TITLE 7

WARRANTIES
Reporters:
1. Alvin Roy Intal
2. Carlo Noel C. Fulgencio
3. Ana Liza B. Arciaga
4. Jose Paolo Villamor

Warranty
A statement or promise by the insured

contained in the policy itself or incorporated in

or attached to it by proper reference, the
falsity or nonfulfillment of which and
regardless of whether or not the insurer has
suffered loss or prejudice as a result of the
falsity or nonfulfillment, renders the policy
voidable at the election of the insurer.
Contract of insurance rendered voidable
based only on the warranty
Warranty may also be made by the insurer

Section 67
A warranty is either

implied.

expressed

or

Express vs. Implied

Warranty
Express Warranty an agreement contained in

the policy or clearly incorporated therein as part

thereof whereby the insured stipulates that certain
facts relating to the risk are or shall be true or
certain acts relating to the same subjects have been
or shall be done.
Implied Warranty is a warranty which from the
very nature of the contract or from the general tenor
of the words although no express warranty is
mentioned, is necessarily embodied in the policy as
a part thereof and which binds the insured as though
expressed in the contract.

Affirmative vs. Promissory

Warranty
Affirmative Warranty is one which asserts

the existence of a fact or condition at the time

it is made. The warranty is continuing if it is
one that must be satisfied during the entire
coverage period of the insurance.
Promissory Warranty is one where the
insured stipulates that certain facts or
conditions pertaining to the risk shall exist or
that certain things with reference thereto shall
be done or omitted.

Section 68
past, the
to any or

A warranty may relate to the

present, the future,

all of these.

or

Time to which warranty

refers
PAST
A stipulation in
the policy that
the insured
never suffered
any heart
ailment

PRESENT

FUTURE

A stipulation that a Where the insured

building is
makes a stipulation
occupied as a
that he would
dwelling is a
employ a
warranty that
watchman, or
relates to the
install appliances
present
for extinguishing
fires, or that he
would not store or
keep for sale
hazardous goods in
the building
insured during the
pendency of the
policy.

Section 69
No particular form

of
necessary to create a warranty.

words

is

Intention of parties
governs
The use of the word warranty does not necessarily

constitute a warranty nor is the use of such word

not necessarily constitute a warranty.
Whether such statement made by the insured in
the policy is a warranty depends upon the
intention of the parties in regard thereto.
In case of doubt, a statement will be construed as
a representation rather than a warranty especially
if such statement is contained in any instrument
other than the policy .
The parties must intend a statement to be a
warranty for it to be part of the contract.

Warranties vs.
Representations
WARRANTIES
Considered parts of the
contract

REPRESENTATIONS
Collateral inducements

Always written on the face of May be written in a totally

the policy, actually or by
disconnected paper or may
reference
be oral
Must be strictly complied
with

Substantial truth only is

required

Falsity or nonfulfillment of a
warranty operates as a
breach of contract

Falsity renders the policy

voidable or rescissible on the
ground of fraud

Presumed material

Insurer must show the

materiality of a
representation in order to

Section 70
Without prejudice to Section 51, every
express warranty, made at or before the
execution
of
a
policy,
must
be

contained in the policy itself, or

in another instrument signed
by the insured and referred to in the
policy as making a part of it.

Express Warranty
In order that a stipulation may be considered

a warranty, it must not only be clearly shown

that the parties intended it as such but it must
also form part of the contract itself or if
contained in another instrument, it must be
signed by the insured and referred to in the
policy as making a part of it. Mere reference
alone is not sufficient to give this effect.

Ang Giok Chip vs. Springfield

Fire and Mutual Insurance Co.
56 Phil. 375 (1931)
It was held that a rider attached to a policy is

part of the contract, to the same extent and

with the like effect as if actually insured nor
referred to in the policy as making part of it.
Another instrument, as used in Sec. 70 could
not mean a mere slip of paper like a rider, but
something akin to the policy itself, which in
Sec. 49 is defined as a written instrument in
which a contract of insurance is set forth.

Section 71
A statement in a policy, of a matter
relating to the person or thing insured, or
to the risk, as
warranty thereof.

fact,

is an express

Express warranty regarding

person, thing, or risk
1) Statement must refer to a fact

The statement in the policy relating to the person or

thing insured, or to the risk, must be as a fact and
not as an opinion, or belief, to constitute an express
warranty
Example:
The statement of the insured as to his age, or the
purpose for which the property insured is used like
for dwelling, or that certain acts shall not be done,
like storing hazardous goods, is an express warranty,
the falsity or breach of which would avoid the policy.

Express warranty regarding

person, thing, or risk
2) Where statement in the nature of an opinion

A statement in the policy which, from the nature of the

subject matter of the inquiry, can only be an expression
of an opinion is not, strictly speaking, a warranty of its
truthfulness.
Example:
Where the answers in an application are qualified by
words to the best of my knowledge and belief, the
information is as near correct as I remember, or any
other similar words.

Section 72
A statement in a policy, which imparts
that it is intended to do or not to do
a thing which materially affects the risk, is

such act
omission shall take place.
a

warranty

that

or

Promissory Warranty
is a warranty that facts will continue to be as stated all through

the policy period. Such a warranty assures that a fact or

condition is and will remain to be true. A failure of the promissory
warranty provides the insurer with a defense to a claim under the
insurance policy.
Breach of promises or agreement as to future acts will not avoid
a policy unless the promises are material to the risk
Example:
a) If it is stipulated in a policy requiring owner occupancy that
the house shall not be occupied by a tenant, there is a
warranty that such condition shall not take place.
b) If it is agreed that the insured shall not store inflammable
materials of any kind, there is a warranty that such act will not
be committed.

Section 73
When, before the time arrives for the
performance of a warranty relating to the
future, a loss insured against happens, or
performance becomes unlawful at the
place of the contract, or impossible, the

omission to fulfill the warranty

does not avoid the policy.

The omission to fulfill the

promissory warranty does not
avoid the policy when:
1) Loss occurs BEFORE time arrives for performance of the

promissory warranty (Sec. 73);

2) Performance becomes UNLAWFUL before time arrives for
performance of the promissory warranty (Sec. 73);
3) Performance becomes IMPOSSIBLE before time arrives for
performance of the promissory warranty;
Note: Failure to comply with a promissory warranty may
be due not only to legal impossibility but also to physical
impossibility (see Art. 1266, Civil Code)
Another Exception : Waiver or estoppel.
Breach of warranty operates to discharge the insurer from
liability unless the insurer is liable because of a waiver of the
warranty or estoppel.

Section 74
The

violation

of

material
material

warranty, or other
provision of a policy, on the part of
either party thereto, entitles the
other to rescind.

EFFECT OF BREACH OF
MATERIAL WARRANTY
General rule: Violation of a material
warranty, or other material provision of
the policy on the part of EITHER the
insured or insurer, entitles the other to
RESCIND.
The right of the insurer to rescind under

Section 74 exists even though the violation was

not the direct cause of the loss.

Breach of material warranty

may either be:
1)Without fraud
a) If breach without fraud is made by the
insured after the inception of the contract,
the insurer will be exonerated from the time
it occurs;
b) If breach without fraud is made during the
inception, it prevent the policy from taking
effect.
2)With fraud: The policy is avoided ab initio
EXCEPTIONS: See discussion in Sec. 73

Exceptions:
1) Loss occurs BEFORE time arrives for performance of the

promissory warranty (Sec. 73);

2) Performance becomes UNLAWFUL before time arrives for
performance of the promissory warranty (Sec. 73);
3) Performance becomes IMPOSSIBLE before time arrives for
performance of the promissory warranty;
Note: Failure to comply with a promissory warranty may
be due not only to legal impossibility but also to physical
impossibility (see Art. 1266, Civil Code)
Another Exception : Waiver or estoppel.
Breach of warranty operates to discharge the insurer from
liability unless the insurer is liable because of a waiver of the
warranty or estoppel.

Union Manufacturing v.
Philippine Guaranty Co.
G.R. No. L-27932 October 30,
1972
Where a fire policy requires the insured to
give notice to the existence of other
insurance policies over the same property
insured, the non-disclosure thereof is a
violation of a material warranty which
entitles the insurer to rescind.

Section 75
A policy may declare that a violation of
specified provisions thereof shall avoid it,
otherwise the breach of an immaterial
provision does not avoid the policy.

EFFECT OF BREACH OF
IMMATERIAL WARRANTY
General
rule:
Breach
of
immaterial
provision does not avoid the policy
Exception: When the parties stipulate that
violation of a particular provision (though
immaterial) shall avoid the policy. In effect,
the parties converted the immaterial
provision to material one.

Warranties in Fire Insurance

1)Use of condition of a thing insured is

limited by the policy;

2)Insured alters the use of condition
without the consent of the insurer;
3)Alteration is by means within the control
of the insured;
4)Alteration increased the risk (increase of
hazard or chance of loss);
5)Alteration is actual and substantial (Sec.
168)

Warranties in Fire Insurance

Notes:
1)A condition in the policy which requires insured
to disclose to the insurer of any insurance that,
if violated by the insured, would ipso facto
avoid the contract (Pioneer v. Yap, 1974)
2)Insurer is barred by waiver (or estoppel) to
claim violation of the so-called hydrants
warranty when, despite knowing fully that only
2 fire hydrants existed (out of the 11 hydrants
required), it is still issued the insurance policies
and received the premiums (Qua Chee Gan v.
Law Union, 1955)

Section 76
without fraud
exonerates an insurer

A breach of warranty

merely
from the time that it occurs, or where it is
broken in its inception, prevents the policy
from attaching to the risk.

1.Without any fraud, the policy is avoided only

from the time of the breach and the insured is

entitled to:
i.

ii.

Return of premium paid at a pro rata rate from the

time of breach if it occurs after the inception of the
contract; or
to all the premiums if it is broken during the
inception of the contract. In this case, the contract is
void ab initio and never becomes binding.

Where there is fraud, the policy is void ab initio,

and the insured is not entitled to the return of
the premium paid.

PRUDENTIAL GUARANTEE and ASSURANCE INC.,

(Petitioner)
vs.
TRANS-ASIA SHIPPING LINES, INC., (Respondent)

The Facts
Plaintiff [TRANS-ASIA] is the owner of the

vessel M/V Asia Korea. In consideration of

payment of premiums, defendant
[PRUDENTIAL] insured M/V Asia Korea for
loss/damage of the hull and machinery arising
from perils, inter alia, of fire and explosion for
the sum of P40 Million.

On October 25, 1993, while the policy was in

force, a fire broke out while [M/V Asia Korea

was] undergoing repairs at the port of Cebu.
On October 26, 1993 plaintiff [TRANS-ASIA]
filed its notice of claim for damage sustained
by the vessel.
In a letter dated 21 April 1997 defendant
[PRUDENTIAL] denied plaintiffs claim

Why was it denied?

"After a careful review and evaluation of your

claim arising from the above-captioned

incident, it has been ascertained that you are
in breach of policy conditions, among them
"WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED".

Issue
W/N PRUDENTIAL failed to establish that

TRANS-ASIA violated and breached the policy

condition on WARRANTED VESSEL CLASSED
AND CLASS MAINTAINED, as contained in the
subject insurance contract.

Held
We sustain the findings of the Court of

Appeals that PRUDENTIAL was not successful

in discharging the burden of evidence that
TRANS-ASIA breached the subject policy
condition on CLASSED AND CLASS
MAINTAINED.

Rationale
As found by the Court of Appeals and as

supported by the records, Bureau Veritas is a

classification society recognized in the marine
industry. As it is undisputed that TRANS-ASIA
was properly classed at the time the contract
of insurance was entered into, thus, it
becomes incumbent upon PRUDENTIAL to
show evidence that the status of TRANS-ASIA
as being properly CLASSED by Bureau Veritas
had shifted in violation of the warranty.
Unfortunately, PRUDENTIAL failed to support
the allegation.

On sec. 74
It is generally accepted that "[a] warranty is a statement or

promise set forth in the policy, or by reference incorporated

therein, the untruth or non-fulfillment of which in any
respect, and without reference to whether the insurer was in
fact prejudiced by such untruth or non-fulfillment, renders
the policy voidable by the insurer." However, it is similarly
indubitable that for the breach of a warranty to avoid a
policy, the same must be duly shown by the party alleging
the same. We cannot sustain an allegation that is
unfounded. Consequently, PRUDENTIAL, not having shown
that TRANS-ASIA breached the warranty condition, CLASSED
AND CLASS MAINTAINED, it remains that TRANS-ASIA must
be allowed to recover its rightful claims on the policy.