Pacific Timber v CA G.R. No.

L-38613 February 25,

1982

loss.
Held: No. No. Judgment reversed.

J. De Castro
Facts:
The plaintiff secured temporary insurance from the
defendant for its exportation of 1,250,000 board feet of
Philippine Lauan and Apitong logs to be shipped from
Quezon Province to Okinawa and Tokyo, Japan.
Workmens Insurance issued a cover note insuring the
cargo of the plaintiff subject to its terms and conditions.
The two marine policies bore the numbers 53 HO 1032
and 53 HO 1033. Policy No. 53 H0 1033 was for 542
pieces of logs equivalent to 499,950 board feet. Policy No.
53 H0 1033 was for 853 pieces of logs equivalent to
695,548 board feet. The total cargo insured under the two
marine policies consisted of 1,395 logs, or the equivalent
of 1,195.498 bd. ft.
After the issuance of the cover note, but before the
issuance of the two marine policies Nos. 53 HO 1032 and
53 HO 1033, some of the logs intended to be exported
were lost during loading operations in the Diapitan Bay.
While the logs were alongside the vessel, bad weather
developed resulting in 75 pieces of logs which were rafted
together co break loose from each other. 45 pieces of logs
were salvaged, but 30 pieces were verified to have been
lost or washed away as a result of the accident.
Pacific Timber informed Workmens about the loss of 32
pieces of logs during loading of SS woodlock.
Although dated April 4, 1963, the letter was received in the
office of the defendant only on April 15, 1963. The plaintiff
claimed for insurance to the value of P19,286.79.
Woodmens requested an adjustment company to assess
the damage. It submitted its report, where it found that the
loss of 30 pieces of logs is not covered by Policies Nos. 53
HO 1032 and 1033 but within the 1,250,000 bd. ft. covered
by Cover Note 1010 insured for $70,000.00.
The adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the
shipment, in the total amount of P11,042.04.
Woodmens wrote the plaintiff denying the latter's claim on
the ground they defendant's investigation revealed that the
entire shipment of logs covered by the two marine policies
were received in good order at their point of destination. It
was further stated that the said loss may be considered as
covered under Cover Note No. 1010 because the said
Note had become null and void by virtue of the issuance of
Marine Policy Nos. 53 HO 1032 and 1033.
The denial of the claim by the defendant was brought by
the plaintiff to the attention of the Insurance
Commissioner. The Insurance Commissioner ruled in
favor of indemnifying Pacific Timber. The company added
that the cover note is null and void for lack of valuable
consideration. The trial court ruled in petitioners favor
while the CA dismissed the case. Hence this appeal.
Issues:
WON the cover note was null and void for lack of valuable
consideration
WON the Insurance company was absolved from
responsibility due to unreasonable delay in giving notice of

Ratio:
1. The fact that no separate premium was paid on the
Cover Note before the loss occurred does not militate
against the validity of the contention even if no such
premium was paid. All Cover Notes do not contain
particulars of the shipment that would serve as basis for
the computation of the premiums. Also, no separate
premiums are required to be paid on a Cover Note.
The petitioner paid in full all the premiums, hence there
was no account unpaid on the insurance coverage and the
cover note. If the note is to be treated as a separate policy
instead of integrating it to the regular policies, the purpose
of the note would be meaningless. It is a contract, not a
mere application for insurance.
It may be true that the marine insurance policies issued
were for logs no longer including those which had been
lost during loading operations. This had to be so because
the risk insured against is for loss during transit, because
the logs were safely placed aboard.
The non-payment of premium on the Cover Note is,
therefore, no cause for the petitioner to lose what is due it
as if there had been payment of premium, for nonpayment by it was not chargeable against its fault. Had all
the logs been lost during the loading operations, but after
the issuance of the Cover Note, liability on the note would
have already arisen even before payment of premium.
Otherwise, the note would serve no practical purpose in
the realm of commerce, and is supported by the doctrine
that where a policy is delivered without requiring payment
of the premium, the presumption is that a credit was
intended and policy is valid.
2. The defense of delay cant be sustained. The facts
show that instead of invoking the ground of delay in
objecting to petitioner's claim of recovery on the cover
note, the insurer never had this in its mind. It has a duty to
inquire when the loss took place, so that it could
determine whether delay would be a valid ground of
objection.
There was enough time for insurer to determine if
petitioner was guilty of delay in communicating the loss to
respondent company. It never did in the Insurance
Commission. Waiver can be raised against it under
Section 84 of the Insurance Act.

Bonifacio Bros. v. Mora

20 SCRA 262
Facts:
> Enrique Mora mortgaged his Odlsmobile sedan car to
HS Reyes Inc. with the condition that Mora would insure
the car with HS Reyes as beneficiary.
> The car was then insured with State Insurance
Company and the policy delivered to Mora.
> During the effectivity of the insurance contract, the car
figured in an accident. The company then assigned the
accident to an insurance appraiser for investigation and
appraisal of the damage.
> Mora without the knowledge and consent of HS Reyes,
authorized Bonifacio Bros to fix the car, using materials
supplied by the Ayala Auto Parts Company.
> For the cost of Labor and materials, Mora was billed
P2,102.73. The bill was sent to the insurers appraiser.
The insurance company drew a check in the amount of the
insurance proceeds and entrusted the check to its
appraiser for delivery to the proper party.
> The car was delivered to Mora without the consent of
HS Reyes, and without payment to Bonifacio Bros and
Ayala.
> Upon the theory that the insurance proceeds should be
directly paid to them, Bonifacio and Ayala filed a complaint
against Mora and the insurer with the municipal court for
the collection of P2,102.73.
>
The insurance company filed its answer with a
counterclaim for interpleader, requiring Bonifacio and HS
Reyes to interplead in order to determine who has a better
right to the proceeds.
Issue:
Whether or not there is privity of contract between
Bonficacio and Ayala on one hand and State Insurance on
the other.

Consequently, a third person NOT a party to the contract

has NO action against the aprties thereto, and cannot
generally demand the enforcement of the same.
The question of whether a third person has an enforceable
interest in a contract must be settled by determining
whether the contracting parties intended to tender him
such an interest by deliberately inserting terms in their
agreement with the avowed purpose of conferring favor
upon such third person. IN this connection, this court has
laid down the rule that the fairest test to determine
whether the interest of a 3rd person in a contract is a
stipulation pour autrui or merely an incidental interest, is to
rely upon the intention of the parties as disclosed by their
contract.
In the instant case the insurance contract does not contain
any words or clauses to disclose an intent to give any
benefit to any repairmen or material men in case of repair
of the car in question. The parties to the insurance
contract omitted such stipulation, which is a circumstance
that supports the said conclusion. On the other hand, the
"loss payable" clause of the insurance policy stipulates
that "Loss, if any, is payable to H.S. Reyes, Inc." indicating
that it was only the H.S. Reyes, Inc. which they intended
to benefit.
A policy of insurance is a distinct and independent
contract between the insured and insurer, and third
persons have no right either in a court of equity, or in a
court of law, to the proceeds of it, unless there be some
contract of trust, expressed or implied, by the insured and
third person. In this case, no contract of trust, express or
implied. In this case, no contract of trust, expressed or
implied exists. We, therefore, agree with the trial court that
no cause of action exists in favor of the appellants in so
far as the proceeds of insurance are concerned. The
appellant's claim, if at all, is merely equitable in nature and
must be made effective through Enrique Mora who
entered into a contract with the Bonifacio Bros Inc. This
conclusion is deducible not only from the principle
governing the operation and effect of insurance contracts
in general, but is clearly covered by the express provisions
of section 50 of the Insurance Act (now Sec. 53).

Held:
NONE.
It is fundamental that contracts take effect only between
the parties thereto, except in some specific instance
provided by law where the contract contains some
stipulation in favor of a third person. Such stipulation is
known as a stipulation pour autrui; or a provision in favor
of a third person not a party to the contract.
Under this doctrine, a third person is ed to avail himself of
a benefit granted to him by the terms of the contract,
provided that the contracting parties have clearly and
deliberately conferred a favor upon such person.

The policy in question has been so framed that "Loss, if

any, is payable to H. S. Reyes, Inc." which unmistakably
shows the intention of the parties.

Development Insurance v IAC G.R. No. 71360 July 16,

1986
J. Cruz
Facts:
A fire occurred in the building of Philippine Union. It sued
for recovery of damages from the petitioner on the basis of
an insurance contract between them. The petitioner failed
to answer on time despite the numerous extensions it
asked for. It was declared in default by the trial court. A
judgment of default was subsequently rendered on the
strength of the evidence given by the private respondent,
which was allowed damages. The petitioner moved to lift
the order of default. Its motion was denied. It went to the
appellate court, which affirmed the decision of the trial
court. Hence this appeal.
Issue: Was Philippine Union required to jointly indemnify
the building?
Held: No. Petition dismissed.
Ratio:
The policy insured the private respondent's building
against fire for P2,500,000.00.
The petitioner argued that the respondent must share the
difference between that amount and the face value of the
policy and the loss sustained for 5.8 million under
Condition 17 of the policy.
The building was insured at P2,500,000.00 by agreement
of the insurer and the insured.
The agreement is known as an open policy and is subject
to the express condition that:
In the event of loss, whether total or partial, it is
understood that the amount of the loss shall be subject to
appraisal and the liability of the company, if established,
shall be limited to the actual loss, subject to the applicable
terms, conditions, warranties and clauses of this Policy,
and in no case shall exceed the amount of the policy.
Section 60 of the Insurance Code defines an open policy
is one in which the value of the thing insured is not agreed
upon but is left to be ascertained in case of loss." This
means that the actual loss, as determined, will represent
the total indemnity due the insured from the insurer except
only that the total indemnity shall not exceed the face
value of the policy.
The actual loss has been ascertained in this case. Hence,
applying the open policy clause as expressly agreed upon,
the private respondent is entitled to indemnity in the total
amount of P508,867.00.
The refusal of its vice-president to receive the private
respondent's complaint was the first indication of the
petitioner's intention to prolong this case and postpone the
discharge of its obligation to the private respondent under
this agreement. They still evaded payment for 5 years.

Sun v CA G.R. No. 89741 March 13, 1991

Facts: Sun Insurance Office Ltd. issued Personal Accident
Policy 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet
wound in his head. As beneficiary, his wife Nerissa
Lim sought payment on the policy but her claim was
rejected. Sun Insurance agreed that there was no suicide.
It argued, however, that there was no accident either. Pilar
Nalagon, Lim's secretary, was the only eyewitness to his
death. It happened on 6 October 1982, at about 10 p.m.,
after his mother's birthday party. According to
Nalagon, Lim was in a happy mood (but not drunk) and
was playing with his handgun, from which he had
previously removed the magazine. As she watched the
television, he stood in front of her and pointed the gun
at her. She pushed it aside and said it might be loaded. He
assured her it was not and then pointed it to his
temple. The next moment there was an explosion and Lim
slumped to the floor. He was dead before he fell.
The widow sued Sun Insurance in the Regional Trial Court
of Zamboanga City and was sustained. Sun
Insurance was sentenced to pay her P200,000.00,
representing the face value of the policy, with interest at
the
legal rate; P10,000.00 as moral damages; P5,000.00 as
exemplary damages; P50,000.00 as actual and
compensatory damages; and P5,000.00 as attorney's
fees, plus the cost of the suit. This decision was affirmed
on appeal, and the motion for reconsideration was denied.
Sun Insurance then came to the Supreme Court.
Issue:
1. Was Lims widow eligible to receive the benefits?
2. Were the other damages valid?
Held:
1. Yes 2. No
Ratio: 1. There was an accident.
De la Cruz v. Capital Insurance says that "there is no
accident when a deliberate act is performed unless some
additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their
injury or death." This was true when he fired the gun.
Under the insurance contract, the company wasnt liable
for bodily injury caused by attempted suicide or by one
needlessly exposing himself to danger except to save
anothers life.
Lim wasnt thought to needlessly expose himself to danger
due to the witness testimony that he took steps to ensure
that the gun wasnt loaded. He even assured his secretary
that the gun was loaded.
There is nothing in the policy that relieves the insurer of
the responsibility to pay the indemnity agreed upon if the
insured is shown to have contributed to his own accident.
2. In order that a person may be made liable to the
payment of moral damages, the law requires that his act
be wrongful. The adverse result of an action does not per

se make the act wrongful and subject the act or to the

payment of moral damages. The law could not have
meant to impose a penalty on the right to litigate; such
right is so precious that moral damages may not be
charged on those who may exercise it erroneously. For
these the law taxes costs.
If a party wins, he cannot, as a rule, recover attorney's
fees and litigation expenses, since it is not the fact of
winning alone that entitles him to recover such damages
of the exceptional circumstances enumerated in Art. 2208.
Otherwise, every time a defendant wins, automatically the
plaintiff must pay attorney's fees thereby putting a
premium on the right to litigate which should not be so. For
those expenses, the law deems the award of costs as
sufficient.

PHILIPPINE PHOENIX SURETY

COMPANY, vs.
WOODWORKS, INC.
G.R. No. L-25317 August 6, 1979
FIRST DIVISION
MELENCIO-HERRERA, J.:

&

INSURANCE

FACTS:
Upon WOODWORKSs application, PHIL. PHOENIX
issued in its favor a fire insurance policy whereby PHIL.
PHOENIX insured WOODWORKS building, machinery
and equipment for a term of one year from against loss by
fire. The premium and other charges amounted to
P10,593.36.
It is undisputed that WOODWORKS did not pay the
premium stipulated in the Policy when it was issued nor at
any time thereafter.
Before the expiration of the one-year term, PHIL.
PHOENIX notified WOODWORKS of the cancellation of
the Policy allegedly upon request of WOODWORKS. The
latter has denied having made such a request. PHIL.
PHOENIX credited WOODWORKS with the amount of
P3,110.25 for the unexpired period of 94 days, and
claimed the balance of P7,483.11 representing , earned
premium. Thereafter, PHIL. PHOENIX demanded in
writing for the payment of said amount.
WOODWORKS disclaimed any liability contending, in
essence, that it need not pay premium because the
Insurer did not stand liable for any indemnity during the
period the premiums were not paid.
For this reason, PHIL. PHOENIX commenced action in the
CFI of Manila. Judgment was rendered in PHIL.
PHOENIXs favor . From this adverse Decision,
WOODWORKS appealed to the Court of Appeals which
certified the case to SC on a question of law.
ISSUE:
May the insurer collect the earned premiums?
HELD:
NO. The Courts findings are buttressed by Section 77 of

the Insurance Code (Presidential Decree No. 612,

promulgated on December 18, 1974), which now provides
that no contract of insurance issued by an insurance
company is valid and binding unless and until the premium
thereof has been paid, notwithstanding any agreement to
the contrary.
Since the premium had not been paid, the policy must be
deemed to have lapsed.
The non-payment of premiums does not merely suspend
but put, an end to an insurance contract, since the time of
the payment is peculiarly of the essence of the contract.
In fact, if the peril insured against had occurred, PHIL.
PHOENIX, as insurer, would have had a valid defense
against recovery under the Policy it had issued. Explicit in
the Policy itself is PHIL. PHOENIXs agreement to
indemnify WOODWORKS for loss by fire only after
payment of premium, Compliance by the insured with the
terms of the contract is a condition precedent to the right
of recovery.
The burden is on an insured to keep a policy in force by
the payment of premiums, rather than on the insurer to
exert every effort to prevent the insured from allowing a
policy to elapse through a failure to make premium
payments. The continuance of the insurers obligation is
conditional upon the payment of premiums, so that no
recovery can be had upon a lapsed policy, the contractual
relation between the parties having ceased.
Moreover, an insurer cannot treat a contract as valid for
the purpose of collecting premiums and invalid for the
purpose of indemnity.
DISPOSITION:
The judgment appealed from was reversed, and PHIL.
PHOENIXs complaint dismissed.

FRANCISCO G. ALEJA, FELICITACION GAMBOA-ALEJA

and DOMINADOR ALEJA, plaintiffs-appellants,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM,
defendant-appellee.
Restituto L. Joson for plaintiffs-appellants.
Bartolome S. Palma for defendant-appellee.
BARRERA, J.:
This is an appeal by Francisco G. Aleja, et al., from the
decision of the Court of First Instance of Nueva Ecija (in
Civil Case No. 3335) dismissing their complaint against
the Government Service Insurance System (GSIS) and
denying their claim to the proceeds of the insurance policy
No. 310973 issued to the late Rosauro G. Aleja, on the
ground that the deceased was not yet covered by
insurance at the time of his death.
As found by the lower court, the deceased Rosauro G.
Aleja was appointed as temporary classroom teacher in
the Bureau of Public Schools, Division of Nueva Ecija, on
July 8, 1958. Thereafter, a compulsory term insurance
policy, No. 310973, was issued in his name, said policy to
take effect on February 1, 1959. The corresponding
premium therefor was deducted for the first time from his
salary on January 31, 1959. However, two days before
that or on January 29, 1959, while guarding the rice stack
in front of their house, Rosauro Aleja died of a gunshot
wound inflicted by his own gun. Plaintiffs, as beneficiaries
named in the policy, filed a claim with the GSIS to collect
the proceeds of the said policy, but the same was denied
allegedly because at the time of Aleja's death, the policy
was not yet effective and the latter was, therefore, not
covered by insurance. Hence, the institution of this case
and the consequent promulgation of the decision by the
lower court which is the subject of the present appeal.
In denying plaintiffs-appellants' claim, the GSIS contends
that although Aleja became a permanent employee and
entitled to membership in the System 6 months after his
original appointment, or on January 8, 1959, yet as
specified in the policy issued to him, the same shall
become effective only on February 1, 1959. And this latter
date was fixed in accordance with the provisions of
Commonwealth Act 186, as amended by Republic Act
660, which read:
SEC. 4. Scope of application of System. (a)
Membership to the System shall be compulsory upon all
regularly and permanently appointed employees, including
those whose tenure of office is fixed or limited by law;
upon all teachers except only those who are substitutes; ...
.
SEC. 8. (a) Compulsory membership insurance. An
employee whose membership in the System is
compulsory shall be automatically insured on the first day

of the seventh calendar month following the month he was

appointed or on the first day of the sixth calendar month if
the date of his appointment is the first day of the month:
Provided, That his medical examination, if required, has
been approved by the System.1wph1.t
It is not controverted that the deceased had rendered
services to the government for 6 months and 21 days
before his death; that he was insured and in fact a policy
was already issued in his favor at the time of his death;
that the death fixed for the effectivity of said policy was
made pursuant to the aforequoted provisions of the GSIS
Charter. Appellants, however, maintain that section 8 of
Commonwealth Act 186, insofar as it fixes the date of
compulsory membership therein, is absurd and
discriminatory, in that, whereas those whose appointments
are dated on the first day of the month become covered by
insurance on the first day of the sixth month following their
appointment, those who were appointed on other dates
become insured only on the first day of the seventh
calendar month from their original appointment. In other
words, if an employee is appointed on January 1, he will
be covered by insurance on June 1, whereas one who
gets appointed in January 2 becomes insured only on July
1. This arrangement, appellants claim, was made only to
facilitate office transactions or for office procedure, and
should not be construed to defeat the purpose for which
the System was established, i.e., to promote the welfare of
the employees. It is, therefore, urged that the coverage of
compulsory insurance should commence on the date
when the employee becomes entitled to membership in
the System, or upon completion of six months' service.
It may be admitted that as thus worded, the disputed
provision makes a distinction, in the matter of effectivity of
their insurance coverage, between those appointed to the
service on the first day of the month and those who
receive their appointments on any other date. But
classification or class legislation, assuming this to be one,
does not ipso facto make a statutory provision invalid.
Classification will not constitute an infringement of the
individual's right to constitutional guarantees of equality if
it is not unreasonable, arbitrary or capricious. To be
reasonable, the classification must be based on
substantial distinctions which make real differences; must
be germane to the purposes of the law; must not be
limited to existing conditions only, and must apply equally
to each member of the class, under similar conditions. 1
In the instant case, it may be true that the disputed
provision must have been incorporated in the law to
promote efficiency and convenience in office procedure of
the System. Taking into account the volume of business
that the System handles, the providing of this measure
which ultimately may redound to the benefit of the
members in the form of efficient and prompt service,
cannot be considered capricious or arbitrary.
Furthermore, it appears that the policy issued and
accepted by Aleja during his lifetime specifically provides
that the effective date of the insurance contract is
February 1, 1959. Additionally, it is not denied that the first

premium on said insurance contract was deducted from

Aleja's salary only on January 31, 1959 or after his death.
Clearly, at the time of his said death, there was no existing
contract between him and the appellee GSIS, there being
no consideration for the risk sought to be enforced against
the insurance system. The offer of the latter to refund the
amount collected after Aleja's death, is proper.
WHEREFORE, the decision of the lower court appealed
from is hereby modified in the sense that the defendantappellee shall return to the plaintiffs the amount deducted
from the deceased's salary in the form of premium. No
costs. So ordered.

grace period to pay the premium but the period having

expired with no payment made; he cannot insist that the
respondent is nonetheless obligated to him. 2.
Moreover, the parties in this case had stipulated:
[T]his insurance will be deemed valid and binding upon
the respondent (Capital Assurance) only
when the premium and documentary stamps therefor have
actually been paid in full and duly acknowledged in an
official
receipt
signed
by
an
authorized
official/representative of the respondent
(Capital Assurance).
DOCTRINE

Arce vs Capital Insurance G.R. No. L-28501,

FACTS: 1.
The petitioner, the insured, was the owner of a residential
house inTondo, Manila, which had been insured with the
Capital insurance since 1961under Fire Policy No. 24204.
2.
On November 27, 1965, the COMPANY sent to the
petitioner Renewal Certificate No. 47302 to cover the
period December 5, 1965 to December 5, 1966. The
respondent also requested payment of the corresponding
premium in the amount of P38.10. 3.
Anticipating that the premium could not be paid on time,
the petitioner, thru his wife, promised to pay it on January
4, 1966. The respondent accepted the promise but the
premium was not paid on January 4, 1966. 4.
When the petitioners house was ravaged with fire, the
petitioners wife presented a claim for
indemnity to the respondent. She was told that no
indemnity was due because the premium on the policy
was not paid. 5.
Nonetheless the respondent tendered a check forP300.00
as financial aid which was received by the
petiotioners daughter. The respondent reiterated that the
check was given "not as an obligation, but as
a concession" because the renewal premium had not
been paid. The petitioner cashed the check but then sued
the respondent on the policy. 6.
CFI: Capital Insurance and Surety Co., Inc. was ordered to
pay Pedro Arce the proceeds of a fire insurance policy
ISSUE: Whether or not the petitioners are entitled to claim
from their policy despite non-payment of their premium
RATIO: 1.
It is obvious from both the Insurance Act, as amended,
and the stipulation of the parties that time is of the
essence in respect of the payment of the insurance
premium so that if it is not paid the contract does not take
effect unless there is still another stipulation to the
contrary. In the instant case, the petitioner was given a

An insurer is entitled to payment of premium as soon as

the thing insured is exposed to the perils insured against,
unless there is clear agreement to grant credit extension
for the premium due. No policy issued by an insurance
company is valid and binding unless and until the premium
thereof has been paid.