PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

AUGUSTO COSIO and BEATRIZ DE RAMA vs. CHERIE PALILEO No. L-18452. May 20, 1966. A transaction is determined by the nature thereof. The nature of the agreement being inherent in the agreement itself, exists from the very moment the transaction was entered into. Thus, except as to bona fide city purchasers without notice and those standing in similar relations, on the reformation of an instrument, the general rule is that it relates back to and takes effect from the time of its original execution, especially as between the parties themselves (76 C.J.S., par. 93). The function of reformation is not to make a new contract for the parties, but only to make the instrument speak their genuine intention. Where by agreement the mortgaged property is delivered to the mortgagee, such mortgagee in possession is subject to the obligation of an antichretic creditor to apply the fruits to the payment, first, of the interest and, later, of the principal (Diego vs. Fernando, L-15128, Aug. 25, 1960; Macapinlac vs. Gutierrez-Repide, 43 Phil, 770). A simple mortgage does not give the mortgagee the right to the possession of mortgaged property (Alvano vs. Batoon, 25 Phil. 178). A mortgagee in possession is one who has lawfully acquired actual or constructive possession of the premises mortgaged to him, standing upon his rights as mortgagee and not claiming another title, for the purpose of enforcing his security upon such property or making its income help to pay his debt. (Diaz vs. De Mendezona, 48 Phil. 666, 669).

A possessor in bad faith is liable for rent during all the time he deprived the owner of the use of the property (Lerma vs. De la Cruz, 7 Phil. 580). It is presumed that possession is enjoyed in the same character in which it was acquired until the contrary is proved (Art, 529, New Civil Code). Even a mere mortgagee has an insurable interest in the thing mortgaged (Palileo vs. Cosio, 97 Phil. 919). When the petitioners took possession of a house in good faith, in the honest belief that they were entitled to do so, their bad faith started only from the time they became aware of the decision in the first case, because it was from that date only that they became aware of the flaw in their title. This liability for rent must, accordingly, be deemed to begin from December 15, 1955 only when the decision in the first case become final.

SAURA IMPORT & EXPORT Co., INC vs. PHILIPPINE INTERNATIONAL SURETY Co., INC., and PHILIPPINE NATIONAL BANK No. L 15184. May 31, 1963.

Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of land to secure the payment of promissory note of P27,000.00. the mortgage was amended to guarantee an increased amount, bringing the total mortgaged debt to P37,000.00. A building of strong materials which was also owned by Saura, was erected on the parcel of land and the building had always been covered by insurance even before the execution of the mortgage contract.

PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

Pursuant to the mortgage agreement which required Saura to insure the building and its contents, it obtained a fire insurance for P29T from PISC for a period of 1 year starting Oct. 2, 1954. The mortgage also required Saura to endorse the insurance policy to PNB. The memo stated: Loss if any, payable to PNG as their interest may appear, subject to the terms, conditions and warranties of this policy. The policy was delivered to PNB by Saura. On Oct. 15, 1954, barely 13 days after the issuance of the fire insurance, PISC canceled the same, effective as of the date of issue. Notice of the cancellation was sent to PNB in writing and was received by the bank on Nov. 8, 1954. On Apr. 6, 1955, the building and its contents worth P4,685 were burned. On April 11, 1985, Saura filed a claim with PISC and mortgagee bank. Upon presentation of notice of loss with PNB, Saura learned for the first time that the policy had been previously canceled by PISC, when Sauras folder in the banks file was opened and the notice of the cancellation by PISC was found. RTC: dismissed, it was established that neither the Insurer nor the mortgagee Bank informed the plaintiff Saura of the cancellation of the policy. WHETHER OR NOT PHILIPPINE INTERNATIONAL SURETY SHOULD BE HELD LIABLE FOR THE CLAIM BECAUSE NOTICE TO ONLY THE MORTGAGEE IS NOT SUBSTANTIAL.

The purpose of provisions or stipulations in insurance policies for notice to the insured, is to prevent the cancellation of the policy, without allowing the insured ample opportunity to negotiate for other insurance in its stead. The form and sufficiency of a notice of cancellation is determined by policy provisions. In order to form the basis of the cancellation of a policy, notice to the insured need not be in any particular from, form, in the absence of a statute or policy provision prescribing such form, and it is sufficient, so long as it positively and unequivocably indicates to the insured, that it is the intention of the company that the policy shall cease to be binding. Where the policy contains no provisions that a certain number of days notice shall be given, a reasonable notice and opportunity to obtain other insurance must be given. Actual personal notice to the insured is essential to a cancellation under a provision for cancellation by notice. The actual receipt by the insured of a notice of cancellation is universally recognized as a condition precedent to a cancellation of the policy by the insurer, and consequently a letter containing notice of cancellation which is mailed by the insurer but not received by the insured, is ineffective as cancellation (29 Am. Jur. pp. 732-741). The Insurance Law, Act No. 2427, does not provide as to the form or period for notice of cancellation of the policy by the insurer. Consequently, it devolves upon the courts to apply the generally accepted principles of insurance regarding such cancellation. Applying such principles, actual notice of cancelation in a clear and unequivocal manner, preferably in writing, should be given by the insurer to the insured, so that the latter may be given an opportunity to obtain another insurance for his own protection. The notice should be personal to the insured and not to and/or any. unauthorized person by the policy.

PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

The policy in question does NOT provide for the notice of cancellation, its form or period. The Insurance Law does not likewise provide for such notice. This being the case, it devolves upon the Court to apply the generally accepted principles of insurance, regarding cancellation of the insurance policy by the insurer. Therefore, notice of cancellation by the insurer, given to the mortgagee of the insured alone, without the prior authority of the insured, is not effective notice as to the insured owner.

not attach and the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.). A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification (Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]). As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon the same property, the total absence of such notice nullifies the policy. The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of the aforecited co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27). Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right, with more reason, petitioner which is merely claiming as indorsee of said insured, cannot be entitled to such proceeds. Petitioner further stressed that fraud which was not pleaded as a defense in private respondents answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only

PACIFIC BANKING CORPORATION vs. COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION No. L-41014. November 28, 1988.

It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25). Petitioners contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses Co-Insurances Declared and Other Insurance Clause are materially different from the actual number of co-insurances taken over the subject property. Consequently, the whole foundation of the contract fails, the risk does

PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence. Be that as it may, it is established that the Supreme Court has ample authority to go beyond the pleadings where in the interest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion. Otherwise stated, the Court can consider a fact which surfaced only after trial proper. Generally, the cause of action on the policy accrues when the loss occurs. But when the policy provides that no action shall be brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of action will accrue from the time the insurer finally rejects the claim for payment. The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private respondent to serve as notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents were necessary to prove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing out the necessary information to ascertain the particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthy that private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor submitted the supporting documents in compliance with the requirements set forth in the policy. Despite the notice, the latter remained unheedful. Since the required claim by insured, together with the preliminary submittal of relevant documents had not been complied with, it follows that private respondent could not be deemed to have finally rejected petitioners claim and therefore the latters cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine quo non to the right to maintain an action as prior thereto no violation of petitioners right can be attributable to

private respondent. This is so, as before such final rejection, there was no real necessity for bringing suit. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurers liability, and in order to recover, the insured must show himself within those terms. The compliance of the insured with the terms of the policy is a condition precedent to the right of recovery.

GREAT PACIFIC LIFE ASSURANCE CORP, vs. COURT OF APPEALS AND MEDARDA V. LEUTERIO G.R. No. 113899. October 13, 1999. We must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the mortgage redemption insurance, is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the

PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract. The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: In the event of the debtors death before his indebtedness with the Creditor *DBP+ shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor. When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent. In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. we held: Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. * * * Although a policy issued to a mortgagor is taken out for the benefit of the

mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagees interest is less than the full amount recoverable under the policy, * * *. And in volume 33, page 82, of the same work, we read the following: Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain. The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death. Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance. And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to the amount of Dr. Leuterios outstanding indebtedness to DBP at the time of the mortgagors death. Hence, for private respondents failure to establish the same, the action for specific performance should be dismissed. Petitioners claim is without merit. A life insurance policy is a valued policy. Unless the interest of a person insured is susceptible of exact

PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. We noted that the Court of Appeals decision was promulgated on May 17, 1993. In private respondents memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagors outstanding loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterios heirs represented by his widow, herein private respondent Medarda Leuterio.

suspending the insurance until the purchaser becomes owner of the policy as well as of the property insured. If during the negotiations leading up to the writing of a policy of insurance the contracting parties agree that the insurance shall be so written as to protect not only the interest of the applicant for the policy, as mortgagee, but also the residuary interest of the owner, and the policy is, by inadvertence, ignorance, or mistake, so written as to protect only the interest of the applicant, the court has the power to reform the contract and give effect to it in the sense in which the parties intended to be bound. In order to justify the reformation of a contract of insurance on the ground of failure of the contract to express the intention of the contracting parties, the proof must be of the most satisfactory character, and it must be made clearly to appear that the minds of the contracting parties did actually meet in agreement and that there was some mutual mistake in the expression of their purpose.

SAN MlGUEL BREWERY vs. LAW UNION AND ROCK INSURANCE Co. HENRY HARDING No. 14300. January 19, 1920.

A brewery company, as mortgagee of real property, procured a policy of insurance to be written thereon payable to itself, in case of loss. The insurer was notified that the brewery was merely a mortgagee, but no information was asked or given as to the personality of the owner. Held: That the brewery company had an insurable interest but could recover on the policy only to the extent of the credit secured by the mortgage. A purchaser of insured property who does not take the precaution. to obtain a transfer of the policy of insurance cannot, in case of loss, recover upon such contract, as the transfer of the property has the effect of

DELFIN NARIO, and ALEJANDRA SANTOS-NARIO. vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY No. L-22796. June 26, 1967.

The vested interest or right of the beneficiaries in a life insurance policy should be measured on its full face value and not on its cash surrender value, for, in case of death of the insured, said beneficiaries are paid on the basis of its face value and, in case the insured should discontinue paying premiums, the beneficiaries may continue paying the same and they are entitled to automatic extended term or paidup insurance

PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

options, etc. Said vested right under the policy cannot be divisible at any given time. Where a person secured a life insurance policy with a face value of P5,000, and she designated her husband and minor child as irrevocable beneficiaries, her act of securing a loan on said policy and the act of surrendering the policy because the loan was not granted are acts of disposition or alienation of her minor child's property rights and are not merely acts of management or administration. Said acts involve the incurring or termination of contractual obligations. Judicial authorization is necessary for the consent to be given by the father to a policy loan or to the surrender of a life insurance policy wherein a minor has a vested interest worth P2,500. To obtain such judicial authorization, the father should be appointed guardian of 'the child's property. If the minor's property is valued at less than P2,000, the father or mother, as legal administrator, needs judicial authorization to alienate or encumber the same. As legal administrator, the father or mother can perform only acts of administration or management, as distinguished f rom incumbrance or disposition. The New Civil Code has not effected a restitutio in integrum of the Spanish patria potestas. The revival has been in part only. The fact that the New Civil Code did not reenact article 104 of the old Civil Code, which prohibited the parents from alienating the real property owned by the child without court authority, proves that the parents have no authority to carry out acts of disposition or alienation of the child's real or personal property without judicial authorization.

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY vs. PINEDA and RODOLFO C. DIMAYUGA G.R. No. 54216. July 19, 1989 On January 15, 1968, private respondent procured an ordinary life insurance policy from the petitioner company and designated his wife and children as irrevocable beneficiaries of said policy. Under date February 22, 1980 private respondent filed a petition which was docketed as Civil Case No. 9210 of the then Court of First Instance of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable to revocable. Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the same date, petitioner filed its Comment and/or Opposition to Petition. When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio G. Pineda, presiding Judge of the then Court of First Instance of Rizal, Pasig Branch XXI, denied petitioner's Urgent Motion, thus allowing the private respondent to adduce evidence, the consequence of which was the issuance of the questioned Order granting the petition. Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order June 10, 1980. Hence, this petition raising the following issues for resolution. I.WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES COULD BE CHANGED OR AMENDED WITHOUT THE CONSENT OF ALL THE IRREVOCABLE BENEFICIARIES.

PHILIPPINE JURISPRUDENCE IN

INSURANCE
DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

II.WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF WHOM IS ALREADY DECEASED WHILE THE OTHERS ARE ALL MINORS, COULD VALIDLY GIVE CONSENT TO THE CHANGE OR AMENDMENT IN THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES. We are of the opinion that his Honor, the respondent Judge, was in error in issuing the questioned Orders. Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No. 2427 as amended, the policy having been procured in 1968. Under the said law, the beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary because he has a vested interest in the policy (Gercio v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v. Redfern and the International Assurance Co., Ltd., 72 Phil. 71). In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which forms part of Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the designation of the beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210, Annex "C" of the Petition for Review on Certiorari), to wit: It is hereby understood and agreed that, notwithstanding the provisions of this policy to the contrary, inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this Policy has been made without reserving the right to change said beneficiary/ beneficiaries, such designation may not be surrendered to the Company, released or assigned; and no right or privilege under the Policy may be exercised, or agreement made with the Company to any change in or amendment to the Policy, without the consent of the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)

Be it noted that the foregoing is a fact which the private respondent did not bother to disprove. Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then applicable, it is only with the consent of all the beneficiaries that any change or amendment in the policy concerning the irrevocable beneficiaries may be legally and validly effected. Both the law and the policy do not provide for any other exception, thus, abrogating the contention of the private respondent that said designation can be amended if the Court finds a just, reasonable ground to do so. Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-wife predeceased the insured) cannot be considered an effective ratification to the change of the beneficiaries from irrevocable to revocable. Indubitable is the fact that all the six (6) children named as beneficiaries were minors at the time,** for which reason, they could not validly give their consent. Neither could they act through their father insured since their interests are quite divergent from one another. In point is an excerpt from the Notes and Cases on Insurance Law by Campos and Campos, 1960, readingThe insured ... can do nothing to divest the beneficiary of his rights without his consent. He cannot assign his policy, nor even take its cash surrender value without the consent of the beneficiary. Neither can the insured's creditors seize the policy or any right thereunder. The insured may not even add another beneficiary because by doing so, he diminishes the amount which the beneficiary may recover and this he cannot do without the beneficiary's consent. Of equal importance is the well-settled rule that the contract between the parties is the law binding on both of them and for so many

PHILIPPINE JURISPRUDENCE IN

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DAUZ, DE GRACIA, DE LEON, EVANGELISTA, LOPEZ, MARTIN, TARIGA

times.(Phoenix Assurance Co., Ltd. vs. United States Lines, 22 SCRA 675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.) In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court ruled that: ... it is settled that the parties may establish such stipulations, clauses, terms, and conditions as they may want to include; and as long as such agreements are not contrary to law, good morals, good customs, public policy or public order, they shall have the force of law between them. Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and does not in any way violate the law, morals, customs, orders, etc Finally, the fact that the contract of insurance does not contain a contingency when the change in the designation of beneficiaries could be validly effected means that it was never within the contemplation of the parties. The lower court, in gratuitously providing for such contingency, made a new contract for them, a proceeding which we cannot tolerate. Ergo, We cannot help but conclude that the lower court acted in excess of its authority when it issued the Order dated March 19, 1980 amending the designation of the beneficiaries from "irrevocable" to "revocable" over the disapprobation of the petitioner insurance company. WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby nullified and set aside.