint with the Bureau of Legal Affairs Property Office (BLA-IPO) for
infringement against CPI which ruled in its favor on the ground that the latter infringed on San Francisco
Coffee & Roastery’s trade name since its use will likely cause confusion due to similarity of sound, spelling,
pronunciation, and commercial impression of the words “SAN FRANCISCO” which is the dominant portion of
San Francisco Coffee & Roastery’s tradename and CPI’s trademark. On appeal, the Office of the Director
General-Intellectual Property Office (ODG-IPO) reversed the decision of BLA-IPO. However, the Court of
Appeals (CA) set aside ODG-IPO’s decision.
ISSUE:
Was CPI’s use of the trademark “SAN FRANCISO COFFEE” constituted an infringement of San
Francisco Coffee & Roastery’s trade name?
RULING:
Yes. CPI’s use of the trademark “SAN FRANCISO COFFEE” is an infringement of San Francisco Coffee
& Roastery’s trade name. Applying either the dominancy test or the holistic test, SAN FRANCISCO COFFEE
trademark is a clear infringement of respondents SAN FRANCISCO COFFEE & ROASTERY, INC. trade name.
The descriptive words SAN FRANCISCO COFFEE are precisely the dominant features of respondent’s trade
name. Petitioner and respondent are engaged in the same business of selling coffee, whether wholesale or
retail. The likelihood of confusion is higher in cases where the business of one corporation is the same or
substantially the same as that of another corporation. In this case, the consuming public will likely be
confused as to the source of the coffee being sold at petitioners coffee shops. Petitioners argument that San
Francisco is just a proper name referring to the famous city in California and that coffee is simply a generic
term, is untenable. Respondent has acquired an exclusive right to the use of the trade name SAN FRANCISCO
COFFEE & ROASTERY, INC. since the registration of the business name with the DTI in 1995. Thus,
respondent’s use of its trade name from then on must be free from any infringement by similarity. Of course,
this does not mean that respondent has exclusive use of the geographic word San Francisco or the generic
word coffee. Geographic or generic words are not, per se, subject to exclusive appropriation. It is only the
combination of the words SAN FRANCISCO COFFEE, which is respondent’s trade name in its coffee business,
that is protected against infringement on matters related to the coffee business to avoid confusing or
deceiving the public.
FREDCO MANUFACTURING CORPORATION v. PRESIDENT AND FELLOWS OF HARVARD COLLEGE

(HARVARD UNIVERSITY)
G.R. NO. 185917, June 1, 2011, J. Carpio
One who has imitated the trademark of another cannot bring an action for infringement, particularly
against the true owner of the mark, because he would be coming to court with unclean hands.
FACTS:
Fredco Manufacturing Coporation (Fredco) filed a petition for cancellation of trademark registration
against Harvard University on the ground that Fredco’s predecessor-in-interest, New York Garments, had first
used the mark “Harvard” in 1982 on its clothing line and had secured its trademark registration in 1988. On
the other hand, President and Fellows of Harvard College (Harvard University) countered that it has been
using the name and mark “Harvard” in commerce as early as 1872. In addition, Harvard University contended
it has been in existence for over 350 years and is a highly regarded institution of higher learning in the United
States and throughout the world. Accordingly, Harvard University filed an administrative complaint for
trademark infringement before the Intellectual Property Office (IPO) against Fredco on the ground that the
latter’s website was advertising and promoting the brand name “Harvard Jeans USA, Established in 1936”,
and “Cambridge, Massachussets” without its consent.
The Bureau of Legal Affairs of the IPO (BLA-IPO) ruled in favor of Fredco and ordered the
cancellation of the trademark registration of Harvard University. On appeal, the Office of the Director General
of the IPO reversed the BLA-IPO’s decision on the ground that Harvard University is the owner of the mark
based on its application for registration. In addition, it held that Fredco failed to explain how its predecessor-
in-interest New York Garments came up with the mark “Harvard” and that there was no evidence that the
latter was licensed or authorized by Harvard University to use its name in commerce or for any other use. The
Court of Appeals (CA) affirmed the Office of the Director General’s decision on the ground that Harvard
University was able to substantiate that it appropriated and used the marks Harvard and Harvard Veritas
Shield Symbol way ahead of Fredco and New York Garment. Hence, this petition was filed.
ISSUE:
Was Fredco’s trademark registration of the mark “Harvard” valid?
RULING:
No. Fredco’s registration of the mark Harvard should not have been allowed. Section 4(a) of R.A. No.
166 provides that the owner of a trade-mark, a trade-name or service-mark used to distinguish his goods,
business or services from the goods, business or services of others shall have the right to register the same on
the principal register, unless it consists of or comprises immoral, deceptive or scandalous manner, or matter
which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or
national symbols, or bring them into contempt or disrepute.
Fredco’s use of the mark Harvard, coupled with its claimed origin in Cambridge, Massachusetts,
obviously suggests a false connection with Harvard University. On this ground alone, Fredco’s registration of
the mark Harvard should have been disallowed.
Indisputably, Fredco does not have any affiliation or connection with Harvard University, or even
with Cambridge, Massachusetts. Fredco or its predecessor New York Garments was not established in 1936,
or in the U.S.A. as indicated by Fredco in its oblong logo. Fredco offered no explanation to the Court of
Appeals or to the IPO why it used the mark Harvard on its oblong logo with the words Cambridge,
Massachusetts, Established in 1936, and USA. Fredco now claims before this Court that it used these words to
evoke a lifestyle or suggest a desirable aura of petitioners clothing lines. Fredco’s belated justification merely
confirms that it sought to connect or associate its products with Harvard University, riding on the prestige
and popularity of Harvard University, and thus appropriating part of Harvard University’s goodwill without
the latter’s consent.
ECOLE DE CUISINE MANILLE (CORDON BLEU OF THE PHILIPPINES), INC.v.RENAUD COINTREAU & CIE
and LE CORDON BLEU INT'L.
G.R. NO. 185830, June 5, 2013, J. Carpio
Foreign marks which are not registered are still accorded protection against infringement and/or
unfair competition.
FACTS:
Renaud Cointreau &Cie (Cointreau), a partnership registered under the laws of France, filed an
application for registration of its trademark “Le Cordon Blue and Device” with the (now defunct) Bureau of
Patents, on the basis of its home registration in France. When its application was published for opposition,
Ecole De Cuisine Manille Inc. (Ecole) filed an opposition against Contreau’s application arguing that it is the
rightful owner of the subject mark, considering that it was the first entity that used the same in the
Philippines. Hence, it is the one entitled to its registration and not Cointreau.
Accordingly, the Bureau of legal Affairs (BLA) of the Intellectual Property Office ruled in favor of
Ecole’s opposition contending that it is the rightful owner of the subject mark, considering that it was the first
entity that used the same in the Philippines. Hence, it is the one entitled to its registration and not Cointreau.
This argument is untenable.
On appeal, the IPO Director General reversed the BLA’s decision on the ground that section 2-A of
R.A. No. 166 does not require actual use in the Philippines to be able to acquire ownership of the mark. Thus,
IPO Director General upheld Cointreau’s ownership and right to register based on Cointreau’s use of the mark
since 1985 for its culinary school in France (in which Ecole’s own directress was an alumna). It also held that
while Ecole may have prior use of the subject mark in the Philippines, it failed to explain how it came up with
such name and mark. On a Petition for Review, the Court of Appeals affirmed the IPO Director General’s
decision. Hence, this petition was filed.
ISSUE:
Is Cointreau the lawful owner of the subject mark, and thus entitled to register the subject mark?
RULING:
Yes. Under Section 2 of R.A. No. 166, the law in force at that time, in order to register a trademark,
one must be the owner thereof and must have actually used the mark in commerce in the Philippines for two
(2) months prior to the application for registration. Nevertheless, foreign marks which are not registered are
still accorded protection against infringement and/or unfair competition. At this point, it is worthy to
emphasize that the Philippines and France, Cointreau’s country of origin, are both signatories to the Paris
Convention for the Protection of Industrial Property (Paris Convention).
Article 8 of the Paris Convention states that a trade name shall be protected in all the countries of the
Union without the obligation of filing or registration, whether or not it forms part of a trademark. Thus, under
Philippine law, a trade name of a national of a State that is a party to the Paris Convention, whether or not the
trade name forms part of a trademark, is protected "without the obligation of filing or registration.’"
It is thus clear that at the time Ecole started using the subject mark, the same was already being used
by Cointreau, albeit abroad, of which Ecole’s directress was fully aware, being an alumna of the latter’s
culinary school in Paris, France. Hence, Ecole cannot claim any tinge of ownership whatsoever over the
subject mark as Cointreau is the true and lawful owner thereof. As such, the IPO Director General and the CA
were correct in declaring Cointreau as the true and lawful owner of the subject mark and as such, is entitled
to have the same registered under its name.
In any case, the present law on trademarks, Republic Act No. 8293, otherwise known as the
Intellectual Property Code of the Philippines, as amended, has already dispensed with the requirement of
prior actual use at the time of registration. Thus, there is more reason to allow the registration of the subject
mark under the name of Cointreau as its true and lawful owner.
D. COPYRIGHTS
MANLY SPORTWEAR MANUFACTURING, INC. V. DADODETTE ENTERPRISESAND/OR HERMES

SPORTS CENTER
G.R. No. 165306, G.R. No. 165306, J. Ynares-Santiago
The certificates of registration and deposit issued by the National Library and the Supreme Court
Library serve merely as a notice of recording and registration of the work but do not confer any right or title
upon the registered copyright owner or automatically put his work under the protective mantle of the copyright
law.
FACTS:
Manly Sportswear Mfg., Inc. (MANLY) applied for a search warrant with the Regional trial Court
(RTC) of Quezon City against Dadodette Enterprises and/or Hermes Sports Center for allegedly having in
their possession goods which were copyrighted to MANLY, in violation of Sections 172 and 217 of Republic
Act (R.A.) No. 8293. The search warrant was issued but was subsequently quashed based on the RTC’s finding
that the copyrighted products of MANLY are ordinary and common, and thus do belong among those classes
of work protected under the RA. The products do not appear to be original creations and were being
manufactured and distributed by different companies locally and abroad under various brands. Moreover,
MANLYs certificates of registrations were issued only in 2002, whereas there were certificates of
registrations for the same sports articles which were issued earlier than MANLYs, thus further negating the
claim that its copyrighted products were original creations. The Court of Appeals (CA) denied MANLY’s
petition for certiorari. Hence, this petition is filed.
ISSUE:
Does MANLY have copyrights over the products?
RULING:
No. No copyright accrues in favor of MANLY despite the issuance of the certificates of registration
and deposit. The certificates of registration and deposit issued by the National Library and the Supreme Court
Library serve merely as a notice of recording and registration of the work but do not confer any right or title
upon the registered copyright owner or automatically put his work under the protective mantle of the
copyright law. It is not a conclusive proof of copyright ownership. As it is, non-registration and deposit of the
work within the prescribed period only makes the copyright owner liable to pay a fine.
1. Basic Principles, Sections 172.2, 175 and 181

2. Copyrightable Works
UNITED FEATURE SYNDICATE, INC. v. MUNSINGWEAR CREATION MANUFACTURING COMPANY

G.R. No. 76193, November 9, 1989, J. Paras
Rights granted by this Decree shall, from the moment of creation, subsist with respect to prints, pictorial
illustrations, advertising copies, labels, tags and box wraps.
FACTS:
A petition was filed by United Feature Syndicate, Inc. against MUNSINGWEAR for the cancellation of
the registration of trademark “CHARLIE BROWN” alleging that the former is damaged on the following
grounds: (1) that MUNSINGWEAR was not entitled to the registration of the mark CHARLIE BROWN, &
DEVICE at the time of application for registration; (2) that CHARLIE BROWN is a character creation or a
pictorial illustration, the copyright to which is exclusively owned worldwide by the United Feature; (3) that
as the owner of the pictorial illustration CHARLIE BROWN, United Feature has since 1950 and continuously
up to the present, used and reproduced the same to the exclusion of others; (4) that the registrant has no
bona fide use of the trademark in commerce in the Philippines prior to its application for registration. The
Philippine Patent Office held that a copyright registration like that of the name and likeness of CHARLIE
BROWN may not provide a cause of action for the cancellation of a trademark registration. United Feature’s
motion for reconsideration was denied, as well as its appeal before the Court Appeals (CA). A subsequent
motion for reconsideration was also denied by the CA for lack of merit.
ISSUE:
Is the name and likeness of CHARLIE BROWN copyrightable?
RULING:
Yes. Section 2 of Presidential Decree No. 49, otherwise known as the "Decree on Intellectual
Property", provides that the rights granted by this Decree shall, from the moment of creation, subsist with
respect to prints, pictorial illustrations, advertising copies, labels, tags and box wraps.
Since the name "CHARLIE BROWN" and its pictorial representation were covered by a copyright
registration way back in 1950, the same are entitled to protection under PD No. 49. Aside from its copyright
registration, United Features is also the owner of several trademark registrations and application for the
name and likeness of "CHARLIE BROWN" which is the duly registered trademark and copyright of United
Feature Syndicate Inc. as early as 1957 and additionally also as TV SPECIALS featuring the "PEANUTS"
characters "CHARLIE BROWN". It is undeniable from the records that United Feature is the actual owner of
said trademark due to its prior registration with the Patent's Office.
Finally, in La Chemise Lacoste S.A. v. Hon. Oscar Fernandez & Gobindram Hemandas Sujanani v. Hon.
Roberto V. Ongpin, et al. 129 SCRA 373 [1984]), the Court declared that in upholding the right of the petitioner
to maintain the present suit before the courts for unfair competition or infringement of trademarks of a
foreign corporation, the Court are moreover is recognizing its duties and the rights of foregoing states under
the Paris Convention for the Protection of Industrial Property to which the Philippines and (France) U.S. are
parties. The Court is simply interpreting a solemn international commitment of the Philippines embodied in a
multilateral treaty to which it is a party and which it entered into because it is in our national interest to do
so.
3. Non-Copyrightable Works
FRANCISCO G. JOAQUIN, JR., and BJ PRODUCTIONS, INC. v. HONORABLE FRANKLIN DRILON, GABRIEL
ZOSA, WILLIAM ESPOSO, FELIPE MEDINA, JR., and CASEY FRANCISCO
G.R. No. 108946, January 28, 1999, J. Mendoza
The format or mechanics of a television show is not included in the list of protected works in Section 2 of
P.D. No. 49. The copyright does not extend to an idea, procedure, process, system, method of operation, concept,
principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such
work.
FACTS:
BJ Productions, Inc. (BJPI) is the holder/grantee of Certificate of Copyright “Rhoda and Me”, a dating
game show aired from 1970 to 1977. Francisco Joaquin, Jr., president of BJPI, saw on RPN Channel 9 an
episode of “It's a Date”, which was produced by IXL Productions, Inc. (IXL). He wrote a letter to Gabriel M.
Zosa, president and general manager of IXL, informing Zosa that BJPI had a copyright to “Rhoda and Me” and
demanding that IXL discontinue airing “It's a Date”. Zosa apologized to petitioner Joaquin and requested a
meeting to discuss a possible settlement. IXL, however, continued airing “It's a Date”, prompting petitioner
Joaquin to send a second letter in which he reiterated his demand and warned that, if IXL did not comply, he
would endorse the matter to his attorneys for proper legal action. However, Zosa still sought to register the
said show to which it was issued by the National Library a certificate of copyright. Joaquin, Jr. then filed a
complaint against Zosa for violation of P.D. No. 49. Upon review of the resolution however, Secretary of
Justice Drilon reversed the findings of the Prosecutor and ordered the dismissal of the complaint. Joaquin, Jr.’s
motion for reconsideration was likewise denied. Hence, this petition.
ISSUE:
Is the format of “Rhoda and Me” entitled to copyright protection?
RULING:
No. The format of a show is not copyrightable. Section 2 of P.D. No. 49, otherwise known as the
DECREE ON INTELLECTUAL PROPERTY, enumerates the classes of work entitled to copyright protection.
This provision is substantially the same as Section172 of the INTELLECTUAL PROPERTY CODE OF
PHILIPPINES (R.A. No. 8293). The format or mechanics of a television show is not included in the list of
protected works in Section 2 of P.D. No. 49. For this reason, the protection afforded by the law cannot be
extended to cover them. P.D. No. 49, Section 2, in enumerating what are subject to copyright, refers to finished
works and not to concepts. The copyright does not extend to an idea, procedure, process, system, method of
operation, concept, principle, or discovery, regardless of the form in which it is described, explained,
illustrated, or embodied in such work.
The Court is of the opinion that petitioner BJPI's copyright covers audio-visual recordings of each
episode of Rhoda and Me, as falling within the class of works mentioned in P.D. 49, Section 2(M), to wit:
“Cinematographic works and works produced by a process analogous to cinematography or any process for
making audio-visual recordings;”
The copyright does not extend to the general concept or format of its dating game show. Accordingly,
by the very nature of the subject of petitioner BJPI's copyright, the investigating prosecutor should have the
opportunity to compare the videotapes of the two shows. Mere description by words of the general format of
the two dating game shows is insufficient; the presentation of the master videotape in evidence was
indispensable to the determination of the existence of probable cause.
PEARL & DEAN (PHIL.), INCORPORATED v. SHOEMART INC.

G.R. No. 148222, August 15, 2003
Since the light boxes cannot, by any stretch of the imagination, be considered as either prints, pictorial
illustrations, advertising copies, labels, tags or box wraps, to be properly classified as a copyrightable class O
work, we have to agree with SMI when it posited that what was copyrighted were the technical drawings only,
and not the light boxes themselves.
FACTS:
Pearl and Dean (Phil.), Inc. is a corporation engaged in the manufacture of light boxes. Pearl and Dean
was able to secure a Certificate of Copyright Registration over these illuminated display units. From 1981 to
about 1988, Pearl and Dean employed the services of Metro Industrial Services to manufacture its advertising
displays. Sometime in 1985, Pearl and Dean negotiated with defendant-appellant Shoemart, Inc. (SMI) for the
lease and installation of the light boxes, in SM Makati and SM Cubao, to which Pearl and Dean agreed. Only the
contract for SM Makati, however, was returned signed. Eventually, SMIs house counsel informed Pearl and
Dean that it was rescinding the contract for SM Makati due to non-performance of the terms thereof.
Two years later, Metro Industrial Services, the company formerly contracted by Pearl and Dean to
fabricate its display units, offered to construct light boxes for Shoemarts chain of stores. SMI approved the
proposal and ten (10) light boxes were subsequently fabricated by Metro Industrial for SMI. After its contract
with Metro Industrial was terminated, SMI engaged the services of EYD Rainbow Advertising Corporation to
make the light boxes. Some 300 units were fabricated in 1991. Pearl and Dean then received reports that
exact copies of its light boxes were installed at SM City and in the fastfood section of SM Cubao. In the light of
its discoveries, Pearl and Dean sent a letter to both SMI and NEMI enjoining them to cease using the subject
light boxes and to remove the same from SMIs establishments. SMI maintained that it independently
developed its poster panels using commonly known techniques and available technology, without notice of or
reference to Pearl and Deans copyright. The RTC of Makati City decided in favor of P & D. On appeal,
however, the Court of Appeals reversed the trial court, hence, the case.
ISSUE:
Whether or not SMI infringed on Pearl and Dean’s copyright over the light boxes.
RULING:
No, there was no copyright infringement by SMI. P & D secured its copyright under the
classification class O work. This being so, petitioners copyright protection extended only to the technical
drawings and not to the light box itself because the latter was not at all in the category of prints, pictorial
illustrations, advertising copies, labels, tags and box wraps. Stated otherwise, even as we find that P & D
indeed owned a valid copyright, the same could have referred only to the technical drawings within the
category of pictorial illustrations. It could not have possibly stretched out to include the underlying light
box. What the law does not include, it excludes, and for the good reason: the light box was not a literary or
artistic piece which could be copyrighted under the copyright law.
4. Rights of Copyright Owner
COLUMBIA PICTURES, INC. v. COURT OF APPEALS

G.R. No. 110318, August 28, 1996, Regalado, J.
PD 49 as amended, does not require registration and deposit for a creator to be able to file an action for
infringement of his rights. These conditions are merely pre-requisites to an action for damages. So, as long as the
proscribed acts are shown to exist, an action for infringement may be initiated.
FACTS:
Complainants thru counsel lodged a formal complaint with the National Bureau of Investigation(NBI)
for violation of PD No. 49, as amended, and sought its assistance in their anti-film piracy drive. Agents of the
NBI and private researchers made discreet surveillance on various video establishments in Metro Manila
including Sunshine Home Video Inc. (Sunshine for brevity). NBI Senior Agent Lauro C. Reyes applied for a
search warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated video
tapes of copyrighted films all of which were enumerated in a list attached to the application; and, television
sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or
intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of
videograms tapes in the premises above described. In the course of the search of the premises indicated in
the search warrant, the NBI Agents found and seized various video tapes of duly copyrighted motion
pictures/films owned or exclusively distributed by private complainants, and machines, equipment,
television sets, paraphernalia, materials, accessories all of which were included in the receipt for properties
accomplished by the raiding team.
On December 16, 1987, a Return of Search Warrant was filed with the Court. A Motion To Lift the
Order of Search Warrant was filed but was later denied for lack of merit. A Motion for reconsideration of the
Order of denial was filed. The court a quo granted the said motion for reconsideration. Petitioners thereafter
appealed the order of the trial court granting private respondents motion for reconsideration, thus lifting the
search warrant which it had therefore issued, to the Court of Appeals. The appeal was dismissed and the
motion for reconsideration thereof was denied. Hence, this petition.
ISSUE:
Whether or not there was copyright infringement despite noncompliance with registration and
deposit.
RULING:
Yes. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner
of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a
synonymous term in this connection, consists in the doing by any person, without the consent of the owner of
the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright. PD
No. 49 had done away with the registration and deposit of cinematographic works and that even without
prior registration and deposit of a work which may be entitled to protection under the Decree, the creator can
file action for infringement of its rights. He cannot demand, however, payment of damages arising from
infringement. The same opinion stressed that the requirements of registration and deposit are thus retained
under the Decree, not as conditions for the acquisition of copyright and other rights, but as prerequisites to a
suit for damages.
5. Limitations on Copyright
ABS-CBN BROADCASTING CORPORATION v. PHILIPPINE MULTI-MEDIA SYSTEM, INC.

G.R. No. 175769-70, January 19, 2009, Ynares-Santiago, J.
The carriage of ABS-CBN’s signals by virtue of the must-carry rule is under the direction and control of
the government though the NTC which is vested with exclusive jurisdiction to supervise, regulate and control
telecommunications and broadcast services/facilities in the Philippines. Accordingly, the “Must-Carry Rule falls
under the foregoing category of limitations on copyright.
FACTS:
Respondent Philippine Multi-Media System, Inc. (PMSI) is the operator of Dream Broadcasting
System. It delivers digital direct-to-home (DTH) television via satellite to its subscribers all over the
Philippines, was granted a legislative franchise under Republic Act No. 8630 and was given a Provisional
Authority by the National Telecommunications Commission (NTC) on February 1, 2000 to install, operate and
maintain a nationwide DTH satellite service. When it commenced operations, it offered as part of its program
line-up ABS-CBN Channels 2 and 23, NBN, Channel 4, ABC Channel 5, GMA Channel 7, RPN Channel 9, and IBC
Channel 13, together with other paid premium program channels. However, ABS-CBN demanded for PMSI to
cease and desist from rebroadcasting Channels 2 and 23. PMSI replied that the rebroadcasting was in
accordance with the authority granted it by NTC and its obligation under NTC Memorandum Circular No. 4-
08-88, Section 6.2 of which requires all cable television system operators operating in a community within
Grade “A” or “B” contours to carry the television signals of the authorized television broadcast stations. ABS-
CBN filed with the IPO a complaint for “Violation of Laws Involving Property Rights, with Prayer for the
Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction.” It alleged that PMSI’s
unauthorized rebroadcasting of Channels 2 and 23 infringed on its broadcasting rights and copyright.
PMSI argued that its rebroadcasting is justified under the “must-carry rule” under Memorandum
Circular No. 04-08-88, while ABS-CBN contended that PMSI’s unauthorized rebroadcasting of Channels 2 and
23 is an infringement of its broadcasting rights and copyright under the Intellectual Property Code (IP Code).
ISSUE:
Whether or not the respondent PMSI is guilty of copyright infringement.
RULING:
No. In the case at hand, PMSI is not the origin nor does it claim to be the origin of the programs
broadcasted by the ABS-CBN. PMSI did not make and transmit on its own but merely carried the existing
signals of the ABS-CBN. When PMSI’s subscribers view ABS-CBN’s programs in Channels 2 and 23, they know
that the origin thereof was ABS-CBN. It must be emphasized that the law on copyright is not absolute. The IP
Code provides in Sec. 184 the limitations on Copyright. - (h) The use made of a work by or under the direction
or control of the Government, by the National Library or by educational, scientific or professional institutions
where such use is in the public interest and is compatible with fair use.
The carriage of ABS-CBN’s signals by virtue of the must-carry rule in Memorandum Circular No. 04-
08-88 is under the direction and control of the government though the NTC which is vested with exclusive
jurisdiction to supervise, regulate and control telecommunications and broadcast services/facilities in the
Philippines. The imposition of the must-carry rule is within the NTC’s power to promulgate rules and
regulations, as public safety and interest may require, to encourage a larger and more effective use of
communications, radio and television broadcasting facilities, and to maintain effective competition among
private entities in these activities whenever the Commission finds it reasonably feasible. Accordingly, the
“Must-Carry Rule” under NTC Circular No. 4-08-88 falls under the foregoing category of limitations on
copyright.
GMA NETWORK, INC. v. CENTRAL CATV, INC.

G.R. No. 176694, July 18, 2014, Brion, J.
The must-carry rule mandates the CATV networks to carry and show in full the free local TV’s programs,
including advertisements, without alteration or deletion. Therefore, such solicitation and showing of
advertisements did not constitute an infringement of the “television and broadcast markets” under Section 2 of
E.O. No. 205.
FACTS:
Sometime in February 2000, the petitioner, together with the Kapisanan ng mga Brodkaster ng
Pilipinas, Audiovisual Communicators, Incorporated, Filipinas Broadcasting Network and Rajah Broadcasting
Network, Inc. (complainants), filed with the NTC a complaint against the respondent to stop it from soliciting
and showing advertisements in its cable television (CATV)system, pursuant to Section 2 of Executive Order
(EO) No. 205, which provides that a grantee’s authority to operate a CATV system shall not infringe on the
television and broadcast markets. The petitioner alleged that the phrase "television and broadcast markets"
includes the commercial or advertising market.
In its answer, the respondent admitted the airing of commercial advertisement on its CATV network
but alleged that Section 3 of EO No. 436, expressly allowed CATV providers to carry advertisements and other
similar paid segments provided there is consent from their program providers.
ISSUE:
Whether or not the respondent is guilty of copyright infringement.
RULING:
No. The CATV operators are not prohibited from showing advertisements under EO No. 205 and its
implementing rules and regulations, MC 4-08-88. Section 6 of EO No. 205 expressly and unequivocally vests
with the NTC the delegated legislative authority to issue its implementing rules and regulations. Following
this authority, the NTC has issued the implementing rules and regulations of EO No. 205 through MC 4-08-88.
Its whereas clause provides that it was issued pursuant to Act No. 3846 and EO No. 205 which granted the
NTC the authority to set down rules and regulations on CATV systems.
MC 4-08-88 mirrored the legislative intent of EO No. 205 and acknowledged the importance of the
CATV operations in the promotion of the general welfare. The circular provides in its whereas clause that the
CATV has the ability to offer additional programming and to carry much improved broadcast signals in the
remote areas, thereby enriching the lives of the rest of the population through the dissemination of social,
economic and educational information, and cultural programs.
Unavoidably, however, the improved broadcast signals that CATV offers may infringe or encroach
upon the audience or viewer market of the free-signal TV. This is so because the latter’s signal may not reach
the remote areas or reach them with poor signal quality. To foreclose this possibility and protect the free-TV
market (audience market), the must-carry rule was adopted to level the playing field. With the must-carry
rule in place, the CATV networks are required to carry and show in full the free local TV’s programs, including
advertisements, without alteration or deletion. This, in turn, benefits the public who would have a wide-range
of choices of programs or broadcast to watch. This also benefits the free-TV signal as their broadcasts are
carried under the CATV’s much-improved broadcast signals thus expanding their viewer’s share.
In view of the discussion above, the Court finds that the quoted sections of MC 4-08-88, i.e., 6.2, 6.2.1,
6.4(a)(1) and 6.4(b) which embody the "must-carry rule," are the governing rules in the present case. These
provisions sufficiently and fairly implement the intent of Section 2 of EO No. 205 to protect the broadcast
television market vis-à-vis the CATV system. For emphasis, under these rules, the phrase "television and
broadcast markets" means viewers or audience market and not commercial advertisement market as claimed
by the petitioner. Therefore, the respondent’s act of showing advertisements does not constitute an
infringement of the "television and broadcast markets" under Section 2 of EO No. 205.
a. Copyright Infringement
FILIPINO SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, INC. v. BENJAMIN TAN

G.R. No. L-36402 March 16, 1987, Paras, J.
A careful study of the records reveals that the songs mentioned became popular before it was registered.
The testimonies of the witnesses at the hearing of this case on this subject were unrebutted by the appellant.
Under the circumstances, it is clear that the musical compositions in question had long become public property,
and are therefore beyond the protection of the Copyright Law.
FACTS:
Plaintiff-appellant is a non-profit association of authors, composers and publishers. Said association

is the owner of certain musical compositions among which are the songs entitled: "Dahil Sa Iyo", "Sapagkat
Ikaw Ay Akin," "Sapagkat Kami Ay Tao Lamang" and "The Nearness Of You." On the other hand, defendant-
appellee is the operator of a restaurant known as "Alex Soda Foundation and Restaurant" where a combo
with professional singers, hired to play and sing musical compositions to entertain and amuse customers
therein, were playing and singing the above-mentioned compositions without any license or permission from
the appellant to play or sing the same. Accordingly, appellant demanded from the appellee payment of the
necessary license fee for the playing and singing of aforesaid compositions but the demand was ignored.
Hence, appellant filed a complaint with the lower court for infringement of copyright against defendant-
appellee for allowing the playing in defendant-appellee's restaurant of said songs copyrighted in the name of
the former. Defendant-appellee, while not denying the playing of said copyrighted compositions in his
establishment, maintains that the mere singing and playing of songs and popular tunes even if they are
copyrighted do not constitute an infringement.
The lower court, finding for the defendant, dismissed the complaint. Plaintiff appealed to the Court of
Appeals which certified the case to the Supreme Court for adjudication on the legal question involved.
ISSUE:
Whether or not defendant-appellee is guilty of copyright infringement.
RULING:
No, appellee cannot be said to have infringed upon the Copyright Law. The Supreme Court has ruled
that an intellectual creation should be copyrighted thirty (30) days after its publication, if made in Manila, or
within the (60) days if made elsewhere, failure of which renders such creation public property. Indeed, if the
general public has made use of the object sought to be copyrighted for thirty (30) days prior to the copyright
application the law deems the object to have been donated to the public domain and the same can no longer
be copyrighted. A careful study of the records reveals that the songs mentioned became popular before it was
registered. The testimonies of the witnesses at the hearing of this case on this subject were unrebutted by the
appellant. Under the circumstances, it is clear that the musical compositions in question had long become
public property, and are therefore beyond the protection of the Copyright Law.
COLUMBIA PICTURES, INC. v. COURT OF APPEALS

G.R. No. 110318, August 28, 1996, Regalado, J.
To constitute copyright infringement, it is not necessary that the whole or even a large portion of the
work shall have been copied.
FACTS:
Complainants thru counsel lodged a formal complaint with the National Bureau of Investigation(NBI)
for violation of PD No. 49, as amended, and sought its assistance in their anti-film piracy drive. Agents of the
NBI and private researchers made discreet surveillance on various video establishments in Metro Manila
including Sunshine Home Video Inc. (Sunshine for brevity). NBI Senior Agent Lauro C. Reyes applied for a
search warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated video
tapes of copyrighted films all of which were enumerated in a list attached to the application; and, television
sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or
intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of
videograms tapes in the premises above described. In the course of the search of the premises indicated in
the search warrant, the NBI Agents found and seized various video tapes of duly copyrighted motion
pictures/films owned or exclusively distributed by private complainants, and machines, equipment,
television sets, paraphernalia, materials, accessories all of which were included in the receipt for properties
accomplished by the raiding team.
A Return of Search Warrant was filed with the Court. A Motion To Lift the Order of Search Warrant
was filed but was later denied for lack of merit. A Motion for reconsideration of the Order of denial was
filed. The court a quo granted the said motion for reconsideration. Petitioners thereafter appealed the order
of the trial court granting private respondents motion for reconsideration, thus lifting the search warrant
which it had therefore issued, to the Court of Appeals. The appeal was dismissed and the motion for
reconsideration thereof was denied. Hence, this petition.
ISSUE:
Whether or not there was copyright infringement.
RULING:
Yes. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner
of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a
synonymous term in this connection, consists in the doing by any person, without the consent of the owner of
the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright. A
copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not
know what works he was indirectly copying, or did not know whether or not he was infringing any copyright;
he at least knew that what he was copying was not his, and he copied at his peril. In determining the question
of infringement, the amount of matter copied from the copyrighted work is an important consideration. To
constitute infringement, it is not necessary that the whole or even a large portion of the work shall have been
copied. If so much is taken that the value of the original is sensibly diminished, or the labors of the original
author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law
to constitute a piracy.
PACITA I. HABANA, et.al. v. FELICIDAD C. ROBLES and GOODWILL TRADING CO., INC.
G.R. No. 131522, July 19, 1999, Pardo, J.
The act of lifting from the book of petitioners substantial portions of discussions and her failure to
acknowledge the same in her book is an infringement of petitioners' copyrights.
FACTS:
Petitioners are authors and copyright of the books COLLEGE ENGLISH FOR TODAY (CET for brevity),
Books 1 and 2, and WORKBOOK FOR COLLEGE FRESHMAN ENGLISH, Series 1. Respondent Felicidad Robles
and Goodwill Trading Co., Inc. are the author/publisher and distributor/seller of another published work
entitled "DEVELOPING ENGLISH PROFICIENCY" (DEP for brevity), Books 1 and 2 (1985 edition) which book
was covered by copyrights issued to them. In the course of revising their published works, petitioners
scouted and looked around various bookstores to check on other textbooks dealing with the same subject
matter. By chance they came upon the book of respondent Robles. They were surprised to see that the book
was strikingly similar to the contents, scheme of presentation, illustrations and illustrative examples in their
own book, CET.
Petitioners then made demands for damages against respondents and also demanded that they cease
and desist from further selling and distributing to the general public the infringed copies of respondent
Robles' works. However, respondents ignored the demands; petitioners filed with the RTC a complaint for
"Infringement and/or unfair competition with damages" against private respondents. Respondent Robles was
impleaded in the suit because she authored and directly committed the acts of infringement complained of,
while respondent Goodwill Trading Co., Inc. was impleaded as the publisher and joint co-owner of the
copyright certificates of registration covering the two books authored and caused to be published by
respondent Robles with obvious connivance with one another. The trial court dismissed the case. Petitioners
filed their notice of appeal with the trial court but it rendered judgment in favor of respondents Robles and
Goodwill Trading Co., Inc. Petitioners filed a motion for reconsideration but was denied. Hence, this petition.
ISSUE:
Whether or not respondents committed copyright infringement.
RULING:
Yes. The law does not necessarily require that the entire copyrighted work, or even a large portion of
it, be copied. If so much is taken that the value of the original work is substantially diminished, there is an
infringement of copyright and to an injurious extent, the work is appropriated. In cases of infringement,
copying alone is not what is prohibited. The copying must produce an "injurious effect". Here, the injury
consists in that respondent Robles lifted from petitioners' book materials that were the result of the latter's
research work and compilation and misrepresented them as her own. Hence, there is a clear case of
appropriation of copyrighted work for her benefit that respondent Robles committed. Petitioners' work as
authors is the product of their long and assiduous research and for another to represent it as her own is
injury enough.
NBI - MICROSOFT CORPORATION vs. JUDY C. HWANG, et. al.

G.R. No. 147043, June 21, 2005, Carpio, J.
The gravamen of copyright infringement is not merely the unauthorized "manufacturing" of intellectual
works but rather the unauthorized performance of any of the rights exclusively granted to the copyright owner.
Hence, any person who performs any of such acts under without obtaining the copyright owner’s prior consent
renders himself civilly and criminally liable for copyright infringement.
FACTS:
In May 1993, Microsoft and Beltron Computer Philippines, Inc. (Beltron) entered into a licensing
agreement which authorizes the latter to: (i) reproduce and install no more than one (1) copy of [Microsoft]
software on each Customer System hard disk or Read Only Memory ("ROM"); and (ii) distribute directly or
indirectly and license copies of the Product in object code form to end users. Microsoft eventually terminated
the Agreement effective for Beltron’s non-payment of royalties. Afterwards, Microsoft learned that
respondents were illegally copying and selling Microsoft software. Consequently, Microsoft, through its
Philippine agent, hired the services of Pinkerton Consulting Services ("PCS"), a private investigative firm and
sought the assistance of the National Bureau of Investigation ("NBI"). On 10 November 1995, PCS
employee Sacriz and NBI agent Samiano, Jr., posing as representatives of a computer shop, bought computer
hardware and software from respondents. The CPU contained pre-installed Microsoft Windows 3.1 and MS-
DOS software. Sacriz and Samiano were not given the Microsoft end-user license agreements, user’s manuals,
registration cards or certificates of authenticity for the articles they purchased. Based on the articles obtained
from respondents, Microsoft and a certain Lotus Development Corporation ("Lotus Corporation") charged
respondents before the Department of Justice ("DOJ") with copyright infringement under Section 5(A) in
relation to Section 29 of Presidential Decree No. 49, as amended, ("PD 49"). DOJ State Prosecutor Jocelyn A.
Ong recommended the dismissal of Microsoft’s complaint for lack of merit and insufficiency of evidence.
Microsoft sought reconsideration but was denied. Microsoft appealed to the Office of the DOJ Secretary. DOJ
Undersecretary Regis V. Puno dismissed Microsoft’s appeal. Microsoft sought reconsideration but its motion
was denied. Hence, this petition.
ISSUE:
Whether or not there is probable cause to charge respondents with Copyright Infringement.
RULING:
Yes. The gravamen of copyright infringement is not merely the unauthorized "manufacturing" of
intellectual works but rather the unauthorized performance of any of the rights exclusively granted to the
copyright owner. Hence, any person who performs any of such acts under without obtaining the copyright
owner’s prior consent renders himself liable for copyright infringement. In the case at bar, the Court finds
that the 12 CD-ROMs and the CPU with pre-installed Microsoft software bought from respondents suffice to
support a finding of probable cause to indict respondents for copyright infringement for unauthorized
copying and selling of protected intellectual works. The illegality of the "non-installer" is shown by the
absence of the standard features accompanying authentic Microsoft products, namely, the Microsoft end-user
license agreements, user’s manuals, registration cards or certificates of authenticity.
TRANSPORTATION LAWS
A.DEFINITION OF COMMON CARRIER
1. Carrying of persons or goods or both may be the principal or ancillary activity
PEDRO DE GUZMAN v. COURT OF APPEALS and ERNESTO CENDANA

G.R. No. L-47822 December 22, 1988, J. Feliciano
Article 1732 makes no distinction between one whose principal business activity
FACTS:
Ernesto Cendana (Cendana), a junk dealer, was engaged in buying up used bottles and scrap metal in
Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such
material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material
to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which various
merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent charged
freight rates which were commonly lower than regular commercial rates.
Pedro de Guzman a merchant contracted with respondent for the hauling of 750 cartons of Liberty
filled milk from a warehouse of General Milk in Makati, Rizal, to his establishment in Urdaneta however only
150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner,
since the truck which carried these boxes was hijacked somewhere, by armed men who took with them the
truck, its driver, his helper and the cargo.
Cendena commenced action against De Guzman demanding payment of the claimed value of the lost
merchandise. Cendena denied that he was a common carrier and argued that he could not be held responsible
for the value of the lost goods, such loss having been due to force majeure.
ISSUE:
Whether or not Cendena is a common carrier.
RULING:
Yes. It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such
back-hauling was done on a periodic or occasional rather than regular or scheduled manner, and even though
private respondent's principal occupation was not the carriage of goods for others. There is no dispute that
private respondent charged his customers a fee for hauling their goods; that fee frequently fell below
commercial freight rates is not relevant here. Article 1732 makes no distinction between one
whose principal business activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the general
population.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended)
which at least partially supplements the law on common carriers set forth in the Civil Code.
2. The common carrier need not be the owner (of the vessel) used to consummate contract
of carriage
CEBU SALVAGE CORPORATION v. PHILIPPINE HOME ASSURANCE CORPORATION

G.R. No. 150403, January 25, 2007 J. Corona
A carrier that enters into a contract of carriage is liable to the charterer or shipper, even if it does not
own the vessel it chooses to use. A contrary view is not only preposterous but also dangerous.
FACTS:
Cebu Salvage Corporation (CSC as carrier) and Maria Cristina Chemicals Industries, Inc. [MCCII] (as
charterer) entered into a voyage charter wherein petitioner was to load silica quartz on board the M/T
Espiritu Santo. Pursuant to the contract, CSC received and loaded tons of silica quartz on board the M/T
Espiritu Santo which left the next day. The shipment never reached its destination, however, because the M/T
Espiritu Santo sank resulting in the total loss of the cargo. MCCII filed a claim for the loss of the shipment with
its insurer, respondent Philippine Home Assurance Corporation (PHAC). PHAC was subrogated to the rights
of MCCII. Thereafter, it filed a case in the RTC against CSC for reimbursement of the amount it paid MCCII.
According to CSC, it is not liable since it was not the owner of the vessel and, hence, had no control and
supervision over the vessel, its master and crew.
ISSUE:
Whether or not petitioner CSC is liable under the contract it entered with MCCII.
RULING:
Yes. There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo, it
was engaged in the business of carrying and transporting goods by water, for compensation, and offered its
services to the public. The idea proposed by petitioner is not only preposterous, it is also dangerous. It says
that a carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does not own
the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists that MCCII should sue ALS
for reimbursement for its loss. Certainly, to permit a common carrier to escape its responsibility for the goods
it agreed to transport (by the expedient of alleging non-ownership of the vessel it employed) would radically
derogate from the carrier's duty of extraordinary diligence. It would also open the door to collusion between
the carrier and the supposed owner and to the possible shifting of liability from the carrier to one without any
financial capability to answer for the resulting damages
B. EXAMPLES OF COMMON CARRIER
1. Pipeline Operator
FIRST PHILIPPINE INDUSTRIAL CORPORATION vs. COURT OF APPEALS, HONORABLE PATERNO V.

TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas
G.R. No. 125948 December 29, 1998, J. Martinez
The definition of "common carriers" in the Civil Code makes no distinction as to the means of
transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers
or goods should be by motor vehicle.
FACTS:
First Philippine Industrial Corporation (FPIC) is a grantee of a pipeline concession under Republic
Act No. 387, to contract, install and operate oil pipelines. The original pipeline concession was granted in
1967 and renewed by the Energy Regulatory Board in 1992. Sometime in 1995, FPIC applied for a mayor's
permit with the Office of the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year
1993 pursuant to the Local Government Code. In order not to hamper its operations, FPIC paid the tax under
protest. City Treasurer denied the protest contending that FPIB cannot be considered engaged in
transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code.
ISSUE:
Whether or not the FPICis a common carrier and is thus exempted from local taxes.
RULING:
Yes. A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for compensation, offering
his services to the public generally. Art. 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public.
Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a
public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to
employ its services, and transports the goods by land and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition of a common carrier.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no
distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the
transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe
line operators are considered common carriers.
2. Customs Broker
A.F. SANCHEZ BROKERAGE INC. v. THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION
G.R. No. 147079 December 21, 2004, J. Carpio Morales
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods
and one who does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not
a common carrier but a customs broker whose principal function is to prepare the correct customs declaration
and proper shipping documents as required by law is bereft of merit.
FACTS:
Wyeth-Pharma GMBH shipped oral contraceptives for delivery to Manila in favor of the consignee,
Wyeth-Suaco Laboratories, Inc. Wyeth-Suaco insured the shipment against all risks with FGU Insurance
which issued Marine Risk Note .Upon arrival of the shipment the Ninoy Aquino International Airport
(NAIA), it was discharged "without exception"and delivered to the warehouse of the Philippine Skylanders,
Inc. (PSI) located also at the NAIA for safekeeping. In order to secure the release of the cargoes from the PSI
and the Bureau of Customs, Wyeth-Suaco engaged the services of Sanchez Brokerage. Upon instructions of
Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. for quality control check. It appears
however that at the time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell,
which accounted for the wetting of the 44 cartons of Femenal and Nordiol tablets.
Wyeth-Suaco later demanded from Sanchez Brokerage the payment of the value of its loss arising
from the damaged tablets. As Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance
claim against FGU Insurance which paid Wyeth- settlement of its claim. On demand by FGU Insurance for
payment it paid Wyeth-Suaco, Sanchez Brokerage, by letter disclaimed liability for the damaged goods.
In the main, Sanchez Brokerage argued that it is not a common carrier.
ISSUE:
Whether or Sanchez Brokerage engaged not only in the business of customs brokerage but also in the
transportation and delivery of the cargo of its clients, hence, a common carrier within the context of Article
1732 of the New Civil Code.
RULING:
Yes, Sanchez Brokerage is a common carrier. The appellate court did not err in finding petitioner, a
customs broker, to be also a common carrier, as defined under Article 1732 of the Civil Code. Article 1732
does not distinguish between one whose principal business activity is the carrying of goods and one who does
such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not a common
carrier but a customs broker whose principal function is to prepare the correct customs declaration and
proper shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 of the Civil
Code, extraordinary diligence in the vigilance over the goods it transports according to all the circumstances
of each case. In the event that the goods are lost, destroyed or deteriorated, it is presumed to have been at
fault or to have acted negligently, unless it proves that it observed extraordinary diligence.
In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in
NAIA in good order and condition; and that upon delivery by petitioner to Hizon Laboratories Inc., some of
the cargoes were found to be in bad order, as noted in the Delivery Receipt issued by petitioner, and as
indicated in the Survey Report of Elite Surveyors and the Destruction Report of Hizon Laboratories, Inc
LOADMASTERS CUSTOMS SERVICES, INC.vsGLODEL BROKERAGE CORPORATION and R&B INSURANCE

CORPORATION
G.R. No. 179446 January 10, 2011, J. Mendoza
Loadmasters is a common carrier because it is engaged in the business of transporting goods by land,
through its trucking service. It is a common carrier as distinguished from a private carrier wherein the carriage
is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.
FACTS:
R&B Insurance issued Marine Policy to Columbia to insure the shipment of 132 bundles of electric
copper cathodes against All Risks. The cargoes were shipped on board the vessel "Richard from Leyte North
Harbor, Manila.
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier
and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters
for the use of its delivery trucks to transport the cargoes to Columbia’s warehouses/plants.
However One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its
cargo.Later on, the said truckwas recovered but without the copper cathodes. Because of this incident,
Columbia filed with R&B Insurance a claim for insurance indemnity. After the requisite investigation and
adjustment, R&B Insurance paid Columbia the amount as insurance indemnity. R&B Insurance, thereafter,
filed a complaint for damages against both Loadmasters and Glodel before the Regional Trial Court.
ISSUE:
Whether or not the Loadmaster is a common carrier in contemplation of the law.
RULING:
Yes. Loadmasters is a common carrier because it is engaged in the business of transporting goods by
land, through its trucking service. It is a common carrier as distinguished from a private carrier wherein the
carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the
general public. The distinction is significant in the sense that "the rights and obligations of the parties to a
contract of private carriage are governed principally by their stipulations, not by the law on common.
In the present case, there is no indication that the undertaking in the contract between Loadmasters
and Glodel was private in character. There is no showing that Loadmasters solely and exclusively rendered
services to Glodel. In fact, Loadmasters admitted that it is a common carrier.
3. Freight forwarder that contracts delivery of the goods
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., v. COURT OF APPEALS and PIONEER

INSURANCE AND SURETY CORPORATION
G.R. No. 166250 July 26, 2010, J. Nachura
A freight forwarder’s liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their destination
instead of merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to
goods. A freight forwarder assumes the responsibility of a carrier, which actually executes the transport, even
though the forwarder does not carry the merchandise itself.
FACTS:
Shipper Sylvex Purchasing Corporation delivered to Universal Transport Int’l Phils Inc. (UTI) a
shipment of various raw materials for pharmaceutical manufacturing. The subject shipment was insured with
private respondent Pioneer Insurance and Surety Corporation (Pioneer) in favor of Unilab against all risks.
On the same day that the bill of lading was issued, the shipment was loaded in a sealed container van,
boarded on American President Line’s (APL) vessel M/V Pres. Jackson, and transshipped to APL’s M/V "Pres.
Taft" for delivery to UTI in favor of the consignee United Laboratories, Inc. (Unilab). UTI received the said
shipment in its warehouse. However, Unilab’s quality control representative rejected one paper bag
containing dried yeast and one steel drum containing Vitamin B Complex as unfit for the intended purpose.
Unilab later filed a formal claim for the damage against Pioneer and UTI. UTI denied liability on the basis of
the gate pass issued that the goods were in complete and good condition; while Pioneer paid the claimed
amount. By virtue of the Loss and Subrogation Receipt issued by Unilab in favor of Pioneer, the latter filed a
complaint for Damages against APL and UTI. UTI denied liability arguing in the main that it is a forwarder and
not a common carrier.
ISSUE:
Whether or not the UTI is a common carrier.

RULING:
Yes. Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm
holding itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide
transportation of property for compensation and, in the ordinary course of its business, (1) to assemble and
consolidate, or to provide for assembling and consolidating, shipments, and to perform or provide for break-
bulk and distribution operations of the shipments; (2) to assume responsibility for the transportation of
goods from the place of receipt to the place of destination; and (3) to use for any part of the transportation a
carrier subject to the federal law pertaining to common carriers.
A freight forwarder’s liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their
destination instead of merely arranging for their transportation, it becomes liable as a common carrier for
loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actually executes
the transport, even though the forwarder does not carry the merchandise itself.
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner
undertook to transport, ship, and deliver the 27 drums of raw materials for pharmaceutical manufacturing to
the consignee.
4. School bus operator despite limited clientele
SPOUSES TEODOROand NANETTE PERENA vs SPOUSES TERESITA PHILIPPINE NICOLAS and L.

ZARATE, NATIONAL RAILWAYS, and the COURT OF APPEALS
G.R. No. 157917 August 29, 2012, J. Bersamin
Despite catering to a limited clientèle, the Pereñas operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the students of a particular school living within or
near where they operated the service and for a fee.
FACTS:
Spouses Zarate were the legitimate parents of Aaron John L. Zarate. Spouses Zarate engaged the
services of spouses Pereña for the adequate and safe transportation carriage of the former spouses' son from
their residence in Parañaque to his school at the Don Bosco Technical Institute in Makati City. During the
effectivity of the contract of carriage and in the implementation thereof, Aaron, the minor son of spouses
Zarate died in connection with a vehicular/train collision which occurred while Aaron was riding the
contracted carrier Kia Ceres van of spouses Pereña.
At the time of the vehicular/train collision, the subject site of the vehicular/train collision was a
railroad crossing used by motorists for crossing the railroad tracks. During the said time of the
vehicular/train collision, there were no appropriate and safety warning signs and railings at the site.
ISSUE:
Whether or not the operator of the school bus service is a common carrier.
RULING:
Yes. A carrier is a person or corporation who undertakes to transport or convey goods or persons
from one place to another, gratuitously or for hire. The carrier is classified either as a private/special carrier
or as a common/public carrier. A private carrier is one who, without making the activity a vocation, or
without holding himself or itself out to the public as ready to act for all who may desire his or its services,
undertakes, by special agreement in a particular instance only, to transport goods or persons from one place
to another either gratuitously or for hire. The provisions on ordinary contracts of the Civil Code govern the
contract of private carriage. The diligence required of a private carrier is only ordinary, that is, the diligence
of a good father of the family. In contrast, a common carrier is a person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering such services to the public. Contracts of common carriage are governed by the
provisions on common carriers of the Civil Code, the Public Service Act, and other special laws relating to
transportation. A common carrier is required to observe extraordinary diligence, and is presumed to be at
fault or to have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.
Applying these considerations to the case before us, there is no question that the Pereñas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a business, not
just as a casual occupation; (b) undertaking to carry passengers over established roads by the method by
which the business was conducted; and (c) transporting students for a fee. Despite catering to a limited
clientèle, the Pereñas operated as a common carrier because they held themselves out as a ready
transportation indiscriminately to the students of a particular school living within or near where they
operated the service and for a fee.
C. DISTINCTIONS BETWEEN COMMON CARRIER AND PRIVATE CARRIER
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY v. PKS SHIPPING COMPANY

G.R. No. 149038, April 9, 2003, J. Vitug
Much of the distinction between a "common or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the general public or to a limited
clientele, although involving the carriage of goods for a fee, the person or corporation providing such service
could very well be just a private carrier.
FACTS:
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand 75,000 bags of cement.
DUMC insured the goods for its full value with petitioner Philippine American General Insurance Company
(Philamgen). The goods were loaded aboard the dumb barge Limar I belonging to PKS Shipping. In the
evening about nine o’clock, while Limar I was being towed by PKS Shipping’s tugboat, the barge sank bringing
down with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly
made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the shipping
company refused to pay, prompting Philamgen to file suit against PKS Shipping.RTC dismissed DUMC claimed
and later affirmed by the CA on appeal.
The appellate court ruled that evidence to establish that PKS Shipping was a common carrier at the
time it undertook to transport the bags of cement was wanting because the peculiar method of the shipping
company’s carrying goods for others was not generally held out as a business but as a casual occupation.
ISSUE:
Whether or not the PKS Shipping is a common carrier.

RULING:
Yes. PKS Shipping is a common carrier. PKS Shipping has engaged itself in the business of carrying
goods for others, although for a limited clientele, undertaking to carry such goods for a fee. The regularity of
its activities in this area indicates more than just a casual activity on its part. Neither can the concept of a
common carrier change merely because individual contracts are executed or entered into with patrons of the
carrier. Such restrictive interpretation would make it easy for a common carrier to escape liability by the
simple expedient of entering into those distinct agreements with clients.
Much of the distinction between a "common or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the undertaking is an isolated transaction, not a part of the business
or occupation, and the carrier does not hold itself out to carry the goods for the general public or to a limited
clientele, although involving the carriage of goods for a fee, the person or corporation providing such service
could very well be just a private carrier. A typical case is that of a charter party which includes both the vessel
and its crew, such as in a bareboat or demise, where the charterer obtains the use and service of all or some
part of a ship for a period of time or a voyage or voyages and gets the control of the vessel and its crew.
D. DILIGENCE REQUIRED OF COMMON CARRIERS
1. Extra-ordinary diligence required/ Presumption of fault in case of loss or damage to

goods or death or injury to passengers
HEIRS OF AMPARO DE LOS SANTOS, et al. vs. CA and COMPANIA MARITIMA

G.R. No. 51165, June 21, 1990, Medialdea, J.
Common carriers are tasked to observe extraordinary diligence in the vigilance over the goods and for
the safety of its passengers. Further, they are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.
FACTS:
M/V 'Mindoro' sailed from pier 8 North Harbor, Manila bound for New Washington, Aklan, with
many passengers aboard. It appears that said vessel met typhoon 'Welming' on the Sibuyan Sea, Aklan
causing the death of many of its passengers, although about 136 survived. A complaint was filed by the heirs
of Delos Santos and others as pauper litigants against the Compania Maritima, for damages due to the death
of several passengers as a result of the sinking of the vessel of defendant, the M/V 'Mindoro.’ The Board of
Marine Inquiry found that the captain and some officers of the crew were negligent in operating the vessel
and imposed upon them a suspension and/or revocation of their license certificates. It appears, however, that
this decision cannot be executed against the captain who perished with the vessel. Compania Maritima alleges
that no negligence was ever established and, in fact, the ship owners and their officers took all the necessary
precautions in operating the vessel. Furthermore, the loss of lives as a result of the drowning of some
passengers, including the relatives of the plaintiffs, was due to force majeure because of the strong typhoon
'Welming.'
ISSUE:
Whether or not Compania Maritima is negligent in the mishap?

RULING:
Yes. Owing to the nature of their business and for reasons of public policy, common carriers are
tasked to observe extraordinary diligence in the vigilance over the goods and for the safety of its passengers.
Further, they are bound to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all the circumstances. Whenever death or
injury to a passenger occurs, common carriers are presumed to have been at fault or to have acted negligently
unless they prove that they observed extraordinary diligence as prescribed by Articles 1733 and 1755 of the
New Civil Code.
The vessel was left at the mercy of 'Welming' in the open sea because although it was already in the
vicinity of the Aklan river, it was unable to enter the mouth of Aklan River to get into New Washington, Aklan
due to darkness and the Floripon Lighthouse at the entrance of the Aklan River was not functioning or could
not be seen at all. Storms and typhoons are not strange occurrences. In 1967 alone before 'Welming,' there
were about 17 typhoons that hit the country, the latest of which was typhoon Uring which occurred on
October 20-25, which cost so much damage to lives and properties. With the impending threat of 'Welming,'
an important device such as the radar could have enabled the ship to pass through the river and to safety. The
foregoing clearly demonstrates that Maritima's lack of extraordinary diligence coupled with the negligence of
the captain as found by the appellate court were the proximate causes of the sinking of M/V Mindoro. Hence,
Maritima is liable for the deaths and injury of the victims.
AMERICAN HOME ASSURANCE COMPANY vs. CA and NATIONAL MARINE CORPORATION

G.R. No. 94149, May 5, 1992, Paras, J.
Common 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 passengers transported by them
according to all circumstances of each case.
FACTS:
Cheng Hwa Pulp Corporation shipped 5,000 bales of bleached kraft pulp from Taiwan on board "SS
Kaunlaran", which is owned and operated by National Marine Corporation (NMC). The said shipment was
consigned to Mayleen Paper, Inc., which insured the shipment with American Home Assurance Company
(AHAC). Upon delivery of the shipment to Mayleen Paper, Inc., it was found that 122 bales had either been
damaged or lost. The loss was calculated to be 4,360 kilograms with an estimated value of P61,263.41. AHAC
paid Mayleen Paper the adjusted amount of P31.506.75 for the damages suffered, hence, the former was
subrogated to the rights and interests of Mayleen Paper. AHAC filed a complaint for recovery of sum of money
against NMC. NMC filed a motion to dismiss stating that AHAC had no cause of action based on Article 848 of
the Code of Commerce. AHAC countered that Article 848 does not apply as it refers to averages and that a
particular average presupposes that the loss or damage is due to an inherent defect of the goods, an accident
of the sea, or a force majeure or the negligence of the crew of the carrier, while claims for damages due to the
negligence of the common carrier are governed by the Civil Code provisions on Common Carriers.
ISSUE:
Whether or not American Home Assurance Co. is entitled to reimbursement?
RULING:
Yes. The Court held further that under Article 1733 of the Civil Code, common 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 passengers transported by them according to all circumstances
of each case. Thus, under Article 1735 of the same Code, in all cases other than those mentioned in Article
1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negligently, unless
it proves that it has observed the extraordinary diligence required by law. Under the foregoing principle and
in line with the Civil Code's mandatory requirement of extraordinary diligence on common carriers in the
care of goods placed in their stead, it is but reasonable to conclude that the issue of negligence must first be
addressed before the proper provisions of the Code of Commerce on the extent of liability may be applied.
Instead of presenting proof of the exercise of extraordinary diligence as required by law, NMC filed its Motion
to Dismiss hypothetically admitting the truth of the facts alleged in the complaint to the effect that the loss or
damage to the 122 bales was due to the negligence or fault of NMC. As ruled by this Court, the filing of a
motion to dismiss on the ground of lack of cause of action carries with it the admission of the material facts
pleaded in the complaint. Such being the case, it is evident that the Code of Commerce provisions on averages
cannot apply. Article 1734 of the Civil Code provides that common carriers are responsible for loss,
destruction or deterioration of the goods, unless due to any of the causes enumerated therein. It is obvious
that the case at bar does not fall under any of the exceptions. Thus, American Home Assurance Company is
entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.
PHILIPPINE AIRLINES, INC. vs. CA and PEDRO ZAPATOS

G.R. No. L-82619, September 15, 1993, Bellosillo, J.
The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires
common carriers to carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances.
FACTS:
Pedro Zapatos was among the 21 passengers of PAL Flight 477 that took off from Cebu bound for
Ozamiz City. While on flight and just about 15 minutes before landing at Ozamiz City, the pilot received a
radio message that the airport was closed due to heavy rains and inclement weather and that he should
proceed to Cotabato City instead. Upon arrival at Cotabato City, the PAL Station Agent informed the
passengers of their options to return to Cebu on Flight 560 of the same day and then to Ozamiz City, or take
the next flight to Cebu the following day, or remain at Cotabato and take the next available flight to Ozamiz
City. The Station Agent also informed them that Flight 560 bound for Manila would make a stop-over at Cebu
to bring some of the diverted passengers; that there were only 6 seats available as there were already
confirmed passengers for Manila; and, that the basis for priority would be the check-in sequence at Cebu.
Zapatos chose to return to Cebu but was not accommodated because he checked-in as passenger No. 9. He
insisted on being given priority over the confirmed passengers in the accommodation, but the Station Agent
refused explaining that the latter's predicament was not due to PAL's own doing but to a force majeure.
Zapatos tried to stop the departure of Flight 560 as his personal belongings were still on board but was not
acted upon. PAL then issued a free ticket to Iligan City, which the he received under protest. Zapatos was left
at the airport and could not even hitch a ride in the Ford Fiera loaded with PAL personnel. PAL neither
provided Zapatos with transportation from the airport to the city proper nor food and accommodation for his
stay in Cotabato City. The following day, Zapatos purchased a PAL ticket to Iligan City. He informed PAL
personnel that he would not use the free ticket because he was filing a case against PAL. His personal effects,
which were valued at P2,000.00, were no longer recovered. Zapatos filed a complaint for damages for breach
of contract of carriage against PAL.
ISSUE:
Whether or not PAL is negligent and liable for damages?

RULING:
Yes. The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires
common carriers to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances.
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard
required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous event.
Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the business of
air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with situations as in
the case at bar. What we said in one case once again must be stressed, i.e., the relation of carrier and
passenger continues until the latter has been landed at the port of destination and has left the carrier's
premises. Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded passengers until they have reached their final destination. On
this score, PAL grossly failed considering the then ongoing battle between government forces and Muslim
rebels in Cotabato City and the fact that the private respondent was a stranger to the place. As the appellate
court correctly ruled -- "While the failure of plaintiff in the first instance to reach his destination at Ozamis
City in accordance with the contract of carriage was due to the closure of the airport on account of rain and
inclement weather which was radioed to defendant 15 minutes before landing, it has not been disputed by
defendant airline that Ozamis City has no all-weather airport and has to cancel its flight to Ozamis City or by-
pass it in the event of inclement weather. Knowing this fact, it becomes the duty of defendant to provide all
means of comfort and convenience to its passengers when they would have to be left in a strange place in case
of such by-passing. The steps taken by defendant airline company towards this end has not been put in
evidence, especially for those 7 others who were not accommodated in the return trip to Cebu, only 6 of the
21 having been so accommodated. It appears that plaintiff had to leave on the next flight 2 days later. If the
cause of non-fulfillment of the contract is due to a fortuitous event, it has to be the sole and only cause. Since
part of the failure to comply with the obligation of common carrier to deliver its passengers safely to their
destination lay in the defendant's failure to provide comfort and convenience to its stranded passengers using
extra-ordinary diligence, the cause of non-fulfillment is not solely and exclusively due to fortuitous event, but
due to something which defendant airline could have prevented, defendant becomes liable to plaintiff.
BENITO MACAM vs. CA, et al.

G.R. No. 125524, August 25, 1999, Bellosillo, J.
The extraordinary liability of the common carrier continues to be operative even during the time the
goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of
the arrival of the goods and has had reasonable opportunity to remove them.
FACTS:
Benito Macam, doing business under the name and style Ben-Mac Enterprises, shipped on board the
vessel Nen Jiang, owned and operated by China Ocean Shipping Co., through local agent Wallem Philippines
Shipping, Inc., 3,500 boxes of watermelons valued and 1,611 boxes of fresh mangoes exported through letter
of credit issued by National Bank of Pakistan. The Bills of Lading contained the following pertinent provision:
"One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order."
The shipment was bound for Hongkong with Pakistan Bank as consignee and Great Prospect Company (GPC)
as notify party. Copies of the bills of lading and commercial invoices were submitted to Macam's depository
bank, Solidbank, which paid Macam in advance the total value of the shipment. Upon arrival in Hongkong, the
shipment was delivered by Wallem directly to GPC, not to Pakistan Bank, and without the required bill of
lading having been surrendered. GPC failed to pay Pakistan Bank such that the latter, still in possession of the
original bills of lading, refused to pay Macam through Solidbank. Since Solidbank already pre-paid Macam, it
demanded payment from Wallem through but was refused. Macam was allegedly constrained to return the
amount involved to Solidbank, then demanded payment from Wallem in writing but to no avail. Macam
sought collection of the value of the shipment from China Ocean and Wallem before the RTC based on
delivery of the shipment to GPC without presentation of the bills of lading and bank guarantee. Respondents
contended that the shipment was delivered to GPC without presentation of the bills of lading and bank
guarantee per request of Macam himself because the shipment consisted of perishable goods.
ISSUE:
Whether or not GPC as buyer/importer had the right to receive the goods?
RULING:
Yes. The extraordinary responsibility of the common carriers lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them, without prejudice to the provisions of article 1738. The extraordinary liability of the common
carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them. We emphasize that the
extraordinary responsibility of the common carriers lasts until actual or constructive delivery of the cargoes
to the consignee or to the person who has a right to receive them. Pakistan Bank was indicated in the bills of
lading as consignee whereas GPC was the notify party. However, in the export invoices GPC was clearly
named as buyer/importer. Macam referred to GPC as such in his demand letter to Wallem and in his
complaint before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as
buyer/importer which, conformably with Art. 1736 had, other than the consignee, the right to receive them.
VIRGINES CALVO vs. UCPB GENERAL INSURANCE CO., INC.

G.R. No. 148496, March 19, 2002, Mendoza, J.
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery.
FACTS:
Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a sole
proprietorship customs broker. Calvo entered into a contract with San Miguel Corporation (SMC) for the
transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in
Manila to SMC's warehouse. The cargo was insured by UCPB General Insurance Co., Inc. (UCPB) The shipment
contained in 30 metal vans, arrived in Manila on board "M/V Hayakawa Maru" and, after 24 hours, were
unloaded from the vessel to the custody of the arrastre operator, Manila Port Services, Inc. Calvo, pursuant to
her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMC's warehouse.
The goods were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting
paper were "wet/stained/torn" and 3 reels of kraft liner board were likewise torn. The damage was placed at
P93,112.00. SMC collected payment from UCPB under its insurance contract. UCPB, as subrogee of SMC,
brought suit against Calvo in the RTC which found Calvo liable to UCPB for the damage to the shipment.
ISSUE:
Whether or not Calvo is liable as a common carrier?

RULING:
Yes. The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the
goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the
greatest skill and foresight and "to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods
as their nature requires.
From the Survey Report, it is clear that the shipment was discharged from the vessel to the arrastre,
Marina Port Services Inc., in good order and condition as evidenced by clean Equipment Interchange Reports
(EIRs). To put it simply, the defendant-appellant received the shipment in good order and condition and
delivered the same to the consignee damaged. We can only conclude that the damages to the cargo occurred
while it was in the possession of the defendant-appellant. Whenever the thing is lost (or damaged) in the
possession of the debtor (or obligor), it shall be presumed that the loss (or damage) was due to his fault,
unless there is proof to the contrary. No proof was proffered to rebut this legal presumption and the
presumption of negligence attached to a common carrier in case of loss or damage to the goods. Anent Calvo's
insistence that the cargo could not have been damaged while in her custody as she immediately delivered the
containers to SMC's compound, suffice it to say that to prove the exercise of extraordinary diligence, Calvo
must do more than merely show the possibility that some other party could be responsible for the damage. It
must prove that it used all reasonable means to ascertain the nature and characteristic of goods tendered for
transport and that it exercised due care in the handling thereof." Calvo failed to do this.
For Art. 1734 (4) of the New Civil Code to apply, the rule is that if the improper packing or, in this
case, the defect/s in the container, is/are known to the carrier or his employees or apparent upon ordinary
observation, but he nevertheless accepts the same without protest or exception notwithstanding such
condition, he is not relieved of liability for damage resulting therefrom. In this case, Calvo accepted the cargo
without exception despite the apparent defects in some of the container vans. Hence, for failure of Calvo to
prove that she exercised extraordinary diligence in the carriage of goods in this case or that she is exempt
from liability, the presumption of negligence as provided under Art. 1735 holds.
VECTOR SHIPPING CORP AND FRANCISCO SORIANO vs. ADELFO MACASA, et al.
G.R. No. 160219, July 21, 2008, Nachura, J.
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.
FACTS:
Spouses Cornelio and Anacleta Macasa, together with their grandson, Ritchie, boarded the MV Doña
Paz, owned and operated by Sulpicio Lines, Inc., at Tacloban, Leyte bound for Manila. MV Doña Paz collided
with the MT Vector, an oil tanker owned and operated by Vector Shipping Corporation and Francisco Soriano,
which at the time was loaded with 860,000 gallons of gasoline and other petroleum products. Only 26
persons survived: 24 passengers of MV Doña Paz and 2 crew members of MT Vector. Both vessels were never
retrieved. Worse, only a few of the victims' bodies, who either drowned or were burned alive, were
recovered. Cornelio, Anacleta and Ritchie were among the victims whose bodies have yet to be recovered up
to this day. Adelfo, Emilia, Timoteo, and Cornelio, Jr., all surnamed Macasa, are the children of Cornelio and
Anacleta. According to the Macasas, Sulpicio Lines was uncooperative and was reluctant to entertain their
inquiries. Later, they were forced to rely on their own efforts to search for the bodies of their loved ones, but
to no avail. Sulpicio Lines, through counsel, intimated its intention to settle, and offered P250,000.00 for the
death of Cornelio, Anacleta and Ritchie. The Macasas rejected the said offer. Macasas filed a Complaint for
Damages arising out of breach of contract of carriage against Sulpicio Lines before the RTC. The complaint
imputed negligence to Sulpicio Lines because it was remiss in its obligations as a common carrier.
ISSUE:
Whether or not Sulpicio Lines is negligent and liable for damages?
RULING:
Yes. The Court takes judicial notice of its decision in Caltex Inc. v. Sulpicio Lines, Inc. (374 Phil. 325,
1999). In that case, while Caltex was exonerated from any third-party liability, this Court sustained the CA
ruling that Vector Shipping and Soriano are liable to reimburse and indemnify Sulpicio Lines for whatever
damages, attorney's fees and costs the latter is adjudged to pay the victims therein.
Moreover, in the same case, it was held that MT Vector fits the definition of a common carrier under
Article 1732 of the New Civil Code. Our ruling in that case is instructive: Thus, the 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. The provisions owed their conception to the
nature of the business of common carriers. 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. 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.
We are not swayed by the lengthy disquisition of MT Vector and Francisco Soriano urging this Court
to absolve them from liability. All evidence points to the fact that it was MT Vector's negligent officers and
crew which caused it to ram into MV Doña Paz. More so, MT Vector was found to be carrying expired
coastwise license and permits and was not properly manned. As the records would also disclose, there is a
defect in the ignition system of the vessel, and it was not convincingly shown whether the necessitated
repairs were in fact undertaken before the said ship had set to sea. In short, MT Vector was unseaworthy at
the time of the mishap. That the said vessel was allowed to set sail when it was, to everyone in the group's
knowledge, not fit to do so translates into rashness and imprudence.
R TRANSPORT CORPORATION vs. EDUARDO PANTE

G.R. No. 162104, September 15, 2009, Peralta, J.
Article 1756 of the Civil Code states that "[i]n case of death of or injuries to passengers, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed by Articles 1733 and 1755."
FACTS:
Eduardo Pante rode R. L. Bus Liner bound for Gapan, Nueva Ecija. The bus hit a tree and a house due
to the fast and reckless driving of the bus driver, Johnny Merdiquia. Pante sustained physical injuries as a
result of the vehicular accident. He was brought to the Baliuag District Hospital, where Pante was diagnosed
to have sustained a "laceration frontal area, with fracture of the right humerus," or the bone that extends
from the shoulder to the elbow of the right arm. Pante underwent an operation for the fracture of the right
humerus. He was informed that he had to undergo a second operation after 2 years of rest. He was
unemployed for almost a year after his first operation because Goldilocks, where he worked as a production
crew, refused to accept him with his disability as he could not perform his usual job. R Transport Corp. gave
Pante's wife P7,000.00, which was spent for the stainless steel instrument used in his fractured arm. After the
first operation, Pante demanded from R Transport the full payment of his medical and hospitalization
expenses, but the latter refused. 4 years later, Pante underwent a second operation. Pante filed a complaint
for damages against R Transport with the RTC for the injuries he sustained as a result of the vehicular
accident. R Transport put up the defense that it had always exercised the diligence of a good father of a family
in the selection and supervision of its employees, and that the accident was a force majeure for which it
should not be held liable.
ISSUE:
Whether or not R Transport Corp. is liable for damages?
RULING:
Yes. Common carriers, like petitioner bus company, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case. They are bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances. Article 1756 of the Civil Code states that “in case of death of or
injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as prescribed by Articles 1733 and 1755.”
In this case, the testimonial evidence of respondent showed that petitioner, through its bus driver,
failed to observe extraordinary diligence, and was, therefore, negligent in transporting the passengers of the
bus safely to Gapan, Nueva Ecija on January 27, 1995, since the bus bumped a tree and a house, and caused
physical injuries to respondent. Article 1759 of the Civil Code explicitly states that the common carrier is
liable for the death or injury to passengers through the negligence or willful acts of its employees, and that
such liability does not cease upon proof that the common carrier exercised all the diligence of a good father of
a family in the selection and supervision of its employees. Hence, even if petitioner was able to prove that it
exercised the diligence of a good father of the family in the selection and supervision of its bus driver, it is still
liable to respondent for the physical injuries he sustained due to the vehicular accident.
NEDLLOYD LIJNEN B.V. ROTTERDAM AND THE EAST ASIATIC CO., LTD. vs. GLOW LAKS ENTERPRISES,
LTD.
G.R. No. 156330, November 19, 2014, Perez, J.
The requirement of extraordinary diligence imposed on common carriers in contract of carrier of goods
is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods
have been lodged for the shipment.
FACTS:
Glow Laks Enterprises loaded on board M/S Scandutch at the Port of Manila a total 343 cartoons of
garments, complete and in good order for pre-carriage to the Port of Hong Kong. The goods arrived in good
condition in Hong Kong and were transferred to M/S Amethyst for final carriage to Colon, Panama. Both
vessels, M/S Scandutch and M/S Amethyst, are owned by Nedlloyd represented in the Phlippines by its agent,
East Asiatic. The goods which were valued at US$53,640.00 was agreed to be released to the consignee, Pierre
Kasem, International, S.A., upon presentation of the original copies of the covering bills of lading. Upon arrival
of the vessel at the Port of Colon, Nedlloyd and East Asiatic purportedly notified the consignee of the arrival of
the shipments, and its custody was turned over to the National Ports Authority in accordance with the laws,
customs regulations and practice of trade in Panama. However, unauthorized persons managed to forge the
covering bills of lading and on the basis of the falsified documents, the ports authority released the goods.
Glow Laks filed a formal claim with Nedlloyd for the recovery of the amount of US$53,640.00 representing
the invoice value of the shipment but to no avail. Claiming that Nedlloyd and East Asiatic are liable for the
misdelivery of the goods, Glow Laks filed a case for the recovery of the amount of US$53,640.00, including the
legal interest from the date of the first demand. In disclaiming liability for the misdelivery of the shipments,
Nedlloyd and East Asiatc asserted that they were never remiss in their obligation as a common carrier and
the goods were discharged in good order and condition into the custody of the National Ports Authority of
Panama in accordance with the Panamanian law. They averred that they cannot be faulted for the release of
the goods to unauthorized persons, their extraordinary responsibility as a common carrier having ceased at
the time the possession of the goods were turned over to the possession of the port authorities.
ISSUE:
Whether or not petitioners are liable for the misdelivery of goods?
RULING:
Yes. Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over goods, according to the
circumstances of each case. Common carriers are responsible for loss, destruction or deterioration of the
goods unless the same is due to flood, storm, earthquake or other natural disaster or calamity. Extraordinary
diligence is that extreme care and caution which persons of unusual prudence and circumspection use for
securing or preserving their own property or rights. This expecting standard imposed on common carriers in
contract of carrier of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the
common carrier once the goods have been lodged for the shipment. Hence, in case of loss of goods in transit,
the common carrier is presumed under the law to have been in fault or negligent.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported. When the goods shipped are either lost or arrived in
damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there
need not be an express finding of negligence to hold it liable. To overcome the presumption of negligence, the
common carrier must establish by adequate proof that it exercised extraordinary diligence over the goods. It
must do more than merely show that some other party could be responsible for the damage.
In this case, there is no dispute that the custody of the goods was never turned over to the consignee
or his agents but was lost into the hands of unauthorized persons who secured possession thereof on the
strength of falsified documents. The loss or the misdelivery of the goods in the instant case gave rise to the
presumption that the common carrier is at fault or negligent. Petitioners failed to prove that they did exercise
the degree of diligence required by law over the goods they transported. Indeed, aside from their persistent
disavowal of liability by conveniently posing an excuse that their extraordinary responsibility is terminated
upon release of the goods to the Panamanian Ports Authority, petitioners failed to adduce sufficient evidence
they exercised extraordinary care to prevent unauthorized withdrawal of the shipments. Nothing in the New
Civil Code, however, suggests, even remotely, that the common carriers’ responsibility over the goods ceased
upon delivery thereof to the custom authorities. To the mind of this Court, the contract of carriage remains in
full force and effect even after the delivery of the goods to the port authorities; the only delivery that releases
it from their obligation to observe extraordinary care is the delivery to the consignee or his agents. Even more
telling of petitioners’ continuing liability for the goods transported to the fact that the original bills of lading
up to this time, remains in the possession of the notify party or consignee.
EASTERN SHIPPING LINES, INC., v. BPI/MS INSURANCE CORP., & MITSUI SUMITOMO INSURANCE CO.,
LTD
G.R. No. 182864, January 12, 2015, PEREZ, J.
The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive
them.
FACTS:
BPI/MS and Mitsui alleged that at Yokohama, Japan, Sumitomo Corporation shipped on board ESLI’s
vessel M/V “Eastern Venus 22” various Steel Sheet twice valuing at US$83,857.59 and US$221,455.58 in favor
of Calaba Steel Center Inc.. The shipment was insured with the respondents BPI/MS and Mitsui against all
risks. The complaint for sum of money alleged that the shipment arrived at the port of Manila in an unknown
condition and was turned over to ATI for safekeeping. Upon withdrawal of the shipment by the Calamba
Steel’s representative, it was found out that part of the shipment was damaged and was in bad order
condition amounting to US$4,598.85 prompting Calamba Steel to reject the damaged shipment.Calamba Steel
also rejected the second damaged shipment for being unfit for the intended purpose.Calamba Steel attributed
the damages on both shipments to ESLI as the carrier and ATI as the arrastre operator in charge of the
handling and discharge of the coils and filed a claim against them. When ESLI and ATI refused to pay, Calamba
Steel filed an insurance claim for the total amount of the cargo against BPI/MS and Mitsui as cargo insurers.
As a result, BPI/MS and Mitsui became subrogated in place of and with all the rights and defenses accorded
by law in favor of Calamba Steel. The Regional Trial Court found ESLI and ATI liable for the damages
sustained by the two shipments.Court of Appeals absolved ATI from liability but sustained’s ESLI’s liability.
Issues:
1. Whether or not ESLI was negligent to be held liable for the damaged cargoes?
2. Whether or not there should be limited liability pursuant to COGSA?
RULING:
1. Yes, Common carriers, from the nature of their business and on public policy considerations, are
bound to observe extraordinary diligence in the vigilance over the goods transported by them.
Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility
of the common carrier lasts from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation until the same are delivered, actually or constructively,
by the carrier to the consignee, or to the person who has a right to receive them.
Based on the bills of lading issued, it is undisputed that ESLI received the two shipments of coils from
shipper Sumitomo Corporation in good condition at the ports of Yokohama and Kashima, Japan.
However, upon arrival at the port of Manila, some coils from the two shipments were partly dented
and crumpled as evidenced by the Turn Over Survey of Bad Order Cargoes No. 67982 dated 13
February 2004 and Turn Over Survey of Bad Order Cargoes Nos. 68363 and 68365 both dated 24
May 2004 signed by ESLI’s representatives, a certain Tabanao and Rodrigo together with ATI’s
representative Garcia. According to Turn Over Survey of Bad Order Cargoes No. 67982, four coils and
one skid were partly dented and crumpled prior to turnover by ESLI to ATI’s possession while a total
of eleven coils were partly dented and crumpled prior to turnover based on Turn Over Survey Bad
Order Cargoes Nos. 68363 and 68365.
2. No, there is no question about the declaration of the nature, weight and description of the goods on
the first bill of lading.
The bills of lading represent the formal expression of the parties’ rights, duties and obligations. It is
the best evidence of the intention of the parties which is to be deciphered from the language used in
the contract, not from the unilateral post facto assertions of one of the parties, or of third parties who
are strangers to the contract. Thus, when the terms of an agreement have been reduced to writing, it
is deemed to contain all the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of the written agreement.
ASIAN TERMINALS, INC.,v. SIMON ENTERPRISES, INC.
G.R. No. 177116, February 27, 2013, VILLARAMA, JR., J.
Though it is true that common carriers are presumed to have been at fault or to have acted negligently
if the goods transported by them are lost, destroyed, or deteriorated, and that the common carrier must prove
that it exercised extraordinary diligence in order to overcome the presumption, the plaintiff must still, before the
burden is shifted to the defendant, prove that the subject shipment suffered actual shortage.
FACTS:
Contiquincybunge Export Company made two shipments and loaded 6,843.700 metric
tonsand 3,300.000 metric tons of U.S. Soybean Meal in Bulk on board the vessel M/V “Sea Dream” at the Port
of Darrow, Louisiana, U.S.A., for delivery to the Port of Manila to respondent Simon Enterprises, Inc., as
consignee. When the vessel arrived at the South Harbor in Manila, the shipment was discharged to the
receiving barges of petitioner Asian Terminals, Inc. (ATI), the arrastre operator. Respondent later received
the shipment but claimed to be short of what was supposed to be delivered. Simon Enterprises filed an action
for damages against unknown owner of the vessels M/V “Sea Dream” and M/V “Tern,” its local agent Inter-
Asia Marine Transport, Inc., and petitioner ATI alleging that it suffered the losses through the fault or
negligence of the said defendants. The RTC held that ATI and other co-defendants solidarily liable. On appeal,
it affirmed the RTC’s decision. The Motion for reconsideration was denied.
ISSUE:
Whether or not ATI was negligent to be held liable?
RULING:
No. Petitioner ATI is correct in arguing that the respondent failed to prove that the subject shipment
suffered actual shortage, as there was no competent evidence to prove that it actually weighed 3,300 metric
tons at the port of origin.
Though it is true that common carriers are presumed to have been at fault or to have acted
negligently if the goods transported by them are lost, destroyed, or deteriorated, and that the common carrier
must prove that it exercised extraordinary diligence in order to overcome the presumption, the plaintiff must
still, before the burden is shifted to the defendant, prove that the subject shipment suffered actual shortage.
This can only be done if the weight of the shipment at the port of origin and its subsequent weight at the port
of arrival have been proven by a preponderance of evidence, and it can be seen that the former weight is
considerably greater than the latter weight, taking into consideration the exceptions provided in Article
1734 of the Civil Code.
In this case, respondent failed to prove that the subject shipment suffered shortage, for it was not
able to establish that the subject shipment was weighed at the port of origin at Darrow, Louisiana, U.S.A. and
that the actual weight of the said shipment was 3,300 metric tons.
E. LIABILITIES OF COMMON CARRIERS
MA. LUISA BENEDICTO v. HON. INTERMEDIATE APPELLATE COURT AND GREENHILLS WOOD
INDUSTRIES COMPANY, INC.
G.R. No. 70876, July 19, 1990, FELICIANO, J.
The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing
from the operations of the carrier, even though the specific vehicle involved may already have been transferred
to another person.
FACTS:
Greenhills Wood Industries bound itself to sell and deliver to Blue Star Mahogany, Inc. ("Blue Star"),
100,000 board feet of sawn lumber with the understanding that an initial delivery would be made on 15 May
1980. Private respondent's resident manager in Maddela, Dominador Cruz, contracted Virgilio Licuden, the
driver of a cargo truck to transport its sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This
cargo truck was registered in the name of petitioner Ma. Luisa Benedicto, the proprietor of
Macoven Trucking, a business enterprise engaged in hauling freight, with main office in B.F.
Homes Paranaque. Manager of Blue Star called up Greenhills' president, Henry Lee Chuy, informing him that
the sawn lumber had not yet arrived in Valenzuela, Bulacan. The latter in turn informed Greenhills' resident
manager in its Maddela sawmill of what had happened. In a letter, Blue Star's administrative and personnel
manager, Manuel R. Bautista, formally informed Greenhills' president and general manager that Blue Star still
had not received the sawn lumber which was supposed to arrive on 15 May 1980 and because of this delay,
"they were constrained to look for other suppliers."Greenhills filed an Estafa case against
Licuden. Greenhills also filed against petitioner Benedicto for recovery of the value of the lost sawn lumber
plus damages. Benedicto denied liability alleging that she already sold the truck to Benjamin Lee. The RTC
held Benedicto liable. On appeal, it was affirmed.
ISSUE:
Whether or not Benedicto as registered owner of the carrier, should be held liable for the value of the
undelivered or lost sawn lumber?
RULING:
Yes. The prevailing doctrine on common carriers, such as petitioner Benedicto herein, makes the
registered owner liable for consequences flowing from the operations of the carrier, even though the specific
vehicle involved may already have been transferred to another person. This doctrine rests upon the principle
that in dealing with vehicles registered under the Public Service Law, the public has the right to assume that
the registered owner is the actual or lawful owner thereof. It would be very difficult and often impossible as a
practical matter, for members of the general public to enforce the rights of action that they may have for
injuries inflicted by the vehicles being negligently operated if they should be required to prove who the actual
owner is. The registered owner is not allowed to deny liability by proving the identity of the alleged
transferee. Thus, contrary to petitioner's claim, private respondent is not required to go beyond the vehicle's
certificate of registration to ascertain the owner of the carrier. In this regard, the letter presented by
petitioner allegedly written by Benjamin Tee admitting that Licuden was his driver, had no evidentiary value
not only because Benjamin Tee was not presented in court to testify on this matter but also because of the
aforementioned doctrine. To permit the ostensible or registered owner to prove who the actual
owner is, would be to set at naught the purpose or public policy which infuses that doctrine.
COGEO-CUBAO OPERATORS AND DRIVERS ASSOCIATION, v. THE COURT OF APPEALS, LUNGSOD

SILANGAN TRANSPORT SERVICES, CORP., INC.
G.R. No. 100727, March 18, 1992, MEDIALDEA, J.
Although there is no doubt that a certificate of public convenience is private property, it is affected with
a public interest and must be submitted to the control of the government for the common good.
FACTS:
A certificate of public-convenience to operate a jeepney service was ordered to be issued in favor

of Lungsod Silangan to ply the Cogeo-Cubao route sometime. Due to the Board Resolution No. 9 by the Cogeo-
Cubao Operators and Drivers Association adopting a Bandera System under which a member of the
cooperative is permitted to queue for passengers at the disputed pathway in exchange for a ticket worth
twenty pesos, the proceed of which shall be utilized for Christmas programs of the drivers and other benefits,
and on the strength of defendants’ registration as a collective body with the Securities and Exchange
Commission, defendants-appellants, led by Romeo Oliva decided to form a human barricade on November 11,
1985 and assumed the dispatching of passenger jeepneys. In a suit of damages, the trial court rendered a
decision in favor of Lungsod Corp., The Court of Appeals affirmed the decision.
ISSUE:
Whether or not the petitioner usurped the property right of Lungsod Corp.?
RULING:
Yes, a certificate of public convenience is included in the term "property" in the broad sense of the
term. Under the Public Service Law, a certificate of public convenience can be sold by the holder thereof
because it has considerable material value and is considered a valuable asset. Although there is no doubt that
it is private property, it is affected with a public interest and must be submitted to the control of the
government for the common good. Hence, insofar as the interest of the State is involved, a certificate of public
convenience does not confer upon the holder any proprietary right or interest or franchise in the route
covered thereby and in the public. However, with respect to other persons and other public utilities, a
certificate of public convenience as property, which represents the right and authority to operate its facilities
for public service cannot be taken or interfered with without due process of law. Appropriate actions may be
maintained in courts by the holder of the certificate against those who have not been authorized to operate in
competition with the former and those who invade the rights which the former has pursuant to the authority
granted by the Public Service Commission.
In the case at bar, petitioner forcibly took over the operation of the jeepney service in the Cogeo-
Cubao route without any authorization from the Public Service Commission and in violation of the right
of respondent corporation to operate its services in the said route under its certificate of public convenience.
These were its findings which were affirmed by the appellate court:
SPOUSES CESAR & SUTHIRA ZALAMEA AND LIANA ZALAMEA v. HONORABLE COURT OF APPEALS AND
TRANSWORLD AIRLINES, INC.
G.R. No. 104235, November 18, 1993, NOCON, J.
A passenger is entitled to be reimbursed for the cost of the tickets he had to buy for a flight on another
airline.
FACTS:
Spouses Cesar C. Zalamea and Suthira Zalamea, and their daughter, Liana Zalamea, purchased three
(3) airline tickets from the Manila agent of TransWorld Airlines, Inc. for a flight from New York to Los Angeles
on June 6, 1984. The tickets of petitioners-spouses were purchased at a discount of 75% while that of their
daughter was a full fare ticket. All three tickets represented confirmed reservations. While in New York,
petitioners received notice of the reconfirmation of their reservations for said flight. On the appointed date,
however, petitioners checked in at 10:00 am., an hour earlier than the scheduled flight at 11:00 am. but were
placed on the wait-list because the number of passengers who had checked in before them had already taken
all the seats available on the flight. Mr. Zalamea, who was holding the full-fare ticket of his daughter, was
allowed to board the plane; while his wife and daughter, who presented the discounted tickets were denied
boarding. According to Mr. Zalamea, it was only later when he discovered that he was holding his daughter's
full-fare ticket. Thus Mrs. Zalamea and her daughter, they were constrained to book in another flight and
purchased two tickets from American Airlines at a cost of Nine Hundred Eighteen ($918.00) Dollars.Upon
their arrival in the Philippines, petitioners filed an action for damages based on breach of contract of air
carriage before the Regional Trial Court. The RTC ruled in favor of the petitioners. The Court of Appeals
modified the judgment and deleted exemplary damages.
ISSUE:
Is TWA liable for exemplary damages for breach of contract of carriage?
RULING:
Yes, the respondent court erred in not ordering the refund of the cost of the American Airlines tickets
purchased and used by petitioners Suthira and Liana. The evidence shows that petitioners Suthira and Liana
were constrained to take the American Airlines flight to Los Angeles not because they "opted not to use their
TWA tickets on another TWA flight" but because respondent TWA could not accommodate them either on the
next TWA flight which was also fully booked. The purchase of the American Airlines tickets by petitioners
Suthira and Liana was the consequence of respondent TWA's unjustifiable breach of its contracts of carriage
with petitioners. In accordance with Article 2201, New Civil Code, respondent TWA should, therefore, be
responsible for all damages which may be reasonably attributed to the non-performance of its obligation. A
passenger is entitled to be reimbursed for the cost of the tickets he had to buy for a flight on another airline.
Thus, instead of simply being refunded for the cost of the unused TWA tickets, petitioners should be awarded
the actual cost of their flight from New York to Los Angeles. On this score, we differ from the trial court's
ruling which ordered not only the reimbursement of the American Airlines tickets but also the refund of the
unused TWA tickets. To require both prestations would have enabled petitioners to fly from New York to Los
Angeles without any fare being paid.
PHILIPPINE AIRLINES, INC. v. COURT OF APPEALS, DR. JOSEFINO MIRANDA AND LUISA MIRANDA
G.R. No. 119641, May 17, 1996, REGALADO, J.
The off-loading or bumping off by defendant airlines of plaintiffs baggage to give way to other
passengers or cargo was an arbitrary and oppressive act which clearly amounted to a breach of contract
committed in bad faith and with malice.
Facts:
Dr. Josefino Miranda and his wife, Luisa, who were residents of Surigao City, went to the United
States of America on a regular flight of Philippine Airlines, Inc. (PAL). they obtained confirmed bookings from
PAL. Private respondents boarded PAL Flight PR 101 in San Francisco with five (5) pieces of baggage. After a
stopover at Honolulu, and upon arrival in Manila, they were told by the PAL personnel that their baggage was
off-loaded due to weight limitations but evidence at the trial proved that the baggage were off-loaded to give
preference to baggage and/or cargo originating from Honolulu. This was followed by another mishandling of
said baggag(e) in the twice-cancelled connecting flight from Cebu to Surigao.
Issue:
Whether PAL is liable for the mishandling of the baggage.
Ruling:
Yes. In the present case there was a breach of contract committed in bad faith by the defendant
airlines.
The Supreme Court defined bad faith as a breach of a known duty through some motive of interest or
ill will. Self-enrichment or fraternal interest, and not personal ill will, may have been the motive, but it is
malice nevertheless.
The Court has time and again ruled, and it cannot be over-emphasized, that a contract of air carriage
generates a relation attended with a public duty and any discourteous conduct on the part of a carriers
employee toward a passenger gives the latter an action for damages and, more so, where there is bad faith.
PHILIPPINE AIRLINES, INC. v. COURT OF APPEALS AND LEOVIGILDO A. PANTEJO

G.R. No. 120262, July 17, 1997, REGALADO, J.
What makes petitioner liable for damages in this particular case and under the facts obtaining herein is
its blatant refusal to accord the so-called amenities equally to all its stranded passengers who were bound for
Surigao City. No compelling or justifying reason was advanced for such discriminatory and prejudicial conduct.
Facts:
Private respondent Pantejo, then City Fiscal of Surigao City, boarded a PAL plane in Manila and
disembarked in Cebu City where he was supposed to take his connecting flight to Surigao City. However, due
to typhoon Osang, the connecting flight to Surigao City was cancelled. PAL initially gave out cash assistance of
P100.00 and, the next day, P200.00, for their expected stay of two days in Cebu. Pantejo requested instead
that he be billeted in a hotel at PAL’s expense because he did not have cash with him at that time, but PAL
refused. Thus, respondent Pantejo was forced to seek and accept the generosity of a co-passenger that he
shared a room with the latter at Sky View Hotel with the promise to pay. Pantejo came to know that the hotel
expenses of his co-passengers were reimbursed by PAL. Pantejo then sued PAL for damages for
discriminating against him. The Regional Trial Court and the Court of Appeals ruled in favor of Pantejo.
Issue:
Whether PAL acted in bad faith when it failed and refused to provide hotel accommodations for
respondent Pantejo or to reimburse him for hotel expenses incurred by reason of the cancellation of its
connecting flight to Surigao City due to force majeure.
Ruling:
Yes, assuming arguendo that the airline passengers have no vested right to these amenities in case a
flight is cancelled due to force majeure, what makes petitioner liable for damages in this particular case and
under the facts obtaining herein is its blatant refusal to accord the so-called amenities equally to all its
stranded passengers who were bound for Surigao City. No compelling or justifying reason was advanced for
such discriminatory and prejudicial conduct.
More importantly, it has been sufficiently established that it is petitioner’s standard company policy,
whenever a flight has been cancelled, to extend to its hapless passengers cash assistance or to provide them
accommodations in hotels with which it has existing tie-ups. In fact, petitioner’s Mactan Airport Manager for
departure services, Oscar Jereza, admitted that PAL has an existing arrangement with hotels to accommodate
stranded passengers, and that the hotel bills of Ernesto Gonzales were reimbursedobviously pursuant to that
policy.
On the bases of all the foregoing, the inescapable conclusion is that petitioner acted in bad faith in
disregarding its duties as a common carrier to its passengers and in discriminating against herein respondent
Pantejo. It was even oblivious to the fact that this respondent was exposed to humiliation and embarrassment
especially because of his government position and social prominence, which altogether necessarily subjected
him to ridicule, shame and anguish.
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. v. COURT OF APPEALS and FELMAN
SHIPPING LINES
G.R. No. 116940, June 11, 1997, J. Bellosillo.
There are exceptional circumstances wherein the ship agent could still be held answerable despite the
abandonment, as where the loss or injury was due to the fault of the shipowner and the captain.
Facts:
MV Asilda, a vessel owned and operated by Felman Shipping Lines, sank in the waters of Zamboanga
del Norte bringing down her entire cargo with her including 7,500 cases of 1-liter Coca-colasoftdrink bottles
insured with petitioner PHILAMGEN. Coca-Cola Bottlers Philippines, Inc filed a claim with Felman for
recovery of damages but it denied the claim thus prompting the former to file an insurance claim with
PHILAMGEN. PHILAMGEN paid the claim and thereafter, claiming its right of subrogation, sought recourse
against Felman. When Felman disclaimed any liability, PHILAMGEN filed a complaint against Felman; Felman
filed a motion to dismiss alleging that it had abandoned all its rights, interests and ownership over MV
Asilda together with her freight and appurtenances for the purpose of limiting and extinguishing its liability
under Art. 587 of the Code of Commerce.
Issue:
Whether the limited liability under Article 587 of the Code of Commerce should apply.
Ruling:
NO, Art. 587 of the Code of Commerce is not applicable to the case at bar. Under said Article, the
liability of a ship agent for the negligent acts of the captain in the care of goods loaded on the vessel can be
limited through abandonment of the vessel, its equipment and freightage. Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the
loss or injury was due to the fault of the shipowner and the captain. The international rule is to the effect that
the right of abandonment of vessels, as a legal limitation of a shipowners liability, does not apply to cases
where the injury or average was occasioned by the shipowners own fault. It must be stressed at this point
that Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where
the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier.
It was already established that the sinking of MV Asilda was due to its unseaworthiness even at the
time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was
loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal
miscalculation. As such, FELMAN was equally negligent.It cannot therefore escape liability through the
expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.
CARLOS SINGSON v. COURT OF APPEALS and CATHAY PACIFIC AIRWAYS, INC.

G.R. No. 119995, November 18, 1997, J. Bellosillo
Although the rule is that moral damages predicated upon a breach of contract of carriage may only be
recoverable in instances where the mishap results in the death of a passenger, or where the carrier is guilty of
fraud or bad faith, there are situations where the negligence of the carrier is so gross and reckless as to virtually
amount to bad faith, in which case, the passenger likewise becomes entitled to recover moral damages.
Facts:
Carlos Singson and his cousin bought two open-dated, identically routed round-trip tickets from
Cathay Pacific for their vacation to the United States. Each ticket consisted of five coupons and the procedure
was that at the start of each leg of the trip a flight coupon corresponding to the particular sector of the travel
would be removed from the ticket booklet so that at the end of the trip no more coupon would be left in the
ticket booklet. After staying there for three weeks, Singson and his cousin decided to return to the Philippines
choosing July 1, 1988 as their departure date. However, Singson was not able to book a return flight because
his coupon corresponding to the San Francisco-Hong Kong trip was missing. Instead, what remained in his
booklet was the ticket for Los Angeles-San Francisco which was supposed to be detached. It was not until July
6, 1988 that Cathay was finally able to arrange for his return flight to Manila. Singson thereafter commenced
an action for damages against Cathay alleging that when he insisted on a confirmation of his flight as he has
urgent business engagements in the Philippines, Cathay shrugged off his protestations and arrogantly
directed him to go to San Francisco himself and do some investigations on the matter or purchase a new
ticket subject to refund if it turned out that the missing coupon was still unused or subsisting.
Issue:
Whether Cathay is liable for removing of the wrong coupon.
Ruling:
YES. Cathay’s breach of contract of carriage has been established. Had Cathay’s agents been diligent
in double checking the coupons they were supposed to detach from the tickets, there would have been no
reason for Cathay not to confirm petitioners booking. It should thus be held liable for such breach.
Cathay's mistake in removing the wrong coupon was compounded by several other independent acts
of negligence above-enumerated. Taken together, they indubitably signify more than ordinary inadvertence
or inattention and thus constitute a radical departure from the extraordinary standard of care required of
common carriers. Put differently, these circumstances reflect the carriers utter lack of care and sensitivity to
the needs of its passengers, clearly constitutive of gross negligence, recklessness and wanton disregard of the
rights of the latter, acts evidently indistinguishable or no different from fraud, malice and bad faith
LOADSTAR SHIPPING CO., INC. v. COURT OF APPEALS and THE MANILA INSURANCE CO., INC
G.R. No. 131621, September 28, 1999, C.J. Davide, Jr.
Where the stipulation effectively reduces the common carrier’s liability for the loss or destruction of the
goods to a degree less than extraordinary x xx such stipulation would be considered null and void for being
contrary to public policy.
Facts:
Petitioner Loadstar received on board its vessel M/V Cherokee some goods insured with respondent
The Manila Insurance Co., Inc (MIC) against various risks including “total loss by total loss of the vessel.” The
vessel, however, sank off at Limasawa Island due to strong waves occasioned by two typhoons within the
Philippine Area of Responsibility. As a result of the total loss, the consignee of the goods made a claim with
Loadstar which however ignored the same. As the insurer, MIC paid the consignee its full settlement of the
claim. Thereafter, MIC filed a complaint against Loadstar.
Issue:
Whether Loadstar should be held liable for the loss of the goods.
Ruling:
YES, it should be held liable. The Court does not agree with petitioner’s argument. In the first place,
the cases relied on by Loadstar involved a limitation on the carrier’s liability to an amount fixed in the bill of
lading which the parties may enter into, provided that the same was freely and fairly agreed upon (Articles
1749-1750). On the other hand, the stipulation in the case at bar effectively reduces the common carrier’s
liability for the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745),
that is, the carrier is not liable for any loss or damage to shipments made at owners risk. Such stipulation is
obviously null and void for being contrary to public policy. It has been said:Three kinds of stipulations have
often been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or
damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform
weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy,
but the third is valid and enforceable.
EQUITABLE LEASING CORPORATION v. LUCITA SUYOM, MARISSA ENANO, MYRNA TAMAYO and FELIX
OLEDAN
G.R. No. 143360, September 5, 2002, J. Panganiban.
In an action based on quasi delict, the registered owner of a motor vehicle is solidarily liable for the
injuries and damages caused by the negligence of the driver, in spite of the fact that the vehicle may have already
been the subject of an unregistered Deed of Sale in favor of another person. Unless registered with the Land
Transportation Office, the sale -- while valid and binding between the parties -- does not affect third parties,
especially the victims of accidents involving the said transport equipment.
Facts.
A Fuso Road Tractor driven by Raul Tutor rammed into the house of Myrna Tamayo. As a result, a
portion of the house got destroyed, two died and four got injured. Tutor was charged with and later
convicted of reckless imprudence resulting in multiple homicide and multiple physical injuries. Upon
verification with the LTO, it was shown that the registered owner of the tractor is petitioner Equitable
Leasing Corporation/leased to Edwin Lim. Respondents thus filed a complaint for damages against Raul
Tutor, petitioner, and Ecatine Corporation. Petitioner filed an Answer with Counterclaim alleging that the
vehicle had already been sold to Ecatine Corporation and that the former was no longer in possession and
control thereof at the time of the incident. It also claimed that Tutor was not its employee, but of Ecatine.
Issue:
Whether petitioner should be held liable for the damages sustained by respondents in an action
based on quasi-delict for the negligent acts of a driver who was not its employee.
Ruling:
YES, the Court holds petitioner liable for the deaths and the injuries complained of, because it was the
registered owner of the tractor at the time of the accident. The Court has consistently ruled that, regardless
of sales made of a motor vehicle, the registered owner is the lawful operator insofar as the public and third
persons are concerned; consequently, it is directly and primarily responsible for the consequences of its
operation. In contemplation of law, the owner/operator of record is the employer of the driver, the actual
operator and employer being considered as merely its agent. The same principle applies even if the registered
owner of any vehicle does not use it for public service.
Since Equitable remained the registered owner of the tractor, it could not escape primary liability for
the deaths and the injuries arising from the negligence of the driver.x xxWe must stress that the failure of
Equitable and/or Ecatine to register the sale with the LTO should not prejudice respondents, who have the
legal right to rely on the legal principle that the registered vehicle owner is liable for the damages caused by
the negligence of the driver. The non-registration is the fault of petitioner, which should thus face the legal
consequences thereof.
LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN v. MARJORIE NAVIDAD, Heirs of the late
NICANOR NAVIDAD & PRUDENT SECURITY AGENCY
G.R. No. 145804, February 6, 2003, J. Vitug.
While the deceased might not have then as yet boarded the train, a contract of carriage theretofore had
already existed when the victim entered the place where passengers were supposed to be after paying the fare
and getting the corresponding token therefor.
Facts:
On October 14, 1993, a drunk Nicanor Navidad, standing on the platform near the LRT tracks was
approached by the security guard Junelito Escartin. An altercation ensued between the two which led to a fist
fight and Navidad fell on the tracks. At the exact moment that Navidad fell, an LRT train operated by Rodolfo
Roman was coming in; Navidad was thus struck and instantaneously killed. Navidad’s heirs filed a complaint
for damages against Escartin, Roman, LRTA, Metro Transit.
Issue:
Whether or not petitioners LRTA and Rodolfo Roman should be held liable for the death of Nicanor
Navidad.
Ruling:
LRTA is liable. Rodolfo Roman, however, must be absolved from liability, there being no showing that
he himself is guilty of any culpable act or omission.
The law requires common carriers to carry passengers safely using the utmost diligence of very
cautious persons with due regard for all circumstances. Such duty of a common carrier to provide safety to its
passengers so obligates it not only during the course of the trip but for so long as the passengers are within its
premises and where they ought to be in pursuance to the contract of carriage. The statutory provisions
render a common carrier liable for death of or injury to passengers (a) through the negligence or wilful acts
of its employees or b) on account of wilful acts or negligence of other passengers or of strangers if the
common carriers employees through the exercise of due diligence could have prevented or stopped
the act or omission. In case of such death or injury, a carrier is presumed to have been at fault or been
negligent, and by simple proof of injury, the passenger is relieved of the duty to still establish the fault or
negligence of the carrier or of its employees and the burden shifts upon the carrier to prove that the injury is
due to an unforeseen event or to force majeure. In the absence of satisfactory explanation by the carrier on
how the accident occurred, which petitioners, according to the appellate court, have failed to show, the
presumption would be that it has been at fault, an exception from the general rule that negligence must be
proved.
The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required of the
common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose
to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the
task. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage.
SINGAPORE AIRLINES LIMITED v. ANDION FERNANDEZ
G.R. No. 142305, December 10, 2003, J. Callejo, Sr.
In an action for breach of contract of carriage, the aggrieved party does not have to prove that the
common carrier was at fault or was negligent. All that is necessary to prove is the existence of the contract and
the fact of its non-performance by the carrier.
Facts:
Andion Fernandez, an acclaimed soprano here in the Philippines and abroad was invited to sing
before the King and Queen of Malaysia. For this singing engagement, an airline ticket was purchased from
petitioner Singapore Airlines Limited which would transport her from Frankfurt, Germany to Singapore with
a connecting flight to Manila, then from Manila to Malaysia. It was necessary for the respondent to pass
by Manila in order to gather her wardrobe; and to rehearse and coordinate with her pianist her repertoire for
the aforesaid performance. Her flight however from Frankfurt, arrived two hours late in Singapore. By then,
the aircraft bound for Manila had left as scheduled. Fernandez never made it to Manila and was forced to take
a direct flight from Singapore to Malaysia.
Issue:
Whether or not petitioner is liable for damages despite its contention that it exercised extraordinary
diligence required by law under the given circumstances.
Ruling:
YES it is liable. When an airline issues a ticket to a passenger, confirmed for a particular flight on a
certain date, a contract of carriage arises. The passenger then has every right to expect that he be transported
on that flight and on that date. If he does not, then the carrier opens itself to a suit for a breach of contract of
carriage.
The contract of air carriage is a peculiar one. Imbued with public interest, the law requires common
carriers to carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons with due regard for all the circumstances. In an action for breach of
contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was
negligent. All that is necessary to prove is the existence of the contract and the fact of its non-performance by
the carrier.
In the case at bar, it is undisputed that the respondent carried a confirmed ticket for the two-legged
trip from Frankfurt to Manila. In her contract of carriage with the petitioner, the respondent certainly
expected that she would fly to Manila on the scheduled date and time. Since the petitioner did not transport
the respondent as covenanted by it on said terms, the petitioner clearly breached its contract of carriage with
the respondent.
CATHAY PACIFIC AIRWAYS, LTD. v. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ
G.R. No. 150843, March 14, 2003, C.J. Davide, Jr.
Priority upgrading is a privilege which, like all privileges, can be waived. By insisting on the upgrade,
despite the passengers’ waiver, the carrier breached its contract of carriage.
Facts:
As part of its marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo
Club. The members enjoy several privileges, such as priority for upgrading of booking without any extra
charge whenever an opportunity arises. Respondents spouses Vazquez are frequent flyers of Cathay Pacific
and are Gold Card members of Marco Polo Club. On September 1996, the spouses together with their maids
and two friends went to Hong Kong for pleasure and business. For their return flight, they were issued their
boarding passes to wit Business Class for the spouses Vazquez and their two friends and Economy Class for
their maid. When boarding was announced, the ground attendant informed the spouses that the spouses’
accommodations were upgraded to First Class. Dr. Vazquez refused the upgrade, reasoning that it would not
look nice for them as hosts to travel in First Class and their guests, in the Business Class; and moreover, they
were going to discuss business matters during the flight. However, the attendant convinced them to accept
the upgrade otherwise they cannot take the flight since the Business class was fully booked. Upon their
return to Manila, the Vazquezes, in a letter addressed to Cathay’s Country Manager, demanded that they be
indemnified for the humiliation and embarrassment caused by its employees.
Issue:
Whether by upgrading seat accommodations, petitioner breached its contract of carriage and as such
should be held liable for damages.
Ruling:
YES, normally, one would appreciate and accept an upgrading, for it would mean a better
accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had every right
to decline the upgrade and insist on the Business Class accommodation they had booked for and which was
designated in their boarding passes. They clearly waived their priority or preference when they asked that
other passengers be given the upgrade. It should not have been imposed on them over their vehement
objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.
WILLIAM TIU, doing business under the name and style of D Rough Riders, and VIRGILIO TE LAS PIAS
v. PEDRO ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC.
G.R. No. 138060, September 1, 2004, J. Callejo, Sr.
Upon the happening of the accident, the presumption of negligence at once arises, and it becomes the
duty of a common carrier to prove that he observed extraordinary diligence in the care of his passengers.
Facts:
One of the rear tires of the cargo truck marked Condor Hollow Block and General Merchandise
exploded just as it was about to pass over a bridge. Its driver, respondent Pedrano then parked the truck and
left his helper to have the tire vulcanized. He instructed his helper to place a spare tire six fathoms
away behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights were also left
on. D Rough Riders’ passenger bus driven by Te Las Pias saw the stalled truck so he applied the brakes and
tried to swerve to the left to avoid hitting the truck but it was too late. The bus rammed into the truck’s left
rear leaving several passengers injured including respondent Pedro Arriesgado and his wife who eventually
died. Pedro Arriesgado thereafter filed a complaint for breach of contract of carriage, damages, and
attorney’s fees against petitioners alleging that the bus was cruising at a fast and high speed and did not take
precautionary measures to avoid the accident.
Issue:
Whether Tiu is liable even if no evidence was presented to show that the latter acted in a fraudulent,
reckless and oppressive manner, or that he had an active participation in the negligent act of petitioner
Laspias.
Ruling:
YES, in actions for breach of contract, only the existence of such contract, and the fact that the
common carrier, failed to transport his passenger safely to his destination are the matters that need to be
proved. This is because under the said contract of carriage, the petitioners assumed the express obligation to
transport the respondent and his wife to their destination safely and to observe extraordinary diligence with
due regard for all circumstances. Any injury suffered by the passengers in the course thereof is immediately
attributable to the negligence of the carrier. Upon the happening of the accident, the presumption of
negligence at once arises, and it becomes the duty of a common carrier to prove that he observed
extraordinary diligence in the care of his passengers.
While evidence may be submitted to overcome such presumption of negligence, it must be shown
that the carrier observed the required extraordinary diligence, which means that the carrier must show the
utmost diligence of very cautious persons as far as human care and foresight can provide, or that the accident
was caused by fortuitous event. As correctly found by the trial court, petitioner Tiu failed to conclusively
rebut such presumption. The negligence of petitioner Laspias as driver of the passenger bus is, thus, binding
against petitioner Tiu, as the owner of the passenger bus engaged as a common carrier.
PHILIPPINE AIRLINES, INC. v. COURT OF APPEALS and SPOUSES MANUEL S. BUNCIO and AURORA R.
BUNCIO, Minors DEANNA R. BUNCIO and NIKOLAI R. BUNCIO, assisted by their Father, MANUEL S.
BUNCIO, and JOSEFA REGALADO, represented by her Attorney-in-Fact, MANUEL S. BUNCIO
G.R. No. 123238, September 22, 2008, J. CHICO-NAZARIO
When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a
contract of carriage arises. The passenger has every right to expect that he be transported on that flight and on
that date, and it becomes the airlines obligation to carry him and his luggage safely to the agreed destination
without delay. If the passenger is not so transported or if in the process of transporting, he dies or is injured, the
carrier may be held liable for a breach of contract of carriage.
Facts:
Private respondents spouses Manuel Buncio and Aurora Buncio purchased from Philippine Airlines
two plane tickets for their two minor children, Deanna, then 9 years of age, and Nikolai, then 8 years old.
Since Deanna and Nikolai will travel as unaccompanied minors, PAL required private respondents to
accomplish, sign and submit to it an indemnity bond. Private respondents complied with this requirement.
For the purchase of the said two plane tickets, PAL agreed to transport Deanna and Nikolai from
Manila to San Francisco, through one of its planes, Flight 106. PAL also agreed that upon the arrival of Deanna
and Nikolai in San Francisco Airport, it would again transport the two on that same day through a connecting
flight from San Francisco to Los Angeles via another airline, United Airways 996. Deanna and Nikolai then will
be met by their grandmother, Mrs. Regalado, at the Los Angeles Airport on their scheduled arrival.
Deanna and Nikolai boarded Flight 106 in Manila. When Deanna and Nikolai arrived at the San
Francisco Airport, the staff of United Airways 996 refused to take aboard Deanna and Nikolai for their
connecting flight to Los Angeles because PAL personnel in San Francisco because the indemnity bond was lost
by PAL’s personnel during the previous stop-over of Flight 106 in Honolulu, Hawaii. Deanna and Nikolai were
then left stranded at the San Francisco Airport.
When United Airways 996 landed at the Los Angeles Airport and its passengers disembarked, Mrs.
Regalado sought Deanna and Nikolai but she failed to find them. Deanna and Nikolai were able to arrive Los
Angeles on the following day, where the two boarded a Western Airlines plane. PAL’s personnel had
previously informed Mrs. Regalado of the late arrival of Deanna and Nikolai.
Issue:
Whether PAL is liable for damages for breach of contract of carriage
Ruling:
Yes. Private respondents and petitioner entered into a contract of air carriage when the former
purchased two plane tickets from the latter. Under this contract, petitioner obliged itself (1) to transport
Deanna and Nikolai, as unaccompanied minors, (2) upon the arrival of Deanna and Nikolai in San Francisco
Airport, to transport them on that same day from San Francisco to Los Angeles via a connecting flight on
United Airways 996.
As it was, petitioner failed to transport Deanna and Nikolai from San Francisco to Los Angeles on the
day of their arrival at San Francisco. The staff of United Airways 996 refused to take aboard Deanna and
Nikolai for their connecting flight to Los Angeles because petitioners personnel in San Francisco could not
produce the indemnity bond accomplished and submitted by private respondents. It was only on the
following day that Deanna and Nikolai were able to leave San Francisco and arrive at Los Angeles via another
airline, Western Airlines. Clearly then, petitioner breached its contract of carriage with private respondents.
THE HEIRS OF THE LATE RUBEN REINOSO, SR., represented by Ruben Reinoso Jr. v. THE COURT OF
APPEALS, PONCIANOTAPALES, JOSE GUBALLA, and FILWRITERS GUARANTY ASSURANCE
CORPORATION
G.R. No. 116121, July 18, 2011, J.MENDOZA
Whenever an employees negligence causes damage or injury to another, there instantly arises a
presumption juris tantum that the employer failed to exercise diligentissimipatris families in the selection or
supervision of his employee. Thus, in the selection of prospective employees, employers are required to examine
them as to their qualification, experience and service record. With respect to the supervision of employees,
employers must formulate standard operating procedures, monitor their implementation, and impose
disciplinary measures for breaches thereof. These facts must be shown by concrete proof, including documentary
evidence.
Facts:
The heirs of Reinoso filed a complaint for damages against Tapales and Guballa for the collision of a
passenger jeepney and a truck along E. Rodriguez Avenue, Quezon City, in which a passenger of the jeepney,
Ruben Reinoso, Sr. was killed. The passenger jeepney was owned by Ponciano Tapales and driven by
Alejandro Santos, while the truck was owned by Jose Guballa and driven by Mariano Geronimo.
Issue:
Whether Guballa, the owner of the truck, is civilly liable for the death of Reinoso.
Ruling:
Yes. The facts are beyond dispute. Reinoso, the jeepney passenger, died as a result of the collision of a
jeepney and a truck. It was established that the primary cause of the injury or damage was the negligence of
the truck driver who was driving it at a very fast pace. Based on the sketch and spot report of the police
authorities and the narration of the jeepney driver and his passengers, the collision was brought about
because the truck driver suddenly swerved to, and encroached on, the left side portion of the road in an
attempt to avoid a wooden barricade, hitting the passenger jeepney as a consequence.
On the other hand, Guballa as the owner of the truck is also liable. He failed to rebut the presumption of
negligence in the hiring and supervision of his employee. Article 2176, in relation to Article 2180 of the Civil
Code,
HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA, MICAELA B. OCHOA and JOMAR B. OCHOA
v. G & S TRANSPORT CORPORATION
G.R. No. 170071, March 9, 2011, J. DEL CASTILLO
In a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a
passenger dies or is injured. In fact, there is even no need for the court to make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence.
Facts:
Jose Marcial K. Ochoa died while on board an Avis taxicab driven by Bibiano Padilla, Jr., owned and
operated by G & S Transport Corporation. The accident happened when Padilla, in trying to avoid colliding
with the truck, turned the wheel to the left causing his taxicab to ram the railing throwing itself off the fly-
over and fell on the middle surface of EDSA below.
The contention of G & S is that the proximate cause of the accident is a fortuitous event and/or the
negligence of the driver of the delivery van which bumped the right portion of its taxicab and, that it
exercised the diligence of a good father of a family in the selection and supervision of its employees. It faults
the CA when it overlooked the fact that the MTC Decision convicting Padilla of reckless imprudence has
already been reversed on appeal by the RTC with Padilla having been accordingly acquitted of the crime
charged.
Issue:
Whether or not G&S as the owner and operator of the taxicab is civilly liable.
Rulings:
Yes. There is a contract of carriage between G & S and Jose Marcial. As a common carrier, G & S is
bound to carry Jose Marcial safely as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with due regard for all the circumstances. However, Jose Marcial was not able to
reach his destination safely as he died during the course of the travel. Furthermore, G & S miserably failed to
overcome this presumption. Both the trial court and the CA found that the accident which led to Jose Marcial’s
death was due to the reckless driving and gross negligence of G & S’ driver, Padilla, thereby holding G & S
liable to the heirs of Jose Marcial for breach of contract of carriage.
The acquittal of Padilla in the criminal case is immaterial to the instant case for breach of contract.
Article 31 of the Civil Code provides,
When the civil action is based on an obligation not arising from the act or omission complained of as
a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result
of the latter.
In this case, the action filed by the heirs is primarily for the recovery of damages arising from breach
of contract of carriage allegedly committed by G & S. Clearly, it is an independent civil action arising from
contract which is separate and distinct from the criminal action for reckless imprudence resulting in
homicide filed by the heirs against Padilla by reason of the same incident. Hence, regardless of Padilla’s
acquittal or conviction in said criminal case, same has no bearing in the resolution of the present case.
LOADSTAR SHIPPING COMPANY, INC. and LOADSTAR INTERNATIONAL SHIPPING COMPANY, INC. v.
MALAYAN INSURANCE COMPANY, INC.
G.R. No. 185565, November 26, 2014, J.REYES
According to the Code of Commerce, if the goods are delivered but arrived at the destination in damaged
condition, the remedies to be pursued by the consignee depend on the extent of damage on the goods. If the goods
are rendered useless for sale, consumption or for the intended purpose, the consignee may reject the goods and
demand the payment of such goods at their market price on that day pursuant to Article 365 of the Code of
Commerce.
Facts:
Copper concentrates were loaded in Cargo Hold Nos. 1 and 2 of MV "Bobcat", a marine vessel owned by
Loadstar International Shipping Co., Inc. (Loadstar International) and operated by Loadstar Shipping under a
charter party agreement. The shipper and consignee under the Bill of Lading are Philex Mining Corporation
and PASAR, respectively. The cargo was insured with Malayan Insurance Company, Inc. P & I Association is
the third party liability insurer of Loadstar Shipping.
MV "Bobcat" sailed from Poro Point, San Fernando, La Union bound for Isabel, Leyte. While in the
vicinity of Cresta de Gallo, the vessel’s chief officer on routine inspection found a crack on starboard sideof
the main deck which caused seawater to enter and wet the cargo inside Cargo Hold No. 2.
After the vessel arrived at Isabel, Leyte, PASAR and Philex’s representatives boarded and inspected the
vessel and undertook sampling of the copper concentrates. It showed that the samples of copper concentrates
from Cargo Hold No. 2 were contaminated by seawater. Consequently, PASAR rejected the cargo discharged
from Cargo Hold No. 2.
Malayan paid PASAR the amount of damages incurred. To recover the amount paid and in the exercise
of its right of subrogation, Malayan demanded reimbursement from Loadstar Shipping, which refused to
comply.
In its amended complaint, Malayan mainly alleged that as a direct and natural consequence of the
unseaworthiness of the vessel, PASAR suffered loss of the cargo.
Issue:
Whether the petitioners are liable for the total loss of the goods.
Ruling:
No. In case the damaged portion of the goods can be segregated from those delivered in good
condition, the consignee may reject those in damaged condition and accept merely those which are in good
condition. But if the consignee is able to prove that it is impossible to use those goods which were delivered
in good condition without the others, then the entire shipment may be rejected. To reiterate, under Article
365, the nature of damage must be such that the goods are rendered useless for sale, consumption or
intended purpose for the consignee to be able to validly reject them.
If the effect of damage on the goods consisted merely of diminution in value, the carrier is bound to pay
only the difference between its price on that day and its depreciated value as provided under Article 364 of
the Code of Commerce.
Malayan, as the insurer of PASAR, neither stated nor proved that the goods are rendered useless or
unfit for the purpose intended by PASAR due to contamination with seawater. Hence, there is no basis for the
goods’ rejection under Article 365 of the Code of Commerce. Clearly, it is erroneous for Malayan to reimburse
PASAR as though the latter suffered from total loss of goods in the absence of proof that PASAR sustained
such kind of loss. Otherwise, there will be no difference inthe indemnification of goods which were not
delivered at all; or delivered but rendered useless, compared against those which were delivered albeit, there
is diminution in value.
Vigilance over Goods
Exempting Causes
MAURO GANZON v. COURT OF APPEALS and GELACIO E. TUMAMBING

G.R. No. L-48757, May 30, 1988, J. SARMIENTO
The common carrier is presumed to have been at fault or to have acted negligently. By reason of this
presumption, the court is not even required to make an express finding of fault or negligence before it could hold
the common carrier answerable for the breach of the contract of carriage. However, the common carrier could
have been exempted from any liability had he been able to prove that he observed extraordinary diligence in the
vigilance over the goods in his custody, according to all the circumstances of the case, or that the loss was due to
an unforeseen event or to force majeure.
Facts:
Gelacio Tumambing contracted the services of Mauro Ganzon to haul scrap iron with his lighter.
When about half of the scrap iron was already loaded, Mayor Jose Advincula arrived and demanded money
from Tumambing. The latter resisted the shakedown and after a heated argument between them, Mayor
Advincula drew his gun and fired at Tumambing. The gunshot was not fatal but Tumambing had to be taken
to a hospital. After sometime, the loading of the scrap iron was resumed, but Acting Mayor Basilio Rub,
accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron where
the lighter was docked. Tumambing filed an action against Ganzon based on culpa contractual.
Issue:
Whether Mauro Ganzon is liable for breach of contract when the scrap of iron were taken custody by
the Acting Mayor of Bataan.
Ruling:
Yes. On the other hand, Ganzonhas failed to show that the loss of the scraps was due to any of the
following causes enumerated in Article 1734 of the Civil Code, namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Hence, the Ganzon is presumed to have been at fault or to have acted negligently. By reason of this
presumption, the court is not even required to make an express finding of fault or negligence before it could
hold the petitioner answerable for the breach of the contract of carriage.
Still, the Ganzon could have been exempted from any liability had he been able to prove that he
observed extraordinary diligence in the vigilance over the goods in his custody, according to all the
circumstances of the case, or that the loss was due to an unforeseen event or to force majeure. As it was, there
was hardly any attempt on the part of the Ganzon to prove that he exercised such extraordinary diligence.
The contention that he is exempt from any liability because the loss of the scraps was due mainly to
the intervention of the municipal officials of Marivelesis untenable. Ganzon failed to proved that Acting
Mayor Basilio Rub had the power to issue the disputed order, or that it was lawful, or that it was issued under
legal process of authority. Indeed, no authority or power of the acting mayor to issue such an order was given
in evidence. Neither has it been shown that the cargo of scrap iron belonged to the Municipality of Mariveles.
The order given by the acting mayor to dump the scrap iron into the sea was part of the pressure
applied by Mayor Jose Advincula to shakedown the appellant for P5,000.00. The order of the acting mayor did
not constitute valid authority for appellee Mauro Ganzon and his representatives to carry out.
The intervention of the municipal officials was not in any case, of a character that would render
impossible the fulfillment by the carrier of its obligation. Ganzonwas not duty bound to obey the illegal order
to dump into the sea the scrap iron. Moreover, there is absence of sufficient proof that the issuance of the
same order was attended with such force or intimidation as to completely overpower the will of the Ganzon’s
employees. The mere difficulty in the fulfillment of the obligation is not considered force majeure.
CENTRAL SHIPPING COMPANY, INC. v. INSURANCE COMPANY OF NORTH AMERICA

G.R. No. 150751, September 20, 2004, J.PANGANIBAN
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or
deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one of the causes
enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence to prevent or minimize
the loss.
Facts:
Central Shipping Co. received cargo, insured by Insurance Company of North America (ICNA), to be
transported via vessel. The vessel sank when it encountered a monsoon, aggravated by the shifting of the logs.
ICNA paid the claims of the insured and thus was subrogated to their rights and brings an action against
Central Shipping.
Issues:
Whether or not the carrier is liable for the loss of the cargo
Rulings:
Yes. From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport, according to all the circumstances of each
case. In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible;
that is, unless they can prove that such loss, destruction or deterioration was brought about -- among others -
- by flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases not specified
under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence.
In the present case, the weather condition encountered by petitioner’s vessel was not a "storm" or a
natural disaster comprehended in the law.
WESTERN SHIPPING AGENCY, INC., YEH SHIPPING CO. LTD. and PHIL. BRITISH ASSURANCE CO., INC. v.
NATIONAL LABOR RELATIONS COMMISSION and ALEXANDER S. BAO,
G.R. No. 109717, February 9, 1996, J. MENDOZA
The clearance to sail issued by the Coast Guard, after the vessel had been inspected by it together with
the Collector of Customs is entitled to much weight as it was issued by an agency of the government charged
with the seaworthiness of vessels.
Facts:
Alexander Bao was was discharged on the ground of loss of trust and confidence for having allowed
fifteen (15) persons to sail with him from Davao to Manila without authority and without regard to the safety
of the passengers and the cargo. the Coast Guard, after inspecting the vessel with the additional passengers
on board, issued a clearance for the vessel to sail.
Issue:
Whether the taking of additional passengers affected the seaworthiness of the vessel.
Ruling:
No. The clearance to sail issued by the Coast Guard, after the vessel had been inspected by it together
with the Collector of Customs, establishes two points:
First, that the Coast Guard and the Collector of Customs approved the application for the boarding of the
additional passengers, and second that the safety of the vessel was not endangered by the presence of the
additional passengers. This clearance is entitled to much weight as it was issued by an agency of the
government charged with the seaworthiness of vessels.
Nor is there any basis for petitioners allegation that the vessel did not have life-saving equipment for the
additional passengers. It had two life boats and two inflatable life rafts on board which could accommodate
50 persons and 25 persons, respectively. With only 36 persons on board (21 are the vessels complement and
15 passengers), the vessel had adequate life-saving equipment. Petitioners contend that the life boats and
rafts were for the crew and passengers under emergency, but there were none for the additional
passengers. But there were no passengers under emergency during the vessels run from Davao to Manila, so
that the lifebuoys intended for the passengers under emergency could have been used by the crews relatives
on board if needed. The clearance to sail issued by the Coast Guard is proof of compliance with the
requirements of 1019 of the Philippine Merchant Marine Rules and Regulation.
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL
SERVICES, INC. v. UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.)
G.R. No. 148496, March 19, 2002, J.MENDOZA
For Art. 1734(4) to apply, the rule is that if the improper packing or the defect/s in the container, is/are
known to the carrier or his employees or apparent upon ordinary observation, but he nevertheless accepts the
same without protest or exception notwithstanding such condition, he is not relieved of liability for damage
resulting therefrom.
Facts:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc., a sole
proprietorship customs broker. Petitioner entered into a contract with San Miguel Corporation for the
transfer of cargo. The cargo was insured by respondent UCPB General Insurance Co., Inc.
The shipment in question, contained in 30 metal vans, arrived in Manila on board M/V Hayakawa
Maru and, after 24 hours, were unloaded from the vessel to the custody of the arrastre operator, Manila Port
Services, Inc. Petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator
and delivered it to SMC’s warehouse in Ermita, Manila. The goods were inspected by Marine Cargo Surveyors,
who found it damaged.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned
amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner.
Issue:
Whether or not the petitioner is liable.
Ruling:
Yes. There is no basis to exempt petitioner from liability under Art. 1734(4), which provides:
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
(4) The character of the goods or defects in the packing or in the containers.
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the
container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception notwithstanding such condition, he is not
relieved of liability for damage resulting therefrom.
In this case, petitioner accepted the cargo without exception despite the apparent defects in some of
the container vans. Hence, for failure of petitioner to prove that she exercised extraordinary diligence in the
carriage of goods in this case or that she is exempt from liability, the presumption of negligence as provided
under Art. 1735 holds.
Requirement of Absence of Negligence
BACHELOR EXPRESS INCORPORATED v.THE HONORABLE COURT OF APPEALS

G.R. No. 85691 July 31, 1990 GUTIERREZ, JR., J.
In order that a common carrier may be absolved from liability in case of force majeure, it is not enough
that the acci.dent was caused by force majeure. The common carrier must still prove that it was not negligent in
causing the injuries resulting from such accident.
Facts:
A bus operated by Bachelor Express was carrying passengers when one of the said passenger
stabbed a PC soldier, who was also another passenger of the said bus. The incident caused panic which
resulted in the death of passengers Ornominio Beter and Narcisa Rautraut by jumping off the said bus.
Bachelor Express denied liability for the death for the death of said passengers stating that it was
Ornominio Beter and Narcisa Rautraut who jumped off the bus without the knowledge and consent
Issue:
Whether or not Bachelor Express is liable for the death of its passengers?
Ruling:
Yes. In order to overcome the presumption of fault or negligence under the law, states that the
vehicular incident resulting in the death of passengers Beter and Rautraut was caused by force majeure
or caso fortuito over which the common carrier did not have any control.
The running amuck of the passenger was the proximate cause of the incident as it triggered off a
commotion and panic among the passengers such that the passengers started running to the sole exit shoving
each other resulting in the falling off the bus by passengers Beter and Rautraut causing them fatal injuries.
The sudden act of the passenger who stabbed another passenger in the bus is within the context of force
majeure.
However, in order that a common carrier may be absolved from liability in case of force majeure, it is
not enough that the accident was caused by force majeure. The common carrier must still prove that it was
not negligent in causing the injuries resulting from such accident.
Considering the factual findings of the Court of Appeals-the bus driver did not immediately stop the
bus at the height of the commotion; the bus was speeding from a full stop; the victims fell from the bus door
when it was opened or gave way while the bus was still running; the conductor panicked and blew his whistle
after people had already fallen off the bus; and the bus was not properly equipped with doors in accordance
with law-it is clear that the petitioners have failed to overcome the presumption of fault and negligence found
in the law governing common carriers.
LOADSTAR SHIPPING CO., INC.v.COURT OF APPEALS and THE MANILA INSURANCE CO., INC.
G.R. No. 131621 September 28, 1999 DAVIDE, JR., C.J.
Transportation of the merchandise at the risk and venture of the shipper means that the latter bears the
risk of loss or deterioration of his goods arising from fortuitous events, force majeure, or the inherent nature and
defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless otherwise
proved.
Facts:
A vessel owned by Loadstar Shipping sank due to bad weather. Consignees of the cargo of the vessel
were insured by Manila Insurance Co. (MIC) The said consignees filed a claim against Loadstar but was
ignored by Loadstar which prompted them to go after MIC, who in turn paid their claims and became
subrogated to the rights of the consignees. MIC filed a complaint against Loadstar for the value of the goods
insured.
MIC asserts that the sinking of the vessel was due to the fault and negligence of Loadstar and its
employees. Loadstar also maintains that the vessel was seaworthy. It further claims that it was not
responsible for the loss of the cargo, such loss being due to force majeure.
Issue:
Whether or not Loadstar is liable for the value of the goods?

Ruling:
Yes. The court found that the vessel was not seaworthy when it embarked on its voyage. The vessel
was not even sufficiently manned at the time. 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 its vessel involved in a contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code..
LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its
vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm
that may be deemed as force majeure, inasmuch as the wind condition in the performance of its duties
SMITH BELL DODWELL SHIPPING AGENCY CORPORATION v. CATALINO BORJA

G.R. No. 143008 June 10, 2002 PANGANIBAN, J.
The owner or the person in possession and control of a vessel is liable for all natural and proximate
damages caused to persons and property by reason of negligence in its management or navigation.
Facts:
Catalino Borja was aboard a vessel owned Smith Bell Shipping when an explosion happened. Upon
hearing the explosion, Borja, who was at that time inside the cabin preparing reports, ran outside to check
what happened. Seeing the fire and fearing for his life, Borja hurriedly jumped over board to save himself.
However, the water was likewise on fire due mainly to the spilled chemicals which were contained in the
vessel. Borja made demands against Smith Bell for the damages caused by the explosion.
Issue:
Whether or not Smith Bell is liable for the injuries suffered by Borja?
Ruling:
Yes. Negligence is conduct that creates undue risk of harm to another. It is the failure to observe that
degree of care, precaution and vigilance that the circumstances justly demand, whereby that other person
suffers injury.Petitioner's vessel was carrying chemical cargo -- alkyl benzene and methyl methacrylate
monomer. While knowing that their vessel was carrying dangerous inflammable chemicals, its officers and
crew failed to take all the necessary precautions to prevent an accident.
The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b) fault or negligence of
the defendant, and (c) the connection of cause and effect between the fault or negligence of the defendant and
the damages inflicted on the plaintiff. All these elements were established in this case. Knowing full well that
it was carrying dangerous chemicals, petitioner was negligent in not taking all the necessary precautions in
transporting the cargo.
Absence of Delay
ANICETO G. SALUDO, JR., ET. AL. v.HON. COURT OF APPEALS, ET. AL

G.R. No. 95536 March 23, 1992 REGALADO, J.
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract,
a carrier is not an insurer against delay in transportation of goods.
Facts:
The remains of the plaintiffs' mother was supposed to be transported from Chicago to California and
from California to the Philippines. But because of a mix up, the remains were sent to Mexico initially, which
caused a delay. The plaintiff's sued Trans World Airlines and Philippine Airlines for damages on the ground of
delay in transporting their mother's remains.
Issue:
Whether or not a carrier is liable in case of delay in the delivery of a cargo?
Ruling:
No. When a common carrier undertakes to convey goods, the law implies a contract that they shall be
delivered at destination within a reasonable time, in the absence, of any agreement as to the time of
delivery. But where a carrier has made an express contract to transport and deliver property within a
specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it may
have arisen. This result logically follows from the well-settled rule that where the law creates a duty or
charge, and the party is disabled from performing it without any default in himself, and has no remedy over,
then the law will excuse him, but where the party by his own contract creates a duty or charge upon himself,
he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might
have provided against it by contract. Whether or not there has been such an undertaking on the part of the
carrier to be determined from the circumstances surrounding the case and by application of the ordinary
rules for the interpretation of contracts.
Common carriers are not obligated by law to carry and to deliver merchandise, and persons are not
vested with the right to prompt delivery, unless such common carriers previously assume the obligation. Said
rights and obligations are created by a specific contract entered into by the parties.
PHILIPPINE AIR LINES v.FLORANTE A. MIANO

G.R. No. 106664 March 8, 1995 PUNO, J.
In breach of contract of carriage by air, moral damages are awarded only if the defendant acted
fraudulently or in bad faith. Bad faith means a breach of a known duty through same motive of interest or ill
will.
Facts:
Florante Miano took flight from Manila to Germany. He had an immediate onward connecting flight
to Austria. Upon arrival at Austria, his checked-in baggage was missing. It was only 11 days after that his
suitcase was delivered to him. He instituted an action for Damages for the delay in the delivery of his suitcase.
The trial court awarded moral damages to compensate Miano for the delay
Issue:
Whether or not PAL is liable for moral damages caused by the delay?
Ruling:
No. The trial court erred in awarding moral damages to private respondent. The established facts
evince that petitioner's late delivery of the baggage for 11 days was not motivated by ill will or bad faith.
Bad faith must be substantiated by evidence.
Bad faith under the law cannot be presumed; it must be established by clear and convincing
evidence. Again, the unbroken jurisprudence is that in breach of contract cases where the defendant is not
shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of the obligation which the parties had foreseen or could reasonably have
foreseen. The damages, however, will not include liability far moral damages.
Due Diligence to Prevent or Lessen the Loss
CENTRAL SHIPPING COMPANY, INC.v.INSURANCE COMPANY OF NORTH AMERICA

G.R. No. 150751 September 20, 2004 PANGANIBAN, J.
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or
deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one of the causes
enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence to prevent or minimize
the loss.
Facts:
Central Shipping Co. received cargo, insured by Insurance Company of North America (ICNA), to be
transported via vessel. The vessel sank when it encountered a monsoon, aggravated by the shifting of the logs.
ICNA paid the claims of the insured and thus was subrogated to their rights and brings an action against
Central Shipping.
Issue:
Whether or not central shipping is liable for the loss cargo?
Ruling:
Yes. Even if the weather encountered by the ship is to be deemed a natural disaster under Article
1739 of the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and
only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In other
words, the damaging effects blamed on the event or phenomenon must not have been caused, contributed to,
or worsened by the presence of human participation. The defense of fortuitous event or natural disaster
cannot be successfully made when the injury could have been avoided by human precaution.
Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the
circumstances of the particular case demand -- to prevent or minimize the loss before, during and after the
occurrence of the natural disaster, the carrier shall be deemed to have been negligent. The loss or injury is
not, in a legal sense, due to a natural disaster under Article 1734(1).
In the present case, the weather condition encountered by petitioner’s vessel was not a "storm" or a
natural disaster comprehended in the law. Given the known weather condition prevailing during the voyage,
the manner of stowage employed by the carrier was insufficient to secure the cargo from the rolling action of
the sea. The carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot
now disclaim any liability for the loss.
Contributory Negligence
Duration of Liability
Delivery of Goods to Common Carrier
MAURO GANZON v.COURT OF APPEALS and GELACIO E. TUMAMBING

G.R. No.L-48757 May 30, 1988 SARMIENTO, J.
The fact that part of the shipment had not been loaded on board the lighter did not impair the said
contract of transportation as the goods remained in the custody and control of the carrier, albeit still unloaded.
Facts:
Gelacio Tumambing contracted the services of Mauro Ganzon to haul scrap iron with his lighter.
When about half of the scrap iron was already loaded, Mayor Jose Advincula arrived and demanded money
from Tumambing. The latter resisted the shakedown and after a heated argument between them, Mayor
Advincula drew his gun and fired at Tumambing. The gunshot was not fatal but Tumambing had to be taken
to a hospital. After sometime, the loading of the scrap iron was resumed, but Acting Mayor Basilio Rub,
accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron where
the lighter was docked. Tumambing filed an action against Ganzon based on culpa contractual.
Ganzon insists that the scrap iron had not been unconditionally placed under his custody and control
to make him liable.
Issue:
Whether or not the cargo had been unconditionally placed in Ganzon's custody to make him liable?
Ruling:
Yes. By the said act of delivery, the scraps were unconditionally placed in the possession and control
of the common carrier, and upon their receipt by the carrier for transportation, the contract of carriage was
deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the loss, destruction
or deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary responsibility would
cease only upon the delivery, actual or constructive, by the carrier to the consignee, or to the person who has
a right to receive them.
Actual or Constructive Delivery
LU DO & LU YM CORPORATION v. I. V. BINAMIRA

G.R. No.L-9840 April 22, 1957 BAUTISTA ANGELO, J.
A common carrier has the legal duty to deliver goods to a consignee in the same condition in which it
received them. Except where the loss, destruction or deterioration of the merchandise was due to any of the cases
enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have been at fault and to have acted
negligently, unless it could prove that it observed extraordinary diligence in the care and handling of the goods.
Such presumption and the liability of the carrier attach until the goods are delivered actually or constructively,
to the consignee, or to the person who has a right to receive them
Facts:
Cargo was shipped from New York consigned to I. V. Binamira. Cargoes were discharged from the
ship at the port of Cebu by the stevedoring company hired by LU DO & LU YM Corp. as agent of the carrier. All
the unloaded cargo, including the shipment in question, was received by the Visayan Cebu Terminal Company
Inc., the arrastre operator appointed by the Bureau of Customs. It also appears that during the discharge, the
cargo was checked both by the stevedoring company hired by petitioner as well as by the arrastre operator of
the port, and the shipment in question, when discharged from the ship, was found to be in good order and
condition. But after it was delivered to respondent three days later, the same was examined by a marine
surveyor who found that some films and supplies were missing.
Issue:
Whether or not the carrier is responsible for the loss considering that the same occurred after the
shipment was discharged from the ship and placed in the possession and custody of the customs authorities?
Ruling:
No. It is true that, as a rule, a common carrier is responsible for the loss, destruction or deterioration
of the goods it assumes to carry from one place to another unless the same is due to any to any of the causes
mentioned in Article 1734 on the new Civil Code, and that, if the goods are lost, destroyed or deteriorated, for
causes other that those mentioned, the common carrier is presumed to have been at fault or to have acted
negligently, unless it proves that it has observed extraordinary diligence in their care, and that this
extraordinary liability lasts from the time the goods are placed in the possession of the carrier until they are
delivered to the consignee, or "to the person who has the right to receive them", but these provisions only
apply when the loss, destruction or deterioration takes place while the goods are in the possession of the
carrier, and not after it has lost control of them.
While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or to the
person who has a right to receive them", contemplated in Article 1736, because in such case the goods are
still in the hands of the Government and the owner cannot exercise dominion over them, we believe however
that the parties may agree to limit the liability of the carrier considering that the goods have still to through
the inspection of the customs authorities before they are actually turned over to the consignee. This is a
situation where we may say that the carrier losses control of the goods because of a custom regulation and it
is unfair that it be made responsible for what may happen during the interregnum.
COMPAÑIA MARITIMA, petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.

G.R. No.L-18965, October 30, 1964, BAUTISTA ANGELO, J.
The liability and responsibility of the carrier under a contract for the carriage of goods commence on
their actual delivery to, or receipt by, the carrier or an authorized agent.
Facts:
Macleod and Company of the Philippines contracted the services of Compania Maritima, a shipping
corporation (the carrier), for the shipment of 2,645 bales of hemp from Davao to Manila and for their further
transshipment to Boston. The hemp were loaded to two barged. But, while waiting for the carrier’s ship, one
of the barges sank resulting in the loss of 1,162 bales of hemp. Macleod notified the carrier of its liability. It so
happened that the hemp were insured with the Insurance Company of North America (the insurance
company), so Macleod filed a claim with the insurance company and was paid. By right of subrogation, the
insurance company sought to collect payment from the carrier but the latter refused. Hence, it sued the
carrier. The trial court and the appellate court ruled in favor of the insurance company.
Issue:
Whether or not a contract of carriage existed between the carrier and Macleod even if the loss
occurred when the hemp was loaded on a barge owned by the carrier for free and was not actually loaded to
the ship that would carry the hemp to manila.
Ruling:
Yes. The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf
preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of carriage
already entered into between the carrier and the shipper, for that preparatory step is but part and parcel of
said contract of carriage. In other words, here we have a complete contract of carriage the consummation of
which has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession
thereof by placing it on a lighter manned by its authorized employees, under which Macleod became entitled
to the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full
payment of its freight upon completion of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and
deliver, and if actually no goods are received there can be no such contract. The liability and responsibility of
the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by, the
carrier or an authorized agent. ... and delivery to a lighter in charge of a vessel for shipment on the vessel,
where it is the custom to deliver in that way, is a good delivery and binds the vessel receiving the freight, the
liability commencing at the time of delivery to the lighter. ... and, similarly, where there is a contract to carry
goods from one port to another, and they cannot be loaded directly on the vessel and lighters are sent by the
vessel to bring the goods to it, the lighters are for the time its substitutes, so that the bill of landing is
applicable to the goods as soon as they are placed on the lighters.
WESTWIND SHIPPING CORPORATION, Petitioner, vs. UCPB GENERAL INSURANCE CO., INC. and ASIAN
TERMINALS INC., Respondents.
G.R. No. 200289, November 25, 2013, J. PERALTA
The extraordinary responsibility of the common carrier lasts until the time the goods are actually or
constructively delivered by the carrier to the consignee or to the person who has a right to receive them. There is
actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or
to his duly authorized agent and a reasonable time is given him to remove the goods.
Facts:
Kinsho-Mataichi Corporation shipped from Japan metal containers for delivery to San Miguel
Corporation (SMC). The shipment was loaded on board a vessel owned by Westwind Shipping Corporation
(Westwind). It was also insured with UCPB General Insurance Co (UCPB). Upon the shipment’s arrival in
Manila, it was discharged in the custody of the arrastre operator, Asian Terminals, Inc. (ATI). SMC’s customs
broker, Orient Freight International Inc. (OFII), then withdrew from ATI the containers and delivered the
same at SMC’s warehouse. And there it was discovered the containers were damaged, so SMC filed a claim
against UCPB, Westwind, ATI and OFII to recover damages. After paying SMC, UCPB sued Westwind, ATI and
OFII for reimbursement. The trial court dismissed the complaint. It opined that Westwind is not liable,
because the discharging of the cargoes were done by ATI. The appellate court reversed the trial court’s
decision.
Issue:
Whether or not Westwind, the carrier, is liable despite the fact that it was ATI, the arrastre operator,
which was responsible for the discharging of the cargoes.
Ruling:
Yes. It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier. What Westwind failed to realize is that the extraordinary responsibility of
the common carrier lasts until the time the goods are actually or constructively delivered by the carrier to the
consignee or to the person who has a right to receive them. There is actual delivery in contracts for the
transport of goods when possession has been turned over to the consignee or to his duly authorized agent
and a reasonable time is given him to remove the goods. In this case, since the discharging of the
containers/skids, which were covered by only one bill of lading, had not yet been completed at the time the
damage occurred, there is no reason to imply that there was already delivery, actual or constructive, of the
cargoes to ATI.
Stipulation for Limitation of Liability
Void Stipulations
SWEET LINES, INC. v. HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental Branch VII,
LEOVIGILDO TANDOG, JR., and ROGELIO TIRO
G.R. No. L-37750, May 19, 1978, SANTOS, J.
Clearly, Condition No. 14, if enforced, will be subversive of the public good or interest, since it will
frustrate in meritorious cases, actions of passenger cants outside of Cebu City, thus placing petitioner company
at a decided advantage over said persons, who may have perfectly legitimate claims against it. The said
condition should, therefore, be declared void and unenforceable, as contrary to public policy — to make the
courts accessible to all who may have need of their services.
Facts:
Atty. Leovigildo Tandog and Rogelio Tiro were supposed to ride the vessel, M/S Sweet Hope owned
by Sweet Lines, Inc. (Sweet Lines), a common carrier, bound for Tagbiliran City from the port of Cebu. Upon
learning that the vessel would not go to Bohol (as majority of the passengers were bound for Surigao),
Tandog and Tiro requested and were allowed to be transferred to M/S Sweet Town. During the trip, the two
alleged that they were exposed to scorching heat of the sun, and that the ticket they bought were not honored,
so they were forced to buy new ones. Hence, Tandog and Tiro sued Sweet Lines for damages in the Court of
First Instance of Misamis Oriental. Sweet Lines moved to dismiss on the ground of improper venue, pointing
out a condition on the back of tickets they issue, which reads: “It is hereby agreed and understood that any
and all actions arising out of the conditions and provisions of this ticket, irrespective of where it is issued,
shall be filed in the competent courts in the City of Cebu.”
Issue:
Whether or not the condition on the back of the tickets was valid, considering that Tandog and Tiro
acceded to it.
Ruling:
No, the condition is void for being contrary to public policy. The assailed condition is a contract of
adhesion which is drafted only by one party and is sought to be accepted by the other party on a “take it or
leave it” basis. While contracts of adhesion are not illegal per se, the Supreme Court, in ruling that the assailed
condition in this case is void, took note of the following circumstances: (1) It is printed in fine letters; and (3)
There is a shortage in inter-island vessels plying between the country's several islands, which means that
passengers generally do not have choice but to scramble to whatever accommodations available at the risk of
their safety.Under these circumstances, it is hardly just and proper to expect the passengers to examine their
tickets received from crowded/congested counters, more often than not during rush hours, for conditions
that may be printed much charge them with having consented to the conditions, so printed, especially if there
are a number of such conditions m fine print, as in this case.
It also subverts public policy on transfers of venue of action. Although an agreement to change venue
is generally valid, it would not be so where it practically negates the action of the claimants, such as in this
case. Considering the expense and trouble a passenger residing outside of Cebu City would incur to prosecute
a claim in the City of Cebu, he would most probably decide not to file the action at all.
Limitations of Liability to Fixed Amount
Limitation of Liability in Absence of Declaration of Greater Value
ST. PAUL FIRE & MARINE INSURANCE CO. v. MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC.,
WILHELM WILHELMSEN MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY
G.R. No. L-27796, March 25, 1976, ANTONIO, J.
The stipulation in the bill of lading limiting the common carrier's liability to the value of the goods
appearing in the bill, unless the shipper or owner declares a greater value, is valid and binding. A stipulation
fixing or limiting the sum that may be recovered from the carrier on the loss or deterioration of the goods is
valid, provided it is (a) reasonable and just under the circumstances, and (b) has been fairly and freely agreed
upon.
Facts:
Basing its claim on subrogation, the petitioner St. Paul Marine Insurance Co. filed a complaint for
payment against the respondent Macondray & Co. It is the contention of the respondent that it should only be
held liable to pay the value of the goods as indicated in the C.I.F on the contract of sea carriage embodied in a
bill of lading. On the other hand, the petitioner contends that the full amount it paid to the insured should be
reimbursed in full.
Issue:
Whether or not the respondent should be held liable to pay the insurer the value of the goods as
indicated in the C.I.F value of goods pursuant to the contract of sea carriage.
Ruling:
Yes. The stipulation in the bill of lading limiting the common carrier's liability to the value of the
goods appearing in the bill, unless the shipper or owner declares a greater value, is valid and binding. This
limitation of the carrier's liability is sanctioned by the freedom of the contracting parties to establish such
stipulations, clauses, terms, or conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs and public policy.A stipulation fixing or limiting the sum that may be recovered
from the carrier on the loss or deterioration of the goods is valid, provided it is (a) reasonable and just under
the circumstances, and (b) has been fairly and freely agreed upon. In the case at bar, the liabilities of the
defendants- appellees with respect to the lost or damaged shipments are expressly limited to the C.I.F. value
of the goods as per contract of sea carriage embodied in the bill of lading.
The shipper and consignee are, therefore, bound by such stipulations since it is expressly stated in
the bill of lading that in "accepting this Bill of Lading, the shipper, owner and consignee of the goods, and the
holder of the Bill of Lading agree to be bound by all its stipulations, exceptions and conditions, whether
written, stamped or printed, as fully as if they were all signed by such shipper, owner, consignee or holder.
EASTERN AND AUSTRALIAN STEAMSHIP CO., LTD. AND F. E. ZUELLIG, INC.v.

GREAT AMERICAN INSURANCE CO. and COURT OF FIRST INSTANCE OF MANILA, BRANCH XIII
G.R. No.L-37604 October 23, 1981, DE CASTRO, J.
A stipulation in a contract of carriage that the carrier will not be liable beyond a specified amount
unless the shipper declares the goods to have a greater value is generally deemed to be valid and will operate to
limit the carrier's liability, even if the loss or damage results from the carrier's negligence.It is the duty of the
shipper to disclose, rather than the carrier's to demand the true value of the goods and silence on the part of the
shipper will be sufficient to limit recovery in case of loss to the amount stated in the contract of carriage.
Facts:
As a subrogee, the respondent Great American Insurance Co. filed a complaint for payment against
the petitioner Eastern and Australian Steamship Co. The petitioner, having been held liable to pay damages
for the full amount of the claim of the respondent, contends that the trial court erred in ruling that a
stipulation limiting the carrier’s liability in the bill of lading is void and contrary to law.
Issue:
Whether or not the liability of the petitioner should be limited only to the stipulation embodied in the
bill of lading.
Ruling:
Yes. A stipulation in a contract of carriage that the carrier will not be liable beyond a specified
amount unless the shipper declares the goods to have a greater value is generally deemed to be valid and will
operate to limit the carrier's liability, even if the loss or damage results from the carrier's negligence.
Pursuant to such provision, where the shipper is silent as to the value of his goods, the carrier's liability for
loss or damage thereto is limited to the amount specified in the contract of carriage and where the shipper
states the value of his goods, the carrier's liability for loss or damage thereto is limited to that amount. Under
a stipulation such as this, it is the duty of the shipper to disclose, rather than the carrier's to demand the true
value of the goods and silence on the part of the shipper will be sufficient to limit recovery in case of loss to
the amount stated in the contract of carriage.
Liability for Baggage of Passengers
Safety of Passengers
VICTORY LINER, INC. v. ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and
DIANA FRANCES P. GAMMAD
G.R. No. 159636, November 25, 2004, YNARES-SANTIAGO, J.
A common carrier is bound to carry its passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a
contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies
or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence.
Facts:
A Victory Liner bus operated by the petitioner fell off a ravine because it was running at a very high
speed. As a result, the wife of the respondent died due to serious physical injuries sustained by her. The
respondent then filed a complaint for damages on account of the petitioner’s breach of contract of carriage.
Issue:
Whether or not the petitioner should be held liable for breach of contract of carriage.
Ruling:
Yes. A common carrier is bound to carry its passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a
contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger
dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of
fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence.
PHILIPPINE NATIONAL RAILWAYS v. THE HONORABLE COURT OF APPEALS and ROSARIO TUPANG
G.R. No.L-55347, October 4, 1985, ESCOLIN, J.
Common carriers has the obligation to transport its passengers to their destinations and to observe
extraordinary diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the
presumption that it was negligent in the performance of its obligation under the contract of carriage. However,
the liability may be mitigated on account of the contributory negligence of the passenger.
Facts:
Winifredo Tupang, husband of the respondent Rosario Tupang, died for falling off the train. The
petitioner PNR despite being notified by the passengers refused to stop the train. Because of this, Winifredo
died. Respondent filed a complaint for damages against PNR for failing to exercise the required diligence of
common carriers. On its part, the PNR denies liability.
Issue:
Whether or not PNR should be held liable for damages for failure to exercise extraordinary diligence
in the carriage of passengers.
Ruling:
Yes. It is the contention of the petitioner that it should not be held liable invoking the doctrine of
state immunity. However, the Court ruled that well-settled is the rule when a government enters into a purely
commercial transaction, the doctrine of state immunity cannot anymore be invoked. Thus, it may be held
liable for damages.
Holding that PNR is liable, the Court ruled that the petitioner has the obligation to transport its
passengers to their destinations and to observe extraordinary diligence in doing so. Death or any injury
suffered by any of its passengers gives rise to the presumption that it was negligent in the performance of its
obligation under the contract of carriage. Thus, as correctly ruled by the respondent court, the petitioner
failed to overthrow such presumption of negligence with clear and convincing evidence.However, the liability
may be mitigated on account of the contributory negligence of the passenger.
Duration of Liability
Waiting for Carrier or Boarding of Carrier
DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y MALECDAN v. COURT OF

APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY, FERNANDO CUDLAMAT, MARRIETA
CUDIAMAT, NORMA CUDIAMAT, DANTE CUDIAMAT, SAMUEL CUDIAMAT and LIGAYA CUDIAMAT, all
Heirs of the late Pedrito Cudiamat represented by Inocencia Cudiamat
G.R. No. 95582, October 7, 1991, J. REGALADO
The victim herein, by stepping and standing on the platform of the bus, is already considered a
passenger and is entitled all the rights and protection pertaining to such a contractual relation. Hence, it has
been held that the duty which the carrier passengers owe to its patrons extends to persons boarding cars as well
as to those alighting therefrom.
Facts:
Theodore M. Lardizabal was driving a passenger bus belonging to petitioner corporation in a reckless
and imprudent manner and without due regard to traffic rules and regulations and safety to persons and
property, it ran over its passenger, Pedrito Cudiamat. On the other hand, petitioners alleged that they had
observed and continued to observe the extraordinary diligence required in the operation of the
transportation company and the supervision of the employees and it was alleged that it was the victim's own
carelessness and negligence which gave rise to the subject incident, hence they prayed for the dismissal of the
complaint plus an award of damages in their favor by way of a counterclaim.
Trial court rendered a decision in favor of petitioners ruling that Pedrito Cudiamat was negligent in
trying to board a moving vehicle. The Court of Appeals set aside the decision of the lower court and rationed
that the incident took place due to the gross negligence of the appellee-driver in prematurely stepping on the
accelerator and in not waiting for the passenger to first secure his seat especially so when the platform of the
bus was at the time slippery and wet because of a drizzle.
Issue:
Whether or not the petitioners are negligent and liable for the damages claimed.
Ruling:
Yes. It is the duty of common carriers of passengers to stop their conveyances a reasonable length of
time in order to afford passengers an opportunity to board and enter, and they are liable for injuries suffered
by boarding passengers resulting from the sudden starting up or jerking of their conveyances while they are
doing so.
Common carriers, from the nature of their business and reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by the according to all the
circumstances of each case. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence very cautious persons, with a due regard for all the
circumstances.
Arrival at Destination
LA MALLORCA,v. HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL.

G.R. No. L-20761, July 27, 1966, J. BARRERA
It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment
the passenger alights from the carrier's vehicle at a place selected by the carrier at the point of destination, but
continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier's
premises. And, what is a reasonable time or a reasonable delay within this rule is to be determined from all the
circumstances.
Facts:
Mariano Beltran together with his wife and their minor daughters, boarded a bus owned and
operated by the La Mallorca. After about an hour's trip, the bus reached its destination whereat it stopped to
allow the passengers among whom were the plaintiffs and their children. Afterwards, plaintiff returned to the
bus in controversy to get his other bayong, which he had left behind, but in so doing, his daughter followed
him, unnoticed by her father. While said Mariano Beltran was on the running board of the bus waiting for the
conductor to hand him his bayong suddenly started moving forward, evidently to resume its trip and as a
result his daughter was run over by the bus.
Issue:
Whether or not La Mallorca is liable for the death of the daughter of Mariano Beltran.
Ruling:
Yes. It may be pointed out that although it is true that respondent Mariano Beltran, his wife, and their
children (including the deceased child) had alighted from the bus at a place designated for disembarking or
unloading of passengers, it was also established that the father had to return to the vehicle (which was still at
a stop) to get one of his bags or bayong that was left under one of the seats of the bus.
ABOITIZ SHIPPING CORPORATION v. HON. COURT OF APPEALS, ELEVENTH DIVISION, LUCILA C. VIANA,
SPS. ANTONIO VIANA and GORGONIA VIANA, and PIONEER STEVEDORING CORPORATION
G.R. No. 84458, November 6, 1989, J. REGALADO
The rule is that the relation of carrier and passenger continues until the passenger has been landed at
the port of destination and has left the vessel owner's dock or premises. Once created, the relationship will not
ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier's
conveyance or had a reasonable opportunity to leave the carrier's premises. All persons who remain on the
premises a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable
time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a
reasonable time to see after his baggage and prepare for his departure.
Facts:
Anacleto Viana boarded a vessel M/V Antonia owned by Aboitiz Shipping. After said vessel had
landed, the Pioneer Stevedoring Corporation took over the exclusive control of the cargoes loaded on said
vessel. One (1) hour after the passengers of said vessel had disembarked, it started operation by unloading
the cargoes from said vessel. While the crane was being operated, Anacleto Viana who had already
disembarked from said vessel obviously remembering that some of his cargoes were still loaded in the vessel,
went back to the vessel, and it was while he was pointing to the crew of the said vessel to the place where his
cargoes were loaded that the crane hit him, pinning him between the side of the vessel and the crane which
caused his death.
Private respondents Vianas filed a complaint for damages against petitioner corporation Aboitiz for
breach of contract of carriage. Aboitiz denied responsibility contending that at the time of the accident, the
vessel was completely under the control of respondent Pioneer Stevedoring Corporation. It is also averred
that since the crane operator was not an employee of Aboitiz, the latter cannot be held liable under the
fellow-servant rule. Petitioner also contends that since one (1) hour had already elapsed from the time
Anacleto Viana disembarked from the vessel his presence on the vessel was no longer reasonable e and he
consequently ceased to be a passenger. Hence this instant petition.
Issue:
Whether or not Aboitiz is liable for the death of Anacleto Viana.
Ruling:
Yes. The carrier-passenger relationship is not terminated merely by the fact that the person
transported has been carried to his destination if, for example, such person remains in the carrier's premises
to claim his baggage.
It is of common knowledge that, by the very nature of petitioner's business as a shipper, the
passengers of vessels are allotted a longer period of time to disembark from the ship than other common
carriers such as a passenger bus.Consequently, a ship passenger will need at least an hour as is the usual
practice, to disembark from the vessel and claim his baggage
It is not definitely shown that one (1) hour prior to the incident, the victim had already disembarked
from the vessel. Petitioner failed to prove this. What is clear to us is that at the time the victim was taking his
cargoes, the vessel had already docked an hour earlier. In consonance with common shipping procedure as to
the minimum time of one (1) hour allowed for the passengers to disembark, it may be presumed that the
victim had just gotten off the vessel when he went to retrieve his baggage. Yet, even if he had already
disembarked an hour earlier, his presence in petitioner's premises was not without cause. The victim had to
claim his baggage which was possible only one (1) hour after the vessel arrived since it was admittedly
standard procedure in the case of petitioner's vessels that the unloading operations shall start only after that
time. Consequently, under the foregoing circumstances, the victim Anacleto Viana is still deemed a passenger
of said carrier at the time of his tragic death.
Liability for Acts of Others
Employees
ANTONIA MARANAN v. PASCUAL PEREZ, ET AL.

G.R. No. L-22272, June 26, 1967 J. BENGZON, J.P
Art. 1759 which categorically states that: Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the former's employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the common carriers.
Facts:
Rogelio Corachea, on October 18, 1960, was a passenger in a taxicab owned and operated by Pascual
Perez when he was stabbed and killed by the driver, Simeon Valenzuela. Defendants asserted that the
deceased was killed in self-defense, since he first assaulted the driver by stabbing him from behind.
Defendant Perez further claimed that the death was a caso fortuito for which the carrier was not liable.
Issue:
Whether or not Pascual Perez is liable for assaults of its employee, Rogelio Corachea.
Ruling:
Yes. The basis of the carrier's liability for assaults on passengers committed by its drivers rests either
on (1) the doctrine of respondeat superior or (2) the principle that it is the carrier's implied duty to transport
the passenger safely.
It is enough that the assault happens within the course of the employee's duty. It is no defense for the
carrier that the act was done in excess of authority or in disobedience of the carrier's orders.The carrier's
liability here is absolute in the sense that it practically secures the passengers from assaults committed by its
own employees. In this case, The killing was perpetrated by the driver of the very cab transporting the
passenger, in whose hands the carrier had entrusted the duty of executing the contract of carriage.
LEOPOLDO POBLETE v. DONATO FABROS and GODOFREDO DE LA CRUZ

G.R. No. L-29803 September 14, 1979DE, J. CASTRO
The owners and managers of an establishment or enterprise are likewise responsible for damages
caused by their employees in the service of the branches in which the latter are employed or on the occasion of
their functions.
Facts:
This is an action for damages, arising from a vehicular accident, filed by the plaintiff Godofredo
Poblete as owner of the damaged taxicab against the driver and owner of the allegedly offending vehicle,
Donato Fabros and Godofredo de la Cruz. The trial court dismissed the case on the ground that from the
allegation of the complaint, the action is one to hold Donato Fabros, as the employer of the allegedly negligent
driver, Godofredo de la Cruz, subsidiarily liable for the damage caused the plaintiff, and is, therefore,
premature, there having been no criminal action filed against the driver who had died during the pendency of
the case at bar, and, in effect, states no cause of action. A motion for reconsideration was filed to the order of
dismissal, but to no avail. Hence, this appeal.
Issue:
Whether or not the action is based on quasi-delict.
Ruling:
The action, being for liability based on quasi-delict, not for liability arising from crime, may proceed
independently from the criminal action. It is also for a different purpose, the liability sought to be imposed on
the employer being a primary and direct liability, not merely subsidiary. Examining the allegations of the
complaints which is to impose a "joint and several" liability on the defendants, there is absolutely no reason
to exclude and rule out the fact that the action is one based on quasi delict.
The relation between him and his co-defendant, Donato Fabros, the complaint clearly and
unmistakably makes out a case based on quasi-delict, as explicitly provided in Article 2180 of the Civil Code
which, inter alia, provides:
xxx
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by
their employees in the service of the branches in which the latter are employed or on the occasion of their
functions.
xxx
What needs only to be alleged under the aforequoted provision is that the employee (driver) has, by
his negligence (quasi-delict) caused damage to make the employer, likewise, responsible for the tortious act
of the employee, and his liability is, as earlier observed, primary and solidary. It is such a firmly established
principle that the negligence of the employee gives rise to the presumption of negligence on the part of the
employer. This is the presumed negligence in the selection and supervision of the employee.
SABENA BELGIAN WORLD AIRLINES v. HON. COURT OF APPEALS and MA. PAULA SAN AGUSTIN
G.R. No. 104685, March 14, 1996, J. VITUG
The Warsaw Convention however denies to the carrier availment of the provisions which exclude or
limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in accordance
with the law of the court seized of the case, is considered to be equivalent to wilful misconduct, or if the damage
is (similarly) caused x x x by any agent of the carrier acting within the scope of his employment. The Hague
Protocol amended the Warsaw Convention by removing the provision that if the airline took all necessary steps
to avoid the damage, it could exculpate itself completely, and declaring the stated limits of liability not
applicable if it is proved that the damage resulted from an act or omission of the carrier, its servants or agents,
done with intent to cause damage or recklessly and with knowledge that damage would probably result. The
same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger could recover
unlimited damages upon proof of wilful misconduct.
Facts:
Ma. Paula San Augustin was a passenger on board a plane of Sabena Belgian Airlines. Plaintiff
checked in her luggage which contained her valuables. Plaintiff arrived at Manila International Airport and
immediately submitted her Tag No. but was informed that the luggage was missing. Thereafter the luggage
was found and Plaintiff was assured by the defendant that it has notified its Manila Office that the luggage will
be shipped to Manila. But unfortunately plaintiff was informed that the luggage was lost for the second time.
Issue:
Whether Sabena Belgian World airlines is liable.
Ruling:
Yes. The Convention does not thus operate as an exclusive enumeration of the instances of an airlines
liability, or as an absolute limit of the extent of that liability. Such a proposition is not borne out by the
language of the Convention, as this Court has now, and at an earlier time, pointed out. Moreover, slight
reflection readily leads to the conclusion that it should be deemed a limit of liability only in those cases where
the cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport
is not attributable to or attended by any wilful misconduct, bad faith, recklessness or otherwise improper
conduct on the part of any official or employee for which the carrier is responsible, and there is otherwise no
special or extraordinary form of resulting injury. The Contentions provisions, in short, do not regulate or
exclude liability for other breaches of contract by the carrier or misconduct of its officers and employees, or
for some particular or exceptional type of damage. Otherwise, an air carrier would be exempt from any
liability for damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage,
which is absurd. Nor may it for a moment be supposed that if a member of the aircraft complement should
inflict some physical injury on a passenger, or maliciously destroy or damage the latters property, the
Convention might successfully be pleaded as the sole gauge to determine the carriers liability to the
passenger. Neither may the Convention be invoked to justify the disregard of some extraordinary sort of
damage resulting to a passenger and preclude recovery therefor beyond the limits set by said Convention. It
is in this sense that the Convention has been applied, or ignored, depending on the peculiar facts presented by
each case.
Other Passengers and Strangers
JOSE PILAPIL v.HON. COURT OF APPEALS and ALATCO TRANSPORTATION COMPANY, INC.
G.R. No. 52159, December 22, 1989, J. PADILLA
While the law requires the highest degree of diligence from common carriers in the safe transport of
their passengers and creates a presumption of negligence against them, it does not, however, make the carrier
an insurer of the absolute safety of its passengers.
Facts:
Jose Pilapil, a paying passenger, boarded respondent-defendant's bus. While said bus was in due
course unidentified man, a bystander along said national highway, hurled a stone at the left side of the bus,
which hit petitioner above his left eye. Private respondent's personnel lost no time in bringing the petitioner
to the provincial hospital in Naga City where he was confined and treated. Despite the treatment accorded to
him by Dr. Capulong, petitioner lost partially his left eye's vision and sustained a permanent scar above the
left eye.
Issue:
Whether or not Alatco Transportation Company, Inc is liable for the act of a stranger against the
petitioner Jose Pilapil.
Ruling:
No. Pusuant to Article 1755. "A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard
for all the circumstances." Further, in case of death of or injuries to passengers, the law presumes said
common carriers to be at fault or to have acted negligently.While the law requires the highest degree of
diligence from common carriers in the safe transport of their passengers and creates a presumption of
negligence against them, it does not, however, make the carrier an insurer of the absolute safety of its
passengers.
Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of the
common carrier when its passenger is injured, merely relieves the latter, for the time being, from introducing
evidence to fasten the negligence on the former, because the presumption stands in the place of evidence.
Being a mere presumption, however, the same is rebuttable by proof that the common carrier had exercised
extraordinary diligence as required by law in the performance of its contractual obligation, or that the injury
suffered by the passenger was solely due to a fortuitous event. Where, as in the instant case, the injury
sustained by the petitioner was in no way due to any defect in the means of transport or in the method of
transporting or to the negligent or willful acts of private respondent's employees, with the injury arising
wholly from causes created by strangers over which the carrier had no control or even knowledge or could
not have prevented, the presumption is rebutted and the carrier is not and ought not to be held liable.
Exempting Causes
Force Majeure
ALBERTA YOBIDO and CRESENCIO YOBIDO v. COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY
and JASMIN TUMBOY
G.R. No. 113003, October 17, 1997, ROMERO, J.:
A fortuitous event is possessed of the following characteristics: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of
human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
Facts:
Spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded a Yobido
Liner. The left front tire of the bus exploded and the bus fell into a ravine around three (3) feet from the road
and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy and physical injuries to other
passengers.
Issue:
Whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that
exempts the carrier from liability for the death of a passenger.
Ruling:
No. Under the circumstances of this case, the explosion of the new tire may not be considered a
fortuitous event. There are human factors involved in the situation. The fact that the tire was new did not
imply that it was entirely free from manufacturing defects or that it was properly mounted on the
vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality,
resulting in the conclusion that it could not explode within five days use. Be that as it may, it is settled that an
accident caused either by defects in the automobile or through the negligence of its driver is not a caso
fortuito that would exempt the carrier from liability for damages. They failed to rebut the testimony of Leny
Tumboy that the bus was running so fast that she cautioned the driver to slow down. These contradictory
facts must, therefore, be resolved in favor of liability in view of the presumption of negligence of the carrier in
the law.
When Force Majeure does not apply
FORTUNE EXPRESS, INC.v. COURT OF APPEALS, PAULIE U.CAORONG, and minor children YASSER KING
CAORONG, ROSE HEINNI and PRINCE ALEXANDER, all surnamed CAORONG, and represented by their
mother PAULIE U. CAORONG
G.R. No. 119756, March 18, 1999, MENDOZA, J.
To considered as force majeure, it is necessary that (1) the cause of the breach of the obligation must be
independent of the human will; (2) the event must be either unforeseeable or unavoidable; (3) the occurrence
must be render it impossible for the debtor to fulfill the obligation in a normal manner; and (4) the obligor must
be free of participation in, or aggravation of, the injury to the creditor.
Facts:
A bus of Fortune Express Inc. (FEI) figured in an accident with a jeepney resulting in the death of
several passengers of the jeepney, including two Maranaos. Sgt. Reynaldo Bastasa of the Philippine
Constabulary informed Diosdado Bravo (Bravo), operations manager of FEI that certain Maranaos were
planning to take revenge by burning some of FEI’s buses. Bravo assured him that the necessary precautions to
insure the safety of lives and property would be taken.
Three armed Maranaos who pretended to be passengers, seized a bus of FEI. The one of the
Maranaos started pouring gasoline inside the bus, as the other held the passenger at bay with a handgun. The
passengers, including Atty. Caorong, stepped out of the bus and went behind the bushes in a field some
distance from the highway. However, Atty. Caorong returned to the bus to retrieve something from the
overhead rack. One of the passengers heard gun shots from inside the bus and saw that Atty. Caorong was hit.
Then the bus was set on fire. Some of the passengers were able to pull Atty. Caorong out of the burning bus
and rush him to a hospital in Iligan City, but he died while undergoing operation.
Issue:
Whether or not the acts of the Maranaos were considered caso fortuito.
Ruling:
NO. The Court held that the seizure of the bus of FEI was foreseeable and, therefore, was not a
fortuitous event which would exempt FEI from liability. The absence of any of the requisites mentioned above
would prevent the obligor from being excused from liability.
It was held that the common carrier was liable for its failure to take the necessary precautions
against an approaching typhoon, of which it was warned, resulting in the loss of the lives of several
passengers. The event was forseeable, and, thus, the second requisite mentioned above was not fulfilled. This
ruling applies by analogy to the present case. Despite the report from Sgt. Bastasa that the Maranaos were
going to attack its buses, FEI took no steps to safeguard the lives and properties of its passengers.
Had FEI and its employees been vigilant they would not have failed to see that the malefactors had a
large quantity of gasoline with them. Under the circumstances, simple precautionary measures to protect the
safety of passengers, such as frisking passengers and inspecting their baggage, preferably with non-intrusive
gadgets such as metal detectors, before allowing them on board could have been employed without violating
the passenger's constitutional rights. In the case, it is clear that because of the negligence of petitioner's
employees, the seizure of the bus by the Maranaos was made possible.
It is evident that FEI's employees failed to prevent the attack on one of FEI's buses because they did
not exercise the diligence of a good father of a family. Hence, FEI should be held liable for the death of Atty.
Caorong.
Extent of Liability for Damages
PHILIPPINE AIRLINES, INC.v. HON. COURT OF APPEALS and NATIVIDAD VDA. DE PADILLA, substituted
by her legal heirs, namely: AUGUSTO A. PADILLA, ALBERTO A. PADILLA, CRESENCIO R. ABES
(representing the deceased Isabel Padilla Abes) MIGUEL A. PADILLA and RAMON A. PADILLA
G.R. No.L-54470, May 8, 1990, GRIÑO-AQUINO, J.
Under Article 1764 and Article 2206(1) of the Civil Code, the award of damages for death is computed
on the basis of the life expectancy of the deceased, not of his beneficiary.
Facts:
Starlight Flight No. 26 of the Philippine Air Lines (PAL) took off from the Manduriao Airport in Iloilo,
on its way to Manila, with 33 persons on board, including the plane's complement. The plane did not reach its
destination but crashed.
As a result of her son's death, Mrs. Padilla filed a complaint against PAL, demanding payment of P600,
000 as actual and compensatory damages, plus exemplary damages and P60, 000 as attorney's fees. PAL
denied that the accident was caused by its negligence or that of any of the plane's flight crew, and the
principle of law generally recognized and applied by the courts in the United States that the controlling
element in determining loss of earnings arising from death is, as established by authorities, the life
expectancy of the deceased or of the beneficiary, whichever is shorter.
The trial court rendered a decision ordering the PAL to pay Mrs. Padilla the sum of P477, 000.00 as
award for the expected income of the Nicanor; plus moral damages and as attorney's fees. On Appeal, the
Court of Appeals affirmed the decision of the trial court in toto.
Issue:
Whether or not the life expectancy of the Nicanor should be the basis in computing the awarded
indemnity rather than on the life expectancy of Mrs. Padilla.
Ruling:
YES. The Court held that under Article 1764 and Article 2206(1) of the Civil Code, the award of
damages for death is computed on the basis of the life expectancy of the deceased, not of his beneficiary.
Art. 1764 provides that damages in cases comprised in this Section shall be awarded in accordance
with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger
caused by the breach of contract by a common carrier.
Art. 2206 provides that the amount of damages for death caused by a crime or quasi- delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be
assessed and awarded by the court, unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the time of
his death;
In the case of Davila vs. PAL, 49 SCRA 497 which involved the same tragic plane crash, this Court
determined not only PALs liability for negligence or breach of contract, but also the manner of computing the
damages due the plaintiff therein which it based on the life expectancy of the deceased, Pedro Davila, Jr.
PAN AMERICAN WORLD AIRWAYS, INC. v.INTERMEDIATE APPELLATE COURT, and EDMUNDO P.
ONGSIAKO
G.R. No.L-68988, June 21, 1990, NARVASA, J.
Article 2220 of the Civil Code says that moral damages may be awarded in breach of contract where the
defendant acted fraudulently or in bad faith. The rule also applies to common carriers. So, proof of infringement
of an agreement by a party, standing alone, will not justify an award of moral damages. There must, in addition,
as the law points out, be competent evidence of fraud of bad faith by that party.
Facts:
Edmundo P. Ongsiako (Ongsiako) was a paying passenger on the PAN AM Flight 842 that left Manila
for Honolulu, Hawaii, U.S.A. with Los Angeles, California, as his ultimate destination. At Honolulu, Ongsiako
discovered that his luggage was not carried on board. It was left at PAN AM's airport office in Manila where it
was found a week later. A PAN AM employee in Honolulu, instead of helping him search for his bag,
arrogantly threatened to bump him off in Honolulu should he persist in looking for his bag.
PAN AM assails this award of moral damages as without evidentiary foundation, or at the very least,
excessive. The trial court ordered PAN AM to pay Ongsiako for damages including P350, 000 of moral
damages. On Appeal, the trial court's judgment was affirmed by the Intermediate Appellate Court.
Issue:
Whether or not PAN AM is liable for moral damages.
Ruling:
Yes. The Court held that Under Article 2220 of the Civil Code says that moral damages may be
awarded in breach of contract where the defendant acted fraudulently or in bad faith. The rule also applies to
common carriers. So, proof of infringement of an agreement by a party, standing alone, will not justify an
award of moral damages. There must, in addition, as the law points out, be competent evidence of fraud of
bad faith by that party. If the plaintiff, for instance, fails to take the witness stand and testify as to his social
humiliation, wounded feelings, anxiety, etc., moral damages cannot be recovered.
In the present case, men of reasonable perceptions will not disagree with the conclusion that
Ongsiako suffered mental anguish, anxiety and shock when he found that his luggage did not travel with him.
What traveller would not suffer from such feelings if he found himself in a foreign land without any article of
clothing other than what he had on? The injury thus suffered by Ongsiako is one that would arise generally, in
the special circumstances of this case; it follows as a matter of course. PAN AM breach of the contract was the
substantial cause in bringing about the harm or injury to Ongsiako.
The Court believes and so holds that there is sufficient evidence of gross and reckless negligence
amounting to bad faith on the part of PAN AM. If PAN AM was not sure that it could transport plaintiff and his
luggage to Los Angeles, it should not have accepted Ongsiako who was a waitlisted passenger. It is not a valid
excuse on its part to claim that Ongsiako checked in at the last minute and that there was insufficient time to
load his bag in the plane.
In fact, that makes the position of PAN AM even more untenable, because in accepting and holding on
to Ongsiako as its passenger, probably to fill in cancelled bookings, although it knew or must have known that
the bag of Ongsiako might not be loaded on time, it was guilty of conduct amounting to bad faith. Accepting
last minute passengers and their baggage with no definite assurance that the carrier can comply with its
obligation due to lack of time amounts to negligence so gross and reckless as to amount to malice or bad faith.
CHINA AIRLINES LIMITEDv. COURT OF APPEALS and MANUEL J. OCAMPO

G.R. No. 94590, July 29, 1992, FELICIANO, J.
The law distinguishes a contractual breach effected in good faith from one attended by bad faith. Where
in breaching the contract, the defendant is not shown to have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable consequences of the breach of the obligation and which the
parties had foreseen or could reasonably have foreseen; and in that case, such liability would not include liability
for moral and exemplary damages.
Facts:
Manuel J. Ocampo (Ocampo) bought a Group Tour round-trip ticket for Manila-San Francisco-
Manila from China Airlines Limited (CAL). It is a condition of a Group Tour ticket that the holder must stay in
the United States for at least 14 but not exceeding 35 days. Ocampo's return flight from San Francisco to
Manila was scheduled for May 24, 1979, i.e., the 15th day after arrival in San Francisco. Ocampo, however,
wanted to leave for Manila earlier than May 24, 1979 because he had several business meetings scheduled to
be held here prior to May 24, 1979. Ocampo sought to make special arrangements with CAL Manila for a
change in schedule. The travel agency assured him that the necessary adjustments would be made and that he
could definitely take the CAL flight from San Francisco on May 18 1979. Upon arrival in San Francisco,
Ocampo proceeded to CAL San Francisco office to confirm his revised return flight schedule. CAL San
Francisco, however, declined to confirm his return flight, since the date indicated on the ticket was not May
18, 1979 but rather May 24, 1979. Ocampo was accordingly constrained to take a Philippine Airlines flight
which left San Francisco on May 20, 1979, the earliest available return flight which Ocampo could secure after
May 18, 1979.
Upon arrival in Manila, Ocampo demanded an explanation and he was told candidly that a mistake
had been committed by an employee of CAL Manila who had sent a negative reply to CAL San Francisco's
request for confirmation without first consulting Ocampo's passenger reservation card.
Issue:
Whether or not CAL is liable for damages for breach of contract of carriage.
Ruling:
Yes. The Court held that Ocampo was able to show that CAL had indeed confirmed a seat for him on
May 18, 1979 flight from San Francisco to Manila. Thus, CAL had breached its contract of carriage with
Ocampo by such failure or refusal to board him on that flight. However, the Court said that that breach of
contractual obligation had not been attended by bad faith or malice or gross negligence amounting to bad
faith.
The law distinguishes a contractual breach effected in good faith from one attended by bad faith.
Where in breaching the contract, the defendant is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable consequences of the breach of the obligation and
which the parties had foreseen or could reasonably have foreseen; and in that case, such liability would not
include liability for moral and exemplary damages.
Under Article 2232 of the Civil Code, in a contractual or quasi-contractual relationship, exemplary
damages may be awarded only if the defendant had acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. The Court was unable to so characterize the behavior here shown of the employees of
CAL Manila and of CAL San Francisco. Thus, the Court believes and so hold that the damages recoverable by
Ocampo are limited to the peso value of the Philippine Airlines ticket it had purchased for his return flight
from San Francisco; and reasonable expenses occasioned to private respondent by reason of the delay in his
return San Francisco-Manila trip — exercising the Court's discretion, the Court believes that for such
expenses, US$1,500.00 would be a reasonable amount — plus attorney's fees in the amount of P15,000.00,
considering that respondent Ocampo was ultimately compelled to litigate his claim against CAL.
SULPICIO LINES, INC. v.The Honorable COURT OF APPEALS and TITO DURAN TABUQUILDE and
ANGELINA DE PAZ TABUQUILDE
G.R. No. 113578 July 14, 1995, QUIASON, J.
The Civil Code, in Article 1764 thereof, expressly makes Article 2206 applicable to the death of a
passenger caused by the breach of contract by a common carrier. Accordingly, a common carrier is liable for
actual or compensatory damages under Article 2206 in relation to Article 1764 of the Civil Code for deaths of its
passengers caused by the breach of the contract of transportation.
Facts:
Tito Duran Tabuquilde (Tito) and his three-year old daughter Jennifer Anne boarded the M/V Dona
Marilyn owned by Sulpicio Lines Inc. (Sulpicio Lines) at North Harbor, Manila. While in transit, M/V Dona
Marilyn encountered severe weather which caused huge waves due to Typhoon Unsang. The ship captain
ordered the vessel to proceed to Tacloban when prudence dictated that he should have taken it to the nearest
port for shelter, thus violating his duty to exercise extraordinary diligence in the carrying of passengers safely
to their destination. Due to strong waves, said vessel overturned, throwing Tito and Jennifer Anne, along with
hundreds of passengers into the tumultuous sea. Tito survived the tragedy but Jennifer Anne died.
A claim for damages was filed by Tito with the Sulpicio Lines in connection with the death of Jennifer
Anne.
Issue:
Whether or not Sulpicio Lines is liable for damages.
Ruling:
Yes. The Court held a common carrier is obliged to transport its passengers to their destinations with
the utmost diligence of a very cautious person and that Sulpicio Lines failed to exercise the extraordinary
diligence required of a common carrier, which resulted in the sinking of the M/V Dona Marilyn and death of
some of its passengers.
The Court of Appeals was correct in confirming the award of damages for the death of Jennifer Anne,
a passenger on board the stricken vessel of Sulpicio Lines. It is true that under Article 2206 of the Civil Code
of the Philippines, only deaths caused by a crime as quasi delict are entitled to actual and compensatory
damages without the need of proof of the said damages. Thus, one can conclude that damages arising from
culpacontractual are not compensable without proof of special damages sustained by the heirs of the victim.
However, the Civil Code, in Article 1764 thereof, expressly makes Article 2206 applicable to the death
of a passenger caused by the breach of contract by a common carrier. Accordingly, a common carrier is liable
for actual or compensatory damages under Article 2206 in relation to Article 1764 of the Civil Code for deaths
of its passengers caused by the breach of the contract of transportation.
The trial court awarded an indemnity of P30, 000.00 for the death of Jennifer Anne. The award of
damages under Article 2206 has been increased to P50, 000.00.
With respect to the award of moral damages, the general rule is that said damages are not
recoverable in culpa contractual except when the presence of bad faith was proven. However, in breach of
contract of carriage, moral damages may be recovered when it results in the death of a passenger.
With respect to the award of exemplary damages, Article 2232 of the Civil Code of the Philippines
gives the Court the discretion to grant said damages in breach of contract when the defendant acted in a
wanton, fraudulent and reckless manner.
COLLIN A. MORRIS and THOMAS P. WHITTIER v. COURT OF APPEALS (Tenth Division) and
SCANDINAVIAN AIRLINES SYSTEM
G.R. No. 127957, February 21, 2001, PARDO, J.
In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. Where in breaching
the contract of carriage the defendant airline is not shown to have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable consequences of the breach of obligation which the parties had
foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary
damages. Moral damages are generally not recoverable in culpa contractual except when bad faith had been
proven. However, the same damages may be recovered when breach of contract of carriage results in the death
of a passenger.
Facts:
Collin A. Morris and Thomas P. Whittier (petitioners) had a series of business meetings in the
Philippines and they requested their travel agent to book them as first class passengers in SAS Manila-Tokyo
flight on February 14, 1978. SAS booked them as first-class passengers on Flight SK 893, Manila-Tokyo flight
on February 14, 1978, at 3:50 in the afternoon. After about 15 minutes upon arrival at the MIA, the
petitioners noticed that their travel documents were not being processed at the check-in counter. They were
informed that there were no more seats on the plane for which reason they could not be accommodated on
the flight. The supervisor said that they checked in at exactly 3:10 in the afternoon and the flight was
scheduled to leave MIA at 3:50 in the afternoon.
The petitioners filed with the RTC of Makati an action for damages for breach of contract of air
carriage against SAS because they were bumped off from SAS Flight SK 893, Manila-Tokyo, on February 14,
1978, despite a confirmed booking in the first class section of the flight. The trial court ordered SAS to pay
damages, attorney’s fees and cost. On appeal, the CA reversed the decision of the trial court.
Issue:
Whether or not SAS is liable for damages for breach of contract of carriage.
Ruling:
No. The Court held that when the petitioners arrived at the airport after the closure of the flight
manifest, SAS's employee could not be faulted for not entertaining petitioners' tickets and travel documents
for processing, as the checking in of passengers for SAS Flight SK 893 was finished, there was no fraud or bad
faith as would justify the court's award or normal damages. The facts revealed petitioners were not allowed
to board the plane due to their failure to check-in on time. Petitioners admitted that they were at the check-in
counter at around 3:10, exactly the same time the flight manifest was closed, but still too late to be
accommodated on the plane.
It must be emphasized that a contract to transport passengers is quite different kind and degree from
any other contractual relations, and this is because relation, which an air carrier sustains with the public. Its
business is mainly with the travelling public. It invites people business is mainly with the traveling public. It
invites people to avail themselves of the comforts and advantages it offers. The contract of air carriage,
therefore, generates a relation attended with a pubic duty. Neglect or malfeasance of the carrier's employees
naturally could give ground for an action for damages.
The award of exemplary damages has no factual basis. It is requisite that the act must be
accompanied by bad faith or done in wanton, fraudulent or malevolent manner—circumstances which are
absent in this case. In addition, exemplary damages cannot be awarded as the requisite element of
compensatory damages was not present.
The rule is that moral damages are recoverable in a damage suit predicated upon a breach of contract
of carriage only where (a) the mishap result in the death of a passenger and (b) it is proved that the carrier
was guilty of fraud and bad faith even if death does not result.
Bad faith does not simply connote bad judgement or negligence, it imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of known duty through some motive or
interest or ill will that partakes of the nature of fraud.
SMITH BELL DODWELL SHIPPING AGENCY CORPORATION v. CATALINO BORJA and INTERNATIONAL
TO WAGE AND TRANSPORT CORPORATION
G.R. No. 143008, June 10, 2002, PANGANIBAN, J.
The owner or the person in possession and control of a vessel is liable for all natural and proximate
damages caused to persons and property by reason of negligence in its management or navigation. The liability
for the loss of the earning capacity of the deceased is fixed by taking into account the net income of the victim at
the time of death or at the time of the incident and that person's probable life expectancy.
Facts:
Catalino Borja was aboard a vessel owned Smith Bell Shipping when an explosion happened. Upon
hearing the explosion, Borja, who was at that time inside the cabin preparing reports, ran outside to check
what happened. Seeing the fire and fearing for his life, Borja hurriedly jumped over board to save himself.
However, the water was likewise on fire due mainly to the spilled chemicals which were contained in the
vessel. Borja made demands against Smith Bell for the damages caused by the explosion.
Issue:
Whether or not Smith Bell is liable for damages to Borja.
Ruling:
Yes. The Court held that while knowing that the vessel was carrying dangerous inflammable
chemicals, Smith Bell’s officers and crew failed to take all the necessary precautions to prevent an accident.
Smith Bell was, therefore, negligent. Negligence is conduct that creates undue risk of harm to another. It is the
failure to observe that degree of care, precaution and vigilance that the circumstances justly demand,
whereby that other person suffers injury.
The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b) fault or negligence of
the defendant, and (c) the connection of cause and effect between the fault or negligence of the defendant and
the damages inflicted on the plaintiff.All these elements were established in this case. Knowing fully well that
it was carrying dangerous chemicals, Smith Bell was negligent in not taking all the necessary precautions in
transporting the cargo.
VICTORY LINER, INC.v. ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and
DIANA FRANCES P. GAMMAD
G.R. No. 159636, November 25, 2004, YNARES-SANTIAGO, J.
In culpa contractual or breach of contract, moral damages may be recovered when the defendant acted
in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton disregard of contractual
obligations and, as in this case, when the act of breach of contract itself constitutes the tort that results in
physical injuries. By special rule in Article 1764 in relation to Article 2206 of the Civil Code, moral damages may
also be awarded in case the death of a passenger results from a breach of carriage.On the other hand, exemplary
damages, which are awarded by way of example or correction for the public good may be recovered in
contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.
Facts:
Rosalito Gammad and his wife Marie Grace Pagulayan-Gammad were on board an air-conditioned
Victory Liner bus. The bus while running at a high speed fell on a ravine which resulted in the death of Marie
Grace and physical injuries to other passengers. Respondent heirs of the Mary Grace filed a complaint with
the RTC for damages arising from culpa contractual against Victory Liner. Victory Liner claimed that the
incident was purely accidental and that it has always exercised extraordinary diligence in its 50 years of
operation.
The trial court rendered its decision in favor of the respondents and against Victory Liner ordering
the latter to pay damages and attorney’s fees.
Issue:
Whether or not Victory Liner is liable for breach of contract of carriage.
Ruling:
Yes. The Court held that Victory Liner was guilty of breach of contract of carriage. A common carrier
is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is
presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless
the presumption is rebutted, the court need not even make an express finding of fault or negligence on the
part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier
exercised extraordinary diligence. In the instant case, there is no evidence to rebut the statutory presumption
that the proximate cause of Marie Grace’s death was the negligence of petitioner.
Article 1764 in relation to Article 2206 of the Civil Code, holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for
death, (2) indemnity for loss of earning capacity, and (3) moral damages. In the present case, respondent
heirs of the deceased are entitled to indemnity for the death of Marie Grace which under current
jurisprudence is fixed at P50, 000.00.
The award of compensatory damages for the loss of the deceased’s earning capacity should be
deleted for lack of basis. As a rule, documentary evidence should be presented to substantiate the claim for
damages for loss of earning capacity. By way of exception, damages for loss of earning capacity may be
awarded despite the absence of documentary evidence when (1) the deceased is self-employed earning less
than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in the
deceased’s line of work no documentary evidence is available; or (2) the deceased is employed as a daily
wage worker earning less than the minimum wage under current labor laws.
Respondents should be awarded moral damages to compensate for the grief caused by the death of
the deceased resulting from Victory Liner’s breach of contract of carriage. Furthermore, the Victory Liner
failed to prove that it exercised the extraordinary diligence required for common carriers, it is presumed to
have acted recklessly. Thus, the award of exemplary damages is proper.
BILL OF LADING
Definition
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC. v. COURT OF APPEALS and PIONEER

INSURANCE AND SURETY CORPORATION
G.R. No. 166250 July 26, 2010 NACHURA, J.
A bill of lading is a written acknowledgement of the receipt of goods and an agreement to transport and
to deliver them at a specified place to a person named or on his or her order. It operates both as a receipt and as
a contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as therein
stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks, condition, quality, and value. As a contract, it names the contracting parties,
which include the consignee; fixes the route, destination, and freight rate or charges; and stipulates the rights
and obligations assumed by the parties.
Facts:
Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of various raw materials for
pharmaceutical manufacturing. UTI issued a Bill of Lading covering the aforesaid shipment. The subject
shipment was insured with private respondent Pioneer Insurance and Surety Corporation in favor of Unilab
against all risks. The shipment arrived at the port of Manila wherein it was latter found to be damaged.
The trial court awarded P76,231.27 for the damage caused to the cargo. The CA rejected UTI’s claim
that its liability should be limited to $500 per package pursuant to the Carriage of Goods by Sea Act (COGSA)
considering that the value of the shipment was declared pursuant to the letter of credit and the pro forma
invoice.
Issue:
Whether UTI is liable for the value not stated in the bill of lading?
Ruling:
No. It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed
amount per package. In all matters not regulated by the Civil Code, the rights and obligations of common
carriers are governed by the Code of Commerce and special laws. Thus, the COGSA supplements the Civil Code
by establishing a provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher
value in the bill of lading.30 Section 4(5) of the COGSA provides:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or
in connection with the transportation of goods in an amount exceeding $500 per package of lawful money of
the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of
that sum in other currency, unless the nature and value of such goods have been declared by the shipper
before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be
prima facie evidence, but shall not be conclusive on the carrier.
In the present case, the shipper did not declare a higher valuation of the goods to be
shipped. Furthermore, the insertion of an invoice number does not in itself sufficiently and convincingly show
that petitioner had knowledge of the value of the cargo.
Three-fold Character
KENG HUA PAPER PRODUCTS CO. INC. v. COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR.
21; and SEA-LAND SERVICE, INC.
G.R. No. 116863 February 12, 1998 PANGANIBAN, J.
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by
which 3 parties: the shipper, the carrier, and the consignee undertake specific responsibilities and assume
stipulated obligations. The acceptance of a bill of lading by the shipper and the consignee, with full knowledge of
its contents, gives rise to the presumption that the same was a perfected and binding contract.
Facts:
Sea-Land Service Inc., a shipping company, is a foreign corporation licensed to do business in the
Philippines. It received at its Hong Kong terminal a sealed container, containing seventy-six bales of
"unsorted waste paper" for shipment to Keng Hua Paper Products, Co. in Manila. A bill of lading to cover the
shipment was issued by the plaintiff. The shipment was discharged at the Manila International Container
Port. Notices of arrival were transmitted to KengHua but the latter failed to discharge the shipment from the
container during the "free time" period or grace period. The said shipment remained inside the Sea-land’s
container from the moment the free time period expired until the time when the shipment was unloaded
from the container, a total of 481 days. During such period, demurrage charges accrued. Demand letters
ensued but were refused hence this civil action for collection and damages. RTC found KengHua liable. CA
denied the appeal and affirmed. Hence, this petition for review.
Issue:
Whether petitioner is bound by the bill of lading.
Ruling:
YES. A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a
contract by which 3 parties: the shipper, the carrier, and the consignee undertake specific responsibilities and
assume stipulated obligations. The acceptance of a bill of lading by the shipper and the consignee, with full
knowledge of its contents, gives rise to the presumption that the same was a perfected and binding
contract. RTC and CA held that the bill of lading was a valid and perfected contract between the shipper (Ho
Kee), the consignee (KengHua), and the carrier (Sea-Land). Section 17 of the bill of lading provided that the
shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the
containerized shipment beyond the grace period allowed by tariff rules. Applying said stipulation, both lower
courts found KengHua liable.
Having been afforded an opportunity to examine the said document, KengHua did not immediately
object to or dissent from any term or stipulation therein. It was only 6 months later, that it sent a letter to Sea-
land saying that it could not accept the shipment. KengHua’s inaction for such a long period conveys the clear
inference that it accepted the terms and conditions of the bill of lading. The letter merely proved it's refusal to
pick up the cargo, not its rejection of the bill of lading.
KengHua's attempt to evade its obligation to receive the shipment on the pretext that this may cause
it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violating said laws,
without a clear demonstration that taking delivery of the shipment has become legally impossible cannot
defeat the KengHua's contractual obligation and liability under the bill of lading. It’s prolonged failure to
receive and discharge the cargo from the Sea-Land’s vessel constitutes a violation of the terms of the bill of
lading and is liable for demurrage.
LORENZO SHIPPING CORP. v. CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE
CARRIERS, INC.
G.R. No. 147724 June 8, 2004PUNO, J.
A bill of lading, aside from being a contract and a receipt, is also a symbol of the goods covered by it. A
bill of lading which has no notation of any defect or damage in the goods is called a "clean bill of lading." A clean
bill of lading constitutes prima facie evidence of the receipt by the carrier of the goods as therein described.
Facts:
Mayer Steel Pipe Corporation loaded ERW black steel pipes on board a vessel owned by Lorenzo
Shipping. Lorenzo Shipping issued a clean bill of lading for the account of the consignee, Sumitomo
Corporation of California, USA, which in turn, insured the goods with Chubb and Sons, Inc. The vessel arrived
in Davao City. Transmarine Carriers received the subject shipment and were found damaged. Then Gearbulk
loaded the shipment on board its vessel for carriage to the US. It issued 2 Bills of Lading covering steel pipes
to be discharged at both Oakland, and Vancouver, Washington, U.S.A. While in transit from Davao to the U.S.A.,
Sumitomo sent a letter to inform Lorenzo Shipping that it will be filing a claim based on the damaged cargo.
Chubb filed a complaint for collection of a sum of money against Lorenzo Shipping, Gearbulk, and
Transmarine.
Issue:
Whether Lorenzo Shipping is negligent in carrying the subject cargo.
Ruling:
YES. Lorenzo Shipping was negligent in its care and custody of the consignee’s goods. The steel pipes,
subject of this case, were in good condition when they were loaded at the port of origin on board Lorenzo
Shipping’s M/V Lorcon IV en route to Davao City. Lorenzo Shipping issued clean bills of lading covering the
subject shipment.
Mere proof of delivery of goods in good order to a carrier and the subsequent arrival in damaged
condition at the place of destination raises a prima facie case against the carrier. M/V Lorcon IV of Lorenzo
Shipping received the steel pipes in good order and condition, evidenced by the clean bills of lading it issued.
When the cargo was unloaded from Lorenzo Shipping’s vessel at the Sasa Wharf, the steel pipes were rusted
all over. M/V San Mateo Victory of Gearbulk, Ltd, which received the cargo, issued Bills of Lading covering the
entire shipment, all of which were marked "ALL UNITS HEAVILY RUSTED." There can be no other conclusion
than that the cargo was damaged while on board the vessel of Lorenzo Shipping, and that the damage was due
to the latter’s negligence. Negligence of petitioner was sufficiently established. Lorenzo Shipping failed to
keep its vessel in seaworthy condition.
Parties
EVERETT STEAMSHIP CORPORATION v. COURT OF APPEALS and HERNANDEZ TRADING CO. INC.
G.R. No. 122494 October 8, 1998 MARTINEZ, J.
Even if the consignee was not a signatory to the contract of carriage between the shipper and the
carrier, the consignee can still be bound by the contract. The right of a party here, to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier,
springs from either a relation of agency that may exist between him and the shipper or consignor, or his status as
stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he
demands fulfillment of that stipulation, when Hernandez Trading formally claimed reimbursement for the
missing goods from Everett Steamship and subsequently filed a case against the latter based on the very same
bill of lading, it accepted the provisions of the contract and thereby made itself a party thereto, or at least has
come to court to enforce it. Thus, it cannot now reject or disregard the carrier's limited liability stipulation in the
bill of lading. It is now bound by the whole stipulations in the bill of lading and must respect the same.
Facts:
Hernandez Trading imported 3 crates of bus spare parts from its supplier, Maruman Trading, a
foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on
board "ADELFAEVERETTE," a vessel owned by Everett Steamship's principal, Everett Orient Lines. The said
crates were covered by a Bill of Lading. Upon arrival at the port of Manila, it was discovered a crate was
missing. This was confirmed and admitted by Everett Steamship in its letter to Hernandez Trading, which
thereafter made a formal claim upon the former for the value of the lost cargo. However, Everett Steamship
offered to pay only the maximum amount stipulated under Clause 18 of the covering bill of lading which
limits it’s liability. Hernandez Trading rejected the offer and instituted a suit for collection against Everett
Steamship.
Issue:
Whether Hernandez Trading as consignee, who is not a signatory to the bill of lading is bound by the
stipulations thereof.
Ruling:
YES. In Sea-Land Service, Inc. vs. IAC (G.R. No. 75118 August 31, 1987), we held that even if the
consignee was not a signatory to the contract of carriage between the shipper and the carrier, the consignee
can still be bound by the contract. The right of a party here, to recover for loss of a shipment consigned to him
under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a
relation of agency that may exist between him and the shipper or consignor, or his status as stranger in
whose favor some stipulation is made in said contract, and who becomes a party thereto when he demands
fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither capacity can
he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and free
agreement to such provision was vitiated by its being in such fine print as to be hardly readable.
When Hernandez Trading formally claimed reimbursement for the missing goods from Everett
Steamship and subsequently filed a case against the latter based on the very same bill of lading, it accepted
the provisions of the contract and thereby made itself a party thereto, or at least has come to court to enforce
it. Thus, it cannot now reject or disregard the carrier's limited liability stipulation in the bill of lading. It is
now bound by the whole stipulations in the bill of lading and must respect the same. To defeat the carrier's
limited liability, the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in
writing a higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in
the bill of lading, with extra freight paid. These requirements in the bill of lading were never complied with by
the shipper, hence, the liability of the carrier under the limited liability clause stands.
Kinds of Bills of Lading
MAGELLAN MANUFACTURING MARKETING CORPORATION v. COURT OF APPEALS, ORIENT OVERSEAS

CONTAINER LINES and F.E. ZUELLIG, INC.
G.R. No. 95529 August 22, 1991REGALADO, J.
An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is stated that
the goods have been received for shipment with or without specifying the vessel by which the goods are to be
shipped. Received for shipment bills of lading are issued whenever conditions are not normal and there is
insufficiency of shipping space. An on board bill of lading is issued when the goods have been actually placed
aboard the ship with every reasonable expectation that the shipment is as good as on its way. Therefore, a party
to a maritime contract would require an on board bill of lading because of its apparent guaranty of certainty of
shipping as well as the seaworthiness of the vessel which is to carry the goods.
Facts:
Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with Choju Co. of
Yokohama, Japan to export anahaw fans for a consideration. As payment, a letter of credit (LC) was issued to
MMMC by the buyer. James Cu, presidentof MMMC then contracted F.E. Zuellig, a shipping agent, through its
solicitor, one Mr. King, to ship the anahaw fans through Orient Overseas Container Lines, Inc., (OOCL)
specifying that he needed an on-board bill of lading and that transhipment is not allowed under the LC.
MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of lading which was presented to
Allied Bank. The bank then credited the amount covered by the LC to MMMC's account. However, when
MMMC's president James Cu, went back to the bank later, he was informed that the payment was refused by
the buyer allegedly because there was no on-board bill of lading, and there was a transhipment of goods. As a
result of the refusal of the buyer to accept, the anahaw fans were shipped back to Manila, for which they
demanded from MMMC payment. MMMC abandoned the whole cargo and asked OOCL for damages.
Issue:
Whether the subject bill of lading is an on board bill of lading or a received for shipment bill of lading.
Ruling:
It is a received for shipment bill of lading. MMMC knew that its buyer, Choju Co., Ltd., particularly
required that there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of
lading over any other kind of bill of lading. The buyer could not have insisted on such a stipulation on a pure
whim or caprice, but rather because of its reliance on the safeguards to the cargo that having an on board bill
of lading ensured. Herein MMMC cannot feign ignorance of the distinction between an "on board" and a
"received for shipment" bill of lading, as manifested by James Cu's testimony. It is only to be expected that
those long engaged in the export industry should be familiar with business usages and customs. In its
petition, MMMC avers that "when petitioner teamed of what happened, it saw private respondent F.E. Zuellig
which, in turn, issued a certification that the Anahaw fans were already on board MV Pacific Despatcher.
It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of
lading, as originally issued, into an on board bill of lading as required by the terms of the LC issued. For one,
the certification was issued way beyond the expiry date specified in the LC for the presentation of an on
board bill of lading. Thus, even assuming that by a liberal treatment of the certification it could have the effect
of converting the received for shipment bill of lading into an on board of bill of lading, as petitioner would
have us believe, such an effect may be achieved only as of the date of its issuance and onwards.The fact
remains, though, that on the crucial date, no on board bill of lading was presented by MMMC in compliance
with the terms of the LC and this default consequently negates its entitlement to the proceeds thereof. Said
certification, if allowed to operate retroactively, would render illusory the guaranty afforded by an on board
bill of lading, that is, reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to
mention that it would indubitably be stretching the concept of substantial compliance too far.Neither can
MMMC escape liability by adverting to the bill of lading as a contract of adhesion, thus warranting a more
liberal consideration in its favor to the extent of interpreting ambiguities against OOCL and F.E. Zuelig as
allegedly being the parties who gave rise thereto. The bill of lading is clear on its face. There is no occasion to
speak of ambiguities or obscurities whatsoever. All of its terms and conditions are plainly worded and
commonly understood by those in the business.
Stipulations in a Bill of Lading
PROVIDENT INSURANCE CORP. v. CA and AZUCAR SHIPPING CORP.

G.R. No. 118030 January 15, 2004YNARES-SANTIAGO, J.
The bill of lading defines the rights and liabilities of the parties in reference to the contract of carriage.
Stipulations therein are valid and binding in the absence of any showing that the same are contrary to law,
morals, customs, public order and public policy. Where the terms of the contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of the stipulations shall control. There can be
no question about the validity and enforceability of Stipulation 7 in the bill of lading. The twenty-four hour
requirement under the said stipulation is, by agreement of the contracting parties, a sine qua non for the accrual
of the right of action to recover damages against the carrier.
Facts:
Vessel MV "Eduardo II" took and received on board a shipment of plastic woven bags of various
fertilizer in good order and condition. The subject shipment was consigned to Atlas Fertilizer Corporation,
and covered by a Bill of Lading and a Marine Insurance Policy. Upon its arrival. the vessel MV "Eduardo II"
was instructed by the consignee's representative to proceed to Davao City and deliver the shipment to its
Davao Branch in Tabigao. MV "Eduardo II" arrived in Davao City where the subject shipment was unloaded. In
the process of unloading, some fell overboard and considered to be unrecovered spillages, because of the
mishandling of the cargo, it was determined that the consignee incurred actual damages. As the claims were
not paid, Provident Insurance Corporation indemnified the consignee Atlas Fertilizer Corporation for its
damages. Thereafter, petitioner, as subrogee of the consignee, filed on June 3, 1991 a complaint against
respondent carrier seeking reimbursement for the value of the losses/damages to the cargo. Carrier moved to
dismiss the complaint on the ground that the claim or demand by Provident has been waived, abandoned or
otherwise extinguished for failure of the consignee to comply with the required claim for damages set forth in
the first sentence of Stipulation No. 7 of the bill of lading.
Issue:
Whether or not carrier's failure to make the prompt notice of claim as required is fatal to the right to
claim indemnification for damages.
Ruling:
Yes. Carriers and depositaries sometimes require presentation of claims within a short time after
delivery as a condition precedent to their liability for losses. Such requirement is not an empty formalism. It
has a definite purpose, i.e., to afford the carrier or depositary a reasonable opportunity and facilities to check
the validity of the claims while the facts are still fresh in the minds of the persons who took part in the
transaction and the document are still available.
Considering that a prompt demand was necessary to foreclose the possibility of fraud or mistake in
ascertaining the validity of claims, there was a need for the consignee or its agent to observe the conditions
provided for in Stipulation 7. Hence, Provident's insistence that the carrier had knowledge of the damage
because one of it’s officers supervised the unloading operations and signed a discharging report, cannot be
construed as sufficient compliance with the aforementioned proviso. The Discharge Report is not the notice
referred to in Stipulation 7, hence, its accomplishment cannot be considered substantial compliance of the
requirement embodied therein. Moreover, a reading of the first paragraph of Stipulation 7 will readily show
that upon the consignee or its agent rests the obligation to make the necessary claim within the prescribed
period and not merely rely on the supposed knowledge of the damages by the carrier.
Delivery of Goods
Period of Delivery
MAERSK LINE v. CA AND EFREN CASTILLO (Ethegal Laboratories)

G.R. No. 94761 May 17, 1993 BIDIN, J.
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract,
a carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to
convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in
the absence, of any agreement as to the time of delivery. But where a carrier has made an express contract to
transport and deliver properly within a specified time, it is bound to fulfill its contract and is liable for any delay,
no matter from what cause it may have arisen. This result logically follows from the well-settled rule that where
the law creates a duty or charge, and the default in himself, and has no remedy over, then his own contract
creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay by
inevitable necessity because he might have provided against it by contract.
Facts:
Efren Castillo ordered from Eli Lilly. Inc. empty gelatin capsules for the manufacture of his
pharmaceutical products. The capsules were placed in drums. Through a Memorandum of Shipment, the
shipper Eli Lilly, Inc. of Puerto Rico advised Efren as consignee that the empty gelatin capsules in drums, were
already shipped on board MV "Anders Maerskline" for shipment to the Philippines via Oakland, California. In
said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3, 1977. For reasons
unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia, USA and then
transported back to Oakland, California. The goods finally arrived in the Philippines after 2 months from the
date specified. As a consequence, Efren as consignee refused to take delivery of the goods on account of its
failure to arrive on time. Efren alleging gross negligence and undue delay in the delivery of the goods, filed an
action for rescission of contract with damages against Maersk Line and Eli Lilly, Inc.
Issue:
Whether Efren Castillo is entitled to damages resulting from delay in the delivery of the shipment in
the absence in the bill of lading of a stipulation on the period of delivery.
Ruling:
Yes. A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is
presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper conduct,
known to the shipper, and he is generally bound by his acceptance whether he reads the bill or not. However,
the ruling applies only if such contracts will not create an absurd situation as in the case at bar. The
questioned provision in the subject bill of lading has the effect of practically leaving the date of arrival of the
subject shipment on the sole determination and will of the carrier. While it is true that common carriers are
not obligated by law to carry and to deliver merchandise, and persons are not vested with the right to prompt
delivery, unless such common carriers previously assume the obligation to deliver at a given date or time,
delivery of shipment or cargo should at least be made within a reasonable time.
An examination of the subject bill of lading shows that the subject shipment was estimated to arrive
in Manila on April 3, 1977. While there was no special contract entered into by the parties indicating the date
of arrival of the subject shipment, petitioner nevertheless, was very well aware of the specific date when the
goods were expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to
execute another contract for the purpose, as it would be a mere superfluity. In the case before us, we find that
a delay in the delivery of the goods spanning a period of 2 months and 7 days was beyond the realm of
reasonableness.
Delivery without Surrender of Bill of Lading

=
NATIONAL TRUCKING AND FORWARDING CORPORATION v. LORENZO SHIPPING CORPORATION
G.R. No. 153563 February 07, 2005QUISUMBING, J.
In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the
carrier, because of its loss or of any other cause, he must give the latter a receipt for the goods delivered, this
receipt producing the same effects as the return of the bill of lading. The surrender of the original bill of lading is
not a condition precedent for a common carrier to be discharged of its contractual obligation. If surrender of the
original bill of lading is not possible, acknowledgment of the delivery by signing the delivery receipt suffices.
Facts:
The gov’t entered into a contract of carriage of goods with National Trucking and Forwarding
Corporation (NTFC). Thus, the latter shipped the bags of non-fat dried milk through Lorenzo Shipping
Corporation (LSC). The consignee named in the bills of lading issued by LSC was Abdurahman Jama, NTFC’s
branch supervisor. On reaching the port, LSC’s agent, Efren Ruste Shipping Agency (ERSA), unloaded the bags
of non-fat dried milk and delivered the goods to NTFC’s warehouse. Before each delivery delivery checkers of
ERSA, requested Abdurahman to surrender the original bills of lading, but the latter merely presented
certified true copies thereof. Upon completion of each delivery, the delivery checkers asked Abdurahman to
sign the delivery receipts. However, at times when Abdurahman had to attend to other business before a
delivery was completed, he instructed his subordinates to sign the delivery receipts for him. Notwithstanding
the precautions taken, NTFC allegedly did not receive the subject goods. Thus NTFC filed a formal claim for
non-delivery of the goods shipped through LSC in a letter. LSC explained that the cargo had already been
delivered to Abdurahman Jama.
Issue:
Whether or not LSC is presumed at fault or negligent as common carrier for the loss or deterioration
of the goods.
Ruling:
No. We agree with the court a quo that LSC adequately proved that it exercised extraordinary
diligence. Although the original bills of lading remained with NTFC, LSC’s agents demanded from
Abdurahman the certified true copies of the bills of lading. They also asked the latter and in his absence, his
designated subordinates, to sign the cargo delivery receipts.
We also note that some delivery receipts were signed by Abdurahman’s subordinates and not by
Abdurahman himself as consignee. Further, delivery checkers Rogelio and Ismael testified that Abdurahman
was always present at the initial phase of each delivery, although on the few occasions when Abdurahman
could not stay to witness the complete delivery of the shipment, he authorized his subordinates to sign the
delivery receipts for him. This, to our mind, is sufficient and substantial compliance with the requirements.
Requirements / Conditions precedent for Filing Claims (Coastwise or Inter-Island Commerce)
Notice Requirement
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC. v. SWEET LINES,
INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and CA
G.R. No. 87434 August 5, 1992 REGALADO, J.
Where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury to
the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce
the carrier's liability. Such requirement is not an empty formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been
damaged and that it is charged with liability therefor, and to give it an opportunity to examine the nature and
extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim
while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. Notice
is a condition precedent and the carrier is not liable if notice is not given in accordance with the stipulation, as
the failure to comply with such a stipulation in a contract of carriage with respect to notice of loss or claim for
damage bars recovery for the loss or damage suffered.
Facts:
Vessel SS "VISHVA YASH" belonging to or operated by the foreign common carrier, took on board
cargoes for shipment to Manila and later for transhipment to Davao consigned to the order of FEBTC of
Manila, with arrival notice to Tagum Plastics, Inc. (TPI), Davao. Cargoes were covered by Bills of Lading issued
by the foreign common carrier. The cargoes were likewise insured by the TPI with Philippine American
General Insurance Co., Inc. (Philamgen). Said vessel arrived at Manila and discharged its cargoes for
transhipment to Davao. For this purpose, the foreign carrier awaited and made use of the services of the
vessel called M/V "Sweet Love" owned and operated by Sweet Lines Inc. (SLI) interisland carrier. The
shipments were discharged from the interisland carrier into the custody of the consignee. Some bags were
shorthanded, missing, torn, spilled, emptied or contaminated with foreign matters. In resisting the claim, SLI
raised prescription as its defense.
Issue:
Whether or not the notice requirement is a condition precedent for their cause of action to arise.
Ruling:
Yes. Par. 5 of the bills of lading which unequivocally prescribes a time frame of 30 days for filing a
claim with the carrier in case of loss of or damage to the cargo and 60 days from accrual of the right of action
for instituting an action in court, both must concur. It has long been held that Article 366 of the Code of
Commerce applies not only to overland and river transportation but also to maritime transportation. The
filing of a claim with the carrier within the time limitation therefor under Article 366 actually constitutes a
condition precedent to the accrual of a right of action against a carrier for damages caused to the
merchandise. The shipper or the consignee must allege and prove the fulfillment of the condition and if he
omits such allegations and proof, no right of action against the carrier can accrue in his favor. As the
requirements are reasonable conditions precedent, they are not limitations of action. Being conditions
precedent, their performance must precede a suit for enforcement and the vesting of the right to file suit does
not take place until the happening of these conditions. Before an action can be commenced all the essential
elements of the cause of action must be complete. All valid conditions precedent to the institution of the
particular action, whether prescribed by statute, fixed by agreement of the parties or implied by law must be
performed or complied with before commencing the action, unless waived.
There is neither any showing of compliance by TPI with the requirement for the filing of a notice of
claim within the prescribed period. It may then be said that while they may possibly have a cause of action,
for failure to comply with the above condition precedent they lost whatever right of action they may have in
their favor or that remedial right or right to relief had prescribed. Provisions of the law on the matter would
disclose that there is no constitutional or statutory prohibition infirming par. 5 of subject Bill of Lading. The
stipulated period of 60 days is reasonable enough for them to ascertain the facts and thereafter to sue, if need
be, and the 60-day period agreed upon by the parties which shortened the statutory period within which to
bring action for breach of contract is valid and binding. The shortened period for filing suit is not
unreasonable and has in fact been generally recognized to be a valid business practice in the shipping
industry.
Knowledge on the part of the carrier of the loss of or damage to the goods deducible from the
issuance of said report is not equivalent to nor does it approximate the legal purpose served by the filing of
the requisite claim, that is, to promptly apprise the carrier about a consignee's intention to file a claim and
thus cause the prompt investigation of the veracity and merit thereof for its protection. It would be an unfair
imposition to require the carrier, upon discovery in the process of preparing the report on losses or damages
of any and all such loss or damage, to presume the existence of a claim against it when at that time the carrier
is expectedly concerned merely with accounting for each and every shipment and assessing its condition.
Unless and until a notice of claim is therewith timely filed, the carrier cannot be expected to presume that for
every loss or damage tallied, a corresponding claim has been filed or is already in existence as would alert it
to the urgency for an immediate investigation of the soundness of the claim. The report on losses and
damages is not the claim referred to and required by the bills of lading for it does not fix responsibility for the
loss or damage, but merely states the condition of the goods shipped. The claim contemplated, in whatever
form, must be something more than a notice that the goods have been lost or damaged; it must contain a
claim for compensation or indicate an intent to claim.
LORENZO SHIPPING CORP v. CHUBB AND SONS INC, GEARBULK LTD and PHILIPPINE TRANSMARINE
CARRIERS INC.
G.R. No. 147724, June 8, 2004, J. Puno
The twenty four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must
be presented does not begin to run until the consignee has received such possession of the merchandise. There
must be delivery by the carrier to the consignee at the place of destination.
Facts:
Lorenzo Shipping transported to Davao City 581 bundles of black steel pipes on board M/V Lorcon
IV. The goods were insured by the consignee Sumimoto Corp. with Chubb and Sons Inc. In Davao,
Transmarine Carriers received the shipment for delivery to the US and found that the pipes were submerged
in seawater. Gearbulk loaded the shipment to its vessel for carriage to the US. While the cargo was in transit
from Davao to the US, consignee Sumimoto sent a letter of intent to Lorenzo Shipping informing them that
Sumimoto will be filing a claim based on the damaged cargo.
The shipment arrived in the US and the surveyor found that the pipes were heavily rusted. Sumimoto
rejected the damaged steel pipes. It filed a marine insurance claims with Chubb and Sons which the latter
settled for US$104, 151. Chubb and Sons filed a complaint for collection of money against Lorenzo Shipping,
Gearbulk and Transmarine. In its answer, Lorenzo Shipping averred that prescription, laches, and
extinguishment of obligations and actions had set in.
Lorenzo Shipping contends that Sumimoto, Chubb’s predecessor-in-interest did not validly make a
claim for damages within the 24-hour period prescribed by the Code of Commerce.
Issue:
Whether or not Sumitomo validly made a claim for damages.
Ruling:
Yes. The twenty four-hour period prescribed by Art. 366 of the Code of Commerce within which
claims must be presented does not begin to run until the consignee has received such possession of the
merchandise that he may exercise over it the ordinary control pertinent to ownership.There must be delivery
of the cargo by the carrier to the consignee at the place of destination.
In the case at bar, consignee Sumitomo has not received possession of the cargo, and has not
physically inspected the same at the time the shipment was discharged from M/V Lorcon IV in Davao City.
Lorenzo Shipping failed to establish that an authorized agent of the consignee Sumitomo received the cargo at
Sasa Wharf in Davao City. Transmarine Carriers as agent of respondent Gearbulk, Ltd., which carried the
goods from Davao City to the United States, and the principal, respondent Gearbulk, Ltd. itself, are not the
authorized agents as contemplated by law. What is clear from the evidence is that the consignee received and
took possession of the entire shipment only when the latter reached the United States’ shore. Only then was
delivery made and completed. And only then did the 24-hour prescriptive period start to run.
ABOITIZ SHIPPING CORPORATION v. INSURANCE COMPANY OF NORTH AMERICA

G.R. No. 168402, Augusy 6, 2008, J. R.T. Reyes
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right
to enforce the carrier's liability. This notice requirement protects the carrier by affording it an opportunity to
make an investigation of the claim while the matter is still fresh and easily investigated. It is meant to safeguard
the carrier from false and fraudulent claims.
Facts:
STIP was the consignee of a cargo containing wooden tools and workbenches insured with Insurance
Company of North America. The container van was shipped from Germany to Singapore, then to Manila. In
Manila, the container van was received by Aboitiz Shipping and was then boarded on Aboitiz’s ship which
arrived in Cebu. On August 11, 1993, the cargo was withdrawn from the port by the representative of STIP
and was delivered to Don Bosco Technical School Cebu. It was received by Mr. Bernhard Willig.
On August 13, 1993, Willig called the Claims Head of Aboitiz Shipping, Mr. Mayo Perez, informing him
that the cargo sustained water damage. Perez immediately went to the warehouse and checked the condition
of the container and other cargoes. He found that the bottom of the crate was slightly broken but the crate
had no water marks. However, he confirmed that the tools which were stored inside the crate were already
corroded. In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of
the cargo.
STIP contacted ICNA for insurance claims. On September 21, 1993, the consignee STIP filed a formal
claim with Aboitiz for the damage to its cargo. Aboitiz refused to settle the claim. ICNA paid the consignee and
filed a complaint for collection of damages against Aboitiz. The RTC ruled in favor of Aboitiz but the CA
reversed.
Aboitiz contends that STIP failed file its claim within the period prescribed under the Code of
Commerce, hence ICNA has no cause of action.
Issue:
Whether or not STIP filed the notice of claim within the period prescribed by the Code of Commerce
Ruling:
Yes. The giving of notice of loss or injury is a condition precedent to the action for loss or injury or
the right to enforce the carrier's liability. This notice requirement protects the carrier by affording it an
opportunity to make an investigation of the claim while the matter is still fresh and easily investigated. It is
meant to safeguard the carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from
receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are
visible from the outside of the package, the claim must be made immediately. These periods, as well as the
manner of giving notice, may be modified in the terms of the bill of lading, which is the contract between the
parties.
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation, the
notice was allegedly made by the consignee through telephone and the SC denied the claim for damages as
the notice did not comply with the notice requirement under the law. However, there are peculiar
circumstances in the instant case that constrain the SC to rule differently from the PCIC case, albeit this ruling
is being made pro hac vice, not to be made a precedent for other cases.
The shipment arrived on August 11 and the letter of STIP dated August 15 was received only on
September 21. However, Aboitiz admits that even before it received the written notice of claim, Mr. Mayo B.
Perez, Claims Head of the company, was informed by telephone sometime in August 13, 1993. Mr. Perez then
immediately went to the warehouse and to the delivery site to inspect the goods in behalf of Aboitiz.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a
reasonable and practical, rather than a strict construction. In this case, due consideration is given to the fact
that the final destination of the cargo was a school institution where protocols must be followed. When the
goods were delivered, the necessary clearance had to be made before the package was opened. Upon opening
and discovery of the damaged condition of the goods, a report to this effect had to pass through the proper
channels before it could be finalized and endorsed by the institution to the claims department of the shipping
company.
The call to Aboitiz was made two days from delivery, a reasonable period considering that the goods
could not have corroded instantly overnight such that it could only have sustained the damage during transit.
Moreover, Aboitiz was able to immediately inspect the damage while the matter was still fresh. In so doing,
the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with
the notice requirement in this case.
UCPB GENERAL INSURANCE CO v. ABOITIZ SHIPPING CORP. EAGLE EXPRESS LINES, DAMCO
INTERMODAL SERVICES, INC., and PIMENTEL CUSTOMS BROKERAGE CO.
G.R. No. 168433, February 10, 2009, J. Tinga
The 24-hour claim requirement is a condition precedent to the accrual of a right of action against a
carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfilment of the
condition. Otherwise, no right of action against the carrier can accrue.
Facts:
San Miguel Corp (SMC) purchased from Tawian three units of waste water treatment plant The goods
came from the USA and arrived at the port of Manila and were transported to Cebu on board Aboitiz’s ship.
After its arrival in Cebu, the goods were delivered to SMC on August 2, 1991 and it was then discovered that
one electrical motor was damaged.
Pursuant to an insurance agreement, UCPB paid SMC and SMC executed a subrogation form. UCPB
then filed a complaint for recovery of money against Aboitiz. The RTC ruled in favor of UCPB. However, the CA
reversed and ruled that UCPB’s right of action did not accrue because UCPB failed to file a formal notice of
claim within 24 hours from SMC’c receipt of the damaged merchandise as required by Art 366 of the Code of
Commerce.
UCPB asserts that the claim requirement does not apply to this case because the damage to the
merchandise had already been known to the carrier as its representative was present when the cargo was
found damaged upon discharge from the foreign carrier.
Issue:
Whether or not the claim requirement is a condition precedent to the accrual of a right of action
against the carrier
Ruling:
Yes. The shipper or consignee must allege and prove the fulfilment of the condition. Otherwise, no
right of action against the carrier can accrue in favor of the former.
The requirement to give notice of loss or damage to the goods is not an empty formalism. The
fundamental reason of such a stipulation is not to relieve the carrier from just liability, but reasonably to
inform it that the shipment has been damaged and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is still fresh and easily investigated so as to
safeguard itself from false and fraudulent claims.
The shipment in this case was received by SMC on August 2, 1991. However, the claims were dated
October 30, 1991, more than three (3) months from receipt of the shipment and, at that, even after the extent
of the loss had already been determined by SMC’s surveyor. The claim was, therefore, clearly filed beyond the
24-hour time frame prescribed by Art. 366 of the Code of Commerce. Aboitiz also had no knowledge of the
damage to the cargo since it was not its agent but the agent of the freight consolidator who was present when
the cargo was inspected.
Period to File Actions
LOADSTAR SHIPPING CO INC v. COURT OF APPEALS and THE MANILA INSURANCE CO. INC.
G.R. No. 131621, September 28, 1999, J. Davide, Jr.
Since neither the Civil Code nor the Code of Commerce provides for a prescriptive period for the filing of
actions, the one-year period prescribed by the Carriage of Goods by Sea Act may be applied suppletorily. Any
stipulation reducing the one-year period is null and void.
Facts:
Loadstar Shipping received on board it vessel crates and bales of wood insured with Manila
Insurance Co. November 20, 1984 on its way to Manila from Agusan del Norte, the vessel along with its cargo
sank. As a result of the loss of the cargo, the consignee made a claim with Loadstar which it ignored. As the
insurer, Manila Insurance paid the consignee. On February 4, 1985, Manila Insurance filed a complaint against
Loadstar.
Loadstar avers that the claim of Manila Insurance had already prescribed, the case having been
instituted beyond the period stated in the bills of lading for instituting the same — suits based upon claims
arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from the
accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery was filed only
on 4 February 1985.
Issue:
Whether or not Manila Insurance’s cause of action had already prescribed.
Ruling:
No. Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive
period on the matter, the Carriage of Goods by Sea Act (COGSA) — which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during transit — may be applied suppletorily
to the case at bar. This one-year prescriptive period also applies to the insurer of the goods. In this case, the
period for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year
period is null and void; it must, accordingly, be struck down.
In this case, the provision in the Bill of Lading providing that suits must be filed within 60 days from
accrual of the right of action violated the one-year period prescribed under the COGSA. Hence, it is void and
cannot be applied.
FEDERAL EXPRESS CORPORATION v. AMERICAN HOME ASSURANCE COMPANY and PHILAM

INSURANCE COMPANY
G.R. No. 150094, August 18, 2004, J. Panganiban
Basic is the requirement that before suing to recover loss of or damage to transported goods, the
plaintiff must give the carrier notice of the loss or damage, within the period prescribed by the Warsaw
Convention and/or the airway bill.
Facts:
Smithkline Beecham delivered to Burlington Express, an agent of Federal Express, a shipment of 109
cartons of vaccines for delivery to consignee Smithkline in Makati. The shipment was covered by an Airway
Bill with the words “Refrigerate when not in transit”. It also provided that no action shall be maintained
unless a written notice is filed within 14 days from delivery. The vaccines were transported to Manila by
Federal Express.Upon arrival, the vaccines were stored at Cargohaus’s warehouse. Smithkline’s customs
broker found that the same were stored only in a room with 2 air conditioners running instead of a
refrigerator. The broker did not proceed with the withdrawal of the vaccines and instead, samples were taken
to the Bureau of Animal Industry for examination. Smithkline found that the vaccines were unusable. It filed a
claim with American Home Assurance through its representative in the Philippines, PhilAm Insurance Co.
PhilAm paid Smithkline and filed an action for damages against Federal Express, imputing negligence in
handling the cargo.
Federal Express contends that PhilAm’s claim and right of action are already barred because the
latter and even the consignee never filed with the carrier any written notice or complaint regarding its claim
for damage to the cargo within the period required by the Warsaw Convention or even the Airway Bill.
Issue:
Whether or not the written notice is a condition precedent for the accrual of right to institute the
action.
Ruling:
Yes, the filing of a claim with the carrier within the time limitation therefor actually constitutes a
condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods. The
shipper or consignee must allege and prove the fulfilment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former.
The reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and
that it is being charged with liability therefor; and (2) to give it an opportunity to examine the nature and
extent of the injury. When an airway bill or any contract of carriage for that matter has a stipulation that
requires a notice of claim for loss of or damage to goods shipped and the stipulation is not complied with, its
enforcement can be prevented and the liability cannot be imposed on the carrier. Being a condition
precedent, the notice must precede a suit for enforcement. In the present case, there is neither an allegation
nor a showing of respondents' compliance with this requirement within the prescribed period. While
respondents may have had a cause of action then, they cannot now enforce it for their failure to comply with
the aforesaid condition precedent.
MARITIME COMMERCE
Charter Parties
LITONJUA SHIPPING COMPANY INC v. NATIONAL SEAMEN BOARD (NSB) and GREOGRIO P. CANDONGO
G.R. No. L-15190, August 10, 1989, J. Feliciano
There are three types of charter parties: (a) bareboat or demise charter; (b) time charter; (c) voyage or
trip charter. In a demise or bare boat charter, the charterer is treated as owner pro hac vice of the vessel, the
charterer assuming in large measure the customary rights and liabilities of the ship owner in relation to third
persons who have dealt with him or with the vessel.
Facts:
Fairwind Shipping was the charterer of M/V Dufton Bay, an ocean-going vessel owned by R.D Mullion
Ship Broking Agency. Litonjua Shipping is the local crewing agent of Fairwind Shipping Corp. While the vessel
was in Cebu under charter by Fairwind, the vessel’s master contracted the services of Gregorio Candongo to
serve as Third Engineer for 12 months. However, before expiration of the contract, Candongo was required to
disembark and return to the Philippines. He filed a complaint before the NSB for violation of contract against
Mullion as the shipping company and against Litonjua as agent of ship owner and of the charterer of the
vessel.
The NSB held that Candongo was illegally terminated hence Litonjua is liable. The master of the
vessel acted for an in behalf of the charterer Fairwind, not the ship owner. Litonjua is liable because at the
time of recruitment, it was the authorized agent of the vessel’s charterer Fairwind. Litonjua contends that the
ship owner, not the charterer was the employer of Candongo and that damages cannot be imposed on
Litonjua who was a mere agent of the charterer. Candongo contracted with the master of the vessel who was
representing the ship owner Mullion, not the charterer.
Issue:
Whether or not Fairwind, as charterer, and in turn, Litonjua the agent of the charterer, is liable for a
contract entered into by the master of the vessel.
Ruling:
Yes, Fairwind as the charterer, and in turn Litonjua as its agent, is considered the employer of
Candongo under the contract entered into with the master of the vessel. The master of the vessel acted in
behalf of the charterer, Fairwind who became the owner pro hac vice of the vessel under the bareboat or
demise charter between Fairwind and the ship owner Mullion.
There are three types of charter parties: (a) bareboat or demise charter; (b) time charter; (c) voyage
or trip charter.
In a bareboat charter, the ship owner turns over possession of his vessel to the charterer, who then
undertakes to provide a crew and victuals and supplies and fuel for her during the term of the charter. The
ship owner is not normally required to provide a crew, and so the charterer gets the "bare boat", i.e., without
a crew. Sometimes, the demise charter might provide that the shipowner is to furnish a master and crew to
man the vessel under the charterer's direction, such that they become the agents and servants or employees of
the charterer, and the charterer (and not the owner) through the agency of the master, has possession and
control of the vessel during the charter period.
A time charter is a contract for the use of a vessel for a specified period of time or for the duration of
one or more specified voyages. In this case, however, the owner of a time-chartered vessel retains possession
and control through the master and crew who remain his employees. What the time charterer acquires is the
right to utilize the carrying capacity and facilities of the vessel and to designate her destinations during the
term of the charter.
A voyage charter, or trip charter, is simply a contract of affreightment, that is, a contract for the
carriage of goods, from one or more ports of loading to one or more ports of unloading, on one or on a series
of voyages. In a voyage charter, master and crew remain in the employ of the owner of the vessel.
In a demise or bare boat charter, the charterer is treated as owner pro hac vice of the vessel, the
charterer assuming in large measure the customary rights and liabilities of the shipowner in relation to third
persons who have dealt with him or with the vessel. In such case, the Master of the vessel is the agent of the
charterer and not of the shipowner. The charterer or owner pro hac vice, and not the general owner of the
vessel, is held liable for the expenses of the voyage including the wages of the seamen. In this case, treating
Fairwind as owner pro hac vice, Litonjua having failed to show that it was not such, the SC held that Litonjua,
as Philippine agent of the charterer, may be held liable on the contract of employment between the ship
captain and Candongo.
NATIONAL FOOD AUTHORITY, ROSELINDA GERALDEZ, RAMON SARGAN and ADELINA A. YAP v. THE
HON. COURT OF APPEALS AND HONGFIL SHIPPING CORPORATION
G.R No. 96453, August 4, 1999, J. Purisima
A charter party is classified into (1) "bareboat" or "demise" charter and (2) contract of affreightment.
The subject contract is one of affreightment, whereby the owner of the vessel leases part or all of its space to haul
goods for others. Under such contract 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.
Facts:
NFA, through its then officers, entered into a “Letter of Agreement for Vessel/Barge Hire” with
Hongfil Shipping for the shipment of 200,000 bags of corn grain from Cagayan de Oro to Manila. Due to
various circumstances, there was delay in both loading and unloading of the cargo. After the discharging was
completed, NFA paid Hongfil but Hongfil sent another bill, claiming payment for deadfreight and demurrage
allegedly sustained during the loading and unloading of the shipment.
Issue:
Whether or not NFA can be held liable for deadfreight and demurrage.
Ruling:
The Letter of Agreement is considered a Charter Party. A charter party is classified into (1)
"bareboat" or "demise" charter and (2) contract of affreightment. Subject contract is one of affreightment,
whereby the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for
special service to be rendered by the owner of the vessel. Under such contract 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.
As to liability for deadfreight, cargo not loaded is considered as deadfreight. It is the amount paid by
or recoverable from a charterer of a ship for the portion of the ship's capacity the latter contracted for but
failed to occupy. Liability for deadfreight is on the charterer. Since in this case the charter was for the whole
vessel, and inasmuch as the vessel may no longer accept any cargo without the consent of the charterer NFA,
it is liable to pay the rate as agreed upon. Since only 166,798 out of 200,000 bags were unloaded in Manila,
deadfreight for the unloaded bags should be paid by the charterer NFA.
As to the liability for demurrage, NFA is not liable. Demurrage is the sum fixed in a charter party as a
remuneration to the owner of the ship for the detention of his vessel beyond the number of days allowed by
the charter party for loading or unloading or for sailing. It exists only when expressly stipulated in the
contract. Shipper or charterer is liable for the payment of demurrage claims when he exceeds the period for
loading or unloading as agreed upon or the agreed "laydays". The period for such may or may not be
stipulated in the contract. A charter party may either provide for a fixed laydays or contain general or
indefinite words such as "customary quick dispatch" or "as fast as the steamer can load."
In this case, the charter party provides “customary quick dispatch”, implying that loading and
unloading should be within a reasonable period of time. Delay in loading or unloading, to be deemed as a
demurrage, runs against the charterer as soon as the vessel is detained for an unreasonable length of time
from the arrival of the vessel because no available berthing space was provided for the vessel due to the
negligence of the charterer or by reason of circumstances caused by the fault of the charterer. However, in
this case, NFA is not liable for the delay absent proof that the loading and unloading was beyond reasonable
time. It must be remembered that delay was outside the control of the parties – the strike of the arrastre
workers and the lack of berthing space at the congested port. It also cannot collect demurrage because the
charter party explicitly provided for “Demurrage: NONE”. As Hongfil freely entered into the charter party, it
cannot escape the consequence of its inability to collect demurrage.
CALTEX (PHILIPPINES), INC. v. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO,
CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO,
EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G.
CAÑEZAL, AND SOTERA E. CAÑEZAL
G.R. No. 131166, September 30, 1999
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 voyagecharter, wherein the ship is leased for a single voyage. 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.
Facts:
The motor tanker MT Vector left Bataan for Masbate loaded with 8,800 barrels of petroleum
products of Caltex by virtue of a charter contract between Caltex and the ship owner Vector Shipping
Corporation. The MV Dona Paz was a passenger and cargo vessel owned by Sulpicio Lines which left port of
Tacloban heading for Manila carrying 4000 passengers, with only 1493 indicated in the manifest. At around
10:30pm of December 20, 1987, the two vessels collided in the open sea between Marinduque and Oriental
Mindoro. Only 24 passengers from the MV Dona Paz survived, along with 2 crew members of MT Vector.
Public school teacher Sebastian Canezal and his daughter were not in the manifest but proved to be on board
the MV Dona Paz.
The Board of Marine Inquiry found MT Vector and its owner Vector Shipping were at fault for the
collision. The Canezals filed a complaint for damages arising from breach of contract against Sulpicio Lines.
Sulpicio in turn, filed a third party complaint against Vector and Caltex. Sulpicio alleged that Caltex chartered
MT vector with bad faith knowing that MT Vector was improperly manned, ill-equipped, and was
unseaworthy. As a result, it rammed against MV Dona Paz, setting its highly flammable cargo ablaze. The trial
court dismissed the third party complaint against Caltex. However, the CA reserved and included Caltex as
one of those liable for damages. Hence the petition.
Issue:
Whether or not the charterer of a sea vessel is liable for damages resulting from a collision between
the chartered vessel and a passenger ship.
Ruling:
No. Caltex and Vector entered into a contract of affreighment, also known as a voyage charter. A
charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or
other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight.
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 voyagecharter, wherein the ship is leased for a single voyage. In both
cases, the charter-party 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 ship's 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.
The MT Vector is also common carrier. 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 public carrier shall remain as such, notwithstanding the charter of the
whole portion of a vessel of one or more persons, provided the charter is limited to the ship only, as in the
case of a time-charter or the voyage charter.
There was also no negligence on the part of Caltex in chartering the MT Vector. 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."
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.
Bareboat / Demise Charter
LITONJUA SHIPPING COMPANY, INC. v. NATIONAL SEAMEN BOARD AND GREGORIO P. CANDONGO
G.R. No. L-51910, August 10, 1989, J. Feliciano
Herein petitioner contends it cannot be held liable for the payment of unpaid salaries of a crew member
being only a charterer. The Supreme Court ruled that the charter is a bareboat and demise charter and in such
kind of charter, the charterer is the owner pro hac vice of the vessel, thus assumes all rights and liabilities of the
shipowner.
Facts:
Petitioner Litonjua Shipping Company, Inc. (Litonjua) is the duly appointed local crewing Managing
Office of the Fairwind Shipping Corporation (Fairwind). The M/V Dufton Bay is an ocean going vessel of
foreign registry owned by R.D. Mullion Ship Broking Agency (Mullion). The M/V Dufton Bay under charter by
Fairwind, the vessel’s master hired private respondent Gregorio Candongo (Gregorio) to serve as Third
Engineer for one year. However before the expiration of his contract, Gregorio was illegally dismissed. This
prompted him to file a complaint before the National Seamen Board (NSB) for violation of contract and to
recover unpaid salaries. NSB ruled in favour of Gregorio and held Mullion and Litonjua solidarily liable.
Litonjua contends that it cannot be held liable because under admiralty law, it is the ship owner who is liable
for payment of the crew’s wages, not the charterer.
Issue:
Whether or not Litonjua can be held liable for payment of crew’s wages as a charterer.
Ruling:
Yes, Litonjua can be held liable to pay for Gregorio’s unpaid salaries. The charter that Mullion and
Litonjua entered into is a bareboat or demise charter. In such kind of charter, the charterer is treated as
owner pro hac vice of the vessel. The charterer assumes the rights and liabilities of the shipowner. The
charterer, not the owner is held liable for expenses of the voyage, including the wages of the seamen.
Time Charter
OCEANEERING CONTRACTORS (PHILS), INC.v. NESTOR BARRETO, doing business as NNB LIGHTERAGE
G.R. No. 184215, February 9, 2011, J. Perez
A barge belonging to the respondent capsized during the course of its voyage while under a time charter
agreement with the petitioner. Petitioner demanded the return of the unused charter payment. The Supreme
Court ruled that petitioner can demand the return of the unused charter payment because under a time charter,
the owner of the ship retains possession and control over the vessel
.
Facts:
Respondent Nestor Barreto (Barreto) is the owner of the barge Antonieta. On November 27, 1997,
Barreto and petitioner Oceaneering Contractors Inc. (Oceaneering) entered into a Time Charter Agreement
whereby the latter hired the barge for thirty days. During the course of its voyage, the barge encountered
rough sea at the vicinity of Cape Santiago, Batangas, and thereafter capsized. Oceaneering demanded from
Barreto the unused charter payment. Barreto refused contending that the mishap was cause by the
incompetence and negligence of petitioner’s personnel.
Issue:
Whether or not Oceannering can demand the return of the unused charter payment.
Ruling:
Yes, Oceaneering can demand the return of the unused charter payment. In a time charter, the
possession and control of the barge is retained by the owner. Thus, the owner must answer for any expenses
brought about by any mishap in its voyage. As a result, Barreto must return to Oceaneering the consideration
the latter paid to the extent of the unused portion of the charter.
Voyage / Trip Charter
CEBU SALVAGE CORPORATION v. PHILIPPINE HOME ASSURANCE CORPORATION

G.R. No. 150403, January 25, 2007, J. Corona
Petitioner was held answerable for the loss of the cargo due to the sinking of the ship it did not own. The
Supreme Court ruled that despite not owning the vessel it used, it is liable for the loss because it is a common
carrier under a contract of affreightment and therefore must exercise extraordinary diligence over the goods
that it transport.
Facts:
On November 12, 1984, petitioner Cebu Salvage Corporation, as carrier, entered into a voyage charter
with Maria Cristina Chemicals Industries, Inc. (MCCII), as charterer, wherein petitioner was to load silica
quarts on board the M/T Espiritu Santo (vessel) to be delivered to consignee Ferrochrome Phils., Inc. The
shipment however, never reached its destination as the vessel sank in Misamis Oriental resulting in total loss
of its cargo. MCCII filed a claim against its insurer, respondent Philippine Home Assurance Corporation who
paid the claim. By right of subrogation, respondent filed a case against petitioner for reimbursement of the
amount paid to MCCII. Petitioner contends that the agreement was merely a contract of hire wherein MCCII
hired the vessel from its owner ALS Timber Enterprises and that it cannot be held liable since it did not have
control and supervision over the vessel, its master, and crew.
Issue:
Whether or not petitioner can be held liable for the loss of the cargo resulting from sinking of a ship it
does not own.
Ruling:
Yes. It is clear that it is a contract of carriage, specifically, a voyage charter that petitioner and
respondent entered into. In a voyage charter, also known as a contract of affreightment, the ship is leased for
a single voyage for the conveyance of goods, in consideration of the payment of freight. Under such kind, the
shipowner retains possession, command, and navigation of the ship, the charterer or freighter merely uses
the space in the vessel. With the contract of carriage, there is no dispute that the petitioner was a common
carrier. Therefore, extraordinary diligence is required to be observed in the transportation of goods. The fact
that it did not own the vessel it decided to use did not negate its character as a common carrier. Petitioner
failed to show that it exercised extraordinary diligence to prevent the loss of the cargo or that it was due to
force majeur. The voyage charter here being a contract of affreightment, the carrier is answerable for the loss
of the cargo.
Liability of Ship Owners and Shipping Agents
CHUA YEK HONG v. INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR OLIT
G.R. No. 74811, September 30, 1988, J. Melencio-Herrera
The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise
from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all the equipments and the freight it may have earned during
the voyage.
Facts:
Petitioner is a licensed copra dealer. Private respondents are the owners of the vessel M/V Luzviminda
(vessel). On October 1977, petitioner loaded sacks of copra on the vessel for shipment from Puerto Galera to
Manila. However, somewhere between Cape Santiago and Calatagan, Batangas, the vessel capsized and sank
with all its cargo. Petitioner instituted a complaint for damages on breach of contract of carriage. Private
respondents aver that their liability have been extinguished by the total loss of the vessel.
Issue:
Whether or not the liability of the ship owners were extinguished by the total loss of the vessel.
Ruling:
Yes. The term "ship agent" as used is broad enough to include the ship owner. Pursuant to said
provision, therefore, both the ship owner and ship agent are civilly and directly liable for the indemnities in
favor of third persons, which may arise from the conduct of the captain in the care of goods transported, as
well as for the safety of passengers transported.
However, under the same Article, this direct liability is moderated and limited by the ship agent's or
ship owner's right of abandonment of the vessel and earned freight. This expresses the universal principle of
limited liability under maritime law. The most fundamental effect of abandonment is the cessation of the
responsibility of the ship agent/owner. It has thus been held that by necessary implication, the ship agent's or
ship owner's liability is confined to that which he is entitled as of right to abandon the vessel with all her
equipment and the freight it may have earned during the voyage," and "to the insurance thereof if any". In
other words, the ship owner's or agent's liability is merely co-extensive with his interest in the vessel such
that a total loss thereof results in its extinction. "No vessel, no liability" expresses in a nutshell the limited
liability rule. The total destruction of the vessel extinguishes maritime liens as there is no longer any res to
which it can attach
MACONDRAY & CO., INC. v. PROVIDENT INSURANCE CORPORATION
G.R. No. 154305, December 9, 2004, J. Panganiban
Petitioner contends it cannot be held liable as a ship agent over the loss of the shipment. The Supreme
Court ruled otherwise quoting provisions in the Code of Commerce wherein a ship agent can be held liable
Facts:
Canpotex Shipping Services ltd., Inc., (Canpotex) shipped and loaded on board the vessel M/V Trade
Carrier 5,000 metric tons of Standard Grade Muriate in bulk for transportation and delivery to Cebu in favour
of Atlas Fertilizer Corporation, the consignee. Subject shipments were insured by Provident Insurance
Corporation (Provident). When the shipment arrived, the consignee discovered that the shipment sustained
losses of 476.140 metric tons. Provident paid the losses. Thereafter, it filed a claim for reimbursement against
Macondray & Co., Inc., (Macondray), being the local agent of Canpotex. Macondray contended that being
merely an agent, it has no control over the acts of the captain and crew and cannot be held liable for any
damage arising from the fault or negligence of said captain and crew.
Issue:
Whether or not Macondray, as agent of the shipper, can be held liable for the loss.
Ruling:
Yes, Macondray can be held liable as agent of the shipper. As ship agent, petitioner can be held liable in
certain instances as provided in Articles 586, and 587 of the Code of Commerce which states:
Article 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for
the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor
proves that the amount claimed was invested for the benefit of the same.
Article 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which
may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may
exempt himself therefrom by abandoning the vessel with all her equipments and the freight it may have
earned during the voyage.
CENTENNIAL TRANSMARINE, INC., ET AL.v. RUBEN G. DELA CRUZ

G.R. No. 180719, August 22, 2008, J. Ynares-Santiago
The shipowner/agent is solidarily liable for the unexpired portion of the employment contract.
Facts:
On May 9, 2000, petitioner Centennial Transmarine Inc (Centennial), for and in behalf of its foreign
principal, Centennial Maritime Services Corp., hired respondent Ruben Dela Cruz as Chief Officer of the oil
tanker vessel MT Aquidneck owned B+H Equimar, Singapore, Pte. Ltd. for nine months. He performed his
functions for only five months because he was replaced. Aggrieved, respondent filed a case for illegal
dismissal with the National Labor Relations Commission (NLRC). Centennial contends that respondent was
relieved of his functions due to his inefficiency and lack of job knowledge thus amounting to loss of trust and
confidence. The Supreme Court ruled that Ruben Dela Cruz was illegally dismissed.
Issue:
Whether the ship owner/agent is liable for the illegal dismissal of he complainant?
Ruling:
Yes. The Supreme Court modified the decision of the NLRC and finding that Centennial Transmarine,
Inc., Centennial Maritime Services, Corp., and B+H Equimar, Singapore, Pte. Ltd. jointly and severally liable to
Ruben G. Dela Cruz salaries corresponding to the unexpired portion of his employment contract
Limited Liability Rule / Hypothecary Nature of Maritime Law
ABOITIZ SHIPPING CORPORATIONv. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION,
LTD.
G.R. No. 100446, January 21, 1993, J. Melo
The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise
from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during
the voyage.
The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund
for the results of the acts of the captain.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part
of the vessel belonging to him.
The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be
understood as limited to the value of the vessel with all its appurtenances and freightage served during the
voyage.
Facts:
Aboitiz Shipping Corporation (Aboitiz) is in the business of maritime trade as a carrier. It owned M/V
P. Aboitiz (vessel). While on its voyage from Hong Kong to Manila, the vessel sank with all its cargo.
Respondent General Accident Fire and Life Assurance Corporation (GAFLAC) is the insurer of the cargo.
GAFLAC paid for the losses in the cargo. By right of subrogation, it is now claiming reimbursement against
Aboitiz. The Regional Trial Court (RTC) ruled in favour of respondents. Aboitiz contended that the limited
liability rule should apply and therefore warrants the stay of execution of judgment to prevent impairment of
other creditors’ share.
Issue:
Whether or not the limited liability rule arising out of the real and hypothecary nature of maritime law
applies in this case.
Ruling:
Yes, the limited liability rule applies in this case. The real and hypothecary nature of maritime law
simply means that the liability of the carrier in connection with losses related to maritime contracts is
confined to the vessel, which is hypothecated for such obligations which stands as the guaranty for
settlement. The liability of the vessel owner and agent arising from the operation of the vessel are confined to
the vessel itself, its equipment, freight, and insurance if any. The only time the limited liability rule does not
apply is when there is actual finding of negligence of the part of the vessel owner and agent. There has been
no actual finding of negligence in this case.
The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of
shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while
not absolute, must be swept aside only in the established existence of the most compelling of reasons.
The rights of parties to claim against an agent or owner of a vessel may be compared to those of
creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as
against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of
their respective claims, this does not mean that they shall all be allowed to recover fully thus favoring those
who filed and proved their claims sooner to the prejudice of those who come later.
In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in
their recovery to the remaining value of accessible assets. In case of a lost vessel, these are insurance
proceeds and pending freightage for the particular voyage. The trial court is directed to stay the execution of
judgment pending determination of the totality of claims recoverable from the petitioner.
CHUA YEK HONG v. INTERMEDIATE APPELLATE COURT, MARIANO GUNO, AND DOMINADOR OLIT
The ship owner's or agent's liability is merely co-extensive with his interest in the vessel such that a total
loss thereof results in its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The
total destruction of the vessel extinguishes maritime liens as there is no longer any res to which it can attach
Facts:
Petitioner is a licensed copra dealer. Private respondents are the owners of the vessel M/V Luzviminda
(vessel). On October 1977, petitioner loaded sacks of copra on the vessel for shipment from Puerto Galera to
Manila. However, somewhere between Cape Santiago and Calatagan, Batangas, the vessel capsized and sank
with all its cargo. Petitioner instituted a complaint for damages on breach of contract of carriage. Private
respondents aver that their liability have been extinguished by the total loss of the vessel.
Issue:
Whether or not the CA erred in applying the Limited Liability Rule.
Ruling:
No. Both the ship owner and ship agent are liable for the indemnities in favour of third persons which
may arise from the conduct of the captain and in the care of goods transported, as well as for the safety of
passengers transported. This direct liability is moderated and limited by the ship owner’s or ship agent’s right
of abandonment. The effect of abandonment is the cessation of the responsibility of the ship owner or ship
agent. By necessary implication, the ship owner’s or ship agent’s liability is confined to that which he is
entitled as of right to abandon the vessel with all her equipment and the freight it may have earned during the
voyage, and to the insurance thereof, if any. The ship owner’s or ship agent’s liability is merely co-extensive
with his interest in the vessel such that total loss thereof results in its extinction.
Exceptions to Limited Liability
LUZON STEVEDORING CORPORATION v. COURT OF APPEALS, HIJOS DE F. ESCANO, INC.,

and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES
G.R. No.L-58897, December 3, 1987, J. Gancayco
If the injury or damage is caused by the shipowner's fault as where he engages the services of an
inexperienced and unlicensed captain or engineer, he cannot limit his liability by abandoning the vessel. He is
personally liable for the damages arising thereby.
Facts:
A maritime collision occurred between the tanker LSCO "Cavite" owned by Luzon Stevedoring
Corporation and MV "Fernando Escano" a passenger ship owned by Hijos de F. Escano, Inc. as a result of
which said passenger ship sunk. An action in admiralty was filed by Hijos de F. Escano, Inc. and Domestic
Insurance Company of the Philippines against the Luzon Stevedoring Company (LSC) in the Court of First
Instance of Cebu.
Issue:
Whether LSCO can invoke the doctrine of limited liability.
Ruling:
No. The shipowner or agent is still personally liable for claims under the Workmen's Compensation
Act and for repairs of the vessel before its loss notwithstanding the abandonment.
In case of illegal or tortious acts of the captain the liability of the shipowner and agent is subsidiary.
In such instance the shipowner or agent may limit their liability by abandoning the vessel.
However, if the injury or damage is caused by the shipowner's fault as where he engages the services
of an inexperienced and unlicensed captain or engineer, he cannot limit his liability by abandoning the vessel.
He is personally liable for the damages arising thereby.
CHUA YEK HONG v. INTERMEDIATE APPELLATE COURT,

MARIANO GUNO, and DOMINADOR OLIT
The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to a
passenger is due either to the fault of the ship owner, or to the concurring negligence of the ship owner and the
captain; (2) where the vessel is insured; and (3) in workmen's compensation claims
Facts:
Chua Yek Hong loaded 1,000 sacks of copra onboard M/V Luzviminda I, an uninsured vessel co-
owned by Mariano Guno and Dominoador Olit for shipment from Puerto Galera, Oriental Mindoro to Manila.
Somewhere between Cape Santiago and Calatagan, Batangas, the vessel capsized and sank with all its cargo.
A complaint for damages for breach of contract of carriage was filed against Guno and Olit before the CFI of
Oriental Mindoro. In their Answer, Guno and Olit alleged that even if the copra was truly loaded in their
vessel, the liability had been extinguished by reason of total loss of the vessel.
Issue:
Whether the limited liability rule should apply.
Ruling:
Yes. .The most fundamental effect of abandonment is the cessation of the responsibility of the ship
agent/owner. "No vessel, no liability" expresses in a nutshell the limited liability rule. The limited liability
rule, however, is not without exceptions, namely: (1) where the injury or death to a passenger is due either to
the fault of the ship owner, or to the concurring negligence of the ship owner and the captain; (2) where the
vessel is insured; and (3) in workmen's compensation claims. In this case, since the ship agents' liability is co-
extensive with their interest in the vessel, the liability for the loss of the cargo of copra must be deemed to
have been extinguished by the total loss of the vessel. To be sure, none of the exceptions to the limited
liability rule was found here.
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. v.

COURT OF APPEALS and FELMAN SHIPPING LINES
G.R. No. 116940, June 11, 1997, J. Bellosillo
The international rule is that the right of abandonment of vessels, as a legal limitation of a shipowners
liability, does not apply to cases where the injury or damage was occasioned by the shipowner's own fault.
Facts:
Coca-Cola Bottlers Philippines, Inc. loaded on board MV Asilda(owned and operated by Felman
Shipping Lines), 7,500 cases of 1 liter coke softdrink bottles to be transmitted from Zamboanga City to Cebu
City for Coca-Cola Bottlers Philippines, Inc., Cebu (Coca-Cola Cebu). Some of the cases and other shipments
were loaded on deck. The shipment was covered by a Marine Open Insurance Policy with Philippine
American General Insurance Co., Inc. (PHILAMGEN) which admitted the seaworthiness of the vessel MV
Asilda.
In spite of its lack of seaworthiness for being top-heavy, MV Asilda left the port of Zamboanga on a
fine evening weather. The following morning, the vessel had hit a floating log. The captain and his crew
struggled to keep the ship balanced and afloat but MV Asilda still sank with all her cargo.
Coca-Cola Cebu filed a claim with FELMAN for recovery of damages. FELMAN denied the claim. Coca-
Cola Cebu then filed an insurance claim with PHILAMGEN which paid its claim.PHILAMGEN then sued
FELMAN for sum of money and damages before the trial court. The RTC rendered judgment in favor of
FELMAN. The CA also ruled in favor of FELMAN on the ground that abandonment absolved the shipowner
under the limited liability rule.
Issue:
Whether or not PHILAMGEN may collect against FELMAN on the ground that the limited liability rule
does not apply.
Ruling:
Yes, PHILAMGEN may collect against FELMAN on the ground that the limited liability rule is
inapplicable in this case.
Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on
the vessel. This liability however can be limited through abandonment of the vessel, its equipment and
freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent
could still be held answerable despite the abandonment.
In particular, the international rule is that the right of abandonment of vessels, as a legal limitation of
a shipowners liability, does not apply to cases where the injury or damage was occasioned by the shipowner's
own fault. This is because Art. 587 only applies if loss or injury was due to the fault of the captain alone, and
not if due to the fault of both the captain and the shipowner. In these cases, the provisions of the Civil Code on
common carrier applies.
In this case, closer supervision on the part of the shipowner could have prevented this fatal
miscalculation. As such, FELMAN was equally negligent. Being a common carrier, they are presumed
negligent in the event of loss of goods.
AGUSTIN P. DELA TORRE, v. THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION,

RAMON BOY LARRAZABAL, PHILIPPINE TRIGON SHIPYARD
CORPORATION, and ROLAND G. DELA TORRE
G.R. No. 160088, July 13, 2011, J. Mendoza
Since the interests of a charterer is not the same as that of the shipowner, (the title of lease vs. title of
ownership), even if the contract is for a bareboat or demise charter where possession, free administration and
even navigation are temporarily surrendered to the charterer, dominion over the vessel remains with the
shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the former, can never
set up the Limited Liability Rule against the very owner of the vessel. After all, “where the reason for the rule
ceases, the rule itself does not apply.”
Facts:
Crisostomo Concepcion, owner of LCT-Josephine, entered into a "preliminary agreement" with

Roland de la Torre to have the vessel chartered to Roland for 2 years, with the express provision that it
should be insured by Roland. Concepcion later agreed to charter the same vessel to Philippine Trigon
Shipyard Corporation (PTSC), represented by its President Roland.
PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a sole proprietorship

owned by Roland's father, Agustin de la Torre. They agreed among others that (1) PTSC/Roland will
terminate the vessel's crew which may be re-hired by TSL/Agustin, and (2) both will share in the payment of
premium.
TSL further sub-chartered LCT-Josephine to Ramon Larrazabal for the transport of cargo consisting
of sand and gravel to Leyte. They agreed that Larrazabal will be responsible in supervising the loading and
unloading of cargo load on the vessel.
During the subsistence of the said contracts, LCT-Josephine with its cargo of sand and gravel arrived
at Leyte. With the vessel's ramp already lowered, the unloading of the cargo began with the use of Ramon's
payloader. As the payloader was scooping a load of the cargo on the deck of LCT-Josephine, the vessel's ramp
started to move downward. The payloaderwas forced to dump the load at the side of the vessel which made
the vessel tilt. Ultimately, the payloader was saved but the vessel sank.
Concepcion filed a complaint for sum of money against PTSC and Roland before the RTC. PTSC and
Roland answered and filed a third party complaint against his father Agustin.
The RTC ruled in favor of Concepcion and against PTSC, Roland, and TSL/Agustin. The CA affirmed
the RTC ruling in toto.
Issue:
Whether PTSC, Roland, and TSL/Agustin should not be held liable on the ground that they may avail
the limited liability rule.
Ruling:
No, PTSC, Roland, and TSL/Agustin should be held liable because the limited liability rule does not
apply in their case.
Art. 587 of the Code of Commerce provides:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods which he
loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all
her equipment and the freight it may have earned during the voyage.
The article contemplates the liability to third persons who may have dealt with the shipowner, the
agent or even the charterer. “To offset against these adverse conditions and to encourage shipbuilding and
maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the
operation of a ship to the vessel, equipment, and freight, or insurance, if any.”
But in this case, only Concepcion as the shipowner may avail the protection of the limited liability
rule. The charterer (PTSC/Roland) and the sub-charterer (TSL/Agustin) may not avail it as a shield from
liability as against the real owner. This is because as the real ship owner, Concepcion is the one who is
supposed to be supported and encouraged to pursue maritime commerce.
As to the extent of liability of the charterers, the Civil Code applies to private charters in the absence
of provisions in the Code of Commerce regarding the specific rights and obligations between the real ship
owners and the charterer. Generally put, all three are liable for failure to exercise due diligence in preserving
the vessel from loss and from insuring the same per their contracts.
Accidents and Damage in Maritime Commerce
R.V. MARZAN FREIGHT, INC., v. COURT OF APPEALS and SHIELAS MANUFACTURING, INC.,
G.R. No. 128064, March 4, 2004, J. Callejo, Sr.
An implied abandonment shall not be effective until the article shall be declared by the Collector to have
been abandoned after notice thereof is given to the interested party as in seizure cases.
Any person who abandons an article or who fails to claim his importation as provided for in the
preceding paragraph shall be deemed to have renounced all his interests and property rights therein.
Facts:
RV Marzan owned a customs-bonded warehouse where it accepts all forms of goods and
merchandise for storage and safekeeping. In 1989, raw materials consigned to Shielas Manufacturing Inc.
(Shielas) arrived from Keelung, Taiwan.
The Bureau of Customs (BOC) treated the raw materials as subject to ordinary import taxes and were
not immediately released to the private respondent.
Shielas failed to claim the cargo. The BOC authorized RV Marzan in a letter to safekeep the said raw
materials. Then the BOC initiated abandonment proceedings on the cargo. The District Collector issued a
Notice to Shielas but the notice was merely posted on the bulletin board since the address of Shielas is
unknown.
The Declaration became final and executory on October 1989.
Before inventory and sale at public auction, part of the warehouse containing the shipment was
burned which includes the subject raw materials. Shielas thereafter demanded payment from RV Marzan,
which the latter denied. Hence, in 1991 (more than 2 years from arrival of cargo), Shielas filed a complaint for
damages before the RTC against RV Marzan
RV Marzan opposed, claiming that Shielas had no cause of action against it since the raw materials
were owned by the government at the time of the fire. The ownership was brought about by the declaration
of the BOC that the goods were abandoned.
Issue:
Whether Shielas is the owner of the goods at the time said goods were gutted by fire.
Ruling:
No. The government owned the cargo before it was gutted by fire. The private respondent had no
cause of action against the petitioner. The resolution of the issue involved the application of Section 1801 and
Section 1802 of the Tariff and Customs Code, which read:
SEC. 1801. Abandonment, Kinds and Effects of. Abandonment is expressed when it is made direct to
the Collector by the interested party in writing, and is implied when, from the action or omission of the
interested party to file the import entry within five (5) days or an extension thereof from the discharge of the
vessel or aircraft, or having filed such entry, the interested party fails to claim his importation within five (5)
days thereafter or within an extension of not more than five (5) days shall be deemed an implied
abandonment. An implied abandonment shall not be effective until the article shall be declared by the
Collector to have been abandoned after notice thereof is given to the interested party as in seizure cases.
Any person who abandons an article or who fails to claim his importation as provided for in the
preceding paragraph shall be deemed to have renounced all his interests and property rights therein.
SEC. 1802. Abandonment of Imported Articles.- The owner or importer of any articles may, within ten
days after filing of the import entry, abandon to the Government all or a part of the articles included in an
invoice, and, thereupon, he shall be relieved from the payment of duties, taxes and all other charges and
expenses due thereon: Provided, That the portion so abandoned is not less than ten per cent of the total
invoice and is not less than one package, except in cases of articles imported for personal or family use. The
articles so abandoned shall be delivered by the owner or importer at such place within the port of arrival as
the Collector shall designate, and upon his failure to so comply, the owner or importer shall be liable for all
expenses that may be incurred in connection with the disposition of the articles.
Nothing in this section shall be construed as relieving such owner or importer from any criminal
liability which may arise from any violation of law committed in connection with the importation of the
abandoned article.
The resolution of the issue also calls for the application of Section 2601 of the said Code which
provides that the property in customs custody, including abandoned articles, shall be subject to sale under
the conditions provided therein.
Collisions
FAR EASTERN SHIPPING COMPANY v. COURT OF APPEALS and PHILIPPINE PORTS AUTHORITY
G.R. No. 130068 October 1, 1998, J. Regalado
MANILA PILOTS ASSOCIATION v. PHILIPPINE PORTS AUTHORITY and FAR EASTERN SHIPPING
COMPANY
G.R. No. 130150 October, 1998, J. Regalado
In admiralty, this presumption does more than merely require the ship to go forward and produce some
evidence on the presumptive matter. The moving vessel must show that it was without fault or that the collision
was occasioned by the fault of the stationary object or was the result of inevitable accident. It has been held that
such vessel must exhaust every reasonable possibility which the circumstances admit and show that in each, they
did all that reasonable care required. In the absence of sufficient proof in rebuttal, the presumption of fault
attaches to a moving vessel which collides with a fixed object and makes a prima facie case of fault against the
vessel.
Facts:
M/V Pavlodar, owned and operated by Far Eastern Shipping Company, arrived at the Port of Manila.
Captain Gavino was assigned by the Manila Pilots' Association (MPA) as compulsory pilot to conduct docking
maneuvers for the safe berthing of the vessel to Berth No. 4.
Capt. Gavino was briefed by Victor Kavankov (master of the vessel) and employee of Far Eastern
Shipping Company regarding the particulars of the vessel and the cargo. After the briefing, the vessel lifted
anchor and proceeded to the Manila International Port.
When the vessel reached the landmark (big church by the Tondo North Harbor, 1/2 mile from the
pier), Capt. Gavino ordered the engine stopped. As the ship closes to the pier, Capt. Gavino ordered the anchor
dropped. Kavankov relayed the orders to the crew and dropped the left anchor.
The left anchor did not take hold and the vessel did not slow down. A commotion ensued between
Kavankov and the crew. When Capt. Gavino noticed the anchor did not take hold, he tried to remedy the
situation but it was too late. Before the right anchor and additional shackles could be dropped, the bow of the
vessel rammed into the apron of the pier of Philippine Ports Authority which caused considerable damage.
The vessel was also damaged.
Issue:
Whether petitioners are liable for the collision?
Ruling:
Yes. Such accidents simply do not occur in the ordinary course of things unless the vessel has been
mismanaged in some way. It is not sufficient for the respondent to produce witnesses who testify that as soon
as the danger became apparent everything possible was done to avoid an accident.
Captain Gavino and the MPA are liable.
Generally, the pilot supersedes the master for the time being in the command and navigation of the
ship, and his orders must be obeyed in all matters connected with her navigation. He becomes the master pro
hac viceAnd when a licensed pilot is employed in a place where pilotage is compulsory, it is his duty to insist
on having effective control of the vessel, or to decline to act as pilot.
As compulsory pilot, Capt. Gavino is held to the universally accepted high standards of care and
diligence required of a pilot, whereby he assumes to have skill and knowledge in respect to navigation in the
particular waters. It is these high standards which Capt. Gavino failed to meet. Among other things, assuming
that he did indeed give the command to drop the anchor on time, as pilot, he should have seen to it that the
order was carried out. He could have done this in a number of ways, but he did not.
Note: MPA’s liability is not based on Art. 2180 since Capt. Gavino was never its employee. Its liability is
based on a Customs Administrative Order imposing liabilities on pilots’ association. This is without prejudice to
MPA’s right of reimbursement against Capt. Gavino.
Far Eastern thru Kavankov is liable
While it is indubitable that pilot becomes master pro hac vice of a vessel piloted by him. there is
overwhelming authority to the effect that the master does not surrender his vessel to the pilot and the pilot is
not the master. The master is still in command of the vessel notwithstanding the presence of a pilot. The
master does not regard the presence of a duly licensed pilot in compulsory pilot waters as freeing him from
every, obligation to attend to the safety of the vessel.
Hence, where a compulsory pilot is in charge of a ship, the master being required to permit him to
navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the duty of
the master to refuse to permit the pilot to act. But if no such reasons are present, then the master is justified
in relying upon the pilot, but not blindly.
In this case, the negligence on the part of Capt. Gavino is evident; but Kabankov is no less responsible
for the allision. His unconcerned lethargy as master of the ship in the face of troubles constitutes negligence.
Far Eastern is liable as ship owner and as employer of Capt. Kabankov.
The liability of Capt. Gavino, MPA, and Far Eastern is solidary.
In general, a pilot is personally liable for damages caused by his own negligence or default to the
owners of the vessel, and to third parties for damages sustained in a collision. Such negligence of the pilot in
the performance of duty constitutes a maritime tort.
But even though the pilot is compulsory, if his negligence was not the sole cause of the injury, but the
negligence of the master or crew contributed thereto, the ship owners are liable. But the liability of the ship
in rem does not release the pilot from the consequences of his own negligence.
Finally, where the concurrent or successive negligent acts or omissions of two or more persons,
although acting independently, are in combination the direct and proximate cause of a single injury to a third
person, it is impossible to determine in what proportion each contributed to the injury, either of them is
responsible for the whole injury (i.e. they become joint tortfeasors, solidarily liable for the resulting damage
under Article 2194).
CARRIAGE OF GOODS BY SEA ACT
Application
NATIONAL DEVELOPMENT COMPANY v.THE COURT OF APPEALS and

DEVELOPMENT INSURANCE & SURETY CORPORATION
G.R. No.L-49407, August 19, 1988, J. Paras
Art. 1766 of the Civil Code provides that “in all matters not regulated by said Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce and by special laws.”
Since collision is not specifically covered by the Civil Code, but by the Code of Commerce on the said
subject, it is the latter which should govern
Facts:
National Development Company (NDC) as mortgagee of the vessel Dona Nati, appointed Maritime
Company of the Philippines (MCP) as its agent to manage and operate said vessel for and in behalf of NDC.
In 1964, goods from New York were loaded on the ship bound for Manila. Goods were also loaded
from Tokyo, Japan.
En route to Manila, Dona Nati collided at Ise Bay, Japan, with a Japanese vessel 'SS Yasushima Maru'.
The collision was caused by the fault of both vessels. Development Insurance and Surety Corporation (DISC),
as insurer of the goods, paid the value of the loss to the consignees or successors-in-interest. DISC thereafter
filed a case before the CFI of Manila for recovery of sum of money against NDC and MCP.
Issue:
Whether or not MCP and NDC should not be held liable for the losses on the ground that the law
governing loss of goods due to collision outside the Philippines is the COGSA and not the Code of Commerce.
Ruling:
No. Art. 1753 of the Civil Code provides that “the law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their loss, destruction or deterioration.” Since
Dona Nati is bound for Manila, then Philippine Law governs the liability of the common carrier,
notwithstanding the fact that the collision occurred in foreign waters.
Article 827 of the Code of Commerce provides that if the collision is imputable to both vessels, each
one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered
by their cargoes.
But how should that provision in the Code of Commerce be reconciled with Sec. 4 (2) of COGSA which
states that carriers are not responsible for the loss resulting from the act or negligence of the master, mariner,
pilot, or servants? The answer lies in the provision of COGSA which states that “nothing in this Act shall be
construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting
its application.” Hence, it is the Code of Commerce which prevails.
SEA-LAND SERVICE, INC. v.INTERMEDIATE APPELLATE COURT AND PAULINO CUE, DOING BUSINESS
UNDER THE NAME AND STYLE OF "SEN HIAP HING"
G.R. No. 181949, April 23, 2014, J. Del Castillo
The Supreme Court notes that the Carriage of Goods by Sea Act is applicable up to the final port of
destination and that the fact that transshipment was made on an interisland vessel did not remove the contract
of carriage of goods from the operation of said Act.
Facts:
Sea-Land Services Inc. (Sea-Land) received the cargo in California from the shipper, which cargo is
consigned to “Sen Hiap Hing”, the business name used by Paulino Cue, at Cebu City. The Bill of Lading
covering the subject cargo contained a package limitation clause fixing the maximum liability of Sea-Land in
case of loss at $500.00 unless the shipper declares a higher value. Unfortunately, the shipper failed to indicate
the value of the cargo in the Bill of Lading.
The shipment arrived in Manila. The cargo was discharged into the custody of the arrastre contractor
and the customs and port authorities. While the cargo was awaiting trans-shipment to Cebu, the cargo was
stolen by pilferers and has never been recovered.
Demand was made by Paulino Cue to Sea-Land Services Inc. The latter offered to settle at $500 per
package based on the package limitation clause. Paulino Cue refused since the offer is six times smaller than
what he is claiming.
Issue:
Whether or not Sea-Land’s liability for loss of cargos should be limited to the stipulations in the bill of
lading in case the cargos’ value is not declared in the bill.
Ruling:
Yes, Sea-Land’s liability for loss of cargos should be limited to the stipulations in the bill of lading in
case the cargos’ value is not declared in the bill.
The Civil Code provides:
ART. 1749 A stipulation that the common carrier's liability is limited to the value
of the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under
the circumstances, and has been fairly and freely agreed upon.
The Carriage of Goods by Sea Act (COGSA) reads in part:
Sec. 4 (5). Neither the carrier nor the ship shall in any event be or become liable for
any loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods not
shipped in packages, per customary freight unit, or the equivalent of that sum in other
currency, unless the nature and value of such goods have been declared by the shipper
before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of
lading, shall be prima facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no event
shall the carrier be liable for more than the amount of damage actually sustained.
The law (per the Civil Code and given more flesh by COGSA) clearly allows agreements limiting
carriers' liability for loss or damage which are freely and fairly entered into. In fact, even without the COGSA,
the stipulation would still be sustainable and valid on the basis of the Civil Code alone.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-
agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an
agreed valuation unless the shipper declares a higher value and inserts it into said contract or bill.
PHILIPPINES FIRST INSURANCE CO., INC. v. WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER
AND/OR UNKNOWN CHARTERER OF THE VESSEL M/S OFFSHORE MASTER AND SHANGHAI FAREAST
SHIP BUSINESS COMPANY
G.R. No. 165647. March 26, 2009TINGA, J.
Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the carrier in
relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject
to the responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. Section 3 (2)
thereof then states that among the carriers responsibilities are to properly and carefully load, handle, stow,
carry, keep, care for, and discharge the goods carried.
Facts:
Anhui Chemicals Import & Export Corporation loaded a shipment to be delivered to consignee, L.G.
Atkimson Import-Export. The shipment was loaded on board M/S Offshore Master, its owner or charterer is
unknown while the shipper is Shanghai Fareast Ship Business Company. Both are foreign firms doing
business in the Philippines, thru its local ship agent, Wallem Philippines Shipping, Inc. (Wallem). It was
disclosed during the discharge of the shipment from the carrier that 2,426 poly bags were in bad order and
condition. This is evidenced by the Turn Over Survey of Bad Order Cargoes and Request for Bad Order Survey
made by the arrastre operator, Asian Terminals, Inc.
When they delivered the shipment from the pier to the consignee’s warehouse, it was discovered that
the shipment had sustained unrecovered spillages and had been exposed and contaminated. Consignee L.G.
Atkimson filed a formal claim with Wallem for the value o the damaged shipment, to no avail. Thus, the
consignee filed a formal claim with petitioner Philippines First Insurance Co., Inc since the shipment was
insured. After its payment, it filed a claim to Wallem but there was no response, this constrained petitioner to
institute an action before the RTC.
Issue:
Whether respondents are liable under the COGSA.
Ruling:
Yes. Section 3 (2) of the COGSA states that among the carriers’ responsibilities are to properly and
carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under
the custody of the carrier. In the instant case, the damage or losses were incurred during the discharge of the
shipment while under the supervision of the carrier. Consequently, the carrier is liable for the damage or
losses caused to the shipment.
INSURANCE COMPANY OF NORTH AMERICA v. ASIAN TERMINALS, INC.

G.R. No. 180784. February 15, 2012.PERALTA, J.
It is noted that the term “carriage of goods” covers the period from the time when the goods are loaded
to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the
goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by the
COGSA.
Facts:
Macro-Lite Korea Corporation shipped to San Miguel Corporation one hundred eighty-five (185)
packages of electrolytic tin free steel, complete and in good order condition. The shipment was insured with
petitioner Insurance Company of North America against all risks. When the shipment was discharged at
theport of Manila, it was noted that seven (7) packages were damaged and in bad order. The shipment was
then turned over to the custody of respondent Asian Terminals, Inc. (ATI) for storage and safekeeping
pending its withdrawal by the consignee’s authorized customs broker, R.V. Marzan Brokerage Corp. Prior to
the last withdrawal of the shipment, a joint inspection was conducted and the examination report, showed
that an additional five (5) packages were found to be damaged and in bad order. Thus, consignee, San Miguel
Corporation, filed separate claims against Respondent ATI and petitioner Insurance for the damage to 11,200
sheets of electrolytic tin free steel.Petitioner Insurance, as insurer of the said cargo, paid the consignee for the
damage caused to the shipment. Thereafter, petitioner, formally demanded reparation against respondent.
The trial court dismissed the complaint on the ground that the petitioner’s claim was already barred
by the statute of limitations. It held that COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this
case, since the goods were shipped from a foreign port to the Philippines.
Petitioner contends that the one-year limitation period for bringing a suit in court under the COGSA
is not applicable to this case, because the prescriptive period applies only to the carrier and the ship. It argues
that respondent, which is engaged in warehousing, arrastre and stevedoring business, is not a carrier as
defined by the COGSA, because it is not engaged in the business of transportation of goods by sea in
international trade as a common carrier. Petitioner asserts that since the complaint was filed against
respondent arrastre operator only, without impleading the carrier, the prescriptive period under the COGSA
is not applicable to this case.
Issue:
Whether COGSA should apply.
Ruling:
No. COGSA does not mention that an arrastre operator may invoke the prescriptive period of one
year; hence, it does not cover the arrastre operator.
Concept of Loss or Damage
DOMINGO ANG v.AMERICAN STEAMSHIP AGENCIES, INC.

G.R. No. L-25047 March 18, 1967BENGZON, J.P., J.
As defined in Article 1189 of the New Civil Code and as applied to paragraph 4, Section 3(6) of the
Carriage of Goods by Sea Act, loss contemplates merely a situation where no delivery at all was made by the
shipper of the goods because the same had perished, gone out of commerce, or disappeared in such a way that
their existence is unknown or they cannot be recovered. It does not include a situation where there was indeed
delivery·but delivery to the wrong person, or a misdelivery. Nondelivery should be distinguished from misdelivery
Facts:
Yau Yue Commercial Bank Ltd. of Hongkong, referred to hereafter as Yau Yue, agreed to sell 140
packages of galvanized steel durzinc sheets to one Herminio G, Teves with American Steamship Agencies, Inc.
as the agent in the Philippines, under a shipping agreement. Upon receipt of the bill of lading, Yau Yue drew a
demand draft together with the bill of lading against Herminio G. Teves, through the Hongkong & Shanghai
Bank. Teves was notified of the arrival of the goods and was sent a demand draft for the payment of the
purchase price. Teves failed to pay the draft which prompted the bank to return the bill of lading and the
demand draft to Yau yue which later on endorsed the said bill ofl adding to Domingo Ang.
Despite non-payment Teves Teves succeeded in securing a “Permit To Deliver Imported Article” from
the carrier’s agent, which he presented to the Bureau of Customs which in turn released to him the articles
covered by the bill of lading. Subsequently, Domingo Ang claimed for the articles from American Steamship
Agencies, Inc., by presenting the indorsed bill of lading, but he was informed by the latter that it had delivered
the articles to Teves.
A complaint was filed by Ang against American Steamship for having allegedly wrongfully delivered
and/or converted the goods covered by the bill of lading. Defendant filed a motion to dismiss upon the
ground that plaintiff's cause of action has prescribed under the Carriage of Goods by Sea Act, Section 3(6),
paragraph 4, which provides: “In any event, the carrier and the ship shall be discharged from all liability in
respect to loss or damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered.”
Issue:
Whether or not there was loss.
Ruling:
No. As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods
by Sea Act, “loss” contemplates merely a situation where no delivery at all was made by the shipper of the
goods because the same had perished, gone out of commerce, or disappeared in such a way that their
existence is unknown or they cannot be recovered. It does not include a situation where there was indeed
delivery but delivery to the wrong person, or a misdelivery, as alleged in the complaint in this case.
MITSUI O.S.K. LINES LTD., represented by MAGSAYSAY AGENCIES, INC. v. COURT OF APPEALS and
LAVINE LOUNGEWEAR MFG. CORP.
G.R. No. 119571. March 11, 1998MENDOZA, J.
Whether an action for the value of goods which had been delivered to a party other than the consignee
is for "loss or damage" within the meaning of §3(6) of the COGSA. It was held that there was no loss because the
goods had simply been misdelivered. "Loss" refers to the deterioration or disappearance of goods.
Facts:
Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent,
Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc., with private
respondent Lavine Loungewear Manufacturing Corporation to transport goods of the latter from Manila to Le
Havre, France. Petitioner undertook to deliver the goods to France 28 days from initial loading. On July 24,
1991, petitioners vessel loaded private respondents container van for carriage at the said port of origin.
However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that
the shipment arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only half the
value of the said goods on the ground that they did not arrive in France until the off season in that
country. The remaining half was allegedly charged to the account of private respondent which in turn
demanded payment from petitioner through its agent.
Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under 3(6) of the
Carriage of Goods by Sea Act.
Issue:
Whether or not petitioner is liable for damages arising for its handling of goods as provided by 3(6)
of the COGSA.
Ruling:
NO. There is neither deterioration nor disappearance nor destruction of goods caused by the carrier's
breach of contract. Whatever reduction there may have been in the value of the goods is not due to their
deterioration or disappearance because they had been damaged in transit.
Said one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case
where the goods shipped were neither lost nor damaged in transit but were, on the contrary, delivered in
port to someone who claimed to be entitled thereto, the situation is different, and the special need for the
short period of limitation in cases of loss or damage caused by maritime perils does not obtain.
Conditions for filing of claim in case of loss or damage
Notice of Loss or Damage
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES,
INC. v. PHILIPPINE FIRST INSURANCE CO., INC.
G.R. No. 143133. June 5, 2002PANGANIBAN, J
Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on
the matter, the Carriage of Goods by Sea Act (COGSA)·which provides for a one-year period of limitation on
claims for loss of, or damage to, cargoes sustained during transit·may be applied suppletorily.
Facts:
CMC Trading A.G. shipped on board the M/V ‘Anangel Sky’ 242 coils of various Prime Cold Rolled
Steel sheets for transportation to Manila consigned to the Philippine Steel Trading Corporation. After
discharged four (4) coils were found in their damaged state to be unfit for the intended purpose, the
consignee Philippine Steel Trading Corporation declared the same as total loss. Shipping company refused to
submit to the consignee’s claim. Thus, the insurance company, Philippine First Insurance paid the loss buy
later on instituted a complaint for recovery of the amount paid by them. appellees imputed that the damage
and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils,
danger and accidents of the sea, or to insufficiency of packing thereof, or to the act or omission of the shipper
of the goods or their representatives.
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act
(COGSA), respondent should have filed its Notice of Loss within three days from delivery. They assert that the
cargo was discharged on July 31, 1990, but that respondent filed its Notice of Claim only on September 18,
1990.
Issue:
Whether or not the notice of loss was timely filed.
Ruling:
No. First, the above-cited provision of COGSA provides that the notice of claim need not be given if
the state of the goods, at the time of their receipt, has been the subject of a joint inspection or survey. As
stated earlier, prior to unloading the cargo, an Inspection Report as to the condition of the goods was
prepared and signed by representatives of both parties.
Second, as stated in the same provision, a failure to file a notice of claim within three days will not
bar recovery if it is nonetheless filed within one year. This one-year prescriptive period also applies to the
shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading.
In the present case, the cargo was discharged on July 31, 1990, while the Complaint was filed by
respondent on July 25, 1991, within the one-year prescriptive period.
WALLEM PHILIPPINES SHIPPING, INC. v. S.R. FARMS, INC.

G.R. No. 165647. March 26, 2009PERALTA, J.
Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days of delivery.
Admittedly, respondent did not comply with this provision. Under the same provision, however, a failure to file a
notice of claim within three days will not bar recovery if a suit is nonetheless filed within one year from delivery
of the goods or from the date when the goods should have been delivered.
Facts:
Continental Enterprises, Ltd. loaded on board the vessel M/V Hui Yang a shipment for transportation
and delivery to Manila with S.R. Farms as the consignee. The said shipment is said to weigh 1,100 metric ton.
The vessel is owned and operated by defendant Conti-Feed, with defendant Wallem Shipping Inc and Wallem
as its ship agent. On April 11, 1992, the said vessel, M/V Hui Yang arrived at the port of Manila but upon
discharge, a cargo check was made and it was shown that there was cargo shortage. The vessel chief officer
was immediately notified of the said short shipment by the cargo surveyor, who accordingly issued the
corresponding Certificate of Discharge dated April 15, 1992.
Petitioner then filed a Complaint for damages against Conti- Feed & Maritime Pvt. Ltd., a foreign
corporation doing business in the Philippines and the owner of M/V „Hui Yang; RCS Shipping Agencies, Inc.,
the ship agent of Conti-Feed; Ocean Terminal Services, Inc. (OTSI), the arrastre operator and the Cargo Trade
as the customs broker. On June 7, 1993, respondent filed an Amended Complaint impleading herein petitioner
as defendant. RTC rendered its Decisiondismissing the complaint however it was reversed by the CA.
Issue:
Whether the failure to file a notice of loss is fatal for the recovery of the petitioner.
Ruling:
Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days of
delivery. Admittedly, respondent did not comply with this provision.
Under the same provision, however, a failure to file a notice of claim within three days will not bar
recovery if a suit is nonetheless filed within one year from delivery of the goods or from the date when the
goods should have been delivered.
In the instant case, the Court is not persuaded by respondent’s claim that the complaint against
petitioner was timely filed. Respondent argues that the suit for damages was filed on March 11, 1993, which
is within one year from the time the vessel carrying the subject cargo arrived at the Port of Manila on April
11, 1993, or from the time the shipment was completely discharged from the vessel on April 15, 1992.
There is no dispute that the vessel carrying the shipment arrived at the Port of Manila on April 11,
1992 and that the cargo was completely discharged therefrom on April 15, 1992. However, respondent erred
in arguing that the complaint for damages, insofar as the petitioner is concerned, was filed on March 11, 1993.
As the records would show, petitioner was not impleaded as a defendant in the original complaint
filed on March 11, 1993. It was only on June 7, 1993 that the Amended Complaint, impleading petitioner as
defendant, was filed.
Respondent cannot argue that the filing of the Amended Complaint against petitioner should retroact
to the date of the filing of the original complaint. The settled rule is that the filing of an amended pleading
does not retroact to the date of the filing of the original; hence, the statute of limitation runs until the
submission of the amendment.
In the instant case, petitioner was only impleaded in the amended Complaint of June 7, 1993, or one
(1) year, one (1) month and twenty-three (23) days from April 15, 1992, the date when the subject cargo was
fully unloaded from the vessel. Hence, reckoned from April 15, 1992, the one-year prescriptive period had
already lapsed.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), vs. WESTWIND SHIPPING
CORPORATION and ASIAN TERMINALS, INC.
G.R. No. 181262 July 24, 2013 J. VILLARAMA, JR.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given, that fact shall
not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the
date when the goods should have been delivered.
Facts:
On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation (Universal
Motors) 219 packages containing 120 units of brand new Nissan Pickup Truck which was insured with
Philam against all risks under Marine Policy. The carrying vessel arrived at the port of Manila on April 20,
1995, and when the shipment was unloaded by the staff of ATI, it was found that one of the packages was in
bad order.
Thereafter, the cargoes were stored for temporary safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by the authorized broker of Universal Motors, and delivered
to the latter’s warehouse in Mandaluyong City. Upon the request of Universal Motors, a bad order survey was
conducted on the cargoes and it was found that one Frame Axle Sub without LWR was deeply dented on the
buffle plate while six Frame Assembly were deformed. On August 4, 1995, Universal Motors filed a formal
claim for damages against Westwind, ATI and the customs broker but because the demands remained
unheeded, the damages were paid by Philam. On January 18, 1996, Philam, as subrogee of Universal Motors,
filed a Complaint for damages against Westwind, ATI and customs broker before the RTC of Makati City. RTC
ruled in favor of Philam then on appeal, the CA affirmed holding that that Philam’s action for damages had not
prescribed notwithstanding the absence of a notice of claim.
Issue:
Whether the failure to file a notice of loss is fatal for the recovery of the petitioner.
Ruling:
No. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person
taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
S/S "Calayan Iris" arrived at the port of Manila on April 20, 1995, and the subject cargoes were
discharged to the custody of ATI the next day. The goods were then withdrawn from the CFS Warehouse on
May 11, 1995 and the last of the packages delivered to Universal Motors on May 17, 1995. Prior to this, the
latter filed a Request for Bad Order Survey on May 12,1995 following a joint inspection where it was
discovered that six pieces of Chassis Frame Assembly from two bundles were deformed and one Front Axle
Sub without Lower from a steel case was dented. Yet, it was not until August 4, 1995 that Universal Motors
filed a formal claim for damages against petitioner Westwind.
Even so, we have held in Insurance Company of North America v. Asian Terminals, Inc. that a request
for, and the result of a bad order examination, done within the reglementary period for furnishing notice of
loss or damage to the carrier or its agent, serves the purpose of a claim. A claim is required to be filed within
the reglementary period to afford the carrier or depositary reasonable opportunity and facilities to check the
validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction
and documents are still available. Here, Universal Motors filed a request for bad order survey on May 12,
1995, even before all the packages could be unloaded to its warehouse. Moreover, paragraph (6), Section 3 of
the COGSA clearly states that failure to comply with the notice requirement shall not affect or prejudice the
right of the shipper to bring suit within one year after delivery of the goods. Petitioner Philam, as subrogee of
Universal Motors, filed the Complaint for damages on January 18, 1996, just eight months after all the
packages were delivered to its possession on May 17, 1995. Evidently, petitioner Philam’s action against
petitioners Westwind and ATI was seasonably filed.
Period of Prescription
UNION CARBIDE PHILIPPINES, INC. (formerly National Carbon Philippines, Inc.) v.MANILA RAILROAD
CO., substituted by the PHILIPPINE NATIONAL RAILWAYS, MANILA PORT SERVICE and AMERICAN
STEAMSHIP AGENCIES, INC.
G.R. No.L-27798, June 15, 1977AQUINO, J.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered.
Facts:
On December 18, 1961 the vessel Daishin Maru arrived in Manila with a cargo of 1,000 bags of
synthetic resin consigned to General Base Metals, Inc. which later sold the cargo to Union Carbide Philippines,
Inc. On the following day, December 19, that cargo was delivered to the Manila Port Service in good order and
condition except for twenty- five bags which were in bad order.
On January 20 and February 6 and 8, 1962 eight hundred ninety-eight (898) bags of resin (out of the
1,000 bags) were delivered by the customs broker to the consignee. One hundred two bags were missing. The
contents of twenty-five bags were damaged or pilfered while they were in the custody of the arrastre
operator.
The consignee filed an admiralty case under the Sea Act against the carrier for the recovery of the
amount for the damaged bags and an arrastre case for the for the missing ones. The Trial Court dismissed the
complaint on the ground of prescription (1 yr) relying on the COGSA.
Issue:
Whether or not the right to file the action already prescribed.
Ruling:
Yes, Under the facts of this case, the court held that the one-year period was correctly reckoned by
the trial court from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets,
the cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year
period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was barred
by the statute of limitations.
DOMINGO ANG v.COMPANIA MARITIMA, MARITIME COMPANY OF THE PHILIPPINES and C.L. DIOKNO
G.R. No.L-30805 December 26, 1984AQUINO, J.
In the American Steamship Agencies cases, it was held that the action of Ang is based on misdelivery of
the cargo which should be distinguished from loss thereof. The one-year period provided for in section 3(6) of the
Carriage of Goods by Sea Act refers to loss of the cargo. What is applicable is the four-year period of prescription
for quasi-delicts prescribed in article 1146(2) of the Civil Code or ten years for violation of a written contract as
provided for in article 1144 (1) of the same Code. As Ang filed the action less than three years from the date of
the alleged misdelivery of the cargo, it has not yet prescribed.
Facts:
Domingo Ang on September 26, 1963, as the assignee of a bill of lading held by Yau Yue Commercial
Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the Philippines and C.L. Diokno.
Ang alleged that the defendants, by means of a permit to deliver imported articles, authorized the
delivery of the cargo to Teves who obtained delivery from the Bureau of Customs without the surrender of
the bill of lading and in violation of the terms thereof.
The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of action. As
already stated, the trial court on May 22, 1964 dismissed the complaint on the grounds of lack of cause of
action and prescription since the action was filed beyond the one-year period provided in the Carriage of
Goods by Sea Act.
Issue:
Whether the prescriptive period provided for by COGSA should apply
Ruling:
No. It was held that the action of Ang is based on misdelivery of the cargo which should be
distinguished from loss thereof. The one-year period provided for in section 3(6) of the Carriage of Goods by
Sea Act refers to loss of the cargo.
DOLE PHILIPPINES, INC. v. MARITIME COMPANY OF THE PHILIPPINES

G.R. No. L-61352, February 27, 1987, J. Narvasa
Making an extrajudicial written demand will not toll the running of the prescriptive period as provided
for under the COGSA to file a claim agains the carrier.
Facts:
The subject cargo of this case (machine parts) was discharged by Maritime in Dadiangas unto the
custody of DOLE on December 18, 1971. It was on May 4, 1972 when DOLE filed a claim for damages against
Maritime. On June 11, 1973, DOLE filed a complaint before the CFI of Manila against Maritime, embodying
three causes of action involving three separate and different shipments.
While the first two causes of action were dismissed because the parties had settled the claims
involved therein, the third cause of action was dismissed although it was not covered by the compromise.
With the dismissal of the latter, DOLE instituted this complaint on January 6, 1975. Maritime’s answer
contained the affirmative defense of prescription under the COGSA.
Issue:
Whether or not the extrajudicial demand by DOLE tolled the one year prescriptive period under the
COGSA.
Ruling:
No. The pertinent laws are as follows: Art. 1155 of the Civil Code provides that “the prescription of
actions is interrupted by the making of an extrajudicial written demand by the creditor” while Section 3,
paragraph 6 of the Carriage of Goods by Sea Act states that “the carrier and the ship shall be discharged from
all liability in respect of loss or damage, unless suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered…”
DOLE concedes that its action is subject to the one-year period of limitation prescribed under the
COGSA. It states since the provisions of the Civil Code are, by its express mandate, suppletory of the
deficiencies of the Code of Commerce and special laws in matters governed by the latter, and there being “a
patent deficiency” with respect to the tolling of the prescriptive period provided for in the
COGSA, prescription under said Act is subject to the provisions of Article 1155 of the Code on tolling. Because
DOLE's claim for loss or damage was made on May 4, 1972, it amounted to a written extrajudicial demand
which would toll or interrupt prescription.
In Yek Tong Lin Fire & Marine Insurance Co., Ltd. vs. American President Lines, Inc., the Supreme Court
rejected the same contention because such application would have the effect of extending the one year period
of prescription fixed in the law. It is desirable that matters affecting transportation of goods by sea be decided
in as short a time as possible. The application of Article 1155 of the Civil Code would unnecessarily extend the
period and permit delays in the settlement of questions affecting transportation, contrary to the clear intent
and purpose of the law.
LOADSTAR SHIPPING CO., INC. v. COURT OF APPEALS and THE MANILA INSURANCE CO., INC.
G.R. No. 131621, September 28, 1999, J. Davide, Jr.
The Carriage of Goods by Sea Act (COGSA) — which provides for a one-year period of limitation on
claims for loss of, or damage to, cargoes sustained during transit — may be applied suppletorily to the case at
bar. This one-year prescriptive period also applies to the insurer of the goods.
Facts:
Lawanit hardwood, tilewood and moldings owned by the consignee were insured by MIC while the
vessel M/V “Cherokee” owned by Loadstar was insured by Prudential Guarantee & Assurance, Inc.
(Prudential). The vessel, along with the goods, sank off Limawasa island when it was on its way from Manila
to Agusan Del Norte. When Loadstar ignored the claim of the consignee to pay for the loss of the shipment,
MIC paid P6,075,000 to the insured consignee.
In subrogating the consignee’s rights, MIC filed a complaint against Loadstar and Prudential.
Issues:
Whether or not MIC’s claim had already prescribed.
Ruling:
No. Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive
period on the matter, the Carriage of Goods by Sea Act (COGSA) — which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during transit — may be applied suppletorily
to the case at bar. This one-year prescriptive period also applies to the insurer of the goods. In this case, the
period for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year
period is null and void; it must, accordingly, be struck down.
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT v. COURT
OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and THE CHARTER INSURANCE
CORPORATION
G.R. 124050, June 19, 1997, J. Puno
Section 3(6) of the COGSA states that the carrier and the ship shall be discharged from all liability for
loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they
should have been delivered. Here, only the carrier's liability is extinguished if no suit is brought within one year.
The liability of the insurer remains because its liability is based not on the contract of carriage but on the
contract of insurance.
Facts:
HGSD contracted Mayer to manufacture and supply various steel pipes which are to be transported
to Hong Kong. Prior to the shipping, Mayer insured the products against all risks with South Sea and CIC.
When the goods reached Hong Kong, it was discovered that a substantial portion thereof was damaged.
Petitioners filed an action against private respondents.
The CA dismissed the complaint on the ground of prescription. It held that the action is barred under
Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years
from the time the goods were unloaded from the vessel.
Issue:
Whether or not the action is barred by prescription.
Ruling:
No. A close reading of the law reveals that the COGSA governs the relationship between the carrier on
the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations
of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper
and the insurer. The latter case is governed by the Insurance Code.
The insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year
period provided in the law. But it does not mean that the shipper may no longer file a claim against the
insurer because the basis of the insurer's liability is the insurance contract.
MITSUI O.S.K. LINES LTD. v. COURT OF APPEALS and LAVINE LOUNGEWEAR MFG. CORP.
G.R. 119571, March 11, 1998, J. Mendoza
The one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case
where the goods shipped were neither lost nor damaged in transit but were, on the contrary, delivered in port to
someone who claimed to be entitled thereto, the situation is different, and the special need for the short period of
limitation in cases of loss or damage caused by maritime perils does not obtain.
Facts:
Mitsui entered into a contract of carriage with LLMC to transport the goods of the latter from Manila
to France for 28 days from its loading. When the goods were not transshipped immediately in Taiwan, it took
more or less 3 months for the shipment to arrive to its destination. The consignee allegedly paid ½ of the
value of the said goods on the ground that it did not arrive during the France’s “off season”. The half was
allegedly charged to the account of LLMC, which in turn demanded payment from Mitsui. When Mitsui denied
LLMC’s claim, the latter filed a case before the RTC. Mitsui’s MD alleged that the claim against it had
prescribed under the Carriage of Goods by Sea Act (COGSA). The RTC ruled in LLMC’s favor. On petition for
certiorari, the CA affirmed.
Issue:
Whether or not the action was barred by prescription.
Ruling:
No. "Loss" refers to the deterioration or disappearance of goods. As defined in the Civil Code and as
applied to Section 3(6), paragraph 4 of the COGSA, "loss" contemplates merely a situation where no delivery
at all was made by the shipper of the goods because the same had perished, gone out of commerce, or
disappeared in such a way that their existence is unknown or they cannot be recovered.
In the case at bar, there is neither deterioration nor disappearance nor destruction of goods caused
by the carrier's breach of contract. Whatever reduction there may have been in the value of the goods is not
due to their deterioration or disappearance because they had been damaged in transit.Indeed, what is in issue
in this petition is not the liability of petitioner for its handling of goods as provided by the COGSA, but its
liability under its contract of carriage with LLMC as covered by laws of more general application. The
question is not the particular sense of "damages" as it refers to the physical loss or damage of a shipper's
goods but Mitsui’s potential liability for the damages it has caused in the general sense and, as such, the
matter is governed by the Civil Code, the Code of Commerce and COGSA, for the breach of its contract of
carriage with LLMC.
The SC concludes by holding that, as the suit below is not for "loss or damage" to goods contemplated
in the COGSA, the question of prescription of action is governed by Article 1144of the Civil Code which
provides for a prescriptive period of ten years.
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC. v. NYK-FIL JAPAN SHIPPING CORP., LEP
PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP.,
ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and
SEABOARD-EASTERN INSURANCE CO., INC.
G.R. 171468, August 24, 2011, J. Abad
A close reading of the law reveals that the COGSA governs the relationship between the carrier on the one
hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the
carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and
the insurer. The latter case is governed by the Insurance Code.
Facts:
New World bought three emergency generator sets from DMT Corp. (DMT) through its agent
Advatech Industries, Inc. DMT transferred the sets by truck to LEP Profit International, Inc. (LEP Profit). By
train, it went to California, where it was loaded on S/S California Luna V59, a vessel owned by NYK, for
delivery to New World in Manila. NYK’s bill of lading declared that it received the goods in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72, another vessel of its
own. On its journey to Manila, the vessel encountered typhoon Kadiang. The vessel’s captain filed a sea
protest with respect to the loss and damage that the goods on board suffered upon arrival in Manila.
When New World sent a formal claim of proceeds to Seaboard, its insurer, the latter required New
World to submit an itemized list of the damaged units, parts and accessories of the goods with its
corresponding values. New World did not submit a list which amounted to Seaboard’s refusal to pay. New
World filed an action for specific performance and damages against all the respondents before the RTC of
Makati. The RTC absolved the respondents from liability, with the exception of NYK, since it was found that
the generator sets were damaged under its vessel’s care. However, it ruled that New World’s claim was filed
beyond the 1 year period under the Carriage of Goods by Sea Act (COGSA).
Issues:
Whether or not New World’s complaint against NYK is barred by prescription.
Ruling:
Yes. Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all
liability in case of loss or damage, unless the suit is brought within one year after delivery of the goods or the
date when the goods should have been delivered.
Seaboard against whom a formal claim was pending should not have remained obstinate in refusing
to process that claim. It should have examined the same, found it unsubstantiated by documents if that were
the case, and formally rejected it. That would have at least given petitioner New World a clear signal that it
needed to promptly file its suit directly against NYK and the others.
Limitation of Liability
EASTERN SHIPPING LINES, INC. v. INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE
& SURETY CORPORATION
G.R. L-69044, May 29, 1987, J. Melencio-Herrera
When what would ordinarily be considered packages are shipped in a container supplied by the carrier
and the number of such units is disclosed in the shipping documents, each of those units and not the container
constitutes the "package" referred to in liability limitation provision of the COGSA
Facts:
The M/S Asiatica, a vessel operated by ESLI, loaded cargo for transportation to Manila, 5000 pieces of
calorized lance pipes in 28 packages consigned to Philippine Blooming Mills Co., Inc. and 7 cases of spare
parts consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk with
Development Insurance and Surety Corporation (DISC). The same vessel took on board 128 cartons of
garment fabrics and accessories in 2 containers consigned to Mariveles Apparel Corporation and 2 cases of
surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were
insured by Nisshin Fire & Marine Insurance Co. (Nisshin) and the 2 cases by Dowa Fire & Marine Insurance
Co. (Dowa). During the voyage, the vessel caught fire and sank, resulting in the total loss of ship and cargo.
The respective insurers paid the corresponding marine insurance values to the consignees concerned
and were subrogated unto the rights of the latter as the insured. DISC, Nisshin and Dowa filed suits against
ESLI for the recovery of the amounts it had paid before the CFI of Manila. ESLI denied liability on the ground
that the loss was to due to an extraordinary fortuitous event. CFI held in the favor DISC, Nisshin and Dowa.
The IAC affirmed the rulings with modification: decreasing the amount recoverable by DOWA because of the
$500 per package limitation under the COGSA.
Issue:
Whether or not the amount recoverable by DOWA is limited to $500 per package only.
Ruling:
No. Considering that the Bill of Lading between ESLI and the consignee clearly disclosed the contents
of the containers, the number of cartons or units, as well as the nature of the goods, and applying the ruling in
landmark cases, it is clear that the 128 cartons, not the 2 containers should be considered as the shipping unit
subject to the $500 limitation of liability. True, the evidence does not disclose whether the containers
involved herein were carrier-furnished or not. Usually, however, containers are provided by the carrier. In
this case, the probability is that they were so furnished for ESLI was at liberty to pack and carry the goods in
containers if they were not so packed.
BELGIAN OVERSEAS CHARTERING AND SHIPPING N. v. and JARDINE DAVIES TRANSPORT SERVICES,
INC. vs. PHILIPPINE FIRST INSURANCE CO., INC.
G.R. 143133, June 5, 2002, J. Panganiban
A stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss or
destruction of a cargo -- unless the shipper or owner declares a greater value-- is sanctioned by law.There are
two conditions to be satisfied: (1) the contract is reasonable and just under the circumstances, and (2) it has
been fairly and freely agreed upon by the parties.The rationale for this rule is to bind the shippers by their
agreement to the value (maximum valuation) of their goods.
Facts:
CMC shipped on board the M/V 'Anangel Sky' at Hamburg, Germany 242 coils of various Prime Cold
Rolled Steel sheets for transportation to Manila consigned to Philippine Steel Trading Corporation (PSTC).
The vessel arrived at the port of Manila and, within the subsequent days, discharged the subject cargo. 4 coils
were found to be in bad order. Finding the damaged coils to be unfit for their intended purpose, PSTC
declared the same as total loss.
Despite receipt of a formal demand, Belgian Overseas Chatering and Shipping and Jardin Davies
Transport Services, Inc. (common carriers) refused to submit to the PTSC’s claim. Consequently, PTSC’s
insurer, PFIC, paid PTSC and was subrogated to the consignee's rights and causes of action against the
carriers. Subsequently, PFIC instituted this complaint for recovery of the amount it paid to the consignee as
insured. Impugning the suit against them, the carriers imputed that the damage and/or loss was due to pre-
shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and accidents of the
sea, or to insufficiency of packing thereof, or to the act or omission of the shipper of the goods or their
representatives. In addition thereto, they argued that their liability, if there be any, should not exceed the
limitations of liability provided for in the bill of lading and other pertinent laws.
The CA opined that the common carriers failed to overcome the presumption of negligence imposed
upon them. As to the extent of their liability, the appellate court held that the package limitation under the
COGSA was inapplicable because a higher valuation of the cargo was declared by the shipper.
Issue:
Whether or not the package limitation of liability is applicable.
Ruling:
Yes. A bill of lading serves two functions. It is a receipt for the goods shipped and a contract by which
three parties -- namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities and
assume stipulated obligations.In a nutshell, the acceptance of the bill of lading by the shipper and the
consignee, with full knowledge of its contents, gives rise to the presumption that it constituted a perfected
and binding contract.
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a
fixed amount per package. In all matters not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and special laws.Thus, the COGSA, which is
suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory provision
limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading.
The provisions on limited liability are as much a part of the bill of lading as though physically in it and as
though placed there by agreement of the parties.
In this case, there was no stipulation in the Bill of Lading limiting the carrier's liability. Neither did
the shipper declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of
the words "L/C No. 90/02447”, cannot be the basis for the carriers' liability. First, a notation in the Bill of
Lading which indicated the amount of the Letter of Credit obtained by the shipper for the importation of steel
sheets did not effect a declaration of the value of the goods as required by the bill. That notation was made
only for the convenience of the shipper and the bank processing the Letter of Credit. Second, a bill of lading is
separate from the Other Letter of Credit arrangements. In the light of the foregoing, the carriers' liability
should be computed based on US$500 per package and not on the per metric ton price declared in the Letter
of Credit.
PHILAM INSURANCE COMPANY, INC. v. HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES
SHIPPING, INC.
G.R. 187701, July 23, 2014, J. Reyes
The value of the goods which the carrier must pay in cases if loss or misplacement shall be determined
in accordance with that declared in the bill of lading, the shipper not being allowed to present proof that among
the goods declared therein there were articles of greater value and money.” In case, however, of the shipper’s
failure to declare the value of the goods in the bill of lading the carrier nor the ship shall in any event be or
become liable for any loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package.
Facts:
Novartis Consumer Health Philippines, Inc. (Novartis) imported from Jinsuk Trading Co. Ltd., (Jinsuk)
in South Korea, 19 pallets of 200 rolls of laminated plastic packaging material.In order to ship the goods to the
Philippines, Jinsuk engaged the services of Protop Shipping Corporation (Protop), a freight forwarder
likewise based in South Korea, to forward the goods to their consignee. The cargo was on freight prepaid
basis and on "shipper’s load and count". Sagawa Express Phils., Inc., (Sagawa) is designated as the entity in
the Philippines which will obtain the delivery contract.
Protop shipped the cargo through Dongnama Shipping Co. Ltd. (Dongnama), which in turn loaded the
same on M/V Heung-A Bangkok V-019 owned and operated by Heung-A Shipping Corporation, (Heung-A), a
Korean corporation, pursuant to a ‘slot charter agreement’. Wallem Philippines Shipping, Inc. (Wallem) is the
ship agent of Heung-A in the Philippines. Novartis insured the shipment with Philam Insurance Company, Inc.
(Philam) under an All Risk Insurance. The vessel arrived at the port of Manila and the subject shipment was
discharged without exception into the possession, custody and care of Asian Terminals, Inc. (ATI) as the
customs arrastre operator.The shipment was thereafter withdrawn by Novartis’ appointed broker. Inspection
procedures found the container van locked with its load intact. After opening the same, it was discovered that
the boxes of the shipment were damaged.
Issue:
Whether or not Heung-A’s liability can be limited to US$500 per package.
Ruling:
Yes. Under Article 1753 of the Civil Code, “the law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their loss, destruction or deterioration.” Since
the subject shipment was being transported from South Korea to the Philippines, the Civil Code provisions
shall apply. In all mattersnot regulated by the Civil Code, the rights and obligations of common carriers shall
be governed by the Code of Commerce and by special laws, such as the COGSA.
While the Civil Code contains provisions making the common carrier liable for loss or damage to the
goods transported, it failed to outline the manner of determining the amount of suchliability. Article372 of the
Code of Commerce fills in this gap, thus, “the value of the goods which the carrier must pay in cases if loss or
misplacement shall be determined in accordance with that declared in the bill of lading, the shipper not being
allowed to present proof that among the goods declared therein there were articles of greater value and
money.” In case, however, of the shipper’s failure to declare the value of the goods in the bill of lading, Section
4, paragraph 5 of the COGSA provides that “neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding
$500 per package lawful money of the United States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading shall be prima facie evidence, but shall be conclusive on the carrier.”
Hence, when there is a loss or damage to goods covered by contracts of carriage from a foreign port
to a Philippine port and in the absence a shipper’s declaration of the value of the goods in the bill of lading, as
in the present case, the COGSA shall apply.
AIR TRANSPORTATION
The nature of an airline’s contract of carriage
BRITISH AIRWAYS v. COURT OF APPEALS, GOP MAHTANI, AND PHILIPPINE AIRLINES

G.R. No. 121824, January 29, 1998, J. Romero
The nature of an airline's contract of carriage partakes of two types, namely: a contract to deliver a
cargo or merchandise to its destination and a contract to transport passengers to their destination. A business
intended to serve the traveling public primarily, it is imbued with public interest, hence, the law governing
common carriers imposes an exacting standard. Neglect or malfeasance by the carrier's employees could
predictably furnish bases for an action for damages.
When there is failure to declare a higher valuation of the amount of the luggage, the principle of limited
liability would apply. However, benefits of limited liability are subject to waiver such as when the air carrier
failed to raise timely objections during the trial when questions and answers regarding the actual claims and
damages sustained by the passenger were asked. The failure of BA to object to the testimony regarding the
actual claims, amounted to a waiver and therefore, the limited liability rule would not apply.
Facts:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India and purchased his ticket
from British Airways (BA). Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight
to Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board
BA. Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage
containing his clothings and personal effects. Unfortunately, when Mahtani arrived in Bombay he discovered
that his luggage was missing and that upon inquiry from the BA representatives, he was told that the same
might have been diverted to London. Back in the Philippines, Mahtani filed his complaint for damages and
attorney’s fees against BA and Mr. Gumar before the trial court.
Issue:
Whether or not British Airways may be held liable for damages.
Ruling:
Yes. It is needful to state that the nature of an airline's contract of carriage partakes of two types,
namely: a contract to deliver a cargo or merchandise to its destination and a contract to transport passengers
to their destination. A business intended to serve the traveling public primarily, it is imbued with public
interest, hence, the law governing common carriers imposes an exacting standard. Neglect or malfeasance by
the carrier's employees could predictably furnish bases for an action for damages. In the case at bar, it is clear
that there is a neglect or malfeasance of duty. Therefore damages may be recovered.
As to the amount of damages that may be recovered, it must be remembered that when there is
failure to declare a higher valuation of the amount of the luggage, the principle of limited liability would
apply. But, benefits of limited liability are subject to waiver such as when the air carrier failed to raise timely
objections during the trial when questions and answers regarding the actual claims and damages sustained
by the passenger were asked. The failure of BA to object to the testimony regarding the actual claims
amounted to a waiver and therefore, the limited liability rule would not apply. The claimant is therefore
entitled to the exact amount alleged in the complaint for damages against British Airways.
COLLIN A. MORRIS AND THOMAS P. WHITTIER, V. COURT OF APPEALS (TENTH DIVISION) AND
SCANDINAVIAN AIRLINES SYSTEM
G.R. No. 127957, February 21, 2001, J. Pardo
The contract of air carriage generates a relation attended with a public duty. Neglect or malfeasance of
the carrier's employees naturally could give ground for an action for damages. However, for having arrived at
the airport after the closure of the flight manifest, respondent's employee could not be faulted for not
entertaining petitioners' tickets and travel documents for processing, as the checking in of passengers was
finished. There was no fraud or bad faith as would justify the court's award of moral damages.
Facts:
Petitioners Collin A. Morris and Thomas P. Whittier were booked in as first class passengers in
Scandinavian Airlines System (SAS) Manila-Tokyo flight. They then proceeded to the SAS check-in counter
and presented their tickets, passports, immigration cards and travel documents. After about 15 minutes,
petitioners noticed that their travel documents were not being processed at the check-in counter. They were
informed that there were no more seats on the plane for which reason they could not be accommodated on
the flight. Respondent claimed that petitioners were denied boarding because of their late arrival for check-in
at the international airport, since they checked-in at 3:10 in the afternoon and the flight was scheduled at
3:50 in the afternoon.
Issue:
Whether or not the petitioners are entitled to damages since they were wrongfully and in bad faith
bumped off.
Ruling:
No. A contract to transport passengers is quite different in kind and degree from any other
contractual relations, and this is because of the relation, which an air carrier sustains with the public. Its
business is mainly with the travelling public. The contract of air carriage generates a relation attended with a
public duty. Neglect or malfeasance of the carrier's employees naturally could give ground for an action for
damages. In the instant case, assuming arguendo that breach of contract of carriage may be attributed to
respondent, petitioners' travails were directly traceable to their failure to check-in on time, which led to
respondent's refusal to accommodate them on the flight. For having arrived at the airport after the closure of
the flight manifest, respondent's employee could not be faulted for not entertaining petitioners' tickets and
travel documents for processing, as the checking in of passengers for SAS Flight SK 893 was finished. There
was no fraud or bad faith as would justify the court's award of moral damages.
Facts revealed that they were not allowed to board the plane due to their failure to check-in on time.
Petitioner Morris admitted that they were at the check-in counter at around 3:10, exactly the same time that
the flight manifest was closed, but still too late to be accommodated on the plane. Respondent's supervisor
testified that he met petitioners at about 3:20 in the afternoon after receiving a radio call from the ground
staff regarding petitioners' complaints. Clearly, petitioners did not arrive on time for check-in.
Cases of Liability of Air Carrier
PHILIPPINE AIRLINES, INC. V. JAIME M. RAMOS, NILDA RAMOS, ERLINDA ILANO, MILAGROS ILANO,
DANIEL ILANO AND FELIPA JAVALERA.
G.R. No. 92740, March 23, 1992, J. Medialdea
When the private respondents purchased their tickets, they were instantaneously bound by the
conditions of the contract of carriage particularly the check-in time requirement. The terms of the contract are
clear. Their failure to come on time for check-in should not militate against PAL. Their non-accommodation on
that flight was the result of their own action or inaction and the ensuing cancellation of their tickets by PAL is
only proper.
Facts:
Respondents held confirmed tickets for PAL from Naga City to Manila scheduled to depart for Manila
at 4:25 p.m. Among the conditions included in their is the requirement to arrive in the check-in
counter at least one hour before PUBLISHED departure time of your flight, and that the accommodation shall
be forfeited in favor of waitlisted passengers if one fails to check-in at least 30 minutes before published
departure time. Respondents claim that they went to the check-in counter of the Naga branch at least one (1)
hour before the published departure time but no one was at the counter until 30 minutes before departure,
but upon checking-in and presentation of their tickets to the employee/clerk who showed up, their tickets
were cancelled and the seats awarded to chance passengers. RTC rendered judgment finding PAL liable for
breach of contract of carriage in bumping-off the respondents.
Issue:
Whether or not PAL is liable for breach of contract of carriage.
Ruling:
No. It is an admitted fact that the private respondents knew of the required check-in time for
passengers. The time requirement is prominently printed as one of the conditions of carriage on their tickets,
i.e., that the airport passenger should check-in at least one hour before published departure time of his flight
and PAL shall consider his accommodation forfeited in favor of waitlisted passengers if he fails to check-in at
least 30 minutes. While the said condition has always been applied strictly and without exception, the station
manager, however, may exercise his discretion to allow passengers who checked-in late to board provided
the flight is not fully booked and seats are available. Unfortunately, the flight from Naga to Manila was fully
booked that day.
It is likewise improbable that not a single PAL personnel was in attendance at the counter when the
check-in counter was supposed to be opened at 3:25 p.m. It must be remembered that the morning flight to
Manila was cancelled and hence, it is not farfetched to believe that the PAL personnel then have their hands
full in dealing with the passengers of the morning flight who became waitlisted passengers.
When the private respondents purchased their tickets, they were instantaneously bound by the
conditions of the contract of carriage particularly the check-in time requirement. The terms of the contract
are clear. Their failure to come on time for check-in should not militate against PAL. Their non-
accommodation on that flight was the result of their own action or inaction and the ensuing cancellation of
their tickets by PAL is only proper.
LOPE SARREAL, SR. v. JAPAN AIR LINES CO., LTD., AND HON. INTERMEDIATE APPELLATE COURT.
G.R. No. 75308, March 23, 1992, J. Gutierrez, Jr.
Petitioner ought to know that it was still necessary to verify first from Thai International if they would
honor the indorsement of his JAL ticket or confirm with the airline if he had a seat in the flight. It is standard
procedure for any passenger with a two-day stop over in a foreign city to confirm the validity of his ticket and
the availability of a seat on his next flight out of that city. Unfortunately, the petitioner failed to take these
standard precautions. JAL can not now be faulted for the petitioner's omission or negligence.
Facts:
On September 1979, petitioner purchased in Bangkok from the private respondent Japan Air Lines
(JAL) a ticket, having various foreign destinations from Bangkok and back to Bangkok. On June 23, 1980,
while he was in Los Angeles, USA he flew Tokyo. At the Narita Airport Office, the petitioner inquired if there
was a JAL flight from Bangkok to Manila on July 2, 1980. The JAL lady employee looked into her schedule
book, put a stamp on petitioner's ticket, and told him not to worry because she has endorsed his JAL ticket to
Thai International leaving Bangkok on July 2, 1980 for Manila. Relying on the assurance of the lady employee,
the petitioner then proceeded to Bangkok. However, when the petitioner was about to board the said Thai
International, he was not allowed to board the said plane although it had available seats because he was told
that his ticket was not endorseable. Petitioner filed action for damages with against private respondent JAL
premised on the breach of contract of carriage.
Issue:
Whether or not JAL is liable for breach of contract of carriage.
Ruling:
No. The assurance made by the lady employee to the petitioner was merely the latter's chances of
getting a seat in Thai International flight from Bangkok to Manila considering that from the data gathered by
said lady employee, Thai International on the average runs about half full on its flight from Bangkok to
Manila. There was no assurance from the lady employee nor from Thai International that the petitioner's
ticket would be honored by the airline. The stub that the lady employee put on the petitioner's ticket showed
among other coded items, under the column "status" the letters "RQ" - which was understood to mean
"Request". Clearly, this does not mean a confirmation but only a request. JAL Traffic Supervisor explained that
it would have been different if what was written on the stub were the letters "ok" in which case the petitioner
would have been assured of a seat on said flight. But in this case, the petitioner was more of a wait-listed
passenger than a regularly booked passenger.
The petitioner ought to know that it was still necessary to verify first from Thai International if they
would honor the indorsement of his JAL ticket or confirm with the airline if he had a seat in the flight. It is
standard procedure for any passenger with a two day stop over in a foreign city to confirm the validity of his
ticket and the availability of a seat on his next flight out of that city. Unfortunately, the petitioner failed to take
these standard precautions. JAL can not now be faulted for the petitioner's omission or negligence.
PAN AMERICAN WORLD AIRWAYS, INC. V. INTERMEDIATE APPELLATE COURT, AND EDMUNDO P.
ONGSIAKO
G.R. No. 68988, June 21, 1990, J. Narvasa
It is not a valid excuse on its part to claim that private respondent checked in at the last minute and that
there was insufficient time to load his bag in the plane. Accepting last minute passengers and their baggage with
no definite assurance that the carrier can comply with its obligation due to lack of time amounts to negligence so
gross and reckless as to amount to malice or bad faith.
Facts:
Private respondent Edmundo Ongsiako, with one piece of checked-in luggage, was a paying
passenger on the Pan American (PAN AM) that left Manila for Honolulu, Hawaii. Upon arriving
at Honolulu, Ongsiako discovered that his luggage was not carried on board, and it was left at PAN AM's
airport office in Manila where it was found a week later. A PAN AM employee in Honolulu, instead of helping
him search for his bag, arrogantly threatened to ‘bump him off’ in Honolulu should he persist in looking for
his bag.
Issue:
Whether or not PAN AM is liable for moral damages in favor of private respondent.
Ruling:
Yes. There is sufficient evidence of gross and reckless negligence amounting to bad faith on the part
of PAN AM. If PAN AM. was not sure that it could transport private respondent and his luggage to Los
Angeles, it should not have accepted him who was a waitlisted passenger. It is not a valid excuse on its part to
claim that private respondent checked in at the last minute and that there was insufficient time to load his
bag in the plane. In fact, that makes the position of PAN AM even more untenable, because in accepting and
holding on to private respondent as its passenger, probably to fill in cancelled bookings, although it knew or
must have known that the bag of plaintiff might not be loaded on time, it was guilty of conduct amounting to
bad faith. Accepting last minute passengers and their baggage with no definite assurance that the carrier can
comply with its obligation due to lack of time amounts to negligence so gross and reckless as to amount to
malice or bad faith.
In any event, even accepting PAN AM's version that he was not shouted at by a PAN AM employee, it
is clear that none of the PAN AM employees exerted the least effort to assist Ongsiako in his predicament,
despite his appeal for help; that not one of them even deigned to look at Ongsiako's baggage tag, or listen to
his problem, or give assurances that something would be done about his difficulties, or otherwise show any
sign of sympathy or commiseration; that instead, they looked at their watches -- an impolite and dismaying
gesture of impatience, to be sure, considering the circumstances -- and told him he could not be helped
because there were other people waiting for their turn -- to be served, of course, like Ongsiako, as they had a
right to expect as paying passengers -- and that it was best if he just went to his plane so as not to miss his
flight. Surely, these acts of callous indifference to the plight of a person in a foreign land could not be less
distressing, depressing or disheartening to the latter, or judged less harshly, simply because not attended by
any shouted remarks.
THE WARSAW CONVENTION
Applicability
PHILIPPINE AIRLINES, INC. V . HON. ADRIANO SAVILLO, PRESIDING JUDGE OF RTC BRANCH 30 , ILOILO
CITY, AND SIMPLICIO GRIÑO
G.R. No. 149547, July 04, 2008, J. Chico-Nazario
The Warsaw Convention applies to "all international transportation of persons, baggage or goods
performed by any aircraft for hire." The cardinal purpose of the Warsaw Convention is to provide uniformity of
rules governing claims arising from international air travel; thus, it precludes a passenger from maintaining an
action for personal injury damages under local law when his or her claim does not satisfy the conditions of
liability under the Convention. Article 24 excludes other remedies by further providing that "(1) in the cases
covered by articles 18 and 19, any action for damages, however founded, can only be brought subject to the
conditions and limits set out in this convention." Therefore, a claim covered by the Warsaw Convention can no
longer be recovered under local law, if the statute of limitations of two years has already lapsed.
Facts:
Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf Tournament
held in Jakarta, Indonesia. Private respondent and his companions were made to understand by PAL that its
plane would take them from Manila to Singapore, while Singapore Airlines would take them from Singapore
to Jakarta. Upon their arrival, they proceeded to the Singapore Airlines office to check-in for their flight to
Jakarta. Singapore Airlines rejected the tickets of private respondent and his group because they were not
endorsed by PAL. It was explained to private respondent and his group that if Singapore Airlines honored the
tickets without PAL's endorsement, PAL would not pay Singapore Airlines for their passage. After the series
of nerve-wracking experiences, private respondent became ill and was unable to participate in the
tournament. Private respondent sent a demand letter to both PAL and Singapore Airlines in 1994 and he filed
a complaint in 1997. PAL argued that the Warsaw Convention, particularly Article 29 thereof, governed this
case, as it provides that any claim for damages in connection with the international transportation of persons
is subject to the prescription period of two years. Since the Complaint was filed more than three years after
PAL received the demand letter, it was already barred by prescription.
Issue:
Whether or not the Warsaw Convention is applicable in this case so as to bar recovery of damages.
Ruling:
No. The Warsaw Convention applies to "all international transportation of persons, baggage or goods
performed by any aircraft for hire." The cardinal purpose of the Warsaw Convention is to provide uniformity
of rules governing claims arising from international air travel; thus, it precludes a passenger from
maintaining an action for personal injury damages under local law when his or her claim does not satisfy the
conditions of liability under the Convention. Article 24 excludes other remedies by further providing that "(1)
in the cases covered by articles 18 and 19, any action for damages, however founded, can only be brought
subject to the conditions and limits set out in this convention." Therefore, a claim covered by the Warsaw
Convention can no longer be recovered under local law, if the statute of limitations of two years has already
lapsed.
Singapore Airlines barred private respondent from boarding the Singapore Airlines flight because
PAL allegedly failed to endorse the tickets of private respondent and his companions, despite PAL's
assurances to respondent that Singapore Airlines had already confirmed their passage. An action based on
these allegations will not fall under the Warsaw Convention, since the purported negligence on the part of
PAL did not occur during the performance of the contract of carriage but days before the scheduled flight.
Thus, the present action cannot be dismissed based on the statute of limitations provided under Article 29 of
the Warsaw Convention.
Had the present case merely consisted of claims incidental to the airlines' delay in transporting their
passengers, the private respondent's Complaint would have been time-barred under Article 29 of the Warsaw
Convention. However, the present case involves a special species of injury resulting from the failure of PAL
and/or Singapore Airlines to transport private respondent from Singapore to Jakarta - the profound distress,
fear, anxiety and humiliation that private respondent experienced when, despite PAL's earlier assurance that
Singapore Airlines confirmed his passage, he was prevented from boarding the plane and he faced the
daunting possibility that he would be stranded in Singapore Airport because the PAL office was already
closed. These claims are covered by the Civil Code provisions on tort, and not within the purview of the
Warsaw Convention.
Non-applicability
KONINKLIJKE LUCHTVAART MAATSCHAPPIJ N.V., OTHERWISE KNOWN AS KLM ROYAL DUTCH

AIRLINES V. THE HONORABLE COURT OF APPEALS, CONSUELO T. MENDOZA AND RUFINO T. MENDOZA
G. R. No. L-31150, July 22, 1975, J. Castro
Article 30 of the Warsaw Convention has no application in the case at bar which involves, not an
accident or delay, but a willful misconduct on the part of the KLM's agent, the Aer Lingus. Article 25 of the same
Convention provides that the carrier shall not be entitled to avail himself of the provisions of this convention
which exclude or limit his liability, if the damage is caused by his willful misconduct or by such default on his part
as, in accordance with the law of the court to which the case is submitted, is considered to be equivalent to willful
misconduct
Facts:
Respondents were planning a world tour which would require them to fly on different airlines. The
KLM Royal Dutch Airlines (KLM) secured seat reservations for the respondents and their two companions
from the carriers which would ferry them throughout their trip, with the exception of Aer Lingus. When the
respondents left the Philippines, they were issued KLM tickets for their entire trip. However, their coupon for
the Aer Lingus portion was marked "RQ" which meant "on request". After sightseeing in American and
European cities, the respondents arrived in Germany. They went to a KLM office there and obtained a
confirmation from Aer Lingus of seat reservations on a flight. After meandering in London, Paris and Lisbon,
they finally took wing to Barcelona for their trip to Lourdes, France. The respondents then went to the
Barcelona airport to take their plane. At the airport, the manager of Aer Lingus directed the respondents to
check in. They did so as instructed and were accepted for passage. However, although their daughter and
niece were allowed to take the plane, the respondents were off-loaded on orders of the Aer Lingus manager
who brusquely shoved them aside with the aid of a policeman and who shouted at them, "Conos! Ignorantes
Filipinos!"
The respondents, referring to KLM as the principal of Aer Lingus, filed a complaint for damages with
the Court of First Instance of Manila arising from breach of contract of carriage and for the humiliating
treatment received by them at the hands of the Aer Lingus manager in Barcelona. KLM contended that as
provided in the Article 30 of Warsaw Convention, the passenger or his representative can take action only
against the carrier who performed the transportation during which the accident or the delay occurred, save in
the case where, by express agreement, the first carrier has assumed liability for the whole journey. It claimed
that all that the KLM did after the respondents completed their arrangements with the travel agency was to
request for seat reservations among the airlines called for by the itinerary submitted to the KLM and to issue
tickets for the entire flight as a ticket-issuing agent.
Issue:
Whether or not the Warsaw convention is applicable in this case.
Ruling:
No. Article 30 of the Warsaw Convention has no application in the case at bar which involves, not an
accident or delay, but a willful misconduct on the part of the KLM's agent, the Aer Lingus. Article 25 of the
same Convention provides that the carrier shall not be entitled to avail himself of the provisions of this
convention which exclude or limit his liability, if the damage is caused by his willful misconduct or by such
default on his part as, in accordance with the law of the court to which the case is submitted, is considered to
be equivalent to willful misconduct. That article presupposes the occurrence of either an accident or a delay,
neither of which took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus,
through its manager there, refused to transport the respondents to their planned and contracted destination.
Similarly, the carrier shall not be entitled to avail himself of the said provisions, if the damage is
caused under the same circumstances by any agent of the carrier acting within the scope of his employment.
The condition in their tickets which purportedly excuse the KLM from liability appears in very small print, to
read which, as found by the Court of Appeals, one has practically to use a magnifying glass.
Alitalia vs. Intermediate Appellate Court

G.R. No. 71929, December 4, 1990, Narvasa, J.
The Warsaw Convention has invariably been held inapplicable, or as not restrictive of the carrier's
liability, where there was satisfactory evidence of malice or bad faith attributable to its officers and employees.
Facts:
Dr. Felipa Pablo, a UP Professor, booked a flight with Alitalia to attend a UN research engagement in
Ispra, Italy. Upon arrival in Milan, her luggage which contains her scientific papers and slides were missing.
She returned to Manila without attending the meeting. It turned out that her suitcases were located but only
after her scheduled appearance in the UN meeting. The suitcases were returned only after 11 months.
Issue:
Whether the Warsaw Convention should have been applied to limit ALITALIA'S liability
Ruling:
No. The Warsaw Convention has invariably been held inapplicable, or as not restrictive of the
carrier's liability, where there was satisfactory evidence of malice or bad faith attributable to its officers and
employees.
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of
petitioner airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but without
appreciable damage.
However, Some special species of injury was caused to Dr. Pablo because petitioner ALITALIA
misplaced her baggage and failed to deliver it to her at the time appointed — a breach of its contract of
carriage, to be sure — with the result that she was unable to read the paper and make the scientific
presentation that she had painstakingly labored over, at the prestigious international conference, to attend
which she had traveled hundreds of miles, to her chagrin and embarrassment and the disappointment and
annoyance of the organizers. She felt, not unreasonably, that the invitation for her to participate at the
conference, extended by the United Nations, was a singular honor not only to herself, but to the University of
the Philippines and the country as well, an opportunity to make some sort of impression among her
colleagues in that field of scientific activity. The opportunity to claim this honor or distinction was
irretrievably lost to her because of Alitalia's breach of its contract.
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be
restricted to that prescribed by the Warsaw Convention for delay in the transport of baggage.
Limitation of Liability
Jurisdictional Rules
Lhuillier vs. British Airways

G.R. No. 171092, March 15, 2010, Del Castillo
Allegations of tortious conduct committed against an airline passenger during the course of
the international carriage do not bring the case outside the ambit of the Warsaw Convention.
Facts:
Edna Lhuillier took British Airways’ flight from London to Rome. When she asked one of the
flight attendants to assist her in placing her luggage to the overhead bin, the latter refused and
made some sarcastic remarks. Another flight attendant made her appear to be ignorant when she
lectured Lhuillier about plane safety. She sued for damages
Issues:
1. Whether Philippine Courts have jurisdiction over a tortious conduct committed against a Filipino
Citizen by Airline Personnel of a Foreign Carrier travelling beyond the territorial limit of any
foreign country
2. Whether tortious conduct is outside the ambit of Warsaw Convention
Ruling:
1. No. Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages
before the court where the carrier is domiciled, the court where the carrier has its principal place of
business, the court where the carrier has an establishment by which the contract has been made or
the court of the place of destination.
In this case, it is not disputed that respondent is a British corporation domiciled in London,
with London as its principal place of business. In the passenger ticket and baggage check presented,
it appears that the ticket was issued in Rome. Finally, both the petitioner and respondent aver that
the place of destination is Rome. Accordingly, petitioner may bring her action before the courts of
London and Rome. We thus find that the RTC of Makati correctly ruled that it does not have
jurisdiction over the case filed by the petitioner.
2. No. Tortious conduct as ground for the petitioner’s complaint is within the purview of the
Warsaw Convention.
Petitioner contends that in Santos III v. Northwest Orient Airlines, the cause of action was
based on a breach of contract while her cause of action arose from the tortious conduct of the
airline personnel and violation of the Civil Code provisions on Human Relations.
In the said case, we held that the allegation of willful misconduct resulting in a tort is
insufficient to exclude the case from the realm of the Warsaw Convention. In fact, our ruling that a
cause of action based on tort did not bring the case outside the sphere of the Warsaw Convention
was our ratio decidendi in disposing of the specific issue presented by Augusto Santos III.
It is thus settled that allegations of tortious conduct committed against an airline passenger
during the course of the international carriage do not bring the case outside the ambit of the
Warsaw Convention.
Liability to Passengers
Lufthansa German Airlines vs. Court of Appeals,

G.R. No. 83612, November 24, 1994, Romero
Consequently, Section 2, Article 30 of the Warsaw Convention which does not contemplate the instance
of "bumping-off" but merely of simple delay, cannot provide a handy excuse for Lufthansa as to exculpate it from
any liability to Antiporda.
Facts:
Lufthansa issued a ticket for Antiporda's confirmed flights to Malawi, Africa. He was informed that
his seat in Air Kenya Flight to Nairobi had been given to another person. Lufthansa maintains that its liability
to any passenger is limited to occurrences in its own line, and thus, its liability to Antiporda is limited to the
extent that it had transported him from Manila to Bombay; that therefrom, responsibility for the performance
of the contract of carriage is assumed by the succeeding carriers (Air Kenya) tasked to transport him for the
remaining leg of his trip because at that stage, its contract of carriage with Antiporda ceases.
Lufthansa invoked Section 2, Article 30 of the Warsaw Convention which expressly stipulates that in
cases where the transportation of passengers is performed by various successive carriers, the passenger can
take action only against the carrier which performed the transportation, during which the accident or delay
occurred.
Issues:
1. Whether or not Lufthansa German Airlines which issued a confirmed Lufthansa ticket to Antiporda
covering a five-leg trip abroad different airlines should be held liable for damages occasioned by the
"bumping-off" of Antiporda by Air Kenya, one of the airlines contracted to carry him to a particular
destination of the five-leg trip.
2. Whether the Warsaw Convention is applicable
Ruling:
1. Yes. In light of the stipulations expressly specified in the ticket defining the true nature of its contract of
carriage with Antiporda, Lufthansa cannot claim that its liability thereon ceased at Bombay Airport and
thence, shifted to the various carriers that assumed the actual task of transporting said private respondent.
We, therefore, reject Lufthansa's theory that from the time another carrier was engaged to transport
Antiporda on another segment of his trip, it merely acted as a ticket-issuing agent in behalf of said carrier. In
the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda
and remains to be so, regardless of those instances when actual carriage was to be performed by various
carriers. The issuance of a confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg trip
abroad successive carriers concretely attests to this. This also serves as proof that Lufthansa, in effect
guaranteed that the successive carriers, such as Air Kenya would honor his ticket; assure him of a space
therein and transport him on a particular segment of his trip.
2. No. Section 2, Article 30 of the Warsaw Convention is not applicable.

In its ordinary sense, "delay" means to prolong the time of or before; to stop, detain or hinder for a
time, or cause someone or something to be behind in schedule or usual rate of movement in progress.
"Bumping-off," which is the refusal to transport passengers with confirmed reservation to their planned and
contracted destinations, totally forecloses said passengers' right to be transported, whereas delay merely
postpones for a time being the enforcement of such right.
Consequently, Section 2, Article 30 of the Warsaw Convention which does not contemplate the
instance of "bumping-off" but merely of simple delay, cannot provide a handy excuse for Lufthansa as to
exculpate it from any liability to Antiporda.
Liability for Checked Baggage
Philippine Airlines Inc. vs. Court of Appeals,

G.R. No. 119706, March 14, 1996, Regalado
The recognition of the Warsaw Convention does not preclude the operation of the Civil Code and other
pertinent laws in the determination of the extent of liability of the common carrier.
Facts:
The microwave oven shipped by Mejia thru Philippine Airlines was found to be broken. The damage
rendered it useless. Mejia demands reimbursement of the damaged appliance and transportation charges.
Issue:
Is PAL’s liability limited to the provisions of the air waybill?
Ruling:
No. In the case at bar, it will be noted that private respondent signified an intention to declare the
value of the microwave oven prior to shipment, but was explicitly advised against doing so by PALs personnel
in San Francisco, U.S.A., as borne out by her testimony in court
Mejia could and would have complied with the conditions stated in the air waybill, i.e., declaration of
a higher value and payment of supplemental transportation charges, entitling her to recovery of damages
beyond the stipulated limit of US$20 per kilogram of cargo in the event of loss or damage, had she not been
effectively prevented from doing so upon the advice of PALs personnel for reasons best known to themselves.
PAL is estopped from blaming private respondent for not declaring the value of the cargo shipped
and which would have otherwise entitled her to recover a higher amount of damages
All told, therefore, respondent appellate court did not err in ruling that the provision on limited
liability is not applicable in this case. We, however, note in passing that while the facts and circumstances of
this case do not call for the direct application of the provisions of the Warsaw Convention, it should be
stressed that, indeed, recognition of the Warsaw Convention does not preclude the operation of the Civil Code
and other pertinent laws in the determination of the extent of liability of the common carrier.
The Warsaw Convention, being a treaty to which the Philippines is a signatory, is as much a part of
Philippine law as the Civil Code, Code of Commerce and other municipal special laws. The provisions therein
contained, specifically on the limitation of carriers liability, are operative in the Philippines but only in
appropriate situations.
Willful Misconduct
Sabena World Airlines vs. Court of Appeals

G.R. No. 104685, March 14, 1996, Vitug
The attendance of gross negligence holds the common carrier liable for all damages which can be
reasonably attributed, although unforeseen, to the non-performance of the obligation, including moral and
exemplary damages.
Facts:
When San Agustin arrived at Manila International Airport, she found out that her luggage that was
left on board the flight of Sabena was missing. She was assured by Sabena that the luggage will be shipped to
Manila but unfortunately, she was informed that her luggage was lost for the second time.
Sabina argues that the loss of the luggage was due to San Agustin’s contributory negligence; that she
did not retrieve the luggage upon arrival in Brussels; that she did not declare the valuable items in her check-
in luggage at the flight counter and therefore the limitations provided by the Warsaw Convention must be
followed.
Issue:
Whether or not Sabena was grossly negligent in handling the luggage of San Agustin.
Ruling:
Yes. The loss of said baggage not only once but twice underscores the wanton negligence and lack of
care on the part of the carrier.
The above findings foreclose whatever rights petitioner might have had to the possible limitation of
liabilities enjoyed by international air carriers under the Warsaw Convention.
Neither may the Convention be invoked to justify the disregard of some extraordinary sort of damage
resulting to a passenger and preclude recovery therefor beyond the limits set by said Convention. It is in this
sense that the Convention has been applied, or ignored, depending on the peculiar facts presented by each
case.
The Court thus sees no error in the preponderant application to the instant case by the appellate
court, as well as by the trial court, of the usual rules on the extent of recoverable damages beyond the
Warsaw limitations. Under domestic law and jurisprudence (the Philippines being the country of destination),
the attendance of gross negligence (given the equivalent of fraud or bad faith) holds the common carrier
liable for all damages which can be reasonably attributed, although unforeseen, to the non-performance of
the obligation, including moral and exemplary damages.
Miscellaneous Topics
Motor Vehicles
petitioners, vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., respondents.
G.R. No. 138060, September 1, 2004, Callejo
Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the
mishap, he was violating any traffic regulation.
Facts:
One of the tires of a cargo truck exploded during its trip prompting the driver (Pedrano) to park it
along the side of a national highway. Meanwhile, a passenger bus driven by Laspias rammed the truck when it
failed to apply the brakes and avoid the bus. One of the passengers of the bus was injured and the other one
died.
In a complaint for breach of contract of carriage, it was alleged that the bus was cruising at a fast
speed. Laspias argued that the truck was parked in a slanted manner; that there are no early warning device
displayed; that despite his efforts to avoid the bus, it still hit the truck. Laspias argued that expert evidence
should have been presented to prove that he was driving at a very fast speed.
Issue:
1. Whether or not Laspias is guilty of negligence.
2. Whether or not Pedrano and Condor (owner) are guilty of negligent.
Ruling:
1. Yes, Laspias was negligent in driving the Ill-fated bus. Even in the absence of expert evidence, the damage
sustained by the truck itself supports the finding of both the trial court and the appellate court, that the D
Rough Rider bus driven by Laspias was traveling at a fast pace. Since he saw the stalled truck at a distance of
25 meters, petitioner Laspias had more than enough time to swerve to his left to avoid hitting it.
Indeed, Laspias’ negligence in driving the bus is apparent in the records. By his own admission, he
had just passed a bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50
kilometers per hour before the collision occurred. The maximum speed allowed by law on a bridge is only 30
kilometers per hour. And, as correctly pointed out by the trial court, petitioner Laspias also violated Section
35 of the Land Transportation and Traffic Code.
Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of
the mishap, he was violating any traffic regulation.
2. Respondents Pedrano and Condor were likewise negligent. In this case, both the trial and the appellate
courts failed to consider that respondent Pedrano was also negligent in leaving the truck parked askew
without any warning lights or reflector devices to alert oncoming vehicles.
We cannot subscribe to respondents Condor and Pedranos claim that they should be absolved from
liability because, as found by the trial and appellate courts, the proximate cause of the collision was the fast
speed at which petitioner Laspias drove the bus. To accept this proposition would be to come too close to
wiping out the fundamental principle of law that a man must respond for the foreseeable consequences of his
own negligent act or omission.
NOSTRADAMUS VILLANUEVA petitioner, vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO,
respondents.
G.R. No. 144274, September 20, 2004, Corona
Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of
the registered owner who the law holds primarily and directly responsible for any accident, injury or death
caused by the operation of the vehicle in the streets and highways.
Facts:
Domingo’s silver Lancer was cruising along South Superhighway when a green Lancer, registered in
the name of Villanueva, darted to the highway hitting and bumping the left front portion of the silver lancer.
Villanueva claims that he was no longer the owner of the car at the time of the mishap because it was
swapped with a Pajero owned by Jaucian. Furthermore, it was the employee of Jaucian who hit the silver
lancer.
Issue:
May the registered owner of a motor vehicle be held liable for damages arising from a vehicular
accident involving his motor vehicle while being operated by the employee of its buyer without the latter’s
consent and knowledge?
Ruling:
Yes.We have consistently ruled that the registered owner of any vehicle is directly and primarily
responsible to the public and third persons while it is being operated.The Revised Motor Vehicle Law (Act No.
3992, as amended) provides that no vehicle may be used or operated upon any public highway unless the
same is property registered. The main aim of motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility
therefore can be fixed on a definite individual, the registered owner.
With the above policy in mind, the question that defendant-appellant poses is: should not the
registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance with
such proof escape or evade responsibility by and lay the same on the person actually owning the vehicle? The
protection that the law aims to extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and
carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person
injured, that is, to prove that a third person or another has become the owner, so that he may thereby be
relieved of the responsibility to the injured person.
The above policy and application of the law may appear quite harsh and would seem to conflict with
truth and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle
has the recourse to a third-party complaint, in the same action brought against him to recover for the damage
or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification
for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration
that the law demands and requires.
Petitioner insists that he is not liable for damages since the driver of the vehicle at the time of the
accident was not an authorized driver of the new (actual) owner of the vehicle.
Petitioner’s argument lacks merit. Whether the driver is authorized or not by the actual owner is
irrelevant to determining the liability of the registered owner who the law holds primarily and directly
responsible for any accident, injury or death caused by the operation of the vehicle in the streets and
highways. To require the driver of the vehicle to be authorized by the actual owner before the registered
owner can be held accountable is to defeat the very purpose why motor vehicle legislations are enacted in the
first place.
PCI Leasing & Finance Inc. vs. UCPB General Insurance Co.
G.R. No. 162267, July 4, 2008, Austria-Martinez
Since a lease, unlike a sale, does not even involve a transfer of title or ownership, but the mere use or
enjoyment of property, there is more reason, therefore, in this instance to uphold the policy behind the law, which
is to protect the unwitting public and provide it with a definite person to make accountable for losses or injuries
suffered in vehicular accidents
Facts:
A Mitsubishi Lancer owned by UCPB was hit and bumped by an 18-wheeler truck owned by PCI
Leasing and allegedly operated by SUGECO. Gonzaga, an employee of SUGECO, is the driver of the truck. The
driver and passenger of the Lancer suffered physical injuries. Gonzaga did not even bother to bring his
victims to the hospital. PCI argued that it could not be held liable for the collision since Gonzaga was not its
employee.
Issues:
1. Whether PCI, as registered owner of a motor vehicle that figured in a quasi-delict may be held liable, jointly
and severally, with the driver thereof, for the damages caused to third parties.
2. Whether PCI, as a financing company, is absolved from liability by the enactment of Republic Act (R.A.) No.
8556, or the Financing Company Act of 1998.
Ruling:
1. Yes.The registered owner of a motor vehicle is primarily and directly responsible for the consequences of
its operation, including the negligence of the driver, with respect to the public and all third persons. In
contemplation of law, the registered owner of a motor vehicle is the employer of its driver, with the actual
operator and employer, such as a lessee, being considered as merely the owner's agent. This being the case,
even if a sale has been executed before a tortious incident, the sale, if unregistered, has no effect as to the
right of the public and third persons to recover from the registered owner. The public has the right to
conclusively presume that the registered owner is the real owner, and may sue accordingly.
In the case now before the Court, there is not even a sale of the vehicle involved, but a mere lease,
which remained unregistered up to the time of the occurrence of the quasi-delict that gave rise to the case.
Since a lease, unlike a sale, does not even involve a transfer of title or ownership, but the mere use or
enjoyment of property, there is more reason, therefore, in this instance to uphold the policy behind the law,
which is to protect the unwitting public and provide it with a definite person to make accountable for losses
or injuries suffered in vehicular accidents. This is and has always been the rationale behind compulsory
motor vehicle registration under the Land Transportation and Traffic Code and similar laws, which, as early
as Erezo, has been guiding the courts in their disposition of cases involving motor vehicular incidents. It is
also important to emphasize that such principles apply to all vehicles in general, not just those offered for
public service or utility.
2. No. The new law, R.A. No. 8556, notwithstanding developments in foreign jurisdictions, do not supersede or
repeal the law on compulsory motor vehicle registration.
Thus, the rule remains the same: a sale, lease, or financial lease, for that matter, that is not registered
with the Land Transportation Office, still does not bind third persons who are aggrieved in tortious incidents,
for the latter need only to rely on the public registration of a motor vehicle as conclusive evidence of
ownership. A lease such as the one involved in the instant case is an encumbrance in contemplation of law,
which needs to be registered in order for it to bind third parties. Under this policy, the evil sought to be
avoided is the exacerbation of the suffering of victims of tragic vehicular accidents in not being able to
identify a guilty party. A contrary ruling will not serve the ends of justice. The failure to register a lease, sale,
transfer or encumbrance, should not benefit the parties responsible, to the prejudice of innocent victims.
The burden of registration of the lease contract is minuscule compared to the chaos that may result if
registered owners or operators of vehicles are freed from such responsibility. Petitioner pays the price for its
failure to obey the law on compulsory registration of motor vehicles for registration is a pre-requisite for any
person to even enjoy the privilege of putting a vehicle on public roads.
Mercado AG. Cadiente vs. Bithuel Macas

G.R. No. 161946, November 14, 2008, Quisimbing
The registered owner of any vehicle, even if he had already sold it to someone else, is primarily
responsible to the public for whatever damage or injury the vehicle may cause.
Facts:
Macas, a 15-year-old high school student, was run over by a Ford Fiera driven by
Cimafranca. Macas was standing in the uncemented part of the road when the incident happened.
Cimafranca had since absconded and disappeared.
It was shown that the car was registered in the name of Atty. Cadiente. He then claimed that
when the accident happened, he sold the vehicle to Engr. Jalipa, with the understanding that the
latter will cause the transfer of registration. Jalipa claimed that he sold it to Abubakar.
Issues:
1. Whether there was contributory negligence on the part of the victim.
2. Whether Cadiente and Jalipa are jointly and severally liable to the victim.
Ruling:
1. Yes.The underlying precept on contributory negligence is that a plaintiff who is partly

responsible for his own injury should not be entitled to recover damages in full, but must
proportionately bear the consequences of his own negligence. The defendant is thus held liable only
for the damages actually caused by his negligence.
Records show that when the accident happened, the victim was standing on the shoulder, which
was the uncemented portion of the highway. As noted by the trial court, the shoulder was intended
for pedestrian use alone. Running vehicles are not supposed to pass through the said uncemented
portion of the highway. However, the Ford Fiera in this case, without so much as slowing down,
took off from the cemented part of the highway, inexplicably swerved to the shoulder, and
recklessly bumped and ran over an innocent victim. The victim was just where he should be when
the unfortunate event transpired.
Macas cannot be expected to have foreseen that the Ford Fiera, erstwhile speeding along the
cemented part of the highway would suddenly swerve to the shoulder, then bump and run him
over. Thus, we are unable to accept the petitioner's contention that the respondent was negligent.
2. Yes.This Court has recently reiterated in PCI Leasing and Finance, Inc. v. UCPB General Insurance
Co., Inc., that the registered owner of any vehicle, even if he had already sold it to someone else, is
primarily responsible to the public for whatever damage or injury the vehicle may cause.
Therefore, since the Ford Fiera was still registered in the petitioner's name at the time when the
misfortune took place, the petitioner cannot escape liability for the permanent injury it caused the
respondent, who had since stopped schooling and is now forced to face life with nary but two
remaining limbs.
MARIANO C. MENDOZA and ELVIRA LIM v. SPOUSES LEONORA J. GOMEZ and GABRIEL V. GOMEZ
G.R. No. 160110, June 18, 2014, J. Perez
If the driver of a vehicle is found liable by the Court it is the registered owner and not the actual
owner/employer of the negligent driver who should be held vicariously liable under Article 2176, in relation to
Article 2180 of the Civil Code. It is the registered owner of the vehicle who is considered as the employer of the
negligent driver, and the actual owner/employer is considered merely as an agent of such owner.
Facts:
While the Isuzu Elf truck (Isuzu truck) owned by Leonora J. Gomez (Leonora) was driven by
Antenojenes Perez (Perez) it was hit by a Mayamy Transportation bus (Mayamy bus) registered under the
name of Elvira Lim (Lim) and driven by Mariano C. Mendoza (Mendoza). As a result thereof, respondents,
beside the information for reckless imprudence filed by them against Mendoza, they likewise filed a separate
complaint for damages against Mendoza and Lim. According to PO1 Rosales, the investigating officer of the
case, the accident happened when the Mayamy bus, travelling at a fast speed, and traversing the opposite
direction as that of the Isuzu truck, encroached on the lane rightfully occupied by the Isuzu truck damaging
the truck. The RTC and CA found Mendoza liable for direct personal negligence and Lim vicariously liable.
In denying liability, Lim contended that although she was the registered owner of the bus in question,
the real owner was actually one SPO1 Cirilo Enriquez, who had the bus attached with Mayamy Transportation
Company (Mayamy Transport) under the so-called “kabit system.” Hence, it should be Enriquez who should
be held liable and not her.
Issue:
Whether or not Lim, the registered owner and not Enriquez, the actual owner, should be held liable.
Ruling:
Yes Lim should be held liable. The Court ruled that in so far as third persons are concerned, the
registered owner of the motor vehicle is the employer of the negligent driver, and the actual employer is
considered merely as an agent of such owner. Thus, whether there is an employer-employee relationship
between the registered owner and the driver is irrelevant in determining the liability of the registered owner
who the law holds primarily and directly responsible for any accident, injury or death caused by the
operation of the vehicle in the streets and highways.
Arrastre Services
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. v. PRUDENTIAL GUARANTEE &

ASSURANCE CO., INC.
G.R. No. 134514 December 8, 1999
The legal relationship between an arrastre operator and a consignee is akin to that between a
warehouseman and a depositor. As to both the nature of the functions and the place of their performance, an
arrastre operator's services are clearly not maritime in character.
Facts:
Mother vessel "Tao He" loaded and received on board, five lots of canned foodstuff complete and in
good order and condition for transport to Manila in favor of Duel Food Enterprises (Consignee). China Ocean
Shipping Company issued the corresponding bill of lading therefor. Consignee insured the shipment with
Prudential Guarantee and Assurance, Inc. (Prudential) against all risks. When the shipment arrived at the Port
of Manila the goods were discharged by the vessel MS "Wei He" in favor of International Container Terminal
Services, Inc. (ICTSI) for safekeeping. Thereafter, A. D. Reyna Customs Brokerage (Brokerage) withdrew the
shipment and delivered the same to the consignee. An inspection thereof revealed that 161 cartons were
missing.
Its claim for indemnification of the loss having been denied by ICTSI and the brokerage, consignee
sought payment from Prudential under the marine cargo policy issued by it in favor of the consignee. As
subrogee, Prudential filed a complaint against ICTSI and the brokerage for the reimbursement of the amount
paid by it to the Consignee.
Issue:
Whether or not ICTSI should be held liable.
Ruling:
No, it should not. The legal relationship between an arrastre operator and a consignee is akin to that
between a warehouseman and a depositor. As to both the nature of the functions and the place of their
performance, an arrastre operator's services are clearly not maritime in character.
In a claim for loss filed by a consignee, the burden of proof to show compliance with the obligation to
deliver the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the
goods rests within its knowledge, it must prove that the losses were not due to its negligence or that of its
employees.
To discharge this burden, petitioner presented five Arrastre and Wharfage Bill/Receipts, which also
doubled as container yard gate passes, covering the whole shipment in question. The short-landed shipment
was covered by the gate pass marked "Exhibit 5." The latter bore the signature of a representative of the
consignee, acknowledging receipt of the shipment in good order and condition. Thus, we see no reason to
dispute the finding of the trial court that "the evidence adduced by the parties will show that the consignee
received the container vans . . . in good condition."
More important, the cosigned goods were shipped under "Shipper's Load and Count." This means
that the shipper was solely responsible for the loading of the container, while the carrier was oblivious to the
contents of the shipment. Protection against pilferage of the shipment was the consignee's lookout. The
arrastre operator was, like any ordinary depositary, duty-bound to take good care of the goods received from
the vessel and to turn the same over to the party entitled to their possession, subject to such qualifications as
may have validly been imposed in the contract between the parties. The arrastre operator was not required
to verify the contents of the container received and to compare them with those declared by the shipper
because, as earlier stated, the cargo was at the shipper's load and count. The arrastre operator was expected
to deliver to the consignee only the container received from the carrier.
WESTWIND SHIPPING CORPORATION v. UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS
INC.
G.R. No. 200289, November 25, 2013, PERALTA, J.
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman. The relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods that are
in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with and obligated to deliver the goods in
good condition to the consignee.
Facts:
Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197 metal containers of tin-free
steel for delivery to the consignee, San Miguel Corporation (SMC). The shipment was loaded and received
clean on board M/V Golden Harvest Voyage No. 66, a vessel owned and operated by Westwind Shipping
Corporation (Westwind). SMC insured the cargoes against all risks with UCPB. When the shipment arrived in
Manila it was discharged in the custody of the arrastre operator, Asian Terminals, Inc. (ATI). However, during
the unloading operation, six containers sustained dents from the forklift used by the stevedores of Ocean
Terminal Services, Inc. (OTSI). As a consequence two Bad Order Cargo Receipts were issued covering the six
damaged containers. Thereafter, Orient Freight International, Inc. (OFII), the customs broker of SMC,
withdrew from ATI the containers, including the damaged containers, and delivered the same at SMC’s
warehouse through J.B. Limcaoco Trucking (JBL). It was discovered upon discharge that additional nine
containers were also damaged due to the forklift operations.
After paying SMC, UCPB, in the exercise of its right of subrogation, filed a complaint for damages
against Westwind, ATI, and OFII. Westwind argues that it no longer had actual or constructive custody of the
containers at the time they were damaged by ATI’s forklift operator during the unloading operations. It
contends that its responsibility ceased from the moment the cargoes were delivered to ATI.
Issue:
Whether or not Westwind should be held liable.
Ruling:
Yes, it should. The functions of an arrastre operator involve the handling of cargo deposited on the
wharf or between the establishment of the consignee or shipper and the ship's tackle. Being the custodian of
the goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn
them over to the party entitled to their possession.
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman. The relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods that
are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves
upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with and obligated to deliver
the goods in good condition to the consignee.
Cargoes, while being unloaded, generally remain under the custody of the carrier. We cannot agree
with Westwind’s disputation that "the carrier in Wallem clearly exercised supervision during the discharge of
the shipment and that is why it was faulted and held liable for the damage incurred by the shipment during
such time." What Westwind failed to realize is that the extraordinary responsibility of the common carrier
lasts until the time the goods are actually or constructively delivered by the carrier to the consignee or to the
person who has a right to receive them. There is actual delivery in contracts for the transport of goods when
possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is
given him to remove the goods. In this case, since the discharging of the containers/skids, which were
covered by only one bill of lading, had not yet been completed at the time the damage occurred, there is no
reason to imply that there was already delivery, actual or constructive, of the cargoes to ATI.
Asian Terminals Inc. v. First Lepanto-Taisho Insurance Corporation

G.R. No. 185964, June 16, 2014, Reyes, J.
The relationship between the consignee and the arrastre operator is akin to that existing between the
consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a
warehouseman. Hence, in the performance of its obligations, an arrastre operator should observe the same
degree of diligence as that required of a common carrier and a warehouseman. Being the custodian of the goods
discharged from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to
the party entitled to their possession.
Facts:
Bags of sodium tripolyphosphate contained in 100 plain jumbo bags complete and in good condition
were loaded and received on board M/V "Da Feng" owned by China Ocean Shipping Co. (COSCO) in favor of
consignee, Grand Asian Sales, Inc. (GASI). The shipment was insured against all risks by GASI with FIRST
LEPANTO. When the shipment arrived in Manila, GASI inspected it and discovered that the delivered goods
incurred shortages. After First Lepanto paid GASI pursuant to their insurance contract, as subrogee, First
Lepanto demanded from COSCO, its shipping agency in the Philippines SMITH BELL, PROVEN and ATI
reimbursement of the amount it paid to GASI. ATI denied liability and claimed that it exercised due diligence
and care in handling the same.
Issue:
Whether or not ATI should be held liable.
Ruling:
Yes, it should. The relationship between the consignee and the arrastre operator is akin to that
existing between the consignee and/or the owner of the shipped goods and the common carrier, or that
between a depositor and a warehouseman. Hence, in the performance of its obligations, an arrastre operator
should observe the same degree of diligence as that required of a common carrier and a warehouseman.
Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is to take good care of
the goods and to turn them over to the party entitled to their possession.
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance
with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since
the safekeeping of the goods is its responsibility, it must prove that the losses were not due to its negligence
or to that of its employees. To avoid liability, the arrastre operator must prove that it exercised diligence and
due care in handling the shipment.
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to COSCO on the
basis of the Request for Bad Order Survey dated August 9, 1996 purportedly showing that when ATI received
the shipment, one jumbo bag thereof was already in damaged condition.
To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must do more
than merely show the possibility that some other party could be responsible for the loss or the damage. It
must prove that it used all reasonable means to handle and store the shipment with due care and diligence
including safeguarding it from weather elements, thieves or vandals.
Public Utilities
KILUSANG MAYO UNO LABOR CENTER v. HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF
THE PHILIPPINES
G.R. No. 115381, December 23, 1994, Kapunan J.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of
land transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service
Act, as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant
must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company
constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital
must belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking
the proposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove
that the operation of the public service proposed and the authorization to do business will promote the public
interest in a proper and suitable manner. It is understood that there must be proper notice and hearing before
the PSC can exercise its power to issue a CPC.
Facts:
Acting upon the DOTC Departmental Order No. 92-587, the LTFRB issued Memorandum Circular
(MC) No. 92-009 which provides that:
a.) The presumption of public need for a service shall be deemed in favour of the applicant, while
the burden of proving that there is no need for the purposed service shall be the oppositor’(s)
and;
b.) Availability of deregulation policy allowing provincial bus operators to collect additional fares
above and beyond the prescribed fare without first having filed a petition nor without the benefit
of a public hearing
Thereafter Kilusang Mayo Uno (KMU) filed a petition before the LTFRB opposing the enforcement of
the said MC. LTFRB denied KMU’s petition, hence this petition. KMU first, assails the authority given by the
LTFRB to the provincial bus operators to unilaterally increase the fare rates above and beyond the prescribed
rates provided for by law. And second, the establishment of a presumption of public need in favour of an
applicant for a proposed transport service without having to prove public necessity.
Issues:
1. Whether or not provincial bus operators may unilaterally increase fare rates above and beyond the
prescribed rates
2. Whether the establishment of a presumption of public need in favour of applicants for proposed transport
service without having to prove public necessity is valid
Ruling:
1. No, provincial bus operators may not unilaterally increase fare rates above and beyond the
prescribed rates. In the case at bench, the authority given by the LTFRB to the provincial bus operators to set
a fare range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue
delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated cannot be
delegated. This doctrine is based on the ethical principle that such a delegated power constitutes not only a
right but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another. A further delegation of such power would indeed constitute a
negation of the duty in violation of the trust reposed in the delegate mandated to discharge it directly. The
policy of allowing the provincial bus operators to change and increase their fares at will would result not only
to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of
transport operators who may increase fares every hour, every day, every month or every year, whenever it
pleases them or whenever they deem it "necessary" to do so.
2. No the establishment of such presumption is invalid. A certificate of public convenience (CPC) is an

authorization granted by the LTFRB for the operation of land transportation services for public use as
required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements
must be met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a
corporation or co-partnership, association or joint-stock company constituted and organized under the laws
of the Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of the
Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and meeting
the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the public
service proposed and the authorization to do business will promote the public interest in a proper and suitable
manner. It is understood that there must be proper notice and hearing before the PSC can exercise its power
to issue a CPC.
The power of a regulatory body to issue a Certificate of Public Convenience (CPC) is founded on the
condition that after full-dress hearing and investigation, it shall find, as a fact that the proposed operation is
for the convenience of the public. Basic convenience is the primary consideration for which a (CPC) is issued,
and that fact alone must be consistently borne in mind. Also, existing operators in subject routes must be
given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be
required to prove his capacity and capability to furnish the service which he has undertaken to render. And
all this will be possible only if a public hearing were conducted for that purpose.
INSURANCE LAWS
i. Concept of Insurance
PHILIPPINE HEALTH CARE PROVIDERS, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 167330, September 18, 2009, CORONA, J.
Section 2 (2) of P.D. 1460, otherwise known as the Insurance Code enumerates what constitutes “doing
insurance business” or “transacting an insurance business”. Applying the "principal object and purpose test,"
there is significant American case law supporting the argument that a corporation (such as an HMO, whether or
not organized for profit), whose main object is to provide the members of a group with health services, is not
engaged in the insurance business.
Facts:
Philippine Health Care Providers, Inc. (PHCP) is a domestic corporation engaged in the business of
providing medical services to individuals who enter into health agreements with it. Individuals enrolled in its
health care programs pay an annual membership fee and are entitled to various medical services provided by
its duly licensed physicians, specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or accredited by it.
Subsequently, the CIR sent PHCP a formal demand letter and the corresponding assessment notices
demanding the payment of deficiency documentary stamp tax for the taxable years 1996 and 1997. The
deficiency assessment was imposed on PHCP’s health care agreement with the members of its health care
program pursuant to Section 185 of the 1997 Tax Code.
PHCP protested the assessment alleging that being a health maintenance organization (HMO) and not
an insurance company, it is not liable to pay DST. It contended that under the NIRC of 1997 only companies
engaged in the business of fidelity bonds and other insurance policies are liable to pay DST.
The SC in its decision dated June 12, 2008 ruled that the health care agreement offered by PHCP is in
the nature of a non-life insurance which is a contract of indemnity. Moreover, the fact that PHCP is an HMO
and not an insurance company is irrelevant because the contracts between an HMO and its beneficiaries are
treated as insurance contracts. Hence the present motion for reconsideration.
Issue:
Whether or not PHCP, as an HMO, is engaged in the business of insurance
Ruling:
No, it is not. Section 2 (2) of P.D. 1460, otherwise known as the Insurance Code enumerates what
constitutes “doing insurance business” or “transacting an insurance business”.
Applying the "principal object and purpose test," there is significant American case law supporting
the argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is
to provide the members of a group with health services, is not engaged in the insurance business.
xxxx Although Group Health’s activities may be considered in one aspect as creating security against
loss from illness or accident more truly they constitute the quantity purchase of well-rounded, continuous
medical service by its members. xxx The functions of such an organization are not identical with those of
insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind, quantity or distribution; with the
unusual occurrence, not the daily routine of living. Hazard is predominant. On the other hand, the cooperative
is concerned principally with getting service rendered to its members and doing so at lower prices made
possible by quantity purchasing and economies in operation. Its primary purpose is to reduce the cost rather
than the risk of medical care; to broaden the service to the individual in kind and quantity; to enlarge the
number receiving it; to regularize it as an everyday incident of living, like purchasing food and clothing or oil
and gas, rather than merely protecting against the financial loss caused by extraordinary and unusual
occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take care of colds,
ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as the more serious and
unusual illness. To summarize, the distinctive features of the cooperative are the rendering of service, its
extension, the bringing of physician and patient together, the preventive features, the regularization of
service as well as payment, the substantial reduction in cost by quantity purchasing in short, getting the
medical job done and paid for; not, except incidentally to these features, the indemnification for cost after the
services is rendered. Except the last, these are not distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between contracting in this way for the rendering of
service, even on the contingency that it be needed, and contracting merely to stand its cost when or after it is
rendered.
Lastly, it is significant that PHCP, as an HMO, is not part of the insurance industry. This is evident
from the fact that it is not supervised by the Insurance Commission but by the Department of Health.
a. Interpretation of insurance contract
PHILAMCARE HEALTH SYSTEMS, INC. v. COURT OF APPEALS and JULITA TRINOS

G.R. No. 125678, March 18, 2002, Ynares-Santiago J.
When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the
terms of an insurance contract are to be construed strictly against the party which prepared the contract the
insurer.
Facts:
Ernani Trinos (Ernani), husband of Julita Trinos (Julita) applied for a health care coverage with
Philamcare Health Systems Inc. (Philam), in filling out the standard application form, Ernani in part,
answered “no” to the question on whether he or any of his family members have ever consulted or have been
treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer.
Thereafter, the application was approved. During the period of his coverage, Ernani suffered a heart attack
and was admitted to the hospital. Julita tried to claim the benefits from Philam pursuant to the health care
coverage. However Philam denied her claim on the ground that the aforementioned agreement was void.
According to Philam, there was a concealment regarding Ernani’s medical history. It was allegedly discovered
at the time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer
in the application form. Thus, Julita paid the medical expenses and hospital bills. However, despite medical
attention, Ernani died. Consequently, Julita sued Philam for damages and reimbursements of her expenses.
Issue:
Whether or not Philam can rescind the contract
Ruling:
No it cannot. Under Section 27 of the Insurance Code, a concealment entitles the injured party to
rescind a contract of insurance. The right to rescind should be exercised previous to the commencement of an
action on the contract. In this case, no rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer from
non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract the insurer. By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.
This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly construed against the provider.
VIOLETA R. LALICAN v. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE
PRESIDENT VICENTE R. AVILON
G.R. No. 183526, August 25, 2009, CHICO-NAZARIO, J.
While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed
liberally in favor of the insured and strictly as against the insurer company, yet, contracts of insurance, like other
contracts, are to be construed according to the sense and meaning of the terms, which the parties themselves
have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary
and popular sense.
Facts:
Insular life (Insular) issued an insurance policy in favor of Eulogio Lalican (Eulogio) wherein he
designated Violeta, his wife, as the beneficiary. The Policy Contract provided that should Eulogio fail to pay
any premium on or before the due date the policy would be in default, and if the premium remained unpaid
until the end of the grace period, the policy would automatically lapse and become void. Thereafter, due to
Eulogio’s failure to pay the premium the Policy Contract lapsed and became void.
Subsequently, Eulogio filed an Application for the reinstatement of his Policy Contract with Malaluan,
Insular Life’s agent. However, since Malaluan was away on a business errand, her husband received Eulogio’s
Application for Reinstatement and issued a receipt for the amount Eulogio deposited. But, on the very same
day, Eulogio died. Thereafter, Violeta filed a claim for the payment of the proceeds of the Policy Contract. The
Insular however denied Violeta’s claim. In denying her claim, Insular Life explained that at the time Eulogio
died the Insurance Policy had already lapsed and that Eulogio failed to reinstate the same. According to
Insular the Application for Reinstatement provided that the policy would only be considered reinstated upon
approval of the application by Insular during the applicant’s “lifetime and good health” and whatever the
amount the applicant paid in connection thereto was only to be considered as a deposit.
Issue:
Whether or not Eulogio was able to reinstate the lapsed insurance policy before he died.
Ruling:
No. Additional conditions for reinstatement of a lapsed policy were stated in the Application for
Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated until this application is approved by the
Company during my/our lifetime and good health and until all other Company requirements for the
reinstatement of said Policy are fully satisfied. It does not matter that when he died, Eulogio’s
Application for Reinstatement and deposits for the overdue premiums and interests were already with
Malaluan. Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement.
Malaluan still had to turn over to Insular Life Eulogio’s Application for Reinstatement and
accompanying deposits, for processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and
Application for Reinstatement were written in clear and simple language, which could not admit of any
meaning or interpretation other than those that they so obviously embody. A construction in favor of the
insured is not called for, as there is no ambiguity in the said provisions in the first place. The words thereof
are clear, unequivocal, and simple enough so as to preclude any mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import
and meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both of which he
voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to
be construed liberally in favor of the insured and strictly as against the insurer company, yet, contracts of
insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which
the parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense.
ALPHA INSURANCE AND SURETY CO. v. ARSENIA SONIA CASTOR

G.R. No. 198174, September 2, 2013, Peralta J.
It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of property
insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine the
import of the various terms and provisions embodied in the policy. However, when the terms of the insurance
policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of
particular provisions, the policy will be construed by the courts liberally in favour of the assured and strictly
against the insurer.
Facts:
Arsenia Sonia Castor (Castor) herein respondent, entered into an insurance contract with Alpha
Insurance and Surety Co. (Alpha) herein petitioner, involving a car owned by Castor. Thereafter, the car was
stolen and was reported loss by the police report. Allegedly, it was the driver of Castor which took the said
car, thus prompting Castor to file a claim with Alpha under their insurance contract. Alpha denied Castor’s
claim on the ground that pursuant to their insurance contract an excluding circumstance which would
exclude Alpha from paying proceeds would be, “Any malicious damage caused by the Insured, any member of
his family or by ‘A PERSON IN THE INSURED’S SERVICE.’” In other words, Alpha argued that the term
“damage” would also be applicable to the stolen and lost car of Castor. Aggrieved, Castor filed a case for sum
of money and damages with the Trial Court. The Trial Court decided in favour of Castor. The CA affirmed, thus
prompting Alpha to elevate the case to the SC, hence this petition.
Issue:
Whether the loss of Castor’s car is excluded under the insurance policy.
Ruling:
No, the loss of Castor’s car is not excluded under the insurance policy. In the case of property
insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine
the import of the various terms and provisions embodied in the policy. However, when the terms of the
insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the
meaning of particular provisions, the policy will be construed by the courts liberally in favor of the assured
and strictly against the insurer.
Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common
ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while the
word "damage" means deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy
under paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more
specifically, "injury" to the motor vehicle caused by a person under the insured’s service. Paragraph 4 clearly
does not contemplate "loss of property," as what happened in the instant case.
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which prepared the contract,
the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of
the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.
Elements of an Insurance Contract
PHILAMCARE HEALTH SYSTEMS, INC. v. COURT OF APPEALS and JULITA TRINOS

G.R. No. 125678, March 18, 2002, Ynares-Santiago J.
The Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent
event. An insurance contract exists where the following elements concur: 1. The insured has an insurable
interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3. The insurer assumes
the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and 5. In consideration of the insurer’s promise, the insured pays a premium.
Facts:
Ernani Trinos (Ernani), husband of Julita Trinos (Julita) herein respondent, applied for a health care
coverage with Philamcare Health Systems Inc. (Philam) herein petitioner, in filling out the standard
application form, Ernani in part, answered “no” to the question on whether he or any of his family members
have ever consulted or have been treated for high blood pressure, heart trouble, diabetes, cancer, liver
disease, asthma or peptic ulcer. Thereafter, the application was approved. During the existence of the health
care coverage, Ernani suffered a heart attack and was admitted to the hospital. Julita tried to claim the
benefits from Philam pursuant to the health care coverage. However Philam denied her claim on the ground
that the aforementioned agreement was void. Philam alleged that there was concealment on the part of
Ernani’s medical history on the ground that the doctors discovered that Ernani was hypertensive, diabetic
and asthmatic, contrary to his application form. Thus, Julita was constrained to pay the medical expenses and
hospital bills. However, despite medical attention, Ernani died. Thus, Julita sued Philam for damages and
reimbursements of her expenses. The Trial Court and CA decided in favour of Julita and ordered Philam to
indemnify and reimburse Julita. This, in turn, prompted Philam to elevate the case to the SC.
Philam points out that only medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss, hence this
petition.
Issue:
Whether the health care coverage agreement is a contract of insurance
Ruling:
Yes, the health care coverage agreement is a contract of insurance. The Insurance Code defines a
contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group
of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every person
has an insurable interest in the life and health of himself. The Insurance Code provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of
which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
FORTUNE MEDICARE, INC. v. DAVID ROBERT U. AMORIN

G.R. No. 195872, March 12, 2014, Reyes J.
A health care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the
contract. By reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.
Facts:
David Amorin (Amorin) herein respondent, entered into a Health Care Contract with Fortune
Medicare, Inc. (Fortune) herein petitioner. The Health Care Contract provides that Fortune shall reimburse
the total hospitalization cost including the professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited hospital. The above coverage applies only to
Emergency confinement within Philippine Territory. However, if the emergency confinement occurs in a
foreign territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and professional fees. While on vacation in
Hawaii, Amorin underwent an emergency surgery at the St. Francis Medical Center, a non-accredited hospital,
located at Honolulu, Hawaii. Thereafter, Amorin sought reimbursement from Fortune for the medical
expenses he incurred for the said operation. Fortune paid 80% of the total amount of fees for the standard
charges in the Philippines. Amorin received said payment under protest and argued that the standard charge
should be based on American standard since the operation happened in the USA, pursuant to the Health Care
Contract. However, Fortune denied Amorin’s protest. This prompted Amorin to file a complaint for breach of
contract and damages with the Trial Court against Fortune. The Trial Court dismissed the complaint. However
on appeal the CA reversed the decision of the Trial Court and held Fortune liable for breach of contract. This
prompted Fortune to elevate the case to the SC, hence this petition.
Issue:
Whether the American standard charge should be applied considering that the operation took place
in the USA
Ruling:
Yes, the American standard charge should be applied. We emphasize that for purposes of
determining the liability of a health care provider to its members, jurisprudence holds that a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the
health care provider must pay for the same to the extent agreed upon under the contract.
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which prepared the contract
– the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of
the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology
used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of
the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring
coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against
the provider.
In the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are
applicable in the Philippines, the amount payable by Fortune Care should not be limited to the cost of
treatment in the Philippines, as to do so would result in the clear disadvantage of its member.
Characteristics/Nature of Insurance Contracts
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG v.

EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN
MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT
PACIFIC LIFE ASSURANCE CORPORATION
G.R. No. 181132, June 5, 2009, Nachura J.
The only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the
beneficiary, if the insured is already deceased, upon the maturity of the policy. The exception to this rule is a
situation where the insurance contract was intended to benefit third persons who are not parties to the same in
the form of favourable stipulations or indemnity. In such a case, third parties may directly sue and claim from
the insurer.
Facts:
Loreto Maramag (Loreto) deceased, was the lawful spouse of Vicenta Maramag (Vicenta) herein
petitioner. On the other hand, Eva Verna Maramag (Eva) was the concubine of Loreto and suspect of Loreto’s
murder, while Odessa Maramag (Odessa), Karl Maramag (Karl), Trisha Maramag (Trisha) are the illegitimate
children of Loreto from Eva. During the life of Loreto, Loreto contracted insurance contracts with Insular Life
Assurance Company Ltd (Insular) and Great Pacific Life Assurance Corporation (Grepalife) insuring his life
and appointing Eva, Odessa, Karl, and Trisha and beneficiaries. Thereafter upon Loreto’s death, Vicenta filed a
petition for revocation of insurance proceeds executed by Loreto with Insular and Grepalife on the ground
that it is void and inofficious. Vicenta, citing the law on successions, alleged that she and her family are
entitled to a part of the proceeds of the insurance since they are compulsory heirs of Loreto and that Eva is a
concubine of Loreto and hence therefore disqualified from receiving proceeds from the insurance. On their
part, Insular argued that Eva was already disqualified from receiving the proceeds of the insurance since she
was a concubine of Loreto. Furthermore, her share with the proceeds was divided among Odessa, Karl, and
Trisha. On the other hand, Grepalife, alleged that Eva was never designated as an insurance policy beneficiary
and that the law on succession does not apply where the designation of the insurance beneficiaries is clear.
The Trial Court and CA denied the petition of Vicenta, thus prompting Vicenta to elevate the case to the SC,
hence this petition.
Issue:
Whether the insurance proceeds in favour of respondents are void or inofficious
Ruling:
No, the insurance proceeds in favour of respondents insofar as Odessa, Karl and Trisha are
concerned, is valid. In this case, it is clear from the petition filed before the trial court that, although
petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies
issued by Insular and Grepalife. The basis of petitioners claim is that Eva, being a concubine of Loreto and a
suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that
Eva’s children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the
policies. They also argued that pursuant to the Insurance Code, Eva’s share in the proceeds should be
forfeited in their favour, the former having brought about the death of Loreto. Thus, they prayed that the
share of Eva and portions of the shares of Loretos illegitimate children should be awarded to them, being the
legitimate heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favourable judgment
in light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be governed
by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states:
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of
the policy. The exception to this rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favourable stipulations or indemnity. In such a case,
third parties may directly sue and claim from the insurer.
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to
turn over the insurance proceeds to petitioners.
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M. RORALDO,
VIRGILIO M. RORALDO, MYRNA M. RORALDO and ROSABELLA M. RORALDO v. COURT OF APPEALS and
FORTUNE LIFE AND GENERAL INSURANCE CO., INC.
G.R. No. 119655, May 24, 1996, Bellosillo J.
Where the policy provides for payment of premium in full before the policy may be put fully in force and
that where the premium has only been partially paid and the balance paid only after the peril insured against
has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy. Thus,
no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from
the fractional payment of premium.
Facts:
Fortune Life and General Insurance Co. Inc. (Fortune) herein private respondent issued a Fire
Insurance Policy in favor of Violeta Tibay and/or Nicolas Roraldo (Tibay et al) herein petitioners, for their
two-storey residential building located in Makati City together with their personal effects therein. The
pertinent provision in the policy provides that, this policy including any renewal thereof and/or any
endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the
Company in the manner provided herein. Tibay et al were only able to pay a partial amount of the premium
sought and left a considerable balance unpaid. Thereafter, fire broke out which immolated the
aforementioned building as well as the personal effects therein. After which, Tibay et al paid the balance of
the premium and on the same day Tibay et al filed with Fortune a claim on the fire insurance policy. Fortune
denied the claim on the ground that the policy was not yet in force at the time of the fire because the premium
has yet to be fully paid and received by Fortune from Tibay et al. This prompted Tibay et al to sue Fortune for
damages amounting to the total amount of the proceeds with the Trial Court. The Trial Court ruled in favor of
Tibay et al. On appeal, the CA reversed. Thus, Tibay et al, elevated the case to the SC, hence this petition.
Issue:
Whether Fortune is liable to Tibay et al for the payment of the fire insurance proceeds
Ruling:
No, Fortune is not liable to Tibay et al for the payment of the fire insurance proceeds. Clearly the
Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid
and the balance paid only after the peril insured against has occurred, the insurance contract did not take
effect and the insured cannot collect at all on the policy. This is fully supported by Sec. 77 of the Insurance
Code which provides:
Sec. 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.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77
of the Insurance Code the payment of partial premium by the assured in this particular instance should not be
considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in the
concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered
and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be made
before the risk occurs for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever
resulted from the fractional payment of premium. The insurance contract itself expressly provided that the
policy would be effective only when the premium was paid in full. It would have been altogether different
were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by
FORTUNE under the terms of its policy and they freely opted to adhere thereto.
Classes of Insurance
Marine
ISABELA ROQUE, doing business under the name and style of Isabela Roque Timber Enterprises and
ONG CHIONG v. HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY
CORPORATION
G.R. No. L-66935, November 11, 1985, Gutierrez Jr. J.
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. Failure to observe the implied warranty of seaworthiness on the part of
Petitioner absolves Private Respondent from the liability to pay the proceeds pursuant to the marine insurance.
Facts:
The Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into a contract with
Isabel Roque, doing business under the name and style of Isabela Roque Timber (Isabel) herein petitioner,
whereby Manila Bay will load and carry on board its barge wooden logs from Palawan to Manila. Thereafter,
Isabel insured the logs against loss with Pioneer Insurance and Surety Corporation (Pioneer). Thereafter,
during the voyage for the delivery of the aforementioned logs, the ship of Manila Bay sank, rendering the
delivery of the wooden logs to Manila impossible. This prompted Isabel to demand from Manila Bay payment
for the loss of the shipment plus costs for unrealized profits. However, Manila Bay ignored Isabel’s demand.
Thereafter, Isabel demanded from Pioneer payment for the lost logs pursuant to the insurance policy but
Pioneer refused on the ground that there was a breach of implied warranty of seaworthiness on the part of
Isabel hence not covered by the marine insurance policy. Thus, Isabel sued Pioneer before the Trial Court.
The Trial Court decided in favour of Isabel and held Pioneer liable.
Issue:
Whether Pioneer is liable for payment under the marine insurance policy
Ruling:
No, Pioneer is not liable for payment under the marine insurance policy. The liability of the
insurance company is governed by law. Section 113 of the Insurance Code provides:
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.
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. The shipper of cargo may have no control over the vessel but he has
full control in the choice of the common carrier that will transport his goods. Or the cargo owner may enter
into a contract of insurance which specifically provides that the insurer answers not only for the perils of the
sea but also provides for coverage of perils of the ship.
Moreover, 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 defence in order to recover on the marine
insurance policy.
CATHAY INSURANCE CO. v. HON. COURT OF APPEALS, and REMINGTON INDUSTRIAL SALES
CORPORATION
G.R. No. 76145, June 30, 1987, Paras J.
The rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the toll on the cargo
of wind, water, and salt conditions which are a ground for payment of proceeds from the marine insurance
executed between Petitioner and Private Respondent.
Facts:
Remington Industrial Sales Corporation (Remington) entered into a marine insurance policy with
Cathay Insurance Corporation (Cathay) over the shipment of seamless steel pipes whereby Remington was
the appointed insured and beneficiary thereof. Said shipment was to be delivered from Japan to the
Philippines. Upon delivery, Remington discovered that the pipes were already starting to develop rust. Thus,
Remington demanded from Cathay payment for the damaged pipes pursuant to the marine insurance policy.
Cathay denied the demand on the ground that rust is not considered a peril of the sea and hence therefore not
a ground for the claim of the proceeds of the marine insurance. This prompted Remington to sue Cathay for
payment pursuant to the marine insurance as well as damages.
Issue:
Whether or not Cathay is liable for payment of proceeds under the marine insurance policy.
Ruling:
Yes, Cathay is liable for payment of proceeds under the marine insurance policy. There is no question
that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the toll on the cargo of
wind, water, and salt conditions.
FILIPINO MERCHANTS INSURANCE CO., INC v. COURT OF APPEALS and CHOA TIEK SENG
G.R. No. 85141, November 28, 1989, Regalado J.
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by
an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not
acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance.
Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and
design, and which is unexpected, unusual and unforeseen. A marine insurance policy providing that the
insurance was to be "against all risks" must be construed as creating a special insurance and extending to other
risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured.
Facts:
Choa Tiek Seng (Choa) herein private respondent, insured the shipment of fishmeal loaded on board
the vessel of SS Bougainville under a marine insurance policy against all risks to it. It was then discovered by
Choa as consignee that the said cargoes were of bad condition pursuant to a report of Bad Order issued by the
ship’s agent and the arrastre contractor. This prompted Choa to file a claim from Filipino Merchants
Insurance Company (FMIC) herein petitioner and insurer of the cargoes containing fishmeal. FMIC denied the
claim. This prompted Choa to sue FMIC before the Trial Court. The Trial Court and CA held in favor of Choa
and found FMIC liable for the payment of proceeds of the marine insurance policy. Aggrieved FMIC appealed
to the SC contending that an "all risks" 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", "casualty" or "accidental cause" to
which the alleged loss is attributable and the failure of herein Choa, upon whom lay the burden, to adduce
evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his
right to recover from the insurance policy. Hence this petition.
Issue:
Whether FMIC is liable for payment of proceeds pursuant to the all risk stipulation in the contract of
marine insurance
Ruling:
Yes, FMIC is liable for payment under the marine insurance policy. An "all risks policy" should be
read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The
terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning.
They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken
to mean that which happens by chance or fortuitously, without intention and design, and which is
unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or
expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and,
therefore, not expected.
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.
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.
A marine insurance policy providing that the insurance was to be "against all risks" must be
construed as creating a special insurance and extending to other risks than are usually contemplated, and
covers all losses except such as arise from the fraud of the insured. 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.
Choa Tiek Seng vs. Court of Appeals

G.R. No. 84507, March 15, 1990, Gancayco, J.
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.
Facts:
Choa Tiek Seng imported some lactose crystals from Holland. The goods were insured by the
respondent Filipino Merchants' Insurance Co., Inc. against all risks under the terms of the insurance cargo
policy. Upon arrival at the port of Manila, the cargo was discharged into the custody of the arrastre operator
respondent E. Razon, Inc. prior to the delivery to Cho Tiek Seng through his broker. Of the 600 bags delivered
to Choa Tiek Seng, 403 were in bad order. The surveys showed that the bad order bags suffered spillage and
loss. Choa Tiek filed a claim for said loss against respondent insurance company. Respondent insurance
company rejected the claim.
Issue:
Whether or not Choa Tiek Seng may recover from Respondent Insurance Company.
Ruling:
Yes, he may recover. 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.
In the present case, the "all risks" clause of the policy sued upon reads as follows:
5. 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.
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 the respondent insurance company to establish that said loss or damage falls within the exceptions
provided for by law, otherwise it is liable therefor. 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 policy's 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.
Keppel Cebu Shipyard Inc. v. Pioneer Insurance and Surety Corporation

G.R. Nos. 180880-81, September 25, 2009, Nachura, J.
In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section 139
of the Insurance Code, which provides: “a person insured by a contract of marine insurance may abandon the
thing insured, or any particular portion hereof separately valued by the policy, or otherwise separately insured,
and recover for a total loss thereof, when the cause of the loss is a peril insured against: (a) If more than three-
fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is
injured to such an extent as to reduce its value more than three-fourths.
Facts:
KCSI and WG&A executed a Shiprepair Agreement wherein KCSI would renovate and reconstruct
WG&As M/V Superferry 3 using its dry docking facilities pursuant to its restrictive safety and security rules
and regulations. Prior to the execution of the Shiprepair Agreement, Superferry 3 was already insured by
WG&A with Pioneer. In the course of its repair, M/V Superferry 3 was gutted by fire. Claiming that the extent
of the damage was pervasive, WG&A declared the vessels damage as a total constructive loss and, hence, filed
an insurance claim with Pioneer. Pioneer paid the insurance claim of WG&A in turn, executed a Loss and
Subrogation Receipt in favor of Pioneer. Pioneer claimed for reimbursement armed by the receipt but KSCI
did not hid to such demand.
Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full
amount of the insurance coverage and, by operation of law, it was entitled to be subrogated to the rights of
WG&A to claim the amount of the loss. KCSI counters that a total constructive loss was not adequately proven
by Pioneer, and that there is no proof of payment of the insurance proceeds.
Issue:
Whether or not there was total constructive loss.
Ruling:
Yes, there was total constructive loss. In marine insurance, a constructive total loss occurs under any
of the conditions set forth in Section 139 of the Insurance Code, which provides: “a person insured by a
contract of marine insurance may abandon the thing insured, or any particular portion hereof separately
valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of
the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to
recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.
Mayer Steel Pipe Corporation vs. Court of Appeals

G.R No. 124050, June 19, 1997, Puno, J.
Section 3(6) of the Carriage of Goods by Sea Act reveals that the Carriage of Goods by Sea Act governs
the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the
other hand. It defines the obligations of the carrier under the contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The latter case is governed by the Insurance Code. Thus, under
Article 1144, the prescription period of written contract is within 10 years from the right of action accrues which
thereby includes and insurance contract.
Facts:
Mayer insured the pipes and fittings against all risks with private respondents South Sea Surety and
Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). Nonetheless, when the goods reached
Hongkong, it was discovered that a substantial portion thereof was damaged. Mayer filed a claim against
South Sea and Charter for indemnity under the insurance contract. Respondent Charter paid Mayer but
excluding the payment for cost of repair contending that it was a factory defect and is not covered by the
insurance contract. The court held that the action is barred under Section 3(6) of the Carriage of Goods by Sea
Act since it was filed only on April 17, 1986, more than two years from the time the goods were unloaded
from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall
be discharged from all liability in respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been delivered citing the case of Filipino
Merchant.
Issue:
Whether or not Mayer is barred by prescription for the complaint was filed for more than two years
from the time the goods were unloaded from the vessel.
Ruling:
No, Mayer is not barred by prescription. Section 3(6) of the Carriage of Goods by Sea Act reveals that
the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the
contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The
latter case is governed by the Insurance Code.
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer
which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at
bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all risks"
insurance policies issued by private respondents to petitioner Mayer. The ruling in Filipino Merchants should
apply only to suits against the carrier filed either by the shipper, the consignee or the insurer. When the court
said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant
that the insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period
provided in the law. But it does not mean that the shipper may no longer file a claim against the insurer
because the basis of the insurer's liability is the insurance contract. An insurance contract is a contract
whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or
damage which he may suffer from a specified peril. An "all risks" insurance policy covers all kinds of loss
other than those due to willful and fraudulent act of the insured. Thus, when private respondents issued the
"all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or
damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the
New Civil Code.
Fire
Development Insurance Corporation v. Court of Appeals

G.R. No. L-71360, July 16, 1986, Cruz J.
An open policy is one in which the value of the thing insured is not agreed upon but is left to be
ascertained in case of loss. This means that the actual loss, as determined, will represent the total indemnity due
the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy.
Facts:
A fire occurred in the building of the private respondent and it sued for recovery of damages against
the Development Insurance Corporation on the basis of an open insurance contract between them.
Development argues that the private respondent should be considered its own insurer for the difference
between that amount and the face value of the policy and should share pro rata in the loss sustained.
Issue:
Whether or not the private respondent shall be considered as an insurer of its own under an open
insurance contract.
Ruling:
No. The Court notes that the policy is an open policy which was stipulated by the parties in the
contract. Section 60 of the Insurance Code, "an open policy is one in which the value of the thing insured is
not agreed upon but is left to be ascertained in case of loss." This means that the actual loss, as determined,
will represent the total indemnity due the insured from the insurer except only that the total indemnity shall
not exceed the face value of the policy. Hence, applying the open policy clause as expressly agreed upon by
the parties in their contract, we hold that the private respondent is entitled to the payment of indemnity
under the said contract in the total amount.
Pacific Banking Corporation v. Court of Appeals

G.R. No. L-41014, November 28, 1988, Paras, J.
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. It clearly indicates the insured violated the
condition 3 which makes the contract of insurance void or inexistent.
Facts:
A Fire Policy was issued to the Paramount Shirt Manufacturing Co by which private respondent
Oriental Assurance Corporation bound itself to indemnify the insured for any loss or damage, caused by fire
to its property. Said policy was duly endorsed to Pacific Banking as mortgagee/ trustor of the properties
insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy
is payable to the Pacific Banking Corporation". While the aforesaid policy was in full force and effect, a fire
broke out on the subject premises destroying the goods contained in its ground and second floors. Pacific
Banking sent a letter of demand to private respondent for indemnity due to the loss of property by fire under
the endorsement of said policy but it was denied because of the fact that the insured has failed to file any
claim which is violative of condition no. 20 which requires every notice and other communications to the
insurer to be written or printed by the insured. It was also revealed that the insured has failed to disclose that
there are other insurance companies that insures the same property which violated condition no. 3 of the
insurance contract which states that the Insured shall give notice to the Company of any insurance already
effected, or which may subsequently be effected, covering any of the property hereby insured, and unless
such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this
Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefit under this
policy shall be forfeited.
Issue:
Whether or not Pacific may still claim indemnity.
Ruling:
No. Pacific cannot claim for indemnity. It is not disputed that the insured failed to reveal before the
loss three other insurances. By reason of the said unrevealed insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal
but did not, that was deception. Otherwise stated, had the insurer known that there were many co-
insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured
was guilty of clear fraud.
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. It clearly indicates the insured
violated the condition 3 which makes the contract of insurance void or inexistent
Philippine Home Assurance Corporation v. Court of Appeals and Eastern Shipping Lines Inc.
G.R. No. 106999, June 20, 1996, Kapunan J.
Fire may not be considered a natural disaster or calamity since it almost always arises from some act of
man or by human means. It cannot be an act of God unless caused by lightning or a natural disaster or casualty
not attributable to human agency.
Facts:
Eastern Shipping Lines, Inc. (ESLI) while the vessel was off Okinawa, Japan, a small flame was
detected on the acetylene cylinder located in the accommodation area near the engine room on the main deck
level. As the crew was trying to extinguish the fire, the acetylene cylinder suddenly exploded sending a flash
of flame throughout the accommodation area, thus causing death and severe injuries to the crew and
instantly setting fire to the whole superstructure of the vessel. The incident forced the master and the crew to
abandon the ship. Thereafter, SS Eastern Explorer was found to be a constructive total loss and its voyage was
declared abandoned. Several hours later, a tugboat under the control of Fukuda Salvage Co. arrived near the
vessel and commenced to tow the vessel for the port of Naha, Japan thereafter the fire fighting operations
were conducted and the fire was extinguished, the cargoes which were saved were loaded to another vessel
for delivery to their original ports of destination. ESLI charged the consignees several amounts corresponding
to additional freight and salvage charges which were all paid by Philippine Home Assurance Corporation
(PHAC) under protest for and in behalf of the consignees. PHAC, as subrogee of the consignees, thereafter
filed a complaint before the Regional Trial Court of Manila, Branch 39, against ESLI to recover the sum paid
under protest on the ground that the same were actually damages directly brought about by the fault,
negligence, illegal act and/or breach of contract of ESLI.
Issue:
Whether or not the fire is considered as fortuitous event
Ruling:
No, Fire may not be considered a natural disaster or calamity since it almost always arises from some
act of man or by human means. It cannot be an act of God unless caused by lightning or a natural disaster or
casualty not attributable to human agency.
In the case at bar, it is not disputed that a small flame was detected on the acetylene cylinder and that
by reason thereof, the same exploded despite efforts to extinguish the fire. Neither is there any doubt that the
acetylene cylinder, obviously fully loaded, was stored in the accommodation area near the engine room and
not in a storage area considerably far, and in a safe distance, from the engine room. Moreover, there was no
showing, and none was alleged by the parties, that the fire was caused by a natural disaster or calamity not
attributable to human agency. On the contrary, there is strong evidence indicating that the acetylene cylinder
caught fire because of the fault and negligence of respondent ESLI, its captain and its crew.
First, the acetylene cylinder which was fully loaded should not have been stored in the
accommodation area near the engine room where the heat generated therefrom could cause the acetylene
cylinder to explode by reason of spontaneous combustion. Respondent ESLI should have easily foreseen that
the acetylene cylinder, containing highly inflammable material was in real danger of exploding because it was
stored in close proximity to the engine room.
Second, respondent ESLI should have known that by storing the acetylene cylinder in the
accommodation area supposed to be reserved for passengers, it unnecessarily exposed its passengers to
grave danger and injury. Curious passengers, ignorant of the danger the tank might have on humans and
property, could have handled the same or could have lighted and smoked cigarettes while repairing in the
accommodation area.
Third, the fact that the acetylene cylinder was checked, tested and examined and subsequently
certified as having complied with the safety measures and standards by qualified experts 7 before it was
loaded in the vessel only shows to a great extent that negligence was present in the handling of the acetylene
cylinder after it was loaded and while it was on board the ship. Indeed, had the respondent and its agents not
been negligent in storing the acetylene cylinder near the engine room, then the same would not have leaked
and exploded during the voyage.
Verily, there is no merit in the finding of the trial court to which respondent court erroneously
agreed that the fire was not the fault or negligence of respondent but a natural disaster or calamity. The
records are simply wanting in this regard.
Casualty
Fortune Insurance and Surety Co Inc. v. Court of Appeals and Producers Bank of the Philippines
G.R. No. 115278, May 23, 1995, Davide, Jr. J.
Casualty insurance (including theft/robbery insurance) is governed by the general provisions applicable
to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the
terms of their contract, taking into consideration its purpose and always in accordance with the general
principles of insurance law.
Facts:
An armored car of the plaintiff, while in the process of transferring cash under the custody of its
teller, Maribeth Alampay, from its Pasay Branch to its Head Office, was robbed of the said cash. The robbery
took place while the armored car was traveling along Taft Avenue in Pasay City. The said armored car was
driven by Benjamin Magalong, escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was
assigned by PRC Management Systems with the plaintiff by virtue of an Agreement. The Security Guard Atiga
was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue of a contract of Security Service.
After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were
charged, with violation of Anti-Highway Robbery Law
Demands were made by the plaintiff upon the defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance policy.
The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its
"officer, employee, trustee or authorized representative at the time of the robbery.
Issue:
Whether or not the Fortune shall be liable for indemnification.
Ruling:
No, Fortune shall not be held liable. It should be noted that the insurance policy entered into by the
parties is a theft or robbery insurance policy which is a form of casualty insurance.
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights
and obligations of the parties must be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance law.
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their policies
with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of
all losses due to the hazards insured against." Persons frequently excluded under such provisions are those
in the insured's service and employment. The purpose of the exception is to guard against liability should the
theft be committed by one having unrestricted access to the property. In such cases, the terms specifying the
excluded classes are to be given their meaning as understood in common speech. The terms "service" and
"employment" are generally associated with the idea of selection, control, and compensation.
Melecio Coquia et al v. Fieldmen’s Insurance Co. Inc

G.R. No. L-23276, November 29, 1968, Concepcion, C.J
In general, only parties to a contract may bring an action based thereon, this rule is subject to
exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines. If a
contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third
person.
Facts:
Fieldmen's Insurance Company, Inc. issued, in favor of the Manila Yellow Taxicab Co., Inc. a common
carrier accident insurance policy, The Fieldmen's will, subject to the Limits of Liability and under the Terms
of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor
Vehicle against all sums which the Insured will become legally liable to pay. While the policy was in force, a
taxicab of the Insured, driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in
consequence of which Carlito died. The Insured filed therefor a claim for P5,000.00 to which the Fieldmen's
replied with an offer to pay P2,000.00, by way of compromise. The Insured rejected the same and made a
counter-offer for P4,000.00, but the Fieldmen's did not accept it. Hence, the Insured and Coquias filed a
complaint against the Company to collect the proceeds of the aforementioned policy. In its answer, the
Company admitted the existence thereof, but pleaded lack of cause of action on the part of the plaintiffs. The
company contended that the Coquias have no contractual relation with the Company; and the Insured has not
complied with the provisions of the policy concerning arbitration.
Issues:
Whether or not the parties involved have to contractual relationship.
Ruling:
No, Coquias have contractual relation with Fieldmens. In general, only parties to a contract may bring
an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of
Article 1311 of the Civil Code of the Philippines. If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person. This is but the restatement of a well-
known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third
party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor
has been revoked by the contracting parties.
Pursuant to the insurance, the company "will indemnify any authorized Driver who is driving the
Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise,
"indemnify his personal representatives." In fact, the Company "may, at its option, make indemnity payable
directly to the claimants or heirs of claimants.
Thus, the policy under consideration is typical of contracts pour autrui, It is clear that the Coquias —
who, admittedly, are the sole heirs of the deceased — have a direct cause of action against the Company, and,
since they could have maintained this action by themselves, without the assistance of the Insured, it goes
without saying that they could and did properly join the latter in filing the complaint herein.
FAR EASTERN SURETY & INSURANCE COMPANY, INC. v. SOCORRO DANCEL VDA. DE MISA, ARACELI
MARIA PINTO and LA MALLORCA
G.R. No. L-24377, October 26, 1968, REYES, J.B.L., J.
As it does not appear that the insurance company authorized or consented to, or even knew of, the
representation made by the taxicab company to its passengers, it follows that the source of the award of
damages against the taxicab company was beyond, or outside of, the contemplation of the parties to the contract
of Accident Insurance No. CCA 106, and that the insurer may not be held liable for such damages.
FACTS:
Socorro Dancel Vda. de Misa and Araceli Pinto hired a taxicab operated by La Mallorca which collided
with a gravel and sand truck driven by one Faustino Nabor. As a result, the two passengers were injured and
consequently filed a suit for damages against La Mallorca (taxicab operator). The operator denied liability but
it instituted a third party complaint against Far Eastern Surety and Insurance Company to recoup from the
latter, based on its Common Carrier's Accident Insurance No. CCA 106, any damages that might be recovered
by the taxicab passengers. The insurer denied responsibility. After trial, the CFI awarded to Vda. de Misa and
Pinto damages and attorney's fees payable by La Mallorca and sentenced the insurance company to pay to La
Mallorca on its third party liability insurance. On appeal, the CA, while holding that the collision was due to
the fault of the driver of the sand truck nevertheless held the taxicab operator liable in damages to the
passengers of its motor vehicle on the strength of its representation that the passengers were insured
against accidents as shown by the sticker affixed to the taxicab. The CA also adjudged the said insurer
answerable to La Mallorca in view of its third party liability insurance contract. The insurer filed a motion for
reconsideration but it was denied by the CA. Hence, this petition.
ISSUE:
Whether or not the insurer is liable to the insured La Mallorca on its policy of insurance.
RULING:
NO. The policy of insurance limited the recovery of the insured to "all sums including claimant's"
(passengers in this case) "cost and expenses which the Insured shall become legally liable" in the "event of
accident caused by or arising out of the use of the Motor Vehicle;" and the appealed decision itself shows that
the indemnity awarded to the passengers of the La Mallorca taxicab was not because of the accident but was
exclusively predicated on the representation made by the taxicab company to its passengers that the latter
were insured against accidents. Hence, la Mallorca was in estoppel, and could not be heard to deny that its
passengers were insured. However, it does not necessarily follow that the estoppel, likewise, applied to the
insurer. The CA ruled that only the negligence of the driver of the sand and gravel truck was the causative
factor of the mishap, and made no pronouncement that the driver of the taxicab in any way contributed
thereto; so that, had it not been for its representation that its passengers were insured, the taxicab company
would not have been liable at all. As it does not appear that the insurance company authorized or consented
to, or even knew of, the representation made by the taxicab company to its passengers, it follows that the
source of the award of damages against the taxicab company was beyond, or outside of, the contemplation of
the parties to the contract of Accident Insurance No. CCA 106, and that the insurer may not be held liable for
such damages.
FINMAN GENERAL ASSURANCE CORPORATION v. THE HONORABLE COURT OF APPEALS and JULIA
SURPOSA
G.R. No. 100970 September 2, 1992, NOCON, J.
The failure of the insurance company to include death resulting from murder or assault among the
prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for
such death. . Where the death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the
protection of the policies insuring against death or injury from accident.
FACTS:
Carlie Surposa was insured with Finman General Assurance Corporation under Finman General
Teachers Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents and
brothers, all surnamed Surposa, as beneficiaries. While said insurance policy was in full force and effect,
Carlie Surposa died as a result of a stab wound inflicted by one of the three (3) unidentified men without
provocation and warning on the part of the former as he and his cousin were waiting for a ride on their way
home after attending the celebration of the "Maskarra Annual Festival." Julia Surposa and the other
beneficiaries of said insurance policy filed a written notice of claim with the insurance company which denied
said claim contending that murder and assault are not within the scope of the coverage of the insurance
policy. Moreover, said death was said to be committed with deliberate intent which, by the very nature of a
personal accident insurance policy, cannot be indemnified. This prompted the beneficiaries to file a complaint
with the Insurance Commission which subsequently ordered the insurance company to pay complainants the
insurance policy proceeds with interest. The CA affirmed said decision. Hence, this petition.
ISSUE:
Whether or not murder and assault as the causes of the insured’s death are not accidental thus not
within the scope of the coverage of the insurance policy.
RULING:
NO. Where the death or injury is not the natural or probable result of the insured's voluntary act, or
if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within
the protection of the policies insuring against death or injury from accident. In this case, the insured died
from an event that took place without his foresight or expectation, an event that proceeded from an unusual
effect of a known cause and, therefore, not expected. Neither can it be said that where was a capricious desire
on the part of the accused to expose his life to danger considering that he was just going home after attending
a festival. Moreover, the personal accident insurance policy involved herein specifically enumerated only ten
(10) circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or
loss suffered by the insured as a result of any of the stimulated causes. The principle of " expresso unius
exclusio alterius" — the mention of one thing implies the exclusion of another thing — is therefore applicable
in the instant case since murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy, cannot be considered by implication to
discharge the petitioner insurance company from liability for, any injury, disability or loss suffered by the
insured. Thus, the failure of the petitioner insurance company to include death resulting from murder or
assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt
itself from liability for such death.
Suretyship
FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME INSURANCE

CORPORATION) v. CHEVRON PHILIPPINES, INC.
G.R. No. 177839, January 18, 2012, VILLARAMA, JR., J.
The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to
the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the
principal contract between the obligor and the obligee (Sec. 176, Insurance Code).
FACTS:
Chevron Philippines, Inc. sued First Lepanto-Taisho Insurance Corporation (FLT) for the payment of
unpaid oil and petroleum purchases made by its distributor Fumitechniks Corporation. Fumitechniks had
applied for and was issued Surety Bond FLTICG No. 01012 by FLT for the amount of P15,700,000. As stated in
the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the
CHEVRON to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated
time in accordance with the terms and conditions of the agreement. Fumitechniks defaulted on its obligation.
Thus, CHEVRON demanded from FLT the payment of its claim under the surety bond. However, FLT said that
without the basic contract subject of the bond, it cannot act on CHEVRON’s claim. This compelled CHEVRON
to file a collection case against FLT. The RTC dismissed the complaint. Said court found that the terms and
conditions of the oral credit line agreement between CHEVRON and Fumitechniks have not been relayed to
FLT and neither were the same conveyed even during trial. Since the surety bond is a mere accessory
contract, the RTC concluded that the bond cannot stand in the absence of the written agreement secured
thereby. The CA ruled in favor of CHEVRON. Hence, this petition.
ISSUE:
Whether or not a surety is liable to the creditor in the absence of a written contract with the
principal.
RULING:
No. Section 176 of the Insurance Code states: The liability of the surety or sureties shall be joint and
several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of
the contract of suretyship in relation to the principal contract between the obligor and the obligee. A surety
contract is merely a collateral one, its basis is the principal contract or undertaking which it secures.
Necessarily, the stipulations in such principal agreement must at least be communicated or made known to
the surety particularly in this case where the bond expressly guarantees the payment of CHEVRONs fuel
products withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement.
Having accepted the bond, CHEVRON as creditor must be held bound by the recital in the surety bond that the
terms and conditions of its distributorship contract be reduced in writing or at the very least communicated in
writing to the surety. However, CHEVRON did not reduce the oral credit line agreement into writing nor made
any effort to relay those terms and conditions of its contract with Fumitechniks upon the commencement of
its transactions with said client, which obligations are covered by the surety bond issued by FLT. There is
neither any indication in the records that FLT had actual knowledge of its alleged business practice of not
having written contracts with distributors. Such non-compliance by the CHEVRON impacts not on the validity
or legality of the surety contract but on its right to demand performance.
NATIONAL POWER CORPORATION, v. COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL

INSURANCE CO., INC.
G.R. No. L-43706, November 14, 1986, PARAS, J.
The 30-day notice adverted to in the surety bond applies to the completion of the work by the
contractor. The breach of contract in this case, that is, the abandonment of the unfinished work of the
transmission line of the petitioner by the contractor Far Eastern Electric, Inc. was within the effective date of the
contract and the surety bond. Such abandonment gave rise to the continuing liability of the bond as provided for
in the contract which is deemed incorporated in the surety bond executed for its completion.
FACTS:
The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc.
(FFEI) for the erection of the Angat Balintawak 115-KW-3-Phase transmission lines for the Angat
Hydroelectric Project within 120 days from the signing of the contract. PHILAMGEN issued a surety bond for
the faithful performance of the undertaking by FEEI, as required. The condition of the bond provides that the
liability of the PHILAMGEN under the bond will expire One (1) year from final Completion and Acceptance and
said bond will be cancelled 30 days after its expiration, unless surety is notified of any existing obligation
thereunder. Should FEEI fail to complete the construction of the work, or if the work is abandoned, NPC shall
have the power to take over the work by giving notice in writing to that effect to the Contractor and his sureties
of such intention. In the event the NPC takes over the work from the Contractor, the latter and his bondsmen
shall continue to be liable under this contract for any expense in the completion of the work and the bond
filed by the Contractor shall be answerable for the same and for any and all damages that the Corporation
may suffer as a result thereof. Within the 120 day period, the work was abandoned by FEEI due to financial
difficulties. NPC wrote PHILAMGEN informing it of the withdrawal of FEEI from the work and formally held
both FEEI and PHILAMGEN liable for the construction costs. On September 30, 1963, the work was
completed by NPC. Thereafter, it demanded from PHILAMGEN the remittance of the amount of the surety
bond to answer for the cost of completion of the work. However, PHILAMGEN did not pay but contended
instead that its liability under the bond has expired on September 20, 1964 and claimed that no notice of any
obligation of the surety was made within 30 days after its expiration. NPC thus filed a collection case against
PHILAMGEN. The trial court rendered judgment in favor of NPC. On appeal by PHILAMGEN, the Court of
Appeals reversed the lower court's decision and dismissed the complaint. Hence this petition.
ISSUE:
Whether or not NPC should have given notice to PHILAMGEN of any existing obligation within 30
days from expiration of the bond to hold PHILAMGEN liable thereunder.
RULING:
NO. The 30-day notice adverted to in the surety bond applies to the completion of the work by the
contractor. This completion by the contractor never materialized. In the case at bar, it cannot be denied that
the breach of contract in this case, that is, the abandonment of the unfinished work of the transmission line of
the petitioner by the contractor Far Eastern Electric, Inc. was within the effective date of the contract and the
surety bond. Such abandonment gave rise to the continuing liability of the bond as provided for in the
contract which is deemed incorporated in the surety bond executed for its completion.
FINMAN GENERAL ASSURANCE CORP. v. WILLIAM INOCENCIO, ET AL. AND EDWIN CARDONES, THE
ADMINISTRATOR, PHILIPPINE OVERSEAS AND EMPLOYMENT ADMINISTRATION, THE SECRETARY OF
LABOR AND EMPLOYMENT
G.R. No. 90273-75, November 15, 1989, J. Feliciano
The posting of the bond was in compliance with Article 31 of the Labor Code which states that
applicants for license or authority shall post such cash and surety bonds as determined by the Secretary of Labor
to guarantee compliance with prescribed recruitment procedures, rules and regulations, and terms and,
conditions of employment as appropriate. Section 176 of the Insurance Code provides that the liability of a surety
in a surety bond is joint and several with the principal obligor. It is settled doctrine that the conditions of a bond
specified and required in the provisions of the statute or regulation providing for the submission of the bond, are
incorporated or built into all bonds tendered under that statute or regulation, even though not there set out in
printer's ink.
Facts:
William Inocencio, Perfecto Palero, Jr., Edwin Cardones and Edwin Hernandez filed with the POEA
separate complaints against Pan Pacific for violation of Articles 32 and 34 (a) of the Labor Code for refund of
placement fees paid to the latter. Acting on the complaint, the POEA Administrator motu proprio impleaded
Finman General Assurance Corp. as party respondent in its capacity as surety for Pan Pacific. In its answer,
Finman denied liability and pleaded that the POEA had no jurisdiction over surety bonds and complainants
had no cause of action against it since it was not privy to the transactions between them and Pan Pacific and
had not received any moneys from them. The POEA Administrator ruled that Pan Pacific and Finman jointly
and severally liable to pay complainants' claims. On appeal to the Secretary of Labor, it insisted that the POEA
had no authority to implead petitioner as party respondent in the proceedings before it and it had no
authority to enforce directly the surety bond against petitioner. The Secretary of Labor upheld the POEA
Order appealed from and denied the appeal for lack of merit.
Issue:
Whether or not Finman is solidarily liable as a surety with Pan Pacific.

Ruling:
Yes. Section 176 of the Insurance Code provides that the liability of a surety in a surety bond is joint
and several with the principal obligor. Article 31 of the Labor Code and Section 4, Rule II, Book I of the POEA
Rules and Regulations require the posting of the cash and surety bond to guarantee compliance with
prescribed recruitment procedures, rules and regulations, and terms and, conditions of employment as
appropriate. It is settled doctrine that the conditions of a bond specified and required in the provisions of the
statute or regulation providing for the submission of the bond, are incorporated or built into all bonds
tendered under that statute or regulation, even though not there set out in printer's ink.
In this case, the POEA held, and the Secretary of Labor affirmed, that Pan Pacific had violated Articles
32 and 34 of the Labor Code. Being a party-in-interest, POEA could properly implead Finman as party
respondent to the proceedings initiated against Pan Pacific the principal obligor.
Art. 31 of the Labor Code states that the Secretary of Labor shall have the exclusive power to
determine, decide, order or direct payment from, or application of, the cash or surety bond for any claim or
injury covered and guaranteed by the bonds. Cash and surety bonds are required by the POEA and its
predecessor agencies from recruitment and employment companies precisely as a means of ensuring prompt
and effective recourse against such companies when held liable for applicants or workers' claims. Clearly that
public policy will be effectively negated if POEA and the Department of Labor and Employment were held
powerless to compel a surety company to make good on its solidary undertaking in the same quasi-judicial
proceeding where the liability of the principal obligor, the recruitment or employment agency, is determined
and fixed and where the surety is given reasonable opportunity to present any defenses it or the principal
obligor may be entitled to set up.
COUNTRY BANKERS INSURANCE CORPORATION v. ANTONIO LAGMAN

G.R. No. 165487, July 13, 2011, Perez J.
The official receipts in question serve as proof of payment of the premium for one year on each surety
bond. It does not, however, automatically mean that the surety bond is effective for only one (1) year. In fact, the
effectivity of the bond is not wholly dependent on the payment of premium. Section 177 of the Insurance Code
specifies that a continuing bond, as in this case where there is no fixed expiration date, may be cancelled only by
the obligee, which is the NFA, by the Insurance Commissioner, and by the court.
Facts:
Country Bankers Insurance Corporation issued two warehouse bonds in favour of Nelson Santos.
Antonio Lagman, the former’s agent entered into indemnity agreements as surety with Santos as the principal
obligor, Ban Lee Lim Santos and Rhosemelita Reguine. When Santos defaulted in the payment of the loan
contracted by him, Country Bankers was compelled to pay by virtue of the surety bonds. The latter then filed
a complaint to recover sum of money before the RTC of Manila. The trial court rendered judgment declaring
Reguine and Lagman jointly and severally liable to pay Country Bankers but as against Nelson Santos and Ban
Lee Lim Santos, the case was dismissed because the court did not acquire jurisdiction over them. The trial
court rationalized that the bonds remain in force unless cancelled by the Administrator of the NFA and cannot
be unilaterally cancelled by Lagman. However, the CA reversed the said decision holding that the bonds were
effective only for one (1) year, as evidenced by the receipts on the payment of premiums.
Issue:
Whether or not the bonds issued by Country Bankers are effective only for one year.
Ruling:
No. The official receipts in question serve as proof of payment of the premium for one year on each
surety bond. It does not, however, automatically mean that the surety bond is effective for only one (1) year.
In fact, the effectivity of the bond is not wholly dependent on the payment of premium. Section 177 of the
Insurance Code specifies that a continuing bond, as in this case where there is no fixed expiration date, may
be cancelled only by the obligee, which is the NFA, by the Insurance Commissioner, and by the court.
By law and by the specific contract involved in this case, the effectivity of the bond required for the
obtention of a license to engage in the business of receiving rice for storage is determined not alone by the
payment of premiums but principally by the Administrator of the NFA. From beginning to end, the
Administrator’s brief is the enabling or disabling document. The clear import of these provisions is that the
surety bonds in question cannot be unilaterally cancelled by Lagman. He is bound by the Indemnity
Agreements. Payments made by Country Bankers by virtue of the 1989 Bonds gave rise to Lagman’s
obligation to reimburse it under the Indemnity Agreements. Lagman, being a solidary debtor, is liable for the
entire obligation.
Life
RE: CLAIMS FOR BENEFITS OF THE HEIRS OF THE LATE MARIO V. CHANLIONGCO, FIDELA B.
CHANLIONGCO, MARIO B. CHANLIONGCO II, MA. ANGELINA C. BUENAVENTURA and MARIO C.
CHANLIONGCO, JR.,
A.M. No. 190 October 18, 1977 Makasiar, J.
The retirement benefits shall accrue to his estate and will be distributed among his legal heirs in
accordance with the law on intestate succession, as in the case of a life insurance if no beneficiary is named in the
insurance policy.
FACTS:
The heirs of the late Atty. Mario v. Chanliongco, an attorney of the SC, filed claims for retirement
benefits and a separate application with the GSIS. It appears that the GSIS had already released the life
insurance proceeds and the refund of retirement premiums to the claimants.
ISSUE:
Whether the retirement benefits of the deceased should accrue to the claimants.
RULING:
Yes. The record also shows that the late Atty. Chanliongco died ab intestato and that he failed or
overlooked to state in his application for membership with the GSIS the beneficiary or beneficiaries of his
retirement benefits, should he die before retirement. Hence, the retirement benefits shall accrue to his estate
and will be distributed among his legal heirs in accordance with the law on intestate succession, as in the case
of a life insurance if no beneficiary is named in the insurance policy.
THE INSULAR LIFE ASSURANCE COMPANY, LTD. v. CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO
GR. No. L-44059 October 28, 1977 MARTIN, J.
Under Article 2012 of the Civil Code, "any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to
him." Common-law spouses are, definitely, barred from receiving donations from each other.
FACTS:
Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., policy on a whole-life for
P5,882.00 with a, rider for Accidental Death for the same amount. Buenaventura designated Carponia as the
revocable beneficiary in his policy. He referred to her as his wife. Buenaventura died and so Carponia filed a
claim for the proceeds, although she admits that they were merely living as husband and wife without the
benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. The
Insular Life Assurance Co., Ltd. commenced an action for Interpleader before the CFI. The trial
court rendered judgment declaring Carponia disqualified from becoming beneficiary of the insured and
directing the payment of the insurance proceeds to the estate of the deceased insured. Carponia appealed
before the CA, but if was certified to the SC as involving purely question of law.
ISSUE:
Whether or not a common-law wife named as beneficiary in the life insurance policy of a legally
married man can claim the proceeds thereof in case of death of the latter.
RULING:
No. The general rules of civil law should be applied to resolve this void in the Insurance Law. Article
2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code." When not otherwise specifically
provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil
law regulating contracts. And under Article 2012 of the same Code, "any person who is forbidden from
receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person
who cannot make a donation to him." Common-law spouses are, definitely, barred from receiving donations
from each other.
In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because
from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the
proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any
person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the
person who cannot make the donation. Under American law, a policy of life insurance is considered as a
testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a
clause designating the beneficiary by rules under which wins are interpreted.
GREAT PACIFIC LIFE ASSURANCE COMPANY v. HONORABLE COURT OF APPEALS

G.R. No. L-31845 April 30, 1979 DE CASTRO, J
Where an agreement is made between the applicant and the agent, no liability shall attach until the
principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a
"binding slip" or "binding receipt" does not insure by itself.
FACTS:
Ngo Hing filed an application with the Great Pacific Life Assurance Company (Pacific Life) for a
twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen
Go. He supplied the essential data to Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu
City. Upon the payment of the insurance premuim, the binding deposit receipt was issued to Ngo Hing.
Likewise, Mondragon handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Mondragon received a letter from Pacific Life
disapproving the insurance application. The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by Mondragon to Ngo Hing. Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but having
failed in his effort, he filed the action for the recovery of the same before the CFI, which rendered adverse
decision against Pacific Life and Mondragon.
ISSUES:
Whether the binding deposit receipt constituted a temporary contract of the life insurance in
question.
RULING:
No. At the back of binding deposit receipt are condition precedents required before a deposit is
considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the insurance
application, ON or PRIOR to the date of medical examination ... said insurance shan be in force
and in effect from the date of such medical examination, for such period as is covered by the
deposit ..., PROVIDED the company shall be satisfied that on said date the applicant was
insurable on standard rates under its rule for the amount of insurance and the kind of policy
requested in the application.
D. If the Company does not accept the application on standard rate for the amount of
insurance and/or the kind of policy requested in the application but issue, or offers to issue a
policy for a different plan and/or amount ..., the insurance shall not be in force and in effect
until the applicant shall have accepted the policy as issued or offered by the Company and shall
have paid the full premium thereof. If the applicant does not accept the policy, the deposit
shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company
declines to approve the application the insurance applied for shall not have been in force at any
time and the sum paid be returned to the applicant upon the surrender of this receipt.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely
an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for processing by the insurance company;
and that the latter will either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure
outright. As held by this Court, where an agreement is made between the applicant and the agent, no liability
shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely
conditional and is subordinated to the act of the company in approving or rejecting the application. Thus, in
life insurance, a "binding slip" or "binding receipt" does not insure by itself.
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN v. THE COURT OF APPEALS and THE
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
G.R. No. 48049 June 29, 1989 GUTIERREZ, JR., J.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are concerned if the
insurance has been in force for at least two years during the insured's lifetime. The phrase "during the lifetime"
found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The
key phrase in the second paragraph of Section 48 is "for a period of two years."
FACTS:
Tan Lee Siong, father of Emilio Tan, applied for life insurance with Philippine American Life
Insurance Company (PhilAm LIfe). Said application was approved and the policy was issued effective
November 6,1973, with petitioners as the beneficiaries.
Tan Lee Siong died of hepatoma. Petitioners filed with PhilAm Life their claim for the proceeds of the
life insurance policy. However, it denied petitioners' claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application
for insurance.Petitioners filed on a complaint against PhilAm Life with the Office of the Insurance
Commissioner but it was dismissed. On appeal, CA was dismissed the same for lack of merit.
The petitioners contend that the respondent company no longer had the right to rescind the contract
of insurance as rescission must allegedly be done during the lifetime of the insured within two years and
prior to the commencement of action.
ISSUE:
Whether or not PhilAm Life has the right to rescind the policy contract even if the insured is already
dead.
RULING:
Yes. The so-called "incontestability clause" precludes the insurer from raising the defenses of false
insurance has been in force for at least two years during the insured's lifetime. The phrase "during the
lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured
has died. The key phrase in the second paragraph of Section 48 is "for a period of two years." As noted by the
Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on April 26,1975. The
policy was thus in force for a period of only one year and five months. Considering that the
insured died before the two-year period had lapsed, respondent company is not, therefore,
barred from proving that the policy is void ab initio by reason of the insured's fraudulent
concealment or misrepresentation. Moreover, respondent company rescinded the contract
of insurance and refunded the premiums paid on September 11, 1975, previous to the
commencement of this action on November 27,1975.
The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such period.
After two years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no
longer lie. Congress felt this was a sufficient answer to the various tactics employed by insurance companies
to avoid liability. The petitioners' interpretation would give rise to the incongruous situation where the
beneficiaries of an insured who dies right after taking out and paying for a life insurance policy, would be
allowed to collect on the policy even if the insured fraudulently concealed material facts.
SUN INSURANCE OFFICE, LTD. v. THE HON. COURT OF APPEALS and NERISSA LIM
G.R. No. 92383 July 17, 1992 CRUZ, J.
An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it
happens. It has also been defined as an injury which happens by reason of some violence or casualty to the
injured without his design, consent, or voluntary co-operation. There is nothing in the policy that relieves the
insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his
own accident. Indeed, most accidents are caused by negligence.
FACTS:
Sun Insurance issued Personal Accident Policy to Felix Lim, Jr. with a face value of P200,000.00. Two
months later, according to Pilar Nalagon, Lim's secretary, Lim was in a happy mood (but not drunk) and was
playing with his handgun, from which he had previously removed the magazine. As she watched television, he
stood in front of her and pointed the gun at her. She pushed it aside and said it might he loaded. He assured
her it was not and then pointed it to his temple. The next moment there was an explosion and Lim slumped to
the floor. He was dead before he fell. As beneficiary, his wife Nerissa Lim sought payment on the policy but
her claim was rejected. The Sun Insurance agreed that there was no suicide. It argued, however that there
was no accident either. Nerissa sued Sun Insurance before the RTC and was sustained. On appeal, CA
approved the payment of the claim and the award of damages.
ISSUE:
Whether or not the cause of death was an accident.
RULING:
Yes. The term "accident" has been defined as follows: An accident is an event which happens without
any human agency or, if happening through human agency, an event which, under the circumstances, is
unusual to and not expected by the person to whom it happens. It has also been defined as an injury which
happens by reason of some violence or casualty to the injured without his design, consent, or voluntary co-
operation.
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, says that "there is no
accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There was such a happening. This
was the firing of the gun, which was the additional unexpected and independent and unforeseen occurrence
that led to the insured person's death.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent
his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing
in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There are
only four exceptions expressly made in the contract to relieve the insurer from liability, and none of these
exceptions is applicable in the case at bar.
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG
v.EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN
MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT
PACIFIC LIFE ASSURANCE CORPORATION
G.R. No. 181132 June 5, 2009 NACHURA, J.
No legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured.
It is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or
the beneficiary, if the insured is already deceased, upon the maturation of the policy. The exception to this rule is
a situation where the insurance contract was intended to benefit third persons who are not parties to the same
in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from
the insurer.
FACTS:
Petitioners are the legitimate wife and children of Loreto Maramag, while respondents were Loreto's
illegitimate family designated as beneficiaries in his insurance with Insular Life and Great Pacific Life.
Petitioners filed before the RTC a complaint for revocation and/or reduction of insurance proceeds for being
void and/or inofficious, with prayer for TRO and a writ of preliminary injunction against the respondents.
RTC dismissed the complaint against the respondents and held, among others, that it is only in cases where
there are no beneficiaries designated, or when the only designated beneficiary is disqualified, that the
proceeds should be paid to the estate of the insured. CA dismissed the appeal of the petitioners for lack of
jurisdiction.
ISSUE:
Whether or not members of the legitimate family is entitled to the proceeds of the insurance for the
concubine.
RULING:
No. It is evident from the face of the complaint that petitioners are not entitled to a favorable
judgment in light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be
governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person
in whose name or for whose benefit it is made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of
the policy. The exception to this rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case,
third parties may directly sue and claim from the insurer.
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to
turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering that the designation of the illegitimate
children as beneficiaries in Loretos insurance policies remains valid. Because no legal proscription exists in
naming as beneficiaries the children of illicit relationships by the insured, the shares of Eva in the insurance
proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil
Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said
illegitimate children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the
insured has not designated any beneficiary, or when the designated beneficiary is disqualified by law to
receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the estate of the
insured.
Compulsory Motor Vehicle Liability Insurance
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI,

GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein
represented by their mother, FIGURACION VDA. DE MAGLANA v.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO
INSURANCE CORPORATION
G.R. No. 60506 August 6, 1992 ROMERO, J.
While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer. However, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with
the insured and/or the other parties found at fault.
FACTS:
Lope Maglana met an accident which caused his death. The PUJ jeep that bumped him was driven by
Pepito Into, operated and owned by Patricio Destrajo. Consequently, the heirs of Lope Maglana, Sr., filed an
action for damages and attorney's fees against operator Destrajo and the Afisco Insurance Corporation
(AFISCO for brevity) before the CFI. The lower court ordered AFISCO to reimburse defendant Destrajo
whatever amounts the latter shall have paid only up to the extent of its insurance coverage. The heirs of
Maglana filed a motion for the reconsideration contending that AFISCO should not merely be held secondarily
liable. It was denied. They filed a second motion for reconsideration but to no avail. Hence, this petition for
cetiorari where the heirs reassert their position that the insurance company is directly and solidarily liable
with the negligent operator up to the extent of its insurance coverage.
ISSUE:
Whether or not the AFISCO is directly and solidarily liable with Destrajo.
RULING:
No. Direct liability is not equivalent to solidary liability. Where an insurance policy insures directly
against liability, the insurer's liability accrues immediately upon the occurrence of the injury or even upon
which the liability depends, and does not depend on the recovery of judgment by the injured party against the
insured. The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle
Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such
injury, and to give such injured person a certain beneficial interest in the proceeds of the policy . . ." Since
petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is
now limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo.
While it is true that where the insurance contract provides for indemnity against liability to
third persons, such third persons can directly sue the insurer, however, the direct liability of
the insurer under indemnity contracts against third party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found at
fault. The liability of the insurer is based on contract; that of the insured is based on tort. In the
case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured
third party), but it cannot, as incorrectly held by the trial court, be made "solidarily" liable
with the two principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill,
Inc. For if petitioner-insurer were solidarily liable with said, two (2) respondents by reason of
the indemnity contract against third party liability — under which an insurer can be directly
sued by a third party — this will result in a violation of the principles underlying solidary
obligation and insurance contracts.
THE HEIRS OF GEORGE Y. POE v. MALAYAN INSURANCE COMPANY, INC.

G.R. No. 156302 April 7, 2009 CHICO-NAZARIO, J.
The direct liability of the insurer under indemnity contracts against third party liability does not mean,
however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault,
since they are being held liable under different obligations.
FACTS:
George Y. Poe was run over by a ten-wheeler hauler truck owned by Rhoda Santos Rhoda, and then
being driven by Willie Labrador. The said truck was insured with MICI. Upon filing of the heirs of George with
the RTC for damages against Rhoda and respondent MICI, the court held them solidarily liable. On appeal of
MICI, CA partially granted the petition for certiorari.
ISSUE:
Whether or not MICI is solidarily liable for the death of George.
RULING:
Yes. It is settled that where the insurance contract provides for indemnity against liability to third
persons, the liability of the insurer is direct and such third persons can directly sue the insurer. The direct
liability of the insurer under indemnity contracts against third party liability does not mean, however, that
the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are
being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on
tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from contract,
particularly, the insurance policy. The third-party liability of the insurer is only up to the extent of the
insurance policy and that required by law; and it cannot be held solidarily liable for anything beyond that
amount. Any award beyond the insurance coverage would already be the sole liability of the insured and/or
the other parties at fault.
Given the admission of respondent MICI that it is the insurer of the truck involved in the accident that
killed George, and in the utter absence of proof to establish both the existence and the extent/amount of the
alleged limited liability of respondent MICI as insurer, the Court could only conclude that respondent MICI
had agreed to fully indemnify third-party liabilities. Consequently, there is no more difference in the amounts
of damages which petitioners can recover from Rhoda or respondent MICI; petitioners can recover the said
amounts in full from either of them, thus, making their liabilities solidary or joint and several.
JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA v. THE INSURANCE

COMMISSION and EMPIRE INSURANCE COMPANY
G.R. No. L-54171, 28 October 1980, Acting C.J. TEEHANKEE
When a person, either with the object of going to a certain place, or learning how to drive, or enjoying a
free ride, takes possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft
because by taking possession of the personal property belonging to another and using it, his intent to gain is
evident since he derives therefrom utility, satisfaction, enjoyment and pleasure. The insurer must therefore
indemnify the petitioner owner for the total loss of the insured car under the theft clause of the policy.
Facts:
Villacorta had her Colt Lancer car insured with Empire Insurance Company against own damage,
theft and 3rd party liability. While the car was in the repair shop, one of the employees of the said repair shop
took it out for a joyride after which it figured in a vehicular accident. This resulted to the death of the driver
and some of the passengers as well as to extensive damage to the car.
Villacorta filed a claim for total loss with the said insurance company. However, it denied the claim
under the Theft Clause stating that the car was not stolen and therefore not covered by the Theft Clause
because it is not evident that the person who took the car for a joyride intends to permanently deprive the
insured of his/ her car.
Issue:
Whether or not the insurer company should pay the said claim.
Ruling:
Yes. Where the insured’s car is wrongfully taken without the insured’s consent from the car service
and repair shop to whom it had been entrusted for check-up and repairs (assuming that such taking was for a
joy ride, in the course of which it was totally smashed in an accident), respondent insurer is liable and must
pay insured for the total loss of the insured vehicle under the Theft Clause of the policy.
Assuming, despite the totally inadequate evidence, that the taking was “temporary” and for a “joy
ride”, the Court sustains as the better view that which holds that when a person, either with the object of
going to a certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle
belonging to another, without the consent of its owner, he is guilty of theft because by taking possession of
the personal property belonging to another and using it, his intent to gain is evident since he derives
therefrom utility, satisfaction, enjoyment and pleasure.
JAMES STOKES, as Attorney-in-Fact of Daniel Stephen Adolfson and DANIEL STEPHEN ADOLFSON v.
MALAYAN INSURANCE CO., INC.
G.R. No. L-34768, 24 February 1984, J. Plana
Under the "authorized driver" clause, an authorized driver must not only be permitted to drive by the
insured. It is also essential that he is permitted under the law and regulations to drive the motor vehicle and is
not disqualified from so doing under any enactment or regulation. At the time of the accident, Stokes had been in
the Philippines for more than 90 days. He was therefore not an "authorized driver" under the terms of the
insurance policy in question
Facts:
Daniel Adolfson had a subsisting Malayan car insurance policy with coverage against own damage as
well as third party liability when his car figured in a vehicular accident with another car, resulting to damage
to both vehicles. At the time of the accident, Adolfson’s car was being driven by James Stokes, who was
authorized to do so by Adolfson. Stokes, an Irish tourist who had been in the Philippines as a tourist for over
90 days without having obtained a Philippine driver’s license. Adolfson filed a claim with Malayan but the
latter refused to pay contending that Stokes was not an authorized driver under the “Authorized Driver”
clause.
Issue:
Whether or not Malayan is liable to pay the insurance claim of Adolfson.
Ruling:
NO. Under the "authorized driver" clause, an authorized driver must not only be permitted to drive
by the insured. It is also essential that he is permitted under the law and regulations to drive the motor
vehicle and is not disqualified from so doing under any enactment or regulation. At the time of the accident,
Stokes had been in the Philippines for more than 90 days. Section 21 of the Land Transportation and Traffic
Code provides:
"Operation of motor vehicles by tourists. — Bona fide tourists and similar transients who are duly
licensed to operate motor vehicles in their respective countries may be allowed to operate motor vehicles during
but not after ninety days of their sojourn in the Philippines.
He was therefore not an "authorized driver" under the terms of the insurance policy in question, and
MALAYAN was right in denying the claim of the insured.
ANDREW PALERMO v. PYRAMID INSURANCE CO., INC

G.R. No. L-36480 May 31, 1988, J. GRIÑO-AQUINO
The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court
of Law or by reason of any enactment or regulation in that behalf," applies only when the driver" is driving on
the insured's order or with his permission." It does not apply when the person driving is the insured himself.
Facts:
After having purchased a brand new Nissan Cedric de Luxe Sedan car, Palermo insured the same with
Pyramid Insurance Company against any loss or damage and against third party liability. The policy contains
an Authorized Driver Clause.
The automobile was, however, mortgaged by the Palermo with the vendor, Ng Sam Bok Motors Co., to
secure the payment of the balance of the purchase price. While driving the automobile in question, Palermo
met a violent accident. Insurer was immediately notified of the occurrence. Insurer refused to pay for the
reason as alleged, that the insured himself had violated the terms of the policy when he drove the car in
question with an expired driver's license. Trial Court rendered judgment in favor of the insured.
Issue:
Whether or not the plaintiff was not authorized to drive the insured motor vehicle because his
driver's license had expired.
Ruling:
NO. The driver of the insured motor vehicle at the time of the accident was, the insured himself,
hence an "authorized driver" under the policy. While the Motor Vehicle Law prohibits a person from
operating a motor vehicle on the highway without a license or with an expired license, an infraction of the
Motor Vehicle Law on the part of the insured, is not a bar to recovery under the insurance contract. It
however renders him subject to the penal sanctions of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a
Court of Law or by reason of any enactment or regulation in that behalf," applies only when the driver" is
driving on the insured's order or with his permission." It does not apply when the person driving is the
insured himself.
AGAPITO GUTIERREZ, v. CAPITAL INSURANCE & SURETY CO., INC.
G.R. No. L-26827 June 29, 1984, J. AQUINO
Paragraph 13 of the policy is decisive and controlling in this case. It plainly provides that "a driver with
an expired Traffic Violation Receipt or expired Temporary Operator's permit is not considered an authorized
driver within the meaning of the policy. Obviously, Ventura was not an authorized driver. His temporary
operator's permit had expired.
Facts:
Capital Insurance & Surety Co., Inc. insured on December 7, 1961 for one year the jeepney of Agapito
Gutierrez against passenger and third-party liability. The policy provides in item 13 that the authorized
driver must be the holder of a valid and subsisting professional driver's license. "A driver with an expired
Traffic Violation Receipt or expired Temporary Operator's Permit is not considered an authorized driver."
On May 29, 1962, the insured jeepney had an accident. Teofilo Ventura, the jeepney driver, was duly
licensed for the years 1962 and 1963. However, at the time of the accident he did not have the license. It is
indisputable that at the time of the accident (May 29, 1962), Ventura was holding an "expired Temporary
Operator's Permit." Capital Insurance refused to make any reimbursement with regard to Guttierez's
payment to the widow.
Issue:
Whether or not an insurance covers a jeepney whose driver's traffic violation report or temporary
operator's permit had already expired
Ruling:
NO. Paragraph 13 of the policy is decisive and controlling in this case. It plainly provides, and we
repeat, that "a driver with an expired Traffic Violation Receipt or expired Temporary Operator's permit is not
considered an authorized driver within the meaning" of the policy. Obviously, Ventura was not an authorized
driver. His temporary operator's permit had expired. The expiration bars recovery under the policy.
The instant case deals with an insurance policy which definitively fixed the meaning of "authorized
driver". That stipulation cannot be disregarded or rendered meaningless. It is binding on the insured. It
means that to be entitled to recovery the insured should see to it that his driver is authorized as envisaged in
paragraph 13 of the policy which is the law between the parties. The rights of the parties flow from the
insurance contract.
RUDY LAO v. STANDARD INSURANCE CO., INC.

G.R. No. 140023. August 14, 2003, J. QUISUMBING
Entries in police records made by a police officer in the performance of the duty especially enjoined by
law are prima facie evidence of the fact therein stated, and their probative value may be either substantiated or
nullified by other competent evidence. Stated therein was the fact that Leonardo Anit was driving the insured
truck with plate number FCG-538.
Facts:
Petitioner Rudy Lao is the owner of a Fuso truck. The truck was insured with respondent Standard
Insurance Co., Inc for any damages that might be caused to his goods.
While the policy was in effect, an accident occurred. The insured truck sustained damages. Petitioner
filed a claim with the insurance company but it was denied since based from the police blotter, the driver of
the insured truck, Leonardo Anit, did not possess a proper driver’s license at the time of the accident. The
restriction in Leonardo Anits driver’s license provided that he can only drive four-wheeled vehicles weighing
not more than 4,500 kgs. Since the insured truck he was driving weighed more than 4,500 kgs., he therefore
violated the authorized driver clause of the insurance policy.
Petitioner claims that at the time of the accident, it was in fact another driver named Giddie Boy Y
Coyel who was driving the insured truck. Giddie Boy possessed a driver’s license authorizing him to drive
vehicles such as the truck which weighed more than 4,500 kgs.
Issue:
Whether or not Leonardo Anit, an unauthorized driver, was driving the insured truck at the time of
the accident.
Ruling:
YES. The police blotter was properly admitted as they form part of official records. Entries in police
records made by a police officer in the performance of the duty especially enjoined by law are prima facie
evidence of the fact therein stated, and their probative value may be either substantiated or nullified by other
competent evidence. Although police blotters are of little probative value, they are nevertheless admitted and
considered in the absence of competent evidence to refute the facts stated therein.
PERLA COMPANIA de SEGUROS, INC. v.

HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance of Camarines Norte,
Branch III, ERNESTO A. RAMOS and GOYENA ZENAROSA-RAMOS, for themselves and as Guardian Ad
Litem for Minors JOBET, BANJO, DAVID and GRACE all surnamed RAMOS, FERNANDO M. ABCEDE, SR.,
for himself and Guardian Ad Litem for minor FERNANDO G. ABCEDE, JR., MIGUEL JEREZ MAGO as
Guardian Ad Litem for minors ARLEEN R. MAGO, and ANACLETA J. ZENAROSA
G.R. No. L-49699 August 8, 1988, J. Cortes
The law is very clear — the claim shall lie against the insurer of the vehicle in which the "occupant" is
riding, and no other. The claimant is not free to choose from which insurer he will claim the "no fault indemnity,"
as the law, by using the word "shall, makes it mandatory that the claim be made against the insurer of the
vehicle in which the occupant is riding, mounting or dismounting from.
Facts:
On December 27, 1977, in a collision between the IH Scout in which private respondents were riding
and a Superlines bus along the national highway in Sta. Elena, Camarines Norte, private respondents
sustained physical injuries. Thus, they filed with the CFI a complaint for damages against Superlines, the bus
driver and petitioner, the insurer of the bus. The bus was insured with petitioner for passenger for third party
liability. The vehicle in which private respondents were riding was insured with Malayan Insurance Co.
Petitioner denied in its Answer its alleged liability under the "no fault indemnity" provision.
Petitioner held the position that under Sec. 378 of the Insurance Code, the insurer liable to pay is the insurer
of the vehicle in which private respondents were riding, not petitioner, as the provision states that "in the
case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is
riding, mounting or dismounting from."
Issue:
Whether or not petitioner is the insurer liable to indemnify private respondents under Sec. 378 of the
Insurance Code.
Ruling:
NO. The law is very clear — the claim shall lie against the insurer of the vehicle in which the
"occupant" is riding, and no other. The claimant is not free to choose from which insurer he will claim the "no
fault indemnity," as the law, by using the word "shall, makes it mandatory that the claim be made against the
insurer of the vehicle in which the occupant is riding, mounting or dismounting from.
Irrespective of whether or not fault or negligence lies with the driver of the Superlines bus, as private
respondents were not occupants of the bus, they cannot claim the "no fault indemnity" provided in Sec. 378
from petitioner. The claim should be made against the insurer of the vehicle they were riding. This is very
clear from the law.
Insurable Interest
In Life/Health
PHILAMCARE HEALTH SYSTEMS, INC.v. COURT OF APPEALS and JULITA TRINOS

G.R. No. 125678. March 18, 2002, J. YNARES-SANTIAGO
Matters of opinion or judgment that are called for answers made in good faith and without intent to
deceive will not avoid a policy even though they are untrue. Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer
Facts:
Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the
question ‘Have you or any of your family members ever consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?’, Ernani answered ‘No’. During the
period of said coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC)
for one month. Philamcare denied Julita’s claim alleging that the agreement was void because Ernani
concealed his medical history. Doctors at the MMC allegedly discovered that he was hypertensive, diabetic
and asthmatic, contrary to his answer in the application form.
Issue:
Whether or not there is concealment of material fact made by Ernani.
Ruling:
NO. The answer assailed by petitioner was in response to the question relating to the medical history
of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion or judgment are called for answers made in
good faith and without intent to deceive will not avoid a policy even though they are untrue.
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon
the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer to the extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or wherever he avails of the
covered benefits which he has prepaid.
VIOLETA R. LALICAN v. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE
PRESIDENT VICENTE R. AVILON,
G.R. No. 183526, August 25, 2009, J. CHICO-NAZARIO
The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written
application does not give the insured absolute right to such reinstatement by the mere filing of an application.
The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if
the latter does not pay all overdue premium and all other indebtedness to the insurer.
Facts:
Eulogio Lalican applied for an insurance policy with the Insular Life.. He submitted an application for
reinstatement of policy through an agent of Insular Life, together with the payment of the unpaid premiums.
However, the Insular Life notified him that his application could not be processed because he failed to pay the
overdue interest of the unpaid premiums.
After some months, Eulogio died of cardio-respiratory arrest secondary to electrocution. Violeta,
Eulogio’s widow filed with the Insular Life a claim for payment of the full proceeds of the policy but the latter
informed her that the claim could not be granted since at the time of Eulogio’s death, his policy has already
lapsed and he failed to reinstate the same. She then filed a complaint for death claim benefits with the RTC.
RTC denied it.
Issue:
Whether or not the policy of Eulogio was reinstated before his death.
Ruling:
NO. Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of
policy even though, before his death, he managed to file his application for reinstatement and deposit the
amount for payment of his overdue premiums and interest thereon with Malaluan. As expressly provided on
the policy contract, agents of Insular Life have no authority to approve any application for reinstatement.
They still had to turn over to Insular Life the application for reinstatement and accompanying deposit, for
processing and approval of the latter.
The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured
and if the latter does not pay all overdue premium and all other indebtedness to the insurer. After the death
of the insured the insurance Company cannot be compelled to entertain an application for reinstatement of
the policy because the conditions precedent to reinstatement can no longer be determined and satisfied.
EL ORIENTE FABRICA DE TABACOS, INC. v. JUAN POSADAS

G.R. No. 34774, September 21, 1931, Malcolm, J.
What the plaintiff received under the insurance policy was in the nature of an indemnity for the loss
which it actually suffered because of the death of its manager. Since there only an indemnity and not income,
such proceeds of life insurance are not taxable as income under Philippine Income Tax Law.
Facts:
Plaintiff, in order to protect itself against the loss that it might suffer by reason of the death of its
manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of
cigars and whose death would be a serious loss to the plaintiff, procured from the Manufacturers Life
Insurance Co., of Toronto, Canada, thru its local agent E.E. Elser, an insurance policy on the life of the said A.
Velhagen for the sum of $50,000, United States currency. The plaintiff, El Oriente, Fabrica de Tabacos, Inc.,
designated itself as the sole beneficiary of said policy on the life of its said manager. A. Velhagen, the insured,
had no interest or participation in the proceeds of said life insurance policy and upon the death of said A.
Velhagen, the plaintiff received all the proceeds of the said life insurance policy, together with the interests
and the dividends.
The defendant Collector of Internal Revenue assessed and levied the sum of P3,148.74 as income tax
on the proceeds of the insurance policy mentioned in the preceding paragraph, which tax the plaintiff paid
under instant protest but defendant overruled said protest. A decision was handed down which absolved the
defendant from the complaint, with costs against the plaintiff. Hence, the case.
Issue:
Whether or not the proceeds of insurance taken by a corporation on the life of an important official
to indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax Law.
Ruling:
No. It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its
manager, who had had more than thirty-five years' experience in the manufacture of cigars in the Philippines,
to protect itself against the loss it might suffer by reason of the death of its manager. We do not believe that
this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its manager, it
thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individual
beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of
legislative intention. In reality, what the plaintiff received was in the nature of an indemnity for the loss which
it actually suffered because of the death of its manager.
Considering, therefore, the purport of the stipulated facts, considering the uncertainty of Philippine
law, and considering the lack of express legislative intention to tax the proceeds of life insurance policies paid
to corporate beneficiaries, particularly when in the exemption in favor of individual beneficiaries in the
chapter on this subject, the clause is inserted "exempt from the provisions of this law," the court deem it
reasonable to hold the proceeds of the life insurance policy in question as representing an indemnity and not
taxable income.
In Property
SPOUSES CHA and UNITED INSURANCE CO., INC. v. COURT OF APPEALS

G.R. No. 124520, August 18, 1997, Padilla, J.
No contract or policy of insurance on property shall be enforceable except for the benefit of some person
having an insurable interest in the property insured. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest
in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on
property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the
property.
Facts:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private
respondent CKS Development Corporation (hereinafter CKS), as lessor. One of the stipulations of the one (1)
year lease contract states: “The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without first obtaining the written
consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the
LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit”.
Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by
fire their merchandise inside the leased premises with the United Insurance Co., Inc. (hereinafter United)
without the written consent of private respondents CKS. On the day that the lease contract was to expire, fire
broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses
(without its consent), it wrote the insurer (United) a demand letter asking that the proceeds of the insurance
contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with Cha
spouses. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
RTC ruled in favor of CKS. On appeal, respondent Court of Appeals affirmed the RTC decision. A motion for
reconsideration by United was denied; hence, the present petition.
Issue:
Whether or not CKS has an insurable interest over the merchandise insured.
Ruling:
No. Sec. 18 of the Insurance Code provides that no contract or policy of insurance on property shall
be enforceable except for the benefit of some person having an insurable interest in the property insured.
Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the
loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public
policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of
insurance is a mere wager which is void under Section 25 of the Insurance Code.
Therefore, CKS cannot be validly a beneficiary of the fire insurance policy since the insurable interest
over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to
CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and
Stella Uy-Cha.
MALAYAN INSURANCE COMPANY, INC. v. PAP CO., LTD. (PHIL. BRANCH)

G.R. No. 200784, August 7, 2013, Mendoza, J.
The removal of the insured property to any building or place, without notice and without insurer’s
consent, after the renewal of the policy, constitutes concealment, misrepresentation and a breach of a material
warranty. Section 26 of the Insurance Code provides: A neglect to communicate that which a party knows and
ought to communicate, is called a concealment. Also, under Section 27 of the Insurance Code, "a concealment
entitles the injured party to rescind a contract of insurance."
Facts:
Malayan Insurance Company (Malayan) issued Fire Insurance Policy to PAP Co., Ltd. (PAP Co.) for the
latter’s machineries and equipment. The insurance, which was for Fifteen Million Pesos and effective for a
period of one year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the
mortgagee of the insured machineries and equipment. After the passage of almost a year but prior to the
expiration of the insurance coverage, PAP Co. renewed the policy on an "as is" basis. Pursuant thereto, a
renewal policy was issued by Malayan to PAP Co.
During the subsistence of the renewal policy, the insured machineries and equipment were totally
lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured. Malayan denied
the claim upon the ground that, at the time of the loss, the insured machineries and equipment were
transferred from the Sanyo Building to the Pace Pacific Bldg. Contesting the denial, PAP Co. argued that
Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party duty-bound to relay such
information.
Issue:
Whether or not Petitioner should be held liable to pay the insurance proceeds.
Ruling:
No. The removal of the insured property to any building or place, without notice and without
Malayan’s consent, after the renewal of the policy, constitutes concealment, misrepresentation and a breach
of a material warranty. Section 26 of the Insurance Code provides: A neglect to communicate that which a
party knows and ought to communicate, is called a concealment. Also, under Section 27 of the Insurance
Code, "a concealment entitles the injured party to rescind a contract of insurance."Moreover, under Section
168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an alteration in
the use or condition of the thing insured. Section 168 of the Insurance Code provides, as follows: “an
alteration in the use or condition of a thing insured from that to which it is limited by the policy made without
the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an
insurer to rescind a contract of fire insurance.”
Double Insurance and Over Insurance
ARMANDO GEAGONIA v. CA and COUNTRY BANKERS INSURANCE CORPORATION

G.R. No. 114427, February 6, 1995, Davide, Jr., J.
A double insurance exists where the same person is insured by several insurers separately in respect of
the same subject and interest. It must be noted that the insurable interests of a mortgagor and a mortgagee on
the mortgaged property are distinct and separate. Therefore, failure to disclose insurances procured either by
the mortgagor or the mortgagee would not be tantamount to a violation of the “other insurance clause”.
Facts:
Geagonia, owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur,
obtained from the private respondent fire insurance policy. The policy had a requirement that the insured
shall give notice to the insurer of other insurance policies that were procured on the same property.
When the petitioners’ stock were destroyed by fire, he filed a claim with the insurer which was
denied due to the alleged violation of the policy for being covered by two other fire insurance policies issued
by Philippines First Insurance Co., Inc. (PFIC). He then filed a complaint. The Insurance Commission found
that petitioner did not violate the said provision as he had no knowledge of the existence of the other two
policies and that it was Cebu Texting Tiles which procured the PFIC policies without informing the petitioner
and that Cebu Texting Tiles, as his creditor, had insurable interest on the stocks.
Issue:
Whether or not Petitioner is precluded from recovering therefrom due to double insurance.
Ruling:
No. 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 the private respondent, no double insurance exists.
The non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the private
respondent's policy.
Indeed, 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.
MALAYAN INSURANCE CO., INC. vs.PHILIPPINES FIRST INSURANCE CO., INC.

G.R. No. 184300, July 11, 2012, Reyes, J.
In order to constitute a violation of the clause, the other insurance must be upon same subject matter,
the same interest therein, and the same risk. Thus, even though the multiple insurance policies involved were all
issued in the name of the same assured, over the same subject matter and covering the same risk, it was ruled
that there was no violation of the "other insurance clause" when the insurance policies are issued to two
different persons or entities. Hence, there can be no double insurance which is what the “other insurance” clause
seeks to prevent.
Facts:
Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had
been annually executing a contract of carriage, whereby the latter undertook to transport and deliver the
former’s products to its customers, dealers or salesmen. Wyeth procured (Marine Policy) from respondent
Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its own products. Philippines
First thereby insured Wyeth’s products usual or incidental to the insured’s business while the same were
being transported or shipped in the Philippines. At the same time, Reputable undertook to answer for "all
risks with respect to the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or
damage of the goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm,
earthquakes, lightning, and other force majeure while the goods/products are in transit and until actual
delivery to the customers, salesmen, and dealers of the COMPANY".
During the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes
of Promil infant formula to be delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City.
Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked by about 10 armed men.
The hijacked truck was recovered two weeks later without its cargo. The case arose on the question of
liability with Malayan, in avoiding such, alleged that the insurance policy is void due to the violation of the
“other insurance clause”.
Issue:
Whether or not Petitioner is precluded from recovering due to double insurance.
Ruling:
No. While it is true that the Marine Policy and the SR Policy were both issued over the same subject
matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it is, however, beyond
cavil that the said policies were issued to two different persons or entities. It is undisputed that Wyeth is the
recognized insured of Philippines First under its Marine Policy, while Reputable is the recognized insured of
Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth
pursuant merely to the stipulated requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy.
Multiple or Several Interests on Same Property
ARMANDO GEAGONIA v. CA and COUNTRY BANKERS INSURANCE CORPORATION

G.R. No. 114427, February 6, 1995, Davide, Jr., J.
Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct
and separate; the two policies of the PFIC do not cover the same interest as that covered by the policy of the
private respondent, no double insurance exists. The mortgagor's insurable interest covers the 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 is to the 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.
Facts:
Geagonia, owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur,
obtained from the private respondent fire insurance policy for P100,000.00. The policy noted the
requirement on the policy: 3. The insured shall give notice to the Company of any insurance or insurances
already affected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless such notice
be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy
pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any
loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition
shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more
than P200,000.00.
When the petitioners’ stock were destroyed by fire, He filed a claim with the insurer which was
denied due to the alleged violation of the policy for being covered by two other fire insurance policies issued
by Philippines First Insurance Co., Inc. (PFIC). He then filed a complaint. The Insurance Commission found
that petitioner did not violate the said provision as he had no knowledge of the existence of the other two
policies and that it was Cebu Texting Tiles which procured the PFIC policies without informing the petitioner
and that Cebu Texting Tiles, as his creditor, had insurable interest on the stocks. These findings were based
on the petitioner's testimony that he came to know of the PFIC policies only when he filed his claim with the
private respondent and that Cebu Texting Tiles obtained them and paid for their premiums without
informing him thereof. The Insurance Commission held in favor of petitioner but the CA reversed it because it
found that the petitioner knew of the existence of the two other policies issued by the PFIC.
Issue:
Whether or not Petitioner is precluded from recovering therefrom since there are multiple interests
on same property.
Ruling:
No. Condition 3 of the private respondent's Policy is a condition which is not proscribed by law. Its
incorporation in the policy is allowed by Section 75 of the Insurance Code which provides that "[a] policy may
declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy." Such a condition is a provision which invariably appears in fire
insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as the
additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance
exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the other
insurance must be upon same subject matter, the same interest therein, and the same 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 covers the 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 is to the 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.
Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct
and separate; the two policies of the PFIC do not cover the same interest as that covered by the policy of the
private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal
to the petitioner's right to recover on the private respondent's policy.
GREAT PACIFIC LIFE ASSURANCE CORP. v. COURT OF APPEALS AND MEDARDA V. LEUTERIO
G.R. No. 113899, October 13, 1999, Quisimbing, J.
Where a mortgagor pays insurance premium under group insurance policy, making the loss payable to
to mortgagee, the insurance is on mortgagor’s interest, and the mortgagor continues to be a partyto the
contract. In this type of policy insurance, mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract.
Facts:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives
of eligible housing loan mortgagors of DBP.
Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group
life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition
as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes,
lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.
Grepalife issued insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to eighty-six thousand, two hundred pesos. Eventually, Dr. Leuterio died due to massive cerebral
hemorrhage. Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that
Dr. Leuterio was not physically healthy when he applied for an insurance coverage. Grepalife insisted that Dr.
Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such
non-disclosure constituted concealment that justified the denial of the claim. The widow of the late Dr.
Leuterio, respondent Medarda V. Leuterio, filed a complaint with the Regional Trial Court against Grepalife
for Specific Performance with Damages. The trial court rendered a decision in favor of respondent widow
and against Grepalife. The Court of Appeals sustained the trial court’s decision. Hence, the present petition.
Issue:
Whether or not the petitioner should be held liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?
Ruling:
Yes. The rationale of a group insurance policy of mortgagors, otherwise known as the mortgage
redemption insurance, is a device for the protection of both the mortgagee and the mortgagor. On the part of
the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the
mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied
to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation.
In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of
death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagors interest, and
the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply
an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the
contract.
The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance,
the policy stating that: In the event of the debtors death before his indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the
balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor.
When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing
the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor
and took the necessary action of foreclosure on the residential lot of private respondent.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it whatever the insured might have
recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
Perfection of the Contract of Insurance
Offer and Acceptance/Consensual
PEOPLE OF THE PHILIPPINES v. YIP WAI MING

G.R. No. 120959, November 14, 1996, Melo, J.
An application form does not prove that insurance was secured. Anybody can get an application form
for insurance, fill it up at home before filing it with the insurance company. In fact, the very first sentence of the
form states that it merely forms the basis of a contract between you and NZI Life. There was no contract yet.
Facts:
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals, came to Manila on
vacation on July 10, 1993. The two were engaged to be married. Hardly a day had passed when Lam Po Chun
was brutally beaten up and strangled to death in their hotel room. On the day of the killing, July 11, 1993, Yip
Wai Ming, was touring Metro Manila with Filipino welcomers while Lam Po Chun was left in the hotel room
allegedly because she had a headache and was not feeling well enough to do the sights.
For the slaying, an Information was lodged against Yip Wai Ming. The RTC convicted the accused beyond
reasonable doubt. One of the evidence showed that strengthen the prosecutors claim is that prior to the death
of the victim, her brother, Lam Chi Keung, learned that her life was insured with the Insurance Company
of New Zealand in Causeway Bay, Hongkong, with appellant as the beneficiary. The premium paid for the
insurance was more than the monthly salary of the deceased as an insurance underwriter in Hongkong. This,
for the RTC, was sufficient motive for the accused to kill his partner.
Issue:
Whether or not an application form proves that insurance was secured.
Ruling:
No. There is no evidence that the victim secured an insurance policy for a big amount in US dollars
and indicated accused-appellant as the beneficiary. The prosecution presented Exhibit X, a mere xerox copy of
a document captioned Proposal for Life Insurance as proof of the alleged insurance. It is not a certified copy,
nor was the original first identified.
It needs not much emphasis to say that an application form does not prove that insurance was
secured. Anybody can get an application form for insurance, fill it up at home before filing it with the
insurance company. In fact, the very first sentence of the form states that it merely forms the basis of a
contract between you and NZI Life. There was no contract yet.
GREAT PACIFIC LIFE ASSURANCE COMPANY vs. HONORABLE COURT OF APPEALS

G.R. No. L-31845 April 30, 1979, J. De Castro
The binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure
outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the
principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a
"binding slip" or "binding receipt" does not insure by itself.
Facts:
Ngo Hing (Ngo) filed an application with the Great Pacific Life Assurance Company Pacific Life for a
twenty-year endowment policy of his daughter Helen. He paid the annual premium. Upon the payment of the
insurance premium, the binding deposit receipt was issued to him. Likewise, his agent, Mondragon,
handwrote at the bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Mondragon later received a letter from Pacific Life disapproving the
insurance application. The letter stated that the said life insurance application for 20-year endowment plan is
not available for minors below seven years old, but Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to
the company.
Pending approval, Helen died of influenza with complication of bronchopneumonia. Thereupon, Ngo
sought the payment of the proceeds of the insurance.
Issue:
Whether or not the binding deposit receipt constituted a temporary contract of the life insurance in
question.
Ruling:
No. In the absence of a meeting of the minds between petitioner Pacific Life and private respondent
Ngo Hing over the 20-year endowment life insurance in the amount of P50, 000.00 in favor of the latter's one-
year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected between them.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely
an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for processing by the insurance company;
and that the latter will either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does
not insure outright. As held by this Court, where an agreement is made between the applicant and the agent,
no liability shall attach until the principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs.
Sun Life Assurance Company of Canada, 41 Phil. 264).
Delay in Acceptance
Delivery of Policy
Cancellation of policy
MALAYAN INSURANCE CO., INC. (MICO) vs. GREGORIA CRUZ ARNALDO, in her capacity as the
INSURANCE COMMISSIONER, and CORONACION PINCA
G.R. No. L-67835 October 12, 1987, J. Cruz
When payment of premium is made, the policy is rendered operative. Thus, removing it from
the provisions of Article 77.
Facts:
MICO issued to the private respondent, Coronacion Pinca (Pinca) Fire Insurance Policy on
her property. MICO allegedly cancelled the policy for non-payment, of the premium and sent the
corresponding notice to Pinca. Later, payment of the premium for Pinca was received by Domingo
Adora, agent of MICO. Adora remitted this payment to MICO, together with other payments.
Pending notice of cancellation of her insurance policy, Pinca's property was completely burned.
Pinca's payment was returned by MICO to Adora on the ground that her policy had been
cancelled earlier. But Adora refused to accept it.
In due time, Pinca made the requisite demands for payment, which MICO rejected.
Issue:
Whether or not Pinca’s insurance policy was effectively cancelled by MICO so as to forestall
recovery.
Ruling:
No. On the merits, it must also fail.
MICO's arguments that there was no payment of premium and that the policy had been
cancelled before the occurrence of the loss are not acceptable. Its contention that the claim was
allowed without proof of loss is also untenable.
We do not share MICO's view that there was no existing insurance at the time of the loss
sustained by Pinca because her policy never became effective for non-payment of premium.
Payment was in fact made, rendering the policy operative as of June 22, 1981, and removing it from
the provisions of Article 77. Thereafter, the policy could be cancelled on any of the supervening
grounds enumerated in Article 64 (except "nonpayment of premium") provided the cancellation
was made in accordance therewith and with Article 65.
MALAYAN INSURANCE CO., INC. (MICO), vs.GREGORIA CRUZ ARNALDO, in her capacity as the
INSURANCECOMMISSIONER, and CORONACION PINCA
G.R. No. L-67835 October 12, 1987
Payment to an agent having authority to receive or collect payment is equivalent to

payment to the principal himself; such payment is complete when the money delivered is into the agent's
hands and isa discharge of the indebtedness owing to the principal.
FACTS”:
Coronacion Pinca insured her property for Php 14,000 with Malayan Insurance
Company(MICO) for the period July 22, 1981 to July 22, 1982. On October 15, 1981, MICO
cancelled the policy for non-payment. On December 24, 1981, Domingo Adora, the agent accepted
Pinca's paymentand remitted to MICO. On January 18, 1982, Pinca's property was completely
burned . She thendemanded from MICO for payment of the insured but the latter declined on the ground
that the policyhad been cancelled due to non-payment. Pinca went to the Insurance Commission, she was
ultimatelysustained by the public respondent, thus a petition was filed before the SC.
ISSUE:
Whether or not MICO should be held liable to pay for the insured property.
RULING:
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized
toreceive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance
Codethat:SEC. 306. xxx xxx xxxAny insurance company which delivers to an insurance agant or
insurance broker a policy or contract of insurance shall be demmed to have authorizedsuch agent or broker
to receive on its behalf payment of any premium whichis due on such policy or contract of insurance
at the time of its issuance or delivery or which becomes due thereon.And it is a well-known principle
under the law of agency that:
Payment to an agent having authority to receive or collect payment is equivalent to

payment to the principal himself; such payment is complete when the money delivered is into the agent's
hands and isa discharge of the indebtedness owing to the principal.The SC denied the petition and affirmed
the decision of the Insurance Commission.
Premium Payment
THE CAPITAL INSURANCE & SURETY CO., INC. vs. PLASTIC ERA CO., INC., AND COURT OF APPEALS
G.R. No. L-22375 July 18, 1975, J. Martin
Although one of conditions of an insurance policy is that "it shall not be valid or binding until the first
premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be
deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of the
first or initial premium in advance or actual cash may be waived by acceptance of a promissory note.
Facts:
Capital Insurance & Surety Co., Inc. (Capital Insurance) delivered to Plastic Era Manufacturing Co.,
Inc., (Plastic Era) its open Fire Policy wherein the former undertook to insure the latter's building,
equipments, raw materials, products and accessories. When the policy was delivered, Plastic Era failed to pay
the corresponding insurance premium.
Subsequently, in partial payment of the insurance premium, Plastic Era delivered to Capital
Insurance, a check postdated January 16, 1961 payable to the order of the latter and drawn against the Bank
of America. However, Capital Insurance tried to deposit the check only on February 20, 1961 and the same
was dishonored by the bank for lack of funds. On January 18, 1961 or two days after the insurance premium
became due, at about 4:00 to 5:00 o'clock in the morning, the property insured by Plastic Era was destroyed
by fire.
Issue:
Whether or not the insurance contract is perfected between parties.
Ruling:
Yes. The insurance contract was perfected.
Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay
the insurance premium within thirty (30) days from the effective date of policy. By so doing, it has implicitly
agreed to modify the tenor of the insurance policy and in effect, waived the provision therein that it would
only pay for the loss or damage in case the same occurs after the payment of the premium. Considering that
the insurance policy is silent as to the mode of payment, Capital Insurance is deemed to have accepted the
promissory note in payment of the premium. This rendered the policy immediately operative on the date it
was delivered. The view taken in most cases in the United States.
Although one of conditions of an insurance policy is that "it shall not be valid or binding until the first
premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be
deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of
the first or initial premium in advance or actual cash may be waived by acceptance of a promissory note.
Precisely, this was what actually happened when the Capital Insurance accepted the
acknowledgment receipt of the Plastic Era promising to pay the insurance premium within thirty (30) days
from December 17, 1960. Hence, when the damage or loss of the insured property occurred, the insurance
policy was in full force and effect. The fact that the check issued by Plastic Era in partial payment of the
promissory note was later on dishonored did not in any way operate as a forfeiture of its rights under the
policy, there being no express stipulation therein to that effect.
By accepting its promise to pay the insurance premium within thirty (30) days from the effectivity
date of the policy — December 17, 1960 Capital Insurance had in effect extended credit to Plastic Era. The
payment of the premium on the insurance policy therefore became an independent obligation the non-
fulfillment of which would entitle Capital Insurance to recover. It could just deduct the premium due and
unpaid upon the satisfaction of the loss under the policy. 10 It did not have the right to cancel the policy for
nonpayment of the premium except by putting Plastic Era in default and giving it personal notice to that
effect. This Capital Insurance failed to do.
PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY vs. WOODWORKS, INC.

G.R. No. L-25317 August 6, 1979, J. Melencio- Herrera
The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the
insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make
premium payments. The continuance of the insurer's obligation is conditional upon the payment of premiums, so
that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased.
Facts:
Philippine Phoenix issued in favor of Woodworks a Fire Insurance Policy whereby it insured the
latter’s building, machinery and equipment for a term of one year. It is undisputed that Woodworks did not
pay the premium stipulated in the Policy when it was issued nor at any time thereafter.
Before the expiration of the one-year term, Philippine Phoenix demanded in writing for the payment
of insurance premium. Woodworks, through counsel, disclaimed any liability in its reply- letter, contending,
in essence, that it need not pay premium because the Insurer did not stand liable for any indemnity during
the period the premiums were not paid. Woodworks controverted basically on the theory that its failure to
pay the premium after the issuance of the policy put an end to the insurance contract.
Issue:
Whether or not the insurance contract is deemed perfected making Woodworks liable for the
insurance premium if failed to pay.
Ruling:
No. Insurance contract was never perfected.
The premium must be paid at the time and in the way and manner specified in the policy and, if not
so paid, the policy will lapse and be forfeited by its own terms. Since the premium had not been paid, the
policy must be deemed to have lapsed.
The non-payment of premiums does not merely suspend but put, an end to an insurance contract,
since the time of the payment is peculiarly of the essence of the contract. The rule is that under policy
provisions that upon the failure to make a payment of a premium or assessment at the time provided for, the
policy shall become void or forfeited, or the obligation of the insurer shall cease, or words to like effect,
because the contract so prescribes and because such a stipulation is a material and essential part of the
contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance policies.
The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the
insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make
premium payments. The continuance of the insurer's obligation is conditional upon the payment of
premiums, so that no recovery can be had upon a lapsed policy, the contractual relation between the parties
having ceased.
PACIFIC TIMBER EXPORT CORPORATION vs. THE HONORABLE COURT OF APPEALS and WORKMEN'S
INSURANCE COMPANY, INC
G.R. No. L-38613 February 25, 1982, J. De Castro
The fact that no separate premium was paid on the Cover Note before the loss insured against occurred,
does not militate against the validity of petitioner's contention, for no such premium could have been paid, since
by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment
that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums
are intended or required to be paid on a Cover Note. This is a fact admitted by an official of respondent company,
Juan Jose Camacho, in charge of issuing cover notes of the respondent company.
Facts:
Pacific Timber secured temporary insurance from Workmen’s Insurance for its exportation of Lauan
and Apitong logs to be shipped from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan.
After the issuance of Cover Note but before the issuance of the two marine policies, some of the logs
intended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loaded
on SS Woodblock which docked about 500 meters from the shoreline of the Diapitan Bay. The logs were taken
from the log pond of Pacific Timber and from which they were towed in rafts to the vessel. While the logs
were alongside the vessel, bad weather developed resulting 30 pieces of logs to have been lost or washed
away as a result of the accident.
Workmen’s Insurance denied liability on the ground that the cover note is null and void for lack of
valuable consideration.
Issue:
Whether or not a separate premium payment is needed for the Cover Note of an insurance before
recovery can be had under the insurance contract.
Ruling:
No. Separate premium payment for cover note is not needed.
From this undisputed fact, We uphold petitioner's submission that the Cover Note was not without
consideration for which the respondent court held the Cover Note as null and void, and denied recovery
therefrom.
The fact that no separate premium was paid on the Cover Note before the loss insured against
occurred, does not militate against the validity of petitioner's contention, for no such premium could have
been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain
particulars of the shipment that would serve as basis for the computation of the premiums. As a logical
consequence, no separate premiums are intended or required to be paid on a Cover Note. This is a fact
admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing cover notes of the
respondent company.
ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA vs. THE HONORABLE COURT OF APPEALS,
BIENVENIDO M. ARAGON, ROBERT E. PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC.
G.R. No. 83122 October 19, 1990, J. Gutierrez
Since premiums have not been paid, the policies issued have lapsed. The insurance coverage did not go
into effect or did not continue and the obligation of Philamgen as insurer ceased. Hence, for Philamgen which
had no more liability under the lapsed and inexistent policies to demand, much less sue Valenzuela for the
unpaid premiums would be the height of injustice and unfair dealing. In this instance, with the lapsing of the
policies through the nonpayment of premiums by the insured there were no more insurance contracts to speak
of. As this Court held in the Philippine Phoenix Surety case, supra "the non-payment of premiums does not merely
suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the
contract.
Facts:
Arturo P. Valenzuela (Valenzuela for short) is a General Agent of Philippine American General
Insurance Company, Inc. (Philamgen for short) since 1965. As such, he was authorized to solicit and sell in
behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered was entitled to
receive the full agent's commission of 32.5% from Philamgen under the scheduled commission rates. From
1973 to 1975, Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. in the
amount of P4.4 Million from which he was entitled to a commission of 32%. However, Valenzuela did not
receive his full commission which amounted to P1.6 Million from the P4.4 Million insurance coverage of the
Delta Motors.
Subsequently, Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of the
commission with Valenzuela. This was followed by another sharing proposal but Valenzuela firmly reiterated
his objection to the proposals Philamgen. Because of the refusal of Valenzuela, Philamgen and its officers,
reversed the commission due him by not crediting in his account the commission earned from the Delta
Motors, Inc. insurance ultimately terminated the General Agency Agreement of Valenzuela. Valenzuela sued
Philamgen. Philamgen wanted to recover from Valenzuela for the unpaid and uncollected insurance premium
from the insured.
Issue:
Whether or not Valenzuela is liable for uncollected and unpaid premium payment upon termination
of the General Agency Agreement.
Ruling:
No. As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and
uncollected premiums which the respondent court ordered Valenzuela to pay Philamgen the amount of One
Million Nine Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532,17)
with legal interest thereon until fully paid (Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that
the respondent court erred in holding Valenzuela liable. We find no factual and legal basis for the award.
Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and
render the insurance policy not binding.
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held that
the non-payment of premium does not merely suspend but puts an end to an insurance contract since the
time of the payment is peculiarly of the essence of the contract.
Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The
insurance coverage did not go into effect or did not continue and the obligation of Philamgen as insurer
ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to demand,
much less sue Valenzuela for the unpaid premiums would be the height of injustice and unfair dealing. In this
instance, with the lapsing of the policies through the nonpayment of premiums by the insured there were no
more insurance contracts to speak of. As this Court held in the Philippine Phoenix Surety case, supra "the non-
payment of premiums does not merely suspend but puts an end to an insurance contract since the time of the
payment is peculiarly of the essence of the contract."
PHILIPPINE PRYCE ASSURANCE CORPORATION vs. THE COURT OF APPEALS, (Fourteenth Division) and
GEGROCO, INC.
G.R. No. 107062 February 21, 1994, J. Nocon
The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is
perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and
until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the
bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to
the surety.
Facts:
Philippine Pryce Assurance Corporation (Pryce Assurance) was the butt of the complaint for
collection of sum of money, filed by Gegroco, Inc. (Gregroco). The complaint alleged that Pryce Assurance
issued two surety in behalf of its principal Sagum General. In its Answer, Pryce Assurance admitted having
executed the said bonds, but denied liability because allegedly the checks which were to pay for the
premiums bounced and were dishonored hence there is no contract to speak of between petitioner and its
supposed principal.
Issue:
Whether or not the contract entered between parties are deemed perfected.
Ruling:
No. Insurance contract was perfected.
There is reason to believe that petitioner does not really have a good defense. The above provision
outrightly negates petitioner's first defense. Petitioner hinges its defense on two arguments, namely: a) that
the checks issued by its principal which were supposed to pay for the premiums, bounced, hence there is no
contract of surety to speak of; and 2) that as early as 1986 and covering the time of the Surety Bond,
Interworld Assurance Company (now Phil. Pryce) was not yet authorized by the insurance Commission to
issue such bonds.
The Insurance Code states that:
Sec. 177. The surety is entitled to payment of the premium as soon as the contract of
suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or
bonding shall be valid and binding unless and until the premium therefor has been paid,
except where the obligee has accepted the bond, in which case the bond becomes valid and
enforceable irrespective of whether or not the premium has been paid by the obligor to the
surety. . . .
AMERICAN HOME ASSURANCE COMPANY vs. ANTONIO CHUA
G.R. No. 130421 June 28, 1999, J. Davide
It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent
was honored when presented and petitioner forthwith issued its official receipt to respondent on 10 April 1990.
Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of
insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to
receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of
its issuance or delivery or which becomes due thereon. In the instant case, the best evidence of such authority is
the fact that petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound by
its agent's acknowledgment of receipt of payment.
Facts:
Antonio Chua (Chua) obtained from Home American Home Assurance Company (AHAC) a fire
insurance covering the stock-in-trade of his business, Moonlight Enterprises. Before its expiration, Chua
issued PCIBank. AHAC’s agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered
Renewal Certificate to Chua. Subsequently, a new insurance policy was issued. Later, Moonlight Enterprises
was completely razed by fire. It appears however that the check was cashed only a day after the fire accident.
Chua filed an insurance claim with petitioner and four other co-insurers. AHAC refused to honor the
claim notwithstanding several demands by Chua, thus, the latter filed an action against petitioner before the
trial court.
In its defense, AHAC claimed there was no existing insurance contract when the fire occurred since
respondent did not pay the premium.
Issue:
Whether or not there was a valid payment of premium, considering that respondent's check was
cashed after the occurrence of the fire.
Ruling:
Yes. There was valid premium payment. The trial court found, as affirmed by the Court of Appeals,
that there was a valid check payment by respondent to petitioner. According to the trial court the renewal
certificate issued to respondent contained the acknowledgment that premium had been paid.
It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent
was honored when presented and petitioner forthwith issued its official receipt to respondent on 10 April
1990. Section 306 of the Insurance Code provides that any insurance company which delivers a policy or
contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such
agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which becomes due thereon. In the instant case, the best
evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the
payment. It is, as well, bound by its agent's acknowledgment of receipt of payment.
UCPB GENERAL INSURANCE CO. INC. vs. MASAGANA TELEMART, INC.

G.R. No. 137172, April 4, 2001, Davide, Jr., C.J.
Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting credit extension. Such an agreement is not contrary
to morals, good customs, public order or public policy.
Facts:
Masagana Telemart obtained from UCPB General Insurance 5 insurance policies with an effectivity
term from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s properties were razed by
fire. Masagana tendered 5 manager’s checks amounting to P225,753.45 as renewal premium
payments on July 13, 1992. Masagana made its formal demand for indemnification for the burned
insured properties the next day. UCPB returned the 5 manager's checks stating in its letter that it was
rejecting Masagana's claim on the following grounds: "a) Said policies expired last May 22, 1992 and
were not renewed for another term; b) Masagana had put UCPB and its alleged broker on notice of
non-renewal earlier; and c) The properties covered by the said policies were burned in a fire that
took place last June 13, 1992, or before tender of premium payment." Both the Court of Appeals and
the trial court found that sufficient proof exists that Masagana, which had procured insurance
coverage from UCPB for a number of years, had been granted a 60-90 day credit term for the renewal
of the policies. Such a practice had existed up to the time the claims were filed.
Issue:
Whether or not Sec. 77 of the Insurance Code stating that “An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the peril insured against” must be strictly applied despite
its practice of granting a 60-90 day credit term for the payment of premiums?
Ruling:
No, Sec. 77 of the Insurance Code must not be strictly applied. There are exceptions to the
application of Sec. 77. The first exception is in case of a life or industrial life policy whenever the grace period
provision applies. The second is covered by Section 78 which provides: Any acknowledgment in a policy or
contract of insurance of 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 premium is actually
paid. A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in installments of
the premium and partial payment has been made at the time of loss. Tuscany has provided a fourth exception
to Section 77, that the insurer may grant credit extension for the payment of the premium. This simply means
that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs
before the expiration of the term, recovery on the policy should be allowed even though the premium is paid
after the loss but within the credit term. Moreover, there is nothing in Section 77 which prohibits the parties
in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not
against the law, morals, good customs, public order or public policy.
It would be unjust and inequitable if recovery on the policy would not be permitted against UCPB,
which had consistently granted a 60-90 day credit term for the payment of premiums despite its full
awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Masagana relied in
good faith on such practice. Estoppel then is the fifth exception to Section 77.
MAKATI TUSCANY CONDOMINIUM CORP. vs. CA, et al.

G.R. No. 95546, November 6, 1992, Bellosillo, J.
Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy. So is an understanding to allow insured to pay
premiums in installments not so proscribed.
Facts:
American Home Assurance Co. (AHAC), represented by American International Underwriters

(Phils.), Inc., issued in favor of Makati Tuscany Condominium Corporation an insurance policy on the latter’s
building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium
of P466,103.05. The premium was paid on installments, all of which were accepted by AHAC. The insurance
policy was renewed twice which payments were also made in installments. On the second renewal, after
Tuscany made 2 installment payments, it refused to pay the balance of the premium. AHAC filed an action to
recover the unpaid balance. Tuscany claimed that the policy was never binding and valid, and no risk
attached to the policy. Tuscany asserts that its payment by installment of the premiums for the insurance
policies was invalidated because of Sec. 77 of the Insurance Code, and by the conditions stipulated by the
insurer in its receipts, disclaiming liability for loss occurring before payment of premiums.
Issue:
Whether or not the policies are valid even if the premiums were paid on installments?
Ruling:
Yes. The records clearly show that Tuscany and AHAC intended subject insurance policies to be
binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract
entered into in 1982 was renewed in 1983, then in 1984. In those 3 years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to
continue collecting and accepting the premiums, although paid on installments, and later deny liability on the
lame excuse that the premiums were not prepaid in full. The Court quotes the conclusion of the CA in its
resolution - "While the import of Section 77 is that prepayment of premiums is strictly required as a condition
to the validity of the contract, We are not prepared to rule that the request to make installment payments
duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite
payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect
allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance
policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite
the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the
policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De
Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in installments
not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted."
JOSE MARQUES AND MAXILITE TECHNOLOGIES INC. vs. FAR EAST BANK AND TRUST CO, et al.
G.R. No. 171419, January 10, 2011, Carpio, J.
An insurer may be barred by estoppel from claiming that the insurance premiums remained unpaid
hence, it cannot be held liable to pay. Estoppel by silence arises where a person, who by force of circumstances is
obliged to another to speak, refrains from doing so and thereby induces the other to believe in the existence of a
state of facts in reliance on which he acts to his prejudice.
Facts:
Maxilite and Marques entered into a trust receipt transaction with Far East Bank and Trust Company
(FEBTC) for the shipment of various high-technology equipment, with the merchandise serving as collateral.
The trust receipt document states Marques agrees to keep said merchandise insured against fire to its full
value, payable to the said bank, at the cost and expense of the undersigned. Far East Bank Insurance Brokers,
Inc. (FEBIBI) facilitated the procurement and processing from Makati Insurance Company of 4 fire insurance
policies over the trust receipted merchandise. The policy provides that it is not in force until the premium has
been fully paid to and duly receipted by the Company. Finding that Maxilite failed to pay the insurance
premium, FEBIBI sent written reminders to FEBTC to debit Maxilite’s account. Maxilite fully settled its trust
receipt account. Fire gutted Maxilite’s office and warehouse hence it suffered losses, which it claimed against
Makati Insurance Company. The latter denied the claim on the ground of non-payment of premium. FEBTC
and FEBIBI disclaimed any responsibility for the denial of the claim.
Issue:
Whether or not FEBTC, FEBIBI and MIC are estopped from claiming that the insurance premium has
been unpaid?
Ruling:
Yes. In Santiago Syjuco, Inc. v. Castro (175 SCRA 171, July 8, 1989), the Court stated that “estoppel may
arise from silence as well as from words.” ‘Estoppel by silence’ arises where a person, who by force of
circumstances is obliged to another to speak, refrains from doing so and thereby induces the other to believe
in the existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an
estoppel whether the failure to speak is intentional or negligent. FEBTC induced Maxilite and Marques to
believe that the insurance premium has in fact been debited from Maxilite’s account. Prior to the full
settlement of the trust receipt, FEBTC had insurable interest over the merchandise, and thus had greater
reason to debit Maxilite’s account. Maxilite had sufficient funds at the time the first reminder was sent by
FEBIBI to FEBTC to debit Maxilite’s account for the payment of the insurance premium. However, FEBTC
failed to debit and instead disregarded the written reminder from FEBIBI to debit Maxilite’s account. FEBTC’s
conduct clearly constitutes negligence in handling Maxilite’s and Marques’ accounts. Indisputably, had the
insurance premium been paid, through the automatic debit arrangement with FEBTC, Maxilite’s fire loss
claim would have been approved.
Non-Default Options in Life Insurance
Reinstatement of a Lapsed Policy of Life Insurance
JAMES MCGUIRE vs. THE MANUFACTURERS LIFE INSURANCE CO.

G.R. No. L-3581, September 21, 1950, Ozaeta, J.
The company has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and
if the latter does not pay all overdue premium and all other indebtedness to the company.
Facts:
The Manufacturers Life Insurance issued an insurance policy on the life of Jaime McGuire. McGuire
paid the premiums on said policy up. McGuire secured from Manufacturers a loan of $760 on said insurance
policy. He failed to pay the loan with the interest when it became due as well as the premiums which fell due.
Upon the default of McGuire to pay, Manufacturers applied the stipulation contained in clause 8 (Automatic
Premium Loan) of the provisions of the policy and said policy was carried on under said non-forfeiture clause
of the policy up to March 1, 1942, the date said policy lapsed. McGuire died on August 4, 1943, in a motorcycle
accident. During the interim period between March 1, 1942 to August 4, 1943, McGuire attempted to reinstate
the policy but his attempts failed because of his inability to communicate with Manufacturers due to the
existence of war and the occupation of the Philippines by enemy forces.
Issue:
Whether or not McGuire had the privilege of reinstating the policy to keep it in force up to the time of
his death upon a written application within 3 years from the date of lapse?
Ruling:
No. Even if the insured had applied for reinstatement within three years after the policy had lapsed,
his right thereto was not absolute under the terms of the policy but discretionary on the part of the insurance
company, which had the right to deny the reinstatement if it was not satisfied as to the insurability of the
insured and if the latter did not pay all overdue premiums and all other indebtedness to the company. After
the death of the insured the insurance company could not be compelled to entertain an application for
reinstatement of the policy because the conditions precedent to reinstatement could no longer be determined
and satisfied.
RUFINO ANDRES vs. THE CROWN LIFE INSURANCE COMPANY

G.R. No. L-10874, January 28, 1958, Reyes, J.
An insurance company has the right to deny the reinstatement if it is not satisfied as to the insurability
of the insured and if the latter does not pay all overdue premium and all other indebtedness.
Facts:
Rufino and Severa Andres filed an application for insurance which Crown Life Insurance Company
issued. The premiums are to be paid semi-annually. The premiums for the first and second semester were
paid but not as to the premium for the third semester. Melendres, branch secretary of Crown Life, wrote to
the Spouses Andres advising them that the policy lapsed on December 25, 1950 and the amount overdue was
P165.15, giving them a period of 60 days from the date of lapse to file an application for reinstatement. Later,
Melendres told the spouses that the policy was no longer in force and it already lapsed but in the same month
Severa executed an application for reinstatement. Melendres advised Rufino that the home office has
approved the reinstatement of the lapsed policy but later wrote letters requesting the remittance of the
balance on the semi-annual premium that was not paid. Rufino presented his death claim as survivor-
beneficiary of the deceased Severa but payment was denied by Crown Life. Crown Life disclaimed liability and
claimed that the policy had already lapsed. A complaint was filed by Rufino against Crown Life for the
recovery of the amount of P5,000, as the face value of a joint 20-year endowment insurance policy issued in
favor of Rufino and his wife Severa, by said insurance company.
Issue:
Whether or not there is a perfected contract of reinstatement after the policy lapsed due to non-
payment of premiums?
Ruling:
No. One of the conditions set forth in the policy for reinstatement particularly that all overdue
premiums and other indebtedness in respect of the policy, together with interest at six per cent, compounded
annually, should first be paid was not complied with. For Rufino only paid P100 (on account of the overdue
semi-annual premium of P165.15) before his wife's death; and, despite the Company's reminders, he remitted
the balance of P65 on May 5, 1951 (received by the Company's agency on May 11), two days after his wife
died. On the face of such facts, the Company had the right to treat the contract as lapsed and refuse payment
of the policy. Clearly the Company did not consider the partial payment as sufficient consideration for the
reinstatement. Appellant's failure to remit the balance before the death of his wife operated to deprive him of
any right to waive the policy and recover the face value thereof.
This Court, in the case of James McGuire vs. The Manufacturer's Life Insurance Co. (87 Phil 370,
September 21, 1950), said: "The stipulation in a life insurance policy going the insured the privilege to
reinstate it upon written application does not give the insured absolute right to such reinstatement by the
mere filing of an application. The Company has the right to deny the reinstatement if it is not satisfied as to
the insurability of the insured and if the latter does no pay all overdue premium and all other indebtedness to
the company. After the death of the insured the insurance Company cannot be compelled to entertain an
application for reinstatement of the policy because the conditions precedent to reinstatement can no longer
be determined and satisfied.
Refund of Premiums
GREAT PACIFIC LIFE INSURANCE CORPORATION vs. CA AND TEODORO CORTEZ

G.R. No. L-57308, April 23, 1990, Griño-Aquino, J.
A policy that was in fact inoperative or ineffectual from the beginning, entitles the insured to refund of
the premiums paid. The company was never at risk, hence, it is not entitled to keep the premium.
Facts:
Teodoro Cortez, upon the solicitation of Margarita Siega, an underwriter for the Great Pacific Life
Insurance Corporation (Grepalife), applied for a 20-year endowment policy for P30,000. His application, with
the requisite medical examination, was accepted and approved by the company and in due course, a policy
was issued in his name. It was released for delivery on January 24, 1973, and was actually delivered to him by
the underwriter, Mrs. Siega, on January 25, 1973. The effective date indicated on the face of the policy in
question was December 25, 1972. The annual premium was P1,416.60. Mrs. Siega assured him that the first
premium may be paid within the grace period of 30 days from date of delivery of the policy. The first
premium of P1,416.60 was paid by him in 3 installments. Grepalife advised Cruz that the policy was not in
force. To make it enforceable and operative, Cruz was asked to remit the balance of P1,015.60 to complete his
initial annual premium and to see Dr. Remollo for another full medical examination at his own expense.
Cortez' reaction to the company's act was to immediately inform it that he was cancelling the policy and he
demanded the return of his premium plus damages. When the company ignored his demand, Cortez filed a
complaint for damages and for refund of premium.
Issue:
Whether or not Cortez is entitled to refund of premium.
Ruling:
Yes. The policy was issued on December 25, 1972 and was delivered on January 25, 1973 and Cruz
was given by Grepalife. Thru its underwriter Mrs. Siega, a grace period of 30 days from said date within which
the premium was to be paid. Record shows that the premium was paid fully on February 21, 1973 or within
the grace period. This being so, the policy was already enforceable. The company had sufficient time to
examine the result of their medical examination on Cruz. They would not have delivered the policyif Cruz was
unacceptable. Moreover, if premiums were to be paid within 90 days then the reckoning period should be the
date the policy was delivered and not the date Cruz was physically examined. These are the most eloquent
proofs that at such time the policy was already in full force and effect. Since his policy was in fact inoperative
or ineffectual from the beginning, the company was never at risk, hence, it is not entitled to keep the
premium.
Rescission of Insurance Contracts
Concealment
GREAT PACIFIC LIFE ASSURANCE COMPANY vs. CA

G.R. No. L-31845, April 30, 1979, De Castro, J.
Concealment is a neglect to communicate that which a party knows and ought to communicate.
Whether intentional or unintentional, the concealment entitles the insurer to rescind the contract of insurance.
Facts:
Ngo Hing filed an application with the Great Pacific Life Assurance Company (Pacific Life) for a 20
year endowment policy on the life of his 1 year old daughter Helen Go. Ngo Hing supplied the essential data
which Lapulapu Mondragon, Branch Manager of Pacific Life, wrote on the corresponding form. Ngo Hing paid
the annual premium, the sum of P1,077.75 going over to the Company, but he retained the amount of
P1,317.00 as his commission for being a duly authorized agent Pacific Life. Upon the payment of the
insurance premium, the binding deposit receipt was issued to Ngo Hing. Mondragon handwrote at the bottom
of the back page of the application form his strong recommendation for the approval of the insurance
application. However, Mondragon received a letter from Pacific Life disapproving the insurance application.
The letter stated that the said life insurance application for 20-year endowment plan is not available for
minors below 7 years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and
advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the Company. The non-
acceptance of the insurance plan by Pacific Life was allegedly not communicated by Mondragon to Ngo Hing.
Instead, Mondragon wrote back Pacific Life again strongly recommending the approval life insurance on the
ground that Pacific Life is the only insurance company not selling the 20- year endowment insurance plan to
children. Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery of the same.
Issue:
Whether or not Ngo Hing concealed the state of health and physical condition of Helen Go?
Ruling:
Yes. When private respondent supplied the required essential data for the insurance application
form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital
physical defect could never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad
faith, withheld the fact material to the risk to be assumed by the insurance company. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known, his duty and responsibility to supply such a
material fact. Had he divulged said significant fact in the insurance application form, Pacific Life would have
verified the same and would have had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith; absolute and perfect candor or openness and
honesty; the absence of any concealment or deception, however slight, not for the insured alone but equally
so for the insurer. Concealment is a neglect to communicate that which a party knows and ought to
communicate. Whether intentional or unintentional, the concealment entitles the insurer to rescind the
contract of insurance. Ngo Hing appears guilty thereof.
NG GAN ZEE vs. ASIAN CRUSADER LIFE ASSURANCE CORPORATION
G.R. No. L-30685, May 30, 1983, Escolin, J.
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and intentionally
withholds the same.
Facts:
Kwong Nam applied for a 20-year endowment insurance on his life with his wife, Ng Gan Zee, as
beneficiary. Asian Crusader, upon receipt of the required premium from the insured, approved the
application and issued the policy. Kwong Nam died of cancer of the liver with metastasis. Ng Gan Zee
presented a claim in due form to Asian Crusader for payment of the face value of the policy and submitted the
required proof of death of the insured. Asian Crusader denied the claim on the ground that the answers given
by the insured to the questions appearing in his application for life insurance were untrue when the insured
was examined and he gave the Asian Crusader's medical examiner false and misleading information as to his
ailment and previous operation.
Issue:
Whether or not Asian Crusader was deceived into accepting the risk at the rate of premium agreed
upon because of Kwong Nam’s representation?
Ruling:
No. Concealment exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and
intentionally withholds the same. It has also been held that the concealment must, in the absence of inquiries,
be not only material, but fraudulent, or the fact must have been intentionally withheld.
Kwong Nam had informed the appellant's medical examiner that the tumor for which he was
operated on was "associated with ulcer of the stomach." In the absence of evidence that the insured had
sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his
statement that said tumor was "associated with ulcer of the stomach," should be construed as an expression
made in good faith of his belief as to the nature of his ailment and operation. Indeed, such statement must be
presumed to have been made by him without knowledge of its incorrectness and without any deliberate
intent on his part to mislead the appellant. While it may be conceded that, from the viewpoint of a medical
expert, the information communicated was imperfect, the same was nevertheless sufficient to have induced
appellant to make further inquiries about the ailment and operation of the insured.
It has been held that where, "upon the face of the application, a question appears to be not answered
at all or to be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive
the imperfection of the answer and render the omission to answer more fully immaterial." The fact of the
matter is that the defendant was too eager to accept the application and receive the insured's premium. It
would be inequitable now to allow the defendant to avoid liability under the circumstances.
NEW LIFE ENTERPRISES AND JULIAN SY v. HON. COURT OF APPEALS, EQUITABLE INSURANCE
CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. AND WESTERN GUARANTY
CORPORATION
G.R. No. 94071, March 31, 1992, REGALADO, J.
The insured is specifically required to disclose to the insurer any other insurance and its particulars
which he may have effected on the same subject matter. The knowledge of such insurance by the insurer's agents,
even assuming the acquisition thereof by the former, is not the "notice" that would estop the insurers from
denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the agent is
knowledge of the principal, aside from being of dubious applicability here has likewise been roundly refuted by
respondent court whose factual findings we find acceptable.
Facts:
Julian Sy and Jose Sy Bang are partners of New Life Enterprises engaged in the sale of construction
materials. Julian Sy insured the stocks in trade of New Life Enterprises with Western Guaranty Corporation,
Reliance Surety and Insurance Co. Inc., and Equitable Insurance Corporation. Thus when the building
occupied by the New Life Enterprises was gutted by fire, the stocks in trade inside said building were insured
in the total amount of P1,550,000.00. The cause of fire was electrical in nature. Julian Sy went to the agent of
Reliance Insurance and the other two insurance companies. The three insurance companies denied plaintiffs'
claim. The claims were denied due to the violation of Policy Condition No. '3' which requires the insured to
give notice of any insurance or insurances already effected covering the stocks in trade. Petitioner filed
separate civil actions against the former before the Regional Trial Court. The RTC ruled in favor of Sy but the
CA reversed the decision.
Issue:
Whether or not the concealment of the other insurances on the same stocks will prevent the plaintiff
from recovering claims pursuant to the Condition No. 3 in the policies?
Ruling:
Yes, the terms of the contract are clear and unambiguous. The insured is specifically required to
disclose to the insurer any other insurance and its particulars which he may have effected on the same
subject matter. The knowledge of such insurance by the insurer's agents, even assuming the acquisition
thereof by the former, is not the "notice" that would estop the insurers from denying the claim. Besides, the
so-called theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside
from being of dubious applicability here has likewise been roundly refuted by respondent court whose factual
findings we find acceptable.
Furthermore, when the words and language of documents are clear and plain or readily
understandable by an ordinary reader thereof, there is absolutely no room for interpretation or construction
anymore. Courts are not allowed to make contracts for the parties; rather, they will intervene only when the
terms of the policy are ambiguous, equivocal, or uncertain. The parties must abide by the terms of the
contract because such terms constitute the measure of the insurer's liability and compliance therewith is a
condition precedent to the insured's right of recovery from the insurer.
SUNLIFE ASSURANCE COMPANY OF CANADA v. THE HON. COURT OF APPEALS AND SPOUSES ROLANDO
AND BERNARDA BACANI
G.R. No. 105135, June 22, 1995, QUIASON, J.
Materiality of the information withheld does not depend on the state of mind of the insured. Neither
does it depend on the actual or physical events which ensue. Thus, "good faith" is no defense in concealment. It is
well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that
his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in
making inquiries
Facts:
Robert John B. Bacani procured a life insurance contract for himself from Sunlife Assurance Company
of Canada. The designated beneficiary was his mother Bernarda Bacani. The insured died in a plane
crash. Bernarda Bacani filed a claim with petitioner. Petitioner conducted an investigation and its findings
showed that the insured did not disclose material facts relevant to the issuance of the policy, thus rendering
the contract of insurance voidable which prompted it to reject the claim. Petitioner failed to disclose that the
two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center
of the Philippines, where he was diagnosed for renal failure. Bernarda Bacani and her husband, respondent
Rolando Bacani, filed an action for specific performance against petitioner with the Regional Trial Court. The
RTC ruled in favor of Sunlife because the concealment was made in good faith. On appeal, it was affirmed by
CA because the concealment was unrelated with the cause of death.
Issue:
Whether or not the concealment of the insured will bar recovery of the beneficiaries?
Ruling:
Yes, in Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend on the
actual or physical events which ensue.
Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his
bonafides. It appears that such concealment was deliberate on his part.
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries (Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).
IGNACIO SATURNINO, ET AL. v. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY

G.R. No. L-16163, February 28, 1963, MAKALINTAL, J.
A concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of
insurance, concealment being defined as "negligence to communicate that which a party knows and ought to
communicate".
Facts:
Estefania A Saturnino did not make a disclosure thereof in her application for insurance
that Saturnino was operated on for cancer, involving complete removal of the right breast. The policy sued
upon is one for 20-year endowment non-medical insurance. Saturnino died of pneumonia, secondly to
influenza. Her surviving husband and minor child, respectively, demanded payment of the face value of the
policy. The claim was rejected and this suit was subsequently instituted. The trial court ruled in favor of
Philippine American Life Insurance Company.
Issue:
Whether or not the insured made such false representations of material facts as to avoid the policy.
Ruling:
Yes, in the first place the concealment of the fact of the operation itself was fraudulent, as there could
not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy it is not
necessary to show actual fraud on the part of the insured. If it were the law that an insurance company could
not defend a policy on the ground of misrepresentation, unless it could show actual knowledge on the part of
the applicant that the statements were false, then it is plain that it would be impossible for it to protect itself
and its honest policyholders against fraudulent and improper claims. It would he wholly at the mercy of any
one who wished to apply for insurance, as it would be impossible to show actual fraud except in the extremist
cases. It could not rely on an application as containing information on which it could act. There would be no
incentive to an applicant to tell the truth."
In this jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to

rescind the contract of insurance, concealment being defined as "negligence to communicate that which a
party knows and ought to communicate" (Sections 25 & 26, Act No. 2427).
The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the
insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon
the belief that the assured will disclose every material fact within his actual or presumed knowledge, is
misled into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the
risk upon a false basis that it does not exist.'"
THELMA VDA. DE CANILANG v. HON. COURT OF APPEALS AND GREAT PACIFIC LIFE ASSURANCE
CORPORATION
G.R. No. 92492, June 17, 1993, FELICIANO, J.
The materiality of the information does not depend upon the state of mind. A man's state of mind or
subjective belief is not capable of proof in our judicial process, except through proof of external acts or failure to
act from which inferences as to his subjective belief may be reasonably drawn.
Facts:
Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from
"sinus tachycardia." On the next day, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma Canilang, as his
beneficiary. A year after, Jaime Canilang died of congestive heart failure, anemia, and chronic
anemia. Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer
denied upon the ground that the insured had concealed material information from it. Petitioner then filed a
complaint with the Insurance Commission. The Insurance Commisioner ordered Grepalife to pay the
petitioner. On appeal by Great Pacific, the Court of Appeals reversed.
Issue:
Whether or not the concealment of the insured that he was suffering from sinus trachycardia and
acute bronchitis would bar the insurance claim of the beneficiaries.
Ruling:
Yes, we agree with the Court of Appeals that the information which Jaime Canilang failed to disclose
was material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and the medicines prescribed by
such doctor, in the insurance application, it may be reasonably assumed that Great Pacific would have made
further inquiries and would have probably refused to issue a non-medical insurance policy or, at the very
least, required a higher premium for the same coverage. The materiality of the information withheld by Great
Pacific did not depend upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is
not capable of proof in our judicial process, except through proof of external acts or failure to act from which
inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend upon the
actual or physical events which ensue. Materiality relates rather to the "probable and reasonable influence of
the facts" upon the party to whom the communication should have been made, in assessing the risk involved
in making or omitting to make further inquiries and in accepting the application for insurance; that "probable
and reasonable influence of the facts" concealed must, of course, be determined objectively, by the judge
ultimately.
Misrepresentation/Omissions
MA. LOURDES S. FLORENDO v. PHILAM PLANS, INC., PERLA ABCEDE AND MA. CELESTE ABCEDE
G.R. No. 186983, February 22, 2012, ABAD, J.
Assuming that it was the insurance agent Perla who filled up the application form, Manuel is still bound
by what it contains since he certified that he authorized her action. Therefore, any concealment made by the
insurance agent binds him and therefore, the insurer, in the case at bar has every right to deny liability.
Facts:
Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans,
Inc. Ma. Lourdes S. Florendo, his wife, was stated as beneficiary. On October 30, 1997 Philam Plans issued
Pension Plan Agreement. Eleven months later or on September 15, 1998, Manuel died of blood poisoning.
Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under her husband’s
plan. Because Manuel died before his pension plan matured and his wife was to get only the benefits of his life
insurance, Philam Plans forwarded her claim to Philam Life. Philam Life declined the claim and found that
Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered
from diabetes mellitus and was taking insulin. Lourdes contends that Manuel had concealed nothing since
Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his chest in the 70s or about 20
years before he signed up for the pension plan and that it is the soliciting agent who filled up the form.
Issue:
Whether or not there was misrepresentation on the part of Manuel that would avoid the policy.
Ruling:
Yes, assuming that it was the insurance agent Perla who filled up the application form, Manuel is still
bound by what it contains since he certified that he authorized her action. But by its tenor, the responsibility
for preparing the application belonged to Manuel. Nothing in it implies that someone else may provide the
information that Philam Plans needed. Manuel cannot sign the application and disown the responsibility for
having it filled up. If he furnished Perla the needed information and delegated to her the filling up of the
application, then she acted on his instruction, not on Philam Plans instruction. Philam Plans had every right to
act on the faith of that certification.
The incontestability clause precludes the insurer from disowning liability under the policy it issued
on the ground of concealment or misrepresentation regarding the health of the insured after a year of its
issuance.
Since Manuel died on the eleventh month following the issuance of his plan, the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning
Lourdes’ entitlement to the benefits of her husband’s pension plan.
EMILIO TAN, JUANITO TAN, ALBERTO TAN AND ARTURO TAN v. THE COURT OF APPEALS AND THE
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
G.R. No. L-48049, June 29, 1989, GUTIERREZ, JR., J.
The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement
within which to contest the policy, whether or not, the insured still lives within such period. After two years, the
defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie.
Facts:
Tan Lee Siong applied for life insurance in the amount of P80,000.00 with Philam Life. Said
application was approved and Policy No. 1082467 was issued effective November 6, 1973 with the
petitioners as beneficiaries. On April 26, 1975, Tan Lee Siong died of hepatoma. Petitioners then filed with
Philam Life their claim. However, respondent company denied petitioners' claim and rescinded the policy by
reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee
Siong in his application for insurance. The premiums paid on the policy were thereupon refunded. Petitioners
filed a complaint before the Insurance Commissioner. The latter dismissed their claim of procees. On appeal
before the Court of Appeals, it was also dismissed.
Issue:
Whether or not Philam Life no longer had the right to rescind the contract of insurance based on
misrepresentation as rescission must allegedly be done during the lifetime of the insured within two years
and prior to the commencement of action.
Ruling:
No, as noted by the Court of Appeals, to wit: "The policy was issued on November 6, 1973 and the
insured died on April 26, 1975. The policy was thus in force for a period of only one year and five months.
Considering that the insured died before the two-year period had lapsed, respondent company is not,
therefore, barred from proving that the policy is void ab initio by reason of the insured's fraudulent
concealment or misrepresentation. Moreover, respondent company rescinded the contract of insurance and
refunded the premiums paid on September 11, 1975, previous to the commencement of this action on
November 27, 1975."
The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such period.
After two years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no
longer lie. Congress felt this was a sufficient answer to the various tactics employed by insurance companies
to avoid liability. The petitioners' interpretation would give rise to the incongruous situation where the
beneficiaries of an insured who dies right after taking out and paying for a life insurance policy, would be
allowed to collect on the policy even if the insured fraudulently concealed material facts.
MANILA BANKERS LIFE INSURANCE CORPORATION v. CRESENCIA P. ABAN

G.R. No. 175666, July 29, 2013, DEL CASTILLO, J.
insurance has been in force for at least two years during the insured’s lifetime. The phrase "during the lifetime"
found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The
key phrase in the second paragraph of Section 48 is "for a period of two years."
Facts:
Delia Sotero took out a life insurance policy from Manila Bankers Life Insurance
Corporation,designating respondent Cresencia P. Aban, her niece, as her beneficiary. Petitioner issued
Insurance Policy No. 747411 (the policy), with a face value of P100,000.00, in Sotero's favor on August 30,
1993, after the requisite medical examination and payment of the insurance premium. On April 10,
1996, when the insurance policy had been in force for more than two years and seven months, Sotero died.
Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner conducted an investigation
into the claim and found that Sotero did not personally apply for insurance coverage, as she was
illiterate. Petitioner filed a civil case for rescission and/or annulment of the policy and alleged that the policy
was obtained by fraud, concealment and/or misrepresentation. Respondent filed a Motion to Dismiss
claiming that petitioner's cause of action was barred by prescription pursuant to Section 48. The trial court
granted the motion to dismiss by Aban. On appeal, it affirmed the trial court.
Issue:
Whether or not there was misrepresentation on the part of the insured that would avoid the policy in
relation to the prescription period in Section 48.
Ruling:
No. As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10,
1996, and the claim was denied on April 16, 1997. The insurance policy was thus in force for a period of 3
years, 7 months, and 24 days. Considering that the insured died after the two-year period, the plaintiff-
appellant is, therefore, barred from proving that the policy is void ab initio by reason of the insured’s
fraudulent concealment or misrepresentation or want of insurable interest on the part of the beneficiary,
herein defendant-appellee.
The "incontestability clause" is a provision in law that after a policy of life insurance made payable on
the death of the insured shall have been in force during the lifetime of the insured for a period of two (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 rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the
rescinding of the contract of insurance on the ground of fraudulent concealment or misrepresentation to a
period of only two (2) years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as
long as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when
the insured dies in order to defeat the right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given
the stability to recover under the policy when the insured dies. The provision also makes clear when the two-
year period should commence in case the policy should lapse and is reinstated, that is, from the date of the
last reinstatement. After two years, the defenses of concealment or misrepresentation, no matter how patent
or well-founded, will no longer lie.
insurance has been in force for at least two years during the insured’s lifetime. The phrase "during the
lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured
has died. The key phrase in the second paragraph of Section 48 is "for a period of two years."
Breach of Warranties
QUA CHEE GAN v. LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER,
BARNES, AND CO., LTD.
G.R. No. L-4611, December 17, 1955, J. Reyes, J.B.L.
Insurer is barred by waiver (or rather estoppel) to claim violation of warranties for the reason that
knowing fully all that the number of hydrants demanded therein never existed from the very beginning,
respondent nevertheless issued the policies in question subject to such warranty, and received the corresponding
premiums. It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a
policy as no longer in force, receives and accepts a premium on the policy, estopped to take advantage of the
forfeiture.
Facts:
Qua Chee Gan obtained fire insurance policies from Law Union and Rock Insurance for his four
warehouses used for storing copra and hemp. Under the policies, Qua Chee Gan should install fire hydrants
every 150 feet or 11 hydrants in the warehouse premises, however, he installed only 2 hydrants.
Nevertheless, Law Union proceeded with the insurance and collected premiums from Qua Chee Gan. In the
1940s, three of the warehouses were razed by fire prompting Qua Chee Gan to demand insurance payment
from Law Union. The insurance company refused, alleging that the policies should have been avoided for
breach of warranties.
Issue:
Whether or not the insurance company may avoid liability and void the policies it issued due to
insured’s breach of warranty.
Ruling:
NO. Respondent insurance company is now barred by waiver (or rather estoppel) to claim violation
of the so-called fire hydrants warranty, for the reason that knowing fully all that the number of hydrants
demanded therein never existed from the very beginning, respondent nevertheless issued the policies in
question subject to such warranty, and received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow respondent to claim now as void ab initio the policies that it had
issued to the plaintiff without warning of their fatal defect, of which it was informed, and after it had misled it
into believing that the policies were effective.
American jurisprudence provides the reason for this rule: To allow a company to accept one’s money
for a policy of insurance which it knows to be void and of no effect, though it knows as it must that the
insured believes it to be valid and binding is so contrary to the dictates of honesty and fair dealing, as so
closely related to positive fraud, as to be abhorrent to fair-minded men. It would be to allow the company to
treat the policy as valid long enough to get the premium on it, and leave it at liberty to repudiate it the next
moment.
It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a
policy as no longer in force, receives and accepts a premium on the policy, estopped to take advantage of the
forfeiture.
MALAYAN INSURANCE COMPANY, INC. v. PAP CO. , LTD.
G.R. No. 200784, August 7, 2014, Mendoza, J.
Section 168 of the Insurance Code provides that the insurer is entitled to rescind the insurance contract
in case of an alteration in the use or condition of the thing insured. The insured’s act of removing the insured
properties from the location different from that indicated in the policy without the insurer’s consent entitles the
latter to rescind the insurance policy because such act amounts to concealment, misrepresentation and breach of
warranty.
Facts:
Respondent PAP Co. procured a fire insurance policy from petitioner Malayan Insurance for its
machineries and equipment which was mortgaged to RCBC. The policy was renewed on an “as is” basis after
a year. The insured machineries and equipment were lost by fire prompting PAP Co. to file an insurance
claim from Malayan. Malayan, however, denied the claim upon the ground that, at the time of the loss, the
insured machineries and equipment were transferred by PAP Co. to a location different from that indicated in
the policy in violation of their affirmative warranty. Contesting the denial, PAP Co. argued that Malayan
cannot avoid liability as it was informed of the transfer by RCBC.
Issue:
Whether or not the Court of Appeals erred in affirming the lower court’s ruling holding Malayan
Insurance liable despite PAP Co.’s alleged concealment, misrepresentation, and breach of an affirmative
warranty.
Ruling:
YES, the appellate court erred in holding Malayan Insurance liable. By the clear and express
condition in the renewal policy, the removal of the insured property to any building or place required the
consent of Malayan. Any transfer effected by the insured, without the insurer’s consent, would free the latter
from any liability. The records, however, are bereft of any convincing and concrete evidence that Malayan
was notified of the transfer of the insured properties from the Sanyo factory to the Pace factory. What PAP
did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity
which made the referral and the named beneficiary in the policy. Malayan and RCBC might have been sister
companies, but such fact did not make one an agent of the other. The fact that RCBC referred PAP to Malayan
did not clothe it with authority to represent and bind the said insurance company. After the referral, PAP
dealt directly with Malayan. The Court noted that PAP’s Branch Manager, Mr. Yoneda only admitted that the
insured properties were transferred to a different location only after the renewal of the fire insurance policy.
There being an uncontested removal, the transfer was at PAP’s own risk. Malayan is thus entitled to
rescind the insurance contract as it clearly committed concealment, misrepresentation and a breach of
warranty. Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance
contract in case of an alteration in the use or condition of the thing insured.
NEW LIFE ENTERPRISES and JULIAN SY v. HON. COURT OF APPEALS, EQUITABLE INSURANCE
CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY
CORPORATION
G.R. No. 94071, March 31, 1992, Regalado, J.
The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to
the insurer any other insurance and its particulars which he may have effected on the same subject matter. The
insured’s failure to disclose such information justifies forfeiture of the benefits provided in the policy. The
knowledge of such insurance by the insurer’s agents, even assuming the acquisition thereof by the former, is not
the “notice” that would estop the insurers from denying the claim.
Facts:
Petitioner New Life Enterprises is a partnership formed by Julian Sy and Jose Sy Bang. Julian Sy
insured the stocks in trade of the partnership with Western Guaranty Corporation, Reliance Surety and
Insurance Co. and Equitable Insurance Corporation. These three insurance corporations issued fire insurance
policies on different dates. When the building occupied by New Life Enterprises was gutted by fire, Julian Sy
demanded payment from the insurance companies. The insurance companies, however, denied his claim for
payment; their letters of denial are all of the same tenor, explaining that the denial is due to breach of policy
conditions otherwise known as the “Otherwise Insurance Clause”. Petitioner contends that they are not to be
blamed for the omissions, alleging that the agent Alvarez for Western and Yap Kam Chuan for Reliance and
Equitable knew about the existence of the additional insurance coverage and that they were not informed
about the requirement that such other or additional insurance should be stated in the policy, as they have not
read the policy.
Issue:
Whether or not conditions in the insurance contracts were violated by petitioners thereby resulting
in their forfeiture of all the benefits thereunder.
Ruling:
YES. The terms of the contract are clear and unambiguous.

The insured is specifically required to disclose to the insurer any other insurance and its
particulars which he may have effected on the same subject matter. The knowledge of such insurance by the
insurer’s agents, even assuming the acquisition thereof by the former, is not the “notice” that would estop the
insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of
the agent is knowledge of the principal, aside from being of dubious applicability here has likewise been
refuted by the appellate court whose factual findings we find acceptable.
While it is a cardinal principle of insurance law that a policy or contract of insurance is to be

construed liberally in favour of the insured and strictly against the insurer company, yet contracts of
insurance, like other contracts, are to be construed according to the sense and meaning of the terms which
the parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary, and popular sense. Moreover, obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith.
K.S. YOUNG v. MIDLAND TEXTILE INSURANCE COMPANY

G.R. No. 9370, March 31, 1915, Johnson, J.
If the insured cannot bring himself within the terms and conditions of the contract, he is not entitled to
recover for any loss suffered. The terms of the contract constitute the measure of the insurer’s liability. If the
contract has been terminated, by a violation of its terms on the part of the insured, there can be no recovery.
Compliance with the terms of the contract is a condition precedent to the right of recovery.
Facts:
K.S. Young has a business of a candy and fruit store in Escolta and occupied a building as a residence
and bodega. Young entered into a contract of insurance with Midland Textile Insurance in case said residence
and bodega and its contents should be destroyed by fire. One of the conditions of said contract of insurance is
found in "warranty B" and is as follows: "Warranty B. It is hereby declared and agreed that during the
pendency of this policy no hazardous goods be stored or kept for sale, and no hazardous trade or process be
carried on, in the building to which this insurance applies, or in any building connected therewith.” On the
4th or 5th of February 1913, the plaintiff placed in said residence and bodega three boxes filled with
fireworks intended to be used in the celebration if Chinese New Year. A few days after, the insured building
got partially destroyed by fire. The said fireworks, however, were found in the part of the building not
destroyed by the fire and that they in no way contributed to the fire or to the loss occasioned thereby.
Issue:
Whether or not the placing of said fireworks in the building insured, being hazardous goods, is a
violation of the terms of the contract of insurance and especially of Warranty B.
Ruling:
YES. It is a breach of warranty. Contracts of insurance are contracts of indemnity upon the terms and
conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of
the making of the contract as they may deem wise and necessary. If the insured cannot bring himself within
the conditions of the policy, he is not entitled to recover for the loss. The terms of the policy constitute the
measure of the insurer’s liability, and in order to recover the insured must show himself within those terms;
and if it appears that the contract has been terminated by a violation, on the part of the insured, of its
conditions, then there can be no right of recovery. The compliance of the insured with the terms of the
contract is a condition precedent to the right of recovery. 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 waived by the insurer,
then the insured cannot recover.
Appellant’s argument that the “storing” of the fireworks on the premises did not contribute in any
way to the damage occasioned by the fire is untenable. The violation of the terms of the contract, by virtue of
the provisions of the policy itself, terminated, at the election of either party, the contractual relations. The
plaintiff paid a premium based upon the risk at the time the policy was issued. [T]he placing of the
firecrackers in the building insured increased the risk. x x x The plaintiff was enjoying, if his contention may
be allowed, the benefits of an insurance policy upon one risk, whereas, as a matter of fact, it was issued upon
an entirely different risk.
E.M. BACHRACH v. BRITISH AMERICAN ASSURANCE COMPANY

G.R. No. L-5715, December 20, 1910, Johnson, J.
The keeping of inflammable oils in the insured premises, though prohibited by the policy, does not void it
if such keeping is incidental to the business. Moreover, there was no provision in the policy prohibiting the
keeping of paints and varnishes upon the premises where the insured property was stored. If the [insurance]
company intended to rely upon a condition of that character, it ought to have been plainly expressed in the
policy.
Facts:
Plaintiff Bachrach commenced an action against defendant British American Assurance Company to
recover a certain sum of money based on the fire insurance policy. The defendant answered the complaint,
admitting some of the facts alleged by the plaintiff and denying others. The defendant also alleged certain
facts under which it claimed that it was released from all obligations whatever under said policy. Among
others, it alleged that the plaintiff maintained a paint and varnish shop in the said building where the goods
which were insured were stored; immediately preceding the outbreak of the alleged fire, plaintiff willfully
placed a gasoline can containing 10 gallons of gasoline in the upper story of said building in close proximity to
a portion of said goods, which can was so placed as to permit the gasoline to run on the floor of said second
story, and after so placing said gasoline, the plaintiff, placed in close proximity to said escaping gasoline a
lighted lamp containing alcohol, thereby greatly increasing the risk of fire.
Issue:
Whether or not using the building as a paint and varnish shop annulled the policy and the keeping of
gasoline and alcohol was a violation of the conditions of the policy as to render the same null and void.
Ruling:
NO, the policy is not avoided and consequently the insurer should still be held liable. The lower court
in its decision said “It is well settled that the keeping of inflammable oils on the premises, though prohibited
by the policy, does not void it if such keeping is incidental to the business. Thus, where a furniture factory keeps
benzine for the purposes of operation, or where it is used for the cleaning machinery, the insurer cannot on
that ground avoid payment of loss, though the keeping of the benzine on the premises is expressly
prohibited.” It may be added that there was no provision in the policy prohibiting the keeping of paints and
varnishes upon the premises where the insured property was stored. If the company intended to rely upon a
condition of that character, it ought to have been plainly expressed in the policy.
Claims Settlement and Subrogation
PERLA COMPANIA DE SEGUROS, INC. v. HONORABLE COURT OF APPEALS and MILAGROS CAYAS
G.R. No. 78860, May 28, 1990, Fernan, C.J.
The stipulation or condition in the insurance contract requiring the insured to secure the written
permission of the insurer before effecting payment in settlement of a claim against the former is valid and
binding. There is nothing unreasonable, arbitrary or objectionable in this stipulation as would warrant its
nullification. The same was obviously designed to safeguard the insurer's interest against collusion between the
insured and the claimants.
Facts:
Private respondent Milagros Cayas was the registered owner of a Mazda bus insured with Perla
Compania De Seguros, Inc. (PCSI). The bus figured in an accident in Naic, Cavite and one of its passengers
sued Milagros for damages. Three other injured passengers agreed to settle for P4,000 each with Cayas.
While the decision in this civil case was to be executed against Cayas, she filed a complaint with the Office of
the Insurance Commissioner praying that PCSI be ordered to pay for all the claims against her arising from
the vehicular accident. Realizing her procedural mistake, she later withdrew her complaint and consequently
filed a complaint for a sum of money and damages against PCSI in the CFI of Cavite. She alleged therein that
to satisfy the judgment in Civil Case No. NC-794, her house and lot were levied upon and sold at public
auction. She further alleged that she sought reimbursement from PCSI, which notwithstanding the fact that
her claim was within its contractual liability under the insurance policy, refused to make such re-
imbursement and that she suffered moral damages as a consequence of such refusal, and that she was
constrained to secure the services of counsel to protect her rights. Petitioner however seeks to limit its
liability to private respondent.
Issue:
Whether or not petitioner may validly limit its liability to the insured.
Ruling:
YES, provided it is not contrary to law. The insurance policy involved explicitly limits petitioner's
liability to P12,000.00 per person and to P50,000.00 per accident. Under the law, the minimum liability is
P12,000 per passenger. Petitioner's liability under the insurance contract not being less than P12,000.00, and
therefore not contrary to law, morals, good customs, public order or public policy, said stipulation must be
upheld as effective, valid and binding as between the parties.
In like manner, we rule as valid and binding upon private respondent the condition above-quoted
requiring her to secure the written permission of petitioner before effecting any payment in settlement of any
claim against her. There is nothing unreasonable, arbitrary or objectionable in this stipulation as would
warrant its nullification. The same was obviously designed to safeguard the insurer's interest against
collusion between the insured and the claimants. It being specifically required that petitioner's written
consent be first secured before any payment in settlement of any claim could be made, private respondent is
precluded from seeking reimbursement of the payments made to the three other injured passengers in view
of her failure to comply with the condition contained in the insurance policy.
MALAYAN INSURANCE CO., INC. v. RODELIO ALBERTO and ENRICO ALBERTO REYES
G.R. No. 194320, February 1, 2012, Velasco, Jr. J.
Consistent with the ruling in Keppel Cebu Shipyard v. Pioneer Insurance “payment by the insurer to the
insured operates as an equitable assignment to the insurer of all the remedies that the insured may have against
the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company
of the insurance claim.”
Facts:
A vehicular accident occurred involving 4 vehicles, a Nissan Bus operated by Aladdin transit, an Isuzu
Tanker, a Fuzo Cargo Truck, and a Mitsubishi Galant. Malayan Insurance insured the Mitsubishi Galant
against third party liability, own damage and theft, among others. Having insured the vehicle against such
risks, Malayan Insurance claimed in its Complaint that it paid the damages sustained by the assured
amounting to PhP 700,000. Maintaining that it has been subrogated to the rights and interests of the assured
by operation of law upon its payment to the latter, Malayan Insurance sent several demand letters to
respondents Rodelio Alberto and Enrico Alberto Reyes, the registered owner and the driver, respectively, of
the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured. Respondents refused to
settle their liability. Respondents claim that the documents presented by Malayan Insurance do not indicate
certain important details that would show proper subrogation.
Issue:
Whether or not the subrogation of Malayan Insurance is impaired and/or deficient.
Held:
NO, Malayan Insurance has been properly subrogated to the rights of the assured. Malayan
Insurance contends that there was a valid subrogation in the instant case, as evidenced by the claim check
voucher and the Release of Claim and Subrogation Receipt presented by it before the trial court.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities. Payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract. It accrues simply upon payment by the insurance company of the insurance claim.
Notice and Proof of Loss
FGU INSURANCE CORPORATION v. THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE
OF ANG GUI, represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO TO
G.R. No. 137775, March 31, 2005, CHICO-NAZARIO, J.
It is a basic rule in insurance that the carelessness and negligence of the insured or his agents constitute
no defense on the part of the insurer. However, when evidence show that the insured’s negligence or recklessness
is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.
Facts:
Anco Enterprises Company owned the M/T ANCO tugboat and the D/B Lucio barge which were
operated as common carriers. San Miguel Corporation entered into agreement with ANCO wherein the latter
will shipped its cargoes on board the D/B Lucio, for towage by M/T ANCO. They further agreed that SMC will
insure the cargoes in order to recover indemnity in case of loss, hence the cargoes was insured with FGU
Insurance Corporation.
ANCO failed to deliver to SMC’s consignee the cargoes. As a consequence of the incident, SMC filed a
complaint for Breach of Contract of Carriage and Damages against ANCO.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU on the ground that
the loss of said cargoes occurred as a result of risks insured against in the insurance policy and during the
existence and lifetime of said insurance policy. ANCO went on to assert that in case the court will order ANCO
to pay SMC’s claim, FGU should be held liable to indemnify or reimburse ANCO whatever amounts, or
damages, it may be required to pay to SMC.
The trial court found ANCO liable to pay SMC and consequently FGU is liable to bear the 53% of the
amount of the lost cargoes because the risk insured against was the cause of the loss. The appellate court
affirmed in toto the decision of the lower court. Hence, the petition.
Issue:
Whether or not FGU can be held liable under the insurance policy to reimburse ANCO for the loss of the
cargoes.
Ruling:
No. It is a basic rule in insurance that the carelessness and negligence of the insured or his agents
constitute no defense on the part of the insurer. This rule however presupposes that the loss has occurred
due to causes which could not have been prevented by the insured, despite the exercise of due diligence.
However, when evidence show that the insured’s negligence or recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be exonerated.
In the case at bar, ANCO’s representatives had failed to exercise extraordinary diligence required of
common carriers in the shipment of SMC’s cargoes. Such blatant negligence being the proximate cause of the
loss of the cargoes and is of such gross character that it amounts to a wrongful act which must exonerate FGU
from liability under the insurance contract.
UNITED MERCHANTS CORPORATION v. COUNTRY BANKERS INSURANCE CORPORATION
G.R. No. 198588, July 11, 2012, CARPIO, J.
It has long been settled that a false and material statement made with an intent to deceive or defraud
voids an insurance policy. In fire insurance policies, which contain provisions such as Condition No. 15 of the
Insurance Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.
Facts:
UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights against fire with
Country Bankers Insurance Corporation. A fire gutted the warehouse rented by UMC. Consequently, UMC,
through the appointed adjuster of Country Bankers, submitted its Sworn Statement of Formal Claim, with
proofs of its loss. It demanded for at least 50% payment of its claim from Country Bankers. However, Country
Bankers rejected the claim due to breach of Condition No. 15 of the Insurance Policy which states that:
If the claim be in any respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his
behalf to obtain any benefit under this Policy; or if the loss or damage be occasioned by the
willful act, or with the connivance of the Insured, all the benefits under this Policy shall be
forfeited.
UMC filed a Complaint with the RTC of Manila. The RTC rendered a Decision in favor of UMC. However,
the CA reversed the said decision. Hence, this petition.
Issue:
Whether UMC is entitled to claim from Country Bankers the full coverage of its fire insurance policy.
Ruling:
No. It has long been settled that a false and material statement made with an intent to deceive or
defraud voids an insurance policy. Furthermore, the Insurance Code provides that a policy may declare that a
violation of specified provisions thereof shall avoid it. Thus, in fire insurance policies, which contain
provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss
and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the
insurer.
In the present case, the claim is twenty five times the actual claim proved. The most liberal human
judgment cannot attribute such difference to mere innocent error in estimating or counting but to a
deliberate intent to demand from insurance companies payment for indemnity of goods not existing at the
time of the fire. This constitutes the so-called fraudulent claim which, by express agreement between the
insurers and the insured, is a ground for the exemption of insurers from civil liability.
Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and
was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever
benefits it may be entitled under the Insurance Policy, including its insurance claim.
FINMAN GENERAL ASSURANCE CORPORATION v. COURT OF APPEALS and USIPHIL INCORPORATED
G.R. No. 138737, July 12, 2001, KAPUNAN, J.
The submission of a written notice of the loss is a condition precedent in claiming the proceeds of the
policy. Indeed, as regards the submission of documents to prove loss, substantial compliance with the
requirements will always be deemed sufficient.
Facts:
Pursuant to the fire insurance policy, Usiphil Incorporated filed with Finman General Assurance an
insurance claim for the loss of the insured properties due to fire. Usiphil also submitted its Sworn Statement
of Loss and Formal Claim together with Proof of Loss as compliance with the requirements of H.H. Bayned,
the adjuster appointed by Finman General.
However, Finman General refused to pay the insurance claim on the ground that Usiphil Incorporated
failed to comply with Policy Condition No. 13 regarding the submission of certain documents to prove the
loss. Thus, Usiphil Incorporated filed a complaint for the unpaid insurance claim. The trial court rendered
judgment in favor of Usiphil Incorporated, such judgment was affirmed by the CA. Hence, this petition.
Issue:
Whether or not Usiphil Incorporated has complied with the condition of the policy as regards the
submission of documents to prove loss.
Ruling:
Under the Policy Condition No. 13, the insured was required to submit to the insurer written notice of
the loss; and a complete inventory of the properties damaged within 60 days after the fire, as well as a signed
and sworn statement of Proof of Loss.
A perusal of the records shows that private respondent, after the occurrence of the fire, immediately
notified petitioner thereof. Thereafter, private respondent submitted the following documents: (1) Sworn
Statement of Loss and Formal Claim and; (2) Proof of Loss. The submission of these documents constitutes
substantial compliance with the above provision. Indeed, as regards the submission of documents to prove
loss, substantial compliance with the requirements will always be deemed sufficient.
In any case, petitioner itself acknowledged its liability when through its Finance Manager, it signed the
document indicating that the amount due private respondent. Hence, even assuming that Usiphil
Incorporated indeed failed to submit certain required documents as proof of loss per Section 13, such
violation was waived by the insurer Finman when it signed the document. By such act, Finman acknowledged
its liability under the insurance policy.
TAN IT v. SUN INSURANCE OFFICE

G.R. No. L-27847, December 12, 1927, MALCOLM, J.
A false and material statement made with an intent to defraud avoids an insurance policy. In this case,
the serious discrepancy between the true value of the property and that sworn to in the proofs of loss is to be
considered as bearing upon the presence of fraud. It is more than an honest misstatement, more than
inadvertence or mistake, more than a mere error in opinion, more than a slight exaggeration, and in connection
with all the surrounding circumstances, discloses a material overvaluation made intentionally and willfully.
Facts:
This is an action on policy of fire insurance for the recovery of the sum of P23,895.64. Sun Insurance
Office pleaded false swearing and fraud by way of defense. It claimed that there is a serious discrepancy
between the actual value of the property and that sworn in the proof of loss. The Court of First Instance of
Manila ordered Sun Insurance Office to pay Tan It the amount of P13,113. Both parties filed their appeal, Tam
It seeks to obtain the full amount sued for, while Sun Insurance Office to avoid any recovery.
Issue:
Whether or not Tan It's claim is fraudulent and thus voidable as contended by the Sun Insurance Office.
Ruling:
Clause 13 of the contract of insurance provides that:
"If the claim be in any respect fraudulent, or if any false declaration be made or used in support
thereof, all benefit under this Policy shall be forfeited."
A false and material statement made with an intent to defraud avoids an insurance policy. It should not
now be departed from out of a spirit of sympathy in one particular case. It is well for those who are
unfortunate enough to have losses by fire to know that they can only hope to recoup themselves by fair
dealing. No court could subscribe to a confirmation of a fire insurance claim dishonesty made.
In this case, the serious discrepancy between the true value of the property and that sworn to in the
proofs of loss is to be considered as bearing upon the presence of fraud. It is more than an honest
misstatement, more than inadvertence or mistake, more than a mere error in opinion, more than a slight
exaggeration, and in connection with all the surrounding circumstances, discloses a material overvaluation
made intentionally and willfully. Since Tan It’s claim is fraudulent, all the benefits in the policy shall be
forfeited. Therefore, he can not claim from the policy.
Guidelines on Claims Settlement
Unfair Claims Settlement; Sanctions
Prescription of Action
SUMMIT GUARANTY AND INSURANCE COMPANY, INC. v. HON. JOSE C. DE GUZMAN, in his capacity as
Presiding Judge of Branch III, CFI of Tarlac, GERONIMA PULMANO and ARIEL PULMANO
G.R. No. L-50997, No. L-48679 , No. L-48758, June 30, 1987, GANCAYCO, J.
The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance
company. The one-year period should be counted from the date of rejection by the insurer as this is the time
when the cause of action accrues. In the cases at bar, no denial of the claims was ever made and hence there has
yet been no accrual of cause of action. Therefore, the prescription has not yet set in.
Facts:
These three consolidated cases arose from three separate complaints filed against Summit Guaranty
and Insurance Company, Inc. for the payment of insurance on insurance policies issued by the latter.
Private respondents Jose Ledesma, Geronima Pulmano and Amelia Generao were insured with Summit
Guaranty and Insurance Company for purposes of Third Party Liability. They all filed, in separate cases, notice
of claim with Summit Guaranty. However, the petitioner failed to act on their claim. Consequently, Ledesa and
Pulmano filed a complaint before the Insurance Commission. Summit Guaranty claims that the complaints of
private respondents, having been filed beyond the one-year period provided in Section 384 of the Insurance
Code, can no longer prosper.
Issue:
Whether or not the causes of action of private respondents have already prescribed.
Ruling:
The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance
company. This is because, before such final rejection, there was no real necessity for bringing suit.
Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a
correlative obligation of the defendant but also "an act or omission of the defendant in violation of said legal
right," the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply
with its duty.
In the cases at bar, no denial of the claims was ever made and on the contrary, private respondents
were made to believe that they will be paid by petitioner company. The alleged delay was not caused by
herein private respondents but by the petitioner company itself.
The one-year period should instead be counted from the date of rejection by the insurer as this is the
time when the cause of action accrues. Since in these cases there has yet been no accrual of cause of action,
the Court holds that prescription has not yet set in.
SUN INSURANCE OFFICE, LTD. v. COURT OF APPEALS and EMILIO TAN

G.R. No. 89741, March 13, 1991, PARAS, J.
The cause of action in an insurance contract does not accrue until the insured's claim is finally rejected
by the insurer. But rejection referred to should be construed as the rejection, in the first instance and not
rejection of a petition for reconsideration. To uphold the latter view will runs counter to the declared purpose for
requiting that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from
the denial of the claim.
Facts:
Emilio Tan took from Sun Insurance a property insurance policy to cover his interest in the electrical
supply store of his brother housed in a building. Four (4) days after the issuance of the policy, the building
was burned including the insured store. Tan filed his claim for fire loss with petitioner, but on February 29,
1984, petitioner denied his claim. Tan wrote petitioner, seeking reconsideration of the denial of his claim but
petitioner answered on October 11, 1985, advising that the Insurer's denial of claim remained unchanged.
On November 20, 1985, Tan filed Civil Case with the RTC but petitioner filed a motion to dismiss on the
alleged ground that the action had already prescribed. The said motion was denied which was thereafter
affirmed by the CA. Hence, the instant petition. The contention of Sun Life Insurance is that the complaint of
Emilio Tan was filed beyond the one year prescriptive period counting from the denial of his claim on
February 29, 1984 and not from the denial of his motion for reconsideration.
Issue:
Whether or not the filing of a motion for reconsideration interrupts the one year prescriptive period to
contest the denial of the insurance claim.
Ruling:
No. The right of the insured to the payment of his loss accrues from the happening of the loss.
However, the cause of action in an insurance contract does not accrue until the insured's claim is finally
rejected by the insurer. This is because before such final rejection there is no real necessity for bringing suit.
But rejection referred to should be construed as the rejection, in the first instance, for if what is being
referred to is a reiterated rejection conveyed in a resolution of a petition for reconsideration, such should
have been expressly stipulated.
The contention of the respondents that the one-year prescriptive period does not start to run until the
petition for reconsideration had been resolved by the insurer, runs counter to the declared purpose for
requiting that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction
from the denial of the claim. To uphold respondents' contention would contradict and defeat the very
principle which this Court had laid down. Therefore, the final rejection cannot be taken to mean the rejection
of a petition for reconsideration as insisted by Emilio Tan instead, it should be the rejection in the first
instance as in this case, on February 29, 1984.
COUNTRY BANKERS INSURANCE CORP. (Formerly Country Bankers Insurance & Surety Co. Inc.) v. THE
TRAVELLERS INSURANCE AND SURETY CORP., and THE HONORABLE COURT OF APPEALS
G.R. No. 82509, August 16, 1989, CORTES, J.
Where the delay in bringing the suit against the insurance company was not caused by the insured or its
subrogee but by the insurance company itself, it is unfair to penalize the insured or its subrogee by dismissing its
action against the insurance company on the ground of prescription.
Facts:
Country Bankers Insurance is the insurer of PTCI for its Toyota Land Cruiser, while Travellers
Insurance is the insurer of Avelino Matundan for his Isuzu Cargo truck. Country Bankers paid PTCI for the
damage and loss it suffered from a vehicular accident caused by the Isuzu Cargo Truck. Thereafter, as
subrogee, Country Bankers Insurance Corporation demanded reimbursement from Travellers Insurance.
However, one year after such demand, Travellers refused to pay Country Bankers.
Consequently, Country Bankers filed a complaint in the RTC of Manila. The RTC ordered Travellers
Insurance to pay the petitioner. The CA, however, dismissed the complaint on the ground that petitioner's
cause of action had prescribed for having filed beyond the one year period for filing a court action against the
insurer.
Issue:
Whether or not Country Bankers Insurance’s cause of action had prescribed.
Ruling:
Country Bankers Insurance’s cause of action has not prescribed. The one-year period should be
counted from the date of the rejection of the claim by the insurer. It is only from the rejection of the claim by
the insurer that the insured's cause of action accrued since a cause of action does not accrue until the party
obligated refuse, expressly or impliedly, to comply with its duty.
However, where the delay in bringing the suit against the insurance company was not caused by the
insured or its subrogee but by the insurance company itself, it is unfair to penalize the insured or its subrogee
by dismissing its action against the insurance company on the ground of prescription.
In the instant case, petitioner sent a notice of claim to respondent insurance company two months
after the accident. However, it was only a year later that respondent replied to petitioner's letter informing it
that they could not take appropriate action on petitioners claim because the attending adjuster was still
negotiating the case.
H.H. HOLLERO CONSTRUCTION, INC. v. GOVERNMENT SERVICE INSURANCE SYSTEM and POOL OF
MACHINERY INSURERS
G.R. No. 152334, September 24, 2014, PERLAS-BERNABE, J.
The prescriptive period for the insured’s action for indemnity should be reckoned from the final
rejection of the claim. The final rejection simply means denial by the insurer of the claims of the insured
and not the rejection or denial by the insurer of the insured’s motion or request for reconsideration. The
rejection referred to should be construed as the rejection in the first instance.
Facts:
The GSIS and H.H. Hollero Construction entered into a Project Agreement whereby the latter
undertook the development of a GSIS housing project. It also obligated itself to insure the Project, including
all the improvements, upon the execution of the Agreement under a Contractors’ All Risks Insurance with the
GSIS General Insurance Department.
Under the policies, it was provided that, among others, all benefits thereunder shall be forfeited if no
action is instituted within twelve (12) months after the rejection of the claim for loss, damage or liability.
During the construction, three typhoons hit the country which caused considerable damage to the Project.
Accordingly, petitioner filed several claims for indemnity with the GSIS. However, GSIS rejected petitioner’s
indemnity claims for the damages. Consequently, the petitioner filed a Complaint for Sum of Money and
Damages before the RTC. GSIS filed a Motion to Dismiss on the ground that the causes of action stated therein
are barred by the twelve-month limitation because the complaint was filed more than one(1) year from the
rejection of the indemnity claims.
The RTC denied the said motion and granted petitioner’s indemnity claims, but it was set aside and
reversed by the CA. Hence, this petition.
Issue:
Whether or not the claim for indemnity of H.H. Hollero Construction has prescribed.
Ruling:
The complaint filed by H.H. Hollero Construction for indemnity was already barred by prescription.
The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause
of action in an insurance contract does not accrue until the insured’s claim is finally rejected by the insurer.
This is because before such final rejection there is no real necessity for bringing suit.
In this relation, the prescriptive period for the insured’s action for indemnity should be reckoned
from the final rejection of the claim. The final rejection simply means denial by the insurer of the claims
of the insured and not the rejection or denial by the insurer of the insured’s motion or request for
reconsideration. The rejection referred to should be construed as the rejection in the first instance.
In light of the foregoing, it is thus clear that petitioner's causes of action for indemnity
respectively accrued from its receipt of the letters dated April 26, 1990 and June 21, 1990, or the date
the GSIS rejected its claims in the first instance. Consequently, given that it allowed more than twelve
(12) months to lapse before filing the necessary complaint before the RTC on September 27, 1991, its
causes of action had already prescribed.
Subrogation
PAN MALAYAN INSURANCE CORPORATION v. COURT OF APPEALS, ERLINDA FABIE AND HER
UNKNOWN DRIVER
G.R. No. 81026 April 3, 1990 CORTES, J.
Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies
which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim by the insurer
FACTS:
PANMALAY filed a complaint for damages against private respondents Erlinda Fabie and her driver.
PANMALAY averred the following that: it insured a vehicle registered in the name of Canlubang Automotive
Resources Corporation [CANLUBANG]; due to the "carelessness, recklessness, and imprudence" of the driver
of the pick-up and his employer, Erlinda Fabie, the insured car was hit and suffered damages; PANMALAY
defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG
against the driver of the pick-up and his employer, Erlinda Fabie.
ISSUE:
Whether PANMALAY is subrogated to the rights of CANLUBANG upon payment of the former to the
latter.
RULING:
Yes. Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from
the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured
operates as an equitable assignment to the former of all remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor
does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.
ABOITIZ SHIPPING CORPORATION v. INSURANCE COMPANY OF NORTH AMERICA

G.R. No. 168402 August 6, 2008 REYES, R.T., J.
The right of subrogation attaches upon payment by the insurer of the insurance claims by the assured.
As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured
may have against the wrongdoer who caused the damage.
FACTS:
MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured
a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a
transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching
Improvement Project (STIP). ICNA issued an "all-risk" open marine policy. The cargo was shipped by various
carriers without any issue until said cargo was received by Aboitiz Shipping Corporation (Aboitiz). The cargo
was withdrawn by STIP and delivered to Don Bosco Technical High School where it was found that the cargo
sustained water damage. It was received by Mr. Bernhard Willig and filed a formal claim with Aboitiz.
Aboitiz refused to settle the claim. ICNA paid the consignee and a subrogation receipt was duly
signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor.
Despite follow-ups, however, no reply was received from Aboitiz.
ISSUE:
Whether ICNA is subrogated to the rights of the consignee upon payment of the claim the former to
the latter.
RULING:
Yes. Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's
entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual
breach or negligence. This right of subrogation, however, has its limitations. First, both the insurer and the
consignee are bound by the contractual stipulations under the bill of lading. Second, the insurer can be
subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving
payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer
loses its claim against the latter. None of the said limitations are present.
MALAYAN INSURANCE CO., INC. v. RODELIO ALBERTO and ENRICO ALBERTO REYES
G.R. No. 194320 February 1, 2012 VELASCO, JR., J.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies
or securities. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of the
creditor, and he may use all means that the creditor could employ to enforce payment.
FACTS:
An accident occurred involving four (4) vehicles, to wit: (1) a Nissan Bus; (2) an Isuzu Tanker; (3) a
Fuzo Cargo Truck; and (4) a Mitsubishi Galant. The Isuzu Tanker was in front of the Mitsubishi Galant with
the Nissan Bus on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt
along EDSA facing the south direction when the Fuzo Cargo Truck simultaneously bumped the rear portion of
the Mitsubishi Galant and the rear left portion of the Nissan Bus. Due to the strong impact, these two vehicles
were shoved forward and the front left portion of the Mitsubishi Galant rammed into the rear right portion of
the Isuzu Tanker.
Malayan Insurance issued a Car Insurance Policy in favor of First Malayan Leasing and Finance
Corporation (the assured), insuring the aforementioned Mitsubishi Galant against third party liability, own
damage and theft, among others. Having insured the vehicle against such risks, Malayan Insurance claimed
that it paid the damages sustained by the assured.
ISSUE:
Whether or not Malayan Insurance is subrogated to the rights of assured upon payment of the former
to the latter.
RULING:
Yes. The Court held that payment by the insurer to the insured operates as an equitable assignment
to the insurer of all the remedies that the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. The
doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the
mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good
conscience, ought to pay.
Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights
of the assured.
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. v. COURT OF APPEALS and FELMAN
SHIPPING LINES
G.R. No. 116940 June 11, 1997 BELLOSILLO, J.
If the plaintiff's property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
FACTS:
Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated by
respondent Felman Shipping Lines, cases of 1-liter Coca-Cola softdrink bottles for consignee Coca-Cola
Bottlers Philippines, Inc., Cebu. The shipment was insured with petitioner Philippine American General
Insurance Co., Inc. (PHILAMGEN), under a Marine Insurance Policy. The vessel sank bringing down her entire
cargo with her including the subject cases of 1-liter Coca-Cola softdrink bottles.
Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for recovery
of damages it sustained as a result of the loss of its softdrink bottles that sank with "MV Asilda." Respondent
denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its
claim. Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
disclaimed any liability for the loss.
ISSUE:
Whether or not PHILAMGEN is subrogated to the rights of Coca-Cola Bottlers Philippines, Inc. Cebu
upon payment of the former to the latter.
RULING:
Yes. Payment by the assurer to the assured operates as an equitable assignment to the assurer of all
the remedies which the assured may have against the third party whose negligence or wrongful act caused
the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or
upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the
insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice,
equity and good conscience ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers
Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to
rebut the presumption of fault, the liability of FELMAN for the loss of the cases of 1-liter Coca-Cola softdrink
bottles is inevitable.
FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER COMPANY OF THE
PHILIPPINES, plaintiffs-appellants, v. JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE
CO., INC., defendants-appellees.
G.R. No. L-27427, April 7, 1976, AQUINO, J.
The right of subrogation, which is founded on principles of justice and equity, does not depend upon
privity of contract.
Facts:
Jamila & Company, Inc. (Jamila) contracted with Firestone Tire & Rubber Company of the Philippines
(Firestone) to supply the latter with security guards. It also assumed responsibility for the acts of its guards.
The properties of Firestone were insured with Fireman’s Fund Insurance Company (Fireman’s Fund). Later
on, Firestone’s properties were allegedly stolen by its employees who connived with Jamila’s guards.
Fireman’s Fund paid Firestone the amount of the loss. Claiming right of subrogation, Fireman’s Fund sought
to collect from Jamila but to no avail, prompting Fireman’s Fund to file a collection suit against Jamila, which
moved to dismiss the complaint, arguing that Fireman’s Fund had no cause of action, because it failed to
allege that Jamila consented to the subrogation.
Issue:
Whether or not Jamila’s consent is necessary for Fireman’s Fund to avail of the right of subrogation.
Ruling:
No. When the insurance company pays for the loss, such payment operates as an equitable
assignment to the insurer of the property and all remedies which the insured may have for the recovery
thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or upon written
assignment of claim, and payment to the insured makes the insurer an assignee in equity.
ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant, vs. MACONDRAY & CO., INC., BARBER
STEAMSHIP LINES, INC., WILHELM WILHELMSEN MANILA PORT SERVICE and/or MANILA RAILROAD
COMPANY, defendants-appellees.
G.R. No. L-27796, March 25, 1976, ANTONIO, J.
When exercising its right of subrogation, an insurance company cannot recover beyond what its insured
was entitled to.
Facts:
Winthrop Products, Incs. (Shipper) of New York shipped aboard a vessel owned by Wilhelm
Wilhelmsen (Carrier) cartons and drums of drugs and medicine. The shipment was covered by a bill of lading
which stipulated, among others, that the carrier’s liability with respect to lost or damaged shipments are
expressly limited to the C.I.F. value of the goods. It was also insured with St. Paul Fire & Marine Insurance Co.
(Insurer). Upon arrival at the Port of Manila, several cartons were received in bad order condition, hence the
consignee filed a claim with the carrier, as well as Macondray & Co., Barber Steamship Lines, Inc., and Manila
Railroad Company, in the amount of P1,109.67 representing the C.I.F. value of the damaged goods, but they
refused, so it was the insurer that paid the value of the insured goods, including other expenses in connection
therewith, in the total amount of US$1,134.46. Thereafter, the insurer sued the carrier, Macondray, Barber,
and Manila Railroad (defendants) to collect US$1,134.46. The defendants argued that their liability should be
limited to what was stipulated in the bill of lading. The trial court ruled in favor of the defendants. Hence, this
appeal.
Issue:
Whether or not the insurer can collect an amount bigger that what was stipulated in the bill of lading.
Ruling:
No. A stipulation fixing or limiting the sum that may be recovered from the carrier on the loss or
deterioration of the goods is valid, provided it is (a) reasonable and just under the circumstances, and (b) has
been fairly and freely agreed upon. In this case, it appears that the condition in the bill of lading was
reasonable and was freely and fairly agreed upon, hence the shipper and consignee are bound by such
stipulation. St. Paul Fire & Marine Insurance Co., as insurer, after paying the claim of the insured for damages
under the insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only the
amount that is recoverable by the latter. Since the right of the assured, in case of loss or damage to the goods,
is limited or restricted by the provisions in the bill of lading, a suit by the insurer as subrogee necessarily is
subject to like limitations and restrictions.
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner, v. COURT OF APPEALS AND ZENITH

INSURANCE CORPORATION, respondents.
G.R. No. L-52756, October 12, 1987, PADILLA, J.
The insurer’s right of subrogation may be defeated when the insured releases the wrongdoer from
liability, in which case the insurer may recover whatever it has paid to the insured.
Facts:
Manila Mahogany Manufacturing Corporation (Manila Mahogany) insured its Mercedes Benz car with
Zenith Insurance Corporation. The car was bumped and damaged by a truck owned by San Miguel
Corporation (SMC). For the damage caused, Zenith Insurance paid Manila Mahogany P5,000. However, Zenith
Insurance was not able to collect from SMC, because it so happened that SMC already paid Manila Mahogany
for which it executed a release claim discharging SMC from all actions or claims. Hence, Zenith Insurance
demanded for the return of the money it paid Manila Mahogany, but the latter refused prompting Zenith
Insurance to file a complaint against Manila Mahogany.
Issue:
Whether or not Zenith Insurance is entitled to the return of the money it paid Manila Mahogany.
Ruling:
Yes. The right of subrogation can only exist after the insurer has paid the insured. If the insurance
proceeds are not sufficient to cover the damages suffered by the insured, then he may sue the party
responsible for the damage for the remainder. Since the insurer can be subrogated to only such rights as the
insured may have, should the insured, after receiving payment from the insurer, release the wrongdoer who
caused the loss, the insurer loses his rights against the latter. But in such a case, the insurer will be entitled to
recover from the insured whatever it has paid to the latter, unless the release was made with the consent of
the insurer.
DELSAN TRANSPORT LINES, INC., petitioner, v. THE HON. COURT OF APPEALS and AMERICAN HOME
ASSURANCE CORPORATION, respondents.
G.R. No. 127897, November 15, 2001, DE LEON, JR., J.
The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim.
Facts:
Caltex entered into a contract of affreightment with Delsan Transport Lines whereby the latter
agreed to transport Caltex’s oils from Batangas to different parts of the country. Caltex’s shipment was
insured with American Homes Assurance Corporation. Delsan’s vessel set sail, but unfortunately it sank along
with the entire cargo of fuel oil. American Homes paid Caltex the amount representing the insured value of
the lost cargo. Exercising its right of subrogation, American Homes demanded reimbursement from Delsan
but failed, hence it filed a collection suit against the latter. In its defense, Delsan invoked Sec. 113 of the
Insurance Code, which states that in every marine insurance upon a ship or freight, or freightage, or upon any
thin which is the subject of marine insurance there is an implied warranty by the shipper that the ship is
seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case the
vessel would later on be found as not seaworthy at the inception of the insurance. Delsan theorized that
American Homes’ payment to Caltex of the value of its lost cargo is tantamount to a tacit recognition that the
vessel was seaworthy, which would mean that Delsan is not liable.
Issue:
Whether or not the payment made by the American Homes to Caltex for the insured value of the lost
cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery
against Delsan.
Ruling:
No. The payment made by American Homes for the insured value of the lost cargo operates as waiver
of its right to enforce the term of the implied warranty against Caltex under the marine insurance policy.
However, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by
American Homes as to foreclose recourse against Delsan for any liability under its contractual obligation as a
common carrier. The fact of payment grants American Homes subrogatory right which enables it to exercise
legal remedies that would otherwise be available to Caltex as owner of the lost cargo against Delsan, the
common carrier. The right of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice
and good conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment by the insurance company of the
insurance claim. Consequently, the payment made by American Homes (insurer) to Caltex (assured) operates
as an equitable assignment to the former of all the remedies which the latter may have against Delsan.
EASTERN SHIPPING LINES, INC. v. PRUDENTIAL GUARANTEE AND ASSURANCE, INC.

G.R. No. 174116, September 11, 2009, DEL CASTILLO, J.
Presentation or attaching the insurance policy in a complaint filed by the insurance company against
another on account of its right of subrogation is an indispensable requirement. Failure to present the policy
would warrant the dismissal of the complaint.
Facts:
The petitioner Eastern Shipping Lines is being sued by the respondent Prudential Guarantee and
Assurance Inc. through its right of subrogation. This is on account of the damage sustained by the policy
holder, Nissan Corp.
It is the contention of the petitioner that the respondent cannot sue based on its right of subrogation
because the insurance policy was never presented by the respondent. Hence, the petitioner argues that there
was no proper subrogation.
Issue:
Whether or not the respondent can, by right of subrogation, sue the petitioner for damages despite
the fact that the insurance policy was never presented.
Ruling:
No. Marine insurance policy needs to be presented in evidence before the trial court or even
belatedly before the appellate court. The presentation of the marine insurance policy was necessary, as the
issues raised therein arose from the very existence of an insurance contract between the insurer and the
insured. Presentation or attaching the insurance policy in a complaint filed by the insurance company against
another on account of its right of subrogation is an indispensable requirement. Failure to present the policy
would warrant the dismissal of the complaint.
ASIAN TERMINALS, INC. v. FIRST LEPANTO-TAISHO INSURANCE CORPORATION

G.R. No. 185964, June 16, 2014, REYES, J.
The general rule that presentation of an insurance policy is indispensable in exercising the right of
subrogation admits of an exception. When the defendant fails to timely put in issue the need for the presentation
of the insurance policy to prove one’s right to subrogation, it is deemed barred from pleading the absence of the
insurance policy on appeal.
Facts:
Exercising its right of subrogation, the respondent First Lepanto-Taisho Insurance Corporation sued
the petitioner for damages. It is the contention of the petitioner that there was no proper subrogation that
took place. Hence, the complaint must be dismissed because of the failure of the respondent to present the
insurance policy upon its filing of the complaint.
Issue:
Whether or not the complaint must be dismissed because of the failure of the respondent to present
the insurance policy.
Ruling:
No. While as a general rule, the marine insurance policy needs to be presented in evidence before the
insurer may recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right. The
presentation of the contract constitutive of the insurance relationship between the consignee and insurer is
critical because it is the legal basis of the latter’s right to subrogation. Nevertheless, the rule is not inflexible.
By way of exception, when the defendant fails to timely put in issue the need for the presentation of the
insurance policy to prove one’s right to subrogation, it is deemed barred from pleading the absence of the
insurance policy on appeal.
LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR INTERNATIONAL SHIPPING

COMPANY, INCORPORATED v. MALAYAN INSURANCE COMPANY, INCORPORATED
G.R. No. 185565, November 26, 2014, REYES, J.
A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could
have recovered.
Facts:
Exercising its right of subrogation, the respondent Malayan Insurance Company sued the petitioner
Loadstar for reimbursement. It is the contention of Loadstar that Malayan cannot recover from it because its
claims were never substantiated. No evidence was presented to prove that the insured sustained damages
and must therefore be indemnified.
Issue:
Whether or not the respondent, by right of subrogation, can recover from the petitioner..
Ruling:
No. Upon failure of Malayan to present sufficient proof that the subrogor sustained damages and
must therefore be indemnified, Malayan cannot be entitled to reimbursement. The rights of a subrogee
cannot be superior to the rights possessed by a subrogor. "Subrogation is the substitution of one person in the
place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights
of the other in relation to a debt or claim, including its remedies or securities. The rights to which the
subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted, that
is, he cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee
cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the
insured and can recover only if the insured likewise could have recovered." Consequently, an insurer
indemnifies the insured based on the loss or injury the latter actually suffered from. If there is no loss or
injury, then there is no obligation on the part of the insurer to indemnify the insured. Should the insurer pay
the insured and it turns out that indemnification is not due, or if due, the amount paid is excessive, the insurer
takes the risk of not being able to seek recompense from the alleged wrongdoer. This is because the supposed
subrogor did not possess the right to be indemnified and therefore, no right to collect is passed on to the
subrogee.
Miscellaneous Topics
Liability of Insurer
PACIFIC TIMBER EXPORT CORPORATION v. THE HONORABLE COURT OF APPEALS and WORKMEN'S
INSURANCE COMPANY, INC.
G.R. No. L-38613, February 25, 1982, DE CASTRO, J.
No separate premiums are intended or required to be paid on a Cover Note. If the Note is to be treated
as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function
of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere
application for insurance which is a mere offer. Hence, an insurer may be held liable under a Cover Note.
Facts:
Because it sustained damages, the petitioner sent a demand letter to the respondent insurance
company to seek payment under a Cover Note previously executed between the parties. The claim of the
petitioner was denied by the respondent. It reasoned that the Cover Note under which the petitioner bases its
claim is null and void for lack of valuable consideration.
Issue:
Whether or not the respondent may be held liable under a Cover Note.
Ruling:
Yes. The petitioner can claim under a Cover Note. The fact that no separate premium was paid on the
Cover Note before the loss insured against occurred, does not militate against the validity of petitioner’s
claim, for no such premium could have been paid, since by the nature of the Cover Note, it did not contain, as
all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of
the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a
Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer.
ZENITH INSURANCE CORPORATION, v. COURT OF APPEALS and LAWRENCE FERNANDEZ

G.R. No. 85296, May 14, 1990, MEDIALDEA, J.:
In case of unreasonable delay in the payment of the proceeds of an insurance policy, the damages that
may be awarded are: 1) attorney's fees; 2) other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment; 3) interest at twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the injured; and 4) the amount of the claim.
Facts:
Lawrence Fernandez insured his car for "own damage" under private car Policy No. 50459 with
petitioner Zenith Insurance Corporation. The car figured in an accident and suffered actual damages in the
amount of P3,640.00. After allegedly being given a run around by Zenith for two (2) months, Fernandez filed a
complaint with the Regional Trial Court of Cebu for sum of money and damages resulting from the refusal of
Zenith to pay the amount claimed. Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected.
A decision was rendered by the trial court in favor of private respondent Fernandez awarding actual
moral damages, exemplary damages and attorney's fees. Court of Appeals rendered its decision affirming in
toto the decision of the trial court.
Issue:
Whether or not the award of moral damages, exemplary damages and attorney's fees is proper.
Ruling:
Yes. The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides, Sec. 244. In case of any litigation for the
enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as
the case may be, to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attomey's fees and other expenses incurred by the insured person by reason
of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in
section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is
fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections
shall be considered prima facie evidence of unreasonable delay in payment.
NORMAN NODA, v. HONORABLE GREGORIA CRUZ-ARNALDO, in her capacity as Insurance

Commissioner, and ZENITH INSURANCE CORPORATION
G.R. No. L-57322, June 22, 1987, FERNAN, J.
While the insurer, and the Insurance Commissioner for that matter, have the right to reject proofs of loss
if they are unsatisfactory, they may not set up for themselves an arbitrary standard of satisfaction. Substantial
compliance with the requirements will always be deemed sufficient.
Facts:
Norman R. Noda obtained from respondent Zenith Insurance Corporation two fire insurance policies.
While both policies were in force, fire destroyed petitioner's insured properties at the market site and at
Barreda St. When petitioner failed to obtain indemnity on his claims from respondent Zenith, he filed a
complaint with the Insurance Commission praying that respondent company be ordered to pay him "the sum
of P130,000 representing the value of the two [2] policies insured by respondent with interest at 12% per
annum, plus damages, attorney's fees and other expenses of litigation. In its answer Zenith interposed that
petitioner had no cause of action; that Policy No. F-03724 was not in full force and effect at the time of the fire
because the premium on the policy was not paid; that Zenith's liability under Policy No. F-03734, if any, was
limited to P15,472.50 in view of the co-insurance; and that petitioner failed to substantiate his claim as to the
value of the goods reputedly destroyed by fire and consequently, Zenith could not be held answerable for the
same.
Insurance Commissioner did not allowed Noda to recover under said policy and the actual, moral and
exemplary damages prayed for.
Issue:
Whether or not Zenith Insurance Corporation is liable.
Ruling:
Yes. We find that respondent Commissioner acted with grave abuse of discretion when she denied
petitioner's claim for indemnity under Policy No. F-03734 because of what she perceived as insufficient proof.
To prove the existence of the stocks in trade covered by Policy No. F-03734, petitioner offered his testimony
and that of his wife as well as documentary exhibits. The foregoing evidence for petitioner preponderantly
showed the presence of some P590,000 worth of goods in his retail store during the fire of November 9,
1977.The report even took into account the appraisals of the other adjusters and concluded that the total loss
sustained by petitioner in his household effects and stocks in trade reached P379,302.12. But after
apportioning said amount among petitioner's six different in surers [the co-insurance being known to Zenith],
the liability of Zenith was placed at P60,592.10. It therefore recommended that Zenith pay the petitioner the
amount of P60, 592.10. While the insurer and the Insurance Commissioner for that matter, have the right to
reject proofs of loss if they are unsatisfactory, they may not set up for themselves an arbitrary standard of
satisfaction. Substantial compliance with the requirements will always be deemed sufficient. The denial of
petitioner's demand for exemplary damages by respondent Commissioner must, however, be sustained.
There is no showing that Zenith, in contesting payment, had acted in a wanton, oppressive or malevolent
manner to warrant the imposition of corrective damages.
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI,

GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein
represented by their mother, FIGURACION VDA. DE MAGLANA, v. HONORABLE FRANCISCO Z.
CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO INSURANCE CORPORATION
G.R. No. 60506, August 6, 1992, ROMERO, J.:
Where the insurance contract provides for indemnity against liability to third persons, such third
persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against
third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other
parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort.
Facts:
Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of
Customs. At Km. 7, Lanang, he met an accident that resulted in his death. He died on the spot. The PUJ jeep
that bumped the deceased was driven by Pepito Into, operated and owned by defendant Destrajo. From the
investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an
action for damages and attorney's fees against operator Patricio Destrajo and the Afisco Insurance
Corporation (AFISCO for brevity) before the then Court of First Instance of Davao.
Lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as the
operator of the jeepney. Petitioners filed a motion for the reconsideration of the decision contending that
AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's
liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up
to the extent of the insurance coverage.
Issue:
Whether or not AFISCO should be held directly liable with the operator of the vehicle.
Ruling:
Insurance policy on which petitioners base their claim is as follows, Sec. 1 — LIABILITY TO THE
PUBLIC 1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of
the insured in respect of (a) death of or bodily injury to any THIRD PARTY (b) xxx 2. xxx3. In the event of the
death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability
incurred to such person indemnify his personal representatives in terms of, and subject to the terms and
conditions hereof.
The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable
by petitioners. However, We cannot agree that AFISCO is likewise solidarily liable with Destrajo.
In Malayan Insurance Co., Inc. v. Court of Appeals, this Court had the opportunity to resolve the issue
as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however, the
direct liability of the insurer under indemnity contracts against third party liability does
not mean that the insurer can be held solidarily liable with the insured and/or the other
parties found at fault. The liability of the insurer is based on contract; that of the insured
is based on tort.
Since under both the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the
second paragraph of the dispositive portion of the decision in question may have unwittingly sown confusion
among the petitioners and their counsel. What should have been clearly stressed as to leave no room for
doubt was the liability of AFISCO under the explicit terms of the insurance contract. In fine, we conclude that
the liability of AFISCO based on the insurance contract is direct, but not solidary.
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS),vs.COURT OF APPEALS (former Tenth Division),

VICTORIA JAIME VDA. DE KHO, for herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for
herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA,
DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO
G.R. No. 101439, June 21, 1999, QUISUMBING, J.
The liability of GSIS based on the insurance contract is direct, but not solidary with that of the NFA.
Facts:
National Food Authority (NFA) was the owner of a Chevrolet truck which was insured against
liabilities for death of and injuries to third persons with the GSIS. Thereafter, it collided with a public utility
vehicle, a Toyota Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the name and
style of "Victory Line." Civil case for damages, was filed by an injured passenger, Librado Taer, against Uy, the
operator of the public utility vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC). Trial court
rendered its decision holding that Corbeta's negligence was the proximate cause of the, awarded Uy the total
amount of P109,100.00 for damages and ordered MIGC, Corbeta and NFA to pay plaintiff Taer, jointly and
severally, the total amount of P40,559.94 for actual, compensatory, and moral damages plus attorney's fees.
Petitioner denies solidary liability with the NFA or the negligent operator of the cargo truck because it claims
that they are liable under different obligations and since neither the provision of the contract nor the
insurance law provides for solidary liability, petitioner asserts that the presumption is that its obligation
arising from a contract of insurance is joint.
Issue:
Whether the GSIS is solidarily liable with the negligent insured/owner-operator of the Chevrolet
truck for damages awarded to private respondents which are beyond the limitations of the insurance policy
and the Insurance Memorandum Circular No. 5-78.
Ruling:
No. It is now established that the injured or the heirs of a deceased victim of a vehicular accident may
sue directly the insurer of the vehicle. Common carriers are required to secure Compulsory Motor Vehicle
Liability Insurance [CMVLI] coverage as provided under Sec. 374 of the Insurance Code. The general purpose
of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons
against the insolvency of the insured who causes such injury, and to give such injured person a certain
beneficial interest in the proceeds of the policy. However, although the victim may proceed directly against
the insurer for indemnity, the third party liability is only up to the extent of the insurance policy and those
required by law. While it is true that where the insurance contract provides for indemnity against liability to
third persons, and such third persons can directly sue the insurer, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be held liable
in solidum with the insured and/or the other parties found at fault. For the liability of the insurer is based on
contract; that of the insured carrier or vehicle owner is based on tort. The liability of GSIS based on the
insurance contract is direct, but not solidary with that of the NFA. At the time of the incident, the schedule of
indemnities for death and/or bodily injuries, professional fees, hospital and other charges payable under a
CMVLI coverage was provided under the Insurance Memorandum Circular was twelve thousand (P12,000.00)
pesos per victim.
v. PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC.
G.R. 5643726, January 16, 2004, CALLEJO, SR., J.
Although the victim may proceed directly against the insurer for indemnity, the third party liability is
only up to the extent of the insurance policy and those required by law.
Facts:
One of the rear tires of the cargo truck marked Condor Hollow Blocks and General Merchandise
exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway and removed
the damaged tire to have it vulcanized while he trucks tail lights were also left on. As the bus was approaching
the bridge, Laspias saw the stalled truck, which was then about 25 meters away. He applied the break and
tried to swerve to the left to avoid hitting the truck but it was too late; the bus rammed into the trucks left
rear. The impact damaged the right side of the bus and left several passengers injured.
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages
and attorney’s fees before the Regional Trial Court of Cebu City alleging that the passenger bus in question
was cruising at a fast and high speed along the national road, and that petitioner Laspias did not take
precautionary measures to avoid the accident.The petitioners, for their part, filed a Third-Party Complaint
against the following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tius
insurer.
Trial court rendered in favor of plaintiff as against defendant William Tiu ordering the latter to pay
the plaintiff. According to the trial court, there was no dispute that petitioner William Tiu was engaged in
business as a common carrier. The appellate court rendered judgment affirming the trial.
Issue:
Whether the third party defendants are jointly and severally liable directly to plaintiff-appellee.
Ruling:
As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the
Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of the
insurers liability for each person was P12,000, while the limit per accident was pegged at P50,000. An insurer
in an indemnity contract for third party liability is directly liable to the injured party up to the extent
specified in the agreement but it cannot be held solidarily liable beyond that amount.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended
to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a
result of the negligent operation and use of motor vehicles. The victims and/or their dependents are assured
of immediate financial assistance, regardless of the financial capacity of motor vehicle owners. As the Court
explained in Government Service Insurance System v. Court of Appeals:
However, although the victim may proceed directly against the insurer for
indemnity, the third party liability is only up to the extent of the insurance policy and
those required by law. While it is true that where the insurance contract provides for
indemnity against liability to third persons, and such persons can directly sue the
insurer, the direct liability of the insurer under indemnity contracts against third
party liability does not mean that the insurer can be held liable in solidum with the
insured and/or the other parties found at fault. For the liability of the insurer is based
on contract; that of the insured carrier or vehicle owner is based on tort.
Insurance Agent
MAPALAD AISPORNA v. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES

G.R. No. L-39419, April 12, 1982, J. De Castro
The definition of an insurance agent as found in the second paragraph of Section 189 is intended to
define the word "agent" mentioned in the first and second paragraphs of the aforesaid section. Considering that
the definition is applicable to the agent in the first paragraph, to receive compensation by the agent is an
essential element for a violation of the first paragraph.
Facts:
Mapalad’s husband, Rodolfo Aisporna was duly licensed by the Insurance Commission as an agent to
Perla Compania de Seguros, with license to expire on June 30, 1970. On that date, Perla thru Aisporna issued
at Cabanatuan City a Personal Accident Policy for 12 months in the name of Eugenio Isidro for P5,000. The
insured died by violence during his lifetime. For reasons not explained in the record, an Information was filed
against Rodolfo’s wife, Mapalad for violation of Section 189 of the Insurance Law for “having feloniously acted
as agent in the solicitation of insurance from Eugenio Isidro without having secured a certificate of authority
from the Insurance Commission”. During the trial, the prosecution presented evidence that the policy was
issued with the active participation of Mapalad. In her defense, she averred that as the wife of the true agent
Rodolfo, she naturally helped him in his work as a clerk and that the policy issued was only a renewal. She
averred that Isidro called by telephone to renew and she left a note for the renewal on top of her husband’s
desk since the latter was absent at that time. The trial court found Mapalad guilt. The CA affirmed. Before the
SC, the Solicitor General made a manifestation that Mapalad had not violated Section 189 of the Insurance Act.
Issue:
Whether Mapalad Aisporna violated Sec. 189 of the Insurance Act
Ruling:
No, there was no violation of Sec. 189 of the Insurance Act. The first paragraph of Section 189
prohibits a person from acting as agent, sub-agent or broker in the solicitation or procurement of applications
for insurance without first procuring a certificate of authority so to act from the Insurance Commissioner,
while its second paragraph defines who is an insurance agent within the intent of this section and, finally, the
third paragraph thereof prescribes the penalty to be imposed for its violation.
The CA implied that the definition of an insurance agent under the second paragraph of Section 189
is not applicable to the insurance agent mentioned in the first paragraph. It concluded that under the second
paragraph of Section 189, a person is an insurance agent if he solicits and obtains an insurance for
compensation, but, in its first paragraph, there is no necessity that a person solicits an insurance for
compensation in order to be called an insurance agent.
We find this to be a reversible error. As correctly pointed out by the Solicitor General, the definition
of an insurance agent as found in the second paragraph of Section 189 is intended to define the word "agent"
mentioned in the first and second paragraphs of the aforesaid section. More significantly, in its second
paragraph, it is explicitly provided that the definition of an insurance agent is within the intent of Section 189.
Hence — “Any person who for compensation ... shall be an insurance agent within the intent of this section, ...”
Considering that the definition of an insurance agent is also applicable to the agent in the first
paragraph, to receive a compensation by the agent is an essential element for a violation of the first
paragraph of Sec. 189. The CA established that Aisporna did not receive any compensation for the issuance of
the insurance policy of Eugenio Isidro. Nevertheless, she was convicted by the CA for, according to the latter,
the receipt of compensation for issuing an insurance policy is not an essential element for a violation of the
first paragraph of Section 189 of the Insurance Act.
We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor for any
person for direct or indirect compensation to solicit insurance without a certificate of authority to act as an
insurance agent, an information, failing to allege that the solicitor was to receive compensation either directly
or indirectly, charges no offense. In the case at bar, the Information does not allege that the negotiation of an
insurance contract by the accused with Eugenio Isidro was one for compensation. This allegation is essential,
and having been omitted, a conviction of the accused could not be sustained. It is well-settled in Our
jurisprudence that to warrant conviction, every element of the crime must be alleged and proved.
GREAT PACIFIC LIFE ASSURANCE CORPORATION (Grepalife) v. HONORATO JUDICO and NATIONAL
LABOR RELATIONS COMMISSION
G.R. No. 73887, December 21, 1989, J. Paras
An insurance company may have two classes of agents who sell its insurance policies: (1) salaried
employees who keep definite hours and work under the control and supervision of the company; and (2)
registered representatives who work on commission basis.
Facts:
In 1976, Judico entered into an agreement of agency with Grepalife to become a debit agent attached
to the industrial life agency in Cebu. A debit agent had definite work assignments including but not limited to
collection of premiums from policy holders and selling insurance to prospective clients. He was paid with an
allowance at P200 regardless of production and a sales reserve for his total collections but not less than P200.
He was promoted to Zone Supervisor and given an additional allowance of P110 per week. However, he was
reverted to a debit agent but without the sales reserve. Finally, his contract was terminated in 1982. He filed a
complaint for illegal dismissal, separation pay and unpaid pay with the NLRC. The Labor Arbiter ruled that no
employee-employer relationship existed between them. However, the NLRC reversed and held that Judico
was a regular employee. Grepalife argues that Judico’s compensation was not based on a fixed number of
hours but rather based on production and results.
Issue:
Whether an employer-employee relationship existed between Judico and Grepalife.
Ruling:
Yes, an employer-employee relationship existed between the parties. An insurance company may
have two classes of agents who sell its insurance policies: (1) salaried employees who keep definite hours and
work under the control and supervision of the company; and (2) registered representatives who work on
commission basis.
The agents who belong to the second category are not required to report for work at anytime, they
do not have to devote their time exclusively to or work solely for the company since the time and the effort
they spend in their work depend entirely upon their own will and initiative; they are not required to account
for their time nor submit a report of their activities; they shoulder their own selling expenses as well as
transportation; and they are paid their commission based on a certain percentage of their sales. One salient
point in the determination of employer-employee relationship is the fact that the compensation that these
agents on commission received is not paid by the insurance company but by the investor (or the person
insured). After determining the commission earned by an agent on his sales the agent directly deducts it from
the amount he received from the investor or the person insured and turns over to the insurance company the
amount invested after such deduction is made.
The test to determine employer-employee relationship is whether the "employer" controls or has
reserved the right to control the "employee" not only as to the result of the work to be done but also as to the
means and methods by which the same is to be accomplished.
In the case at bar, the element of control over Judico was present. He is an agent in the first sense, a
salaried employee of Grepalife. Judico received a definite minimum amount per week as his wage known as
“sales reserve”. He was assigned a definite place in the office to work on when he is not in the field; and in
addition to his canvassing work he was burdened with the job of collection. He was required to make regular
report to the company regarding these duties, and for which an anemic performance would mean a dismissal.
Conversely faithful and productive service earned him a promotion to Zone Supervisor with additional
supervisor's allowance, a definite amount of P110.00 aside from the regular P 200.00 weekly "allowance".
Furthermore, his contract of services with petitioner is not for a piece of work nor for a definite period.
Jaudico was controlled by Grepalife not only as to the kind of work; the amount of results, the kind of
performance but also the power of dismissal. By nature of his position and work, Jaudico had been a regular
employee of Grepalife.
GREAT PACIFIC LIFE ASSURANCE CORPORATION v. NATIONAL LABOR RELATIONS COMMISSION,

ERNESTO RUIZ and RODRIGO RUIZ
G.R. No. 80750-51, July 23, 1990, J. Cortes
In determining who is considered an employee, the Court has time and again applied the "four-fold" test,
with control being the most crucial and determinative indicator of an employer-employee relationship. It cannot
be gainsaid that Grepalife had control over private respondents' performance as well as the result of their
efforts. True, it cannot be denied that based on the definition of an "insurance agent" in the Insurance Code [Art.
300] some of the functions performed by private respondents were those of insurance agents. Nevertheless, it
does not follow that they are not employees of Grepalife. The Insurance Code may govern the licensing
requirements and other particular duties of insurance agents, but it does not bar the application of the Labor
Code with regard to labor standards and labor relations.
Facts:
Rodrigo and Ernesto Ruiz entered into individual agency agreements with Grepalife in 1977, each
starting out as trainee-agents and later promoted to higher positions. In 1981, Ernesto was designated as
district manager under a three-year Agreement of Managership. Two years thereafter but before the lapse of
the period fixed in the contract, he was dismissed. Rodrigo, on the other hand, was designated as the officer-
in charge to take over the functions of district manager in the Butuan district in addition to his
responsibilities then as zone supervisor. After such designation, he was recalled in 1984. In the consolidated
illegal dismissal cases filed by them, the Labor Arbiter found that they were employees of Grepalife and were
dismissed without first being afforded due process by way of a notice in writing of the grounds for their
dismissal. The NLRC affirmed the factual findings of the labor arbiter but reversed the order of reinstatement
on the ground that Grepalife cannot be compelled to retain an employee found guilty of acts inimical to its
interest.
Issue:
Whether or not Ernesto and Rodrigo are employees of Grepalife.

Ruling:
Yes, Ernesto and Rodrigo are employees of Grepalife. Article 280 of the Labor Code provides that "the
provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements of the
parties, an employment shall be deemed to be regular where the employee has been engaged to perform
activities which are usually necessary or desirable in the usual business or trade of the employer..."
Furthermore, in determining who is considered an employee, the Court has time and again applied the "four-
fold" test, with control being the most crucial and determinative indicator of an employer-employee
relationship. The employer must have control or must have reserved the right to control not only over the
result of the "employee's" work but also the means and methods by which it is to be accomplished. (See
Brotherhood Labor Unity Movement of the Philippines v. Zamora, 147 SCRA 49, 1987).
In this case, their work at the time of their dismissal as zone supervisor and district manager are
necessary and desirable to the usual business of the insurance company. They were entrusted with
supervisory, sales and other functions to guard Grepalife's business interests and to bring in more clients to
the company, and even with administrative functions to ensure that all collections, reports and data are
faithfully brought to the company. Furthermore, it cannot be gainsaid that Grepalife had control over private
respondents' performance as well as the result of their efforts. A cursory reading of their respective functions
as enumerated in their contracts reveals that the company practically dictates the manner by which their jobs
are to be carried out.
True, it cannot be denied that based on the definition of an "insurance agent" in the Insurance Code
[Art. 300] some of the functions performed by private respondents were those of insurance agents.
Nevertheless, it does not follow that they are not employees of Grepalife. The Insurance Code may govern the
licensing requirements and other particular duties of insurance agents, but it does not bar the application of
the Labor Code with regard to labor standards and labor relations.
LUZ PINEDA, MARILOU MONTENEGROO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG
and LUCIA LONTOK v. HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY,
LIMITED
G.R. No. 105562, September 27, 1993, Davide, Sr., J.
Group insurance is essentially a single insurance contract that provides coverage for many individuals.
The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the
insurer to a representative of the group or to an administrator of the insurance program, such as an employer.
The employer acts as a functionary in the collection and payment of premiums and in performing related duties.
The Court held that PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular
Life. The latter is thus bound by the misconduct of its agent.
Facts:
Petitioners, beneficiaries in the life insurance benefits under a group policy, sought to recover these
benefits from Insular Life but the latter denied their claim on the ground that its liability was already
extinguished upon delivery to and receipt by Prime Marine Services, Inc. of the checks issued in their names.
Capt. Roberto Nuval, President and General Manager of PMSI, the employer of seamen who died, allegedly
received the checks through the special power of attorney issued by petitioners and these checks were
deposited in his account. Petitioners then filed a complaint against Insular Life with the Insurance
Commission praying that it be ordered to pay their insurance claims. The Commission rendered its decision
in favour of complainants. However, the CA ruled that the powers of attorney relied upon by Insular Life were
sufficient to authorize Capt. Nuval to receive the insurance pertaining to the beneficiaries.
Issue:
Whether or not Captain Nuval has the authority to receive insurance proceeds in behalf of the
beneficiaries from Insular Life.
Ruling:
No. The Court agrees with the Insurance Commission that the special powers of attorney do not
contain in unequivocal and clear terms authority to Capt. Nuval to obtain and receive from respondent
company insurance proceeds arising from the death of the seaman-insured. On the contrary, the said powers
of attorney are couched in terms which could easily arouse suspicion of an ordinary man." Insular Life knew
that a power of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was a deviation
from its practice with respect to group policies.
Group insurance is essentially a single insurance contract that provides coverage for many
individuals. In its original and most common form, group insurance provides life or health insurance coverage
for the employees of one employer. The coverage terms for group insurance are usually stated in a master
agreement or policy that is issued by the insurer to a representative of the group or to an administrator of the
insurance program, such as an employer. The employer acts as a functionary in the collection and payment of
premiums and in performing related duties.
Although the employer may be the titular or named insured, the insurance is actually related to the
life and health of the employee. Indeed, the employee is in the position of a real party to the master policy,
and even in a non-contributory plan, the payment by the employer of the entire premium is a part of the total
compensation paid for the services of the employee.
PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular Life. The
latter is thus bound by the misconduct of its agent. Unfortunately, Insular Life, through its official, Mr. Urbano,
acted imprudently and negligently in the premises by relying without question on the special power of
attorney.
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS REYES v. HON. ARMANDO
ANSALDO, in his capacity as Insurance Commissioner, and RAMON MONTILLA PATERNO, JR.
G.R. No. 76452, July 26, 1994, Quiason, J.
Since the contract of agency entered into between Philamlife and its agents is not included within the
meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the
same to the Insurance Commissioner. Expressio unius est exclusio alterius. The Insurance Code does not have
provisions governing the relations between insurance companies and their agents. The relationship between the
insurance company and its agents who are salaried employees is governed by the Contract of Employment and
the provisions of the Labor Code, while the relationship of the former and its registered representatives who
work on commission basis is governed by the Contract of Agency and the provisions of the Civil Code on the
Agency. Disputes involving the latter are cognizable by the regular courts.
Facts:
Ramon Paterno filed a letter-complaint against Philippine American Life Insurance Company
(Philamlife) to the Insurance Commissioner alleging certain problems encountered by agents, supervisors,
managers and public consumers as a result of certain practices by said company. Manuel Ortega, Philamlife's
Senior Assistant Vice-President and Executive Assistant to the President filed a motion to quash raising as
one of the grounds that the Insurance Commission has no jurisdiction over the subject or nature of the action
and over the parties involved. The Insurance Commissioner denied the motion to quash. Hence, this petition.
Issue:
Whether or not the resolution of the legality of the contract of agency falls within the jurisdiction of
the Insurance Commissioner.
Ruling:
No. The general regulatory authority of the Insurance Commissioner is described in Section 414 of
the Insurance Code which shows that the Insurance Commissioner has the authority to regulate the business
of insurance. Section 2 of the said law defines the term "doing an insurance business" or "transacting an
insurance business.” Since the contract of agency entered into between Philamlife and its agents is not
included within the meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to
give jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.
A reading of Section 416 shows that the quasi-judicial power of the Insurance Commissioner is
limited by law "to claims and complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, . . ." Hence, this power does not cover the
relationship affecting the insurance company and its agents but is limited to adjudicating claims and
complaints filed by the insured against the insurance company. The Insurance Code does not have provisions
governing the relations between insurance companies and their agents. It follows that the Insurance
Commissioner cannot, in the exercise of its quasi-judicial powers, assume jurisdiction over controversies
between the insurance companies and their agents.
An insurance company may have two classes of agents who sell its insurance policies: (1) salaried
employees who keep definite hours and work under the control and supervision of the company; and (2)
registered representatives, who work on commission basis. Under the first category, the relationship
between the insurance company and its agents is governed by the Contract of Employment and the provisions
of the Labor Code, while under the second category, the same is governed by the Contract of Agency and the
provisions of the Civil Code on the Agency. Disputes involving the latter are cognizable by the regular courts.
SOUTH SEA SURETY AND INSURANCE COMPANY, INC. v. HON. COURT OF APPEALS and VALENZUELA
HARDWOOD AND INDUSTRIAL SUPPLY, INC.
G.R. No. 102253, June 2, 1995, Vitug J.
Section 306 of the Insurance Code provides that any insurance company which delivers to an insurance
agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or
broker to receive on its behalf payment of any premium which is due on such policy of contract of insurance at
the time of its issuance or delivery or which becomes due thereon. When the appellant South Sea Surety and
Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance policy for the logs of Hardwood, he is
deemed to have been authorized by the South Sea Surety and Insurance Co., Inc. to receive the premium which is
due on its behalf.
Facts:
Valenzuela Hardwood and Industrial Supply, Inc. insured with South Sea Surety and Insurance
Company, Inc. the logs to be shipped to Manila on board the vessel owned by Seven Brothers. On January 20,
1984, Marine Cargo Insurance Policy No. 84/24229 was issued by South Sea. On January 24, Hardwood gave
the check in payment of the premium on the insurance policy to Mr. Victorio Chua, an agent of Columbia
Insurance Brokers, Ltd. On January 25, the said vessel sank resulting in the loss of the insured logs. Payment
of the proceeds of the policy was demanded from South Sea but the latter denied liability under the policy.
Seven Brothers Shipping Corporation also denied the claim filed by Hardwood.
Hardwood filed with the RTC a complaint for the recovery of the value of lost logs and freight charges
from Seven Brothers Shipping Corporation or, to the extent of its alleged insurance cover, from South Sea
Surety and Insurance Company. The trial court rendered judgment in favor of Hardwood. The CA absolved
the shipping entity from liability holding only South Sea liable. South Sea Surety and Insurance Co., Inc. faults
the appellate court for holding Victorio Chua to have been an authorized representative of the insurer.
Issue:
Whether or not Victorio Chua, in receiving the check for the insurance premium prior to the
occurrence of the risk insured against has so acted as an agent of petitioner.
Ruling:
Yes. The Court adopts the findings of the CA. Section 306 of the Insurance Code provides that any
insurance company which delivers to an insurance agent or insurance broker a policy or contract of
insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any
premium which is due on such policy of contract of insurance at the time of its issuance or delivery or which
becomes due thereon. When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the
marine cargo insurance policy for the logs of Hardwood, he is deemed to have been authorized by the South
Sea Surety and Insurance Co., Inc. to receive the premium which is due on its behalf. When therefore the
insured logs were lost, the insured had already paid the premium to an agent of the South Sea Surety and
Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under the policy it issued to
the insured.
SMITH, BELL & CO. , INC v. COURT OF APPEALS and JOSEPH BENGZON CHUA
G. R. No. 110668. February 6, 1997, PANGANIBAN J.
The scope and extent of the functions of an adjustment and settlement agent do not include personal
liability. His functions are merely to settle and adjust claims in behalf of his principal if those claims are proven
and undisputed, and if the claim is disputed or is disapproved by the principal, like in the instant case, the agent
does not assume any personal liability. The recourse of the insured is to press his claim against the principal.
Facts:
Joseph Bengzon Chua, doing business under the style of Tic Hin Chiong, filed a case against Smith,
Bell, and Co., Inc. and the latter’s principal, First Insurance Co. Ltd., to recover the value of the losses
sustained by him when the his cargo arrived in apparent bad order condition. The First Insurance Co. Ltd. did
not file an answer, hence it was declared in default. Petitioner denied any liability alleging that it is merely a
settling or claim agent of the insurance company and as such agent, it is not personally liable under the policy
in which it has not even taken part of. The trial court ruled that Chua has fully established the liability of the
insurance firm on the subject insurance contract. It also held that since Smith, Bell & Co. is admittedly a claim
agent of the foreign insurance firm doing business in the Philippines, justice is better served if said agent is
made liable without prejudice to its right of action against its principal, the insurance firm.
Issue:
Whether or not a local claim or settling agent is personally and/or solidarily liable upon a marine
insurance policy issued by its disclosed foreign principal.
Ruling:
No. An adjustment and settlement agent is no different from any other agent from the point of view
of his responsibility for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he
does it in behalf of his principal and his action is binding not upon himself but upon his principal. An
insurance adjuster is ordinarily a special agent for the person or company for whom he acts and his authority
is prima facie coextensive with the business intrusted to him. He does not discharge functions of a quasi -
judicial nature, but represents his employer, to whom he owes faithful service, and for his acts, in the
employer’s interest, the employer is responsible so long as the acts are done while the agent is acting within
the scope of his employment (See Salonga vs. Warner, Barnes & Co., Ltd., G.R. L-2246, 1951).
It, therefore, clearly appears that the scope and extent of the functions of an adjustment and
settlement agent do not include personal liability. His functions are merely to settle and adjust claims in
behalf of his principal if those claims are proven and undisputed, and if the claim is disputed or is
disapproved by the principal, like in the instant case, the agent does not assume any personal liability. The
recourse of the insured is to press his claim against the principal. Being a mere agent and representative,
petitioner is also not the real party - in - interest in this case. An action is brought for a practical purpose, that
is, to obtain actual and positive relief.
Reinsurance
IVOR ROBERT DAYTON GIBSON v. HON. PEDRO A. REVILLA, in his official capacity as Presiding Judge
of Branch XIII, Court of First Instance of Rizal, and LEPANTO CONSOLIDATED MINING COMPANY
G.R. No. L-41432, July 30, 1979, GUERRERO , J.
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).
Facts:
Lepanto Consolidated Mining Company filed a complaint with a plea for preliminary mandatory
injunction against Malayan Insurance Company, Inc. founded on the Marine Open Policy issued by the latter
in favor of Lepanto. Ivor Robert Dayton Gibson, one of re-insurers in the reinsurance contract obtained
abroad by Malayan through Sedgwick, Collins & Co., Limited, filed a motion to intervene. He claimed that he
has a legal interest in the subject matter of litigation in that he stands to be held liable to pay on its re-
insurance contract should judgment be rendered requiring the Malayan to pay the claim of the Lepanto. The
trial court denied his motion for intervention. The Supreme Court denied his petition for lack of merit, but
upon his motion for reconsideration, the petition was allowed.
Issue:
Whether or not Ivor Robert Dayton Gibson, as reinsurer, may intervene in the suit between Lepanto
and Malayan.
Ruling:
No. Notwithstanding the presence of a legal interest, permission to intervene is subject to the sound
discretion of the court. The Supreme Court agreed with the holding of the trial court that since movant Ivor
Robert Dayton Gibson appears to be only one of several re-insurers of the risks and liabilities assumed by
Malayan Insurance Company, Inc., it is highly probable that other re- insurers may likewise intervene. 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 issues would also be compounded as more parties and more matters will have to be litigated. In other
words, the Court's discretion is justified and reasonable.
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. 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). The clause "to pay as may be paid thereon"
contained in petitioner's re-insurance contract does not preclude the reinsurer from insisting upon proper
proof that a loss strictly within the terms of the original policy has taken place.
AVON INSURANCE PLC, et al vs. COURT OF APPEALS

G.R. No. 97642, August 29, 1997, TORRES, JR., J.
A corporation to qualify as duly engaged in reinsurance business, it must comply with the requirements
provided by Philippine law. If a foreign corporation does not do business here, there would be no reason for it to
be subject to the State's regulation. In so far as the State is concerned, such foreign corporation has no legal
existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of
sovereignty.
FACTS:
Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of
its properties under Policy No. 20719 for a coverage of P100,000,000.00 and under Policy No. 25896, also
for P100,000,000.00. Both contracts were covered by reinsurance treaties between Worldwide Surety and
Insurance and several foreign reinsurance companies, including the petitioners. The reinsurance
arrangements had been made through international broker C.J. Boatwright and Co. Ltd., acting as agent of
Worldwide Surety and Insurance. Within the respective effectivity periods of the 2 policies, the properties
therein insured were razed by fire. Partial payments were made by Worldwide Surety and Insurance and
some of the reinsurance companies. Worldwide Surety and Insurance, in a Deed of Assignment,
acknowledged a remaining balance of P19,444,447.75 still due Yupangco Cotton Mills, and assigned to the
latter all reinsurance proceeds still collectible from all the foreign reinsurance companies. Thus, in its interest
as assignee and being the original insured, Yupangco Cotton Mills instituted this collection suit against the
petitioners. In a Petition for Certiorari filed with the CA, petitioners submitted that respondent Court has no
jurisdiction over them, being all foreign corporations not doing business in the Philippines with no office,
place of business or agents in the Philippines. The CA found the petition devoid of merit. Hence, this petition.
ISSUE:
Whether or not Petitioners, being foreign corporations not doing business in the Philippines, are
subject to the jurisdiction of Philippine courts.
RULING:
NO. To qualify the petitioners business of reinsurance within the Philippine forum, resort must be made
to established principles in determining what is meant by doing business in the Philippines. A foreign
corporation, is one which owes its existence to the laws of another state, and generally, has no legal existence
within the state in which it is foreign. It was held that corporations have no legal status beyond the bounds of
the sovereignty by which they are created. Nevertheless, it is widely accepted that foreign corporations are,
by reason of state comity, allowed to transact business in other states and to sue in the courts of such fora. In
the Philippines, before a foreign corporation can transact business, it must first obtain a license to transact
business here and secure the proper authorizations under existing law. The purpose of the law for the same
is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts.
Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the
State's regulation. In so far as the State is concerned, such foreign corporation has no legal existence.
Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty. As
we have found, there is no showing that petitioners had performed any act in the country that would place it
within the sphere of the court's jurisdiction.
Documentary Stamp Tax on Insurance Policy
PHILIPPINE HOME ASSURANCE CORPORATION, PHILIPPINE AMERICAN ACCIDENT INSURANCE

COMPANY, PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY and AMERICAN INTERNATIONAL
UNDERWRITERS (Phils.), INC. v. COURT OF APPEALS, and COMMISSIONER OF INTERNAL REVENUE
G.R. No. 119446, January 21, 1999, MENDOZA, J.
It is thus settled that the life and non-life insurance policies in question are subject to documentary
stamp taxes pursuant to Secs. 183 and 184 of the National Internal Revenue Code by their mere issuance, and the
fact that the policies have not become effective for non-payment of the corresponding premiums as required by
Sec. 77 of the Insurance Code cannot affect petitioners liability for payment of documentary stamp taxes. Their
claim for refund was correctly denied.
FACTS:
Petitioners are domestic corporations engaged in the insurance business. From January to June 1986,
they paid under protest the total amount of P10,456,067.83 as documentary stamp taxes on various life and
non-life insurance policies issued by them. They alleged that the premiums thereon had not been paid. Thus,
in accordance with Sec. 77 of the Insurance Code, no documentary stamp taxes were due on the policies.
Separate claims for refund from the Bureau of Internal Revenue were filed as a consequence. As the BIR failed
to act on their claims, the petitioners appealed to the Court of Tax Appeals but the Tax Court denied their
claims. Petitioners filed a joint appeal in the Court of Appeals which, however, affirmed the decision of the
Court of Tax Appeals. Hence, this appeal.
ISSUE:
Whether or not documentary stamps tax is still due on premiums on the subject life and non-life
insurance policies which were not paid.
RULING:
YES. In general, documentary stamp taxes are levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal relationships through the
execution of specific instruments. Documentary stamp taxes are thus levied on the exercise of these privileges
through the execution of specific instruments, independently of the legal status of the transactions giving rise
thereto. The documentary stamp taxes must be paid upon the issuance of the said instruments, without
regard to whether the contracts which gave rise to them are rescissible, void, voidable, or unenforceable (See
Secs. 183 and 184 of the NIRC).
As the Supreme Court of the United States held in Du Pont v. United States: The tax is not upon the
business transacted but is an excise upon the privilege, opportunity, or facility offered at exchanges for the
transaction of the business. It is an excise upon the facilities used in the transaction of the business separate
and apart from the business itself. In this view it is immaterial whether the transfer of the account constituted
a sale.
It is thus settled that the life and non-life insurance policies in question are subject to documentary
stamp taxes pursuant to Sections 183 and 184 of the National Internal Revenue Code by their mere issuance,
and the fact that the policies have not become effective for non-payment of the corresponding premiums as
required by Sec. 77 of the Insurance Code cannot affect petitioners liability for payment of documentary
stamp taxes. Their claim for refund was correctly denied.
COMMISSIONER OF INTERNAL REVENUE v. LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC.

(now JARDINE-CMA LIFE INSURANCE COMPANY, INC.) and THE COURT OF APPEALS
G.R. No. 119176, March 19, 2002, KAPUNAN, J.
To claim that the increase in the amount insured (by virtue of the automatic increase clause
incorporated into the policy at the time of issuance) should not be included in the computation of the
documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the tax be
computed on the basis of the amount insured by the policy.
FACTS:
Lincoln Philippine Life Insurance Co., Inc. is a domestic corporation engaged in life insurance
business. It issued the Junior Estate Builder Policy which contains a clause providing for an automatic
increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the
need of issuing a new policy. The clause was to take effect in the year 1984. Documentary stamp taxes due on
the policy were paid only on the initial sum assured. Lincoln also issued shares of stock with a total par value
of P5,000,000.00. The actual value of said shares, represented by its book value, was P19,307,500.00.
Documentary stamp taxes were paid based only on the par value of P5,000,000.00. Subsequently, the CIR
issued deficiency documentary stamps tax assessment for the year 1984 corresponding to the amount of
automatic increase of the sum assured on the policy and to the book value in excess of the par value of the
stock dividends. Lincoln questioned the deficiency assessments and sought their cancellation in a petition
filed in the Court of Tax Appeals which ruled in its favor. The CA affirmed the CTA’s decision insofar as it
nullified the deficiency assessment on the insurance policy but validated the deficiency assessment on the
stock dividends. Both parties appealed to the SC. Hence, this petition.
ISSUE:
Whether or not the automatic increase clause in the subject insurance policy is separate and distinct
from the main agreement and involves another transaction.
RULING:
YES. The subject insurance policy at the time it was issued contained an automatic increase clause.
Although the clause was to take effect on a later date, it was written into the policy at the time of its issuance.
Section 173 of the NIRC provides that the payment of documentary stamp taxes is done at the time the act is
done. Section 183 of the NIRC provides that the tax base for the computation of documentary stamp taxes on
life insurance policies is the amount fixed in policy. Here, although the automatic increase in the amount of
life insurance coverage was to take effect later on, the amount of the increase was already definite at the time
of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily
included the additional sum covered by the automatic increase clause because it was already determinable at
the time the transaction was entered into and formed part of the policy. The additional insurance was an
obligation subject to a suspensive obligation, but still a part of the insurance sold to which respondent was
liable for the payment of the documentary stamp tax. The deficiency of documentary stamp tax imposed on
respondent is not on the amount of the original insurance coverage, but on the increase of the amount
insured upon the effectivity of the Junior Estate Builder Policy. Thus, to claim that the increase in the amount
insured should not be included in the computation of the documentary stamp taxes due on the policy would
be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured by the
policy.

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SY 2015-2016 Case Syllabus Mercantile Law

INTELLECTUAL PROPERTY CODE

1. Differences between Copyrights, Trademarks and Patent

The rule is simple: No patent, no protection.

Whether or not SMI and NEMI are guilty of patent infringement.

3. Rights Conferred by a Patent

DOMICIANO A. AGUAS vs. CONRADO G. DE LEON and COURT OF APPEALS,

Whether or not the dismissal of the case by CA is proper.

ROBERTO L. DEL ROSARIO vs. COURT OF APPEALS AND JANITO CORPORATION

Whether or not the the grant of preliminary injunction is proper.

Whether or not Tryco Phrama Corporation committed patent infringement.

PHIL PHARMAWEALTH, INC. v. PFIZER, INC. and PFIZER (PHIL.) INC.

Whether or not Pascual Godines is liable for patent infringement.

ii. Doctrine of Equivalents

Whether or not Pascual Godines is liable for patent infringement.

Yes. Pascual Godines is liable for patent infringement.

While Albendazole and methyl 5 propylthio-2-benzimidazole carbamate have the effect of

b. Defenses in Action for Infringement

PRIBHDAS J. MIRPURI v. COURT OF APPEALS, DIRECTOR OF PATENTS and the BARBIZON

1. Acquisition of Ownership of Mark

AIR PHILIPPINES CORPORATION v. PENNSWELL, INC.

Whether or not the CA erred in upholding the RTC.

Whether or not EYIS is the true owner of the mark “VESPA.”

BIRKENSTOCK ORTHOPAEDIE GMBH AND CO. KG (formerly BIRKENSTOCK ORTHOPAEDIE GMBH) v.

TAIWAN KOLIN CORPORATION, LTD. v. KOLIN ELECTRONICS CO., INC.

Whether or not the products of the parties involved are related

Whether or not the case has become moot and academic.

AMIGO MANUFACTURING, Inc. vs. CLUETT PEABODY CO., INC.

Whether or not there is Trademark Infringement

Petitioner McDonald's Corporation ("McDonald's") is a US corporation that operates a global chain of

Whether or not there is trademark infringement

McDONALD’S CORPORATION v. MACJOY FASTFOOD CORPORATION.

PROSOURCE INTERNATIONAL, INC. v. HORPHAG RESEARCH MANAGEMENT SA.

Respondent is a corporation and owner of trademark PYCNOGENOL, a food. Respondent later

Whether the names PYCNOGENOL and PCO-GENOLS are confusingly similar.

BERRIS AGRICULTURAL CO., INC. vs. NORVY ABYADANG

Whether there is confusing similarity between the trademarks.

DERMALINE, INC. v. MYRA PHARMACEUTICALS, INC.,

SOCIETE DES PRODUITS NESTLE, S.A., v. MARTIN T. DY, JR.

Yes, the decision of the RTC is reinstated.

SKECHERS, U.S.A., INC. v. INTER PACIFIC INDUSTRIAL TRADING CORP.

Whether or not respondent is guilty of trademark infringement.

EMERALD GARMENT MANUFACTURING CORPORATION v. HON. COURT OF APPEALS, BUREAU OF

Whether or not there is confusing similarity between the two trademarks.

No. The "likelihood of confusion" is the gravamen of trademark infringement. In determining

Whether or not Diaz is liable for the crimes of infringement of trademark

c. Doctrine of Unrelated Goods

FABERGE, INCORPORATED v. THE INTERMEDIATE APPELLATE COURT and CO BENG KAY

MIGHTY CORPORATION v. E. & J. GALLO WINERY

PRIBHDAS J. MIRPURI v. COURT OF APPEALS

SEHWANI, INCORPORATED v. IN-N-OUT BURGER, INC.

Does IN-N-OUT Burger have legal capacity to sue?

FREDCO MANUFACTURING CORPORATION v. PRESIDENT AND FELLOWS OF HARVARD COLLEGE

A mark which is considered by the competent authority of the Philippines to be well-known

6. Rights Conferred by Registration

BERRIS AGRICULTURAL CO., INC. v. NORVY ABYADANG

Whether or not Abyadang has a better right than Berris.

7. Infringement and Remedies

CONRAD AND COMPANY, INC. v. COURT OF APPEALS