2023 Pre-Week Insu Transpo IPL Partnership

2023 PRE-WEEK NOTES IN INSURANCE,
Dean Nilo T. Divina
I. INSURANCEs
Characteristics of Insurance Contracts
Ciriaco leased a commercial apartment from Supreme Building

Corporation (SBC). One of the provisions of the one-year lease contract
states:
"18. x x x 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
of the LESSOR. If the LESSEE obtains fire insurance coverage without
the consent of the LESSOR, the insurance policy is deemed assigned
and transferred to the LESSOR for the latter’s benefit."
Notwithstanding the stipulation in the contract, without the consent of

SBC, Ciriaco insured the merchandise inside the leased premises against
loss by fire in the amount of P500,000.00 with First United Insurance
Corporation (FUIC).
A day before the lease contract expired, fire broke out inside the leased
premises, damaging Ciriaco’s merchandise. Having learned of the insurance
earlier procured by Ciriaco, SBC demanded from FUIC that the proceeds of
the insurance policy be paid directly to it, as provided in the lease contract.
Who is legally entitled to receive the insurance proceeds? Explain. (2009

Bar)
Ciriaco, not SBC, is entitled to receive the proceeds of the insurance policy. A contract
of insurance is personal in nature. In agreeing to be bound by the insurance contract,
each party has in mind the character, credit and conduct of the other. SBC is not
privy to the contract signed by Ciriaco and FUIC. FUIC approved the insurance
contract bearing in mind the personal qualifications of Ciriaco. The stipulation that
the policy is deemed assigned and transferred to SBC does not bind FUIC. Besides,
such stipulation is void because SBC has no insurable interest in the merchandise of
Ciriaco. (Spouses Cha vs Court of Appeals, GR No. 124520, August 18, 1997)
Insurable interest
“A” owns a house valued at P5,000,000.00 which he had insured against fire
for P7,500,000.00. He obtained a loan from “B” in the amount of
©2023 Dean Nilo T. Divina, All Rights Reserved. | 1

P3,500,000.00, and to secure payment thereof, he executed a deed of
mortgage on the house, but without assigning the insurance policy to
the latter. For “A’s” failure to pay the loan upon maturity, “B” initiated
foreclosure proceedings and in the ensuing public sale, the house was
sold by the sheriff to “B” as highest bidder. Immediately upon issuance
of the sheriff’s certificate of sale in his favor, “B” insured the house
against fire for P3,500,000.00 with another insurance company. In order
to redeem the house, “A” borrowed P3,500,000.00 from “C” and, as
security device, he assigned the insurance policy of P7,500,000.00 to “C”.
However, before “A” could pay “B” his obligation, the house was
accidentally and totally burned.
Do “A”, “B”, and “C” have any insurance interest in the house? May
“A”, “B”, and “C” recover under the policies? If so, how much?
As to A: He has insurable interest in his house, an existing interest, but only for
P5,000,000.00, the value of the said house. But, when he assigned it to C, said A had
no more interest in his insurance policy, and A cannot anymore recover on said
insurance policy.
As to B: He has insurable interest on A’s house, having an interest founded upon

an existing interest, for P3,500,000.00, the amount of mortgage debt.
As to C: He has no insurable interest on A’s house when the insurance took effect
and his interest is a mere contingent or expectant interest not founded on an actual
right or valid contract to A’s house. Hence, C cannot recover.1
On January 4, 2019, Mr. P joined Alpha Corporation (ALPHA) as President

of the company. ALPHA took out a life insurance policy on the life of Mr. P
with Mutual Insurance Company, designating ALPHA as the beneficiary.
ALPHA also carried fire insurance with Beta Insurance Co. on a house
owned by it, but temporarily occupied by Mr. P again with ALPHA as
beneficiary.
On September 1, 2019, Mr. P resigned from ALPHA and purchased the

company house he had been occupying. A few days later, a fire occurred
resulting in the death of Mr. P and the destruction of the house.
What are the rights of ALPHA (a) against Mutual Life Insurance Company
on the life insurance policy?
11982 modified BAR exam question.

ALPHA can recover against Mutual Life Insurance Co. in the life insurance
policy as its insurable interest in the life of the person insured, Mr. P, existed when
the insurance took effect. In life insurance, insurable interest need not exist
thereafter or when the loss occurred.2
Alpha, however, cannot recover on the fire insurance because at the time of the
loss, it had no more insurable interest having sold the property to Mr. P. In property
insurance, it is not enough that the insured must have insurable interest at the time
of the issuance of the policy but also at the time of loss.
Double insurance and over insurance
Where the insurance policy specifies as a condition the disclosure of existing co

insurers, non-disclosure thereof is a violation that entitles the insurer to avoid the
policy. This condition is common in fire insurance policies and is known as the "other
insurance clause".
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.3
If an insurance policy prohibits additional insurance on the property

insured without the insurer's consent, such provision being valid and
reasonable, a violation by the insured (2011 Bar)
A. reduces the value of the policy.

B. avoids the policy.
C. offsets the value of the policy with the additional insurances’ value.
D. forfeits premiums already paid.
Answer:
(B) avoids the policy.
2BAR 1984.
3 Multi-Ware Manufacturing Corporation v. Cibeles Corporation, G.R. No. 230528, February 1, 2021

Perfection of insurance contract
Jason is the proud owner of a newly-built house worth PS million. As a

protection against any possible loss or damage to his house, Jason applied
for a fire insurance policy thereon with Shure Insurance Corporation
(Shure) on October 11, 2016 and paid the premium in cash. It took the
company a week to approve Jason's application. On October 18, 2016, Shure
mailed the approved policy to Jason which the latter received five (5) days
later. However, Jason's house had been razed by fire which transpired a day
before his receipt of the approved policy. Jason filed a written claim with
Shure under the insurance policy. Shure prays for the denial of the claim
on the ground that the theory of cognition applies to contracts of insurance.
Decide Jason's claim with reasons. (2016 Bar)
No. What governs insurance contract is the cognition theory whereby the insurance
contract is perfected only from the time the applicant came to know of the acceptance
of the offer by the insurer. In this case, the loss occurred a day prior to Jason’s
knowledge of the acceptance by Shure of Jason’s application. There being not
perfected insurance contract, Jason is not entitled to recover from Shure.
Antarctica Life Assurance Corporation (ALAC) publicly offered a specially

designed insurance policy covering persons between the ages of 50 to 75
who may be afflicted with serious and debilitating illnesses. Quirico applied
for insurance coverage, stating that he was already 80 years old.
Nonetheless, ALAC approved his application.
Quirico then requested ALAC for the issuance of a cover note while he was
trying to raise funds to pay the insurance premium. ALAC granted the
request. Ten days after he received the cover note, Quirico had a heart
seizure and had to be hospitalized. He then filed a claim on the policy.
[a] Can ALAC validly deny the claim on the ground that the insurance
coverage, as publicly offered, was available only to persons 50 to 75 years
of age? Why or why not? (2009 Bar
No. By approving the application of Quirino who disclosed that he was already 80
years old, ALAC has waived its age requirement. Hence, ALAC is now precluded from
raising such defense of age of the insured.
[b] Did ALAC’s issuance of a cover note result in the perfection of an

insurance contract between Quirico and ALAC? Explain. (2009 Bar )

Yes. The issuance of a cover note resulted in the perfection of the contract of
insurance. Cover notes are issued to bind the insurer temporarily pending issuance
of the policy ( Section 52 of the Insurance Code, as amended ).They are valid for a
period of sixty days. No separate premium is to be paid on a cover note. Within sixty
days after issuance of the cover note, a policy shall be issued in lieu thereof, including
within its terms the identical insurance bond under the cover note and the premiums
therefor.
On September 27, 1996, Development Insurance and Surety Corporation

(insurance company) issued a comprehensive commercial vehicle policy to
Jaime Gaisano. His company, Noah’s Ark, immediately processed the
payments and issued a check, representing the payment of premium and
other charges, dated September 27, 1996 payable to the insurance
company’s agent, Trans-Pacific, on the same day. However, nobody from
Trans-Pacific picked up the check that day. Trans-Pacific informed Noah’s
Ark that its messenger would get the check the next day, September 28.
In the evening of September 27, 1996, while under the official custody of
Noah’s Ark, the vehicle was stolen. Oblivious of the incident, Trans-Pacific
picked up the check on September 28 and issued an official receipt dated
September 28, 1996.
Is there a binding insurance contract?
No, there is no dispute that the check was delivered to and was accepted by
insurance company’s agent, Trans-Pacific, only on September 28, 1996. No payment
of premium had thus been made at the time of the loss of the vehicle on September
27, 1996. While Jaime Gaisano claims that Trans-Pacific was informed that the check
was ready for pick-up on September 27, 1996, the notice of the availability of the
check, by itself, does not produce the effect of payment of the premium. At the time
of loss, there was no payment of premium yet to make the insurance policy effective.
Jaime Gaisano also failed to establish the fact of a grant by respondent of a credit
term in his favor, or that the grant has been consistent.4
2. Premium payment
4Jaime T. Gaisano v. Development Insurance and Surety Corporation, G.R. No. 190702, February
27, 2017.

Section 77 of Presidential Decree 612 or the Insurance Code of the Philippines
provides the general rule that no insurance contract issued by an insurance company
is valid and binding unless and until the premium has been paid.
The Makati Tuscany case provides that if the insurer has granted the insured a credit
term for the payment of the premium, it is an exception to the general rule that
premium must first be paid before the effectivity of an insurance contract.
In this case, the insured argued that the 90-day payment term is a credit extension.
However, the insurance policy is clear that failure to pay each installment on the due
date automatically voided the insurance policy. Here, the insured did not pay any
premium, which resulted in a void insurance policy.5
If the insured paid the premium, the insurer's liability attaches correspondingly.
There is a valid and binding policy or contract of insurance and the insured may
demand indemnification in case of loss. There is no credit on the premium to speak of
and, therefore, none which the insurer can demand because he has already been paid.
Second, if the insured did not pay the premium and the parties did not agree that the
insurer's liability has attached, then there is no valid or binding contract of insurance.
The insured cannot demand indemnification if loss occurs and neither can the insurer
demand payment of the premium. Third, if the insured did not actually pay the
premium but the parties have agreed that the insurer's liability has attached, then
the insured is considered to have extended credit on the premium. When the insured
accepts the terms of the credit, there is a valid and binding contract of insurance. The
insured must pay the premium before the end of the credit term; otherwise, he cannot
demand indemnification in case of loss. The insurer may demand the premium,
whether or not loss occurred.
The instant case falls under the third situation. The Court agrees with the RTC's
finding that the premiums were advanced on credit. The parties had agreed that
Chartis was already liable to indemnify CCTL if the contingencies occurred from
January 20, 2005 onward, even though CCTL had not actually paid the premium.
Chartis bore upon itself the costs of the policies in advance. CCTL was deemed to
have paid the premium on credit and was supposed to make actual payment within
a 90-day period.
When Chartis cancelled the policies on June 15, 2005, it had been at risk of
indemnifying for five months. CCTL cannot renege on its promise to pay the
premiums after enjoying that period of coverage. In Great Pacific Life Insurance Corp.
v. Court of Appeals, the Court held that the insurer must return the premium to the
insured because the former was never at risk. This case is the inverse: the insured
must pay the premium because the insurer was at risk. Similarly, in UCPB, the Court
5Philam Insurance v. Parc Chateau Condominium Unit Owners Association, G. R. No. 20116, March
4, 2019

said that it would be unjust and inequitable if the insured, after incurring loss, cannot
recover on a policy to which it had been consistently granted a credit term for the
payment of premiums. This case is the inverse: it would be unjust and equitable if
the insurer, after taking on the risk of indemnifying, cannot recover the premiums on
policies for which it had consistently granted credit terms.6
H. RESCISSION OF INSURANCE CONTRACTS
1. Concealment
X insured his life for P20 million. X, plays golf and regularly exercises
everyday, hence is considered in good health. He did not know, however,
that his frequent headache is really caused by his being hypertensive. In his
application form for a life insurance for himself, he did not put a check to
the question if he is suffering from hypertension, believing that because of
his active lifestyle, being hypertensive is a remote possibility. While playing
golf one day, X collapsed at the fairway and was declared dead on arrival at
the hospital. His death certificate stated that X suffered a massive heart
attack.
(A) Will the beneficiary of X be entitled to the proceeds of the life

insurance under the circumstances, despite the non-disclosure that he is
hypertensive at the time of application? (Bar 2016)
(B) If X died in an accident instead of a heart attack, would the fact of X's
failure to disclose that he is hypertensive be considered as material
information?
Answer:
(A) No, the beneficiary of X is not entitled to the proceeds of the life insurance. The
hypertension of X is a material fact that should have been disclosed to the
insurer. The concealment of such material fact entitles the insurer to rescind
the insurance policy.
(B) It is still a material information. It is settled that the insured cannot recover
even though the material fact not disclosed is not the cause of the loss.
6 Chartis Philippines Insurance, Inc. v. Cyber City Teleservices, Ltd, G.R. No. 234299, March
03, 2021

The Insurance Code dispensed with proof of fraudulent intent in case of
rescission due to concealment but not so in case of rescission due to false
representation.7
This is neither because intent to defraud is intrinsically irrelevant in

concealment, nor because concealment has nothing to do with fraud. To the contrary,
it is because in insurance contracts, concealing material facts is inherently
fraudulent: “if a material fact is actually known to the [insured], its concealment must
of itself necessarily be a fraud. When one knows a material fact and conceals it, “it is
difficult to see how the inference of a fraudulent intent or intentional concealment
can be avoided.” Thus, a concealment, regardless of actual intent to defraud, “is
equivalent to a false representation.” 8
I. CLAIMS SETTLEMENT AND SUBROGATION
1. Notice and proof of loss
Insurable interest in property is not limited to property ownership in the

subject matter of the insurance. Where the interest of the insured in, or his relation
to, the property is such that he will be benefitted by its continued existence, or will
suffer a direct pecuniary loss by its destruction, his contract of insurance will be
upheld, although he has no legal or equitable title. When Milestone removed its parts
and machines, Milestone still had an actual and real interest in the preservation of
the corrugating machines while the Toll Manufacturing Agreement (TMA ) is not
effectively terminated. Non-preservation will render Milestone liable for breach of
contract as no corrugated carton boxes would be manufactured in favor of Asgard
under the TMA.
Since the damage or loss caused by Milestone to Asgard's corrugating machines was
willful or intentional, UCPB Insurance is not liable under the Policy. To permit
Asgard to recover from the Policy for a loss caused by the willful act of the insured is
contrary to public policy, i.e., denying liability for willful wrongs.9
In Industrial Personnel and Management Services, Inc. v. Country Bankers

Insurance Corporation,10 the Supreme Court reiterated the rule that substantial
compliance with the requirements under the policy suffices.
7Insular Life Assurance Co., Ltd. v. Heirs of Alvarez, G.R. Nos. 207526 and 210156, October 3,
2018; Manulife v. Ibanez, November 28, 2016.
8Insular Life, ibid.
9UCPB General, Insurance Co., Inc. v. Asgard Corrugated Box Manufacturing Corporation, G.R.
No. 244407, January 26, 2021,

10G.R. No. 194126, October 17, 2018.

The facts are as follows:
Industrial Personnel and Management Services, Inc. (IPAMS) began recruiting

registered nurses for work deployment in the United States of America (U.S.). By
reason of the advances made to the nurse applicants, the latter were required to post
surety bond. The purpose of the bond is to guarantee the following during its validity
period: (a) that they will comply with the entire immigration process, (b) that they
will complete the documents required, and (c) that they will pass all the qualifying
examinations for the issuance of immigration visa. The Country Bankers Insurance
Corporation (Country Bankers) and IPAMS agreed to provide bonds for the said
nurses. The surety bonds issued specifically state that the liability of the Country
Bankers, shall be limited only to actual damages arising from Breach of Contract by
the applicant. A Memorandum of Agreement (MOA) was executed by the said parties
which stipulated the various requirements for collecting claims from Country
Bankers. On the basis of the MOA, IPAMS submitted its claims under the surety
bonds issued by Country Bankers. For its part, Country Bankers, upon receipt of the
documents enumerated under the MOA, paid the claims to IPAMS. According to
IPAMS, starting 2004, some of its claims were not anymore settled by Country
Bankers as it insisted on the production of official receipts of IPAMS on the expenses
it incurred for the application of nurses.
It was held that the statement of accounts, in lieu of official receipts, sufficed to
allow the insured to recover.11
MALAYAN INSURANCE COMPANY, INC., petitioner, vs. STRONGHOLD

INSURANCE COMPANY, INC., and RICO J. PABLO, respondents.
G.R. No. 203060. June 28, 2021, THIRD DIVISION (Hernando, J.)
FACTS
Petitioner Malayan Insurance Company, Inc. is a corporation organized and

existing under Philippine laws, and is engaged in the business of motor vehicle
insurance, among others. Respondent Stronghold Insurance Company, Inc. is also a
corporation organized and existing under Philippine laws, and is engaged in the
business of non-life insurance.
Pablo obtained a Compulsory Third Party Liability (CTPL) insurance for his
newly-acquired vehicle from Stronghold. The policy is under a Certificate of Cover,
effective from January 16, 2007 to January 16, 2010. The limit of the CTPL insurance
coverage is P100,000.00. The policy also contained a schedule of indemnities. IMC No.
11Industrial Personnel and Management Services, Inc. v. Country Bankers Insurance

Corporation, G.R. No. 194126, October 17, 2018.

4-2006 is the most recent issuance at that time that sets the limits for third party
liability and indemnities in settlement of claims under compulsory motor vehicle
liability insurance (CMVLI) policies.
Pablo also obtained an Excess Cover for Third Party Bodily and Death Liability
from Malayan for the same vehicle, as indicated in the Private Vehicle Policy. The
amount of the excess coverage is P200,000.00.
In 2008, during the effectivity of the two policies, Pablo, while driving the
insured vehicle, sideswiped a six-year-old pedestrian who sustained bodily injuries
and was brought to the hospital for treatment. Pablo claimed that he incurred
hospital and medical expenses in the amount of P100,318.08 for the treatment of the
pedestrian. As a result, he filed third party liability claims for reimbursement with
both Stronghold and Malayan.
Stronghold computed its liability based on the schedule of indemnities

provided in the CTPL insurance policy, and arrived at the amount of P29,000.00. The
excess of P71,318.08 (out of the total amount of P100,318.08) was not covered or in
excess of the limits in the schedule of indemnities, and should be shouldered by
Malayan pursuant to the excess coverage.
Malayan, however, would not agree to pay this excess. To resolve the dispute,
Pablo sought the assistance of the IC through a letter.
Insurance Commission: The IC ruled in favor of Malayan. It ordered Stronghold to
pay Pablo the amount of P100,000.00, and Malayan to pay the amount of only
P318.08. The IC applied the case of Western Guaranty Corporation v. Court of
Appeals, and ruled that "the enumerations of bodily injuries provided for in the
Schedule of Indemnities in the policy and the corresponding amount of
reimbursement provided therein would not serve as a limitation on the amount to be
recovered as long as the amount claimed would not exceed the amount of insurance
coverage and the expenses were incurred for the hospitalization and medication of
the victim[']s injury." It further ruled that the schedule of indemnities in Stronghold's
policy is contrary to Western Guaranty.
ISSUE
What is the extent of liability of Stronghold pursuant to the insurance policy it

issued? (Resulting from this would be the amount of Malayan's liability, which is the
excess not covered by Stronghold's policy.)
RULING:
The Court affirms the findings of the CA, with the modification that the amounts
payable to Pablo shall be subject to legal interest.

The purpose of CMVLI is 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 or their dependents are assured of immediate
financial assistance, regardless of the financial capacity of motor vehicle owners.
With the different interpretations of Western Guaranty, it is necessary to revisit the

case. Both the appellate court and IC used the case as basis in their respective
rulings. The parties have likewise argued on its applicability.
In Western Guaranty, a pedestrian was hit by a passenger bus that was insured with
Western Guaranty Corporation. The policy provided that the company's liability in
cases of death, injury, or damage to property of any party shall not exceed the limits
of liability set forth, and that the payment per victim in any one accident shall not
exceed the limits indicated in the Schedule of Indemnities provided for excluding
additional medical or burial expenses that might have been incurred. The pedestrian
filed a complaint for damages against the bus company, which in turn filed a third-
party complaint against petitioner therein. The Regional Trial Court ruled in favor
of the pedestrian and ordered the payment of actual damages, compensation for loss
of earning capacity, moral damages, and attorney's fees. On appeal, the CA affirmed
the trial court's ruling in its entirety. Petitioner therein further appealed to this Court
and contended that as the schedule therein limits the amount payable for certain
kinds of expenses, that schedule should be read as excluding liability for any other
type of expense or damage or loss even though actually sustained or incurred by the
third-party victim.
The Court ruled against petitioner insurance provider. The Court ruled that the
schedule does not restrict the kinds of damages that petitioner therein may be made
to pay as long as liability is shown to have arisen and the requisites for each kind of
damages are present. The schedule is not an enumeration of the specific kinds of
damages that may be awarded. Its purpose was to set limits to the amounts the
insurance company would be liable for in cases of "claims for death, bodily injuries of,
professional services and hospital charges, for services rendered to traffic accident
victims"; it does not limit or exclude claims for other kinds of damages. The Court
added that petitioner therein should have used a more specific and precise language
to reflect its intentions as presented in its arguments.
In other words, Western Guaranty clarifies the applicability of the limits provided in
the Schedule of Indemnities to injuries listed therein and allows claims for other
kinds of damages not otherwise indicated in the schedule against CMVLI policy
providers, as long as liability is established and the requisites for the kind of
damages claimed are present.
In the instant case, the CA did not err in applying Western Guaranty. Upon
examination of Stronghold's policy in the instant case, the Court finds that the

appellate court is correct in finding that the subject policy is similar — and in fact
identical — with the policy in Western Guaranty.
It is clear that Stronghold's policy is identical with the assailed policy in Western
Guaranty. It must be noted, however, that the issues in Western Guaranty and in the
instant case are at variance. But, this Court nonetheless upholds the CA's finding on
the applicability of limits in CTPL policies. As the appellate court have held, the
limit of liability with regard to the items listed in the Schedule of
Indemnities is the amount provided therein; the limit of liability with
regard to other kinds of damages not listed in the same Schedule of
Indemnities is the total amount of insurance coverage. It then follows that the
amounts in excess of the limits of liability in the schedule for items listed therein are
not covered by the total coverage. Such excess is already for the personal account of
the insured or an excess coverage provider. This interpretation upholds the purpose
of indicating limits of liability on the specific injuries listed in the schedule.
Therefore, Stronghold's liability with regard to injuries provided in its policy's

Schedule of Indemnities is subject to the limits provided therein. Any excess will not
be for its account, and will be for the account of the excess coverage provider —
Malayan in this case. As found by the CA, Stronghold is liable in the amount of
P42,714.83; Malayan, on the other hand, is liable in the amount of P57,603.25
The Court, however, imposes legal interest on the amounts to be paid by the
insurance companies to Pablo. Pursuant to Nacar v. Gallery Frames, legal interest
should be imposed as follows: (a) 12% per annum from October 3, 2008, the date of
extrajudicial demand, until June 30, 2013; and (b) 6% per annum from July 1, 2013
until full payment thereof.
As to Stronghold's contention that GSIS is the applicable case, the Court agrees with
the CA that it is not the applicable case. The insurance policy therein is different from
the policy in Western Guaranty (and Stronghold's policy in the instant case). There
was no determination that the policy in GSIS contained the same wording and all-
encompassing clause embodied in the policy assailed in Western Guaranty. Moreover,
the issues in GSIS are different from Western Guaranty and the instant case;
in GSIS, the issues pertained to the insurer's solidary liability with the insured, and
the prescription of an action to file an insurance claim.
2. Guidelines on claims settlement
Prescription of action
The condition contained in an insurance policy that claims must be presented

within one year after rejection is not merely a procedural requirement but an
important matter essential to a prompt settlement of claims against insurance

companies as it demands that insurance suits be brought by the insured while the
evidence as to the origin and cause of destruction have not yet disappeared.
Case law teaches that 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.
The contention of the insured that its action has not yet prescribed and that
the suit is deemed to have been commenced on the date that the original complaint
was filed is untenable. An amended complaint supersedes an original one. As a
consequence, the original complaint is deemed withdrawn and no longer considered
part of the record.
The settled rule is that the filing of an amended pleading does not retroact to
the date of the filing of the original pleading; hence, the statute of limitation runs
until the submission of the amendment. It is true that as an exception, this Court has
held that an amendment which merely supplements and amplifies facts originally
alleged in the complaint relates back to the date of the commencement of the action
and is not barred by the statute of limitations which expired after the service of the
original complaint. Thus, when the amended complaint does not introduce new
issues, cause of action, or demands, the suit is deemed to have commenced on the
date the original complaint was filed.
In the present case, the Court finds that the exception does not apply to
insured’s case as to allow the period of prescription to run and for prescription to
ultimately set in. As the Amended Complaint superseded the original complaint, the
suit of the latter is deemed to have been commenced on the date of filing of the
Amended Complaint, during which time, prescription had already set in as insured
had only until January 24, 2010 within which to file its insurance claim.12
c. Subrogation
The Court deemed it necessary to abandon the ruling in Vector that an insurer may
file an action against the tortfeasor within ten (10) year from the time the insurer
indemnifies the insured. Following the principles of subrogation, the insurer only
steps into the shoes of the insured. No new obligation was created between the
insurer and the wrongdoer. The rights of a subrogee cannot be superior to the rights
possessed by a subrogor. Therefore, for purposes of prescription, the insurer inherits
only the remaining period within which the insured may file an action against the
12Alpha Plus International Enterprises Corp. v. Philippine Charter Insurance Corp, G.R. No. 203756,
February 10, 2021,

wrongdoer. The indemnification of the insured by the insurer only allows it to be
subrogated to the former' s rights, and does not create a new reckoning point for the
cause of action that the insured originally has against the wrongdoer.
However, Vector is still applicable in this case because the Court's abandonment of
the Vector doctrine should be prospective in application for the reason that judicial
decisions applying or interpreting the laws or the Constitution, until reversed, shall
form part of the legal system of the Philippines. Hence, as the amended complaint
impleading Henson was filed on within ten (10) years from the time respondent
indemnified Copylandia for its injury/loss, i.e., the case cannot be said to have
prescribed13
Since the insurance claim for the loss sustained by the insured shipment was paid by
Tokio Marine as proven by the Subrogation Receipt — showing the amount paid and
the acceptance made by Honda Trading, it is inevitable that it is entitled, as a matter
of course, to exercise its legal right to subrogation as provided under Article 2207 of
the Civil Code as follows:
Art. 2207. If the plaintiffs 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.
The payment by the insurer to the insured operates as an equitable

assignment to the insurer of all the remedies which 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 or upon payment by the insurance company of the insurance
claim. It accrues simply upon payment by the insurance company of the
insurance claim.
Indeed, 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.
Consequently, the payment made by Tokio Marine to Honda Trading operates as an
equitable assignment to the former of all the remedies which the latter may have
against Keihin-Everett.14
13Vicente Henson, Jr v. UCPB General Insurance Co., G.R. No. 223134, August 14, 2019
Keihin-Everett Forwarding Co., Inc., Petitioner – Versus- Tokio Marine Malayan Insurance Co., Inc.
14
And Sunfreight Forwarders & Customs Brokerage, Inc., Respondents. G.R. No. 212107, SECOND
DIVISION, October 28, 2019

Where the insurer was made to pay the insured for a loss covered by the
insurance contract, such insurer can run after the third person who caused
the loss through subrogation. What is the basis for conferring the right of
subrogation to the insurer? (2011 Bar)
(A) Their express stipulation in the contract of insurance.

(B) The equitable assignment that results from the insurer’s
payment of the insured.
(C) The insured’s formal assignment of his right to indemnification
to the insurer.
(D) The insured’s endorsement of its claim to the insurer.
Answer:
(B) The equitable assignment that results from the insurer’s payment of the insured.
ELP Insurance, Inc. issued Marine Policy No. 888 in favor of FCL Corp. to
insure the shipment of 132 bundles of electric copper cathodes against all
risks. Subsequently, the cargoes were shipped on board the vessel "M/V
Menchu" from Leyte to Pier 10, North Harbor, Manila.

III. TRANSPORTATION LAW
A. COMMON CARRIERS
Article 1732 of the Civil Code defines common carriers as "persons,

corporations, firms or associations 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." Article 1732 does not make any distinction between one whose
principal business activity is the carrying of persons or goods or both, and one who
does the carrying only an ancillary activity; between a person or enterprise offering
transportation service on a regular or scheduled basis, and one offering the service
on an occasional, episodic or unscheduled basis; and a carrier offering its services to
the general public, and one who offers services or solicits business only from a narrow
segment of the general population.
The barge operator is a common carrier within the definition under Article
1732 of the Civil Code because it is one of the four barges commissioned to transport
23,842 bags of fishmeal from the Port of Manila to the consignee’s warehouse. As a
common carrier, it is bound to observe extraordinary diligence in the vigilance over
the goods transported by it. It bears to be reminded that common carriers are
presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed, or deteriorated. To overcome this presumption, common carriers must
prove that it exercised extraordinary diligence in the transportation of the goods.
Thus, the customs broker engaged by the consignee and the owner of the barge are
jointly and severally liable. The damage was attributable to the negligence of the
customs broker, a common carrier, in utilizing an unseaworthy barge, and the
negligence of the barge operator in supplying the unseaworthy barge that suffered a
hole at the bottom of its plating, through which the water gained entry and damaged
the cargo. 15
Are the following persons common carriers?
a) Freight forwarder; b) Shipowner; c) arrastre operator; d) customs broker; and

e) trucking company.
a. Freight forwarder - A freight forwarder is not a common carrier. It merely

chooses or selects the common carrier. A freight forwarder’s liability is limited
to damages arising from its own 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
15C.V. Gaspar Salvage & Lighterage v. LGU Insurance Company Ltd., G.R. Nos. 206892 and 207035,
February 3, 2021

responsibility of a carrier, which actually executes the transport, even though
the forwarder does not carry the merchandise itself.16
b. Shipowner - A shipowner is a common carrier. He is engaged in the business

of transporting goods for compensation and offers his services to the public.
c. Arrastre operator - An arrastre operator is not a common carrier. 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.17
d. Customs Broker - Although its principal function is to prepare the correct

customs declaration and proper shipping documents as required by law, the
transportation of goods is, nevertheless, an integral part of a customs broker,
thus, the customs broker is also a common carrier. For to declare otherwise
would be to deprive those with whom it contracts the protection which the law
affords them notwithstanding the fact that the obligation to carry goods for its
customers, is part and parcel of its business.18
e. Trucking company - A person is a common carrier if he is engaged in the

business of transporting goods by land, through his trucking service. In this
case, a customs broker contracted with a trucking company. The
transportation services are not exclusive to the customs broker. Even though
it has few clients, the trucking company was considered a common carrier. If
the trucking company caters only to the customs broker, then, it is a private
carrier.19
Cite other examples of common carriers.
a. Barge operator20
b. Passenger jeepney, bus company, or a taxi company21
16 Unsworth Transport International (Phils.), Inc. v. Court of Appeals and Pioneer Insurance and
Surety Corporation, G.R. No. 166250, July 26, 2010.
17 Westwind Shipping Corporation v. UCPB General Insurance Co., G.R. No. 2002289, November 25,
2013; Asian Terminals v. Daehan Fire and Marine Insurance, G.R. No. 171194, February 4, 2010.
18 Westwind Shipping Corporation v. UCPB General Insurance Co., G.R. No. 2002289, November 25,
2013; A.F Sanchez Brokerage v. Court of Appeals, G.R. No. 147079, December 21, 2004
19 Loadmasters Customs Services v. Glodel Brokerage Corporation, G.R. No. 179446, January 10, 2011.
20 Asia Lighterage and Shipping, Inc. v. Court of Appeals, G.R. No. 147246, August 9, 2003, 409 SCRA
340.; C.V. Gaspar Salvage & Lighterage v. LG Insurance Company Ltd., G.R. Nos. 206892 & 207035,
February 3, 2021
21 Batangas Transportation v. Orlanes, 52 Phil 455, cited in Perez, p. 9.

c. Vessels engaged in inter-island shipping22
d. Cargo truck to transport anybody’s goods for a fee.23
Is a travel agency a common carrier?
A travel agency is not a common carrier. It only arranges for the transportation of its
clients for air carriage. As such, it is not bound to exercise extraordinary diligence in
the performance of its obligations.24
1. Diligence required of common carriers
Jurisprudence where the Supreme Court ruled that the common carrier
breached its obligation to exercise extraordinary diligence.
a. Petitioners failed to prove that they did exercise the degree of diligence required
by law over the goods they transported. 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 Ports Authority, petitioners failed
to adduce sufficient evidence they exercised extraordinary care to prevent
unauthorized withdrawal of the shipments.25
b. Part of the extraordinary responsibility of common carriers is the duty to ensure
that shipments are received by none but the person who has a right to receive
them. Common carriers must ascertain the identity of the recipient. Failing to
deliver the shipment to the designated recipient amounts to a failure to deliver.
The shipment shall then be considered lost, and liability for this loss ensues. 26
c. At the time the customs broker turned over the custody of the cargoes to a
common carrier for inland transportation, it is still required to observe
extraordinary diligence in the vigilance of the goods. Failure to successfully
establish this carries with it the presumption of fault or negligence, thus,
rendering the customs broker liable to the shipper it contracted with, subject to
right of reimbursement against the carrier in whose possession, the goods where
hijacked.27
d. When the loss of the goods was not attended by grave or irresistible threat,
violence, or force but was brought about by the carrier’s failure to exercise
extraordinary diligence when she neglected vetting her driver (who absconded
22 De Villola v. Stanley, 32 Phil. 541, cited in Perez, ibid.

23 Benedicto v. IAC, 187 SCRA 547, cited in Perez, ibid.
24 Crisostomo v. Court of Appeals, infra.
25 Nedlloyd Lijnen B.V. Rotterdam v. Glow Laks Enterprises, G.R. No. 156330, November 19, 2014.
26 Federal Express Corporation v. Luwalhati Antonino, G.R. No. 199455, June 27, 2018.
27 Keihin-Everett Forwarding Co. v. Marine Malayan, et al., G.R. No. 212107, January 28, 2019.

with the goods) or providing security for the cargo and failing to take out
insurance on the shipment’s value.28
e. Petitioner was extremely remiss before and during the time of the vessel’s
sinking. Petitioner did not endeavor to dispute the Court of Appeal’s finding that
the vessel's captain erroneously navigated the ship, and failed to reduce its
speed considering the ship’s size and the weather conditions. The crew members
were also negligent when they did not make any stability calculations, and
prepare a detailed report of the vessel’s cargo stowage plan. The radio officer
failed to send an SOS message in the internationally accepted communication
network but instead used the Single Side Band informing the company about
the emergency situation.29
f. When a hole on the bottom plating of a barge was found that caused the seepage
or ingress of water into one of its hatches, which resulted in the goods loaded on
the barge to get wet, rendering it inedible or useless for the purpose intended by
the owner.30
2. Liabilities of common carriers
KLM breached its contract with the passenger when it failed to deliver his checked-
in suitcase at the designated place and time. The suitcase contained his clothing for
the conference where he was a guest speaker, a copy of his speech, and his resource
materials. Worse, the passenger suitcase was never returned to him even after he
arrived in Manila from the foreign trip. Thus, KLM's liability for the lost suitcase was
sufficiently established as it failed to overcome the presumption of negligence.31
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 the instant case, considering that it is undisputed that the subject goods were
severely damaged, the presumption of negligence on the part of the common carrier,
i.e., Unitrans, arose. Hence, it cannot escape liability.32
28 Annie Tan v. Great Harvest, supra.

29 Sulpicio Lines v. Major Victorio Karaan, G.R. No. 208590, October 3, 2018.
30 C.V Gaspar Salvage & Lighterage Corporation v. LG Insurance Company Ltd., GR. Nos. 206892 &
207035, February 3, 2021

31 Klm Royal Dutch Airlines V. Dr. Jose M. Tiongco G.R. No. 212136. October 4, 2021
32 Unitrans International Forwarders, Inc. V.
Insurance Company Of North America G.R. No. 203865, March 13, 2019.

A complaint for breach of a contract of carriage is dismissible as against the
employee who was driving the bus because the parties to the contract of carriage are
only the passenger, the bus owner, and the operator.
Since the cause of action is based on a breach of a contract of carriage, the

liability of Sanico is direct as the contract is between him and Colipano. Castro, being
merely the driver of Sanico's jeepney, cannot be made liable as he is not a party to the
contract of carriage. Although he was driving the jeepney, he was a mere employee of
Sanico, who was the operator and owner of the jeepney. The obligation to carry
Colipano safely to her destination was with Sanico. In fact, the elements of a contract
of carriage existed between Colipano and Sanico: consent, as shown when Castro, as
employee of Sanico, accepted Colipano as a passenger when he allowed Colipano to
board the jeepney, and as to Colipano, when she boarded the jeepney; cause or
consideration, when Colipano, for her part, paid her fare; and, object, the
transportation of Colipano from the place of departure to the place of destination. 33
A shipment of electronic goods arrived at the Port of Manila for Sony

Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the
services of TMBI to facilitate, process, withdraw, and deliver the shipment
from the port to its warehouse in Biñan. TMBI – who did not own any
delivery trucks – subcontracted the services of BMT Trucking Services
(BMT), to transport the shipment from the port to the Biñan warehouse.
Four (4) BMT trucks picked up the shipment from the port. However, only
three (3) trucks arrived at Sony’s Biñan warehouse. The fourth truck driven
by Rufo Reynaldo Lapesura was found abandoned.
Mitsui, the insurer, paid the claims and ran after TMBI. TMBI, however,
denied being a common carrier because it does not own a single truck to
transport its shipment and it does not offer transport services to the public
for compensation and hence, it is not bound to observe extraordinary
diligence. Furthermore, TMBI insists that the hijacking of the truck was a
fortuitous event which should exonerate its liability.
a. Is TMBI is a common carrier?
Yes, TMBI is a common carrier. The delivery of the goods is an integral, albeit
ancillary, part of its brokerage services. TMBI admitted that it was contracted to
facilitate, process, and clear the shipments from the customs authorities, withdraw
them from the pier, then transport and deliver them to Sony’s warehouse in Laguna.
33 Jose Sanico v. Werhelina P. Colipano, G.R. No. 209969, September 27, 2017.

That TMBI does not own trucks and has to subcontract the delivery of its clients’
goods, is immaterial. As long as an entity holds itself to the public for the transport
of goods as a business, it is considered a common carrier regardless of whether it owns
the vehicle used or has to actually hire one. Lastly, TMBI’s customs brokerage
services – including the transport/delivery of the cargo – are available to anyone
willing to pay its fees.
b. Should TMBI be held liable for the hijacking of the truck?
TMBI is liable for the hijacking of the truck. Theft or the robbery of the goods is not
considered a fortuitous event or a force majeure. Nevertheless, a common carrier may
absolve itself of liability for a resulting loss: (1) if it proves that it exercised
extraordinary diligence in transporting and safekeeping the goods; or (2) if it
stipulated with the shipper/owner of the goods to limit its liability for the loss,
destruction, or deterioration of the goods to a degree less than extraordinary
diligence.
Instead of showing that it had acted with extraordinary diligence, TMBI simply
argued that it was not a common carrier bound to observe extraordinary diligence.
Its failure to successfully establish this premise carries with it the presumption of
fault or negligence, thus rendering it liable to Sony/Mitsui for breach of contract.
c. Is BMT liable solidarily with TMBI to Mitsui?
No, BMT and TMBI are not solidarily liable to Mitsui. While the responsibility of two
or more persons who are liable for quasi-delict is solidary under Article 2194 of the
Civil Code, TMBI's liability to Mitsui does not stem from a quasi-delict but from its
breach of contract. The tie that binds TMBI with Mitsui is contractual, albeit one that
passed on to Mitsui as a result of TMBI's contract of carriage with Sony to which
Mitsui had been subrogated as an insurer who had paid Sony's insurance claim.
BMT is not directly liable to Sony/Mitsui for the loss of the cargo. While it is
undisputed that the cargo was lost under the actual custody of BMT (whose employee
is the primary suspect in the hijacking or robbery of the shipment), no direct
contractual relationship existed between Sony/Mitsui and BMT. If at all,
Sony/Mitsui's cause of action against BMT could only arise from quasi-delict, as a
third party suffering damage from the action of another due to the latter's fault or
negligence.
However, TMBI must not absorb the loss. By subcontracting the cargo delivery to
BMT, TMBI entered into its own contract of carriage with a fellow common carrier.

Since BMT failed to prove that it observed extraordinary diligence in the performance
of its obligation to TMBI, it is liable to TMBI for breach of their contract of carriage.34
In sum, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of
carriage. In turn, TMBI is entitled to reimbursement from BMT due to the latter's
own breach of its contract of carriage with TMBI. The proverbial buck stops with
BMT who may either: (a) absorb the loss, or (b) proceed after its missing driver, the
suspected culprit.
One of the passenger buses owned by Continental Transit Corporation

(CTC), plying its usual route, figured in a collision with another bus owned
by Universal Transport, Inc. (UTI). Among those injured inside the CTC bus
were: Romeo, a stow away; Samuel, a pickpocket then in the act of robbing
his seatmate when the collision occurred; Teresita, the bus driver’s mistress
who usually accompanied the driver on his trips for free; and Uriel, holder
of a free riding pass he won in a raffle held by CTC.
[a] Will a suit for breach of contract of carriage filed by Romeo, Samuel,
Teresita, and Uriel against CTC prosper? Explain. (3%) (2009 Bar)
Romeo cannot sue for breach of contract of carriage for the simple reason that there
was no valid contract of carriage between a stowaway, who secures passage through
fraud, and the carrier.
Samuel and Teresita cannot sue for breach of contract of carriage. They were never
accepted by the carrier as passengers. Samuel did not board the bus to be transported
but to commit robbery. Teresita did not board the bus to be transported but to
accompany the driver while he was performing his work
Uriel can sue for breach of contract of carriage. He was a passenger although he was
being transported gratuitously (Article 1758 of the Civil Code)
[b] What, if any, are the valid defenses that CTC and UTI can raise in the
respective actions against them? Explain. (2009 Bar)
With respect to Romeo, Samuel and Teresita, since there was no pre-existing
contractual relationship between them and CTC, CTC can raise the defense that it
exercised the due diligence of a good father of a family in the selection and supervision
of its driver.
34Torres-Madrid Brokerage, Inc. v. Feb Mitsui Marine Insurance Co., Inc. and Benjamin P.
Manalastas, doing business under the Name of BMT Trucking Services, G.R. No. 194121, July 11,
2016.

It can raise the same defense against Uriel if there is a stipulation that exempts it
from liability for simple negligence, but not for willful acts or gross negligence (Article
1758 of the Civil Code)
CTC can also raise against all the plaintiffs the defense that the collision was due
exclusively to the negligence of the driver of UTI which constitutes a fortuitous event,
because it was unforeseen and there was no concurrent or contributory negligence on
the part of its own driver.
CTC can also raise against Samuel the defense that he was engaged in an illegal act
at the time of the collision, for which he can be held liable for damages based on quasi-
delict.
Since UTI had no pre-existing contractual relationship with any of the plaintiffs, it
can raise the defense that it exercised due diligence in the selection and supervision
of its driver, that the collision was due to force majeure, and that Samuel was
committing an illegal act at the time of the collision.
3. Classification of transport network vehicle services and transport

network companies
What are transportation network companies (TNCs)?
These are persons or entities which use online-enabled platfroms to connect

passengers with drivers using their personal and non-commercial vehicles. TNCs in
the Philippines include Grab and Uber.35 Compared to taxicabs, TNCs offer
advantages to riders including the ability to request service via mobile map or
website, track the location of driver, and get a receipt via email.36
In other words, it provides pre-arranged transportation services for compensation

using an internet-based technology application or digital platform technology to
connect passengers with drivers using their personal vehicles.37
Are TNCs considered common carriers?
The legal status of TNCs is not yet clearly defined. They are currently being regulated
by the Land Transportation Franchise Regulatory Board.
35 Grab subsequently acquired Uber operations in the Philippines.

36 See explanatory note to House Bill 1260 of the 18th Congress by Honorable Luis Raymund
Villafuerte.
37 Department Order no. 2018-012 of the Department of Transportation

It is submitted though that they are not common carriers. TNCs are technology
companies that do not provide transportation services and they are not
transportation providers. They merely link customers with third party drivers and
are not parties to the transportation contract.38
Also, TNC drivers can go “offline” if desired and can decide to accept or reject a ride
request according to their personal travel itinerary as opposed to common carriers
which engage in a continuous offer.39
It is further submitted that they are akin to a freight forwarder. They only arrange
the vehicles/vessels for the passengers and as such, should not be treated as common
carriers. They should be held liable for damage though if there is negligence in vetting
and choosing the vehicle owners whom the TNCs accredited as part of their system.40
What is a transportation Network Vehicle Service (TNVS)?
It refers to a TNC-accredited private vehicle owner, which is a common carrier, using

the internet-based technology application or digital platform technology transporting
passengers from one point to another, for compensation. The TNVS can not operate
as a common carrier outside or independent from the use of the internet-based
technology of the TNCS to which they are accredited.41
B. VIGILANCE OVER GOODS
S delivered 10 boxes of cellphones to Trek Bus Liner, for transport from

Manila to Ilocos Sur on the following day, for which S paid the freightage.
Meanwhile, the boxes were stored in the bus liner’s bodega. That night,
however, a robber broke into the bodega and stole S’s boxes. S sues Trek
Bus Liner for contractual breach but the latter argues that S has no cause
of action based on such breach since the loss occurred while the goods
awaited transport. Who is correct? (2011 Bar)
a. The bus liner since the goods were not lost while being transported.
b. S since the goods were unconditionally placed with T for
transportation.
c. S since the freightage for the goods had been paid.
38 Ibid.
39 Ibid.
40 The House Bill, citing Crisostomo v. Court of Appeals (G.R. No. 138334, August 25, 2003), applied
by analogy TNC with a travel agency which merely arranges the booking of a person but the actual
act of transporting the customer is done by an airline..
41 Department Order No. 2018-12 of the Department of Transportation

d. The bus liner since the loss was due to a fortuitous event.
Answer:
(B) S since the goods were unconditionally placed with T for transportation.
Limit of liability
Sylvex Purchasing Corporation delivered to Unsworth Transport

International (UTI) a shipment of 27 drums of various raw materials for
pharmaceutical manufacturing. UTI issued a Bill of Lading covering the
aforesaid shipment. The shipment arrived at the port of Manila wherein it
was later found to be damaged.
The rejected UTI’s claim that its liability should be limited to $500.00 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.
Is UTI liable for the value of the goods not stated in the bill of lading?
No, UTI is liable only for $500.00 per package. Sylvex did not declare a higher
valuation of the goods to be shipped. The insertion of an invoice number in the bill of
lading does not in itself sufficiently and convincingly show that the common carrier
had knowledge of the value of the cargo.42
In a similar case, it was held that 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.43
However, in another case, it was ruled that the declaration requirement does not
require that all the details must be written down on the very bill of lading itself.
Compliance can be attained by incorporating the invoice, by way of reference, to the
bill of lading provided that the former containing the description of the nature, value
and/or payment of freight charges is duly admitted as evidence.44
To summarize, the insertion of an invoice number or reference to a letter of credit
42 Unsworth Transport International v. Court of Appeals, G.R. No. 166250, July 26, 2010.
43 Philam Insurance Company vs. Heung Ah Shipping Corporation and Wallem Shipping Inc., G.R.
No. 1877l and G.R. No. 187812, July 23, 2014
44 Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corp., & Mitsui Sumitomo Insurance Co., Ltd.,
G.R. No. 182864, January 12, 2015

does not in itself sufficiently and convincingly show that the common carrier had
knowledge of the value of the cargo, the same interpretation does not squarely apply
if the carrier had been advised of the value of the goods as evidenced by the invoice
and payment of corresponding freight charges.45
C. SAFETY OF PASSENGERS
An hour after the passengers and Viana had disembarked the vessel, the
crane operator began its unloading operation. While the crane was being
operated, Viana who had already disembarked the vessel remembered that
some of his cargoes were still loaded there. He went back and while he was
pointing to the crew where his cargoes were, the crane hit him resulting in
his death. A complaint for damages was filed against Aboitiz Shipping Lines
(Aboitiz) for breach of contract of carriage. Aboitiz contends that Viana
ceased to be a passenger when he disembarked the vessel and that
consequently his presence there was no longer reasonable. Is Aboitiz still
liable as a common carrier?
Yes. 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 within 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. It
is of common knowledge that, by the very nature of the business of a shipper, the
passengers of vessels are allotted a longer period of time to disembark from the ship
than the passengers of other common carriers considering the bulk of cargoes and the
number of passengers it can load. Consequently, such passenger will need at least an
hour to disembark from the vessel and claim his baggage. In the case at bar, when
the accident occurred, the victim was in the act of unloading his cargoes which he had
every right to do. As such, even if he had already disembarked an hour earlier, his
presence in the carrier’s premises was not without cause.
While the victim was admittedly contributorily negligent, still Aboitiz’s aforesaid
failure to exercise extraordinary diligence was the proximate and direct cause of,
because it could definitely have prevented, the former's death.46
.
46 Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 84458, November 6, 1989.

a. Liability for acts of others
a. Employees
Is a common carrier liable for the death of or injuries to passengers through

the acts of its employees?
Yes, 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.47
In a contract of carriage, the common carrier is liable for the injury or death
of a passenger resulting from its employee’s fault although the latter acted
beyond the scope of his authority. This is based on the (2011 Bar)
a. rule that the carrier has an implied duty to transport the passenger
safely.
b. rule that the carrier has an express duty to transport the passenger
safely
c. Doctrine of Respondeat Superior.
d. rule in culpa aquiliana.
Answer:
(A) rule that the carrier has an implied duty to transport the passenger safely.
47 Article 1759, NCC.

VII. INTELLECTUAL PROPERTY
A. INTELLECTUAL PROPERTY RIGHTS IN GENERAL

1. Intellectual property rights
MS Brewery Corporation (MS) is a manufacturer and distributor of the

popular beer "MS Lite." It faces stiff competition from BA Brewery
Corporation (BA) whose sales of its own beer product, "BA Lighter," has
soared to new heights. Meanwhile, sales of the "MS Lite" decreased
considerably. The distribution and marketing personnel of MS later
discovered that BA has stored thousands of empty bottles of "MS Lite"
manufactured by MS in one of its warehouses. MS filed a suit for unfair
competition against BA before the Regional Trial Court (RTC). Finding a
connection between the dwindling sales of MS and the increased sales of
BA, the RTC ruled that BA resorted to acts of unfair competition to the
detriment of MS. Is the RTC correct? Explain. (2016 Bar)
The RTC is not correct. Hoarding, or the act of accumulating empty bottles to impede
circulation of the bottled product, does not amount to unfair competition. BA did not
fraudulently “pass off “ its product as that of MS Lite. There was no representation
or misrepresentation on the part of BA that would confuse or tend to confuse its goods
with those of MS Lite. (Coca Cola Bottlers Philippines v Gomez, GR No. 154491,
November 14, 2008)
Under the Intellectual Property Code, lectures, sermons, addresses or

dissertations prepared for oral delivery, whether or not reduced in writing
or other material forms, are regarded as
(A) non-original works.

(B) original works.
(C) derivative works.
(D) not subject to protection (2009 Bar)
Answer:
(B) original works.
TRUE or FALSE.
The Denicola Test in intellectual property law states that if design elements
of an article reflect a merger of aesthetic and functional considerations, the
artistic aspects of the work cannot be conceptually separable from the
utilitarian aspects; thus, the article cannot be copyrighted. (2009 Bar)

True. Applying the Denicola Test in Brandir International, Inc. v. Cascade Pacific
Lumber Co. (834 F.2d 1142, 1988 Copr.L.Dec. P26), the United State Court of Appeals
for the Second Circuit held that the aesthetic or artistic aspects of a work may be
copyrighted only if they can be separated from the utilitarian element.
Are trade secrets protected under the IPC?
The IPC protects trade secrets in the sense that the law covers protection of
undisclosed information. In Air Philippines v. Pennswell,48 the Supreme Court ruled
that trade and industrial secrets (pursuant to the IPC and other related laws) are
exempted from compulsory disclosure.
In this case, Pennswell, a corporation engaged in the business of manufacturing

and selling industrial chemicals, solvents and special lubricants, filed an action for
collection against Air Philippines. In its Answer, Air Philippines contended that its
refusal to pay was due to the fraud that Pennswell committed on its previous sale of
certain items which were accordingly misrepresented as belonging to a new line, but
were in truth and in fact, identical with products Air Philippines had previously
purchased from Pennswell, and that the latter merely altered the names and labels
of such goods. During the pendency of the trial, Air Philippines filed a motion to
compel Pennswell to give a detailed list of the ingredients and chemical components
of its products for comparison. The RTC initially granted the motion but reconsidered
itself. The Court of Appeals affirmed the RTC. The Supreme Court eventually held
that 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.”
48G.R. No. 172835, December 13, 2007.

The chemical composition, formulation, and ingredients of Pennswell’s special
lubricants are trade secrets within the contemplation of the law. In the creation of its
lubricants, Pennswell expended efforts, skills, research, and resources. What it had
achieved by virtue of its investments may not be wrested on the mere pretext that it
is necessary for Air Philippines’ defense against a collection for a sum of money. To
compel its disclosure is to cripple its business, and to place it at an undue
disadvantage. If the chemical composition of its lubricants is opened to public
scrutiny, it will stand to lose the backbone on which its business is founded.
B. PATENTS
X invented a device which, through the use of noise, can recharge a

cellphone battery. He applied for and was granted a patent on his device,
effective within the Philippines. As it turns out, a year before the grant of
X's patent, Y, also an inventor, invented a similar device which he used in
his cellphone business in Manila. But X files an injunctive suit against Y to
stop him from using the device on the ground of patent infringement. Will
the suit prosper? (2011 Bar)
a. No, since the correct remedy for X is a civil action for damages.
b. No, since Y is a prior user in good faith.
c. Yes, since X is the first to register his device for patent registration.
d. Yes, since Y unwittingly used X’s patented invention.
Answer:
(B) No, since Y is a prior user in good faith.
What is the “Right of Priority”?
An application for patent filed by any person who has previously applied for the
same invention in another country which by treaty, convention or law affords similar
privileges to Filipino citizens, shall be considered as filed as of the date of the filing
of the foreign application; provided, that: a) the local application expressly claims
priority; b) it is filed within 12 months from the date of the earliest foreign application
was filed; and c) certified copy of the foreign application together with an English
translation is filed within six (6) months from the date of filing in the Philippines.49
A patent applicant with the right of priority is given preference in the grant of a
patent when there are two or more applicants for the same invention. Since both the
49Section 31, IPC, as amended.

United States and the Philippines are signatories to the Paris Convention for the
Protection of Industrial Property, an applicant who has filed a patent application in
the United States may have a right of priority over the same invention in a patent
application in the Philippines. However, this right of priority does not immediately
entitle a patent applicant the grant of a patent. A right of priority is not equivalent
to a patent. Otherwise, a patent holder of any member-state of the Paris Convention
need not apply for patents in other countries where it wishes to exercise its patent. It
was, therefore, inaccurate for petitioner to argue that its prior patent application in
the United States removed the invention from the public domain in the Philippines.
It should have complied with the other requirements of the actual grant of the patent.
In this case, the applicant for patent was declared abandoned by the Intellectual
Property Office for failure to comply with strict procedural rules. The right of priority
of the patent applicant was therefore lost.50
C. TRADEMARKS
Acquisition of ownership of mark
The only mode of acquiring ownership of a trademark is through registration (and

not use). The language of the IP Code provisions clearly conveys the rule that
ownership of a mark is acquired through registration; the intention of the lawmakers
was to abandon the rule that ownership of a mark is acquired through use; and (iii)
the rule on ownership used in Berris and E.Y. Industrial Sales, Inc. [cases] is
inconsistent with the IP Code regime of acquiring ownership though registration.51
Thus, the Supreme Court abandoned its previous rulings52 that registration does not
confer ownership of the trademark and that the first user in good faith defeats the
right of the first filer in good faith.
The rule now is the first filer in good faith defeats the right of the first user who did
not register the mark. The prior user in good faith, however, may continue to use its
mark even after the registration of the mark by the first- to- file registrant in good
faith.
50E.I.Dupont De Nemours and Co. v. Director Emma C. Francisco, et al., G.R. No. 174379, August 31,
2016.
51 Zuneca Pharmaceutical v. Natrapharm, Inc. G.R. No. 211850, September 08, 2020 J. Caguioa
52 These are the cases of: Mattel, Inc. v. Emma Francisco, et al., G.R. No. 166886, July 30, 2008; E.Y.
Industrial Sales v. Shien Dar Electricity and Machinery Co., G.R. No. 184850, October 20, 2010; Berris
Agricultural Co. Inc v. Norvy Abyadang, G.R. No. 183404, October 13, 2010; Birkenstock Orthopaedia
GMBH v. Philippine Shoe Expo Marketing Corporation, GR No. 194307, November 20, 2013; Ecole de
Cuisine Manille v. Renaud Cointreau, GR No. 185830, June 5, 2013.

While Natrapharm is the owner of the “ZYNAPSE” mark, this does not, however,
automatically mean that its complaint against Zuneca should be granted. This is
because Sec. 159.1 of the IP Code clearly contemplates that a prior user in good
faith may continue to use its mark even after the registration of the mark
by the first-to-file registrant in good faith, subject to the condition that any
transfer or assignment of the mark by the prior user in good faith should be made
together with the enterprise or business or with that part of his enterprise or business
in which the mark is used. The mark cannot be transferred independently of the
enterprise and business using it.
From the provision itself, it can be gleaned that while the law recognizes the right of
the prior user in good faith to the continuous use of its mark for its enterprise or
business, it also respects the rights of the registered owner of the mark by preventing
any future use by the transferee or assignee that is not in conformity with Section
159.1 of the IP Code.
In any event, the application of Section 159.1 of the IP Code necessarily results in at
least two entities — the unregistered prior user in good faith or their assignee or
transferee, on one hand; and the first-to-file registrant in good faith on the other —
concurrently using identical or confusingly similar marks in the market, even if there
is likelihood of confusion. While this situation may not be ideal, the Court is
constrained to apply Section 159.1 of the IP Code as written.
A certificate of registration accords the registrant a prima facie presumption of their

ownership of the mark. However, this presumption may be rebutted by proof that the
registration was obtained fraudulently or contrary to the provisions of the
Intellectual Property Code.
In cancelling the first registrant’s ( petitioner) certificate of registration, the BLA-

IPO concluded that it copied the first user’s ( respondent) mark. It compared the two
and found that petitioner's mark is identical with respondent's. It noted that the word
"Mr. Gulaman" in both of their marks are "exactly the same in all aspects" This
conclusion was bolstered by its finding that in petitioner's Declaration of Actual Use,
she submitted photographs of a packaging showing respondent's "Mr. Gulaman" and
its logo design.
Whether petitioner is guilty of bad faith or fraud requires a factual determination.

Its resolution necessitates a review of documentary exhibits which cannot be
undertaken through a Petition for Review under Rule 45 of the Rules of Court.
Furthermore, by reason of its special knowledge and expertise over matters falling
within its jurisdiction, the Intellectual Property Office is in a better position to
determine whether there was bad faith. Its finding on this matter "are generally

accorded great respect, if not finality by the courts, as long as they are supported by
substantial evidence, even if such evidence might not be overwhelming or even
preponderant."
While the rule admits of exceptions, the Supreme Court did not find any reason to
depart and overturn the factual determination of the BLA-IPO as affirmed by both
the Office of the Director General and the Court of Appeals.53
Non-registrable marks
The certificate of registration entitles the registrant to use the trademark only
for the goods specified in the certificate or goods related thereto. Therefore, the
registrant cannot preclude others from adopting and registering the trademark for
totally unrelated goods.
It was also held that the prohibition under Section 123 of the Intellectual
Property Code extends to goods that are related to the registered goods, not to goods
that the registrant may produce in the future. To allow the expansion of coverage is
to prevent future registrants of goods from securing a trademark on the basis of mere
possibilities and conjectures that may or may not occur at all. Surely, the right to a
trademark should not be made to depend on mere possibilities and conjectures.54
Tests to determine confusing similarity between marks
Petitioner's marks "ELARZ LECHON” and "ELAR LECHON” bear an

indubitable likeness with respondent's "ELARS LECHON." As can easily be seen,
both marks use the essential and dominant word "ELAR". The only difference
between the petitioner's mark from that of respondent's are the last letters Z and S,
respectively. However, the letters Z and S sound similar when pronounced. Thus,
both marks are not only visually similar, but are phonetically and aurally similar as
well. To top it all off, both marks are used in selling lechon products. Verily, there
exists a high likelihood that the consumers may conclude an association or relation
between the products. Likewise, the uncanny resemblance between the marks may
even lead purchasers to believe that the petitioner and respondent are the same
entity55.
53 Ma Shairmaine Medina/Rackey Crystal Top Corporation v. Global Quest Ventures, G.R. No. 213815,
February 8, 2021
54Kensonic, Inc. v. Uni-Line Multi Resources, Inc., G.R. Nos. 211820-21 and 211834-35, June 6, 2018.
55 Emzee Foods, Inc. v. Elarfoods, Inc., G.R. No. 220558, February 17, 2021

Holistic test abandoned
Only the dominancy test is incorporated in the IP Code in determining the semblance
of similar marks. This is found in Section 155.1 of the IPC which defines trademark
infringement as the colorable imitation of a registered mark or a dominant feature
thereof. Based on the legislative deliberations leading to the enactment of the IPC,
the exclusion of the Holistic test was intentional and the dominancy test should be
adopted.56
The Holistic Test in determining trademark resemblance has been abandoned hence
the Dominancy Test must be used in determining the existence of confusing similarity
between the "LEVI'S" and “LIVE’S” marks. This test relies not only on the visual but
also on the aural and connotative comparisons and overall impressions between the
two trademarks. Here, respondents' “LIVE’S” mark is but a mere anagram of
petitioner's "LEVI'S" marks. It would not be farfetched to imagine that a buyer, when
confronted with such striking similarity would be led to confuse one over the other.
Thus, by simply applying the Dominancy Test, it can already be concluded that there
is a likelihood of confusion between petitioner's "LEVI'S" marks and respondents'
“LIVE’S” mark.57
Rights conferred by registration
The owner of a registered trademark, absent any legal obstacle or compelling

reason to the contrary, should be allowed to register, in its favor, a domain
name containing its registered trademark as a dominant feature. KECI's
application to register and use the mark "www.kolin.ph," presumably as its domain
name and platform to sell its products in the internet, is merely in exercise of and
consistent with its exclusive right to use "KOLIN" on the business of manufacturing,
importing, assembling or selling electronic equipment or apparatus. KECI's exclusive
right to use the "KOLIN" mark for the business of manufacturing, importing,
assembling, or selling electronic equipment or apparatus is entitled to protection,
whether such use is exercised online or through a physical market — and whether
the mark is printed on product packaging or included in the domain name of its
website. 58
56 Kolin Electronics Co. INC. V. Kolin Philippines International, Inc., G.R. No. 228165, Febrayry 9,
2021 J. Caguioa
57 Levi Strauss & Co. v. Sevilla, G.R. No. 219744, March 1, 2021
58 Kolin Electronics Co. v. Taiwan Kolin Corp. Ltd, G.R. No. 221347, December 1, 2021

Infringement and remedies
a. Trademark infringement
After disposing of his last opponent in only two rounds in Las Vegas, the
renowned Filipino boxer Sonny Bachao arrived at the Ninoy Aquino
International Airport met by thousands of hero-worshipping fans and
hundreds of media photographers. The following day, a colored photograph
of Sonny wearing a black polo shirt embroidered with the 2-inch Lacoste
crocodile logo appeared on the front page of every Philippine newspaper.
Lacoste International, the French firm that manufactures Lacoste apparel

and owns the Lacoste trademark, decided to cash in on the universal
popularity of the boxing icon. It reprinted the photographs, with the
permission of the newspaper publishers, and went on a world-wide blitz of
print commercials in which Sonny is shown wearing a Lacoste shirt
alongside the phrase "Sonny Bachao just loves Lacoste."
When Sonny sees the Lacoste advertisements, he hires you as lawyer and
asks you to sue Lacoste International before a Philippine court.
For trademark infringement in the Philippines because Lacoste

International used his image without his permission; (2009 Bar)
Sonny Bachao cannot sue for infringement of trademark. An action for trademark
infringement will not lie unless the trademark is registered with the Intellectual
Property Office. The photographs showing Bachao wearing a Lacoste shirt were not
registered as a trademark.
In what ways would a case for infringement of trademark be different from

a case for unfair competition? (2015 Bar)
The distinctions between infringement and unfair competition are the following:
1. Infringement of trademark is the unauthorized use of a trademark, whereas

unfair competition is the passing off of one's goods as those of another.
2. In infringement of trademark fraudulent intent is unnecessary whereas in
unfair competition fraudulent intent is essential.
3. In infringement of trademark the prior registration of the trademark is a
prerequisite to the action, whereas in unfair competition registration is not
necessary (Del Monte Corp. vs. CA, G.R. No. L-78325, January 25, 1990).

Unfair competition
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. Likelihood of confusion of goods or business is a relative
concept, to be determined only according to peculiar circumstances of each case. The
element of intent to deceive and to defraud may be inferred from the similarity of the
appearance of the goods as offered for sale to the public.
Here, Elidad and Violeta's product which is a medicated facial cream sold to the
public is contained in the same pink oval-shaped container which had the mark "Chin
Chun Su," as that of respondent. While they indicated in their product the
manufacturer's name, the same does not change the fact that it is confusingly similar
to respondent's product in the eyes of the public. An ordinary purchaser would not
normally inquire about the manufacturer of the product. Their product and that
solely distributed by Summerville are similar in the following respects "1. both are
medicated facial creams; 2. both are contained in pink, oval-shaped containers; and
3. both contain the trademark "Chin Chun Su". The similarities far outweigh the
differences. The general appearance of Elidad’s product is confusingly similar to
Summerville’s. Verily, the acts complained of against Elidad and Violeta constituted
the offense of Unfair Competition.59
MS Brewery Corporation (MS) is a manufacturer and distributor of the

popular beer "MS Lite." It faces stiff competition from BA Brewery
Corporation (BA) whose sales of its own beer product, "BA Lighter," has
soared to new heights. Meanwhile, sales of the "MS Lite" decreased
considerably. The distribution and marketing personnel of MS later
discovered that BA has stored thousands of empty bottles of "MS Lite"
manufactured by MS in one of its warehouses. MS filed a suit for unfair
competition against BA before the Regional Trial Court (RTC). Finding a
connection between the dwindling sales of MS and the increased sales of
BA, the RTC ruled that BA resorted to acts of unfair competition to the
detriment of MS. Is the RTC correct? Explain. (5%) (2016 Bar)
The RTC is not correct. Hoarding, or the act of accumulating empty bottles to impede
circulation of the bottled product, does not amount to unfair competition. BA did not
fraudulently “pass off” its product as that of MS Lite. There was no representation or
misrepresentation on the part of BA that would confuse or tend to confuse its goods
59Elidad Kho and Violate Kho V. Summerville General Merchandising & Co., Inc., G.R. No. 213400,
August 04, 2021

with those of MS Lite. (Coca Cola Bottlers Philippines v Gomez, GR No. 154491,
November 14, 2008)
D. COPYRIGHT
2. Copyrightable works
a. Original works
T, an associate attorney in XYZ Law Office, wrote a newspaper publisher a

letter disputing a columnist’s claim about an incident in the attorney’s
family. T used the law firm’s letterhead and its computer in preparing the
letter. T also requested the firm’s messenger to deliver the letter to the
publisher. Who owns the copyright to the letter? (2011 Bar)
a. T, since he is the original creator of the contents of the letter.

b. Both T and the publisher, one wrote the letter to the other who has
possession of it.
c. The law office since T was an employee and he wrote it on the firm’s
letterhead.
d. The publisher to whom the letter was sent.
Answer:
(A) T, since he is the original creator of the contents of the letter.
Under the Intellectual Property Code, lectures, sermons, addresses or

dissertations prepared for oral delivery, whether or not reduced in writing
or other material forms, are regarded as: (2011 Bar)
a. non-original works.
b. original works.
c. derivative works.
d. not subject to protection
Answer:
(B) original works.
b. Derivative works
Non-copyrightable works

X came up with a new way of presenting a telephone directory in a mobile
phone, which he dubbed as the "iTel" and which uses lesser time for locating
names andtelephone numbers. May X have his "iTel" copyrighted in his
name? (2011 Bar)
a. No, because it is a mere system or method.

b. Yes, because it is an original creation.
c. Yes, because it entailed the application of X's intellect.
d. No, because it did not entail any application of X's intellect.
Answer:
(A) No, because it is a mere system or method.
X, an amateur astronomer, stumbled upon what appeared to be a massive

volcanic eruption in Jupiter while peering at the planet through his
telescope. The following week, X, without notes, presented a lecture on his
findings before the Association of Astronomers of the Philippines. To his
dismay, he later read an article in a science journal written by Y, a
professional astronomer, repeating exactly what X discovered without any
attribution to him. Has Y infringed on X's copyright, if any? (2011 Bar)
a. No, since X did not reduce his lecture in writing or other material
form.
b. Yes, since the lecture is considered X’s original work.
c. No, since no protection extends to any discovery, even if expressed,
explained, illustrated, or embodied in a work.
d. Yes, since Y’s article failed to make any attribution to X.
Answer:
(C) No, since no protection extends to any discovery, even if expressed, explained,
illustrated, or embodied in a work.
Apart from economic rights, the author of a copyright also has moral rights
which he may transfer by way of assignment. The term of these moral rights
shall last: (2011 Bar)
a. during the author's lifetime and for 50 years after his death.
b. forever.
c. 50 years from the time the author created his work.
d. during the author's lifetime.

Answer:
(D) during the author's lifetime.
Copyright infringement
a. Remedies
After disposing of his last opponent in only two rounds in Las Vegas, the
renowned Filipino boxer Sonny Bachao arrived at the Ninoy Aquino
International Airport met by thousands of hero-worshipping fans and
hundreds of media photographers. The following day, a colored photograph
of Sonny wearing a black polo shirt embroidered with the 2-inch Lacoste
crocodile logo appeared on the front page of every Philippine newspaper.
Lacoste International, the French firm that manufactures Lacoste apparel

and owns the Lacoste trademark, decided to cash in on the universal
popularity of the boxing icon. It reprinted the photographs, with the
permission of the newspaper publishers, and went on a world-wide blitz of
print commercials in which Sonny is shown wearing a Lacoste shirt
alongside the phrase "Sonny Bachao just loves Lacoste."
When Sonny sees the Lacoste advertisements, he hires you as lawyer and
asks you to sue Lacoste International before a Philippine court:
[a] For copyright infringement because of the unauthorized use of the

published photographs; (2009 Bar)
[c] For injunction in order to stop Lacoste International from featuring

him in their commercials. (2009 Bar)
Will these actions prosper? Explain.
a. Sonny Bachao cannot sue for infringement of copyright for the unauthorized
use of the photographs. The copyright to the photographs belongs to the
photographer or to the newspaper company which published them if the
photographers are employees of the former.
b. The complaint for injunction to stop Lacoste International from featuring him
in its advertisements will prosper. A contrary rule amounts to violation of
Bachao’s right to privacy.

PARTNERSHIP
CARLOS J. VALDES, GABRIEL A.S. VALDES, FATIMA DELA

CONCEPTION AND ASUNCION V. MERCADO v.
LA COLINA DEVELOPMENT CORPORATION (LCDC), PHILIPPINE
COMMUNICATION SATELLITE, INC. (PHILCOMSAT),
LA COLINA RESORTS CORPORATION (LCRC), MONTEMAR RESORTS
AND DEVELOPMENT CORPORATION (MRDC), JOSE MARI CACHO,
HONORIO A. POBLADOR III, AND ALFREDO L. AFRICA
G.R. No. 208140, July 12, 2021, Third Division (Hernando, J.)
FACTS
Carlos Valdes (Carlos, Sr.) and his children, herein petitioners (Valdeses), are
the stockholders of Bataan Resorts Corporation (BARECO), which owned a large
tract of land in Bagac, Bataan. Carlos, Sr. invited Francisco Cacho and his son, Jose
Mari Cacho, to assess the property's suitability for a beach resort project (Montemar
Project). Having received a favorable response from Francisco, both Carlos, Sr. and
Francisco proceeded to carry out the Montemar Project, which included the
development of the beach basin as a beach resort (Montemar Beach Club), and the
conversion of the remaining land area into a residential subdivision (Montemar
Villas).
To implement the project, the Valdeses transferred and conveyed their shares
of stock in BARECO in favor of La Colina Development Corporation (LCDC), a fully-
owned corporation of the Cacho family, through a Deed of Sale dated May 24, 1975,
for a consideration of P20 Million. LCDC then made a partial payment thereof in the
amount of P2.5 Million while the remaining balance amounting to P17.5 Million was
covered by promissory notes. The P17.5 Million was to be paid by way of an
Assignment of Rights wherein LCDC: (1) assigned to the Valdeses three million worth
of shares in La Colina Resorts Corporation (LCRC), the corporation established by
LCDC to market and sell the shares of the beach resort; and (2) undertook to pay the
Valdeses (50%) of the net proceeds (later reduced 40%) from the sale of the Montemar
Villas lots inside BARECO, as previously acquired by LCDC.
Thereafter, Montemar Beach Club, Inc. (MBCI), a non-stock, non-profit club,

was organized to develop the Montemar Project. Meanwhile, LCDC obtained loans to
finance the construction and development of the Montemar Villas, including the
building and facilities in the Montemar Beach Club. The loans were obtained from
the Development Bank of the Philippines (DBP) – subsequently the Asset
Privatization Trust (APT), Metrobank, and General Credit Corporation (GCC),
formerly the Commercial Credit Corporation.

Sales of the MBCI proprietary shares and the lots in the Montemar Villas,
including the patronage in the Montemar Beach Club were bringing adequate income
for some time. The loans obtained by LCDC were serviced and the remittances of the
agreed share of the Valdeses in the sale of the Montemar Villas lots were made on a
regular basis. The Montemar Beach Club, on the other hand, was able to sustain
regular operations. However, during the years 1981 up to 1985, there was a delay in
the remittances of the shares to the Valdeses in the net proceeds from the sale of the
Montemar Villas lots. The records, however, would bear that a portion of the purchase
price of P20 Million, or P16,125,717.31, was eventually paid to the Valdeses.
Meanwhile, as the loans obtained by LCDC from DBP/APT remained unpaid,

the mortgaged properties of LCDC, LCRC, and MBCI were eventually foreclosed by
DBP/ATP.
Sometime in 1992, LCDC and LCRC initiated negotiations with Philippine

Communication Satellite, Inc. (Philcomsat), a prospective investor of the Montemar
Project. In this regard, Philcomsat presented a Memorandum of Intent dated August
18, 1992, which embodied the terms and conditions agreed upon by LCDC, LCRC,
MBCI, and Philcomsat. This was with a view toward the latter investing on the
project, and, concurrently, bailing out LCDC, LCRC and MBCI from their loan
obligations with APT, GCC, and Philcomsat.
Meanwhile, to obtain from APT an extension of the period to pay the

outstanding obligation of LCDC and LCRC, Philcomsat paid APT the amount of P4
Million. During the extension period, Philcomsat eventually decided to invest in the
new project, subject to conditions, particularly, that the Valdeses: (1) give their
conformity to the new project that would transform and develop the unsold Montemar
Villas lots into a golf course and sports complex; and (2) forego their claim to the
proceeds of the sale of the Montemar Villas lots.
After further discussion between Rafael Cacho, the brother of Francisco, and
Gabriel, acting attorney-in-fact of Carlos, Sr., a letter-conformity dated August 27,
1992 was eventually finalized.
Thereafter, pursuant to the Memorandum of Intent dated August 18, 1992 and
the letter-conformity dated August 27, 1992, Philcomsat, together with LCDC, LCRC,
and MBCI executed a Memorandum of Agreement dated September 3, 1992
essentially identical to the Memorandum of Intent dated August 18, 1992.
Meanwhile, on August 31, 1992, LCRC and LCDC, through a Consolidated Deed of
Absolute Sale, conveyed and sold to MRDC all their real and personal properties
situated in Bagac, Bataan.
Notably, after executing the letter-conformity dated August 27, 1992, Gabriel
appointed Jose Mari and Rafael on August 28, 1992 to sell the shareholdings of Carlo,

Sr. in LCRC and other real properties of the Valdeses. Thereafter, on November 18,
1992, Rafael informed Gabriel that Philcomsat offered to purchase Carlo, Sr.'s
shareholdings in LCRC and the Valdeses' other real properties for a consideration of
P24,771,800.00, which petitioners rebuffed. Gabriel then visited Poblador to request
for a higher offer, but nothing materialized from their negotiations.
On April 6, 1993, the Valdeses filed before the RTC a Complaint for
Reconveyance, Annulment and/or Rescission of Contract, Specific Performance and
Damages with Prayer for Temporary Restraining Order and Writ of Preliminary
Injunction against the respondents. The trial court rendered a Decision declaring the
Memorandum of Agreement dated September 3, 1992 and the Consolidated Deed of
Absolute Sale dated August 31, 1992 null and void. The RTC found that the Valdeses
and LCDC entered into a joint venture agreement, whereby the former would
contribute to the joint venture the BARECO properties in Bagac, Bataan, and in
return, LCDC would develop and improve them into a residential subdivision or the
Montemar Villas. The proceeds of the sale of the Montemar Villas lots would then be
divided between them in the following manner: 60% to LCDC, and 40% to the
Valdeses. The trial court further found that despite the Valdeses' refusal to allow
Philcomsat to take part in the joint venture agreement, LCDC, LCRC, MBCI, and
Philcomsat, unknowingly to the Valdeses, executed the September 3, 1992
Memorandum of Agreement, an agreement that effectively disregarded the rights
and interests of the Valdeses, particularly, their forty percent (40%) share in the
proceeds of the sale of the Montemar Villas lots. Moreover, the agreement, without
the conformity of the Valdeses, set aside the original intent of the joint venture
agreement only to be replaced by respondents' plan to convert the Montemar Villas
lots into a golf course and sports complex.
Considering the foregoing, the RTC held that the two (2) agreements are null
and void. It considered the lack of consent on the part of the Valdeses to the said
contracts and the evident bad faith, which attended their execution.
The CA rendered its assailed Decision, which reversed and set aside the
aforesaid RTC ruling. The CA found that the Deed of Sale dated May 24, 1975,
promissory notes executed by LCDC, and the Assignment of Rights dated October 30,
1975, negated the existence of a joint venture agreement between the Valdeses and
LCDC. In this regard, the CA held that the relationship between the Valdeses and
LCDC was, instead, one of vendor-vendee. As explained by the appellate court, "there
was no contract to contribute properties to a common fund so as to share the profits
between themselves. There is even no common fund to speak of LCDC's obligation to
pay persists as long as it is able to sell the subdivision lots even if the corporation
itself is experiencing losses."
Petitioners contend that the original agreement between the Valdeses and
LCDC required the Valdeses to contribute the BARECO properties to the Montemar

Project. In consideration thereof, LCDC shall form LCRC to develop and improve the
said properties. Meanwhile, both the Valdeses and LCRC shall sell the properties and
share proportionately in the profits realized. This scenario, petitioners insist, is the
very joint venture agreement executed by and between the Valdeses and LCRC.
From the foregoing, petitioners argue that LCDC cannot, without violating the
existing fiduciary relationship between it and the Valdeses, encumber or mortgage
the properties subject of the joint venture agreement without their consent and
approval. They further claim that any act committed by LCDC, as co-venturer,
without the express authority of the Valdeses, is not binding upon the latter.
In this connection, the entrance of Philcomsat as a new investor in the

Montemar Project and the execution of the September 3, 1992 Memorandum of
Agreement between LCRC, LCDC, MBCI and Philcomsat, including the execution of
the August 31, 1992 Consolidated Deed of Sale by LCRC and LCDC in favor MRDC,
are acts in violation of the true intent and purpose of the joint venture i.e., that LCDC
and the Valdeses shall share in the proceeds of the sale of the Montemar Villas lots,
in proportion of sixty percent (60%) and forty percent (40%), respectively. Petitioners
insist that these acts cannot bind the Valdeses since they are in violation of their
rights under the joint venture agreement, and in disregard of their forty percent
(40%) share in the sale of the Montemar Villas lots.
ISSUE
Whether the Valdeses and LCDC entered into a joint venture agreement.
RULING
NO. The agreement entered into by the parties is a contract of sale. As

discussed above, petitioners contend that while Carlos, Sr. and LCDC appeared to
have entered into a contract of sale i.e., Deed of Sale dated May 24, 1975, the parties
intended to enter into a joint venture agreement to develop the BARECO properties
into a beach resort and residential subdivision. In particular, the determination of
whether both parties entered into such agreement is necessary to address the side of
issue of whether LCDC wrongfully mortgaged the subject properties to various
financial institutions without the authority and consent of its co-venturers or
partners, and the main issue of whether the September 3, 1992 Memorandum of
Agreement and the August 31, 1992 Consolidated Deed of Sale were entered into in
violation of the terms of the joint venture agreement.
In interpreting the agreement between the Valdeses and LCDC, the inquiry is
not what contract the parties intended to enter into, but what contract did they enter
into. Notably, the Deed of Sale, if read in conjunction with the promissory notes
issued to the Valdeses and the Assignment of Rights dated October 30, 1975, leaves

no room for interpretation as to the exact intention of the parties – they entered into
a contract of sale. The elements of a contract of sale are: (a) consent or meeting of the
minds, that is, consent to transfer ownership in exchange for the price; (b)
determinate subject matter; and (c) price certain in money or its equivalent.
The Deed of Sale executed by Carlos, Sr. and LCDC resulted in a perfected
contract of sale, all its elements being present. There was a mutual agreement
between them, wherein 4,000 shares of stock of the Valdeses in BARECO were sold
to LCDC for a consideration of P20 Million. To be clear, the foregoing amount was
paid in cash and the balance covered by promissory notes to be paid by way of an
Assignment of Rights. Specifically, P2.5 Million of the P20 Million purchase price was
paid in cash, while the balance of P17.5 Million was covered by promissory notes and
settled through the Assignment of Rights.
Notably, a perusal of the Assignment of Rights would show that the same
constituted full payment of the BARECO shares of stock, thus: "That the ASSIGNEE
hereby accepts this assignment in full payment of the aforementioned promissory
note." There is, therefore, in this case, an absolute transfer of ownership of the
BARECO shares to LCDC for a consideration of P20 Million.
Significantly, there is nothing in the abovementioned documents, nor in any of

the subsequent contracts between the parties that indicates that the transaction
entered by and between them was a joint venture. The transaction between the
parties was clearly a sale of property.
In contrast, a joint venture has been defined by this Court as follows:
The legal concept of a joint venture is of common law origin. It has no

precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. x x x It is in fact
hardly distinguishable from the partnership, since their elements are
similar – community of interest in the business, sharing of profits
and losses, and a mutual right of control. x x x The main distinction
cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. x x x This observation is
not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. x x x It would
seem therefore that under Philippine law, a joint venture is a form of
partnership and should be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter

into a partnership contract, it may however engage in a joint venture
with others. x x x
A joint venture, therefore, is akin to a partnership, the essential elements of

which are as follows: (1) an agreement to contribute money, property, or industry to
a common fund; and (2) an intent to divide the profits among the contracting parties.
On account thereof, petitioners insist that the parties had all along entered into a
joint venture agreement. This can be gleaned from fact that LCDC undertook to
divide the net proceeds from the sale of the Montemar Villas lots between LCDC and
the Valdeses, in proportion to 60% and 40%, respectively. This fact was later affirmed
by the February 21, 1990 letter agreement between the parties.
We disagree. A perusal of the Assignment of Rights and the February 21, 1990
letter agreement clearly shows that the Valdeses' share in the sale of the subdivision
lots was the manner of paying, or mode of payment of the P20 Million consideration
for the 4,000 BARECO shares. While we understand that this type of provision may
be peculiar to a contract of sale, this profit-sharing scheme, as explained by LCDC,
was a means for the latter to acquire the necessary funds to develop and improve the
said lots.
Notably, LCDC was contractually obliged to remit to the Valdeses' their 40%
share in the sale of the Montemar Villas lots despite the fact that LCDC may be
experiencing losses. This runs counter to a partnership or joint venture relationship.
The essence of a true partnership is that the partners share in the profits and losses
of the business. This is clearly not the case here. As correctly found by the CA:
There was no contract to contribute properties to a common fund so as

to share the profits between themselves. There is even no common fund
to speak of. LCDC's obligation to pay persists as long as it is able to sell
subdivision lots even if the corporation itself is experiencing losses, as
what happened. x x x x Hence, there is nothing here that may be said to
be akin to a joint venture in its legal definition.
Thus, as the sole stockholder of BARECO pursuant to the Deed of Sale dated
May 24, 1975, LCDC, had full disposal of the BARECO properties in Bataan,
including the right to encumber and mortgage the same as attributes of ownership.
Along the same lines, considering that some of properties of LCDC were transferred
and conveyed to LCRC, the latter likewise had every right to mortgage these
properties. The rights and interests of the Valdeses, lie only on the proceeds of the
sale of the Montemar Villas lots. They could not also question the mortgages
constituted on the properties after the titles have already passed to LCDC and LCRC.
Given the foregoing recitals, this Court cannot nullify the September 3, 1992
Memorandum of Agreement and the August 31, 1992 Consolidated Deed of Sale on

the sole ground that they were supposedly entered into in violation of the joint
venture between the Valdeses and LCDC, where, from the outset, such relationship
is clearly non-existent between the parties. Failing to substantiate their claim of a
joint venture or partnership, petitioners' argument has no leg to stand on.

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2023 PRE-WEEK NOTES IN INSURANCE,

Dean Nilo T. Divina

Characteristics of Insurance Contracts

Ciriaco leased a commercial apartment from Supreme Building

Notwithstanding the stipulation in the contract, without the consent of

Who is legally entitled to receive the insurance proceeds? Explain. (2009

©2023 Dean Nilo T. Divina, All Rights Reserved. | 1

As to B: He has insurable interest on A’s house, having an interest founded upon

On January 4, 2019, Mr. P joined Alpha Corporation (ALPHA) as President

On September 1, 2019, Mr. P resigned from ALPHA and purchased the

11982 modified BAR exam question.

©2023 Dean Nilo T. Divina, All Rights Reserved. | 2

Double insurance and over insurance

Where the insurance policy specifies as a condition the disclosure of existing co

If an insurance policy prohibits additional insurance on the property

A. reduces the value of the policy.

©2023 Dean Nilo T. Divina, All Rights Reserved. | 3

Jason is the proud owner of a newly-built house worth PS million. As a

Decide Jason's claim with reasons. (2016 Bar)

Antarctica Life Assurance Corporation (ALAC) publicly offered a specially

[b] Did ALAC’s issuance of a cover note result in the perfection of an

©2023 Dean Nilo T. Divina, All Rights Reserved. | 4

On September 27, 1996, Development Insurance and Surety Corporation

Is there a binding insurance contract?

©2023 Dean Nilo T. Divina, All Rights Reserved. | 5

©2023 Dean Nilo T. Divina, All Rights Reserved. | 6

H. RESCISSION OF INSURANCE CONTRACTS

(A) Will the beneficiary of X be entitled to the proceeds of the life

©2023 Dean Nilo T. Divina, All Rights Reserved. | 7

This is neither because intent to defraud is intrinsically irrelevant in

I. CLAIMS SETTLEMENT AND SUBROGATION

1. Notice and proof of loss

Insurable interest in property is not limited to property ownership in the

In Industrial Personnel and Management Services, Inc. v. Country Bankers

No. 244407, January 26, 2021,

©2023 Dean Nilo T. Divina, All Rights Reserved. | 8

Industrial Personnel and Management Services, Inc. (IPAMS) began recruiting

MALAYAN INSURANCE COMPANY, INC., petitioner, vs. STRONGHOLD

Petitioner Malayan Insurance Company, Inc. is a corporation organized and

11Industrial Personnel and Management Services, Inc. v. Country Bankers Insurance

©2023 Dean Nilo T. Divina, All Rights Reserved. | 9

Stronghold computed its liability based on the schedule of indemnities

What is the extent of liability of Stronghold pursuant to the insurance policy it

©2023 Dean Nilo T. Divina, All Rights Reserved. | 10

With the different interpretations of Western Guaranty, it is necessary to revisit the

©2023 Dean Nilo T. Divina, All Rights Reserved. | 11

Therefore, Stronghold's liability with regard to injuries provided in its policy's

2. Guidelines on claims settlement

The condition contained in an insurance policy that claims must be presented

©2023 Dean Nilo T. Divina, All Rights Reserved. | 12

©2023 Dean Nilo T. Divina, All Rights Reserved. | 13

The payment by the insurer to the insured operates as an equitable

©2023 Dean Nilo T. Divina, All Rights Reserved. | 14

(A) Their express stipulation in the contract of insurance.

©2023 Dean Nilo T. Divina, All Rights Reserved. | 15

Article 1732 of the Civil Code defines common carriers as "persons,

Are the following persons common carriers?

a) Freight forwarder; b) Shipowner; c) arrastre operator; d) customs broker; and

a. Freight forwarder - A freight forwarder is not a common carrier. It merely

©2023 Dean Nilo T. Divina, All Rights Reserved. | 16