Republic of the PhilippinesRamon Magsaysay Technological University

Iba, Zambales

COLLEGE OF LAW

A Written Reporton Suretyship Sec. 175-178

in partial fulfillment of the requirement inINSURANCE

Submitted to

ATTY. IZELLE IAMLY DELOSOProfessor

Submitted by

ANABELLE A. TALAO-URBANO2nd Year LLB, 2nd sem

July 6, 2013

SURETYSHIP

Background of Suretyship

In very ancient times, it was the practice to take hostages, by treaty or force,

from tribes who were under obligation, as a guarantee of good conduct or fulfillment

of promises. Biblical references show that suretyship was common in those days,

and in England, it reached such proportion by the time of Cromwell’s administration

as to give rise to a burdensome number of court cases. Personal sureties were

used exclusively until a society was formed in 1720 to insure masters against loss

through the dishonesty of their servants.

In 1853, New York authorized the formation of companies to accept fidelity

and surety risks, but no company took advantages of this privilege until 1876.

Corporate sureties were found superior to individuals in many respects and thus

corporate bonding (fidelity) and surety f=grew to a big business.

In early days when personal sureties were utilized, cosuretyship was

common. With the rise of corporate sureties, reinsurance is considered a simpler

and more convenient device for spreading risks. Personal sureties in property bond

are currently allowed for bail bonds under the Rules of Court.

Section 175: A contract of suretyship is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, stipulations bonds or undertakings issued by any company by virtue and under the provisions of Act No. 536 as amended by Act No. 2206.

Definition of Suretyship

It is an agreement whereby one (usually an insurance company) undertakes

to answer, under specified terms and conditions, for the debt, default or miscarriage

of another (principal or obligor), such as failure to perform a contract or certain

duties, or for breach of trust, negligence and dthe like, in favor of a third party

(obligee).

Section 176: The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.

Nature and Liability of Surety

The contract of a surety is evidenced by a writing called “surety bond” which

is esentially a promise to guarantee tha debt or obligation of the obligor.

1. Solidary – The liability of the surety or sureties under a bond is joint and

several or solidary. This means that upon default by the obligor in complying

with his obligation as secured by the bond, the surety becomes primarily

liable to the obligee who has the right to demand payment under the terms

and conditions of the bond.

2. Limited or fixed – It is ,imited to the amount of the bond.

3. Contractual – It is determined strictly by the terms of the (a) contract of

suretyship in relation to the (b) principal contract between the obligor and the

obligee. A surety is merely a collateral contract. Its basis is the principal

contract or undertaking which it secures.

ILLUSTRATIVE CASE

Bond makes surety liable t obligee for failure of obligor to collect from a third party.

FACTS: S (surety Company) issued in favor of C (Obligee) a surety bond to secure

the faithful compliance by P (obligor) of his obligations to C as C’s distributor. The

bond provides that it shall be liable in case of non-payment of any De Luxe Products

Marketing (DLPM) account in favor of C and the nonremittance of any collections

due from any account booked by DLPM.

C failed to collect from P for purchase made by DLPM which the latter failed

to pay;. S alleged as a defense that the bond of DLPM was issued in favor of P and

not in favor of DLPM.

ISSUE: Is the surety bond liable?

HELD: Yes. The condition of the bond explicitly provides for S’s liability in case of

non-payment af any DLPM account.

(Edward Keller, Ltd. Vs Workmen’s Insurance Co., I.C. Case No 378, August 9,

1977)

Suretyship and Property Insurance

SURETYSHIP INSURANCE PROPERTYSuretyship is an accessory contract because it is dependent for its existence on a principal contract.

a contract of insurance is a principal contract in itself

There are three parties: the surety; the principal debtor or obligor; and the creditor or obligee.

In property insurance, there are only two parties: the insurer and the insured.

In suretyship, it is more of a credit accomodation with the surety assuming primary liability.

It is generally a contract of indemnity.

The surety is entitled to reimbursement There is no right of recovery for the loss

from the principal and his guarantors for the loss it may suffer under the contract.

the insurer may sustain except when the insurer is entitled to subrogation. In case of subrogation, however, the third party against whom the insurer may proceed is not a party to a contract.

A bond can only be cancelled by or with the consent of the obligee or by the Commissioner or by a court of competent jurisdiction.

A contract of insurance may be cancelled unilaterally either by the insured or by the insurer on grounds provided by law.

It requires the acceptance of the obligee before it becomes valid and enforceable.

It does not need the acceptance of any third party

It is a risk-shifting device, the premium paid being in the nature of a service fee.

It is a risk-distributing device, the premium paid being considered a ratable contribution to a common fund.

Suretyship and Guaranty

SURETYSHIP GUARANTYThe surety assumes liability as a regular party to the undertaking.

The liability of the guarantor depends upon an independednt agreement to pay if the primary debtor fails to do so.

The surety is primarily liable. The guarantor is secondarily liable.The surety is not entitled to the benefit of exhaustion of the debtor’s assets.

The guarantor has the right to have all the property of the debtor and legal remedies against the debtor first exhausted before he can be compelled to pay the creditor.

By guaranty, a person called the guarantor, binds himself to the creditor to fulfill

the obligation of the principal debtor in case the latter should fail to do so.

Section 177: The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium tehrefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety; Provided, that if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only a reasonable amount, not exceeding fifty percentum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond; Provided, however, that if the nonacceptance of the bond be due to the fault of the surety, no such service fee, stamps or taxes shall be collected.

In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be. (n)

Payment of Premiums

The rules are as follows:

1. The premium becomes a debt as soon as the contract of suretyship or bond is

perfected and delivered to the obligor;

2. The contract of suretyship or bonding shall not be valid and binding unless and

until the premium therefor has been paid;

3. Where the obligee has accepted the bond, it shall be valid and enforceable

notwithstanding that the premium has not been paid;

4. If the contract of suretyship or bond is not accepted by, or filed with the obligee,

the surety shall collect only a reasonable amount;

5. If the non-acceptance of the bond be due to the fault or negligence of the surety,

no service fee, stamps, or taxes im[posed shall be collected by the surety; and

6. In case of a continuing bond (for a term longer than one year or with no fixed

expiration date), the obligor shall pay the subsequent annual premium as it falls

due until the contact is cancelled.

The premium is teh consideration for furnishing the bond or the guaranty and the

obligation to pay the same subsists for as long as the liability of the surety shall

exist.

ILLUSTRATIVE CASE

Right of principal not topay premium where surety fails or refusaes to pay loan and

interest

FACTS: Under the terms of the contract of suretyship, the obligation of S (surety) is

that D (principal) pay C (creditor) the loan and interest thereon, and that S shall be

relieved of its obligation when the loan secured is paid. In the contract, C was given

the right to sue D, or the latter and S at the same time.

ISSUE: Can D excuse himself from the payment of the premium on the bond upon

the failure or refusal of S to pay the loan and interest?

HELD: No. S did not promise D that it will pay the loan contracted by D for the

latter’s benefit. Such a promise is not implied by law either. D, therefore, cannot

claim that there has been a breach on the part of S of any obligation it has made or

undertaking under the suretyship contract.

The failure or refusal of S to pay the debt for D’s account did not have the

effect of relieving D of his obligation to pay the premiums on the bond furnished. As

long as the loan and interest remain unpaid, S continues to be bound to C, and as a

corollary, it right to collect the premiums on the bond also continues. (Arranz vs

Manila Fidelity & Surety Co., supra.)

Types of Surety Bonds

1. Contract Bonds

These bonds are connected with construction and supply contracts. They are

for the protection of the owner against possible default by the contractor to comply

with his contract or his possible failure to pay material men, laborers and sub-

conytractors. The position of surety, therefore is to answer for a failure of the

principal to perform in accordance with the terms and specifications of the contract.

A) Performance Bond – one covering the faithful performance of the contract

B) Paymen Bond – one covering the payment of laborers and material men

2. Fidelity Bonds

They pay an employer for loss growing out of a dishonest act of his

employee.

A) Industrial Bond – one required by private employers to cover loss through

dishonesty of employees

B) Public Official Bond – one required of public officers for the faithful

performances of their duties and as a condition of entering upon the duties

of theor offices. It includes all officers who have custody of public funds.

The officials would be individually liable for a ny loss. The purpose of this

bond is to protect public funds.

3. Judicial Bonds

They are those which are required in connection with judicial proceedings.

Some of the most comon kinds are injuction bonds, attachment bonds,

replevin bonds, bail bonds and appeal bonds. The purpose of which is to

indemnify the adverse party against damages resulting from the proceeding.

Section 178: Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.

Pertinent Civil Code Provisions Applicable in a Suppletory Character

Article 2047 of the Civil Code provides:

“By guaranty, a person called the guarantorbinds himself to the creditor to

fulfill the obligaton of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of

Section 4, Chapter 3, Title 1 of this Book shall be observed. In such case, the

contract is called a suretyship.”

Sub-Title 1-F(CLASSES OF INSURANCETitle 1 – Marine Insurance)

VOYAGE AND DEVIATION

Section 121: When the voyage contemplated by a marine insurance policy is described by the places of beginning and ending, the voyage insured is one which conforms to the course of sailing fixed by mercantile usage between those places.

Section 122: If the course of sailing is not fixed by mercantile usage, the voyage insured by a marine insurance policy is that way between the places specified, which to a master of ordinary skill and discretion, would mean the most natural, direct and advantageous.

Section 123: Deviation is a departure from the course of the voyage insured, mentioned in the last two sections, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.

Meaning of Deviation

Sectio 123 defines deviation. In other words, any unexcused departure from

the regular course or route of the insured voyage or any other act which

substantially alters the risk constitutes deviation.

Cases of Deviation in Marine Insurance

1. Departure from the course of sailing fixed by mercantile usage between the

places of beginning and ending specified in the policy (Section 121)

2. Departure from the most natural, direct and advantageous route between the

pplaces specified if the course of sailing is not fixed by mercantile usage

(Section 122)

3. Unreasonable delay in pursuing the voyage (Section 123)

4. The commencementof an entirely different voyage.

Section 124: A deviation is proper:a. When caused by circumstances over which neither the master nor

the owner of the ship has any control.b. When necessary to comply with a warrranty, or to avoid a peril,

whether or not the peril is insured againstc. When made i good faith, and upon reasonable grounds of belief in its

necessity to avoid a peril; ord. When made in good faith, for the purpose of saving human life or

relieving another vessel in distress.

Section 125: Every deviation not specified in the last section is improper.

Kinds of Deviation

1. Proper Deviation (cases enumerated in Section 124)\

2. Improper Deviation (Section 125)

When Deviation is Proper

Deviation from the course of the voyage will not vitiate a policy of marine

insurance if the deviation is justified or caused by actual necessity which is equal in

importance to such deviation. Thus, the insurance is not affected:

- Where the ship is compelled to head for another port by stress of

weather

- Where e water of the river to the port which he is supposed to

discharge is too shallow for his vessel to enter.

Section 126: An insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation.

Effect of Improper Deviation

The insurer becomes immediately absolved from further liability under the

policy for losses occuring subsequent (not before) tothe deviation.

Just surety is discharged if the creditor materially changes the contract with

the principal debtor, irrespective of actual injury to the surety, so the marine

underwriter is entitled to be discharged if the risk assumed is changed by a deviation

from the voyage insured. And the fact that the deviation did not increase the risk, or

any wise contribute to the loss suffered , is wholly immaterial. The underwriter

always defend himself by saying: “I never undertook this risk.”

Sub-Title 1-H(CLASSES OF INSURANCETitle 1 – Marine Insurance)

ABANDONMENT

Section 138: Abandonment, in marine insurance, is the act of the insured by which, after a constructive total loss, he declared the relinquishment to the insurer of his interest in the thing insured.

Meaning of Abandonment

Section 138 gives the definition of abandonment in marine insurance. It has

also been defined as the act of an insured in notifying the insurer that owing damage

done to the subject of the insurance, he elects to take the amount of the insuraqnce

in the place of the subject thereof, the remnant of which he cedes to the insurer.

Requisites for Valid Abandonment

1. There must be an actual relinquishment by the person insured of his interest

in the thing insured.

2. There must nbe a constructive loss.

3. The abandonment be neither partial nor conditional.

4. It must be ade within a reasonable time after breceipt of reliable information of

the loss.

5. It must be factual.

6. It must be made by giving notice thereof to the insurer which maybe done

orally or in writing.

7. Thye notice of abandonment must be explicit and must specify the particular

cause of the abandonment.

Necessity for Abandonment

1. When the loss is only technically total, the insured cannot claim the whole

insurance without showing due regard to the interest which the underwriter

may take in the abandoned property. Therefor, whenever the underwriter

by prompt action might be able to save portion of the insured property, he

is entitled to timely notice of abandonment by the insured and he cannot

be made liable for a total loss without it.

But there is no obligation upon the insured to abandon. It is a matter of his

own election. If he omits to abandon, he may nevertheless recover his

actual loss.

2. When the vessel is totally lost, abandonment is not required as there is no

vessel to abandon. By reason of such total loss, the liability of the ship’s

owner or agent for damages extinguished in the absence of any finding of

fault on other part. However, the insurer answers for nthe damages from

which the shipowner or agent may be held liable.

Section 139: A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against:

a. If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;

b. If it is injured to such an extent as to reduce its value more than three-fourths;

c. If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or

d. If the thing insured is cargo or freightage, and the voyage cannot be performed, nor another ship procured by the master, within a reasonable time and with reasonable diligence to forward the cargo, without incurring the like expense or risk mentioned in the preceding

sub-paragraph. But freightage cannot in any case be abandoned, unless the shipbis also abandoned. (a)

When a Constructive Total Loss Exist

1. According to the English rule, when the subject matter of the insurance, while

still existent in specie, is so damaged as not to be worth, when repaired, the

cost of the repairs.

2. According to the American rule, when it is so damaged that the cost of repairs

would exceed one-half of the value of the thing as required. The American

rule is ordinarily spoken of as the “fifty percent rule.”

3. In the Philippines, the insured may not abandon the thing insured unless the

loss or damage is more than three-fourths of its value as indicated in Section

139.

Abandonment where Insurance Divisible and where Indivisible

Under the first paragraph of Section 139, any particular portion of the thing

insured separately valued by the policy may be separately abandoned as it is

deemed separately insured. Whether a contract is entire or severable is a question

of intention to be determined by the language employed by bthe parties.

In a case, the policy in question showed that the subject matter insured was

the entire shipment of 2,000 cubic meters of logs. It was held that the logs were

loaded in two different barges did not make the contract of insurance several and

divisible as to items insured because the logs on the two barges were separately

valued or separately insured, for only one premium was paid for the entire shipment

making only one cause or consideration. The logs having been insured as one

inseparable unit, the totality of the shipment of logs should be the basis for the

existence of constructive total loss.

Criterion as to Extent of Loss

The extent of the injury to the vessel is to be considered with reference to its

general market value immediately before the disaster. This has been held to be the

proper rule, even though the policy is valued. It has also been held, however, that

the valuation of the policy is the proper criterion; and this will, of course apply where

the policy expressly provides that the value stated therein shall be taken as the basis

of estimate.

In determining the extent of the loss, the expenses incurred or to be incurred

by the insured recovering the thing insured are taken into account.

Section 140: An abandonment must be neither partial nor conditional.

Abandonment must be absolute

The abandonment must be entire and cover the whole interest insured; it

must be unconditional, unfettered by contingencies and limitations. However, if only

a part of a thing is covered by the insurance, the insured need only abandon that

part.

Section 141: An abandonment must be made within a reasonable time after receipt of reliable information of the loss, but where the information is of a doubtful character the insured is entitled to a reasonable time to make inquiry.

Abandonment must be made within a Reasonable Time

1. Reliable information of loss – When the insured has received notice of loss,

he must elect within a reasonable time whether he will abandon to the insurer,

and if he elects to abandon, he must give notice thereof. This is in order that

the insurer may not be prejudiced by the delay, and may take immediate

steps for the preservation of such of the property insured as may remain in

existence.

2. Double character of information of loss – What is reasonable time is question

depending on the facts and circumstances in each case. Thus, if from

information first received, the character of the loss is not made clearly to

appear, the insured is entitled to a sufficient interval to ascertain its real

nature, but he cannot wait an undue length of time to see whether it will be

more profitable to abandon or to claim for a partial loss. After the property

passes beyond the control of the insured, as from an unjustifiable sale, an

abandonment is too late.

Section 142: Where the information upon which an abandonment has been made proved incorrect, or the thing insured was so far restored when the abandonment was made that there was then in fact no total loss, the abandonment becomes ineffectual.

Abandonment must be Factual

1. Existence of loss at time of abandonment – The right of the insured to

abandon and recover or a total loss depends upon the stae of facts at the

time of the offer to abandon, and not upon the state disclosed by the

information received, or upon the state of loss at a prior or subsequent

time.

2. Effect of subsequent events – If the abandonment when made is good, the

rights of the parties are definitely fixed, and do not become changed by

any subsequent events. If, on the other hand, the abandonment, when

made, is not good, subsequent circumstances will not affect it so as

retroactively, to impart to it a validity which it has not at its origin.

Accordingly, the insured cannot abandon whenthe thing insured is safe; or

when he knew, at the time of his offer to abandon, that the vessel has

been repaired and is successfully pursuing her voyage and the invalidity of

the abandonment is not cured by the subsequent l;oss of the thing

insured. But if, after a valid abandonment has been made, the insured

property was recovered, the insured cannot withdraw the abandonment.

3. Instances justifying abandonment – It has been held that the insured may

abandon for a total loss under a marine insurance policy in case of

capture, seizure, or detention of the ship or cargo; restraint by blockade or

embargo; where through no fault of the owner, funds for repair cannot be

raised; where teh voyage is absolutely lost; or where under urgent

necessity, the master of a vessel at an intermediate port, makes a sale of

the insured property.

Section 143: Abandonment is made by giving notice thereof to the insurer, which may be done orally, or in writing; Provided, That if the notice be done orally, a written notice of such abandonment shall be submitted within seven days from such oral notice.

Form of Notice of Abandonment

1. The notice may be made orally unless the policy requires it to be in writing,

and even then a notice by telegraph is sufficient if it otherwise complies nwith

the requirements.

2. If the notice may be done orally, the insured must submit to the insurer within

seven days from such oral notice, a written notice of the abandonment.

By whom and to whom Notice Made

1. The abandonment need not necessarily be made by the insured but may be

made by an authorized agent, and an agent having an authority to insure has

prima facie an authority to abandon.

2. The abandonment may be made to an agent of the underwriter and

abandonment to a broker who is agent for both parties is sufficient.

Section 144: A notice of abandonment must be explicit, and must specify the particular cause of the abandonment, but need state only enough to show that there is probable caus therefor, and need not be accompanied with proof of interest or of loss.

Notice of Abandonment must be Explicit

The notice of abandonment must be explicit, and not left upon open as a

matter of inference from some equivocal acts. There must be an intention to

abandon, apparent from the comunication to the insurer, and a relinquishment of all

rights to the insurer.

The use of the word “abandon” is not necessary; it is sufficient if expressions

are used which inform the insurer that it is the intention of the insured to give up the

property insured. But there is no abandonment although the insured may have given

notice of an intention to abandon, if he continues to claim and use the propery as his

own.

Notice of Abandonment must Specify Particular Cause thereof

The grounds for the abandonment must be stated with such particularity as to

enable the underwriter to determine whether or not he is bound to accept the offer.

However, it is sufficient if the notice shows probable cause for the abandonment; nor

is it required that it be accompanied with proof of interest or of loss.

Section 145: An abandonment can be sustained only upon the cause specified in the

notice thereof.

Proof of other causes not admissible

The insured must state sufficient grounds for the abandonment to make it

valid and he cannot avail himself of any ground of abandonment other than that

stated at the time thereof. If he assigns an insufficient cause or causes which do not

in fact exist, proof of other causes will not be admitted in suing for a total loss.

Section 146: An abandonment is equivalent to a transfer by the insured of his

interest, to the insurer, with all the chances of recovery and indemnity.

Effect of Valid Abandonment

A valid abandonment transfers to the insurer the interests in the subject

matter covered by the policy subject to the rights and interests, if any, of third

persons. The insurer acquires thereby the entire interest insured, together with all its

incidents, including rights of action which the insured has against third persons for

the injury. IN other words, the insurer becomes entitled to all the rights which the

insured possessed in the thing insured.

The execution of a formal instrument is not necessary to effect an

abandonment for, by Section 146, the act of abandonment, when accepted has all

the effects which the most carefully drawn assignment would accomplish. The effect

of the abandonment retroacts to the time of the loss.

Section 147: If a marine insurer pays for a loss as if it were an actual loss, he is

entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if

there had been a formal abandonment.

Rights of Insurer who Pays Partial Loss as Actual Loss

An election and notice of abandonment is a condition precedent to a claim for

a constructive total loss.

Under Section 147, the interest of the insured over the thing covered by the

policy will be transferred to the insurer, notwithstanding the lack of abandonment, as

if there had been a formal abandonment, in case the insurer pays for a loss as if it

were an actual total loss. The acceptance by the insured of the payment is deemed

an offer of abandonment on his part. Hence, the insurer is entitled to whatever may

remain of the thing insured, or its proceeds or salvage.

Section 148: Upon an abandonment, acts done in good faith by those who were

agents of the insured in respect to the thing insured, subsequent to the loss, are at

the risk of the insurer, and for his benefit.

Transfer of Agency to Insurer

The captain or master continues to be the agent of the insured until

abandonment, but from the moment of a valid abandonment, the master of hte

vessel and agents of the insured become the agents of the insurer, and the latter

becomes responsible for all their acts in connection with the insured property and for

all the expenses and liabilities in respect thereof.

Liability of Insurer for Expenses and Wages

The abandonment, when made relates back to the time of the loss and if

effectual, the title of the insurer becomes vestes as of that date and he is

responsible for the reasonable expenses insurred by the master after that date in an

attempt to save the vessel. Insurers are also liable for the wages of seamen earned

subsequent to the loss,but take free from any lien or liability for wages earned prior

thereto.

Sction 149: Where notice of abandonment is properly given, the rights of the insured

are not prejudiced by the fact that the insurer refuses to accept the abandonment.

Effect of Insurer’s Refusal to Accept Abandonemnt on Insured’s Rights

Acceptance is in no case necessary if the abandonment is properly made.

The insured’s rights to abandon, in a policy of marine insurance, is absolute when

justified by the circumstances.

Section 150: The acceptance of an abandonment may either express or implied from

the conduct of the insurer. The mere silence of the insurer for an unreasonable

length of time after notce shall be construed as an acceptance.(a)

Form of Acceptance of Abandonment

1. An insurer’s acceptance of an offered abandonment need not be express.

2. It may be implied bu conduct, as by an act of the insurer in consequence of

an abandonemnt which can be justified only under a right derived from the

abandonment. Thus, where the insurer refused the abandonment of a ship

but took possession of the same for the purpose of making repairs and

retained it for unreasonable time, he will be deemed to have accepted the

abandonment.

3. Mere silence after notice would not operate as an acceptance, if it is not “for

an unreasonable lenghth of time”. Nor would steps taken by the insurer to

preserve the property from further loss for the benefit of all the parties amount

to an acceptance.

Section 151: The acceptance of an abandonment, whether expressed or implied, is

conclusive upon the parties, and admits the loss and the sufficiency of the

abandonment.

Section 142: AN abandonment once made and accepted is irrevocble, unless the

ground upon which it was made proves to be unfounded.

Effect of Acceptance of Abandonment

1. Upon receiving notice of abandonment, the insurer may accept or reject the

abandonment. If he accepts, he becomes at once liable for the whole amount

of the insurance, and also becomes entitled to all rights which insured

possessed in the thing insured.

2. The acceptance of an abandonment fixed the rights of the parties; whether

expressed or implied, is conclusive upon them and irrevocable.

3. Therefore, teh acceptance of an abandonment stops the insurer to rely on

any insufficiency in the form, time or right of abandonment. Whether or not

the insured has a right to abandon is immaterial where the abandonment is

accepted and there is no fraud.

The only exception provided by law is the case where the ground upon which

it was made proves to be unfounded. Under Section 1435, an abandonemnt

can be sustained only upon the ground specified in the notice thereof.

Section 153: On an accepted abandonment of a ship, feightage earned previous to

the loss belongs to the insurer of said freightage; but freightage subsequently

earned belong to the insurer of the ship.

Right of Insurer to Freightage

When abandonment is validly made, the interest of the insured in the thing

covered passes to the insurer.

The insurer of the ship becomes the owner thereof after an abandonment,

and his title v=becomes vested as of the time of loss. Hence, freightage earned

subsequent to the loss belongs to the insurer of said ship. But freightage earned

previously belongs to the insurer of said freightage who is subrogated to the rights of

the insured up to the time of the loss.