1. Calanoc vs.

CA (98 PHIL 79) Post under case digests, Commercial Law at Wednesday, February 22, 2012 Posted by Schizophrenic Mind Facts: Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance Company in the amount of P2,000 to which was attached a supplementary contract covering death by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaran streets. Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she demanded the payment of the additional sum of P2,000 representing the value of the supplemental policy, the company refused alleging, as main defense, that the deceased died because he was murdered by a person who took part in the commission of the robbery and while making an arrest as an officer of the law which contingencies were expressly excluded in the contract and have the effect of exempting the company from liability.

Issue: Whether or not the death of the victim comes within the purview of the exception clause of the supplementary policy and, hence, exempts the company from liability.

Held: NO. Basilio was a watchman of the Manila Auto Supply which was a block away from the house of Atty. Ojeda where something suspicious was happening which caused the latter to ask for help. While at first he declined the invitation of Atty. Ojeda to go with him to his residence to inquire into what was going on because he was not a regular policeman, he later agreed to come along when prompted by the traffic policeman, and upon approaching the gate of the residence he was shot and died. The circumstance that he was a mere watchman and had no duty to heed the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life to danger considering the fact that the place he was in dutybound to guard was only a block away. In volunteering to extend help under the situation, he might have thought, rightly or wrongly, that to know the

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of the law" or as a result of an "assault or murder" committed in the place and therefore his death was caused by one of the risks excluded by the supplementary contract which exempts the company from liability. This contention was upheld by the Court of Appeals. Hence, this petition.

truth was in the interest of his employer it being a matter that affects the security of the neighborhood. No doubt there was some risk coming to him in pursuing that errand, but that risk always existed it being inherent in the position he was holding. He cannot therefore be blamed solely for doing what he believed was in keeping with his duty as a watchman and as a citizen. And he cannot be considered as making an arrest as an officer of the law, as contended, simply because he went with the traffic policeman, for

certainly he did not go there for that purpose nor was he asked to do so by the policeman.

Respondent/Appellee: Emilia T. Biagtan, Juan T. Biagtan, Jr., Miguel T. Biagtan, Gil T. Biagtan and Gracia T. Biagtan J. Makalintal: FACT:

Much less can it be pretended that Basilio died in the course of an assault or murder considering the very nature of these crimes. In the first place, there is no proof that the death of Basilio is the result of either crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case now pending in court as regards the incident but before that is done anything that might be said on the point would be a mere conjecture. Nor can it be said that the killing was intentional for there is the possibility that the malefactor had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim. In any event, while the act may not exempt the triggerman from liability for the damage done, the fact remains that the happening was a pure accident on the part of the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he wanted to take his life.

Juan S. Biagtan was insured with defendant Insular Life Assurance Company Ltd. for the sum of 5,000.00 and under a supplementary contract denominated Accidental Death Benefit Clause, for an additional sum of 5,000.00 if the death of the insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident and independently of all other causes. The clause, however, expressly provided that it would not apply where death resulted from an injury intentionally inflicted by another party.

On the night of May 20, 1964 or during the first hours of the following day a band of robbers entered the house of the insured Juan Biagtan, and that in committing the robbery, the robbers, on reaching the staircase landing on the second floor, rushed towards the door of the second floor room, where they suddenly met a person who turned to be insured who received nine wounds (five mortal wounds and four non-mortal wounds) from their sharp pointed instruments resulting in Mr. Biagtans death. Beneficiaries of the insured then filed a claim under the policy the insurance company paid the basic amount of 5,000.00 but refused to pay additional sum of 5,000.00 under the accidental benefit clause, on the ground that the insureds death resulted from injuries intentionally inflicted by third parties and therefore was not covered. (Respondent) Beneficiaries then filed suit to recover in the CFI of Pangasinan who rendered a decision in their favor. Hence the present appeal by the petitioner. ISSUE:

2.BIAGTAN VS. THE INSULAR LIFE ASSURANCE COMPANY LTD. 44 SCRA 58 (G.R. NO. L-25579) MARCH 29, 1972 Petitioner/Appellant: The Insular Life Assurance Company Ltd.

Whether under the facts stipulated and found by the trial court the wounds received by the insured at the hands of the robbers were inflicted intentionally, hence the benefit clause cannot apply. HELD: Under an Accidental Death Benefit Clause providing for an additional sum of P5,000.00 if the death of the Insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident and independently of all other causes but expressly excepting therefrom a case where death resulted from an injury intentionally inflicted by a third party, the insured who died under the following circumstances is not entitled to the said additional sum, to wit: That on the night while the said life policy and supplementary contract were in full force and effect the house of the insured . . . was robbed by a band of robbers who-were charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase landing of the second floor, rushed towards the doors of the second floor room, where they suddenly met a person near the door of one of the rooms who turned out to be the insured . . . who received thrusts from their sharp-pointed instruments, causing wounds on the body . . . resulting in his death

3.JEWEL VILLACORTA vs. THE INSURANCE COMMISSION G.R. No. L-54171, 28 October 1980 100 SCRA 467 FACTS: Villacorta had her Colt Lancer car insured with Empire Insurance Company against own damage, theft and 3rd party liability. While the car was in the repair shop, one of the employees of the said repair shop took it out for a joyride after which it figured in a vehicular accident. This resulted to the death of the driver and some of the passengers as well as to extensive damage to the car. Villacorta filed a claim for total loss with the said

insurance company. However, it denied the claim on the ground that the accident did not fall within the provisions of the policy either for the Own Damage or Theft coverage, invoking the policy provision on Authorized Driver Clause. This was upheld by the Insurance Commission further stating that the car was not stolen and therefore not covered by the Theft Clause because it is not evident that the person who took the car for a joyride intends to permanently deprive the insured of his/ her car. ISSUE: Whether or not the insurer company should pay the said claim HELD: Yes. Where the insureds car is wrongfully taken without the insureds consent from the car service and repair shop to whom it had been entrusted for check-up and repairs (assuming that such taking was for a joy ride, in the course of which it was totally smashed in an accident), respondent insurer is liable and must pay insured for the total loss of the insured vehicle under the Theft Clause of the policy. Assuming, despite the totally inadequate evidence, that the taking was temporary and for a joy ride, the Court sustains as the better view that which holds that when a person, either with the object of going to a certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by taking possession of the personal property belonging to another and using it, his intent to gain is evident since he derives there from utility, satisfaction, enjoymet and pleasure. ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing private respondent to pay petitioner the sum of P35,000.00 with legal interest from thefiling of the complaint until full payment is made and to pay the costs of suit.

4.FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners, vs. HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO INSURANCE CORPORATION, respondents. Jose B. Guyo for petitioners. Angel E. Fernandez for private respondent.

the motorcycle driven by the deceased who was going towards the direction of Lasa, Davao City. The point of impact was on the lane of the motorcycle and the deceased was thrown from the road and met his untimely death. 1 Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for brevity) before the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless imprudence was also filed against Pepito Into. During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one (1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine (9) months and eleven (11) days of prision correccional, as maximum, with all the accessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No appeal was interposed by accused who later applied for probation. 2 On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney. The dispositive portion of the decision reads: WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event judgment in Criminal Case No. 3527-D against the driver, accused Into, shall have been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and burial expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs of suit.

ROMERO, J.: The nature of the liability of an insurer sued together with the insured/operator-owner of a common carrier which figured in an accident causing the death of a third person is sought to be defined in this petition for certiorari. The facts as found by the trial court are as follows: . . . Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito Into, operated and owned by defendant Destrajo. From the investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken jeep, bumped

The defendant insurance company is ordered to reimburse defendant Destrajo whatever amounts the latter shall have paid only up to the extent of its insurance coverage. SO ORDERED. 3

The particular provision of the insurance policy on which petitioners base their claim is as follows:

Sec. 1 LIABILITY TO THE PUBLIC Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of the decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up to the extent of the insurance coverage." 4 Hence, they argued that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have been awarded in their favor. In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code does not expressly provide for a solidary obligation, the presumption is that the obligation is joint. In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent of the insurance coverage." 5 Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of merit. Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal of the lower court's decision in its entirety, prays for the setting aside or modification of the second paragraph of the dispositive portion of said decision. Petitioners reassert their position that the insurance company is directly and solidarily liable with the negligent operator up to the extent of its insurance coverage. We grant the petition. 1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the insured in respect of (a) death of or bodily injury to any THIRD PARTY (b) . . . . 2. . . . . 3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred to such person indemnify his personal representatives in terms of, and subject to the terms and conditions hereof. 7 The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or even upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured." 8 The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident. We categorically ruled thus: While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured third party), but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said, two (2) respondents by reason of the indemnity contract against third party liability under which an insurer can be directly sued by a third party this will result in a violation of the principles underlying solidary obligation and insurance contracts. (emphasis supplied) The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or contingent event. 11 Thus, petitioner therein, which, under the insurance contract is liable only up to P20,000.00, can not be made solidarily liable with the insured for the entire obligation of P29,013.00 otherwise there would result "an evident breach of the concept of solidary obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may have unwittingly sown confusion among the petitioners and their counsel. What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the insurance contract. In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage. While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that the lower court erred in the computation of the probable loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a "plain error," we opt to correct the same. 14 Furthermore, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15 WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity of P12,000.00 to P50,000.00. SO ORDERED.

5.G.R. No. 96452 May 7, 1992 PERLA COMPANIA DE SEGUROS, INC. petitioner, vs. THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents. G.R. No. 96493 May 7, 1992 FCP CREDIT CORPORATION, petitioner, vs.

unpaid installments that were due and payable before the date said vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to pay appellants moral damages of P12,000.00 for the latter's mental sufferings, exemplary damages of P20,000.00 for appellee Perla Compania de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just insurance claim of appellants by way of example and correction for public good, and attorney's fees of P10,000.00 as a just and equitable reimbursement for the expenses incurred therefor by appellants, and the costs of suit both in the lower court and in this appeal. 2 The facts as found by the trial court are as follows:

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM, respondents. Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner. Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.: These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and damages. The dispositive portion of the decision of the Court of Appeals reads, as follows: WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the loss of their insured vehicle; while said appellants are ordered to pay appellee FCP Credit Corporation all the

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a promissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments according to the schedule of payment indicated in said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is registered under the name of private respondent Herminio Lim 4 and insured with the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive coverage under Policy No. PC/41PP-QCB-43383. 5 On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on said promissory note and chattel mortgage as shown by the Deed of Assignment. 6 At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was driving said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to report said incident and thereafter, went to the nearest police substation at Araneta, Cubao to make a police report regarding said incident, as shown by the certification issued by the Quezon City police. 7

On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land Transportation Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in compliance with the insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9 On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the vehicle before it was carnapped, was in possession of an expired driver's license at the time of the loss of said vehicle which is in violation of the authorized driver clause of the insurance policy, which states, to wit: AUTHORIZED DRIVER: Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with his permission.Provided that the person driving is permitted, in accordance with the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a Court of Law or by reason of any enactment or regulation in that behalf. 11 On November 17, 1982, private respondents requests from petitioner FCP for a suspension of payment on the monthly amortization agreed upon due to the loss of the vehicle and, since the carnapped vehicle insured with petitioner Perla, said insurance company should be made to pay the remaining balance of the promissory note and the chattel mortgage contract. Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that private respondents pay the whole balance of the promissory note or to return the vehicle 12 but the latter refused. On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an amended third party complaint against petitioner Perla on December 8, 1983. After trial on the merits, the trial court rendered a decision, the dispositive portion which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: 1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally, plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per annum from July 2, 1983 until fully paid; 2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the costs of suit. Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint filed against Third-Party Defendant. 13 Not satisfied with said decision, private respondents appealed the same to the Court of Appeals, which reversed said decision. After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its resolution of December 10, 1990, petitioners filed these separate petitions for review on certiorari. Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in holding that private respondents did not violate the insurance contract because the authorized driver clause is not applicable to the "Theft" clause of said Contract. For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the debtor from his admitted obligations under the promissory note particularly the payment of interest, litigation expenses and attorney's fees. We find no merit in Perla's petition. The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the private respondents against loss or damage to the car (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear;

(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act. 14 Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent court in its decision: . . . Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in another way, with the concurrence of the doer's will. On the other hand, accident, although it may proceed or result from negligence, is the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101). Clearly, the risk against accident is distinct from the risk against theft. The "authorized driver clause" in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. The distinction often seized upon by insurance companies in resisting claims from their assureds between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then, appellee Perla Compania could properly resist appellants' claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in the present case. The loss of the insured vehicle did not result from an accident where intent was involved; the loss in the present case was caused by theft, the commission of which was attended by intent. 15 It is worthy to note that there is no causal connection between the possession of a valid driver's license and the loss of a vehicle. To rule

otherwise would render car insurance practically a sham since an insurance company can easily escape liability by citing restrictions which are not applicable or germane to the claim, thereby reducing indemnity to a shadow. We however find the petition of FCP meritorious. This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to pay the former the installments due on the promissory note on account of the loss of the automobile. The chattel mortgage constituted over the automobile is merely an accessory contract to the promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note should be paid, and not just the installments due and payable before the automobile was carnapped, as erronously held by the Court of Appeals. However, this does not mean that private respondents are bound to pay the interest, litigation expenses and attorney's fees stipulated in the promissory note. Because of the peculiar relationship between the three contracts in this case, i.e., the promissory note, the chattel mortgage contract and the insurance policy, this Court is compelled to construe all three contracts as intimately interrelated to each other, despite the fact that at first glance there is no relationship whatsoever between the parties thereto. Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount stated therein in accordance with the schedule provided for. To secure said promissory note, private respondents constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the former purchased from the latter. The chattel mortgage, in turn, required private respondents to insure the automobile and to make the proceeds thereof payable to Supercars, Inc. The promissory note and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the knowledge of private respondents. Private respondents were able to secure an insurance policy from petitioner Perla, and the same was made specifically payable to petitioner FCP. 16 The insurance policy was therefore meant to be an additional security to the principal contract, that is, to insure that the promissory note will still be paid

in case the automobile is lost through accident or theft. The Chattel Mortgage Contract provided that: THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . . . 17 It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the outstanding balance of the mortgage at the time of said loss under the mortgage contract. If the claim on the insurance policy had been approved by petitioner Perla, it would have paid the proceeds thereof directly to petitioner FCP, and this would have had the effect of extinguishing private respondents' obligation to petitioner FCP. Therefore, private respondents were justified in asking petitioner FCP to demand the unpaid installments from petitioner Perla. Because petitioner Perla had unreasonably denied their valid claim, private respondents should not be made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As mentioned above, the contract of indemnity was procured to insure the return of the money loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim of the private respondents should not in any way prejudice the latter.

Private respondents can not be said to have unduly enriched themselves at the expense of petitioner FCP since they will be required to pay the latter the unpaid balance of its obligation under the promissory note. In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring petitioner Perla to indemnify private respondents for the loss of their insured vehicle. However, the latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid installments from December 30, 1982 up to July 1, 1983, as shown in the statement of account prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid. As to the award of moral damages, exemplary damages and attorney's fees, private respondents are legally entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to honor the insurance claim of the private respondents. Besides, awards for moral and exemplary damages, as well as attorney's fees are left to the sound discretion of the Court. Such discretion, if well exercised, will not be disturbed on appeal. 19 WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby affirmed as to all other respects. No pronouncement as to costs. SO ORDERED. 6.Aisporna v. CA [GR L-39419, 12 April 1982 (113 SCRA 459)] Post under case digests, Commercial Law at Wednesday, February 22, 2012 Posted by Schizophrenic Mind Facts: Since 7 March and on 21 June 1969, a Personal Accident Policy was issued by Perla Compania de Seguros, through its authorized agent Rodolfo Aisporna, for a period of 12 months with the beneficiary designated as Ana M. Isidro. The insured died by violence during lifetime of policy. Mapalad Aisporna participated actively with the aforementioned policy.

10

studied as detached and isolated expressions, but the whole and every part For reason unexplained, an information was filed against Mapalad Aisporna, Rodolfos wife, with the City Court of Cabanatuan for violation of Section 189 of the Insurance Act on 21 November 1970, or acting as an agent in the soliciting insurance without securing thecertificate of authority from the office of the Insurance Commissioner. Mapalad contends that being the wife of true agent, Rodolfo, she naturally helped him in his work, as clerk, and that policy was merely a renewal and was issued because Isidro had called by telephone to renew, and at that time, her husband, Rodolfo, was absent and so she left a note on top of her husbands desk to renew. On 2 August 1971, the trial court found Mapalad guilty and sentenced here to pay a fine of P500.00 with subsidiary imprisonment in case of insolvency and to pay the costs. On appeal and on 14 August 1974, the trial courts decision was affirmed by the appellate court (CA-GR 13243-CR). Hence, the present recourse was filed on 22 October 1974. On 20 December 1974, the Office of the Solicitor General, representing the Court of Appeals, submitted that Aisporna may not be considered as having violated Section 189 of the Insurance Act. of the statute must be considered in fixing the meaning of any of its parts and in order to produce harmonious whole. In the present case, the first paragraph of Section 189 prohibits a person from acting as agent, subagent or broker in the solicitation or procurement of applications for insurance without first procuring a certificate of authority so to act from the InsuranceCommissioner; while the second paragraph defines who is an insurance agent within the intent of the section; while the third paragraph prescribes the penalty to be imposed for its violation. The appellate courts ruling that the petitioner is prosecuted not under the second paragraph of Section 189 but under its first paragraph is a reversible error, as the definition of insurance agent in paragraph 2 applies to the paragraph 1 and 2 of Section 189, which is any person who for compensation shall be an insurance agent within the intent of this section. Without proof of compensation, directly or indirectly, received from the insurance policy or contract, Mapalad Aisporna may not be held to have violated Section 189 of the Insurance Act. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor for any person for direct or indirect compensation to solicit insurance without a certificate of authority to act as an insurance Issue: Whether Mapalad Aisporna is an insurance agent within the scope or intent of the Insurance Act agent, an information, failing to allege that the solicitor was to receive compensation either directly or indirectly, charges no offense. In the case of Bolen vs. Stake,19 the provision of Section 3750, Snyder's Compiled Laws Held: Legislative intent must be ascertained from a consideration of the statute as a whole. The particular words, clauses and phrases should not be of Oklahoma 1909 is intended to penalize persons only who acted as insurance solicitors without license, and while acting in such capacity

11

negotiated and concluded insurance contracts for compensation. It must be noted that the information, in the case at bar, does not allege that the negotiation of an insurance contracts by the accused with Eugenio Isidro was one for compensation. This allegation is essential, and having been omitted, a conviction of the accused could not be sustained. It is well-settled in our jurisprudence that to warrant conviction, every element of the crime must be alleged and proved. After going over the records of this case, we are fully convinced, as the Solicitor General maintains, that accused did not violate Section 189 of the Insurance Act. Issue: Whether or not the insurance contract was perfected. Held: NO. The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. An acceptance of an offer of insurance NOT actually or constructively communicated to the proposer does NOT make a contract of insurane, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the party. 7.Enriquez v. SunLife- Insurance Policy 41 PHIL 269 Facts: > On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life annuity. > 2 days later, he paid the sum of 6T to the companys anager in its Manila office and was given a receipt. > On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same date, the Manila office prepared a letter notifying Herrer that his application has been accepted and this was placed in the ordinary channels of transmission, but as far as known was never actually mailed and never received by Herrer. > Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers estate brought this action to recover the 6T paid by the deceased.

NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to the insurance company, and if after a certain period of time the insured is stil living, he is entitled to regular smaller amounts for the rest of his life. Examples of Life annuity are pensions. Life Insurance on the other hand, the insured during the period of the coverage makes small regular payments and upon his death, the insurer pays a big amount to his beneficiaries.

12

8.G.R. No. 110053 October 16, 1995 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, CELEBRADA MANGUBAT and ABNER MANGUBAT, respondents.

On October 14, 1980, respondent spouses offered to buy the property for P18,599.99. DBP made a counter-offer of P25,500.00 which was accepted by respondent spouses. The parties further agreed that payment was to be made within six months thereafter for it to be considered as cash payment. On July 20, 1981, the deed of absolute sale, which is now being assailed herein, was executed by DBP in favor of respondent spouses. Said document contained a waiver of the seller's warranty against eviction. 2 Thereafter, respondent spouses applied for an industrial tree planting loan with DBP. The latter required the former to submit a certification from the Bureau of Forest Development that the land is alienable and disposable. However, on October 29, 1981, said office issued a certificate attesting to the fact that the said property was classified as timberland, hence not subject to disposition. 3 The loan application of respondent spouses was nevertheless eventually approved by DBP in the sum of P140,000.00, despite the aforesaid certification of the bureau, on the understanding of the parties that DBP would work for the release of the land by the former Ministry of Natural Resources. To secure payment of the loan, respondent spouses executed a real estate mortgage over the land on March 17, 1982, which document was registered in the Registry of Deeds pursuant to Act No. 3344. The loan was then released to respondent spouses on a staggered basis. After a substantial sum of P118,540.00 had been received by private respondents, they asked for the release of the remaining amount of the loan. It does not appear that their request was acted upon by DBP, ostensibly because the release of the land from the then Ministry of Natural Resources had not been obtained. On July 7, 1983, respondent spouses, as plaintiffs, filed a complaint against DBP in the trial court 4 seeking the annulment of the subject deed of absolute sale on the ground that the object thereof was verified to be timberland and, therefore, is in law an inalienable part of the public domain. They also alleged that petitioner, as defendant therein, acted fraudulently and in bad faith by misrepresenting itself as the absolute owner of the land and in incorporating the waiver of warranty against eviction in the deed of sale. 5

REGALADO, J.: This appeal by certiorari sprouted from the judgment of respondent Court of Appeals promulgated on September 9, 1992 in CA-G.R. CV No. 28311, and its resolution dated April 7, 1993 denying petitioner's motion for reconsideration. 1 Said adjudgments, in turn, were rooted in the factual groundwork of this case which is laid out hereunder. On July 20, 1981, herein petitioner Development Bank of the Philippines (DBP) executed a "Deed of Absolute Sale" in favor of respondent spouses Celebrada and Abner Mangubat over a parcel of unregistered land identified as Lot 1, PSU-142380, situated in the Barrio of Toytoy, Municipality of Garchitorena, Province of Camarines Sur, containing an area of 55.5057 hectares, more or less. The land, covered only by a tax declaration, is known to have been originally owned by one Presentacion Cordovez, who, on February 4, 1937, donated it to Luciano Sarmiento. On June 8, 1964, Luciano Sarmiento sold the land to Pacifico Chica. On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of P6,000.00. However, he defaulted in the payment of the loan, hence DBP caused the extrajudicial foreclosure of the mortgage. In the auction sale held on September 9, 1970, DBP acquired the property as the highest bidder and was issued a certificate of sale on September 17, 1970 by the sheriff. The certificate of sale was entered in the Book of Unregistered Property on September 23, 1970. Pacifico Chica failed to redeem the property, and DBP consolidated its ownership over the same.

13

In its answer, DBP contended that it was actually the absolute owner of the land, having purchased it for value at an auction sale pursuant to an extrajudicial foreclosure of mortgage; that there was neither malice nor fraud in the sale of the land under the terms mutually agreed upon by the parties; that assuming arguendo that there was a flaw in its title, DBP can not be held liable for anything inasmuch as respondent spouses had full knowledge of the extent and nature of DBP's rights, title and interest over the land. It further averred that the annulment of the sale and the return of the purchase price to respondent spouses would redound to their benefit but would result in petitioner's prejudice, since it had already released P118,540.00 to the former while it would be left without any security for the P140,000.00 loan; and that in the remote possibility that the land is reverted to the public domain, respondent spouses should be made to immediately pay, jointly and severally, the total amount of P118,540.00 with interest at 15% per annum, plus charges and other expenses. 6 On May 25, 1990, the trial court rendered judgment annulling the subject deed of absolute sale and ordering DBP to return the P25,500.00 purchase price, plus interest; to reimburse to respondent spouses the taxes paid by them, the cost of the relocation survey, incidental expenses and other damages in the amount of P50,000.00; and to further pay them attorney's fees and litigation expenses in the amount of P10,000.00, and the costs of suit. 7 In its recourse to the Court of Appeals, DBP raised the following assignment of errors: 1. The trial court erred in declaring the deed of absolute sale executed between the parties canceled and annulled on the ground that therein defendant-appellant had no title over the property subject of the sale. 2. The trial court erred in finding that defendant-appellant DBP acted fraudulently and in bad faith or that it had misrepresented facts since it had prior knowledge that subject property was part of the public domain at the time of sale to therein plaintiffs-appellees.

3. The trial court erred in finding said plaintiffs-appellees' waiver of warranty against eviction void. 4. The trial court erred awarding to therein plaintiffsappellees damages arising from an alleged breach of contract. 5. The trial court erred in not ordering said plaintiffsappellees to pay their loan obligation to defendantappellant DBP in the amount of P118,540. 8 As substantially stated at the outset, respondent Court of Appeals rendered judgment modifying the disposition of the court below by deleting the award for damages, attorney's fees, litigation expenses and the costs, but affirming the same in all its other aspects. 9 On April 7, 1993, said appellate court also denied petitioner's motion for reconsideration. 10 Not satisfied therewith, DBP interposed the instant petition for review on certiorari, raising the following issues: 1. Whether or not private respondent spouses Celebrada and Abner Mangubat should be ordered to pay petitioner DBP their loan obligation due under the mortgage contract executed between them and DBP; and 2. Whether or not petitioner should reimburse respondent spouses the purchase price of the property and the amount of P11,980.00 for taxes and expenses for the relocation Survey. 11 Considering that neither party questioned the legality and correctness of the judgment of the court a quo, as affirmed by respondent court, ordering the annulment of the deed of absolute sale, such decreed nullification of the document has already achieved finality. We only need The Court of Appeals, after an extensive discussion, found that there had been no bad faith on the part of either party, and this r, therefore, to dwell on the effects of that declaration of nullity.emains uncontroverted as a fact

14

in the case at bar. Correspondingly, respondent court correctly applied the rule that if both parties have no fault or are not guilty, the restoration of what was given by each of them to the other is consequently in order. 12 This is because the declaration of nullity of a contract which is void ab initio operates to restore things to the state and condition in which they were found before the execution thereof. 13 We also find ample support for said propositions in American jurisprudence. The effect of an application of the aforequoted rule with respect to the right of a party to recover the amount given as consideration has been passed upon in the case of Leather Manufacturers National Bank vs. Merchants National Bank 14 where it was held that: "Whenever money is paid upon the representation of the receiver that he has either a certain title in property transferred in consideration of the payment or a certain authority to receive the money paid, when in fact he has no such title or authority, then, although there be no fraud or intentional misrepresentation on his part, yet there is no consideration for the payment, the money remains, in equity and good conscience, the property of the payer and may be recovered back by him." Therefore, the purchaser is entitled to recover the money paid by him where the contract is set aside by reason of the mutual material mistake of the parties as to the identity or quantity of the land sold. 15 And where a purchaser recovers the purchase money from a vendor who fails or refuses to deliver the title, he is entitled as a general rule to interest on the money paid from the time of payment. 16 A contract which the law denounces as void is necessarily no contract whatever, and the acts of the parties in an effort to create one can in no wise bring about a change of their legal status. The parties and the subject matter of the contract remain in all particulars just as they did before any act was performed in relation thereto. 17 An action for money had and received lies to recover back money paid on a contract, the consideration of which has failed. 18 As a general rule, if one buys the land of another, to which the latter is supposed to have a good title, and, in consequence of facts unknown alike to both parties, he has no title at all, equity will cancel the transaction and cause the purchase money to be restored to the buyer, putting both parties in status quo. 19

Thus, on both local and foreign legal principles, the return by DBP to respondent spouses of the purchase price, plus corresponding interest thereon, is ineluctably called for. Petitioner likewise contends that the trial court and respondent Court of Appeals erred in ordering the reimbursement of taxes and the cost of the relocation survey, there being no factual or legal basis therefor. It argues that private respondents merely submitted a "list of damages" allegedly incurred by them, and not official receipts of expenses for taxes and said survey. Furthermore, the same list has allegedly not been identified or even presented at any stage of the proceedings, since it was vigorously objected to by DBP. Contrary to the claim of petitioner, the list of damages was presented in the trial court and was correspondingly marked as "Exhibit P." 20 The said exhibit was, thereafter, admitted by the trial court but only as part of the testimonial evidence for private respondents, as stated in its Order dated August 16, 1988. 21 However, despite that admission of the said list of damages as evidence, we agree with petitioner that the same cannot constitute sufficient legal basis for an award of P4,000.00 and P7,980.00 as reimbursement for land taxes and expenses for the relocation survey, respectively. The list of damages was prepared extrajudicially by respondent spouses by themselves without any supporting receipts as bases thereof or to substantiate the same. That list, per se, is necessarily self-serving and, on that account, should have been declared inadmissible in evidence as the factum probans. In order that damages may be recovered, the best evidence obtainable by the injured party must be presented. Actual or compensatory damages cannot be presumed, but must be duly proved, and so proved with a reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered and on evidence of the actual amount thereof. If the proof is flimsy and unsubstantial, no damages will be awarded. 22 Turning now to the issue of whether or not private respondents should be made to pay petitioner their loan obligation amounting to P118,540.00, we answer in the affirmative.

15

In its legal context, the contract of loan executed between the parties is entirely different and discrete from the deed of sale they entered into. The annulment of the sale will not have an effect on the existence and demandability of the loan. One who has received money as a loan is bound to pay to the creditor an equal amount of the same kind and quality. 23 The fact that the annulment of the sale will also result in the invalidity of the mortgage does not have an effect on the validity and efficacy of the principal obligation, for even an obligation that is unsupported by any security of the debtor may also be enforced by means of an ordinary action. Where a mortgage is not valid, as where it is executed by one who is not the owner of the property, 24 or the consideration of the contract is simulated 25 or false, 26 the principal obligation which it guarantees is not thereby rendered null and void. That obligation matures and becomes demandable in accordance with the stipulations pertaining to it. Under the foregoing circumstances, what is lost is only the right to foreclose the mortgage as a special remedy for satisfying or settling the indebtedness which is the principal obligation. In case of nullity, the mortgage deed remains as evidence or proof of a personal obligation of the debtor, and the amount due to the creditor may be enforced in an ordinary personal action. 27 It was likewise incorrect for the Court of Appeals to deny the claim of petitioner for payment of the loan on the ground that it failed to present the promissory note therefor. While respondent court also made the concession that its judgment was accordingly without prejudice to the filing by petitioner of a separate action for the collection of that amount, this does not detract from the adverse effects of that erroneous ruling on the proper course of action in this case. The fact is that a reading of the mortgage contract 28 executed by respondent spouses in favor of petitioner, dated March 17, 1982, will readily show that it embodies not only the mortgage but the complete terms and conditions of the loan agreement as well. The provisions of said contract, specifically paragraphs 16 and 28 thereof, are so precise and clear as to thereby render unnecessary the introduction of the promissory note which would merely serve the same purpose.

Furthermore, respondent Celebrada Mangubat expressly acknowledged in her testimony that she and her husband are indebted to petitioner in the amount of P118,000.00, more or less. 29 Admissions made by the parties in the pleadings or in the course of the trial or other proceedings do not require proof and can not be contradicted unless previously shown to have been made through palpable mistake. 30 Thus, the mortgage contract which embodies the terms and conditions of the loan obligation of respondent spouses, as well as respondent Celebrada Mangubat's admission in open court, are more than adequate evidence to sustain petitioner's claim for payment of private respondents' aforestated indebtedness and for the adjudication of DBP's claim therefor in the very same action now before us. It is also worth noting that the adjustment and allowance of petitioner's demand by counterclaim or set-off in the present action, rather than by another independent action, is favored or encouraged by law. Such a practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the time of the court. The trend of judicial decisions is toward a liberal extension of the right to avail of counterclaims or set-offs. 31 The rules on counterclaim are designed to achieve the disposition of a whole controversy of the conflicting claims of interested parties at one time and in one action, provided all parties can be brought before the court and the matter decided without prejudicing the rights of any party. 32 WHEREFORE, the judgment appealed from is hereby MODIFIED, by deleting the award of P11,980.00 as reimbursement for taxes and expenses for the relocation survey, and ordering respondent spouses Celebrada and Abner Mangubat to pay petitioner Development Bank of the Philippines the amount of P118,540.00, representing the total amount of the loan released to them, with interest of 15% per annum plus charges and other expenses in accordance with their mortgage contract. In all other respects, the said judgment of respondent Court of Appeals is AFFIRMED. SO ORDERED.

16

9.Gulf Resorts Inc. vs. Philippine Charter Insurance Corporation [G.R. No. 156167 May 16, 2005] Post under case digests, Commercial Law at Saturday, March 03, 2012 Posted by Schizophrenic Mind Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC). In the first

defendant, including the two swimming pools in its Agoo Playa Resort were damaged.

Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for damages on its properties. Respondent denied petitioners claim on the ground that its insurance policy only afforded earthquake shock coverage to the twoswimming pools of the resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only a premium of P393.00 against the peril of earthquake shock, the same premium it had paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC.

4 policies issued, the risks of loss from earthquake shock was extended only to petitioners two swimming pools. Gulf Resortsagreed to insure with Phil Charter the properties covered by the AHAC policy provided that the policy wording and rates in said policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92. the break-down of premiums shows that Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock endorsement provided that In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above the underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by

Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does not extend to all properties damaged therein

Held: YES. All the provisions and riders taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In fire, casualty and marine insurance, the premium becomes a debt as soon as the risk attaches. In the subject policy, no premium payments were made with regard to earthquake shock coverage except on the two swimming pools. There is no mention of any premium

17

payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioners insurance policies with AHAC.

policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the insurance company. MALAYAN appealed to the SC by way of review on certiorari.

10.Malayan Insurance Co., Inc. vs. CA [G.R. No. L-36413, 26 September 1988] Post under case digests, Commercial Law at Tuesday, February 21, 2012 Posted by Schizophrenic Mind Facts: Malayan Insurance Co. Inc. (MALAYAN) issued a Private CarComprehensive Policy covering a Willys jeep. The insurancecoverage was for "own damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00. During the effectivity of the insurance policy, , the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., (SAN LEON) collided with a passenger bus belonging to the respondent PangasinanTransportation Co., Inc. (PANTRANCO) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep. Martin C. Vallejos filed an action for damages against Sio

Issues: (1) Whether or not MALAYAN is solidarily liable to Vallejos, along with Sio Choy and SAN LEON (2) Whether or not MALAYAN is entitled to be reimbursed by SAN LEON for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurance policy. Held: (1) Only Sio Choy and SAN LEON are solidarily liable to Vallejos for the award of damages. Sio Choy is liable as owner of the jeep pursuant to Article 2184, while SAN LEON is liable as the employer of the driver of the jeep at the time of the accident pursuant to Art 2180. MALAYANs liability, however, arose only out of the insurance policy with Sio Choy. Petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents Sio Choy and SAN LEON. (2) MALAYAN is entitled to be reimbursed. Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss. When the insurancecompany pays for the loss, such payment operates as an equitable assignment to the insurer of the property

Choy,Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan. The trial court rendered judgment holding Sio Choy, SAN LEON, and MALAYAN jointly and severally liable. However, MALAYANs liability will only be up to P20,000. On appeal, CA affirmed the decision of the trial court. However, it ruled that SAN LEON has no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been ordered to pay on its

18

and all remedies which the insured may have for the recovery thereof. That right is not dependent upon , nor does it grow out of any privity of contract or upon written assignment of claim, and payment to the insured makes the insurer assignee in equity.

May 26, 1985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY. Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto. In compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured car was settled under the "own damage", coverage of the insurance policy, and that the driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted a copy of the insurance policy and the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY. On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them. They argued that payment under the "own damage" clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault. After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an order dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19, 1986, the RTC denied PANMALAY's motion for reconsideration. On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November 27, 1987. Consequently, PANMALAY filed the present petition for review. After private respondents filed its comment to the petition, and petitioner filed its reply, the Court considered the issues joined and the case submitted for decision. Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition.

11. G.R. No. 81026 April 3, 1990 PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents. Regulus E. Cabote & Associates for petitioner. Benito P. Fabie for private respondents.

CORTES, J.: Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of the Court of Appeals which upheld an order of the trial court dismissing for no cause of action PANMALAY's complaint for damages against private respondents Erlinda Fabie and her driver. The principal issue presented for resolution before this Court is whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an insurance claim against private respondents as the parties allegedly responsible for the damage caused to the insured vehicle. On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that on

19

PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident allegedly caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY contended, therefore, that its cause of action against private respondents was anchored upon Article 2207 of the Civil Code, which reads: 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. . . . PANMALAY is correct. Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer [Compania Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Fireman's Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323]. There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogation is defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312, 29 L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co., 229 F 2d 705 (1956)]. Similarly, where the insurer pays the assured the value of the lost goods without notifying the

carrier who has in good faith settled the assured's claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary payment", the former has no right of subrogation against the third party liable for the loss [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, G. R. No. L-22146, September 5, 1967, 21 SCRA 12]. None of the exceptions are availing in the present case. The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally subrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not have any cause of action against private respondents. On the one hand, the trial court held that payment by PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance policy was an admission by the insurer that the damage was caused by the assured and/or its representatives. On the other hand, the Court of Appeals in applying theejusdem generis rule held that Section III-1 of the policy, which was the basis for settlement of CANLUBANG's claim, did not cover damage arising from collision or overturning due to the negligence of third parties as one of the insurable risks. Both tribunals concluded that PANMALAY could not now invoke Article 2207 and claim reimbursement from private respondents as alleged wrongdoers or parties responsible for the damage. The above conclusion is without merit. It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy impliesdamage to the insured car caused by the assured itself, instead of third parties, proceeds from an incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAY utilized the phrase "own damage" a phrase which, incidentally, is not found in the insurance policy to define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that it had assumed to reimburse the costs for repairing the damage to the insured vehicle [See PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in this sense that the

20

so-called "own damage" coverage under Section III of the insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property Damage" coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties). Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section III-1 of the policy does not include to the insured vehicle arising from collision or overturning due to the negligent acts of the third party. Not only does it stem from an erroneous interpretation of the provisions of the section, but it also violates a fundamental rule on the interpretation of property insurance contracts. It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various terms and provisions embodied in the policy. It is only when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., G.R., No. L-27932, October 30, 1972, 47 SCRA 271; National Power Corporation v. Court of Appeals, G.R. No. L-43706, November 14, 1986, 145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R. No. L-41014, November 28, 1988, 168 SCRA 1. Also Articles 1370-1378 of the Civil Code]. Section III-1 of the insurance policy which refers to the conditions under which the insurer PANMALAY is liable to indemnify the assured CANLUBANG against damage to or loss of the insured vehicle, reads as follows: SECTION III LOSS OR DAMAGE 1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the

Scheduled Vehicle and its accessories and spare parts whilst thereon: (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire, external explosion, self ignition or lightning or burglary, housebreaking or theft; (c) by malicious act; (d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland, waterway, lift or elevator. xxx xxx xxx [Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars; Record, p. 34; Emphasis supplied]. PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-1(a), is comprehensive enough to include damage to the insured vehicle arising from collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the same understanding. Based on a police report wherein the driver of the insured car reported that after the vehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20], CANLUBANG filed its claim with PANMALAY for indemnification of the damage caused to its car. It then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of latter.

21

Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to the clear intention and understanding of these parties. It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by accidental collision or overturning" found in the first paint of sub-paragraph (a) is untenable. Although the terms "accident" or "accidental" as used in insurance contracts have not acquired a technical meaning, the Court has on several occasions defined these terms to mean that which takes place "without one's foresight or expectation, an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected" [De la Cruz v. The Capital Insurance & Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred from jurisprudence that these terms, without qualification, exclude events resulting in damage or loss due to the fault, recklessness or negligence of third parties. The concept "accident" is not necessarily synonymous with the concept of "no fault". It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of man. Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the insured vehicle due to negligent or careless acts of third parties is not listed under the general and specific exceptions to the coverage of insured risks which are enumerated in detail in the insurance policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, supra.] The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that insisted upon by respondents herein. By arguing that this section covers losses or damages due not only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with the rationale behind the various rules on the interpretation of insurance

contracts favoring the assured or beneficiary so as to effect the dominant purpose of indemnity or payment [SeeCalanoc v. Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16, 1984, 130 SCRA 327]. Parenthetically, even assuming for the sake of argument that Section III1(a) of the insurance policy does not cover damage to the insured vehicle caused by negligent acts of third parties, and that PANMALAY's settlement of CANLUBANG's claim for damages allegedly arising from a collision due to private respondents' negligence would amount to unwarranted or "voluntary payment", dismissal of PANMALAY's complaint against private respondents for no cause of action would still be a grave error of law. For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra., the Court ruled that the insurer who may have no rights of subrogation due to "voluntary" payment may nevertheless recover from the third party responsible for the damage to the insured property under Article 1236 of the Civil Code. In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee merely prays that it be allowed to institute an action to recover from third parties who allegedly caused damage to the insured vehicle, the amount which it had paid its assured under the insurance policy. Having thus shown from the above discussion that PANMALAY has a cause of action against third parties whose negligence may have caused damage to CANLUBANG's car, the Court holds that there is no legal obstacle to the filing by PANMALAY of a complaint for damages against private respondents as the third parties allegedly responsible for the damage. Respondent Court of Appeals therefore committed reversible error in sustaining the lower court's order which dismissed PANMALAY's complaint against private respondents for no cause of action. Hence, it is now for the trial court to determine if in fact the damage caused to the insured vehicle was due to the "carelessness, recklessness and imprudence" of the driver of private respondent Erlinda Fabie.

22

WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for damages against private respondents is hereby REINSTATED. Let the case be remanded to the lower court for trial on the merits. SO ORDERED. 12.DELSAN TRANSPORT LINES, INC., petitioner, vs. THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION, respondents. DECISION DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution[2] dated January 21, 1997 which denied the subsequent motion for reconsideration. The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private respondent, American Home Assurance Corporation. On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven

Centavos (P5,096,635.57) representing the insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the petitioner the same amount it paid to Caltex. Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to cost. The trial court found that the vessel, MT Maysun, was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon inspection during its annual dry-docking and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier (herein petitioner) from liability for the loss of its cargo.[3] The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The appellate court gave credence to the weather report issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA for brevity) which showed that from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to two (2) meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to herein petitioners allegation that the waves were twenty (20) feet high. In the absence of any explanation as to what may have caused the sinking of the vessel coupled with the finding that the same was improperly manned, the appellate court ruled that the petitioner is liable on its obligation as common carrier [4] to herein private respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration of herein petitioner was denied by the appellate court. Petitioner raised the following assignments of error in support of the instant petition,[5] to wit: I THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT.

23

II THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL PRESUMPTION THAT THE VESSEL MT MAYSUN WAS SEAWORTHY. III THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF APPEALS. Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance there is an implied warranty by the shipper that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at the inception of the insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not legally liable to Caltex due to the latters breach of implied warranty under the marine insurance policy that the vessel was seaworthy. The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not seaworthy on the ground that the marine officer who served as the chief mate of the vessel, Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of the Philippines, the implied warranty of seaworthiness of the vessel, which the private respondent admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo, extends to the vessels complement. Besides, petitioner avers that although Berina had merely a 2nd officers license, he was qualified to act as the vessels chief officer under Chapter IV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In fact, all the crew and officers of MT Maysun were exonerated in the administrative investigation conducted by the Board of Marine Inquiry after the subject accident.[6]

In any event, petitioner further avers that private respondent failed, for unknown reason, to present in evidence during the trial of the instant case the subject marine cargo insurance policy it entered into with Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs. CA,[7] the failure of the private respondent to present the insurance policy in evidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the parties thereto. Hence, the legal issues posed before the Court are: I Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner. II Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action. We rule in the negative on both issues. The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.[8] Article 2207 of the New Civil Code provides that: 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

24

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 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.[9] It is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment by the insurance company of the insurance claim.[10]Consequently, the payment made by the private respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have against the petitioner. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case.[11] In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity.[12] In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.[13] In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner attributes the sinking of MT Maysun to fortuitous event or force majeure. From the testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition occurred in the early morning of August 16, 1986; that at around 3:15 oclock in the morning a squall (unos) carrying strong winds with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo.[14] This tale of strong winds and big waves by the said officers of the petitioner however, was effectively rebutted and belied by the weather report[15] from the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the independent government agency charged

with monitoring weather and sea conditions, showing that from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioners vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank. The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify against the interest of their employer, the herein petitioner common carrier. Neither may petitioner escape liability by presenting in evidence certificates[16] that tend to show that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As correctly observed by the Court of appeals: At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to their probative value, (thus): Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the issuance of certificates establishes seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62) And also: Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owners obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in relation to seaworthiness. (Ibid.)[17]

25

Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts.[18] In the case at bar, petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier[19] occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit. Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.[20] The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA[21] (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract, which was not presented in evidence in that case would have indicated the scope of the insurers liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.

Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of industrial fuel oil belonging to Caltex, in the case at bar, was lost while on board petitioners vessel, MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early morning of August 16, 1986. WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner. SO ORDERED.

13. [G.R. No. 150094. August 18, 2004]

FEDERAL EXPRESS CORPORATION, petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC.,respondents. DECISION PANGANIBAN, J.: Basic is the requirement that before suing to recover loss of or damage to transported goods, the plaintiff must give the carrier notice of the loss or damage, within the period prescribed by the Warsaw Convention and/or the airway bill.

The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the June 4, 2001 Decision[2] and the September 21, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 58208. The assailed Decision disposed as follows:

26

WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit. The appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No. 951219, entitledAmerican Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.), is hereby AFFIRMED andREITERATED. Costs against the [petitioner and Cargohaus, Inc.].[4] The assailed Reconsideration. Resolution denied petitioners Motion for

On February 10, 1994, DARIO C. DIONEDA (DIONEDA), twelve (12) days after the cargoes arrived in Manila, a non-licensed customs broker who was assigned by GETC to facilitate the release of the subject cargoes, found out, while he was about to cause the release of the said cargoes, that the same [were] stored only in a room with two (2) air conditioners running, to cool the place instead of a refrigerator. When he asked an employee of Cargohaus why the cargoes were stored in the cool room only, the latter told him that the cartons where the vaccines were contained specifically indicated therein that it should not be subjected to hot or cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the ELISA reading of vaccinates sera are below the positive reference serum. As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring total loss for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for damages against the [petitioner] imputing negligence on either or both of them in the handling of the cargo. Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily liable for the loss as follows: WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its Co-Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the following: 1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from the time of the filing of the complaint to the time the same is fully paid. 2. Attorneys fees in the amount of P50,000.00 and

The Facts The antecedent facts are summarized by the appellate court as follows: On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill No. 11263825 with the words, REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on its face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with American Home Assurance Company (AHAC). The following day, Burlington turned over the custody of said cargoes to Federal Express which transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.s] warehouse. While the second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994, in Flight No. 007130NRT which was likewise immediately stored at Cargohaus warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo International Corporation, the customs broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its clients cargoes.

27

3.

Costs of suit.

I. Are the decision and resolution of the Honorable Court of Appeals proper subject for review by the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure? II.

SO ORDERED. Aggrieved, [petitioner] appealed to [the CA].[5]

Ruling of the Court of Appeals The Test Report issued by the United States Department of Agriculture (Animal and Plant Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate court held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good condition. We quote from the ruling as follows: Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a damaged condition, a presumption is raised that the damage occurred through the fault or negligence of the carrier, and this casts upon the carrier the burden of showing that the goods were not in good condition when delivered to the carrier, or that the damage was occasioned by some cause excepting the carrier from absolute liability. This the [petitioner] failed to discharge. x x x.[6] Found devoid of merit was petitioners claim that respondents had no personality to sue. This argument was supposedly not raised in the Answer or during trial. Hence, this Petition.[7]

Is the conclusion of the Honorable Court of Appeals petitioners claim that respondents have no personality to sue because the payment was made by the respondents to Smithkline when the insured under the policy is Burlington Air Express is devoid of merit correct or not? III. Is the conclusion of the Honorable Court of Appeals that the goods were received in good condition, correct or not? IV. Are Exhibits F and G hearsay evidence, and therefore, not admissible? V. Is the Honorable Court of Appeals correct in ignoring and disregarding respondents own admission that petitioner is not liable? and VI. Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?[8] Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is Federal Express liable for damage to or loss of the insured goods?

The Issues In its Memorandum, petitioner raises the following issues for our consideration:

28

This Courts Ruling The Petition has merit.

Proper Payee The Certificate specifies that loss of or damage to the insured cargo is payable to order x x x upon surrender of this Certificate. Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument. Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds.

Preliminary Issue: Propriety of Review The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question of law cognizable by the Supreme Court.[9] In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the conclusions drawn from such facts. Hence, this case is a proper subject for review by this Court.

Main Issue: Liability for Damages Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it -- because the payment made to Smithkline was erroneous. Pertinent to this issue is the Certificate of Insurance[10] (Certificate) that both opposing parties cite in support of their respective positions. They differ only in their interpretation of what their rights are under its terms. The determination of those rights involves a question of law, not a question of fact. As distinguished from a question of law which exists when the doubt or difference arises as to what the law is on a certain state of facts -- there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts; or when the query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstance, their relation to each other and to the whole and the probabilities of the situation.[11]

Subrogation Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt[12] in favor of respondents. The latter were thus authorized to file claims and begin suit against any such carrier, vessel, person, corporation or government. Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against the person responsible therefor. Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurers entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a contractual breach or negligence.[13] Further, the insurers subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld.[14] In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading. [15]

29

Prescription of Claim From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that respondents claim and right of action are already barred. The latter, and even the consignee, never filed with the carrier any written notice or complaint regarding its claim for damage of or loss to the subject cargo within the period required by the Warsaw Convention and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly evident from the records. Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states: 6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss (including nondelivery) unless presented within (120) days from the date of issue of the [Airway Bill].[16] Relevantly, petitioners airway bill states: 12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case: 12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within fourteen (14) days from receipt of the goods; 12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods; 12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and 12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the issue of the air waybill. 12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was used, or to the first carrier or to the last carrier or to the carrier who performed the transportation during which the loss, damage or delay took place.[17]

Article 26 of the Warsaw Convention, on the other hand, provides: ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint shall be prima facie evidence that the same have been delivered in good condition and in accordance with the document of transportation. (2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay the complaint must be made at the latest within 14 days from the date on which the baggage or goods have been placed at his disposal. (3) Every complaint must be made in writing upon the document of transportation or by separate notice in writing dispatched within the times aforesaid. (4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part. [18]

Condition Precedent In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods.[19] The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.[20] The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being charged with liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by

30

affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims.[21] When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a notice of claim for loss of or damage to goods shipped and the stipulation is not complied with, its enforcement can be prevented and the liability cannot be imposed on the carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not given in accordance with the stipulation.[22] Failure to comply with such a stipulation bars recovery for the loss or damage suffered.[23] Being a condition precedent, the notice must precede a suit for enforcement.[24] In the present case, there is neither an allegation nor a showing of respondents compliance with this requirement within the prescribed period. While respondents may have had a cause of action then, they cannot now enforce it for their failure to comply with the aforesaid condition precedent. In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner. We note that respondents are not without recourse. Cargohaus, Inc. -petitioners co-defendant in respondents Complaint below -- has been adjudged by the trial court as liable for, inter alia, actual damages in the amount of the peso equivalent of US $39,339. [25] This judgment was affirmed by the Court of Appeals and is already final and executory. [26] WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to Petitioner Federal Express Corporation. No pronouncement as to costs. SO ORDERED. Cha vs CA Post under case digests, Commercial 2012 Posted by Schizophrenic Mind Law at Saturday, March 31,

effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the Lessor. If the Lessee violates this the policy is deemed assigned and transferred to the Lessor for his own benefit. Petitioner took out a policy of fire insurance over the merchandise inside the leased premises with United Insurance without consent of CKS. On the day the lease contract was to expire a fire broke out inside the leased premises. CKS, wrote a letter to United asking that the proceeds of the fire insurance be paid directly to CKS. United refused. Hence, the latter filed a complaint against the Cha spouses and United. RTC ruled in favor of CKS. CA affirmed, hence the petition. Issue: Whether or not CKS can recover from the insurance policy. Held: No. Section 18 of the Insurance Code provides that: No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code: The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. Therefore, CKS cannot be validly a beneficiary of the fire insurance policy taken by petitioner-spouses. The insurable interest remains with the Cha spouses.

Facts: Petitioner spouses Nilo Cha and Stella Uy-Cha, as lessees entered into a lease contract with private respondent CKS Development Corporation as lessor. A stipulation of the lease contract provides that the Lessee is not allowed to insure against fire the chattels, merchandise, textiles, goods and

31

The stipulation in the lease contract is void for being contrary to law and public policy. This is in keeping with the provision under Sec. 25 of the Insurance Code that: Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured or that the policy shall be received as proof of such interest and every policy executed by way of gaming or wagering is void.

Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thus negate the claim that the insurance contract was perfected. Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through the intra-company communication of 30 April 1957, Pacific Life disapproved the insurance application in question on the ground that it is not offering the 20-year endowment insurance policy to children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-

14. Great Pacific Life Assurance Co. vs Court of Appeals GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, vs. HONORABLE COURT OF APPEALS, respondents. G.R. April No. 30, L-31845 1979

LAPULAPU D. MONDRAGON, petitioner, vs. HON. COURT OF APPEALS and NGO HING, respondents. G.R. April No. 30, L-31878 1979

Facts: Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company (Pacific Life) for a twenty-year endowment policy in the life of Helen Go, his one year old daughter. Petitioner Lapulapu D. Mondragon, the branch manager, prepared application form using the essential data supplied by respondent. The latter paid the annual premium and Mondragon retained a portion of it as his commission. The binding deposit receipt was issued to respondent. Mondragon wrote his strong recommendation for the approval of the insurance application. However, Pacific Life disapproved the application since the plan was not available for minors below 7 years old but it can consider the same under another plan. The non-acceptance of the insurance plan was allegedly not communicated by Mondragon to respondent. Mondragon again asserted his strong recommendation. Helen Go died of influenza. Thereupon, respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed an action for the recovery of the same. Hence the case at bar.

32

compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

> It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian Colleges.

15. Harvardian Colleges v. Country Bankers Insurance Corp. 1 CARA 2

Issue: Whether or not Harvardian colleges has a right to the proceeds.

Facts: > Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their children. > Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although at first reluctant, Harvardian agreed. > Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which Harvardian paid an annual premium of P2,500. > On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39 days before I was born hehehehe )during the effectivity of said insurance policy, the insured property was totally burned rendering it a total loss. > A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner.

Held: Harvardian has a right to the proceeds. Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the contract of fire insurance should still be upheld if his interest in or his relation to the property is such that he will be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or injury. The test in determining insurable interest in property is whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against.

Here Harvardian was not only in possession of the building but was in fact using the same for several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned, Harvardian would have been allowed the continued use of the same as the site of its operation as an educational institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned.

33

34