THIRD DIVISION

HEIRS OF LORETO C. MARAMAG, represented by

surviving spouse VICENTA PANGILINAN MARAMAG,
Petitioners,
- versus EVA VERNA DE GUZMAN MARAMAG, ODESSA DE
GUZMAN MARAMAG, KARL BRIAN DE GUZMAN
MARAMAG, TRISHA ANGELIE MARAMAG, THE
INSULAR LIFE ASSURANCE COMPANY, LTD., and
GREAT PACIFIC LIFE ASSURANCE CORPORATION,
Respondents.
x---------------------------------------------------------------x
DECISION
This is a petition[1] for review on certiorari under Rule 45
of the Rules, seeking to reverse and set aside the
Resolution[2] dated January 8, 2008 of the Court of
Appeals (CA), in CA-G.R. CV No. 85948, dismissing
petitioners appeal for lack of jurisdiction.
The case stems from a petition[3] filed against
respondents with the Regional Trial Court, Branch 29, for
revocation and/or reduction of insurance proceeds for
being void and/or inofficious, with prayer for a temporary
restraining order (TRO) and a writ of preliminary
injunction.
The petition alleged that: (1) petitioners were the
legitimate wife and children of Loreto Maramag (Loreto),
while respondents were Loretos illegitimate family; (2)
Eva de Guzman Maramag (Eva) was a concubine of
Loreto and a suspect in the killing of the latter, thus, she
is disqualified to receive any proceeds from his insurance
policies from Insular Life Assurance Company, Ltd.
(Insular)[4] and Great Pacific Life Assurance Corporation
(Grepalife);[5] (3)
the
illegitimate
children
of
LoretoOdessa, Karl Brian, and Trisha Angeliewere
entitled only to one-half of the legitime of the legitimate
children, thus, the proceeds released to Odessa and
those to be released to Karl Brian and Trisha Angelie
were inofficious and should be reduced; and (4)
petitioners could not be deprived of their legitimes, which
should be satisfied first.
In support of the prayer for TRO and writ of
preliminary injunction, petitioners alleged, among others,
that part of the insurance proceeds had already been
released in favor of Odessa, while the rest of the
proceeds are to be released in favor of Karl Brian and
Trisha Angelie, both minors, upon the appointment of
their legal guardian. Petitioners also prayed for the total
amount ofP320,000.00 as actual litigation expenses and
attorneys fees.
In answer,[6] Insular admitted that Loreto misrepresented
Eva as his legitimate wife and Odessa, Karl Brian, and
Trisha Angelie as his legitimate children, and that they
filed their claims for the insurance proceeds of the
insurance policies; that when it ascertained that Eva was

not the legal wife of Loreto, it disqualified her as a

beneficiary and divided the proceeds among Odessa,
Karl Brian, and Trisha Angelie, as the remaining
designated beneficiaries; and that it released Odessas
share as she was of age, but withheld the release of the
shares of minors Karl Brian and Trisha Angelie pending
submission of letters of guardianship. Insular alleged that
the complaint or petition failed to state a cause of action
insofar as it sought to declare as void the designation of
Eva as beneficiary, because Loreto revoked her
designation as such in Policy No. A001544070 and it
disqualified her in Policy No. A001693029; and insofar as
it sought to declare as inofficious the shares of Odessa,
Karl Brian, and Trisha Angelie, considering that no
settlement of Loretos estate had been filed nor had the
respective shares of the heirs been determined. Insular
further claimed that it was bound to honor the insurance
policies designating the children of Loreto with Eva as
beneficiaries pursuant to Section 53 of the Insurance
Code.
In its own answer[7] with compulsory counterclaim,
Grepalife alleged that Eva was not designated as an
insurance policy beneficiary; that the claims filed by
Odessa, Karl Brian, and Trisha Angelie were denied
because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was
born on December 10, 1936 and, thus, not more than 65
years old when he signed it in September 2001; that the
case was premature, there being no claim filed by the
legitimate family of Loreto; and that the law on
succession does not apply where the designation of
insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and
Trisha Angelie were not known to petitioners, summons
by publication was resorted to. Still, the illegitimate family
of Loreto failed to file their answer. Hence, the trial court,
upon motion of petitioners, declared them in default in its
Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and
Grepalife moved that the issues raised in their respective
answers be resolved first. The trial court ordered
petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised
by Insular and Grepalife was purely legal whether the
complaint itself was proper or not and that the
designation of a beneficiary is an act of liberality or a
donation and, therefore, subject to the provisions of
Articles 752[8] and 772[9] of the Civil Code.
In reply, both Insular and Grepalife countered that the
insurance proceeds belong exclusively to the designated
beneficiaries in the policies, not to the estate or to the
heirs of the insured. Grepalife also reiterated that it had
disqualified Eva as a beneficiary when it ascertained that
Loreto was legally married to Vicenta Pangilinan
Maramag.
On September 21, 2004, the trial court issued a
Resolution, the dispositive portion of which reads
WHEREFORE,
the
motion
to
dismiss
incorporated in the answer of defendants Insular

Life and Grepalife is granted with respect to

defendantsOdessa, Karl Brian and Trisha
Maramag. The action shall proceed with respect
to the other defendants Eva Verna de Guzman,
Insular Life and Grepalife.

was insured, is the doctrine in

America. We believe that the same
doctrine obtains in these Islands by
virtue of Section 428 of the Code of
Commerce x x x.

SO ORDERED.[10]

In [the] light of the above pronouncements, it is

very clear that the plaintiffs has (sic) no sufficient
cause of action against defendants Odessa, Karl
Brian and Trisha Angelie Maramag for the
reduction and/or declaration of inofficiousness of
donation as primary beneficiary (sic) in the
insurances (sic) of the late Loreto C. Maramag.

In so ruling, the trial court ratiocinated thus

Art. 2011 of the Civil Code provides that the
contract of insurance is governed by the (sic)
special laws. Matters not expressly provided for
in such special laws shall be regulated by this
Code. The principal law on insurance is the
Insurance Code, as amended. Only in case of
deficiency in the Insurance Code that the Civil
Code may be resorted to. (Enriquez v. Sun Life
Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a
provision regarding to whom the insurance
proceeds shall be paid. It is very clear under Sec.
53 thereof that the insurance proceeds shall be
applied exclusively to the proper interest of the
person in whose name or for whose benefit it is
made, unless otherwise specified in the
policy. Since the defendants are the ones named
as the primary beneficiary (sic) in the insurances
(sic) taken by the deceased Loreto C. Maramag
and there is no showing that herein plaintiffs
were also included as beneficiary (sic) therein
the insurance proceeds shall exclusively be paid
to them. This is because the beneficiary has a
vested right to the indemnity, unless the insured
reserves the right to change the beneficiary.
(Grecio v. Sunlife Assurance Co. of Canada, 48
Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law
on donations or the rules on testamentary
succession in order to defeat the right of herein
defendants
to
collect
the
insurance
indemnity. The beneficiary in a contract of
insurance is not the donee spoken in the law of
donation. The rules on testamentary succession
cannot apply here, for the insurance indemnity
does not partake of a donation. As such, the
insurance indemnity cannot be considered as an
advance of the inheritance which can be subject
to collation (Del Val v. Del Val, 29 Phil. 534). In
the case of Southern Luzon Employees
Association v. Juanita Golpeo, et al., the
Honorable Supreme Court made the following
pronouncements[:]
With the finding of the trial court that the
proceeds to the Life Insurance Policy
belongs exclusively to the defendant as
his individual and separate property, we
agree that the proceeds of an insurance
policy belong exclusively to the
beneficiary and not to the estate of the
person whose life was insured, and that
such proceeds are the separate and
individual property of the beneficiary and
not of the heirs of the person whose life

However, herein plaintiffs are not totally bereft of

any cause of action. One of the named
beneficiary (sic) in the insurances (sic) taken by
the late Loreto C. Maramag is his concubine Eva
Verna De Guzman. Any person who is forbidden
from receiving any donation under Article 739
cannot be named beneficiary of a life insurance
policy of the person who cannot make any
donation to him, according to said article (Art.
2012, Civil Code). If a concubine is made the
beneficiary, it is believed that the insurance
contract will still remain valid, but the indemnity
must go to the legal heirs and not to the
concubine, for evidently, what is prohibited under
Art. 2012 is the naming of the improper
beneficiary. In such case, the action for the
declaration of nullity may be brought by the
spouse of the donor or donee, and the guilt of the
donor and donee may be proved by
preponderance of evidence in the same action
(Comment of Edgardo L. Paras, Civil Code of
the Philippines, page 897). Since the designation
of defendant Eva Verna de Guzman as one of
the primary beneficiary (sic) in the insurances
(sic) taken by the late Loreto C. Maramag is void
under Art. 739 of the Civil Code, the insurance
indemnity that should be paid to her must go to
the legal heirs of the deceased which this court
may properly take cognizance as the action for
the declaration for the nullity of a void donation
falls within the general jurisdiction of this Court.[11]
Insular[12] and Grepalife[13] filed their respective motions
for reconsideration, arguing, in the main, that the petition
failed to state a cause of action. Insular further averred
that the proceeds were divided among the three children
as the remaining named beneficiaries.Grepalife, for its
part, also alleged that the premiums paid had already
been refunded.
Petitioners, in their comment, reiterated their earlier
arguments and posited that whether the complaint may
be dismissed for failure to state a cause of action must
be determined solely on the basis of the allegations in
the complaint, such that the defenses of Insular and
Grepalife would be better threshed out during trial.
On June 16, 2005, the trial court issued a Resolution,
disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the
Motions for Reconsideration filed by defendants
Grepalife
and
Insular
Life
are
hereby

GRANTED. Accordingly, the portion of the Resolution of

this Court dated 21 September 2004 which ordered the
prosecution of the case against defendant Eva Verna De
Guzman, Grepalife and Insular Life is hereby SET
ASIDE, and the case against them is hereby ordered
DISMISSED.
SO ORDERED.[14]
In granting the motions for reconsideration of Insular and
Grepalife, the trial court considered the allegations of
Insular that Loreto revoked the designation of Eva in one
policy and that Insular disqualified her as a beneficiary in
the other policy such that the entire proceeds would be
paid to the illegitimate children of Loreto with Eva
pursuant to Section 53 of the Insurance Code. It ruled
that it is only in cases where there are no beneficiaries
designated, or when the only designated beneficiary is
disqualified, that the proceeds should be paid to the
estate of the insured. As to the claim that the proceeds to
be paid to Loretos illegitimate children should be reduced
based on the rules on legitime, the trial court held that
the distribution of the insurance proceeds is governed
primarily by the Insurance Code, and the provisions of
the Civil Code are irrelevant and inapplicable. With
respect to the Grepalife policy, the trial court noted that
Eva was never designated as a beneficiary, but
only Odessa, Karl Brian, and Trisha Angelie; thus, it
upheld the dismissal of the case as to the illegitimate
children. It further held that the matter of Loretos
misrepresentation was premature; the appropriate action
may be filed only upon denial of the claim of the named
beneficiaries for the insurance proceeds by Grepalife.

In essence, petitioners posit that their petition

before the trial court should not have been
dismissed for failure to state a cause of action
because the finding that Eva was either
disqualified as a beneficiary by the insurance
companies or that her designation was revoked
by Loreto, hypothetically admitted as true, was
raised only in the answers and motions for
reconsideration
of
both
Insular
and
Grepalife. They argue that for a motion to
dismiss to prosper on that ground, only the
allegations in the complaint should be
considered. They further contend that, even
assuming Insular disqualified Eva as a
beneficiary, her share should not have been
distributed to her children with Loreto but,
instead, awarded to them, being the legitimate
heirs of the insured deceased, in accordance
with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial
courts finding that the petition failed to state a cause of
action, as provided in Rule 16, Section 1(g), of the Rules
of Court, which reads
SECTION 1. Grounds. Within the time for but before filing
the answer to the complaint or pleading asserting a
claim, a motion to dismiss may be made on any of the
following grounds:
xxxx

Petitioners appealed the June 16, 2005 Resolution to the

CA, but it dismissed the appeal for lack of jurisdiction,
holding that the decision of the trial court dismissing the
complaint for failure to state a cause of action involved a
pure question of law. The appellate court also noted that
petitioners did not file within the reglementary period a
motion for reconsideration of the trial courts Resolution,
dated September 21, 2004, dismissing the complaint as
against Odessa, Karl Brian, and Trisha Angelie; thus, the
said Resolution had already attained finality.
Hence, this petition raising the following issues:
a.
In determining the merits of a
motion to dismiss for failure to state a cause of
action, may the Court consider matters which
were not alleged in the Complaint, particularly
the defenses put up by the defendants in their
Answer?
b.
In
granting
a
motion
for
reconsideration of a motion to dismiss for failure
to state a cause of action, did not the Regional
Trial Court engage in the examination and
determination of what were the facts and their
probative value, or the truth thereof, when it
premised the dismissal on allegations of the
defendants in their answer which had not been
proven?

(g) That the pleading asserting the claim states

no cause of action.
A cause of action is the act or omission by which a party
violates a right of another.[16] A complaint states a cause
of action when it contains the three (3) elements of a
cause of action(1) the legal right of the plaintiff; (2) the
correlative obligation of the defendant; and (3) the act or
omission of the defendant in violation of the legal right. If
any of these elements is absent, the complaint becomes
vulnerable to a motion to dismiss on the ground of failure
to state a cause of action.[17]
When a motion to dismiss is premised on this
ground, the ruling thereon should be based only on the
facts alleged in the complaint. The court must resolve the
issue on the strength of such allegations, assuming them
to be true. The test of sufficiency of a cause of action
rests on whether, hypothetically admitting the facts
alleged in the complaint to be true, the court can render a
valid judgment upon the same, in accordance with the
prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized
exceptions, such that there is no hypothetical admission
of the veracity of the allegations if:
1.

c.
x x x (A)re the members of the
legitimate family entitled to the proceeds of the
insurance for the concubine?[15]

2.

the falsity of the allegations is

subject to judicial notice;
such
allegations
are
legally
impossible;

3.

the allegations refer to facts which

are inadmissible in evidence;
by the record or document in the
pleading,
the
allegations
appear
unfounded; or
there is evidence which has been
presented to the court by stipulation of
the parties or in the course of the
hearings related to the case.[18]

the Civil Code or by the insurers themselves for reasons

based on the insurance contracts, must be awarded to
the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in
cases where the insured has not designated any
beneficiary,[23] or when the designated beneficiary is
disqualified by law to receive the proceeds, [24] that the
insurance policy proceeds shall redound to the benefit of
the estate of the insured.

In this case, it is clear from the petition filed

before the trial court that, although petitioners are the
legitimate heirs of Loreto, they were not named as
beneficiaries in the insurance policies issued by Insular
and Grepalife. The basis of petitioners claim is that Eva,
being a concubine of Loreto and a suspect in his murder,
is disqualified from being designated as beneficiary of the
insurance policies, and that Evas children with Loreto,
being illegitimate children, are entitled to a lesser share
of the proceeds of the policies.They also argued that
pursuant to Section 12 of the Insurance Code, [19] Evas
share in the proceeds should be forfeited in their favor,
the former having brought about the death of
Loreto. Thus, they prayed that the share of Eva and
portions of the shares of Loretos illegitimate children
should be awarded to them, being the legitimate heirs of
Loreto entitled to their respective legitimes.

In this regard, the assailed June 16, 2005

Resolution of the trial court should be upheld. In the
same light, the Decision of the CA dated January 8, 2008
should be sustained. Indeed, the appellate court had no
jurisdiction to take cognizance of the appeal; the issue of
failure to state a cause of action is a question of law and
not of fact, there being no findings of fact in the first
place.[25]

4.
5.

It is evident from the face of the complaint that

petitioners are not entitled to a favorable judgment in light
of Article 2011 of the Civil Code which expressly provides
that insurance contracts shall be governed by special
laws, i.e., the Insurance Code. Section 53 of the
Insurance Code states
SECTION 53. The insurance proceeds shall be
applied exclusively to the proper interest of the
person in whose name or for whose benefit it is
made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only
persons entitled to claim the insurance proceeds
are either the insured, if still alive; or the
beneficiary, if the insured is already deceased,
upon the maturation of the policy.[20] The
exception to this rule is a situation where the
insurance contract was intended to benefit third
persons who are not parties to the same in the
form of favorable stipulations or indemnity. In
such a case, third parties may directly sue and
claim from the insurer.[21]
Petitioners are third parties to the insurance
contracts with Insular and Grepalife and, thus, are not
entitled
to
the
proceeds
thereof. Accordingly,
respondents Insular and Grepalife have no legal
obligation to turn over the insurance proceeds to
petitioners.The revocation of Eva as a beneficiary in one
policy and her disqualification as such in another are of
no moment considering that the designation of the
illegitimate children as beneficiaries in Loretos insurance
policies remains valid. Because no legal proscription
exists in naming as beneficiaries the children of illicit
relationships by the insured,[22] the shares of Eva in the
insurance proceeds, whether forfeited by the court in
view of the prohibition on donations under Article 739 of

WHEREFORE, the petition is DENIED for lack of

merit. Costs against petitioners.
SO ORDERED.

The records show that as of January 19, 1961 Plastic Era

had a balance of P1,193.41 with the Bank of America.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-22375 July 18, 1975
THE CAPITAL INSURANCE
INC., petitioner,
vs.
PLASTIC ERA CO., INC.,
APPEALS, respondents.

&

AND

SURETY

COURT

CO.,

OF

MARTIN, J.:
Petition for review of a decision of the Court of Appeals
affirming the decision of the Court of First Instance of
Manila in Civil Case No. 47934 entitled "Plastic Era
Manufacturing Co., Inc. versus The Capital Insurance
and Surety Co., Inc."
On December 17, 1960, petitioner Capital Insurance &
Surety Co., Inc. (hereinafter referred to as Capital
Insurance) delivered to the respondent Plastic Era
Manufacturing Co., Inc., (hereinafter referred to as
Plastic Era) its open Fire Policy No. 22760 1 wherein the
former undertook to insure the latter's building,
equipments, raw materials, products and accessories
located at Sheridan Street, Mandaluyong, Rizal. The
policy expressly provides that if the property insured
would be destroyed or damaged by fire after the payment
of the premiums, at anytime between the 15th day of
December 1960 and one o'clock in the afternoon of the
15th day of December 1961, the insurance company
shall make good all such loss or damage in an amount
not exceeding P100,000.00. When the policy was
delivered, Plastic Era failed to pay the corresponding
insurance premium. However, through its duly authorized
representative, it executed the following acknowledgment
receipt:
This acknowledged receipt of Fire Policy) NO. 22760
Premium
x
x
x
x
x)
(I
promise
to
pay)
(P2,220.00)
(has
been
paid)
THIRTY DAYS AFTER on effective date --------------------(Date)
On January 8, 1961, in partial payment of the insurance
premium, Plastic Era delivered to Capital Insurance, a
check 2 for the amount of P1,000.00 postdated January
16, 1961 payable to the order of the latter and drawn
against the Bank of America. However, Capital Insurance
tried to deposit the check only on February 20, 1961 and
the same was dishonored by the bank for lack of funds.

On January 18, 1961 or two days after the insurance

premium became due, at about 4:00 to 5:00 o'clock in the
morning, the property insured by Plastic Era was
destroyed by fire. In due time, the latter notified Capital
Insurance of the loss of the insured property by fire 3 and
accordingly filed its claim for indemnity thru the Manila
Adjustment Company. 4 The loss and/or damage suffered
by Plastic Era was estimated by the Manila Adjustment
Company to be P283,875. However, according to the
records the same property has been insured by Plastic
Era with the Philamgen Insurance Company for
P200,000.00.
In less than a month Plastic Era demanded from Capital
Insurance the payment of the sum of P100,000.00 as
indemnity for the loss of the insured property under
Policy No. 22760 but the latter refused for the reason
that, among others, Plastic Era failed to pay the
insurance premium.
On August 25, 1961, Plastic Era filed its complaint
against Capital Insurance for the recovery of the sum of
P100,000.00 plus P25,000.00 for attorney's fees and
P20,000.00 for additional expenses. Capital Insurance
filed a counterclaim of P25,000.00 as and for attorney's
fees.
On November 15, 1961, the trial court rendered
judgment, the dispositive portion of which reads as
follows:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendant for the sum of
P88,325.63 with interest at the legal rate from the filing of
the complaint and to pay the costs.
From said decision, Capital Insurance appealed to the
Court of Appeals.
On December 5, 1963, the Court of Appeals rendered its
decision affirming that of the trial court. Hence, this
petition for review by certiorari to this Court.
Assailing the decision of the Court of Appeals petitioner
assigns the following errors, to wit:
1. THE COURT OF APPEALS ERRED IN SENTENCING
PETITIONER TO PAY PLASTIC ERA THE SUM OF
P88,325.63 PLUS INTEREST, AND COST OF SUIT,
ALTHOUGH PLASTIC ERA NEVER PAID PETITIONER
THE INSURANCE PREMIUM OF P2,220.88.
2. THE COURT OF APPEALS ERRED IN HOLDING
THAT PETITIONER SHOULD HAVE INSTITUTED AN
ACTION FOR RESCISSION OF THE INSURANCE
CONTRACT ENTERED INTO BETWEEN IT AND
PLASTIC ERA BEFORE PETITIONER COULD BE

RELIEVED OF RESPONSIBILITY UNDER ITS FIRE

INSURANCE POLICY.
3. WE HAVE SHOWN ABOVE THAT PLASTIC ERA'S
ACTION WAS UNWARRANTED AND THAT THE
PETITIONER SHOULD HAVE BEEN ABSOLVED FROM
THE COMPLAINT, AND CONSEQUENTLY, THE LOWER
COURT SHOULD HAVE AWARDED PETITIONER A
REASONABLE SUM AND AS ATTORNEY'S FEES
P25,000.00.
The pivotal issue in this petition is whether or not a
contract of insurance has been duly perfected between
the petitioner, Capital Insurance, and respondent Plastic
Era. Necessarily, the issue calls for a correct
interpretation of the insurance policy which states:
This Policy of Insurance Witnesseth That in consideration
of PLASTIC ERA MANUFACTURING COMPANY, INC.
hereinafter called the Insured, paying to the Capital
Insurance & Surety Co., Inc., hereinafter called the
Company, the sum of PESOS TWO THOUSAND ONE
HUNDRED EIGHTY EIGHT the premium for the first
period hereinafter mentioned, for insuring against Loss or
Damage by only Fire or Lightning, as hereinafter
appears, the Property hereinafter described and
contained, or described herein and not elsewhere, in the
several sums following namely: PESOS ONE HUNDRED
THOUSAND ONLY, PHILIPPINE CURRENCY; ... THE
COMPANY HEREBY AGREES with the Insured but
subject to the terms and conditions endorsed or
otherwise expressed hereon, which are to be taken as
part of this Policy), that if the Property described, or any
part thereof, shall be destroyed or damaged by Fire or
Lightning after payment of the Premiums, at anytime
between the 15th day of December One Thousand Nine
Hundred and Sixty and 1 'clock in the afternoon of the
15th day of December One Thousand Nine Hundred and
Sixty-One of the last day of any subsequent period in
respect of which the insured, or a successor in interest to
whom the insurance is by an endorsement hereon
declared to be or is otherwise continued, shall pay to the
Company and the Company shall accept the sum
required for the renewal of this Policy, the Company will
pay or make good all such loss or Damage, to an amount
not exceeding during any one period of the insurance in
respect of the several matters specified, the sum; set
opposite thereto respectively, and not exceeding the
whole sum of PESOS, ONE HUNDRED THOUSAND
ONLY, PHIL. CUR....
In clear and unequivocal terms the insurance policy
provides that it is only upon payment of the premiums by
Plastic Era that Capital Insurance agrees to insure the
properties of the former against loss or damage in an
amount not exceeding P100,000.00.
The crux of the problem then is whether at the time the
insurance policy was delivered to Plastic Era on
December 17, 1960, the latter was able to pay the
stipulated premium. It appears on record that on the day

the insurance policy was delivered, Plastic Era did not

pay the Capital Insurance, but instead executed an
acknowledgment receipt of Policy No. 22760. In said
receipt Plastic Era promised to pay the premium within
thirty (30) days from the effectivity date of the policy on
December 17, 1960 and Capital Insurance accepted it.
What then is the effect of accepting such
acknowledgment receipt from the Plastic Era? Did the
Capital Insurance mean to agree to make good its
undertaking under the policy if the premium could be paid
on or before January 16, 1961? And what would be the
effect of the delivery to Capital Insurance on January 8,
1961 of a postdated check (January 16, 1961) in the
amount of P1,000.00, payable to the order of the latter?
Could not this have been considered a valid payment of
the insurance premium? Pursuant to Article 1249 of the
New Civil Code:
xxx xxx xxx
The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall
produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they
have been impaired.
xxx xxx xxx
In the meantime, the action derived from the original
obligation shall be held in abeyance.
Under this provision the mere delivery of a bill of
exchange in payment of a debt does not immediately
effect payment. It simply suspends the action arising from
the original obligation in satisfaction of which it was
delivered, until payment is accomplished either actually
or presumptively. 5 Tender of draft or check in order to
effect payment that would extinguish the debtor's liability
should be actually cashed. 6 If the delivery of the check of
Plastic Era to Capital Insurance were to be viewed in the
light of the foregoing, no payment of the premium had
been effected, for it is only when the check is cashed that
it is said to effect payment.
Significantly, in the case before Us the Capital Insurance
accepted the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date of
policy. By so doing, it has implicitly agreed to modify the
tenor of the insurance policy and in effect, waived the
provision therein that it would only pay for the loss or
damage in case the same occurs after the payment of
the premium. Considering that the insurance policy is
silent as to the mode of payment, Capital Insurance is
deemed to have accepted the promissory note in
payment of the premium. This rendered the policy
immediately operative on the date it was delivered. The
view taken in most cases in the United States:
... is that although one of conditions of an insurance
policy is that "it shall not be valid or binding until the first
premium is paid", if it is silent as to the mode of payment,

promissory notes received by the company must be

deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment
of the first or initial premium in advance or actual cash
may be waived by acceptance of a promissory note ... 7

Where the check is held for an unreasonable time before

presenting it for payment, the insurer may be held
estopped from claiming a forfeiture if the check is
dishonored. 12
Finally, it is submitted by petitioner that:

Precisely, this was what actually happened when the

Capital Insurance accepted the acknowledgment receipt
of the Plastic Era promising to pay the insurance
premium within thirty (30) days from December 17, 1960.
Hence, when the damage or loss of the insured property
occurred, the insurance policy was in full force and effect.
The fact that the check issued by Plastic Era in partial
payment of the promissory note was later on dishonored
did not in any way operate as a forfeiture of its rights
under the policy, there being no express stipulation
therein to that effect.
In the absence of express agreement or stipulation to
that effect in the policy, the non-payment at maturity of a
note given for and accepted as premium on a policy does
not operate to forfeit the rights of the insured even
though the note is given for an initial premium, nor does
the fact that the collection of the note had been enjoined
by the insured in any way affect the policy. 8
... If the check is accepted as payment of the premium
even though it turns out to be worthless, there is payment
which will prevent forfeiture. 9
By accepting its promise to pay the insurance premium
within thirty (30) days from the effectivity date of the
policy December 17, 1960 Capital Insurance had in
effect extended credit to Plastic Era. The payment of the
premium on the insurance policy therefore became an
independent obligation the non-fulfillment of which would
entitle Capital Insurance to recover. It could just deduct
the premium due and unpaid upon the satisfaction of the
loss under the policy. 10 It did not have the right to cancel
the policy for nonpayment of the premium except by
putting Plastic Era in default and giving it personal notice
to that effect. This Capital Insurance failed to do.
... Where credit is given by an insurance company for the
payment of the premium it has no right to cancel the
policy for nonpayment except by putting the insured in
default and giving him personal notice.... 11
On the contrary Capital Insurance had accepted a check
for P1,000.00 from Plastic Era in partial payment of the
premium on the insurance policy. Although the check was
due for payment on January 16, 1961 and Plastic Era
had sufficient funds to cover it as of January 19, 1961,
Capital Insurance decided to hold the same for thirty-five
(35) days before presenting it for payment. Having held
the check for such an unreasonable period of time,
Capital Insurance was estopped from claiming a
forfeiture of its policy for non-payment even if the check
had been dishonored later.1wph1.t

We are here concerned with a case of reciprocal

obligations, and respondent having failed to comply with
its obligation to pay the insurance premium due on the
policy within thirty days from December 17, 1960,
petitioner was relieved of its obligation to pay anything
under the policy, without the necessity of first instituting
an action for rescission of the contract of insurance
entered into by the parties.
But precisely in this case, Plastic Era has complied with
its obligation to pay the insurance premium and therefore
Capital Insurance is obliged to make good its undertaking
to Plastic Era.
WHEREFORE, finding no reversible error in the decision
appealed from, We hereby affirm the same in toto. Costs
against the petitioner.
SO ORDERED.

Sometime in early 1982, private respondent American

Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on
the latter's building and premises, for a period beginning
1 March 1982 and ending 1 March 1983, with a total
premium of P466,103.05. The premium was paid on
installments on 12 March 1982, 20 May 1982, 21 June
1982 and 16 November 1982, all of which were accepted
by private respondent.
On 10 February 1983, private respondent issued to
petitioner Insurance Policy No. AH-CPP-9210596, which
replaced and renewed the previous policy, for a term
covering 1 March 1983 to 1 March 1984. The premium in
the amount of P466,103.05 was again paid on
installments on 13 April 1983, 13 July 1983, 3 August
1983, 9 September 1983, and 21 November 1983. All
payments were likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and
private respondent issued to petitioner Insurance Policy
No. AH-CPP-9210651 for the period 1 March 1984 to 1
March 1985. On this renewed policy, petitioner made two
installment payments, both accepted by private
respondent, the first on 6 February 1984 for P52,000.00
and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the
premium.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 95546 November 6, 1992
MAKATI
TUSCANY
CONDOMINIUM
CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME
ASSURANCE CO., represented by American
International Underwriters (Phils.), Inc., respondent.
This case involves a purely legal question: whether
payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in
view of Sec. 77 of P.D. 612, otherwise known as the
Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the
premium as soon as the thing is exposed to the peril
insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of
a life or an industrial life policy whenever the grace
period provision applies.

Consequently, private respondent filed an action to

recover the unpaid balance of P314,103.05 for Insurance
Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the
issuance of Insurance Policy No. AH-CPP-9210651. It
explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its
favor and the receipts for the installment payments
covering the policy for 1984-85, as well as the two (2)
previous policies, stated the following reservations:
2. Acceptance of this payment shall not waive any of the
company rights to deny liability on any claim under the
policy arising before such payments or after the
expiration of the credit clause of the policy; and
3. Subject to no loss prior to premium payment. If there
be any loss such is not covered.
Petitioner further claimed that the policy was never
binding and valid, and no risk attached to the policy. It
then pleaded a counterclaim for P152,000.00 for the
premiums already paid for 1984-85, and in its answer
with amended counterclaim, sought the refund of
P924,206.10 representing the premium payments for
1982-85.
After some incidents, petitioner and private respondent
moved for summary judgment.

On 8 October 1987, the trial court dismissed the

complaint and the counterclaim upon the following
findings:
While it is true that the receipts issued to the defendant
contained the aforementioned reservations, it is equally
true that payment of the premiums of the three
aforementioned policies (being sought to be refunded)
were made during the lifetime or term of said policies,
hence, it could not be said, inspite of the reservations,
that no risk attached under the policies. Consequently,
defendant's counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No.
AH-CPP-9210651, in view of the reservation in the
receipts ordinarily issued by the plaintiff on premium
payments the only plausible conclusion is that plaintiff
has no right to demand their payment after the lapse of
the term of said policy on March 1, 1985. Therefore, the
defendant was justified in refusing to pay the same. 1
Both parties appealed from the judgment of the trial
court. Thereafter, the Court of Appeals rendered a
decision 2modifying that of the trial court by ordering
herein petitioner to pay the balance of the premiums due
on Policy No. AH-CPP-921-651, or P314,103.05 plus
legal interest until fully paid, and affirming the denial of
the counterclaim. The appellate court thus explained
The obligation to pay premiums when due is ordinarily as
indivisible obligation to pay the entire premium. Here, the
parties herein agreed to make the premiums payable in
installments, and there is no pretense that the parties
never envisioned to make the insurance contract binding
between them. It was renewed for two succeeding years,
the
second
and
third
policies
being
a
renewal/replacement for the previous one. And the
insured never informed the insurer that it was terminating
the policy because the terms were unacceptable.
While it may be true that under Section 77 of the
Insurance Code, the parties may not agree to make the
insurance contract valid and binding without payment of
premiums, there is nothing in said section which
suggests that the parties may not agree to allow payment
of the premiums in installment, or to consider the contract
as valid and binding upon payment of the first premium.
Otherwise, we would allow the insurer to renege on its
liability under the contract, had a loss incurred (sic)
before completion of payment of the entire premium,
despite its voluntary acceptance of partial payments, a
result eschewed by a basic considerations of fairness
and equity.
To our mind, the insurance contract became valid and
binding upon payment of the first premium, and the
plaintiff could not have denied liability on the ground that
payment was not made in full, for the reason that it
agreed to accept installment payment. . . . 3

Petitioner now asserts that its payment by installment of

the premiums for the insurance policies for 1982, 1983
and 1984 invalidated said policies because of the
provisions of Sec. 77 of the Insurance Code, as
amended, and by the conditions stipulated by the insurer
in its receipts, disclaiming liability for loss for occurring
before payment of premiums.
It argues that where the premiums is not actually paid in
full, the policy would only be effective if there is an
acknowledgment in the policy of the receipt of premium
pursuant to Sec. 78 of the Insurance Code. The absence
of an express acknowledgment in the policies of such
receipt of the corresponding premium payments, and
petitioner's failure to pay said premiums on or before the
effective dates of said policies rendered them invalid.
Petitioner thus concludes that there cannot be a
perfected contract of insurance upon mere partial
payment of the premiums because under Sec. 77 of the
Insurance Code, no contract of insurance is valid and
binding unless the premium thereof has been paid,
notwithstanding any agreement to the contrary. As a
consequence, petitioner seeks a refund of all premium
payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the
premiums were paid on installments. The records clearly
show that petitioner and private respondent intended
subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums.
The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three (3) years,
the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner.
Certainly, basic principles of equity and fairness would
not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later
deny liability on the lame excuse that the premiums were
not prepared in full.
We therefore sustain the Court of Appeals. We quote with
approval the well-reasoned findings and conclusion of
the appellate court contained in its Resolution denying
the motion to reconsider its Decision
While the import of Section 77 is that prepayment of
premiums is strictly required as a condition to the validity
of the contract, We are not prepared to rule that the
request to make installment payments duly approved by
the insurer, would prevent the entire contract of
insurance from going into effect despite payment and
acceptance of the initial premium or first installment.
Section 78 of the Insurance Code in effect allows waiver
by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of
premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is
actually unpaid. Section 77 merely precludes the parties
from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an

agreement granting credit extension, and such an

agreement is not contrary to morals, good customs,
public order or public policy (De Leon, the Insurance
Code, at p. 175). So is an understanding to allow insured
to pay premiums in installments not so proscribed. At the
very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily
accepted. 4
The reliance by petitioner on Arce vs. Capital Surety and
Insurance
Co. 5 is unavailing because the facts therein are
substantially different from those in the case at bar.
In Arce, no payment was made by the insured at all
despite the grace period given. In the case before Us,
petitioner paid the initial installment and thereafter made
staggered payments resulting in full payment of the 1982
and 1983 insurance policies. For the 1984 policy,
petitioner paid two (2) installments although it refused to
pay the balance.
It appearing from the peculiar circumstances that the
parties actually intended to make three (3) insurance
contracts valid, effective and binding, petitioner may not
be allowed to renege on its obligation to pay the balance
of the premium after the expiration of the whole term of
the third policy (No. AH-CPP-9210651) in March 1985.
Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if
the insurer was exposed to the risk insured for any
period, however brief or momentary.
WHEREFORE, finding no reversible error in the
judgment appealed from, the same is AFFIRMED. Costs
against petitioner.
SO ORDERED.

vs.
WOODWORKS, INC., defendant-appellant.
Zosimo
Rivas
for
defendant-appellant.
Manuel O. Chan for plaintiff-appellee.
Appeal upon a question of law taken by Woodworks, Inc.
from the judgment of the Court of First Instance of Manila
in Civil Case No. 50710 "ordering the defendant,
Woodworks, Inc. to pay to the plaintiff, Philippine Phoenix
Surety & Insurance, Inc., the sum of P3,522.09 with
interest thereon at the legal rate of 6% per annum from
the date of the filing of the complaint until fully paid, and
costs of the suit."
Appellee Philippine Phoenix Surety & Insurance Co., Inc.
commenced this action in the Municipal Court of Manila
to recover from appellant Woodworks, Inc. the sum of
P3,522.09, representing the unpaid balance of the
premiums on a fire insurance policy issued by appellee in
favor of appellant for a term of one year from April 1,
1960 to April 1, 1961. From an adverse decision of said
court, Woodworks, Inc. appealed to the Court of First
Instance of Manila (Civil Case No. 50710) where the
parties submitted the following stipulation of facts, on the
basis of which the appealed decision was rendered:
That plaintiff and defendant are both corporations duly
organized and existing under and by virtue of the laws of
the Philippines;
That on April 1, 1960, plaintiff issued to defendant Fire
Policy No. 9652 for the amount of P300,000.00, under
the terms and conditions therein set forth in said policy a
copy of which is hereto attached and made a part hereof
as Annex "A";
That the premiums of said policy as stated in Annex "A"
amounted to P6,051.95; the margin fee pursuant to the
adopted plan as an implementation of Republic Act 2609
amounted to P363.72, copy of said adopted plan is
hereto attached as Annex "B" and made a part hereof,
the documentary stamps attached to the policy was
P96.42;
That the defendant paid P3,000.00 on September 22,
1960 under official receipt No. 30245 of plaintiff;
That plaintiff made several demands on defendant to pay
the amount of P3,522.09.1wph1.t

Republic of the Philippines

SUPREME COURT
Manila

In the present appeal, appellant claims that the court a

quo committed the following errors:

EN BANC
G.R. No. L-22684
PHILIPPINE PHOENIX
INC., plaintiff-appellee,

I. The lower court erred in stating that in fire insurance

policies the risk attached upon the issuance and delivery
of the policy to the insured.

August 31, 1967

SURETY

&

INSURANCE,

II. The lower court erred in deciding that in a perfected

contract of insurance non-payment of premium does not
cancel the policy.

Republic of the Philippines

SUPREME COURT
Manila

III. The lower court erred in deciding that the premium in

the policy was still collectible when the complaint was
filed.

THIRD DIVISION

IV. The lower court erred in deciding that a partial

payment of the premium made the policy effective during
the whole period of the policy.

SOUTH SEA SURETY AND INSURANCE COMPANY,

INC., petitioner,
vs.
HON. COURT OF APPEALS and VALENZUELA
HARDWOOD
AND
INDUSTRIAL
SUPPLY,
INC., respondents.

It is clear from the foregoing that on April 1, 1960 Fire

Insurance Policy No. 9652 was issued by appellee and
delivered to appellant, and that on September 22 of the
same year, the latter paid to the former the sum of
P3,000.00 on account of the total premium of P6,051.95
due thereon. There is, consequently, no doubt at all that,
as between the insurer and the insured, there was not
only a perfected contract of insurance but a partially
performed one as far as the payment of the agreed
premium was concerned. Thereafter the obligation of the
insurer to pay the insured the amount for which the policy
was issued in case the conditions therefor had been
complied with, arose and became binding upon it, while
the obligation of the insured to pay the remainder of the
total amount of the premium due became demandable.
We can not agree with appellant's theory that nonpayment by it of the premium due, produced the
cancellation of the contract of insurance. Such theory
would place exclusively in the hands of one of the
contracting parties the right to decide whether the
contract should stand or not. Rather the correct view
would seem to be this: as the contract had become
perfected, the parties could demand from each other the
performance of whatever obligations they had assumed.
In the case of the insurer, it is obvious that it had the right
to demand from the insured the completion of the
payment of the premium due or sue for the rescission of
the contract. As it chose to demand specific performance
of the insured's obligation to pay the balance of the
premium, the latter's duty to pay is indeed indubitable.
Having thus resolved that the fourth and last assignment
of error submitted in appellant's brief is without merit, the
first three assignments of error must likewise be
overruled as lacking in merit.
Wherefore, the appealed decision being in accordance
with law and the evidence, the same is hereby affirmed,
with costs.

G.R. No. 102253 June 2, 1995

RESOLUTION
Two issues on the subject of insurance are raised in this
petition, that assails the decision, that assails the
decision of the Court of Appeals. (in CA-G.R. NO. CV20156), the first dealing on the requirement of premium
payment and the second relating to the agency
relationship of parties under that contract.
The court litigation started when Valenzuela Hardwood
and Industrial Supply, Inc. ("Hardwood"), filed with the
Regional, Trial Court of the National Capital Judicial
Region, Branch l71 in Valenzuela, Metro Manila, a
complaint for the recovery of the value of lost logs and
freight charges from Seven Brothers Shipping
Corporation or, to the extent of its alleged insurance
cover, from South Sea Surety and insurance Company.
The factual backdrop is described briefly by the appellate
court thusly:
It appears that on 16 January 1984, plaintiff [Valenzuela
Hardwood and Industrial Supply, Inc.] entered into an
agreement with the defendant Seven Brothers whereby
the latter undertook to load on board its vessel M/V
Seven Ambassador the former's lauan round logs
numbering 940 at the port of Maconacon, Isabela for
shipment to Manila.
On 20 January 1984, plaintiff insured the logs, against
loss and/or, damage with defendant South Sea Surety
and Insurance Co., Inc. for P2,000,000.00 end the latter
issued its Marine Cargo Insurance Policy No. 84/24229
for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in
payment of the premium on the insurance policy to Mr.
Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador
sank on 25 January 1984 resulting in the loss of the
plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to
cover payment of the premium and documentary stamps

due on the policy was tendered to the insurer but was not
accepted. Instead, the South Sea Surety and Insurance
Co., Inc. cancelled the insurance policy it issued as of the
date of inception for non-payment of the premium due in
accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant
South Sea Surety and Insurance Co., Inc. the payment of
the proceeds of the policy but the latter denied liability
under the policy. Plaintiff likewise filed a formal claim with
defendant Seven Brothers Shipping Corporation for the
value of the lost logs but the latter denied the claim. 1
In its decision, dated 11 May 1988, the trial court
rendered judgment in favor of plaintiff Hardwood.
On appeal perfected by both the shipping firm and the
insurance company, the Court of Appeals affirmed the
judgment of the court a quo only against the insurance
corporation; in absolving the shipping entity from liability,
the appellate court ratiocinated:
The primary issue to be resolved before us is whether
defendants shipping corporation and the surety company
are liable to the plaintiff for the latter's lost logs.
It appears that there is a stipulation in the charter party
that the ship owner would be exempted from liability in
case of loss.
The court a quo erred in applying the provisions of the
Civil Code on common carriers to establish the liability of
the shipping corporation. The provisions on common
carriers should not be applied where the carrier is not
acting as such but as a private carrier.
Under American jurisprudence, a common carrier
undertaking to carry a special or chartered to a special
person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner
from liability even for the negligence of its agent is valid
(Home Insurance Company, Inc. vs. American Steamship
Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held
liable for the loss of the logs. 2
In this petition for review on certiorari brought by South
Sea Surety and Insurance Co., Inc., petitioner argues
that it likewise should have been freed from any liability
to Hardwood. It faults the appellate court (a) for having
Supposedly disregarded Section 77 of the insurance
Code and (b) for holding Victorio Chua to have been an
authorized representative of the insurer.
Section 77 of the Insurance Code provides:
Sec. 77. An insurer is entitled to payment of the premium
as soon as the thing insured is exposed to the peril

insured against. Notwithstanding any agreement to the

contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of
a life or an industrial life policy whenever the grace
period provision applies.
Undoubtedly, the payment of the premium is a condition
precedent to, and essential for, the efficaciousness of the
contract. The only two statutorily provided exceptions are
(a) in case the insurance coverage relates to life or
industrial life (health) insurance when a grace period
applies and (b) when the insurer makes a written
acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then
conclusive evidence of the premium payment (Secs. 7778, Insurance Code). The appellate court, contrary to
what the petition suggests, did not make any
pronouncement to the contrary. Indeed, it has said:
Concerning the issue as to whether there is a valid
contract of insurance between plaintiff-appellee and
defendant-appellant South Sea Surety and Insurance
Co., Inc., Section 77 of the Insurance Code explicitly
provides that notwithstanding any agreement to the
contrary, no policy issued by an insurance company is
valid and binding unless and until premium thereof has
been paid. It is therefore important to determine whether
at the time of the loss, the premium was already paid. 3
No attempt becloud the issues can disguise the fact that
the sole question raised in the instant petition is really
evidentiary in nature, i.e., whether or not Victorio Chua, in
receiving the check for the insurance premium prior to
the occurrence of the risk insured against has so acted
as an agent of petitioner. The appellate court, like the trial
court, has found in the affirmative. Said the appellate
court:
In the instant case, the Marine Cargo Insurance Policy
No. 84/24229 was issued by defendant insurance
company on 20 January 1984. At the time the vessel
sank on 25 January 1984 resulting in the loss of the
insured logs, the insured had already delivered to Victorio
Chua the check in payment of premium. But, as Victorio
Chua testified, it was only in the morning of 30 January
1984 or 5 days after the vessel sank when his
messenger tendered the check to defendant South Sea
Surety and Insurance Co., Inc. (TSN, pp. 3-27, 16-17, 22
October 1985).
The pivotal issue to be resolved to determine the liability,
of the surety corporation is whether Mr. Chua acted as an
agent of the surety company or of the insured when he
received the check for insurance premiums.
Appellant surety company insists that Mr. Chua is an
administrative assistant for the past ten years and an
agent for less than ten years of the Columbia Insurance
Brokers, Ltd. He is paid a salary as a administrative
assistant and a commission as agent based on the

premiums he turns over to the broker. Appellant therefore

argues that Mr. Chua, having received the insurance
premiums as an agent of the Columbia Insurance Broker,
acted as an agent of the insured under Section 301 of
the Insurance Code which provides as follows:

Feliciano, Romero, Melo and Francisco, JJ., concur.

Sec. 301. Any person who for any compensation,

commission or other thing of value, acts, or aids in
soliciting, negotiating or procuring the making of any
insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than
himself, shall be an insurance broker within the intent of
this Code, and shall thereby become liable to all the
duties requirements, liabilities and penalties to which an
insurance broker is subject
The appellees, upon the other hand, claim that the
second paragraph of Section 306 of the Insurance Code
provide as follows:
Sec. 306. . . . Any insurance company which delivers to
an insurance agent or insurance broker a policy or
contract of insurance shall be deemed to have authorized
such agent or broker to receive on its behalf payment of
any premium which is due on such policy of contract of
insurance at the time of its issuance or delivery or which
becomes due thereon.
On cross-examination in behalf of South Sea Surety and
Insurance Co., Inc. Mr. Chua testified that the marine
cargo insurance policy for the plaintiff's logs was
delivered to him on 21 January 1984 at his office to be
delivered to the plaintiff.
When the appellant South Sea Surety and Insurance
Co., Inc. delivered to Mr. Chua the marine cargo
insurance policy for the plaintiffs logs, he is deemed to
have been authorized by the South Sea Surety and
Insurance Co., Inc. to receive the premium which is due
on its behalf.
When therefore the insured logs were lost, the insured
had already paid the premium to an agent of the South
Sea Surety and Insurance Co., Inc., which is
consequently liable to pay the insurance proceeds under
the policy it issued to the insured. 4
We see no valid reason to discard the factual conclusions
of the appellate court. Just as so correctly pointed out by
private respondent, it is not the function of this Court to
assess and evaluate all over again the evidence,
testimonial and documentary, adduced by the parties
particularly where, such as here, the findings of both the
trial court and the appellate court on the matter coincide.
WHEREFORE, the resolution, dated 01 February 1993,
granting due course to the petition is RECALLED, and
the petition is DENIED. Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-67835 October 12, 1987
MALAYAN INSURANCE CO., INC. (MICO), petitioner,
vs.
GREGORIA CRUZ ARNALDO, in her capacity as the
INSURANCE COMMISSIONER, and CORONACION
PINCA, respondents.
When a person's house is razed, the fire usually burns
down the efforts of a lifetime and forecloses hope for the
suddenly somber future. The vanished abode becomes a
charred and painful memory. Where once stood a home,
there is now, in the sighing wisps of smoke, only a gray
desolation. The dying embers leave ashes in the heart.
For peace of mind and as a hedge against possible loss,
many people now secure fire insurance. This is an
aleatory contract. By such insurance, the insured in effect
wagers that his house will be burned, with the insurer
assuring him against the loss, for a fee. If the house does
burn, the insured, while losing his house, wins the
wagers. The prize is the recompense to be given by the
insurer to make good the loss the insured has sustained.
It would be a pity then if, having lost his house, the
insured were also to lose the payment he expects to
recover for such loss. Sometimes it is his fault that he
cannot collect, as where there is a defect imputable to
him in the insurance contract. Conversely, the reason
may be an unjust refusal of the insurer to acknowledge a
just obligation, as has happened many times.
In the instant case the private respondent has been
sustained by the Insurance Commission in her claim for
compensation for her burned property. The petitioner is
now before us to dispute the decision, 1 on the ground

that there was no valid insurance contract at the time of

the loss.

The pivotal date is the date the notice of the denial of the
motion for reconsideration was received by MICO.

The chronology of the relevant antecedent facts is as

follows:

MICO avers this was June 18, 1982, and offers in

evidence its Annex "B," 12 which is a copy of the Order of
June 14, 1982, with a signed rubber-stamped notation on
the upper left-hand corner that it was received on June
18, 1982, by its legal department. It does not indicate
from whom. At the bottom, significantly, there is another
signature under which are the ciphers "6-13-82," for
which no explanation has been given.

On June 7, 1981, the petitioner (hereinafter called

(MICO) issued to the private respondent, Coronacion
Pinca, Fire Insurance Policy No. F-001-17212 on her
property for the amount of P14,000.00 effective July 22,
1981, until July 22, 1982. 2
On October 15,1981, MICO allegedly cancelled the
policy for non-payment, of the premium and sent the
corresponding notice to Pinca. 3
On December 24, 1981, payment of the premium for
Pinca was received by DomingoAdora, agent of MICO. 4
On January 15, 1982, Adora remitted this payment to
MICO,together with other payments. 5
On January 18, 1982, Pinca's property was completely
burned. 6
On February 5, 1982, Pinca's payment was returned by
MICO to Adora on the ground that her policy had been
cancelled earlier. But Adora refused to accept it. 7
In due time, Pinca made the requisite demands for
payment, which MICO rejected. She then went to the
Insurance Commission. It is because she was ultimately
sustained by the public respondent that the petitioner has
come to us for relief.
From the procedural viewpoint alone, the petition must
be rejected. It is stillborn.
The records show that notice of the decision of the public
respondent dated April 5, 1982, was received by MICO
on April 10, 1982. 8 On April 25, 1982, it filed a motion for
reconsideration, which was denied on June 4,
1982. 9 Notice of this denial was received by MICO on
June 13, 1982, as evidenced by Annex "1" duly
authenticated by the Insurance Commission. 10 The
instant petition was filed with this Court on July 2,
1982. 11
The position of the petition is that the petition is governed
by Section 416 0f the Insurance Code giving it thirty days
wthin which to appeal by certiorari to this Court.
Alternatively, it also invokes Rule 45 of the Rules of
Court. For their part, the public and private respondents
insist that the applicable law is B.P. 129, which they say
governs not only courts of justice but also quasi-judicial
bodies like the Insurance Commission. The period for
appeal under this law is also fifteen days, as under Rule
45.

Against this document, the private respodent points in

her Annex "1," 13 the authenticated copy of the same
Order with a rubber-stamped notation at the bottom
thereof indicating that it was received for the Malayan
Insurance Co., Inc. by J. Gotladera on "6-13-82." The
signature may or may not habe been written by the same
person who signed at the bottom of the petitioner's Annex
"B."
Between the two dates, the court chooses to believe
June 13, 1982, not only because the numbers "6-13-82"
appear on both annexes but also because it is the date
authenticated by the administrative division of the
Insurance Commission. Annex "B" is at worst selfserving; at best, it might only indicate that it was received
on June 18, 1982, by the legal department of MICO, after
it had been received earlier by some other of its
personnel on June 13, 1982. Whatever the reason for the
delay in transmitting it to the legal department need not
detain us here.
Under Section 416 of the Insurance Code, the period for
appeal is thirty days from notice of the decision of the
Insurance Commission. The petitioner filed its motion for
reconsideration on April 25, 1981, or fifteen days such
notice, and the reglementary period began to run again
after June 13, 1981, date of its receipt of notice of the
denial of the said motion for reconsideration. As the
herein petition was filed on July 2, 1981, or nineteen
days later, there is no question that it is tardy by four
days.
Counted from June 13, the fifteen-day period prescribed
under Rule 45, assuming it is applicable, would end on
June 28, 1982, or also four days from July 2, when the
petition was filed.
If it was filed under B.P. 129, then, considering that the
motion for reconsideration was filed on the fifteenth day
after MICO received notice of the decision, only one
more day would have remained for it to appeal, to wit,
June 14, 1982. That would make the petition eighteen
days late by July 2.
Indeed, even if the applicable law were still R.A. 5434,
governing appeals from administrative bodies, the
petition would still be tardy. The law provides for a fixed
period of ten days from notice of the denial of a
seasonable motion for reconsideration within which to

appeal from the decision. Accordingly, that ten-day

period, counted from June 13, 1982, would have ended
on June 23, 1982, making the petition filed on July 2,
1982, nine days late.
Whichever law is applicable, therefore, the petition can
and should be dismissed for late filing.
On the merits, it must also fail. MICO's arguments that
there was no payment of premium and that the policy
had been cancelled before the occurence of the loss are
not acceptable. Its contention that the claim was allowed
without proof of loss is also untenable.
The petitioner relies heavily on Section 77 of the
Insurance Code providing that:
SEC. 77. An insurer is entitled to payment of the
premium as soon as the thing is exposed to the peril
insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of
a life or an industrial life policy whenever the grace
period provision applies.
The above provision is not applicable because payment
of the premium was in fact eventually made in this case.
Notably, the premium invoice issued to Pinca at the time
of the delivery of the policy on June 7, 1981 was
stamped "Payment Received" of the amoung of P930.60
on "12-24-81" by Domingo Adora. 14 This is important
because it suggests an understanding between MICO
and the insured that such payment could be made later,
as agent Adora had assured Pinca. In any event, it is not
denied that this payment was actually made by Pinca to
Adora, who remitted the same to MICO.
The payment was made on December 24, 1981, and the
fire occured on January 18, 1982. One wonders:
suppose the payment had been made and accepted in,
say, August 1981, would the commencement date of the
policy have been changed to the date of the payment, or
would the payment have retroacted to July 22, 1981? If
MICO accepted the payment in December 1981 and the
insured property had not been burned, would that policy
not have expired just the same on July 22, 1982,
pursuant to its original terms, and not on December 24,
1982?
It would seem from MICO's own theory, that the policy
would have become effective only upon payment, if
accepted and so would have been valid only from
December 24, 1981m but only up to July 22, 1981,
according to the original terms. In others words, the
policy would have run for only eight months although the
premium paid was for one whole year.
It is not disputed that the preium was actually paid by
Pinca to Adora on December 24, 1981, who received it
on behalf of MICO, to which it was remitted on January

15, 1982. What is questioned is the validity of Pinca's

payment and of Adora's authority to receive it.
MICO's acknowledgment of Adora as its agent defeats its
contention that he was not authorized to receive the
premium payment on its behalf. It is clearly provided in
Section 306 of the Insurance Code that:
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance
agant or insurance broker a policy or contract of
insurance shall be demmed to have authorized such
agent or broker to receive on its behalf payment of any
premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which
becomes due thereon.
And it is a well-known principle under the law of agency
that:
Payment to an agent having authority to receive or
collect payment is equivalent to payment to the principal
himself; such payment is complete when the money
delivered is into the agent's hands and is a discharge of
the indebtedness owing to the principal. 15
There is the petitioner's argument, however, that Adora
was not authorized to accept the premium payment
because six months had elapsed since the issuance by
the policy itself. It is argued that this prohibition was
binding upon Pinca, who made the payment to Adora at
her own riskl as she was bound to first check his
authority to receive it. 16
MICO is taking an inconsistent stand. While contending
that acceptance of the premium payment was prohibited
by the policy, it at the same time insists that the policy
never came into force because the premium had not
been paid. One surely, cannot have his cake and eat it
too.
We do not share MICO's view that there was no existing
insurance at the time of the loss sustained by Pinca
because her policy never became effective for nonpayment of premium. Payment was in fact made,
rendering the policy operative as of June 22, 1981, and
removing it from the provisions of Article 77, Thereafter,
the policy could be cancelled on any of the supervening
grounds enumerated in Article 64 (except "nonpayment
of premium") provided the cancellation was made in
accordance therewith and with Article 65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be
cancelled by the insurer except upon prior notice thereof
to the insured, and no notice of cancellation shall be
effective unless it is based on the occurrence, after the

effective date of the policy, of one or more of the

following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the
hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions
increasing the hazard insured against;
(e) physical changes in the property insured which result
in the property becoming uninsurable; or
(f) a determination by the Commissioner that the
continuation of the policy would violate or would place
the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as
follows:
SEC. 65. All notices of cancellation mentioned in the
preceding section shall be in writing, mailed or delivered
to the named insured at the address shown in the policy,
and shall state (a) which of the grounds set forth in
section sixty-four is relied upon and (b) that, upon written
request of the named insured, the insurer will furnish the
facts on which the cancellation is based.
A valid cancellation must, therefore, require concurrence
of the following conditions:
(1) There must be prior notice of cancellation to the
insured; 17
(2) The notice must be based on the occurrence, after
the effective date of the policy, of one or more of the
grounds mentioned;18
(3) The notice must be (a) in writing, (b) mailed, or
delivered to the named insured, (c) at the address shown
in the policy; 19
(4) It must state (a) which of the grounds mentioned in
Section 64 is relied upon and (b) that upon written
request of the insured, the insurer will furnish the facts on
which the cancellation is based. 20
MICO's claims it cancelled the policy in question on
October 15, 1981, for non-payment of premium. To
support this assertion, it presented one of its employees,
who testified that "the original of the endorsement and
credit memo" presumably meaning the alleged
cancellation "were sent the assured by mail through
our mailing section" 21 However, there is no proof that the
notice, assuming it complied with the other requisites
mentioned above, was actually mailed to and received by
Pinca. All MICO's offers to show that the cancellation was

communicated to the insured is its employee's testimony

that the said cancellation was sent "by mail through our
mailing section." without more. The petitioner then says
that its "stand is enervated (sic) by the legal presumption
of regularity and due performance of duty." 22(not
realizing perhaps that "enervated" means "debilitated"
not "strengthened").
On the other hand, there is the flat denial of Pinca, who
says she never received the claimed cancellation and
who, of course, did not have to prove such denial
Considering the strict language of Section 64 that no
insurance policy shall be cancelled except upon prior
notice, it behooved MICO's to make sure that the
cancellation was actually sent to and received by the
insured. The presumption cited is unavailing against the
positive duty enjoined by Section 64 upon MICO and the
flat denial made by the private respondent that she had
received notice of the claimed cancellation.
It stands to reason that if Pinca had really received the
said notice, she would not have made payment on the
original policy on December 24, 1981. Instead, she would
have asked for a new insurance, effective on that date
and until one year later, and so taken advantage of the
extended period. The Court finds that if she did pay on
that date, it was because she honestly believed that the
policy issued on June 7, 1981, was still in effect and she
was willing to make her payment retroact to July 22,
1981, its stipulated commencement date. After all, agent
Adora was very accomodating and had earlier told her "to
call him up any time" she was ready with her payment on
the policy earlier issued. She was obviously only
reciprocating in kind when she paid her premium for the
period beginning July 22, 1981, and not December 24,
1981.
MICO's suggests that Pinca knew the policy had already
been cancelled and that when she paid the premium on
December 24, 1981, her purpose was "to renew it." As
this could not be done by the agent alone under the
terms of the original policy, the renewal thereof did not
legally bind MICO. which had not ratified it. To support
this argument, MICO's cites the following exchange:
Q: Now, Madam Witness, on December 25th you made
the alleged payment. Now, my question is that, did it not
come to your mind that after the lapse of six (6) months,
your policy was cancelled?
A: I have thought of that but the agent told me to call him
up at anytime.
Q: So if you thought that your policy was already
intended to revive cancelled policy?
A: Misleading, Your Honor.
Hearing Officer: The testimony of witness is that, she
thought of that.

Q: I will revise the question. Now, Mrs. Witness, you

stated that you thought the policy was cancelled. Now,
when you made the payment of December 24, 1981,
your intention was to revive the policy if it was already
cancelled?
A: Yes, to renew it. 23
A close study of the above transcript will show that Pinca
meant to renew the policy if it had really been already
cancelled but not if it was stffl effective. It was all
conditional. As it has not been shown that there was a
valid cancellation of the policy, there was consequently
no need to renew it but to pay the premium thereon.
Payment
was
thus
legally
made
on
the original transaction and it could be, and was, validly
received on behalf of the insurer by its agent Adora.
Adora. incidentally, had not been informed of the
cancellation either and saw no reason not to accept the
said payment.
The last point raised by the petitioner should not pose
much difficulty. The valuation fixed in fire insurance policy
is conclusive in case of total loss in the absence of
fraud, 24 which is not shown here. Loss and its amount
may be determined on the basis of such proof as may be
offered by the insured, which need not be of such
persuasiveness
as
is
required
in
judicial
proceedings. 25 If, as in this case, the insured files notice
and preliminary proof of loss and the insurer fails to
specify to the former all the defects thereof and without
unnecessary delay, all objections to notice and proof of
loss are deemed waived under Section 90 of the
Insurance Code.
The certification 26 issued by the Integrated National
Police, Lao-ang, Samar, as to the extent of Pinca's loss
should be considered sufficient. Notably,MICO submitted
no evidence to the contrary nor did it even question the
extent of the loss in its answer before the Insurance
Commission. It is also worth observing that Pinca's
property was not the only building bumed in the fire that
razed the commercial district of Lao-ang, Samar, on
January 18, 1982. 27
There is nothing in the Insurance Code that makes the
participation of an adjuster in the assessment of the loss
imperative or indespensable, as MICO suggests. Section
325, which it cites, simply speaks of the licensing and
duties of adjusters.
We see in this cases an obvious design to evade or at
least delay the discharge of a just obligation through
efforts bordering on bad faith if not plain duplicity, We
note that the motion for reconsideration was filed on the
fifteenth day from notice of the decision of the Insurance
Commission and that there was a feeble attempt to show
that the notice of denial of the said motion was not
received on June 13, 1982, to further hinder the
proceedings and justify the filing of the petition with this
Court fourteen days after June 18, 1982. We also look

askance at the alleged cancellation, of which the insured

and MICO's agent himself had no knowledge, and the
curious fact that although Pinca's payment was remitted
to MICO's by its agent on January 15, 1982, MICO
sought to return it to Adora only on February 5, 1982,
after it presumably had learned of the occurrence of the
loss insured against on January 18, 1982. These
circumstances make the motives of the petitioner highly
suspect, to say the least, and cast serious doubts upon
its candor and bona fides.
WHEREFORE, the petition is DENIED. The decision of
the Insurance Commission dated April 10, 1981, and its
Order of June 4, 1981, are AFFIRMED in full, with costs
against the petitioner. This decision is immediately
executory.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. 114427 February 6, 1995
ARMANDO
GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS
INSURANCE CORPORATION, respondents.
Four our review under Rule 45 of the Rules of Court is
the decision 1 of the Court of Appeals in CA-G.R. SP No.
31916, entitled "Country Bankers Insurance Corporation
versus Armando Geagonia," reversing the decision of the
Insurance Commission in I.C. Case No. 3340 which
awarded the claim of petitioner Armando Geagonia
against private respondent Country Bankers Insurance
Corporation.
The petitioner is the owner of Norman's Mart located in
the public market of San Francisco, Agusan del Sur. On
22 December 1989, he obtained from the private
respondent fire insurance policy No. F-14622 2 for
P100,000.00. The period of the policy was from 22
December 1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of dry
goods such as RTW's for men and women wear and
other usual to assured's business."
The petitioner declared in the policy under the
subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00.
From 1989 to 1990, the petitioner had in his inventory
stocks amounting to P392,130.50, itemized as follows:

On 27 May 1990, fire of accidental origin broke out at

around 7:30 p.m. at the public market of San Francisco,
Agusan del Sur. The petitioner's insured stock-in-trade
were completely destroyed prompting him to file with the
private respondent a claim under the policy. On 28
December 1990, the private respondent denied the claim
because it found that at the time of the loss the
petitioner's stocks-in-trade were likewise covered by fire
insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the
Philippines
First
Insurance
Co.,
Inc.
(hereinafter PFIC). 3 These policies indicate that the
insured was "Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to Messrs.
Cebu Tesing Textiles, Cebu City as their interest may
appear subject to the terms of this policy. COINSURANCE DECLARED: P100,000. Phils. First
CEB/F 24758. 4
The basis of the private respondent's denial was the
petitioner's alleged violation of Condition 3 of the policy.

The petitioner then filed a complaint 5 against the private

respondent with the Insurance Commission (Case No.
3340) for the recovery of P100,000.00 under fire
insurance policy No. F-14622 and for attorney's fees and
costs of litigation. He attached as Annex "AM" 6 thereof
his letter of 18 January 1991 which asked for the
reconsideration of the denial. He admitted in the said
letter that at the time he obtained the private
respondent's fire insurance policy he knew that the two
policies issued by the PFIC were already in existence;
however, he had no knowledge of the provision in the
private respondent's policy requiring him to inform it of
the prior policies; this requirement was not mentioned to
him by the private respondent's agent; and had it been
mentioned, he would not have withheld such information.
He further asserted that the total of the amounts claimed
under the three policies was below the actual value of his
stocks at the time of loss, which was P1,000,000.00.

P392,130.50

In its answer, 7 the private respondent specifically denied

the allegations in the complaint and set up as its principal
defense the violation of Condition 3 of the policy.

Zenco Sales, Inc.

P55,698.00

F. Legaspi

86,432.50

Gen. Merchandise

Cebu Tesing Textiles

notice be given and the particulars of such insurance or

insurances be stated therein or endorsed in this policy
pursuant to Section 50 of the Insurance Code, by or on
behalf of the Company before the occurrence of any loss
or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not
apply when the total insurance or insurances in force at
the time of the loss or damage is not more than
P200,000.00.

250,000.00

(on credit)

The policy contained the following condition:

3. The insured shall give notice to the Company of any
insurance or insurances already affected, or which may
subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured, and unless such

In its decision of 21 June 1993, 8 the Insurance

Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of
the two fire insurance policies obtained from the PFIC;
that it was Cebu Tesing Textiles which procured the PFIC
policies without informing him or securing his consent;
and that Cebu Tesing Textile, as his creditor, had
insurable interest on the stocks. These findings were

based on the petitioner's testimony that he came to know

of the PFIC policies only when he filed his claim with the
private respondent and that Cebu Tesing Textile obtained
them and paid for their premiums without informing him
thereof. The Insurance Commission then decreed:
WHEREFORE, judgment is hereby rendered ordering the
respondent company to pay complainant the sum of
P100,000.00 with legal interest from the time the
complaint was filed until fully satisfied plus the amount of
P10,000.00 as attorney's fees. With costs. The
compulsory counterclaim of respondent is hereby
dismissed.
Its motion for the reconsideration of the decision 9 having
been denied by the Insurance Commission in its
resolution of 20 August 1993, 10 the private respondent
appealed to the Court of Appeals by way of a petition for
review. The petition was docketed as CA-G.R. SP No.
31916.
In its decision of 29 December 1993, 11 the Court of
Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of
the existence of the two other policies issued by the
PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire
Policy No. 28144 that the insurance was taken in the
name of private respondent [petitioner herein]. The policy
states that "DISCOUNT MART (MR. ARMANDO
GEAGONIA, PROP)" was the assured and that "TESING
TEXTILES" [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for
by private respondent, not by the Tesing Textiles which is
alleged to have taken out the other insurance without the
knowledge of private respondent. This is shown by
Premium Invoices nos. 46632 and 46630. (Annexes M
and N). In both invoices, Tesing Textiles is indicated to be
only the mortgagee of the goods insured but the party to
which they were issued were the "DISCOUNT MART
(MR. ARMANDO GEAGONIA)."
In is clear that it was the private respondent [petitioner
herein] who took out the policies on the same property
subject of the insurance with petitioner. Hence, in failing
to disclose the existence of these insurances private
respondent violated Condition No. 3 of Fire Policy No.
1462. . . .
Indeed private respondent's allegation of lack of
knowledge of the provisions insurances is belied by his
letter to petitioner [of 18 January 1991. The body of the
letter reads as follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the
provision requiring me to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758.
Your representative did not mention about said
requirement at the time he was convincing me to insure
with you. If he only die or even inquired if I had other

existing policies covering my establishment, I would have

told him so. You will note that at the time he talked to me
until I decided to insure with your company the two
policies aforementioned were already in effect. Therefore
I would have no reason to withhold such information and
I would have desisted to part with my hard earned peso
to pay the insurance premiums [if] I know I could not
recover anything.
Sir, I am only an ordinary businessman interested in
protecting my investments. The actual value of my stocks
damaged by the fire was estimated by the Police
Department to be P1,000,000.00 (Please see xerox copy
of Police Report Annex "A"). My Income Statement as of
December 31, 1989 or five months before the fire, shows
my merchandise inventory was already some
P595,455.75. . . . These will support my claim that the
amount claimed under the three policies are much below
the value of my stocks lost.xxx xxx xxx
The letter contradicts private respondent's pretension
that he did not know that there were other insurances
taken on the stock-in-trade and seriously puts in question
his credibility.
His motion to reconsider the adverse decision having
been denied, the petitioner filed the instant petition. He
contends therein that the Court of Appeals acted with
grave abuse of discretion amounting to lack or excess of
jurisdiction:
A . . . WHEN IT REVERSED THE FINDINGS OF
FACTS OF THE INSURANCE COMMISSION, A QUASIJUDICIAL BODY CHARGED WITH THE DUTY OF
DETERMINING INSURANCE CLAIM AND WHOSE
DECISION IS ACCORDED RESPECT AND EVEN
FINALITY BY THE COURTS;
B . . . WHEN IT CONSIDERED AS EVIDENCE
MATTERS WHICH WERE NOT PRESENTED AS
EVIDENCE DURING THE HEARING OR TRIAL; AND
C . . . WHEN IT DISMISSED THE CLAIM OF THE
PETITIONER HEREIN AGAINST THE PRIVATE
RESPONDENT.
The chief issues that crop up from the first and third
grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the
PFIC when he obtained the fire insurance policy from the
private respondent, thereby, for not disclosing such fact,
violating Condition 3 of the policy, and (b) if he had,
whether he is precluded from recovering therefrom.
The second ground, which is based on the Court of
Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The
petitioner claims that the said letter was not offered in
evidence and thus should not have been considered in
deciding the case. However, as correctly pointed out by
the Court of Appeals, a copy of this letter was attached to
the petitioner's complaint in I.C. Case No. 3440 as Annex
"M" thereof and made integral part of the complaint. 12 It
has attained the status of a judicial admission and since
its due execution and authenticity was not denied by the

other party, the petitioner is bound by it even if it were not

introduced as an independent evidence. 13
As to the first issue, the Insurance Commission found
that the petitioner had no knowledge of the previous two
policies. The Court of Appeals disagreed and found
otherwise in view of the explicit admission by the
petitioner in his letter to the private respondent of 18
January 1991, which was quoted in the challenged
decision of the Court of Appeals. These divergent
findings of fact constitute an exception to the general rule
that in petitions for review under Rule 45, only questions
of law are involved and findings of fact by the Court of
Appeals are conclusive and binding upon this Court. 14
We agree with the Court of Appeals that the petitioner
knew of the prior policies issued by the PFIC. His letter of
18 January 1991 to the private respondent conclusively
proves this knowledge. His testimony to the contrary
before the Insurance Commissioner and which the latter
relied upon cannot prevail over a written admission
madeante litem motam. It was, indeed, incredible that he
did not know about the prior policies since these policies
were not new or original. Policy No. GA-28144 was a
renewal of Policy No. F-24758, while Policy No. GA28146 had been renewed twice, the previous policy
being F-24792.
Condition 3 of the private respondent's Policy No. F14622 is a condition which is not proscribed by law. Its
incorporation in the policy is allowed by Section 75 of the
Insurance Code 15 which provides that "[a] policy may
declare that a violation of specified provisions thereof
shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy." Such a condition is a
provision which invariably appears in fire insurance
policies and is intended to prevent an increase in the
moral hazard. It is commonly known as the additional or
"other insurance" clause and has been upheld as valid
and as a warranty that no other insurance exists. Its
violation
would
thus
avoid
the
policy. 16 However, in order to constitute a violation, the
other insurance must be upon same subject matter, the
same interest therein, and the same risk. 17
As to a mortgaged property, the mortgagor and the
mortgagee have each an independent insurable interest
therein and both interests may be one policy, or each
may take out a separate policy covering his interest,
either at the same or at separate times. 18 The
mortgagor's insurable interest covers the full value of the
mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. 19 The
mortgagee's insurable interest is to the extent of the debt,
since the property is relied upon as security thereof, and
in insuring he is not insuring the property but his interest
or lien thereon. His insurable interest is prima facie the
value mortgaged and extends only to the amount of the
debt, not exceeding the value of the mortgaged
property. 20 Thus, separate insurances covering different
insurable interests may be obtained by the mortgagor
and the mortgagee.
A mortgagor may, however, take out insurance for the
benefit of the mortgagee, which is the usual practice. The

mortgagee may be made the beneficial payee in several

ways. He may become the assignee of the policy with the
consent of the insurer; or the mere pledgee without such
consent; or the original policy may contain a mortgage
clause; or a rider making the policy payable to the
mortgagee "as his interest may appear" may be attached;
or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and
insurer, may be attached; or the policy, though by its
terms payable absolutely to the mortgagor, may have
been procured by a mortgagor under a contract duty to
insure for the mortgagee's benefit, in which case the
mortgagee acquires an equitable lien upon the
proceeds. 21
In the policy obtained by the mortgagor with loss payable
clause in favor of the mortgagee as his interest may
appear, the mortgagee is only a beneficiary under the
contract, and recognized as such by the insurer but not
made a party to the contract himself. Hence, any act of
the mortgagor which defeats his right will also defeat the
right of the mortgagee. 22 This kind of policy covers only
such interest as the mortgagee has at the issuing of the
policy.23
On the other hand, a mortgagee may also procure a
policy as a contracting party in accordance with the terms
of an agreement by which the mortgagor is to pay the
premiums upon such insurance. 24 It has been noted,
however, that although the mortgagee is himself the
insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and
obtains on the assurance that it insures him, the policy is
in fact in the form used to insure a mortgagor with loss
payable clause. 25
The fire insurance policies issued by the PFIC name the
petitioner as the assured and contain a mortgage clause
which reads:
Loss, if any, shall be payable to MESSRS. TESING
TEXTILES, Cebu City as their interest may appear
subject to the terms of this policy.
This is clearly a simple loss payable clause, not a
standard mortgage clause.
It must, however, be underscored that unlike the "other
insurance" clauses involved in General Insurance and
Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance &
Surety Corp. vs. Yap, 27 which read:
The insured shall give notice to the company of any
insurance or insurances already effected, or which may
subsequently be effected covering any of the property
hereby insured, and unless such notice be given and the
particulars of such insurance or insurances be stated in
or endorsed on this Policy by or on behalf of the
Company before the occurrence of any loss or damage,
all benefits under this Policy shall be forfeited.
or in the 1930 case of Santa Ana vs. Commercial Union
Assurance
Co. 28 which provided "that any outstanding insurance
upon the whole or a portion of the objects thereby

assured must be declared by the insured in writing and

he must cause the company to add or insert it in the
policy, without which such policy shall be null and void,
and the insured will not be entitled to indemnity in case of
loss," Condition 3in the private respondent's policy No. F14622 does not absolutely declare void any violation
thereof. It expressly provides that the condition "shall not
apply when the total insurance or insurances in force at
the time of the loss or damage is not more than
P200,000.00."
It is a cardinal rule on insurance that a policy or
insurance contract is to be interpreted liberally in favor of
the insured and strictly against the company, the reason
being, undoubtedly, to afford the greatest protection
which the insured was endeavoring to secure when he
applied for insurance. It is also a cardinal principle of law
that forfeitures are not favored and that any construction
which would result in the forfeiture of the policy benefits
for the person claiming thereunder, will be avoided, if it is
possible to construe the policy in a manner which would
permit recovery, as, for example, by finding a waiver for
such forfeiture. 29 Stated differently, provisions, conditions
or exceptions in policies which tend to work a forfeiture of
insurance policies should be construed most strictly
against those for whose benefits they are inserted, and
most favorably toward those against whom they are
intended to operate. 30 The reason for this is that, except
for riders which may later be inserted, the insured sees
the contract already in its final form and has had no voice
in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract
was carefully chosen and deliberated upon by experts
and legal advisers who had acted exclusively in the
interest of the insurers and the technical language
employed therein is rarely understood by ordinary
laymen. 31
With these principles in mind, we are of the opinion that
Condition 3 of the subject policy is not totally free from
ambiguity and must, perforce, be meticulously analyzed.
Such analysis leads us to conclude that (a) the
prohibition applies only to double insurance, and (b) the
nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the
condition referring to other insurance "covering any of the
property or properties consisting of stocks in trade, goods
in process and/or inventories only hereby insured," and
the portion regarding the insured's declaration on the
subheading CO-INSURANCE that the co-insurer is
Mercantile Insurance Co., Inc. in the sum of P50,000.00.
A double insurance exists where the same person is
insured by several insurers separately in respect of the
same subject and interest. As earlier stated, the insurable
interests of a mortgagor and a mortgagee on the
mortgaged property are distinct and separate. Since the
two policies of the PFIC do not cover the same interest
as that covered by the policy of the private respondent,
no double insurance exists. The non-disclosure then of
the former policies was not fatal to the petitioner's right to
recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such
condition shall not apply if the total insurance in force at

the time of loss does not exceed P200,000.00, the

private respondent was amenable to assume a coinsurer's liability up to a loss not exceeding P200,000.00.
What it had in mind was to discourage over-insurance.
Indeed, the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent overinsurance and thus avert the perpetration of fraud. When
a property owner obtains insurance policies from two or
more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to
destroy the property for the purpose of collecting the
insurance. The public as well as the insurer is interested
in preventing a situation in which a fire would be
profitable to the insured. 32
WHEREFORE, the instant petition is hereby GRANTED.
The decision of the Court of Appeals in CA-G.R. SP No.
31916 is SET ASIDE and the decision of the Insurance
Commission in Case No. 3340 is REINSTATED.
Costs against private respondent Country Bankers
Insurance Corporation.
SO ORDERED.

representative/s.4 Nevertheless, it was admittedly signed

by Reputables representatives, the terms thereof
faithfully observed by the parties and, as previously
stated, the same contract of carriage had been annually
executed by the parties every year since 1989.5

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 184300

Under the contract, Reputable undertook to answer for

"all risks with respect to the goods and shall be liable to
the COMPANY (Wyeth), for the loss, destruction, or
damage of the goods/products due to any and all causes
whatsoever, including theft, robbery, flood, storm,
earthquakes, lightning, and other force majeure while the
goods/products are in transit and until actual delivery to
the customers, salesmen, and dealers of the
COMPANY".6
The contract also required Reputable to secure an
insurance policy on Wyeths goods. 7 Thus, on February
11, 1994, Reputable signed a Special Risk Insurance
Policy (SR Policy) with petitioner Malayan for the amount
of P1,000,000.00.

July 11, 2012

MALAYAN
INSURANCE
CO.,
INC., Petitioner,
vs.
PHILIPPINES FIRST INSURANCE CO., INC. and
REPUTABLE
FORWARDER
SERVICES,
INC., Respondents.
Before the Court is a petition for review on certiorari filed
by petitioner Malayan Insurance Co., lnc. (Malayan)
assailing the Decision1 dated February 29, 2008 and
Resolution2 dated August 28, 2008 of the Court of
Appeals (CA) in CA-G.R. CV No. 71204 which affirmed
with modification the decision of the Regional Trial Court
(RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and
respondent Reputable Forwarder Services, Inc.
(Reputable) had been annually executing a contract of
carriage, whereby the latter undertook to transport and
deliver the formers products to its customers, dealers or
salesmen.3
On November 18, 1993, Wyeth procured Marine Policy
No. MAR 13797 (Marine Policy) from respondent
Philippines First Insurance Co., Inc. (Philippines First) to
secure its interest over its own products. Philippines First
thereby insured Wyeths nutritional, pharmaceutical and
other products usual or incidental to the insureds
business while the same were being transported or
shipped in the Philippines. The policy covers all risks of
direct physical loss or damage from any external cause,
if by land, and provides a limit of P6,000,000.00 per any
one land vehicle.
On December 1, 1993, Wyeth executed its annual
contract of carriage with Reputable. It turned out,
however, that the contract was not signed by Wyeths

On October 6, 1994, during the effectivity of the Marine

Policy and SR Policy, Reputable received from Wyeth
1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered by Reputable to Mercury
Drug Corporation in Libis, Quezon City. Unfortunately, on
the same date, the truck carrying Wyeths products was
hijacked by about 10 armed men. They threatened to kill
the truck driver and two of his helpers should they refuse
to turn over the truck and its contents to the said highway
robbers. The hijacked truck was recovered two weeks
later without its cargo.
On March 8, 1995, Philippines First, after due
investigation and adjustment, and pursuant to the Marine
Policy, paid Wyeth P2,133,257.00 as indemnity.
Philippines First then demanded reimbursement from
Reputable, having been subrogated to the rights of
Wyeth by virtue of the payment. The latter, however,
ignored the demand.
Consequently, Philippines First instituted an action for
sum of money against Reputable on August 12, 1996. 8 In
its complaint, Philippines First stated that Reputable is a
"private corporation engaged in the business of a
common carrier." In its answer,9 Reputable claimed that it
is a private carrier. It also claimed that it cannot be made
liable under the contract of carriage with Wyeth since the
contract was not signed by Wyeths representative and
that the cause of the loss was force majeure, i.e., the
hijacking incident.
Subsequently, Reputable impleaded Malayan as thirdparty defendant in an effort to collect the amount covered
in the SR Policy. According to Reputable, "it was validly
insured with Malayan for P1,000,000.00 with respect to
the lost products under the latters Insurance Policy No.
SR-0001-02577 effective February 1, 1994 to February 1,
1995" and that the SR Policy covered the risk of robbery
or hijacking.10

Disclaiming any liability, Malayan argued, among others,

that under Section 5 of the SR Policy, the insurance does
not cover any loss or damage to property which at the
time of the happening of such loss or damage is insured
by any marine policy and that the SR Policy expressly
excluded third-party liability.
After trial, the RTC rendered its Decision11 finding
Reputable liable to Philippines First for the amount of
indemnity it paid to Wyeth, among others. In turn,
Malayan was found by the RTC to be liable to Reputable
to the extent of the policy coverage. The dispositive
portion of the RTC decision provides:
WHEREFORE, on the main Complaint, judgment is
hereby rendered finding [Reputable] liable for the loss of
the Wyeth products and orders it to pay Philippines First
the following:
1. the amount of P2,133,257.00 representing the amount
paid by Philippines First to Wyeth for the loss of the
products in question;
2. the amount of P15,650.00 representing the adjustment
fees
paid
by
Philippines
First
to
hired
adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby
rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the
proceeds of the insurance policy;
2. the amount of P50,000.00 as attorneys fees; and
3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their
respective appeals from the RTC decision.
Reputable asserted that the RTC erred in holding that its
contract of carriage with Wyeth was binding despite
Wyeths failure to sign the same. Reputable further
contended that the provisions of the contract are
unreasonable, unjust, and contrary to law and public
policy.

property which at the time of the happening of such loss

or damage is insured by or would but for the existence of
this policy, be insured by any Fire or Marine policy or
policies except in respect of any excess beyond the
amount which would have been payable under the Fire
or Marine policy or policies had this insurance not been
effected.
Malayan argued that inasmuch as there was already a
marine policy issued by Philippines First securing the
same subject matter against loss and that since the
monetary coverage/value of the Marine Policy is more
than enough to indemnify the hijacked cargo, Philippines
First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint
against it. In the alternative, it prayed that it be held liable
for no more than P468,766.70, its alleged pro-rata share
of the loss based on the amount covered by the policy,
subject to the provision of Section 12 of the SR Policy,
which states:
12. OTHER INSURANCE CLAUSE. If at the time of any
loss or damage happening to any property hereby
insured, there be any other subsisting insurance or
insurances, whether effected by the insured or by any
other person or persons, covering the same property, the
company shall not be liable to pay or contribute more
than its ratable proportion of such loss or damage.
On February 29, 2008, the CA rendered the assailed
decision sustaining the ruling of the RTC, the decretal
portion of which reads:
WHEREFORE, in view of the foregoing, the assailed
Decision dated 29 September 2000, as modified in the
Order dated 21 July 2001, is AFFIRMED with
MODIFICATION in that the award of attorneys fees in
favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is
estopped from assailing the validity of the contract of
carriage on the ground of lack of signature of Wyeths
representative/s; (2) Reputable is liable under the
contract for the value of the goods even if the same was
lost due to fortuitous event; and (3) Section 12 of the SR
Policy prevails over Section 5, it being the latter
provision; however, since the ratable proportion provision
of Section 12 applies only in case of double insurance,
which is not present, then it should not be applied and
Malayan should be held liable for the full amount of the
policy coverage, that is, P1,000,000.00.14

For its part, Malayan invoked Section 5 of its SR Policy,

which provides:

On March 14, 2008, Malayan moved for reconsideration

of the assailed decision but it was denied by the CA in its
Resolution dated August 28, 2008.15

Section 5. INSURANCE WITH OTHER COMPANIES.

The insurance does not cover any loss or damage to

Hence, this petition.

Malayan insists that the CA failed to properly resolve the

issue on the "statutory limitations on the liability of
common carriers" and the "difference between an other
insurance clause and an over insurance clause."
Malayan also contends that the CA erred when it held
that Reputable is a private carrier and should be bound
by the contractual stipulations in the contract of carriage.
This argument is based on its assertion that Philippines
First judicially admitted in its complaint that Reputable is
a common carrier and as such, Reputable should not be
held liable pursuant to Article 1745(6) of the Civil
Code.16 Necessarily, if Reputable is not liable for the loss,
then there is no reason to hold Malayan liable to
Reputable.
Further, Malayan posits that there resulted in an
impairment of contract when the CA failed to apply the
express provisions of Section 5 (referred to by Malayan
as over insurance clause) and Section 12 (referred to by
Malayan as other insurance clause) of its SR Policy as
these provisions could have been read together there
being no actual conflict between them.
Reputable, meanwhile, contends that it is exempt from
liability for acts committed by thieves/robbers who act
with grave or irresistible threat whether it is a common
carrier or a private/special carrier. It, however, maintains
the correctness of the CA ruling that Malayan is liable to
Philippines First for the full amount of its policy coverage
and not merely a ratable portion thereof under Section 12
of the SR Policy.
Finally, Philippines First contends that the factual finding
that Reputable is a private carrier should be accorded the
highest degree of respect and must be considered
conclusive between the parties, and that a review of such
finding by the Court is not warranted under the
circumstances. As to its alleged judicial admission that
Reputable is a common carrier, Philippines First proffered
the declaration made by Reputable that it is a private
carrier. Said declaration was allegedly reiterated by
Reputable in its third party complaint, which in turn was
duly admitted by Malayan in its answer to the said thirdparty complaint. In addition, Reputable even presented
evidence to prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR
Policy, Philippines First reiterated the ruling of the CA.
Philippines First, however, prayed for a slight
modification of the assailed decision, praying that
Reputable and Malayan be rendered solidarily liable to it
in the amount of P998,000.00, which represents the
balance from the P1,000.000.00 coverage of the SR
Policy after deducting P2,000.00 under Section 10 of the
said SR Policy.17
Issues
The liability of Malayan under the SR Policy hinges on
the following issues for resolution:

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations
in its contract of carriage with Wyeth, such that it should
be liable for any risk of loss or damage, for any cause
whatsoever, including that due to theft or robbery and
other force majeure;
3) Whether the RTC and CA erred in rendering
"nugatory" Sections 5 and Section 12 of the SR Policy;
and
4) Whether Reputable should be held solidarily liable with
Malayan for the amount of P998,000.00 due to
Philippines First.
The Courts Ruling
On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is
a private carrier. Well-entrenched in jurisprudence is the
rule that factual findings of the trial court, especially when
affirmed by the appellate court, are accorded the highest
degree of respect and considered conclusive between
the parties, save for certain exceptional and meritorious
circumstances, none of which are present in this case. 18
Malayan relies on the alleged judicial admission of
Philippines First in its complaint that Reputable is a
common carrier.19 Invoking Section 4, Rule 129 of the
Rules on Evidence that "an admission verbal or written,
made by a party in the course of the proceeding in the
same case, does not require proof," it is Malayans
position that the RTC and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant
to Article 1745(6) of the Civil Code, the liability of
Reputable for the loss of Wyeths goods should be
dispensed with, or at least diminished.
It is true that judicial admissions, such as matters alleged
in the pleadings do not require proof, and need not be
offered to be considered by the court. "The court, for the
proper decision of the case, may and should consider,
without the introduction of evidence, the facts admitted
by the parties."20 The rule on judicial admission, however,
also states that such allegation, statement, or admission
is conclusive as against the pleader,21 and that the facts
alleged in the complaint are deemed admissions of the
plaintiff and binding upon him.22 In this case, the pleader
or the plaintiff who alleged that Reputable is a common
carrier was Philippines First. It cannot, by any stretch of
imagination, be made conclusive as against Reputable
whose nature of business is in question.
It should be stressed that Philippines First is not privy to
the SR Policy between Wyeth and Reputable; rather, it is
a mere subrogee to the right of Wyeth to collect from
Reputable under the terms of the contract of carriage.

Philippines First is not in any position to make any

admission, much more a definitive pronouncement, as to
the nature of Reputables business and there appears no
other connection between Philippines First and
Reputable which suggests mutual familiarity between
them.
Moreover, records show that the alleged judicial
admission of Philippines First was essentially disputed by
Reputable when it stated in paragraphs 2, 4, and 11 of its
answer that it is actually a private or special carrier. 23 In
addition, Reputable stated in paragraph 2 of its thirdparty complaint that it is "a private carrier engaged in the
carriage of goods."24 Such allegation was, in turn,
admitted by Malayan in paragraph 2 of its answer to the
third-party complaint.25 There is also nothing in the
records which show that Philippines First persistently
maintained its stance that Reputable is a common carrier
or that it even contested or proved otherwise Reputables
position that it is a private or special carrier.
Hence, in the face of Reputables contrary admission as
to the nature of its own business, what was stated by
Philippines First in its complaint is reduced to nothing
more than mere allegation, which must be proved for it to
be given any weight or value. The settled rule is that
mere allegation is not proof.26
More importantly, the finding of the RTC and CA that
Reputable is a special or private carrier is warranted by
the evidence on record, primarily, the unrebutted
testimony of Reputables Vice President and General
Manager, Mr. William Ang Lian Suan, who expressly
stated in open court that Reputable serves only one
customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers
are persons, corporations, firms, or associations
engaged in the business of carrying or transporting
passenger or goods, or both by land, water or air for
compensation, offering their services to the public. On
the other hand, a private carrier is one wherein the
carriage is generally undertaken by special agreement
and it does not hold itself out to carry goods for the
general public.28 A common carrier becomes a private
carrier when it undertakes to carry a special cargo or
chartered to a special person only.29 For all intents and
purposes, therefore, Reputable operated as a
private/special carrier with regard to its contract of
carriage with Wyeth.
On the second issue Reputable is bound by the terms
of the contract of carriage.
The extent of a private carriers obligation is dictated by
the stipulations of a contract it entered into, provided its
stipulations, clauses, terms and conditions are not
contrary to law, morals, good customs, public order, or
public policy. "The Civil Code provisions on common
carriers should not be applied where the carrier is not
acting as such but as a private carrier. Public policy

governing common carriers has no force where the

public at large is not involved."30
Thus, being a private carrier, the extent of Reputables
liability is fully governed by the stipulations of the contract
of carriage, one of which is that it shall be liable to Wyeth
for the loss of the goods/products due to any and all
causes whatsoever, including theft, robbery and other
force majeure while the goods/products are in transit and
until actual delivery to Wyeths customers, salesmen and
dealers.31
On the third issue other insurance vis--vis over
insurance.
Malayan refers to Section 5 of its SR Policy as an "over
insurance clause" and to Section 12 as a "modified other
insurance clause".32 In rendering inapplicable said
provisions in the SR Policy, the CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in
case the other insurance would be sufficient to cover the
entire amount of the loss, it is in direct conflict with Sec.
12 which provides only for a pro-rated contribution
between the two insurers. Being the later provision, and
pursuant to the rules on interpretation of contracts, Sec.
12 should therefore prevail.
xxx
The intention of both Reputable and Malayan should be
given effect as against the wordings of Sec. 12 of their
contract, as it was intended by the parties to operate only
in case of double insurance, or where the benefits of the
policies of both plaintiff-appellee and Malayan should
pertain to Reputable alone. But since the court a quo
correctly ruled that there is no double insurance in this
case inasmuch as Reputable was not privy thereto, and
therefore did not stand to benefit from the policy issued
by plaintiff-appellee in favor of Wyeth, then Malayans
stand should be rejected.
To rule that Sec. 12 operates even in the absence of
double insurance would work injustice to Reputable
which, despite paying premiums for a P1,000,000.00
insurance coverage, would not be entitled to recover said
amount for the simple reason that the same property is
covered by another insurance policy, a policy to which it
was not a party to and much less, from which it did not
stand to benefit. Plainly, this unfair situation could not
have been the intention of both Reputable and Malayan
in signing the insurance contract in question.33
In questioning said ruling, Malayan posits that Sections 5
and 12 are separate provisions applicable under distinct
circumstances. Malayan argues that "it will not be
completely absolved under Section 5 of its policy if it
were the assured itself who obtained additional insurance
coverage on the same property and the loss incurred by
Wyeths cargo was more than that insured by Philippines
Firsts marine policy. On the other hand, Section 12 will

not completely absolve Malayan if additional insurance

coverage on the same cargo were obtained by someone
besides Reputable, in which case Malayans SR policy
will contribute or share ratable proportion of a covered
cargo loss."34

insured by several insurers separately in respect to the

same subject and interest. The requisites in order for
double insurance to arise are as follows:38
1. The person insured is the same;

Malayans position cannot be countenanced.

2. Two or more insurers insuring separately;

Section 5 is actually the other insurance clause (also

called "additional insurance" and "double insurance"),
one akin to Condition No. 3 in issue in Geagonia v.
CA,35 which validity was upheld by the Court as a
warranty that no other insurance exists. The Court ruled
that Condition No. 336 is a condition which is not
proscribed by law as its incorporation in the policy is
allowed by Section 75 of the Insurance Code. It was also
the Courts finding that unlike the other insurance
clauses, Condition No. 3 does not absolutely declare void
any violation thereof but expressly provides that the
condition "shall not apply when the total insurance or
insurances in force at the time of the loss or damage is
not more than P200,000.00."

3. There is identity of subject matter;

In this case, similar to Condition No. 3 in Geagonia,

Section 5 does not provide for the nullity of the SR Policy
but simply limits the liability of Malayan only up to the
excess of the amount that was not covered by the other
insurance policy. In interpreting the "other insurance
clause" in Geagonia, the Court ruled that the prohibition
applies only in case of double insurance. The Court ruled
that in order to constitute a violation of the clause, the
other insurance must be upon same subject matter, the
same interest therein, and the same risk. Thus, even
though the multiple insurance policies involved were all
issued in the name of the same assured, over the same
subject matter and covering the same risk, it was ruled
that there was no violation of the "other insurance clause"
since there was no double insurance.
Section 12 of the SR Policy, on the other hand, is the
over insurance clause. More particularly, it covers the
situation where there is over insurance due to double
insurance. In such case, Section 15 provides that
Malayan shall "not be liable to pay or contribute more
than its ratable proportion of such loss or damage." This
is in accord with the principle of contribution provided
under Section 94(e) of the Insurance Code, 37 which
states that "where the insured is over insured by double
insurance, each insurer is bound, as between himself
and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his
contract."
Clearly, both Sections 5 and 12 presuppose the
existence of a double insurance. The pivotal question
that now arises is whether there is double insurance in
this case such that either Section 5 or Section 12 of the
SR Policy may be applied.
By the express provision of Section 93 of the Insurance
Code, double insurance exists where the same person is

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured
against.
In the present case, while it is true that the Marine Policy
and the SR Policy were both issued over the same
subject matter, i.e. goods belonging to Wyeth, and both
covered the same peril insured against, it is, however,
beyond cavil that the said policies were issued to two
different persons or entities. It is undisputed that Wyeth is
the recognized insured of Philippines First under its
Marine Policy, while Reputable is the recognized insured
of Malayan under the SR Policy. The fact that Reputable
procured Malayans SR Policy over the goods of Wyeth
pursuant merely to the stipulated requirement under its
contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said
SR Policy.
The interest of Wyeth over the property subject matter of
both insurance contracts is also different and distinct
from that of Reputables. The policy issued by Philippines
First was in consideration of the legal and/or equitable
interest of Wyeth over its own goods. On the other hand,
what was issued by Malayan to Reputable was over the
latters insurable interest over the safety of the goods,
which may become the basis of the latters liability in
case of loss or damage to the property and falls within
the contemplation of Section 15 of the Insurance Code. 39
Therefore, even though the two concerned insurance
policies were issued over the same goods and cover the
same risk, there arises no double insurance since they
were issued to two different persons/entities having
distinct insurable interests. Necessarily, over insurance
by double insurance cannot likewise exist. Hence, as
correctly ruled by the RTC and CA, neither Section 5 nor
Section 12 of the SR Policy can be applied.
Apart from the foregoing, the Court is also wont to strictly
construe the controversial provisions of the SR Policy
against Malayan.This is in keeping with the rule that:
"Indemnity and liability insurance policies are construed
in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence,
any ambiguity therein should be resolved against the

insurer; in other words, it should be construed liberally in

favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to
preclude the insurer from noncompliance with its
obligations."40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of
double insurance would work injustice to Reputable
which, despite paying premiums for a P1,000,000.00
insurance coverage, would not be entitled to recover said
amount for the simple reason that the same property is
covered by another insurance policy, a policy to which it
was not a party to and much less, from which it did not
stand to benefit. x x x41
On the fourth issue Reputable is not solidarily liable
with Malayan.

is direct and such third persons can directly sue the

insurer. The direct liability of the insurer under indemnity
contracts against third party[- ]liability does not mean,
however, that the insurer can be held solidarily liable with
the insured and/or the other parties found at fault, since
they are being held liable under different obligations. The
liability of the insured carrier or vehicle owner is based on
tort, in accordance with the provisions of the Civil Code;
while that of the insurer arises from contract, particularly,
the insurance policy:43 (Citation omitted and emphasis
supplied)
Suffice it to say that Malayan's and Reputable's
respective liabilities arose from different obligationsMalayan's is based on the SR Policy while Reputable's is
based on the contract of carriage.
All told, the Court finds no reversible error in the
judgment sought to be reviewed.

There is solidary liability only when the obligation

expressly so states, when the law so provides or when
the nature of the obligation so requires.

WHEREFORE, premises considered, the petition is

DENIED. The Decision dated February 29, 2008 and
Resolution dated August 28, 2008 of the Court of
Appeals in CA-G.R. CV No. 71204 are hereby
AFFIRMED.

In Heirs of George Y. Poe v. Malayan lnsurance

Company., lnc.,42 the Court ruled that:

Cost against petitioner Malayan Insurance Co., Inc.

Where the insurance contract provides for indemnity

against liability to third persons, the liability of the insurer

SO ORDERED.