CHAPTER I Steamship Mutual thereafter filed a case against White Gold for

collection of sum of money to recover the latters unpaid balance. White

Gold on the other hand, filed a complaint before the Insurance
Republic of the Philippines
Commission claiming that Steamship Mutual violated Sections 1864 and
SUPREME COURT
1875 of the Insurance Code, while Pioneer violated Sections
299,63007 and 3018 in relation to Sections 302 and 303, thereof.
FIRST DIVISION
The Insurance Commission dismissed the complaint. It said that there
G.R. No. 154514. July 28, 2005
was no need for Steamship Mutual to secure a license because it was
not engaged in the insurance business. It explained that Steamship
WHITE GOLD MARINE SERVICES, INC., Petitioners,
Mutual was a Protection and Indemnity Club (P & I Club). Likewise,
vs.
Pioneer need not obtain another license as insurance agent and/or a
PIONEER INSURANCE AND SURETY CORPORATION AND THE
broker for Steamship Mutual because Steamship Mutual was not
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
engaged in the insurance business. Moreover, Pioneer was already
LTD., Respondents.
licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.
DECISION
The Court of Appeals affirmed the decision of the Insurance
QUISUMBING, J.:
Commissioner. In its decision, the appellate court distinguished between
P & I Clubs vis--vis conventional insurance. The appellate court also
This petition for review assails the Decision1 dated July 30, 2002 of the
held that Pioneer merely acted as a collection agent of Steamship
Court of Appeals in CA-G.R. SP No. 60144, affirming
Mutual.
the Decision2 dated May 3, 2000 of the Insurance Commission in I.C.
Adm. Case No. RD-277. Both decisions held that there was no violation
In this petition, petitioner assigns the following errors allegedly
of the Insurance Code and the respondents do not need license as
committed by the appellate court,
insurer and insurance agent/broker.
FIRST ASSIGNMENT OF ERROR
The facts are undisputed.
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT
White Gold Marine Services, Inc. (White Gold) procured a protection and
STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE
indemnity coverage for its vessels from The Steamship Mutual
GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH
Underwriting Association (Bermuda) Limited (Steamship Mutual) through
ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT
Pioneer Insurance and Surety Corporation (Pioneer). Subsequently,
SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
White Gold was issued a Certificate of Entry and Acceptance. 3 Pioneer
PHILIPPINES.
also issued receipts evidencing payments for the coverage. When White
Gold failed to fully pay its accounts, Steamship Mutual refused to renew
SECOND ASSIGNMENT OF ERROR
the coverage.
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS
BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS
ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT
PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS
AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF
RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS
AND DIRECTORS OF RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I
Club, engaged in the insurance business in the Philippines? (2) Does
Pioneer need a license as an insurance agent/broker for Steamship
Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship
Mutual admits it does not have a license to do business in the
Philippines although Pioneer is its resident agent. This relationship is
reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in
the insurance business. To buttress its assertion, it cites the definition of
a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as "an
association composed of shipowners in general who band together for
the specific purpose of providing insurance cover on a mutual basis
against liabilities incidental to shipowning that the members incur in favor
of third parties." It stresses that as a P & I Club, Steamship Mutuals
primary purpose is to solicit and provide protection and indemnity
coverage and for this purpose, it has engaged the services of Pioneer to
act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it
is not engaged in the insurance business in the Philippines. It is merely
an association of vessel owners who have come together to provide
mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung is inapplicable in this case
because the issue in Hyopsung was the jurisdiction of the court
over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing
an insurance business" or "transacting an insurance business". These
are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental to any other legitimate
business or activity of the surety;
(c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this
Code.
...
The same provision also provides, the fact that no profit is derived from
the making of insurance contracts, agreements or transactions, or that
no separate or direct consideration is received therefor, shall not
preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not,
depends on the nature of the promise, the act required to be performed,
and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured
against marine losses, such as the losses incident to a marine
adventure.15 Section 9916 of the Insurance Code enumerates the
coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise
where the members are both the insurer and insured. In it, the members
all contribute, by a system of premiums or assessments, to the creation
of a fund from which all losses and liabilities are paid, and where the
profits are divided among themselves, in proportion to their
interest.17 Additionally, mutual insurance associations, or clubs, provide
three types of coverage, namely, protection and indemnity, war risks, and
defense costs.18
A P & I Club is "a form of insurance against third party liability, where
the third party is anyone other than the P & I Club and the
members."19 By definition then, Steamship Mutual as a P & I Club is a
mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country
albeit without the requisite certificate of authority mandated by Section
18720 of the Insurance Code. It maintains a resident agent in the
Philippines to solicit insurance and to collect payments in its behalf. We
note that Steamship Mutual even renewed its P & I Club cover until it
was cancelled due to non-payment of the calls. Thus, to continue doing
business here, Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the
State is necessary. Thus, no insurer or insurance company is allowed to
engage in the insurance business without a license or a certificate of
authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special
license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration22 issued by the Insurance Commission. It has
been licensed to do or transact insurance business by virtue of the
certificate of authority23 issued by the same agency. However, a
Certification from the Commission states that Pioneer does not have a
separate license to be an agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs
a separate license to act as insurance agent for Steamship Mutual.
Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in
the solicitation or procurement of applications for insurance, or receive
for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to
act from the Commissioner, which must be renewed annually on the first
day of January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority
and removal of its directors and officers. Regrettably, we are not the
forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
dated July 30, 2002 of the Court of Appeals affirming the Decision dated
May 3, 2000 of the Insurance Commission is hereby REVERSED AND
SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda)
Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to
obtain licenses and to secure proper authorizations to do business as
insurer and insurance agent, respectively. The petitioners prayer for the
revocation of Pioneers Certificate of Authority and removal of its RAFAEL (REX) VERENDIA, petitioner,
directors and officers, is DENIED. Costs against respondents. vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE
SO ORDERED. PHILIPPINES, respondents.

G.R. No. 76399 January 22, 1993

FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,

vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.

B.L. Padilla for petitioner.

Sabino Padilla, Jr. for Fidelity & Surety, Co.

MELO, J.:

The two consolidated cases involved herein stemmed from the

issuance by Fidelity and Surety Insurance Company of the
Philippines (Fidelity for short) of its Fire Insurance Policy No. F-
18876 effective between June 23, 1980 and June 23, 1981 covering
Rafael (Rex) Verendia's residential building located at Tulip Drive,
Beverly Hills, Antipolo, Rizal in the amount of P385,000.00.
Designated as beneficiary was the Monte de Piedad & Savings
Bank. Verendia also insured the same building with two other
companies, namely, The Country Bankers Insurance for P56,000.00
under Policy No. PDB-80-1913 expiring on May 12, 1981, and The
Republic of the Philippines Development Insurance for P400,000.00 under Policy No. F-48867
SUPREME COURT expiring on June 30, 198l.
Manila
While the three fire insurance policies were in force, the insured
THIRD DIVISION property was completely destroyed by fire on the early morning of
December 28, 1980. Fidelity was accordingly informed of the loss
and despite demands, refused payment under its policy, thus
prompting Verendia to file a complaint with the then Court of First
G.R. No. 75605 January 22, 1993 Instance of Quezon City, praying for payment of P385,000.00, legal
interest thereon, plus attorney's fees and litigation expenses. The
complaint was later amended to include Monte de Piedad as an
"unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that
the policy was avoided by reason of over-insurance; that Verendia
maliciously represented that the building at the time of the fire was
leased under a contract executed on June 25, 1980 to a certain
Roberto Garcia, when actually it was a Marcelo Garcia who was the
lessee.
On May 24, 1983, the trial court rendered a decision, per Judge
Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the
defenses set up by Fidelity, the trial court ruled that Paragraph 3 of
the policy was also violated by Verendia in that the insured failed to
inform Fidelity of his other insurance coverages with Country
Bankers Insurance and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a
decision promulgated on March 31, 1986, (CA-G.R. No. CV No.
02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate
court reversed for the following reasons: (a) there was no
misrepresentation concerning the lease for the contract was signed
by Marcelo Garcia in the name of Roberto Garcia; and (b)
Paragraph 3 of the policy contract requiring Verendia to give notice
to Fidelity of other contracts of insurance was waived by Fidelity as
shown by its conduct in attempting to settle the claim of Verendia
(pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4,
1986, but instead of directly filing a motion for reconsideration
within 15 days therefrom, Fidelity filed on April 21, 1986, a motion
for extension of 3 days within which to file a motion for
reconsideration. The motion for extension was not filed on April 19,
1986 which was the 15th day after receipt of the decision because
said 15th day was a Saturday and of course, the following day was
a Sunday (p. 14., Rollo of G.R. No. 75605). The motion for extension
was granted by the appellate court on April 30, 1986 (p. 15. ibid.),
but Fidelity had in the meantime filed its motion for reconsideration
on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's
motion for reconsideration on the ground that the motion for
extension was filed out of time because the 15th day from receipt of
the decision which fell on a Saturday was ignored by Fidelity, for
indeed, so Verendia contended, the Intermediate Appellate Court
has personnel receiving pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.)
and after a motion for reconsideration was similarly brushed aside
on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R.
No. 75605 was initiated. Subsequently, or more specifically on
October 21, 1986, the appellate court denied Fidelity's motion for
reconsideration and account thereof. Fidelity filed on March 31,
1986, the petition for review on certiorari now docketed as G.R. No.
76399. The two petitions, inter-related as they are, were
consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case
which is the petition for review oncertiorari, we must first determine
whether the decision of the appellate court may still be reviewed, or
whether the same is beyond further judicial scrutiny. Stated
otherwise, before anything else, inquiry must be made into the
issue of whether Fidelity could have legally asked for an extension
of the 15-day reglementary period for appealing or for moving for
reconsideration.
As early as 1944, this Court through Justice Ozaeta already
pronounced the doctrine that the pendency of a motion for
extension of time to perfect an appeal does not suspend the
running of the period sought to be extended (Garcia vs.
Buenaventura 74 Phil. 611 [1944]). To the same effect were the
rulings in Gibbs vs. CFI of Manila (80 Phil. 160 [1948]) Bello vs.
Fernando (4 SCRA 138 [1962]), and Joe vs. King(20 SCRA 1120
[1967]).
The above cases notwithstanding and because the Rules of Court
do not expressly prohibit the filing of a motion for extension of time
to file a motion for reconsideration in regard to a final order or
judgment, magistrates, including those in the Court of Appeals,
held sharply divided opinions on whether the period for appealing
which also includes the period for moving to reconsider may be
extended. The matter was not definitely settled until this Court
issued its Resolution in Habaluyas Enterprises, Inc. vs.
Japson (142 SCRA [1986]), declaring that beginning one month
from the promulgation of the resolution on May 30, 1986
. . . the rule shall be strictly enforced that no motion
for extension of time to file a motion for new trial or
reconsideration shall be filed . . . (at p. 212.)
In the instant case, the motion for extension was filed and granted
before June 30, 1986, although, of course, Verendia's motion to
expunge the motion for reconsideration was not finally disposed
until July 22, 1986, or after the dictum in Habaluyas had taken
effect. Seemingly, therefore, the filing of the motion for extension
came before its formal proscription under Habaluyas, for which
reason we now turn our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are:
(a) whether or not the contract of lease submitted by Verendia to
support his claim on the fire insurance policy constitutes a false
declaration which would forfeit his benefits under Section 13 of the
policy and (b) whether or not, in submitting the subrogation receipt
in evidence, Fidelity had in effect agreed to settle Verendia's claim
in the amount stated in said receipt. 1
Verging on the factual, the issue of the veracity or falsity of the
lease contract could have been better resolved by the appellate
court for, in a petition for review on certiorari under Rule 45, the
jurisdiction of this Court is limited to the review of errors of law.
The appellate court's findings of fact are, therefore, conclusive
upon this Court except in the following cases: (1) when the
conclusion is a finding grounded entirely on speculation, surmises,
or conjectures; (2) when the inference made is manifestly absurd,
mistaken, or impossible; (3) when there is grave abuse of discretion
in the appreciation of facts; (4) when the judgment is premised on a
misapprehension of facts; (5) when the findings of fact are
conflicting; and (6) when the Court of Appeals in making its
findings went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee
(Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view of the
conflicting findings of the trial court and the appellate court on
important issues in these consolidated cases and it appearing that
the appellate court judgment is based on a misapprehension of
facts, this Court shall review the evidence on record.
The contract of lease upon which Verendia relies to support his
claim for insurance benefits, was entered into between him and one
Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh.
"1"), a couple of days after the effectivity of the insurance policy.
When the rented residential building was razed to the ground on
December 28, 1980, it appears that Robert Garcia (or Roberto
Garcia) was still within the premises. However, according to the
investigation report prepared by Pat. Eleuterio M. Buenviaje of the
Antipolo police, the building appeared to have "no occupant" and
that Mr. Roberto Garcia was "renting on the otherside (sic) portion
of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's
uncorroborated testimony that Marcelo Garcia, whom he
considered as the real lessee, was occupying the building when it
was burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9,
1981 that an adjuster was able to locate him. Robert Garcia then
executed an affidavit before the National Intelligence and Security
Authority (NISA) to the effect that he was not the lessee of
Verendia's house and that his signature on the contract of lease
was a complete forgery. Thus, on the strength of these facts, the
adjuster submitted a report dated December 4, 1981 recommending
the denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert
Garcia who signed the lease contract. According to Verendia, it was
signed by Marcelo Garcia, cousin of Robert, who had been paying
the rentals all the while. Verendia, however, failed to explain why
Marcelo had to sign his cousin's name when he in fact was paying
for the rent and why he (Verendia) himself, the lessor, allowed such
a ruse. Fidelity's conclusions on these proven facts appear,
therefore, to have sufficient bases; Verendia concocted the lease
contract to deflect responsibility for the fire towards an alleged
"lessee", inflated the value of the property by the alleged monthly
rental of P6,500 when in fact, the Provincial Assessor of Rizal had
assessed the property's fair market value to be only P40,300.00,
insured the same property with two other insurance companies for
a total coverage of around P900,000, and created a dead-end for the
adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law
between the parties (Pacific Banking Corporation vs. Court of
Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the
measure of the insurer's liability and compliance therewith is a
condition precedent to the insured's right to recovery from the
insurer (Oriental Assurance Corporation vs. Court of Appeals, 200
SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court
of Appeals, 185 SCRA 741 [1991]). As it is also a contract of
adhesion, an insurance contract should be liberally construed in
favor of the insured and strictly against the insurer company which
usually prepares it (Western Guaranty Corporation vs. Court of
Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact
that Verendia used a false lease contract to support his claim under
Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the
terms of the policy, specifically Section 13 thereof which is
expressed in terms that are clear and unambiguous, that all
benefits under the policy shall be forfeited "If the claim be in any
respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by
the Insured or anyone acting in his behalf to obtain any benefit
under the policy". Verendia, having presented a false declaration to
support his claim for benefits in the form of a fraudulent lease
contract, he forfeited all benefits therein by virtue of Section 13 of
the policy in the absence of proof that Fidelity waived such
provision (Pacific Banking Corporation vs. Court of Appeals,
supra). Worse yet, by presenting a false lease contract, Verendia,
reprehensibly disregarded the principle that insurance contracts
are uberrimae fidae and demand the most abundant good faith
(Velasco vs. Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the
subrogation receipt as evidence in court, Fidelity bound itself to a
"mutual agreement" to settle Verendia's claims in consideration of
the amount of P142,685.77. While the said receipt appears to have
been a filled-up form of Fidelity, no representative of Fidelity had
signed it. It is even incomplete as the blank spaces for a witness
and his address are not filled up. More significantly, the same
receipt states that Verendia had received the aforesaid amount.
However, that Verendia had not received the amount stated therein,
is proven by the fact that Verendia himself filed the complaint for
the full amount of P385,000.00 stated in the policy. It might be that
there had been efforts to settle Verendia's claims, but surely, the
subrogation receipt by itself does not prove that a settlement had
been arrived at and enforced. Thus, to interpret Fidelity's
presentation of the subrogation receipt in evidence as indicative of
its accession to its "terms" is not only wanting in rational basis but
would be substituting the will of the Court for that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The
petition in G.R. No. 76399 is GRANTED and the decision of the then
Intermediate Appellate Court under review is REVERSED and SET
ASIDE and that of the trial court is hereby REINSTATED and
UPHELD.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 112360 July 18, 2000

RIZAL SURETY & INSURANCE COMPANY, petitioner,

vs.
COURT OF APPEALS and TRANSWORLD KNITTING MILLS,
INC., respondents.

DECISION

PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to annul and set aside the July 15, 1993 Decision1 and
October 22, 1993 Resolution2 of the Court of Appeals3 in CA-G.R. CV
NO. 28779, which modified the Ruling4 of the Regional Trial Court of
Pasig, Branch 161, in Civil Case No. 46106.
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal
Insurance) issued Fire Insurance Policy No. 45727 in favor of Transworld
Knitting Mills, Inc. (Transworld), initially for One Million (P1,000,000.00)
Pesos and eventually increased to One Million Five Hundred Thousand
(P1,500,000.00) Pesos, covering the period from August 14, 1980 to
March 13, 1981.
Pertinent portions of subject policy on the buildings insured, and location
thereof, read:
"On stocks of finished and/or unfinished products, raw materials and
supplies of every kind and description, the properties of the Insureds
and/or held by them in trust, on commission or on joint account with
others and/or for which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound at MAGDALO STREET, BARRIO UGONG,
PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.
xxx xxx xxx
Said building of four-span lofty one storey in height with mezzanine
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices,
warehouse and caretaker's quarters.
'Bounds in front partly by one-storey concrete building under galvanized
iron roof occupied as canteen and guardhouse, partly by building of two
and partly one storey constructed of concrete below, timber above
undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the
aforementioned Magdalo Street; on its right and left by driveway, thence
open spaces, and at the rear by open spaces.'"5
The same pieces of property insured with the petitioner were also
insured with New India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld,
razing the middle portion of its four-span building and partly gutting the
left and right sections thereof. A two-storey building (behind said four-
span building) where fun and amusement machines and spare parts
were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance
Company and New India Assurance Company but to no avail.
On May 26, 1982, private respondent brought against the said insurance
companies an action for collection of sum of money and damages,
docketed as Civil Case No. 46106 before Branch 161 of the then Court
of First Instance of Rizal; praying for judgment ordering Rizal Insurance
and New India to pay the amount of P2,747, 867.00 plus legal
interest, P400,000.00 as attorney's fees, exemplary damages, expenses
of litigation ofP50,000.00 and costs of suit.6
Petitioner Rizal Insurance countered that its fire insurance policy sued
upon covered only the contents of the four-span building, which was
partly burned, and not the damage caused by the fire on the two-storey
annex building.7
On January 4, 1990, the trial court rendered its decision; disposing as
follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance Co.,
Ltd.;
 (2) Ordering defendant Rizal Surety And Insurance Company to
pay Transwrold (sic) Knitting Mills, Inc. the amount of P826,
500.00 representing the actual value of the losses suffered by it;
and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."8
Both the petitioner, Rizal Insurance Company, and private respondent,
Transworld Knitting Mills, Inc., went to the Court of Appeals, which came
out with its decision of July 15, 1993 under attack, the decretal portion of
which reads:
"WHEREFORE, and upon all the foregoing, the decision of the court
below is MODIFIED in that defendant New India Assurance Company
has and is hereby required to pay plaintiff-appellant the amount of
P1,818,604.19 while the other Rizal Surety has to pay the plaintiff-
appellant P470,328.67, based on the actual losses sustained by plaintiff
Transworld in the fire, totalling P2,790,376.00 as against the amounts of
fire insurance coverages respectively extended by New India in the
amount of P5,800,000.00 and Rizal Surety and Insurance Company in
the amount of P1,500,000.00.
No costs.
SO ORDERED."9
On August 20, 1993, from the aforesaid judgment of the Court of
Appeals New India appealed to this Court theorizing inter alia that the
private respondent could not be compensated for the loss of the fun and
amusement machines and spare parts stored at the two-storey building
because it (Transworld) had no insurable interest in said goods or items.
On February 2, 1994, the Court denied the appeal with finality in G.R.
No. L-111118 (New India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance and private respondent Transworld,
interposed a Motion for Reconsideration before the Court of Appeals,
and on October 22, 1993, the Court of Appeals reconsidered its decision
of July 15, 1993, as regards the imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but only
insofar as the imposition of legal interest is concerned, that, on the
assessment against New India Assurance Company on the amount of
P1,818,604.19 and that against Rizal Surety & Insurance Company on
the amount of P470,328.67, from May 26, 1982 when the complaint was
filed until payment is made. The rest of the said decision is retained in all
other respects.
SO ORDERED."10
Undaunted, petitioner Rizal Surety & Insurance Company found its way
to this Court via the present Petition, contending that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT
THE ANNEX BUILDING WHERE THE BULK OF THE BURNED
PROPERTIES WERE STORED, WAS INCLUDED IN THE
COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL
SURETY TO TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B)
ERRED IN NOT CONSIDERING THE PICTURES (EXHS. 3 TO
7-C-RIZAL SURETY), TAKEN IMMEDIATELY AFTER THE FIRE,
WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED
BY TRANSWORLD, WHERE THE INSURED PROPERTIES
WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING
THAT TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH
AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED
CIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO
PAY TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES
(ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND
 EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL
CODE).11
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy litigated upon
protected only the contents of the main building (four-span), 12 and did not
include those stored in the two-storey annex building. On the other hand,
the private respondent theorized that the so called "annex" was not an
annex but was actually an integral part of the four-span building 13 and
therefore, the goods and items stored therein were covered by the same
fire insurance policy.
Resolution of the issues posited here hinges on the proper interpretation
of the stipulation in subject fire insurance policy regarding its coverage,
which reads:
"xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in
question did not limit its coverage to what were stored in the four-span
building. As opined by the trial court of origin, two requirements must
concur in order that the said fun and amusement machines and spare
parts would be deemed protected by the fire insurance policy under
scrutiny, to wit:
"First, said properties must be contained and/or stored in the areas
occupied by Transworld and second, said areas must form part of the
building described in the policy xxx"14
'Said building of four-span lofty one storey in height with mezzanine
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices,
ware house and caretaker's quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings
by the Court of Appeals are conclusive on the parties and not reviewable
by this Court, and the same carry even more weight when the Court of
Appeals has affirmed the findings of fact arrived at by the lower court. 15
In the case under consideration, both the trial court and the Court of
Appeals found that the so called "annex " was not an annex building but
an integral and inseparable part of the four-span building described in
the policy and consequently, the machines and spare parts stored
therein were covered by the fire insurance in dispute. The letter-report of
the Manila Adjusters and Surveyor's Company, which petitioner itself
cited and invoked, describes the "annex" building as follows:
"Two-storey building constructed of partly timber and partly concrete
hollow blocks under g.i. roof which is adjoining and intercommunicating
with the repair of the first right span of the lofty storey building and
thence by property fence wall."16
Verily, the two-storey building involved, a permanent structure which
adjoins and intercommunicates with the "first right span of the lofty
storey building",17 formed part thereof, and meets the requisites for
compensability under the fire insurance policy sued upon.
So also, considering that the two-storey building aforementioned was
already existing when subject fire insurance policy contract was entered
into on January 12, 1981, having been constructed sometime in
1978,18 petitioner should have specifically excluded the said two-storey
building from the coverage of the fire insurance if minded to exclude the
same but if did not, and instead, went on to provide that such fire
insurance policy covers the products, raw materials and supplies stored
within the premises of respondent Transworld which was an integral part
of the four-span building occupied by Transworld, knowing fully well the
existence of such building adjoining and intercommunicating with the
right section of the four-span building.
After a careful study, the Court does not find any basis for disturbing
what the lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy
under controversy has created a doubt regarding the portions of the
building insured thereby. Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved
against the petitioner, Rizal Surety Insurance Company, whose lawyer or
managers drafted the fire insurance policy contract under scrutiny. Citing
the aforecited provision of law in point, the Court in Landicho vs.
Government Service Insurance System,19 ruled:
"This is particularly true as regards insurance policies, in respect of
which it is settled that the 'terms in an insurance policy, which are
ambiguous, equivocal, or uncertain x x x are to be construed strictly and
most strongly against the insurer, and liberally in favor of the insured so
as to effect the dominant purpose of indemnity or payment to the
insured, especially where forfeiture is involved' (29 Am. Jur., 181), and
the reason for this is that the 'insured usually has no voice in the
selection or arrangement of the words employed and that the language
of the contract is selected with great care and deliberation by experts
and legal advisers employed by, and acting exclusively in the interest of,
the insurance company.' (44 C.J.S., p. 1174).""20
Equally relevant is the following disquisition of the Court in Fieldmen's
Insurance Company, Inc. vs. Vda. De Songco,21 to wit:
"'This rigid application of the rule on ambiguities has become necessary
in view of current business practices. The courts cannot ignore that
1wphi1
nowadays monopolies, cartels and concentration of capital, endowed
with overwhelming economic power, manage to impose upon parties
dealing with them cunningly prepared 'agreements' that the weaker party
may not change one whit, his participation in the 'agreement' being
reduced to the alternative to 'take it or leave it' labelled since Raymond
Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast
to these entered into by parties bargaining on an equal footing, such
contracts (of which policies of insurance and international bills of lading
are prime example) obviously call for greater strictness and vigilance on
the part of courts of justice with a view to protecting the weaker party
from abuses and imposition, and prevent their becoming traps for the
unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13
Dec. 1934, 27 February 1942.)'"22
The issue of whether or not Transworld has an insurable interest in the
fun and amusement machines and spare parts, which entitles it to be
indemnified for the loss thereof, had been settled in G.R. No. L-111118,
entitled New India Assurance Company, Ltd., vs. Court of Appeals,
where the appeal of New India from the decision of the Court of Appeals
under review, was denied with finality by this Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains under the
premises, precludes the relitigation of a particular fact or issue in another
action between the same parties based on a different claim or cause of
action. "xxx the judgment in the prior action operates as estoppel only as
to those matters in issue or points controverted, upon the determination
of which the finding or judgment was rendered. In fine, the previous
judgment is conclusive in the second case, only as those matters
actually and directly controverted and determined and not as to matters
merely involved therein."23
Applying the abovecited pronouncement, the Court, in Smith Bell and
Company (Phils.), Inc. vs. Court of Appeals,24 held that the issue of
negligence of the shipping line, which issue had already been passed
upon in a case filed by one of the insurers, is conclusive and can no
longer be relitigated in a similar case filed by another insurer against the
same shipping line on the basis of the same factual circumstances.
Ratiocinating further, the Court opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai
Maru') had been negligent, or so negligent as to have proximately
caused the collision between them, was an issue that was actually,
directly and expressly raised, controverted and litigated in C.A.-G.R. No.
61320-R. Reyes, L.B., J., resolved that issue in his Decision and held
the 'Don Carlos' to have been negligent rather than the 'Yotai Maru' and,
as already noted, that Decision was affirmed by this Court in G.R. No. L-
48839 in a Resolution dated 6 December 1987. The Reyes Decision
thus became final and executory approximately two (2) years before the
Sison Decision, which is assailed in the case at bar, was promulgated.
Applying the rule of conclusiveness of judgment, the question of which
vessel had been negligent in the collision between the two (2) vessels,
had long been settled by this Court and could no longer be relitigated in
C.A.-G.R. No. 61206-R. Private respondent Go Thong was certainly
bound by the ruling or judgment of Reyes, L.B., J. and that of this Court.
The Court of Appeals fell into clear and reversible error when it
disregarded the Decision of this Court affirming the Reyes Decision." 25

The controversy at bar is on all fours with the aforecited case.

Considering that private respondent's insurable interest in, and
compensability for the loss of subject fun and amusement machines and
spare parts, had been adjudicated, settled and sustained by the Court of
Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-
111118, in a Resolution, dated February 2, 1994, the same can no longer
be relitigated and passed upon in the present case. Ineluctably, the
petitioner, Rizal Surety Insurance Company, is bound by the ruling of the
Court of Appeals and of this Court that the private respondent has an
insurable interest in the aforesaid fun and amusement machines and
spare parts; and should be indemnified for the loss of the same.

So also, the Court of Appeals correctly adjudged petitioner liable for the
amount of P470,328.67, it being the total loss and damage suffered by
Transworld for which petitioner Rizal Insurance is liable.26

All things studiedly considered and viewed in proper perspective, the

Court is of the irresistible conclusion, and so finds, that the Court of
Appeals erred not in holding the petitioner, Rizal Surety Insurance
Company, liable for the destruction and loss of the insured buildings and
articles of the private respondent.

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution,
dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO.
28779 are AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.
 Ernani Trinos, deceased husband of respondent Julita Trinos, applied for
a health care coverage with petitioner Philamcare Health Systems, Inc.
In the standard application form, he answered no to the following
question:

Have you or any of your family members ever consulted or been

treated for high blood pressure, heart trouble, diabetes, cancer,
liver disease, asthma or peptic ulcer? (If Yes, give details).1

The application was approved for a period of one year from March 1,
1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents husband
was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient
benefits" such as annual physical examinations, preventive health care
and other out-patient services.

Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.2

During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital,
Republic of the Philippines respondent tried to claim the benefits under the health care agreement.
SUPREME COURT However, petitioner denied her claim saying that the Health Care
Manila Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly
FIRST DIVISION discovered at the time of Ernanis confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form.
G.R. No. 125678 March 18, 2002 Thus, respondent paid the hospitalization expenses herself, amounting
to about P76,000.00.
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs. After her husband was discharged from the MMC, he was attended by a
COURT OF APPEALS and JULITA TRINOS, respondents. physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent
YNARES-SANTIAGO, J.: brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where he
died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente, which was docketed as Civil Case No.
90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital
coverage of the late Ernani Trinos in the amount of P76,000.00
plus interest, until the amount is fully paid to plaintiff who paid the
same;
2. Defendants to pay the reduced amount of moral damages of
P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as
exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of
suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court
but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioners motion for reconsideration was denied. 5 Hence,
petitioner brought the instant petition for review, raising the primary
argument that a health care agreement is not an insurance contract;
hence the "incontestability clause" under the Insurance Code 6 does not
apply.
1wphi1.nt
Petitioner argues that the agreement grants "living benefits," such as
medical check-ups and hospitalization which a member may immediately
enjoy so long as he is alive upon effectivity of the agreement until its
expiration one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the agreement
without any indemnification, unlike in an insurance contract where the
insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance
contracts which last longer,7 petitioner argues that the incontestability
clause does not apply, as the same requires an effectivity period of at
least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as
an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing
a similar risk; and
5. In consideration of the insurers promise, the insured pays a
premium.8
Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person has
an insurable interest in the life and health of himself. Section 10
provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment
of money, respecting property or service, of which death or
illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in
him depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity.9 Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in
his application. It appears that in the application for health coverage,
petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination.10 Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers
contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall
be no contract of health care coverage unless and until an
Agreement is issued on this application and the full Membership
Fee according to the mode of payment applied for is actually
paid during the lifetime and good health of proposed Members;
that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in
writing in the application;that any physician is, by these presents,
expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional
capacity upon any question affecting the eligibility for health care
coverage of the Proposed Members and that the acceptance of
any Agreement issued on this application shall be a ratification of
any correction in or addition to this application as stated in the
space for Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicants medical
history, thus:
I hereby authorize any person, organization, or entity that has
any record or knowledge of my health and/or that of __________
to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment
or any other medical advice or examination. This authorization is
in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid
as the original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of
agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning
and liability of Philamcare shall be limited to return of all
Membership Fees paid. An undisclosed or misrepresented
information is deemed material if its revelation would have
 resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or
benefits applied for.13
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on
opinion rather than fact, especially coming from respondents husband
who was not a medical doctor. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will
not avoid a policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the policy
if there is no actual fraud in inducing the acceptance of the risk,
or its acceptance at a lower rate of premium, and this is likewise
the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such
case the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry. There is a clear
distinction between such a case and one in which the insured is
fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually
untrue, or the impossibility of which is shown by the facts within
his knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual fraud.15 (Underscoring
ours)
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract.16 Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer.
In any case, with or without the authority to investigate, petitioner is
liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the
same to the extent agreed upon. In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease
or injury covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on the
contract.17 In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-
compliance with his obligation.19 Being a contract of adhesion, the terms
of an insurance contract are to be construed strictly against the party
which prepared the contract the insurer.20 By reason of the exclusive
control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid
forfeiture.21 This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.22
Anent the incontestability of the membership of respondents husband,
we quote with approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant

Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient
was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no
longer lie.23

Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still alive.
The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the hospital and
medical expenses. She is therefore entitled to reimbursement. The
records adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the
attending physicians.24 Republic of the Philippines
SUPREME COURT
WHEREFORE, in view of the foregoing, the petition is DENIED. The Manila
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED. FIRST DIVISION

SO ORDERED.

G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE
PHILIPPINES, respondents.
DAVIDE, JR., J.: 3. The said armored car was driven by
Benjamin Magalong Y de Vera, escorted
The fundamental legal issue raised in this petition for review by Security Guard Saturnino Atiga Y
on certiorari is whether the petitioner is liable under the Money, Security, Rosete. Driver Magalong was assigned
and Payroll Robbery policy it issued to the private respondent or whether by PRC Management Systems with the
recovery thereunder is precluded under the general exceptions clause plaintiff by virtue of an Agreement
thereof. Both the trial court and the Court of Appeals held that there executed on August 7, 1983, a duplicate
should be recovery. The petitioner contends otherwise. original copy of which is hereto attached
as Exhibit "B";
This case began with the filing with the Regional Trial Court (RTC) of
Makati, Metro Manila, by private respondent Producers Bank of the 4. The Security Guard Atiga was
Philippines (hereinafter Producers) against petitioner Fortune Insurance assigned by Unicorn Security Services,
and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of Inc. with the plaintiff by virtue of a
the sum of P725,000.00 under the policy issued by Fortune. The sum contract of Security Service executed on
was allegedly lost during a robbery of Producer's armored vehicle while it October 25, 1982, a duplicate original
was in transit to transfer the money from its Pasay City Branch to its copy of which is hereto attached as
head office in Makati. The case was docketed as Civil Case No. 1817 Exhibit "C";
and assigned to Branch 146 thereof.
5. After an investigation conducted by the
After joinder of issues, the parties asked the trial court to render Pasay police authorities, the driver
judgment based on the following stipulation of facts: Magalong and guard Atiga were charged,
together with Edelmer Bantigue Y Eulalio,
1. The plaintiff was insured by the Reynaldo Aquino and John Doe, with
defendants and an insurance policy was violation of P.D. 532 (Anti-Highway
issued, the duplicate original of which is Robbery Law) before the Fiscal of Pasay
hereto attached as Exhibit "A"; City. A copy of the complaint is hereto
attached as Exhibit "D";
2. An armored car of the plaintiff, while in
the process of transferring cash in the 6. The Fiscal of Pasay City then filed an
sum of P725,000.00 under the custody of information charging the aforesaid
its teller, Maribeth Alampay, from its persons with the said crime before
Pasay Branch to its Head Office at 8737 Branch 112 of the Regional Trial Court of
Paseo de Roxas, Makati, Metro Manila on Pasay City. A copy of the said information
June 29, 1987, was robbed of the said is hereto attached as Exhibit "E." The
cash. The robbery took place while the case is still being tried as of this date;
armored car was traveling along Taft
Avenue in Pasay City; 7. Demands were made by the plaintiff
upon the defendant to pay the amount of
 the loss of P725,000.00, but the latter
refused to pay as the loss is excluded
from the coverage of the insurance policy,
attached hereto as Exhibit "A,"
specifically under page 1 thereof,
"General Exceptions" Section (b), which
is marked as Exhibit "A-1," and which
reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under
this policy in report of
xxx xxx xxx
(b) any loss caused by
any dishonest, fraudulent
or criminal act of the
insured or any
officer, employee, partner,
director, trustee or
authorized
representative of the
Insured whether acting
alone or in conjunction
with others. . . .
8. The plaintiff opposes the contention of
the defendant and contends that Atiga
and Magalong are not its "officer,
employee, . . . trustee or authorized
representative . . . at the time of the
robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of
Producers. The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for
plaintiff and against defendant, and
(a) orders defendant to
pay plaintiff the net
amount of P540,000.00
as liability under Policy
No. 0207 (as mitigated by
the P40,000.00 special
clause deduction and by
the recovered sum of
P145,000.00), with
interest thereon at the
legal rate, until fully paid;
(b) orders defendant to
pay plaintiff the sum of
P30,000.00 as and for
attorney's fees; and
(c) orders defendant to
pay costs of suit.
All other claims and counterclaims are accordingly
dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to
have selected and engaged Magalong and Atiga, their
services as armored car driver and as security guard
having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to
plaintiff. The wages and salaries of both Magalong and
Atiga are presumably paid by their respective firms,
 which alone wields the power to dismiss them. Magalong
and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property
protection as such in a context which does not
impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security
guard, beyond perhaps entitling plaintiff to request are
replacement for such driver guard. The finding is
accordingly compelled that neither Magalong nor Atiga
were plaintiff's "employees" in avoidance of defendant's
liability under the policy, particularly the general
exceptions therein embodied.
Neither is the Court prepared to accept the proposition
that driver Magalong and guard Atiga were the
"authorized representatives" of plaintiff. They were
merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer
from plaintiff's Pasay Branch to its Makati Head Office.
Quite plainly it was teller Maribeth Alampay who had
"custody" of the P725,000.00 cash being transferred
along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed
the case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3
May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed
liberally in favor of the insured and strictly against the
insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs.
Court of Appeals, 211 SCRA 554). Contracts of
insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which
the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense (New Life
Enterprises Case, supra, p. 676; Sun Insurance Office,
Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above
quoted stipulation is plain, ordinary and simple. No other
interpretation is necessary. The word "employee" must
be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing
with/and specifically designed to protect labor and
therefore its definition as to employer-employee
relationships insofar as the application/enforcement of
said Code is concerned must necessarily be inapplicable
to an insurance contract which defendant-appellant itself
had formulated. Had it intended to apply the Labor Code
in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance
policy.
Said driver and security guard cannot be considered as
employees of plaintiff-appellee bank because it has no
power to hire or to dismiss said driver and security guard
under the contracts (Exhs. 8 and C) except only to ask
for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It
alleges that the trial court and the Court of Appeals erred in holding it
liable under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to
its head office in Makati.
According to Fortune, when Producers commissioned a guard and a
driver to transfer its funds from one branch to another, they effectively
and necessarily became its authorized representatives in the care and
custody of the money. Assuming that they could not be considered
authorized representatives, they were, nevertheless, employees of
Producers. It asserts that the existence of an employer-employee
relationship "is determined by law and being such, it cannot be the
subject of agreement." Thus, if there was in reality an employer-
employee relationship between Producers, on the one hand, and
Magalong and Atiga, on the other, the provisions in the contracts of
Producers with PRC Management System for Magalong and with
Unicorn Security Services for Atiga which state that Producers is not
their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends
upon four standards: (1) the manner of selection and engagement of the
putative employee; (2) the mode of payment of wages; (3) the presence
or absence of a power to dismiss; and (4) the presence and absence of
a power to control the putative employee's conduct. Of the four, the right-
of-control test has been held to be the decisive factor. 6 It asserts that the
power of control over Magalong and Atiga was vested in and exercised by
Producers. Fortune further insists that PRC Management System and
Unicorn Security Services are but "labor-only" contractors under Article 106
of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-
only" contracting where the person supplying workers to
an employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited
and placed by such persons are performing activities
which are directly related to the principal business of
such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed
by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber
Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor
is equivalent to a finding that there is an employer-employee relationship
between the owner of the project and the employees of the "labor-only"
contractor.
On the other hand, Producers contends that Magalong and Atiga were
not its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control
of their conduct. Producers argued that the rule in International Timber
Corp. is not applicable to all cases but only when it becomes necessary
to prevent any violation or circumvention of the Labor Code, a social
legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule
in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee
relationship, the following elements are generally
considered, namely: (1) the selection and engagement of
the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's
conduct.
Since under Producers' contract with PRC Management Systems it is
the latter which assigned Magalong as the driver of Producers' armored
car and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of
P1,400.00 per driver to PRC Management Systems and not to
Magalong, it is clear that Magalong was not Producers' employee. As to
Atiga, Producers relies on the provision of its contract with Unicorn
Security Services which provides that the guards of the latter "are in no
sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is
a theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
 Sec. 174. Casualty insurance is insurance covering loss
or liability arising from accident or mishap, excluding
certain types of loss which by law or custom are
considered as falling exclusively within the scope of
insurance such as fire or marine. It includes, but is not
limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass
insurance, burglary and theft insurance, personal
accident and health insurance as written by non-life
insurance companies, and other substantially similar
kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties
must be determined by the terms of their contract, taking into
consideration its purpose and always in accordance with the general
principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer the moral hazard is so great
that insurers have found it necessary to fill up their policies with
countless restrictions, many designed to reduce this hazard. Seldom
does the insurer assume the risk of all losses due to the hazards insured
against." 10 Persons frequently excluded under such provisions are those in
the insured's service and employment. 11 The purpose of the exception is to
guard against liability should the theft be committed by one having
unrestricted access to the property. 12 In such cases, the terms specifying the
excluded classes are to be given their meaning as understood in common
speech. 13 The terms "service" and "employment" are generally associated
with the idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity
therein should be resolved against the insurer, 15 or it should be construed
liberally in favor of the insured and strictly against the insurer. 16 Limitations
of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the terms of the contract are
clear and unambiguous, there is no room for construction and such terms
cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of statutory
prohibition to the contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives
of Producers under paragraph (b) of the general exceptions clause of the
policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in
respect of
xxx xxx xxx
(b) any loss caused by any dishonest,
fraudulent or criminal act of the insured or
any officer, employee, partner,
director, trustee or authorized
representative of the Insured whether
acting alone or in conjunction with others.
. . . (emphases supplied)
There is marked disagreement between the parties on the correct
meaning of the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then
the term "employee," it must have had in mind any person who qualifies
as such as generally and universally understood, or jurisprudentially companions. In short, for these particular tasks, the three acted as
established in the light of the four standards in the determination of the agents of Producers. A "representative" is defined as one who
employer-employee relationship, 21 or as statutorily declared even in a represents or stands in the place of another; one who represents others
limited sense as in the case of Article 106 of the Labor Code which or another in a special capacity, as an agent, and is interchangeable with
considers the employees under a "labor-only" contract as employees of the "agent." 23
party employing them and not of the party who supplied them to the
employer. 22 In view of the foregoing, Fortune is exempt from liability under the
general exceptions clause of the insurance policy.
Fortune claims that Producers' contracts with PRC Management
Systems and Unicorn Security Services are "labor-only" contracts. WHEREFORE , the instant petition is hereby GRANTED. The decision of
the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as
Producers, however, insists that by the express terms thereof, it well as that of Branch 146 of the Regional Trial Court of Makati in Civil
is not the employer of Magalong. Notwithstanding such express Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil
assumption of PRC Management Systems and Unicorn Security Case No. 1817 is DISMISSED.
Services that the drivers and the security guards each shall
supply to Producers are not the latter's employees, it may, in fact, No pronouncement as to costs.
be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria provided SO ORDERED.
for in Article 106 of the Labor Code, a question of fact. Since the
parties opted to submit the case for judgment on the basis of
their stipulation of facts which are strictly limited to the insurance
policy, the contracts with PRC Management Systems and
Unicorn Security Services, the complaint for violation of P.D. No.
532, and the information therefor filed by the City Fiscal of Pasay
City, there is a paucity of evidence as to whether the contracts
between Producers and PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn
Security Services were truly independent contractors, we are satisfied
that Magalong and Atiga were, in respect of the transfer of Producer's
money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth
Alampay. Howsoever viewed, Producers entrusted the three with the
specific duty to safely transfer the money to its head office, with Alampay
to be responsible for its custody in transit; Magalong to drive the
armored vehicle which would carry the money; and Atiga to provide the
needed security for the money, the vehicle, and his two other
 GULF RESORTS, INC., petitioner,
vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

DECISION

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the
Revised Rules of Court by petitioner GULF RESORTS, INC., against
respondent PHILIPPINE CHARTER INSURANCE CORPORATION.
Petitioner assails the appellate court decision1 which dismissed its two
appeals and affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner and respondent

on the scope of the insurance companys liability for earthquake damage
to petitioners properties. Petitioner avers that, pursuant to its earthquake
shock endorsement rider, Insurance Policy No. 31944 covers all
damages to the properties within its resort caused by earthquake.
Respondent contends that the rider limits its liability for loss to the two
swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by the

appellate court are as follows:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La

Union and had its properties in said resort insured originally with
the American Home Assurance Company (AHAC-AIU). In the
first four insurance policies issued by AHAC-AIU from 1984-85;
1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F";
also Exhs. "1", "2", "3" and "4" respectively), the risk of loss from
earthquake shock was extended only to plaintiffs two swimming
pools, thus, "earthquake shock endt." (Item 5 only) (Exhs. "C-1";
"D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; D-
1", "E" and "F-1"). "Item 5" in those policies referred to the two
(2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2");
Republic of the Philippines that subsequently AHAC(AIU) issued in plaintiffs favor Policy No.
SUPREME COURT 206-4182383-0 covering the period March 14, 1988 to March 14,
Manila 1989 (Exhs. "G" also "G-1") and in said policy the earthquake
endorsement clause as indicated in Exhibits "C-1", "D-1",
SECOND DIVISION Exhibits "E" and "F-1" was deleted and the entry under
Endorsements/Warranties at the time of issue read that plaintiff
renewed its policy with AHAC (AIU) for the period of March 14,
G.R. No. 156167 May 16, 2005
1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. that plaintiff agreed to insure with defendant the properties
"H") which carried the entry under "Endorsement/Warranties at covered by AHAC (AIU) Policy No. 206-4568061-9 (Exh. "H")
Time of Issue", which read "Endorsement to Include Earthquake provided that the policy wording and rates in said policy be
Shock (Exh. "6-B-1") in the amount of P10,700.00 and copied in the policy to be issued by defendant; that defendant
paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, issued Policy No. 31944 to plaintiff covering the period of March
computed as follows: 14, 1990 to March 14, 1991 for P10,700,600.00 for a total
premium of P45,159.92 (Exh. "I"); that in the computation of the
premium, defendants Policy No. 31944 (Exh. "I"), which is the
policy in question, contained on the right-hand upper portion of
Item - P7,691,000.00 - on the Clubhouse only
page 7 thereof, the following:
@ .392%;

Rate-Various

- 1,500,000.00 - on the furniture, etc. contained in the building

above-mentioned@ .490%;
Premium P37,420.60 F/L

- 393,000.00 - on the two swimming pools, only (against the peril

of earthquake shock only) @ 0.100% 2,061.52 Typhoon

- 116,600.00 other buildings include as follows: 1,030.76 EC

a) Tilter House - P19,800.00 - 0.551% 393.00 ES

b) Power House - P41,000.00 - 0.551% Doc. Stamps 3,068.10

c) House Shed - P55,000.00 - 0.540% F.S.T. 776.89

P100,000.00 - Prem. Tax

for furniture, fixtures, lines air-con and operating 409.05
equipment

TOTAL 45,159.92;
 that the above break-down of premiums shows that plaintiff paid
only P393.00 as premium against earthquake shock (ES); that in
all the six insurance policies (Exhs. "C", "D", "E", "F", "G" and
"H"), the premium against the peril of earthquake shock is the
same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1"
and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1";
issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in
Policy No. 31944 issued by defendant, the shock endorsement
provide(sic):
In consideration of the payment by the insured to the
company of the sum included additional premium the
Company agrees, notwithstanding what is stated in the
printed conditions of this policy due to the contrary, that
this insurance covers loss or damage to shock to any of
the property insured by this Policy occasioned by or
through or in consequence of earthquake (Exhs. "1-D",
"2-D", "3-A", "4-B", "5-A", "6-D" and "7-C");
that in Exhibit "7-C" the word "included" above the underlined
portion was deleted; that on July 16, 1990 an earthquake struck
Central Luzon and Northern Luzon and plaintiffs properties
covered by Policy No. 31944 issued by defendant, including the
two swimming pools in its Agoo Playa Resort were damaged.2
After the earthquake, petitioner advised respondent that it would be
making a claim under its Insurance Policy No. 31944 for damages on its
properties. Respondent instructed petitioner to file a formal claim, then
assigned the investigation of the claim to an independent claims
adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30, 1990,
respondent, through its adjuster, requested petitioner to submit various
documents in support of its claim. On August 7, 1990, Bayne Adjusters
and Surveyors, Inc., through its Vice-President A.R. de Leon, 4 rendered
a preliminary report5 finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming pools. Mr. de
Leon stated that "except for the swimming pools, all affected items have
no coverage for earthquake shocks."6 On August 11, 1990, petitioner
filed its formal demand7 for settlement of the damage to all its properties
in the Agoo Playa Resort. On August 23, 1990, respondent denied
petitioners claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the
resort.8Petitioner and respondent failed to arrive at a settlement. 9 Thus,
on January 24, 1991, petitioner filed a complaint10 with the regional trial
court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by
the insured properties, with interest thereon, as computed under
par. 29 of the policy (Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing
losses sustained by plaintiff on account of defendants refusal to
pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and
expenses of litigation;
5.) Costs.11
Respondent filed its Answer with Special and Affirmative Defenses with
Compulsory Counterclaims.12
On February 21, 1994, the lower court after trial ruled in favor of the
respondent, viz:
The above schedule clearly shows that plaintiff paid only a
premium of P393.00 against the peril of earthquake shock, the
same premium it paid against earthquake shock only on the two
swimming pools in all the policies issued by AHAC(AIU) (Exhibits
"C", "D", "E", "F" and "G"). From this fact the Court must
consequently agree with the position of defendant that the
endorsement rider (Exhibit "7-C") means that only the two
swimming pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a
contract of adhesion hence, where the language used in an
insurance contract or application is such as to create ambiguity
the same should be resolved against the party responsible
therefor, i.e., the insurance company which prepared the
contract. To the mind of [the] Court, the language used in the
policy in litigation is clear and unambiguous hence there is no
need for interpretation or construction but only application of the
provisions therein.
From the above observations the Court finds that only the two (2)
swimming pools had earthquake shock coverage and were
heavily damaged by the earthquake which struck on July 16,
 1990. Defendant having admitted that the damage to the
swimming pools was appraised by defendants adjuster
at P386,000.00, defendant must, by virtue of the contract of
insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the immediately
preceding paragraph that defendant is liable only for the damage
caused to the two (2) swimming pools and that defendant has
made known to plaintiff its willingness and readiness to settle
said liability, there is no basis for the grant of the other damages
prayed for by plaintiff. As to the counterclaims of defendant, the
Court does not agree that the action filed by plaintiff is baseless
and highly speculative since such action is a lawful exercise of
the plaintiffs right to come to Court in the honest belief that their
Complaint is meritorious. The prayer, therefore, of defendant for
damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to
pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX
THOUSAND PESOS (P386,000.00) representing damage to the
two (2) swimming pools, with interest at 6% per annum from the
date of the filing of the Complaint until defendants obligation to
plaintiff is fully paid.
No pronouncement as to costs.13
Petitioners Motion for Reconsideration was denied. Thus, petitioner filed
an appeal with the Court of Appeals based on the following assigned
errors:14
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-
APPELLANT CAN ONLY RECOVER FOR THE DAMAGE TO
ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO.
31944, CONSIDERING ITS PROVISIONS, THE
CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID
POLICY AND THE ACTUATIONS OF THE PARTIES
SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-
APPELLANTS RIGHT TO RECOVER UNDER DEFENDANT-
APPELLEES POLICY (NO. 31944; EXH "I") BY LIMITING
ITSELF TO A CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES
SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF
THE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT
PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES
CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM
ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower
courts failure to award it attorneys fees and damages on its compulsory
counterclaim.
After review, the appellate court affirmed the decision of the trial court
and ruled, thus:
However, after carefully perusing the documentary evidence of
both parties, We are not convinced that the last two (2) insurance
contracts (Exhs. "G" and "H"), which the plaintiff-appellant had
with AHAC (AIU) and upon which the subject insurance contract
with Philippine Charter Insurance Corporation is said to have
been based and copied (Exh. "I"), covered an extended
earthquake shock insurance on all the insured properties.
xxx
We also find that the Court a quo was correct in not granting the
plaintiff-appellants prayer for the imposition of interest 24% on
the insurance claim and 6% on loss of income allegedly
amounting toP4,280,000.00. Since the defendant-appellant has
expressed its willingness to pay the damage caused on the two
(2) swimming pools, as the Court a quo and this Court correctly
found it to be liable only, it then cannot be said that it was in
default and therefore liable for interest.
Coming to the defendant-appellants prayer for an attorneys
fees, long-standing is the rule that the award thereof is subject to
the sound discretion of the court. Thus, if such discretion is well-
exercised, it will not be disturbed on appeal (Castro et al. v. CA,
et al., G.R. No. 115838, July 18, 2002). Moreover, being the
award thereof an exception rather than a rule, it is necessary for
the court to make findings of facts and law that would bring the
case within the exception and justify the grant of such award
(Country Bankers Insurance Corp. v. Lianga Bay and Community
 Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002).
Therefore, holding that the plaintiff-appellants action is not
baseless and highly speculative, We find that the Court a quo did
not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are
hereby DISMISSED and judgment of the Trial Court hereby
AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues:16
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD
THAT UNDER RESPONDENTS INSURANCE POLICY NO.
31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER
THAN ALL THE PROPERTIES COVERED THEREUNDER, ARE
INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY
DENIED PETITIONERS PRAYER FOR DAMAGES WITH
INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS
FEES AND EXPENSES OF LITIGATION.
Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all
of the properties insured and not only the swimming pools. It used the
words "any property insured by this policy," and it should be interpreted
as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock
endorsement is confirmed in the body of the insurance policy itself,
which states that it is "[s]ubject to: Other Insurance Clause, Typhoon
Endorsement,Earthquake Shock Endt., Extended Coverage Endt., FEA
Warranty & Annual Payment Agreement On Long Term Policies."17
Third, that the qualification referring to the two swimming pools had
already been deleted in the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an
inadvertent omission when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given
precedence over the wording of the insurance policy, because the rider
is the more deliberate expression of the agreement of the contracting
parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be
resolved in favor of petitioner and against respondent. It was respondent
which caused the ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake
shock endorsement should be interpreted as a caveat on the standard
fire insurance policy, such as to remove the two swimming pools from
the coverage for the risk of fire. It should not be used to limit the
respondents liability for earthquake shock to the two swimming pools
only.
Ninth, there is no basis for the appellate court to hold that the additional
premium was not paid under the extended coverage. The premium for
the earthquake shock coverage was already included in the premium
paid for the policy.
Tenth, the parties contemporaneous and subsequent acts show that
they intended to extend earthquake shock coverage to all insured
properties. When it secured an insurance policy from respondent,
petitioner told respondent that it wanted an exact replica of its latest
insurance policy from American Home Assurance Company (AHAC-
AIU), which covered all the resorts properties for earthquake shock
damage and respondent agreed. After the July 16, 1990 earthquake,
respondent assured petitioner that it was covered for earthquake shock.
Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc.,
likewise requested petitioner to submit the necessary documents for its
building claims and other repair costs. Thus, under the doctrine of
equitable estoppel, it cannot deny that the insurance policy it issued to
petitioner covered all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review
by certiorari under Rule 45 of the Revised Rules of Court as its remedy,
and there is no need for calibration of the evidence in order to establish
the facts upon which this petition is based.
On the other hand, respondent made the following counter arguments: 18
First, none of the previous policies issued by AHAC-AIU from 1983 to
1990 explicitly extended coverage against earthquake shock to
petitioners insured properties other than on the two swimming pools.
Petitioner admitted that from 1984 to 1988, only the two swimming pools
were insured against earthquake shock. From 1988 until 1990, the
provisions in its policy were practically identical to its earlier policies, and
there was no increase in the premium paid. AHAC-AIU, in a letter19 by its
representative Manuel C. Quijano, categorically stated that its previous
policy, from which respondents policy was copied, covered only
earthquake shock for the two swimming pools.
Second, petitioners payment of additional premium in the amount
of P393.00 shows that the policy only covered earthquake shock
damage on the two swimming pools. The amount was the same amount
paid by petitioner for earthquake shock coverage on the two swimming
pools from 1990-1991. No additional premium was paid to warrant
coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the
earthquake shock endorsement to the two swimming pools in the policy
schedule did not expand the earthquake shock coverage to all of
petitioners properties. As per its agreement with petitioner, respondent
copied its policy from the AHAC-AIU policy provided by petitioner.
Although the first five policies contained the said qualification in their
riders title, in the last two policies, this qualification in the title was
deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion
was a mere inadvertence. This inadvertence did not make the policy
incomplete, nor did it broaden the scope of the endorsement whose
descriptive title was merely enumerated. Any ambiguity in the policy can
be easily resolved by looking at the other provisions, specially the
enumeration of the items insured, where only the two swimming pools
were noted as covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984
through 1988, the phrase "Item 5 P393,000.00 on the two swimming
pools only (against the peril of earthquake shock only)" meant that only
the swimming pools were insured for earthquake damage. The same
phrase is used in toto in the policies from 1989 to 1990, the only
difference being the designation of the two swimming pools as "Item 3."
Fifth, in order for the earthquake shock endorsement to be effective,
premiums must be paid for all the properties covered. In all of its seven
insurance policies, petitioner only paid P393.00 as premium for coverage
of the swimming pools against earthquake shock. No other premium was
paid for earthquake shock coverage on the other properties. In addition,
the use of the qualifier "ANY" instead of "ALL" to describe the property
covered was done deliberately to enable the parties to specify the
properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of
its properties must be included in the earthquake shock coverage.
Petitioners own evidence shows that it only required respondent to
follow the exact provisions of its previous policy from AHAC-AIU.
Respondent complied with this requirement. Respondents only deviation
from the agreement was when it modified the provisions regarding the
replacement cost endorsement. With regard to the issue under litigation,
the riders of the old policy and the policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to
petitioner as would estop it from maintaining that only the two swimming
pools were covered for earthquake shock. The adjusters letter notifying
petitioner to present certain documents for its building claims and repair
costs was given to petitioner before the adjuster knew the full coverage
of its policy.
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the
phrase "Item 5 Only" after the descriptive name or title of the Earthquake
Shock Endorsement. However, the words of the policy reflect the parties
clear intention to limit earthquake shock coverage to the two swimming
pools.
Before petitioner accepted the policy, it had the opportunity to read its
conditions. It did not object to any deficiency nor did it institute any action
to reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorneys fees
and litigation expenses. Since respondent was willing and able to pay for
the damage caused on the two swimming pools, it cannot be considered
to be in default, and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the
resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools
were specified as included, viz:
 ITEM 3 393,000.00 On the two (2) swimming pools only UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE
(against the peril of earthquake shock only)20 ABOVE NAMED x x x AND TO PAY THE PREMIUM.

Second, under the breakdown for premium payments,21 it was stated Earthquake Endorsement
that:
In consideration of the payment by the Insured to the Company
of the sum of P. . . . . . . . . . . . . . . . . additional premium the
PREMIUM RECAPITULATION Company agrees, notwithstanding what is stated in the printed
conditions of this Policy to the contrary, that this insurance
covers loss or damage (including loss or damage by fire) to any
of the property insured by this Policy occasioned by or through or
ITEM NOS. AMOUNT RATES PREMIUM in consequence of Earthquake.

xxx
3 393,000.00 0.100%-E/S 393.0022]
Third, Policy Condition No. 6 stated:
6. This insurance does not cover any loss or damage occasioned
by or through or in consequence, directly or indirectly of any of
the following occurrences, namely:--
(a) Earthquake, volcanic eruption or other convulsion of
nature. 23
Fourth, the rider attached to the policy, titled "Extended Coverage
Endorsement (To Include the Perils of Explosion, Aircraft, Vehicle and
Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED
AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION
PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7
% OF THE NET PREMIUM x x x POLICY HEREBY
Provided always that all the conditions of this Policy shall apply
(except in so far as they may be hereby expressly varied) and
that any reference therein to loss or damage by fire should be
deemed to apply also to loss or damage occasioned by or
through or in consequence of Earthquake.24
Petitioner contends that pursuant to this rider, no qualifications were
placed on the scope of the earthquake shock coverage. Thus, the policy
extended earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be
examined and interpreted in consonance with each other.25 All its parts
are reflective of the true intent of the parties. The policy cannot be
construed piecemeal. Certain stipulations cannot be segregated and
then made to control; neither do particular words or phrases necessarily
determine its character. Petitioner cannot focus on the earthquake shock
endorsement to the exclusion of the other provisions. All the provisions
and riders, taken and interpreted together, indubitably show the intention
of the parties to extend earthquake shock coverage to the two swimming
pools only.
A careful examination of the premium recapitulation will show that it is
the clear intent of the parties to extend earthquake shock coverage only
to the two swimming pools. Section 2(1) of the Insurance Code defines a
contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. Thus, an insurance
contract exists where the following elements concur:
1. The insured has an insurable interest;
 2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing
a similar risk; and
5. In consideration of the insurer's promise, the insured
pays a premium.26 (Emphasis ours)
An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril. 27 In fire,
casualty, and marine insurance, the premium payable becomes a debt
as soon as the risk attaches.28 In the subject policy, no premium
payments were made with regard to earthquake shock coverage, except
on the two swimming pools. There is no mention of any premium
payable for the other resort properties with regard to earthquake shock.
This is consistent with the history of petitioners previous insurance
policies from AHAC-AIU. As borne out by petitioners witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN,
November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar
as your insurance policy during the period from March 4, 1984 to
March 4, 1985 the coverage on earthquake shock was limited to
the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically
shown in the warranty, there is a provision here that it was only
for item 5.
Q. More specifically Item 5 states the amount of P393,000.00
corresponding to the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN,
November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did
you personally arrange for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your
company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as
operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is
concerned they are of course subject to your instruction, is that
not correct?
A. Yes, sir. The final action is still with us although they can
recommend what insurance to take.
Q. In the procurement of the insurance police (sic) from March
14, 1988 to March 14, 1989, did you give written instruction to
Forte Insurance Agency advising it that the earthquake shock
coverage must extend to all properties of Agoo Playa Resort in
La Union?
A. No, sir. We did not make any written instruction, although we
made an oral instruction to that effect of extending the coverage
on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important
because in April 1987 there was an earthquake tremor in La
Union?
 A. Yes, sir.
Q. And you wanted to protect all your properties against similar
tremors in the [future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to
check the provisions with respect to your instructions that all
properties must be covered again by earthquake shock
endorsement?
A. Are you referring to the insurance policy issued by American
Home Assurance Company marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the
earthquake shock endorsement has no more limitation referring
to the two swimming pools only, I was contented already that the
previous limitation pertaining to the two swimming pools was
already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject
to: Other Insurance Clause, Typhoon Endorsement, Earthquake
Shock Endorsement, Extended Coverage Endorsement, FEA
Warranty & Annual Payment Agreement on Long Term Policies"29 to
the insurance policy as proof of the intent of the parties to extend the
coverage for earthquake shock. However, this phrase is merely an
enumeration of the descriptive titles of the riders, clauses, warranties or
endorsements to which the policy is subject, as required under Section
50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the
qualification limiting the coverage to the two swimming pools. The
earthquake shock endorsement cannot stand alone. As explained by the
testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H
inclusive have been previously marked by counsel for
defendant as Exhibit[s] 1-6 inclusive. Did you have
occasion to review of (sic) these six (6) policies issued by
your company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one
point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence
as Exhibits C to H respectively carries an earthquake shock
endorsement[?] My question to you is, on the basis on (sic) the
wordings indicated in Exhibits C to H respectively what was the
extent of the coverage [against] the peril of earthquake shock as
provided for in each of the six (6) policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2)
swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E,
F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against
earthquake shock as provided for in each of the six (6)
policies extend to the two (2) swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration
"Earthquake Shock Endorsement, in the Clauses and
 Warranties: Item 5 only (Earthquake Shock
Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock
endorsement on stand alone basis. For swimming pools
we do cover earthquake shock. For building we covered
it for full earthquake coverage which includes earthquake
shock
COURT:
As far as earthquake shock endorsement you do not
have a specific coverage for other things other than
swimming pool? You are covering building? They are
covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we
are covering building or another we can issue earthquake
shock solely but that the moment I see this, the thing that
comes to my mind is either insuring a swimming pool,
foundations, they are normally affected by earthquake
but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that
only Exhibits C, D, E and F inclusive [remained] its coverage
against earthquake shock to two (2) swimming pools only but
that Exhibits G and H respectively entend the coverage against
earthquake shock to all the properties indicated in the respective
schedules attached to said policies, what can you say about that
testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot
stand alone without the other half of it. I assure you that
this one covers the two swimming pools with respect to
earthquake shock endorsement. Based on it, if we are
going to look at the premium there has been no change
with respect to the rates. Everytime (sic) there is a
renewal if the intention of the insurer was to include the
earthquake shock, I think there is a substantial increase
in the premium. We are not only going to consider the
two (2) swimming pools of the other as stated in the
policy. As I see, there is no increase in the amount of the
premium. I must say that the coverage was not broaden
(sic) to include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of
the coverage. If you are going to do some computation
based on the rates you will arrive at the same premiums,
your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming
pools for fire insurance?
WITNESS:
No, we dont, sir.
Q. That is why the phrase "earthquake shock to the two (2)
swimming pools only" was placed, is it not?
 A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits,
Exhibits G and H which you have pointed to during your
direct-examination, the phrase "Item no. 5 only" meaning
to (sic) the two (2) swimming pools was deleted from the
policies issued by AIU, is it not?
xxx
ATTY. ANDRES:
As an insurance executive will you not attach any
significance to the deletion of the qualifying phrase for
the policies?
WITNESS:
My answer to that would be, the deletion of that particular
phrase is inadvertent. Being a company underwriter, we
do not cover. . it was inadvertent because of the previous
policies that we have issued with no specific
attachments, premium rates and so on. It was
inadvertent, sir.
The Court also rejects petitioners contention that respondents
contemporaneous and subsequent acts to the issuance of the insurance
policy falsely gave the petitioner assurance that the coverage of the
earthquake shock endorsement included all its properties in the resort.
Respondent only insured the properties as intended by the petitioner.
Petitioners own witness testified to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr.
Witness, what exactly did you tell Atty. Omlas (sic) to copy from
Exhibit "H" for purposes of procuring the policy from Philippine
Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have
the same provisions as this American Home Insurance Policy
No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the
premium rates?
A. Yes, sir. He assured me that with regards to the insurance
premium rates that they will be charging will be limited to this
one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a
comparison of the provisions and scope of coverage of Exhibits
"I" and "H" sometime in the third week of March, 1990 or
thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference
between the policy wordings as well as scope of coverage of
Exhibits "I" and "H" respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I
was assured already that the policy wordings and rates were
copied from the insurance policy I sent them but it was only when
this case erupted that we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did
you notice any discrepancy at any time between those indicated
in Exhibit "I" and those indicated in Exhibit "H" respectively?
 A. With regard to the wordings I did not notice any difference
because it was exactly the same P393,000.00 on the two (2)
swimming pools only against the peril of earthquake shock which
I understood before that this provision will have to be placed here
because this particular provision under the peril of earthquake
shock only is requested because this is an insurance policy and
therefore cannot be insured against fire, so this has to be placed.
The verbal assurances allegedly given by respondents representative
Atty. Umlas were not proved. Atty. Umlas categorically denied having
given such assurances.
Finally, petitioner puts much stress on the letter of respondents
independent claims adjuster, Bayne Adjusters and Surveyors, Inc. But as
testified to by the representative of Bayne Adjusters and Surveyors, Inc.,
respondent never meant to lead petitioner to believe that the
endorsement for earthquake shock covered properties other than the
two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion
regarding the extent of coverage of the policy issued by
Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the
inspection, I got a photocopy of the insurance coverage policy
and it was indicated under Item 3 specifically that the coverage is
only for earthquake shock. Then, I remember I had a talk with
Atty. Umlas (sic), and I relayed to him what I had found out in the
policy and he confirmed to me indeed only Item 3 which were the
two swimming pools have coverage for earthquake shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any,
for stating that except for the swimming pools all affected items
have no coverage for earthquake shock?
xxx
A. I based my statement on my findings, because upon my
examination of the policy I found out that under Item 3 it was
specific on the wordings that on the two swimming pools only,
then enclosed in parenthesis (against the peril[s] of earthquake
shock only), and secondly, when I examined the summary of
premium payment only Item 3 which refers to the swimming
pools have a computation for premium payment for earthquake
shock and all the other items have no computation for payment
of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders.
Petitioner cannot rely on the general rule that insurance contracts are
contracts of adhesion which should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares
it.31 A contract of adhesion is one wherein a party, usually a corporation,
prepares the stipulations in the contract, while the other party merely
affixes his signature or his "adhesion" thereto. Through the years, the
courts have held that in these type of contracts, the parties do not
bargain on equal footing, the weaker party's participation being reduced
to the alternative to take it or leave it. Thus, these contracts are viewed
as traps for the weaker party whom the courts of justice must
protect.32Consequently, any ambiguity therein is resolved against the
insurer, or construed liberally in favor of the insured.33
The case law will show that this Court will only rule out blind adherence
to terms where facts and circumstances will show that they are basically
one-sided.34 Thus, we have called on lower courts to remain careful in
scrutinizing the factual circumstances behind each case to determine the
efficacy of the claims of contending parties. In Development Bank of
the Philippines v. National Merchandising Corporation, et al.,35 the
parties, who were acute businessmen of experience, were presumed to
have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at
bar. Petitioner cannot claim it did not know the provisions of the policy.
From the inception of the policy, petitioner had required the respondent
to copyverbatim the provisions and terms of its latest insurance policy
from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct
participant in securing the insurance policy of petitioner, is reflective of
petitioners knowledge,viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36
TSN, September 23, 1991
pp. 20-21
 Q. Did you indicate to Atty. Omlas (sic) what kind of policy you
would want for those facilities in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy
under Philippine Charter Insurance Corporation as long as it will
follow the same or exact provisions of the previous insurance
policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the
provisions which you wanted in the American Home Insurance
policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter

Insurance Corporation I specifically told him that the policy and
wordings shall be copied from the AIU Policy No. 206-4568061-
9.

Respondent, in compliance with the condition set by the petitioner,

copied AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No.
31944. It is true that there was variance in some terms, specifically in the
Republic of the Philippines
replacement cost endorsement, but the principal provisions of the policy
remained essentially similar to AHAC-AIUs policy. Consequently, we SUPREME COURT
cannot apply the "fine print" or "contract of adhesion" rule in this case as Manila
the parties intent to limit the coverage of the policy to the two swimming
pools only is not ambiguous.37 SECOND DIVISION

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. G.R. No. L-52756 October 12, 1987
The petition for certiorari is dismissed. No costs.
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,
SO ORDERED.
vs.
COURT OF APPEALS AND ZENITH INSURANCE
CORPORATION, respondents.

PADILLA, J:
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated recovery of the total amount of damages petitioner had sustained. Since
21 March 1979, ordering petitioner Manila Mahogany Manufacturing Corporation to pay private total damages were valued by petitioner at P9,486.43 and only
respondent Zenith Insurance Corporation the sum of Five Thousand Pesos (P5,000.00) with 6%
annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos (P500.00), P5,000.00 was received by petitioner from respondent, petitioner argues
and costs of suit, and the resolution of the same Court, dated 8 February 1980, denying petitioner's that it was entitled to go after San Miguel Corporation to claim the
motion for reconsideration of it's decision.
additional P4,500.00 eventually paid to it by the latter, without having to
turn over said amount to respondent. Respondent of course disputes this
From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes
allegation and states that there was no qualification to its right of
Benz 4-door sedan with respondent insurance company. On 4 May 1970
subrogation under the Release of Claim executed by petitioner, the
the insured vehicle was bumped and damaged by a truck owned by San
contents of said deed having expressed all the intents and purposes of
Miguel Corporation. For the damage caused, respondent company paid
the parties.
petitioner five thousand pesos (P5,000.00) in amicable settlement.
Petitioner's general manager executed a Release of Claim, subrogating
To support its alleged right not to return the P4,500.00 paid by San
respondent company to all its right to action against San Miguel
Miguel Corporation, petitioner cites Art. 2207 of the Civil Code, which
Corporation.
states:

On 11 December 1972, respondent company wrote Insurance Adjusters,

If the plaintiff's property has been insured, and he has
Inc. to demand reimbursement from San Miguel Corporation of the
received indemnity from the insurance company for the
amount it had paid petitioner. Insurance Adjusters, Inc. refused
injury or loss arising out of the wrong or breach of
reimbursement, alleging that San Miguel Corporation had already paid
contract complained of the insurance company shall be
petitioner P4,500.00 for the damages to petitioner's motor vehicle, as
subrogated to the rights of the insured against the
evidenced by a cash voucher and a Release of Claim executed by the
wrongdoer or the person who has violated the contract. If
General Manager of petitioner discharging San Miguel Corporation from
the amount paid by the insurance company does not fully
"all actions, claims, demands the rights of action that now exist or
cover the injury or loss the aggrieved party shall be
hereafter [sic] develop arising out of or as a consequence of the
entitled to recover the deficiency from the person causing
accident."
the loss or injury.

Respondent insurance company thus demanded from petitioner

Petitioner also invokes Art. 1304 of the Civil Code, stating.
reimbursement of the sum of P4,500.00 paid by San Miguel Corporation.
Petitioner refused; hence, respondent company filed suit in the City
A creditor, to whom partial payment has been made, may
Court of Manila for the recovery of P4,500.00. The City Court ordered
exercise his right for the remainder, and he shall be
petitioner to pay respondent P4,500.00. On appeal the Court of First
preferred to the person who has been subrogated in his
Instance of Manila affirmed the City Court's decision in toto, which CFI
place in virtue of the partial payment of the same credit.
decision was affirmed by the Court of Appeals, with the modification that
petitioner was to pay respondent the total amount of P5,000.00 that it
We find petitioners arguments to be untenable and without merit. In the
had earlier received from the respondent insurance company.
absence of any other evidence to support its allegation that a
gentlemen's agreement existed between it and respondent, not
Petitioner now contends it is not bound to pay P4,500.00, and much
embodied in the Release of Claim, such ease of Claim must be taken as
more, P5,000.00 to respondent company as the subrogation in the
Release of Claim it executed in favor of respondent was conditioned on
the best evidence of the intent and purpose of the parties. Thus, the
Court of Appeals rightly stated:
Petitioner argues that the release claim it executed
subrogating Private respondent to any right of action it
had against San Miguel Corporation did not preclude
Manila Mahogany from filing a deficiency claim against
the wrongdoer. Citing Article 2207, New Civil Code, to the
effect that if the amount paid by an insurance company
does not fully cover the loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing
the loss, petitioner claims a preferred right to retain the
amount coming from San Miguel Corporation, despite the
subrogation in favor of Private respondent.
Although petitioners right to file a deficiency claim against
San Miguel Corporation is with legal basis, without
prejudice to the insurer's right of subrogation,
nevertheless when Manila Mahogany executed another
release claim (Exhibit K) discharging San Miguel
Corporation from "all actions, claims, demands and rights
of action that now exist or hereafter arising out of or as a
consequence of the accident" after the insurer had paid
the proceeds of the policy- the compromise agreement of
P5,000.00 being based on the insurance policy-the
insurer is entitled to recover from the insured the amount
of insurance money paid (Metropolitan Casualty
Insurance Company of New York vs. Badler, 229 N.Y.S.
61, 132 Misc. 132 cited in Insurance Code and
Insolvency Law with comments and annotations, H.B.
Perez 1976, p. 151). Since petitioner by its own acts
released San Miguel Corporation, thereby defeating
private respondents, the right of subrogation, the right of
action of petitioner against the insurer was also nullified.
(Sy Keng & Co. vs. Queensland Insurance Co., Ltd., 54
O.G. 391) Otherwise stated: private respondent may
recover the sum of P5,000.00 it had earlier paid to
petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co., 2
If a property is insured and the owner receives the
indemnity from the insurer, it is provided in [Article 2207
of the New Civil Code] that the insurer is deemed
subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer does not
fully cover the loss, then the aggrieved party is the one
entitled to recover the deficiency. ... Under this legal
provision, the real party in interest with regard to the
portion of the indemnity paid is the insurer and not the
insured 3(Emphasis supplied)
The decision of the respondent court ordering petitioner to pay
respondent company, not the P4,500.00 as originally asked for, but
P5,000.00, the amount respondent company paid petitioner as
insurance, is also in accord with law and jurisprudence. In disposing of
this issue, the Court of Appeals held:
... petitioner is entitled to keep the sum of P4,500.00 paid
by San Miguel Corporation under its clear right to file a
deficiency claim for damages incurred, against the
wrongdoer, should the insurance company not fully pay
for the injury caused (Article 2207, New Civil
Code). However, when petitioner released San Miguel
Corporation from any liability, petitioner's right to retain
the sum of P5,000.00 no longer existed, thereby entitling
private respondent to recover the same. (Emphasis
supplied)
As has been observed:
... The right of subrogation can only exist after the insurer
has paid the otherwise the insured will be deprived of his
right to full indemnity. If the insurance proceeds are not
sufficient to cover the damages suffered by the insured,
then he may sue the party responsible for the damage for
the the [sic] remainder. To the extent of the amount he
 has already received from the insurer enjoy's [sic] the
right of subrogation.

Since the insurer can be subrogated to only such rights

as the insured may have, should the insured, after
receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his
rights against the latter. But in such a case, the insurer
will be entitled to recover from the insured whatever it
has paid to the latter, unless the release was made with
the consent of the insurer. 4 (Emphasis supplied.)

And even if the specific amount asked for in the complaint is P4,500.00
only and not P5,000.00, still, the respondent Court acted well within its
discretion in awarding P5,000.00, the total amount paid by the insurer.
The Court of Appeals rightly reasoned as follows:

It is to be noted that private respondent, in its companies,

prays for the recovery, not of P5,000.00 it had paid under
the insurance policy but P4,500.00 San Miguel
Corporation had paid to petitioner. On this score, We
believe the City Court and Court of First Instance erred in
not awarding the proper relief. Although private
respondent prays for the reimbursement of P4,500.00
paid by San Miguel Corporation, instead of P5,000.00
paid under the insurance policy, the trial court should
have awarded the latter, although not prayed for, under
the general prayer in the complaint "for such further or
other relief as may be deemed just or equitable, (Rule 6,
Sec. 3, Revised Rules of Court; Rosales vs. Reyes
Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim, 50 Phil. 844;
Baguiro vs. Barrios Tupas, 77 Phil 120).

WHEREFORE, premises considered, the petition is DENIED. The

judgment appealed from is hereby AFFIRMED with costs against
petitioner.

SO ORDERED.
 "WHEREFORE, premises considered, the present appeal is
hereby DISMISSED for lack of merit. The appealed Decision of
Branch 149 of the Regional Trial Court of Makati City in Civil
Case No. 95-1219,entitled 'American Home Assurance Co. and
PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS
CORPORATION and/or CARGOHAUS, INC. (formerly U-
WAREHOUSE, INC.),' is hereby AFFIRMED andREITERATED.
Republic of the Philippines
SUPREME COURT
Manila "Costs against the [petitioner and Cargohaus, Inc.]." 4

THIRD DIVISION The assailed Resolution denied petitioner's Motion for Reconsideration.

G.R. No. 150094 August 18, 2004 The Facts

FEDERAL EXPRESS CORPORATION, petitioner,
vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM
INSURANCE COMPANY, INC., respondents.
DECISION
PANGANIBAN, J.:
Basic is the requirement that before suing to recover loss of or damage
to transported goods, the plaintiff must give the carrier notice of the loss
or damage, within the period prescribed by the Warsaw Convention
and/or the airway bill.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
challenging the June 4, 2001 Decision2and the September 21, 2001
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208. The
assailed Decision disposed as follows:
The antecedent facts are summarized by the appellate court as follows:
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for
brevity) of Nebraska, USA delivered to Burlington Air Express
(BURLINGTON), an agent of [Petitioner] Federal Express
Corporation, a shipment of 109 cartons of veterinary biologicals
for delivery to consignee SMITHKLINE and French Overseas
Company in Makati City, Metro Manila. The shipment was
covered by Burlington Airway Bill No. 11263825 with the words,
'REFRIGERATE WHEN NOT IN TRANSIT' and 'PERISHABLE'
stamp marked on its face. That same day, Burlington insured the
cargoes in the amount of $39,339.00 with American Home
Assurance Company (AHAC). The following day, Burlington
turned over the custody of said cargoes to Federal Express
which transported the same to Manila. The first shipment,
consisting of 92 cartons arrived in Manila on January 29, 1994 in
Flight No. 0071-28NRT and was immediately stored at
[Cargohaus Inc.'s] warehouse. While the second, consisting of
17 cartons, came in two (2) days later, or on January 31, 1994, in
Flight No. 0071-30NRT which was likewise immediately stored at
Cargohaus' warehouse. Prior to the arrival of the cargoes,
Federal Express informed GETC Cargo International
Corporation, the customs broker hired by the consignee to
facilitate the release of its cargoes from the Bureau of Customs,
of the impending arrival of its client's cargoes.
"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'),
twelve (12) days after the cargoes arrived in Manila, a non-
licensed custom's broker who was assigned by GETC to
facilitate the release of the subject cargoes, found out, while he 'SO ORDERED.'
was about to cause the release of the said cargoes, that the
same [were] stored only in a room with two (2) air conditioners "Aggrieved, [petitioner] appealed to [the CA]."5
running, to cool the place instead of a refrigerator. When he
asked an employee of Cargohaus why the cargoes were stored Ruling of the Court of Appeals
in the 'cool room' only, the latter told him that the cartons where
the vaccines were contained specifically indicated therein that it
The Test Report issued by the United States Department of Agriculture
should not be subjected to hot or cold temperature. Thereafter,
(Animal and Plant Health Inspection Service) was found by the CA to be
DIONEDA, upon instructions from GETC, did not proceed with
inadmissible in evidence. Despite this ruling, the appellate court held that
the withdrawal of the vaccines and instead, samples of the same
the shipping Receipts were a prima facie proof that the goods had
were taken and brought to the Bureau of Animal Industry of the
indeed been delivered to the carrier in good condition. We quote from
Department of Agriculture in the Philippines by SMITHKLINE for
the ruling as follows:
examination wherein it was discovered that the 'ELISA reading of
vaccinates sera are below the positive reference serum.'
"Where the plaintiff introduces evidence which shows prima
facie that the goods were delivered to the carrier in good
"As a consequence of the foregoing result of the veterinary
condition [i.e., the shipping receipts], and that the carrier
biologics test, SMITHKLINE abandoned the shipment and,
delivered the goods in a damaged condition, a presumption is
declaring 'total loss' for the unusable shipment, filed a claim with
raised that the damage occurred through the fault or negligence
AHAC through its representative in the Philippines, the Philam
of the carrier,and this casts upon the carrier the burden of
Insurance Co., Inc. ('PHILAM') which recompensed
showing that the goods were not in good condition when
SMITHKLINE for the whole insured amount of THIRTY NINE
delivered to the carrier, or that the damage was occasioned by
THOUSAND THREE HUNDRED THIRTY NINE DOLLARS
some cause excepting the carrier from absolute liability. This the
($39,339.00). Thereafter, [respondents] filed an action for
[petitioner] failed to discharge. x x x."6
damages against the [petitioner] imputing negligence on either or
both of them in the handling of the cargo.
Found devoid of merit was petitioner's claim that respondents had no
personality to sue. This argument was supposedly not raised in the
"Trial ensued and ultimately concluded on March 18, 1997 with
Answer or during trial.
the [petitioner] being held solidarily liable for the loss as follows:
Hence, this Petition.7
'WHEREFORE, judgment is hereby rendered in favor of
[respondents] and [petitioner and its Co-Defendant
Cargohaus] are directed to pay [respondents], jointly and The Issues
severally, the following:
In its Memorandum, petitioner raises the following issues for our
1. Actual damages in the amount of the peso consideration:
equivalent of US$39,339.00 with interest from the
time of the filing of the complaint to the time the "I.
same is fully paid.
Are the decision and resolution of the Honorable Court of
2. Attorney's fees in the amount of P50,000.00 Appeals proper subject for review by the Honorable Court under
and Rule 45 of the 1997 Rules of Civil Procedure?

3. Costs of suit. "II.

 Is the conclusion of the Honorable Court of Appeals petitioner's
claim that respondents have no personality to sue because the
payment was made by the respondents to Smithkline when the
insured under the policy is Burlington Air Express is devoid of
merit correct or not?
"III.
Is the conclusion of the Honorable Court of Appeals that the
goods were received in good condition, correct or not?
"IV.
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not
admissible?
"V.
Is the Honorable Court of Appeals correct in ignoring and
disregarding respondents' own admission that petitioner is not
liable? and
"VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw
Convention?"8
Simply stated, the issues are as follows: (1) Is the Petition proper for
review by the Supreme Court? (2) Is Federal Express liable for damage
to or loss of the insured goods?
This Court's Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals from
undisputed facts is a question of law cognizable by the Supreme Court. 9
In the present case, the facts are undisputed. As will be shown shortly,
petitioner is questioning the conclusions drawn from such facts. Hence,
this case is a proper subject for review by this Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue -- thus,
no cause of action against it -- because the payment made to Smithkline
was erroneous.
Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that
both opposing parties cite in support of their respective positions. They
differ only in their interpretation of what their rights are under its terms.
The determination of those rights involves a question of law, not a
question of fact. "As distinguished from a question of law which exists
'when the doubt or difference arises as to what the law is on a certain
state of facts' -- 'there is a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged facts'; or when the
'query necessarily invites calibration of the whole evidence considering
mainly the credibility of witnesses, existence and relevancy of specific
surrounding circumstance, their relation to each other and to the whole
and the probabilities of the situation.'"11
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is
"payable to order x x x upon surrender of this Certificate." Such wording
conveys the right of collecting on any such damage or loss, as fully as if
the property were covered by a special policy in the name of the holder
itself. At the back of the Certificate appears the signature of the
representative of Burlington. This document has thus been duly indorsed
in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had
the right of collecting or of being indemnified for loss of or damage to the
insured shipment, as fully as if the property were covered by a special
policy in the name of the holder. Hence, being the holder of the
Certificate and having an insurable interest in the goods, Smithkline was
the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline)
executed a subrogation Receipt12 in favor of respondents. The latter were
thus authorized "to file claims and begin suit against any such carrier,
vessel, person, corporation or government." Undeniably, the consignee
had a legal right to receive the goods in the same condition it was
delivered for transport to petitioner. If that right was violated, the
consignee would have a cause of action against the person responsible
therefor.
Upon payment to the consignee of an indemnity for the loss of or
damage to the insured goods, the insurer's entitlement to
subrogation pro tanto -- being of the highest equity -- equips it with a
cause of action in case of a contractual breach or negligence.13 "Further,
the insurer's subrogatory right to sue for recovery under the bill of lading
in case of loss of or damage to the cargo is jurisprudentially upheld." 14
In the exercise of its subrogatory right, an insurer may proceed against
an erring carrier. To all intents and purposes, it stands in the place and in
substitution of the consignee. A fortiori, both the insurer and the
consignee are bound by the contractual stipulations under the bill of
lading.15
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner
has tirelessly pointed out that respondents' claim and right of action are
already barred. The latter, and even the consignee, never filed with the
carrier any written notice or complaint regarding its claim for damage of
or loss to the subject cargo within the period required by the Warsaw
Convention and/or in the airway bill. Indeed, this fact has never been
denied by respondents and is plainly evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner,
states:
"6. No action shall be maintained in the case of damage to or
partial loss of the shipment unless a written notice, sufficiently
describing the goods concerned, the approximate date of the
damage or loss, and the details of the claim, is presented by
shipper or consignee to an office of Burlington within (14) days
from the date the goods are placed at the disposal of the person
entitled to delivery, or in the case of total loss (including non-
delivery) unless presented within (120) days from the date of
issue of the [Airway Bill]."16
Relevantly, petitioner's airway bill states:
"12./12.1 The person entitled to delivery must make a complaint
to the carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately after
discovery of the damage and at the latest within fourteen (14)
days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days
from the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods
are placed at his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and
twenty (120) days from the date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to
the carrier whose air waybill was used, or to the first carrier or to
the last carrier or to the carrier who performed the transportation
during which the loss, damage or delay took place."17
Article 26 of the Warsaw Convention, on the other hand, provides:
"ART. 26. (1) Receipt by the person entitled to the delivery of
baggage or goods without complaint shall be prima facie
evidence that the same have been delivered in good condition
and in accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must
complain to the carrier forthwith after the discovery of the
damage, and, at the latest, within 3 days from the date of receipt
in the case of baggage and 7 days from the date of receipt in the
case of goods. In case of delay the complaint must be made at
the latest within 14 days from the date on which the baggage or
goods have been placed at his disposal.
 (3) Every complaint must be made in writing upon the document
of transportation or by separate notice in writing dispatched
within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie
against the carrier, save in the case of fraud on his part." 18
Condition Precedent
In view of the foregoing, we find no more necessity to pass upon the
other issues raised by petitioner.
We note that respondents are not without recourse. Cargohaus, Inc. --
petitioner's co-defendant in respondents' Complaint below -- has been
adjudged by the trial court as liable for, inter alia, "actual damages in the
amount of the peso equivalent of US $39,339."25 This judgment was
affirmed by the Court of Appeals and is already final and executory.26

In this jurisdiction, the filing of a claim with the carrier within the time WHEREFORE, the Petition is GRANTED, and the assailed
limitation therefor actually constitutes a condition precedent to the Decision REVERSED insofar as it pertains to Petitioner Federal Express
accrual of a right of action against a carrier for loss of or damage to the Corporation. No pronouncement as to costs.
goods.19 The shipper or consignee must allege and prove the fulfillment
of the condition. If it fails to do so, no right of action against the carrier SO ORDERED.
can accrue in favor of the former. The aforementioned requirement is a
reasonable condition precedent; it does not constitute a limitation of
action.20

The requirement of giving notice of loss of or injury to the goods is not an

empty formalism. The fundamental reasons for such a stipulation are (1)
to inform the carrier that the cargo has been damaged, and that it is
being charged with liability therefor; and (2) to give it an opportunity to
examine the nature and extent of the injury. "This protects the carrier by
affording it an opportunity to make an investigation of a claim while the
matter is fresh and easily investigated so as to safeguard itself from false
and fraudulent claims."21

When an airway bill -- or any contract of carriage for that matter -- has a
stipulation that requires a notice of claim for loss of or damage to goods
shipped and the stipulation is not complied with, its enforcement can be
prevented and the liability cannot be imposed on the carrier. To stress,
notice is a condition precedent, and the carrier is not liable if notice is not
given in accordance with the stipulation.22 Failure to comply with such a
stipulation bars recovery for the loss or damage suffered. 23

Being a condition precedent, the notice must precede a suit for

enforcement.24 In the present case, there is neither an allegation nor a
showing of respondents' compliance with this requirement within the
prescribed period. While respondents may have had a cause of action
then, they cannot now enforce it for their failure to comply with the
aforesaid condition precedent.
 Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance coverage depended
upon the existing balance of the purchased burial lots. The policy was to
be effective for a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

Republic of the Philippines ELIGIBILITY.

SUPREME COURT
Baguio City Any Lot Purchaser of the Assured who is at least 18 but not more
than 65 years of age, is indebted to the Assured for the unpaid
SECOND DIVISION balance of his loan with the Assured, and is accepted for Life
Insurance coverage by the Company on its effective date is
G.R. No. 166245 April 9, 2008 eligible for insurance under the Policy.

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, EVIDENCE OF INSURABILITY.

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE No medical examination shall be required for amounts of
COMPANY, respondent. insurance up to P50,000.00. However, a declaration of good
health shall be required for all Lot Purchasers as part of the
DECISION application. The Company reserves the right to require further
evidence of insurability satisfactory to the Company in respect of
VELASCO, JR., J.: the following:

The Case 1. Any amount of insurance in excess of P50,000.00.

Central to this Petition for Review on Certiorari under Rule 45 which
seeks to reverse and set aside the November 26, 2004 Decision 1 of the
Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the
inaction of the insurer on the insurance application be considered as
approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as
Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens
Memorial Park Corporation (Eternal). Under the policy, the clients of
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time
shall be the amount of the unpaid balance of his loan (including
arrears up to but not exceeding 2 months) as reported by the
Assured to the Company or the sum of P100,000.00, whichever
is smaller. Such benefit shall be paid to the Assured if the Lot
Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
 The insurance of any eligible Lot Purchaser shall be effective on
the date he contracts a loan with the Assured. However, there
shall be no insurance if the application of the Lot Purchaser is
not approved by the Company.3
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all
insured lot purchasers. In relation to the instant petition, Eternal
complied by submitting a letter dated December 29, 1982, 4containing a
list of insurable balances of its lot buyers for October 1982. One of those
included in the list as "new business" was a certain John Chuang. His
balance of payments was PhP 100,000. On August 2, 1984, Chuang
died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served
as an insurance claim for Chuangs death. Attached to the claim were
the following documents: (1) Chuangs Certificate of Death; (2)
Identification Certificate stating that Chuang is a naturalized Filipino
Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician;
and (5) Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12,
1984,6 requiring Eternal to submit the following documents relative to its
insurance claim for Chuangs death: (1) Certificate of Claimant (with form
attached); (2) Assureds Certificate (with form attached); (3) Application
for Insurance accomplished and signed by the insured, Chuang, while
still living; and (4) Statement of Account showing the unpaid balance of
Chuang before his death.
Eternal transmitted the required documents through a letter dated
November 14, 1984,7 which was received by Philamlife on November 15,
1984.
After more than a year, Philamlife had not furnished Eternal with any
reply to the latters insurance claim. This prompted Eternal to demand
from Philamlife the payment of the claim for PhP 100,000 on April 25,
1986.8
In response to Eternals demand, Philamlife denied Eternals insurance
claim in a letter dated May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract
#9558 and 9529 with Eternal Gardens Memorial Park in October
1982 for the total maximum insurable amount of P100,000.00
each. No application for Group Insurance was submitted in our
office prior to his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920,
under Evidence of Insurability provision, "a declaration of good
health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of
Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company."
Since no application had been submitted by the Insured/Assured,
prior to his death, for our approval but was submitted instead on
November 15, 1984, after his death, Mr. John Uy Chuang was
not covered under the Policy. We wish to point out that Eternal
Gardens being the Assured was a party to the Contract and was
therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not
connote our approval per se of the insurance coverage but are
held by us in trust for the payor until the prerequisites for
insurance coverage shall have been met. We will however, return
all the premiums which have been paid in behalf of John Uy
Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial
Court (RTC) for a sum of money against Philamlife, docketed as Civil
Case No. 14736. The trial court decided in favor of Eternal, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of Plaintiff ETERNAL, against Defendant
PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the
sum of P100,000.00, representing the proceeds of the Policy of
 John Uy Chuang, plus legal rate of interest, until fully paid; and,
to pay the sum of P10,000.00 as attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for
insurance which he accomplished before his death, as testified to by
Eternals witness and evidenced by the letter dated December 29, 1982,
stating, among others: "Encl: Phil-Am Life Insurance Application Forms &
Cert."10 It further ruled that due to Philamlifes inaction from the
submission of the requirements of the group insurance on December 29,
1982 to Chuangs death on August 2, 1984, as well as Philamlifes
acceptance of the premiums during the same period, Philamlife was
deemed to have approved Chuangs application. The RTC said that
since the contract is a group life insurance, once proof of death is
submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati
in Civil Case No. 57810 is REVERSED and SET ASIDE, and the
complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuangs
application was not enclosed in Eternals letter dated December 29,
1982. It further ruled that the non-accomplishment of the submitted
application form violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was not covered by
Philamlifes insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of
substance, not therefore determined by this Honorable Court, or
has decided it in a way not in accord with law or with the
applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to
respondent PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the
Regional Trial Court dated May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering
their findings of facts are conclusive and binding on this Court. However,
such rule is subject to exceptions, as enunciated in Sampayan v. Court
of Appeals:
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond
the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings [of the CA] are contrary to the trial court; (8) when
the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not
disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would
justify a different conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the
CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance
application of Chuang before his death. In Eternals letter dated
December 29, 1982, a list of insurable interests of buyers for October
1982 was attached, including Chuang in the list of new businesses.
Eternal added it was noted at the bottom of said letter that the
corresponding "Phil-Am Life Insurance Application Forms & Cert." were
enclosed in the letter that was apparently received by Philamlife on
January 15, 1983. Finally, Eternal alleged that it provided a copy of the
insurance application which was signed by Chuang himself and
executed before his death.
On the other hand, Philamlife claims that the evidence presented by
Eternal is insufficient, arguing that Eternal must present evidence
showing that Philamlife received a copy of Chuangs insurance
application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp
of receipt has the effect of acknowledging receipt of the letter together
with the attachments. Such receipt is an admission by Philamlife against
its own interest.13 The burden of evidence has shifted to Philamlife, which
must prove that the letter did not contain Chuangs insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuangs insurance application.
To reiterate, it was Philamlifes bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are
correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the
best position to determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the witnesses
demeanor, conduct, and attitude. Findings of the trial court on such
matters are binding and conclusive on the appellate court, unless some
facts or circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered, might affect the
result of the case.15
An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the testimony
of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required
in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up
two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second
copy is remained or retained with the marketing department of
Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as
counsel is merely asking for the location and does not [ask] for
the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
 A As far as I remember I do not know where the original but
when I submitted with that payment together with the new clients
all the originals I see to it before I sign the transmittal letter the
originals are attached therein.16
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was
transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel
Cortez on whether one or two insurance application forms were
accomplished and the testimony of Mendoza on who actually filled out
the application form, these are minor inconsistencies that do not affect
the credibility of the witnesses. Thus, we ruled in People v. Paredes that
minor inconsistencies are too trivial to affect the credibility of witnesses,
and these may even serve to strengthen their credibility as these negate
any suspicion that the testimonies have been rehearsed. 17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the
essential integrity of the prosecutions evidence as a whole or
reflect on the witnesses honesty. The test is whether the
testimonies agree on essential facts and whether the respective
versions corroborate and substantially coincide with each other
so as to make a consistent and coherent whole. 18
In the present case, the number of copies of the insurance application
that Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the
inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternals witnesses.
However, the question arises as to whether Philamlife assumed the risk
of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December
10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on
the date he contracts a loan with the Assured. However, there
shall be no insurance if the application of the Lot Purchaser is
not approved by the Company.
An examination of the above provision would show ambiguity between
its two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon
contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can
become effective.
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latters interest.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court
held 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.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
 When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.
Being a contract of adhesion, the terms of an insurance contract
are to be construed strictly against the party which prepared the
contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to
avoid forfeiture.20
Clearly, the vague contractual provision, in Creditor Group Life Policy
No. P-1920 dated December 10, 1980, must be construed in favor of the
insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be
harmonized to mean that upon a partys purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot
purchaser is created and the same is effective, valid, and binding until
terminated by Philamlife by disapproving the insurance application. The
second sentence of Creditor Group Life Policy No. P-1920 on the
Effective Date of Benefit is in the nature of a resolutory condition which
would lead to the cessation of the insurance contract. Moreover, the
mere inaction of the insurer on the insurance application must not work
to prejudice the insured; it cannot be interpreted as a termination of the
insurance contract. The termination of the insurance contract by the
insurer must be explicit and unambiguous.
insurance applicants, insurance companies must be obligated to act with
haste upon insurance applications, to either deny or approve the same,
or otherwise be bound to honor the application as a valid, binding, and
effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA
Decision in CA-G.R. CV No. 57810 isREVERSED and SET ASIDE. The
May 29, 1996 Decision of the Makati City RTC, Branch 138
is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the
proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%)
per annum of PhP 100,000 from the time of extra-judicial
demand by Eternal until Philamlifes receipt of the May 29, 1996
RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent
(12%) per annum of PhP 100,000 from June 17, 1996 until full
payment of this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
No costs.
SO ORDERED.

As a final note, to characterize the insurer and the insured as contracting

parties on equal footing is inaccurate at best. Insurance contracts are
wholly prepared by the insurer with vast amounts of experience in the
industry purposefully used to its advantage. More often than not,
insurance contracts are contracts of adhesion containing technical terms
and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As
such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of
CHAPTER II
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late

Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.

Jose A. Espiritu for appellant.

Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff ad administrator of the estate of

the late Joaquin Ma. Herrer to recover from the defendant life insurance
company the sum of pesos 6,000 paid by the deceased for a life annuity.
The trial court gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer
made application to the Sun Life Assurance Company of Canada
through its office in Manila for a life annuity. Two days later he paid the
sum of P6,000 to the manager of the company's Manila office and was
given a receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como
prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy,
sujeta al examen medico y aprobacion de la Oficina Central de la
Compaia.
The application was immediately forwarded to the head office of the
company at Montreal, Canada. On November 26, 1917, the head office
gave notice of acceptance by cable to Manila. (Whether on the same
day the cable was received notice was sent by the Manila office of
Herrer that the application had been accepted, is a disputed point, which
will be discussed later.) On December 4, 1917, the policy was issued at
Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the
Manila office of the company stating that Herrer desired to withdraw his
application. The following day the local office replied to Mr. Torres,
stating that the policy had been issued, and called attention to the
notification of November 26, 1917. This letter was received by Mr. Torres
on the morning of December 21, 1917. Mr. Herrer died on December 20,
1917.
As above suggested, the issue of fact raised by the evidence is whether
Herrer received notice of acceptance of his application. To resolve this
question, we propose to go directly to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company
of Canada at the time of the trial testified that he prepared the letter
introduced in evidence as Exhibit 3, of date November 26, 1917, and
handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and
giving it to he manager, he new nothing of what became of it. The local
manager, Mr. White, testified to having received the cablegram accepting
the application of Mr. Herrer from the home office on November 26,
1917. He said that on the same day he signed a letter notifying Mr.
Herrer of this acceptance. The witness further said that letters, after
being signed, were sent to the chief clerk and placed on the mailing desk
for transmission. The witness could not tell if the letter had every actually
been placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the defense,
attorney Manuel Torres testified to having prepared the will of Joaquin
Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application
for a life annuity, and that he said that the only document relating to the
transaction in his possession was the provisional receipt. Rafael
Enriquez, the administrator of the estate, testified that he had gone
through the effects of the deceased and had found no letter of
notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of
November 26, 1917, notifying Mr. Herrer that his application had been
accepted, was prepared and signed in the local office of the insurance
company, was placed in the ordinary channels for transmission, but as
far as we know, was never actually mailed and thus was never received
by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to
determine the law which should be applied to the facts. In order to reach
our legal goal, the obvious signposts along the way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the
Philippines were found in the Code of Commerce and the Civil Code. In
the Code of the Commerce, there formerly existed Title VIII of Book III
and Section III of Title III of Book III, which dealt with insurance
contracts. In the Civil Code there formerly existed and presumably still
exist, Chapters II and IV, entitled insurance contracts and life annuities,
respectively, of Title XII of Book IV. On the after July 1, 1915, there was,
however, in force the Insurance Act. No. 2427. Chapter IV of this Act
concerns life and health insurance. The Act expressly repealed Title VIII
of Book II and Section III of Title III of Book III of the code of Commerce.
The law of insurance is consequently now found in the Insurance Act
and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is
silent as to the methods to be followed in order that there may be a
contract of insurance. On the other hand, the Civil Code, in article 1802,
not only describes a contact of life annuity markedly similar to the one
we are considering, but in two other articles, gives strong clues as to the
proper disposition of the case. For instance, article 16 of the Civil Code
provides that "In matters which are governed by special laws, any
deficiency of the latter shall be supplied by the provisions of this Code."
On the supposition, therefore, which is incontestable, that the special law
on the subject of insurance is deficient in enunciating the principles
governing acceptance, the subject-matter of the Civil code, if there be
any, would be controlling. In the Civil Code is found article 1262
providing that "Consent is shown by the concurrence of offer and
acceptance with respect to the thing and the consideration which are to
constitute the contract. An acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge.
The contract, in such case, is presumed to have been entered into at the
place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by
which we reach a conclusion, then the only duty remaining is for the
court to apply the law as it is found. The legislature in its wisdom having
enacted a new law on insurance, and expressly repealed the provisions
in the Code of Commerce on the same subject, and having thus left a
void in the commercial law, it would seem logical to make use of the only
pertinent provision of law found in the Civil code, closely related to the
chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the
person making the offer only from the date it came to his knowledge,
may not be the best expression of modern commercial usage. Still it
must be admitted that its enforcement avoids uncertainty and tends to
security. Not only this, but in order that the principle may not be taken too
lightly, let it be noticed that it is identical with the principles announced by
a considerable number of respectable courts in the United States. The
courts who take this view have expressly held that an acceptance of an
offer of insurance not actually or constructively communicated to the
proposer does not make a contract. Only the mailing of acceptance, it
has been said, completes the contract of insurance, as the locus
poenitentiae is ended when the acceptance has passed beyond the
control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the
second paragraph of article 1262 of the Civil Code providing that an
acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The pertinent fact is, that
according to the provisional receipt, three things had to be accomplished
by the insurance company before there was a contract: (1) There had to
be a medical examination of the applicant; (2) there had to be approval
of the application by the head office of the company; and (3) this
approval had in some way to be communicated by the company to the
applicant. The further admitted facts are that the head office in Montreal
did accept the application, did cable the Manila office to that effect, did
actually issue the policy and did, through its agent in Manila, actually
write the letter of notification and place it in the usual channels for
transmission to the addressee. The fact as to the letter of notification
thus fails to concur with the essential elements of the general rule
pertaining to the mailing and delivery of mail matter as announced by the
American courts, namely, when a letter or other mail matter is addressed
and mailed with postage prepaid there is a rebuttable presumption of
fact that it was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mails. But if any one of
these elemental facts fails to appear, it is fatal to the presumption. For
instance, a letter will not be presumed to have been received by the
addressee unless it is shown that it was deposited in the post-office,
properly addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N.
S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not
perfected because it has not been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the
applicant.lawph!l.net

Judgment is reversed, and the plaintiff shall have and recover from the
defendant the sum of P6,000 with legal interest from November 20,
1918, until paid, without special finding as to costs in either instance. So
ordered.

Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.

Johnson, J., dissents.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna &
Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the
Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58),
because the petitioners in both cases seek similar relief, through these
petitions for certiorari by way of appeal, from the amended decision of
respondent Court of Appeals which affirmed in toto the decision of the
Court of First Instance of Cebu, ordering "the defendants (herein
petitioners Great Pacific Ligfe Assurance Company and Mondragon)
jointly and severally to pay plaintiff (herein private respondent Ngo Hing)
the amount of P50,000.00 with interest at 6% from the date of the filing
of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an
application with the Great Pacific Life Assurance Company (hereinafter
referred to as Pacific Life) for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go.
Said respondent supplied the essential data which petitioner Lapulapu
D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on
the corresponding form in his own handwriting (Exhibit I-M). Mondragon
finally type-wrote the data on the application form which was signed by
private respondent Ngo Hing. The latter paid the annual premuim the
sum of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized
agebt of Pacific Life. Upon the payment of the insurance premuim, the
binding deposit receipt (Exhibit E) was issued to private respondent Ngo
Hing. Likewise, petitioner Mondragon handwrote at the bottom of the
back page of the application form his strong recommendation for the
approval of the insurance application. Then on April 30, 1957,
Mondragon received a letter from Pacific Life disapproving the insurance
application (Exhibit 3-M). The letter stated that the said life insurance
application for 20-year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same under the
Juvenile Triple Action Plan, and advised that if the offer is acceptable,
the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly
not communicated by petitioner Mondragon to private respondent Ngo
Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again
strongly recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go
died of influenza with complication of bronchopneumonia. Thereupon,
private respondent sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered the
adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit
receipt (Exhibit E) constituted a temporary contract of the life insurance
in question; and (2) whether private respondent Ngo Hing concealed the
state of health and physical condition of Helen Go, which rendered void
the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a
deposit is considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the
premium deposit ... and the insurance application, ON or
PRIOR to the date of medical examination ... said
insurance shan be in force and in effect from the date of
such medical examination, for such period as is covered
by the deposit ...,PROVIDED the company shall be
satisfied that on said date the applicant was insurable on
standard rates under its rule for the amount of insurance
and the kind of policy requested in the application.
D. If the Company does not accept the application on
standard rate for the amount of insurance and/or the kind
of policy requested in the application but issue, or offers
to issue a policy for a different plan and/or amount ..., the
insurance shall not be in force and in effect until the
applicant shall have accepted the policy as issued
or offered by the Company and shall have paid the full
premium thereof. If the applicant does not accept the
policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under
Condition A above, and the Company declines to
approve the application the insurance applied for shall
not have been in force at any time and the sum paid be
returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding
deposit receipt is intended to be merely a provisional or temporary
insurance contract and only upon compliance of the following conditions:
(1) that the company shall be satisfied that the applicant was insurable
on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be reftmded; and (3) that if the
applicant is not ble according to the standard rates, and the company
disapproves the application, the insurance applied for shall not be in
force at any time, and the premium paid shall be returned to the
applicant.
Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the
company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for
processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant
is "insurable on standard rates." Since petitioner Pacific Life disapproved
the insurance application of respondent Ngo Hing, the binding deposit
receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure outright. As held by this Court,
where an agreement is made between the applicant and the agent, no
liability shall attach until the principal approves the risk and a receipt is
given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself (De Lim vs. Sun Life Assurance Company of
Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April
30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
application in question on the ground that it is not offering the twenty-
year endowment insurance policy to children less than seven years of
age. What it offered instead is another plan known as the Juvenile Triple
Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year endowment life insurance in the
amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance
contract duly perfected between thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a
contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract,
one that leaves nothing to be dione, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be
no contract of insurance unless the minds of the parties have met in
agreement."
We are not impressed with private respondent's contention that failure of
petitioner Mondragon to communicate to him the rejection of the
insurance application would not have any adverse effect on the allegedly
perfected temporary contract (Respondent's Brief, pp. 13-14). In this first
place, there was no contract perfected between the parties who had no
meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said
company does not offer the life insurance applied for. When he filed the
insurance application in dispute, private respondent was, therefore, only
taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in
question along with his proposal that the insurance company starts to
offer the 20-year endowment insurance plan for children less than seven
years. Nonetheless, the record discloses that Pacific Life had rejected
the proposal and recommendation. Secondly, having an insurable
interest on the life of his one-year old daughter, aside from being an
insurance agent and an offense associate of petitioner Mondragon,
private respondent Ngo Hing must have known and followed the
progress on the processing of such application and could not pretend
ignorance of the Company's rejection of the 20-year endowment life
insurance application.
At this juncture, We find it fit to quote with approval, the very apt
observation of then Appellate Associate Justice Ruperto G. Martin who
later came up to this Court, from his dissenting opinion to the amended
decision of the respondent court which completely reversed the original
decision, the following:
Of course, there is the insinuation that neither the
memorandum of rejection (Exhibit 3-M) nor the reply
thereto of appellant Mondragon reiterating the desire for
applicant's father to have the application considered as
one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor
applicant. I am not quite conninced that this was so. Ngo
Hing, as father of the applicant herself, was precisely the
"underwriter who wrote this case" (Exhibit H-1). The
unchallenged statement of appellant Mondragon in his
letter of May 6, 1957) (Exhibit 4-M), specifically admits
that said Ngo Hing was "our associate" and that it was
the latter who "insisted that the plan be placed on the 20-
year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the
application was not brought home to his knowledge. He
must have been duly apprised of the rejection of the
application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing
himself who insisted on the application as originally filed,
thereby implictly declining the offer to consider the
application under the Juvenile Triple Action Plan.
Besides, the associate of Mondragon that he was, Ngo
Hing should only be presumed to know what kind of
policies are available in the company for minors below 7
years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the
company into going into the business of issuing
endowment policies for minors just as other insurance
companies allegedly do. Until such a definite policy is
however, adopted by the company, it can hardly be said
that it could have been bound at all under the binding slip
for a plan of insurance that it could not have, by then
issued at all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of
the firm belief that private respondent had deliberately concealed the
state of health and piysical condition of his daughter Helen Go. Wher
private regpondeit supplied the required essential data for the insurance
application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could
never be ensconced nor disguished. Nonetheless, private respondent, in
apparent bad faith, withheld the fact materal to the risk to be assumed by
the insurance compary. As an insurance agent of Pacific Life, he ought to
know, as he surely must have known. his duty and responsibility to such
a material fact. Had he diamond said significant fact in the insurance
application fom Pacific Life would have verified the same and would
have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides

meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however slight
[Black's Law Dictionary, 2nd Edition], not for the alone but equally so for
the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25
SCRA 70). Concealment is a neglect to communicate that which a partY
knows aDd Ought to communicate (Section 25, Act No. 2427). Whether
intentional or unintentional the concealment entitles the insurer to
rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs.
Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American
Life Insurance Company, 7 SCRA 316). Private respondent appears
guilty thereof.

We are thus constrained to hold that no insurance contract was

perfected between the parties with the noncompliance of the conditions
provided in the binding receipt, and concealment, as legally defined,
having been comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in

lieu thereof, one is hereby entered absolving petitioners Lapulapu D.
Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of P1,077.75, without
interest, to private respondent, Ngo Hing. Costs against private
respondent.

SO ORDERED.
 Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE
CO., INC., petitioners,
vs.
COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, respondents.

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court
seeks to set aside a decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered

into a lease contract with private respondent CKS Development
Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. . . . The LESSEE shall not insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or
store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE
CHAPTER III obtain(s) the insurance thereof without the consent of the
LESSOR then the policy is deemed assigned and transferred to
Republic of the Philippines the LESSOR for its own benefit; . . . 1
SUPREME COURT
Manila 3. Notwithstanding the above stipulation in the lease contract, the Cha
spouses insured against loss by fire the merchandise inside the leased
FIRST DIVISION premises for Five Hundred Thousand (P500,000.00) with the United
Insurance Co., Inc. (hereinafter United) without the written consent of
private respondent CKS.

G.R. No. 124520 August 18, 1997 4. On the day that the lease contract was to expire, fire broke out inside
the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha
spouses (without its consent), it wrote the insurer (United) a demand
letter asking that the proceeds of the insurance contract (between the
Cha spouses and United) be paid directly to CKS, based on its lease
contract with the Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against
the Cha spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered
a decision * ordering therein defendant United to pay CKS the amount of
P335,063.11 and defendant Cha spouses to pay P50,000.00 as
exemplary damages, P20,000.00 as attorney's fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328
rendered a decision ** dated 11 January 1996, affirming the trial court
decision, deleting however the awards for exemplary damages and
attorney's fees. A motion for reconsideration by United was denied on 29
March 1996.
In the present petition, the following errors are assigned by petitioners to
the Court of Appeals:
I merchandise inside the leased premises is deemed assigned or
THE HONORABLE COURT OF APPEALS ERRED IN FAILING
TO DECLARE THAT THE STIPULATION IN THE CONTRACT
OF LEASE TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT IS NULL AND VOID FOR
BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING
TO DECLARE THE CONTRACT OF LEASE ENTERED INTO
AS A CONTRACT OF ADHESION AND THEREFORE THE
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST
BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING PROCEEDS OF AN INSURANCE POLICY TO
APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE
BASIS OF A STIPULATION WHICH IS VOID FOR BEING
WITHOUT CONSIDERATION AND FOR BEING TOTALLY
DEPENDENT ON THE WILL OF THE RESPONDENT
CORPORATION. 2
The core issue to be resolved in this case is whether or not the
aforequoted paragraph 18 of the lease contract entered into between
CKS and the Cha spouses is valid insofar as it provides that any fire
insurance policy obtained by the lessee (Cha spouses) over their
transferred to the lessor (CKS) if said policy is obtained without the prior
written consent of the latter.
It is, of course, basic in the law on contracts that the stipulations
contained in a contract cannot be contrary to law, morals, good customs,
public order or public policy. 3
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be
enforceable except for the benefit of some person having an
insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by
petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. 4 The
basis of such requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an insurance
policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the
contract of insurance is a mere wager which is void under Section 25 of the
Insurance Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for the
payment of loss, whether the person insured has or has not any
interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by
way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable
interest in the goods and merchandise inside the leased premises under
the provisions of Section 17 of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the
extent to which the insured might be damnified by loss of injury
thereof.
Therefore, respondent CKS cannot, under the Insurance Code a
special law be validly a beneficiary of the fire insurance policy taken
by the petitioner-spouses over their merchandise. This insurable interest
over said merchandise remains with the insured, the Cha spouses. The
automatic assignment of the policy to CKS under the provision of the
lease contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-
petitioners). The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract
in that the Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct
issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No.
39328 is SET ASIDE and a new decision is hereby entered, awarding
the proceeds of the fire insurance policy to petitioners Nilo Cha and
Stella Uy-Cha. SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE
CORPORATION, respondents.
DAVIDE, JR., J.:
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:
Zenco Sales, Inc. P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
P392,130.50
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
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.
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. CO-
INSURANCE 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.
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.
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 QUASI-
JUDICIAL 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 made ante 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. GA-28146 had been
renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 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. F-14622
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 Costs against private respondent Country Bankers Insurance
laymen. 31 Corporation.

With these principles in mind, we are of the opinion that Condition 3 of SO ORDERED.
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 Republic of the Philippines
mortgagor and a mortgagee on the mortgaged property are distinct and
SUPREME COURT
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 Manila
double insurance exists. The non-disclosure then of the former policies
was not fatal to the petitioner's right to recover on the private SECOND DIVISION
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 G.R. No. 128833 April 20, 1998
exceed P200,000.00, the private respondent was amenable to assume a
co-insurer'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 RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING
the incorporation of "other insurance" clause in fire policies is to prevent AND ELI D. LAO, petitioners,
over-insurance and thus avert the perpetration of fraud. When a property vs.
owner obtains insurance policies from two or more insurers in a total COURT OF APPEALS and GOYU & SONS, INC., respondents.
amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the
G.R. No. 128834 April 20, 1998
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
RIZAL COMMERCIAL BANKING CORPORATION, petitioners,
WHEREFORE, the instant petition is hereby GRANTED. The decision of vs.
the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS,
decision of the Insurance Commission in Case No. 3340 is INC., GO SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU
REINSTATED. SUK YING alias BETTY GO, respondents.
G.R. No. 128866 April 20, 1998
MALAYAN INSURANCE INC., petitioners,
vs.
GOYU & SONS, INC. respondent.
MELO, J.:
The issue relevant to the herein three consolidated petitions revolve
around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU)
with petitioner Malayan Insurance Company, Inc. (MICO) in connection
with the mortgage contracts entered into by and between Rizal
Commercial Banking Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total
amount of P74,040,518.58, plus 37% interest per annum commending
July 27, 1992. RCBC was ordered to pay actual and compensatory
damages in the amount of P5,000,000.00. MICO and RCBC were held
solidarily liable to pay GOYU P1,500,000.00 as exemplary damages and
P1,500,000.00 for attorney's fees. GOYU's obligation to RCBC was fixed
at P68,785,069.04 as of April 1992, without any interest, surcharges, and
penalties. RCBC and MICO appealed separately but, in view of the
common facts and issues involved, their individual petitions were
consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at its
Binondo Branch. After due evaluation, RCBC Binondo Branch, through
its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended
GOYU's application for approval by RCBC's executive committee. A
credit facility in the amount of P30 million was initially granted. Upon
GOYU's application and Uy's and Lao's recommendation, RCBC's
executive committee increased GOYU's credit facility to P50 million, then
to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real
estate mortgages and two chattel mortgages in favor of RCBC, which
were registered with the Registry of Deeds at Valenzuela, Metro Manila.
Under each of these four mortgage contracts, GOYU committed itself to
insure the mortgaged property with an insurance company approved by
RCBC, and subsequently, to endorse and deliver the insurance polices
to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO.
In February 1992, Alchester Insurance Agency, Inc., the insurance agent
where GOYU obtained the Malayan insurance policies, issued nine
endorsements in favor of RCBC seemingly upon instructions of GOYU
(Exhibits "1-Malayan" to "9-Malayan").
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was
gutted by fire. Consequently, GOYU submitted its claim for indemnity on
account of the loss insured against. MICO denied the claim on the
ground that the insurance policies were either attached pursuant to writs
of attachments/garnishments issued by various courts or that the
insurance proceeds were also claimed by other creditors of GOYU
alleging better rights to the proceeds than the insured. GOYU filed a
complaint for specific performance and damages which was docketed at
the Regional Trial Court of the National Capital Judicial Region (Manila,
Branch 3) as Civil Case No. 93-65442, now subject of the present G.R.
No. 128833 and 128866.
RCBC, one of GOYU's creditors, also filed with MICO its formal claim
over the proceeds of the insurance policies, but said claims were also
denied for the same reasons that MICO denied GOYU's claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312),
the Regional Trial Court of Manila (Branch 3), confirmed that GOYU's
other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine
Trust Company obtained their respective writs of attachments from
various courts, covering an aggregate amount of P14,938,080.23, and
ordered that the proceeds of the ten insurance policies be deposited with
the said court minus the aforementioned P14,938,080.23. Accordingly,
on January 7, 1994, MICO deposited the amount of P50,505,594.60 with
Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by 00.00
another Manila RTC sala (Branch 28) for the amount of P8,696,838.75 from July
(Exhibit "22-Malayan"). 27, 1992
up to the
After trial, Branch 3 of the Manila RTC rendered judgment in favor of time said
GOYU, disposing: amount
was
WHEREFORE, judgment is hereby rendered in favor of deposited
the plaintiff and against the defendant, Malayan with this
Insurance Company, Inc. and Rizal Commercial Banking Court on
Corporation, ordering the latter as follows: January 7,
1994;
1. For defendant Malayan Insurance Co.,
Inc.: 2)
P24,040,5
a. To pay the plaintiff its 18.58
fire loss claims in the total from July
amount of 27, 1992
P74,040,518.58 less the up to the
amount of time when
P50,000,000.00 which is the writs of
deposited with this Court; attachmen
ts were
b. To pay the plaintiff received
damages by was of by
interest for the duration of defendant
the delay since July 27, Malayan;
1992 (ninety days after
defendant insurer's 2. For defendant Rizal Commercial
receipt of the required Banking Corporation:
proof of loss and notice of
loss) at the rate of twice a. To pay the plaintiff
the ceiling prescribed by actual and compensatory
the Monetary Board, on damages in the amount of
the following amounts: P2,000,000.00;

1) 3. For both defendants Malayan and

P50,000,0 RCBC:
 a. To pay the plaintiff, From this judgment, all parties interposed their respective appeals.
jointly and severally, the GOYU was unsatisfied with the amount awarded in its favor. MICO and
following amounts: RCBC disputed the trial court's findings of liability on their part. The
Court of Appeals party granted GOYU's appeal, but sustained the
1) findings of the trial court with respect to MICO and RCBC's liabilities,
P1,000,00 thusly:
0.00 as
exemplary WHEREFORE, the decision of the lower court dated
damages; June 29, 1994 is hereby modified as follows:

2) 1. FOR DEFENDANT MALAYAN

P1,000,00 INSURANCE CO., INC:
0.00 as,
and for, a) To pay the plaintiff its
attorney's fire loss claim in the total
fees; amount of
P74,040,518.58 less the
3) Costs of amount of
suit. P50,505,594.60 (per O.R.
No. 3649285) plus
and on the Counterclaim of defendant deposited in court and
RCBC, ordering the plaintiff to pay its damages by way of
loan obligations with defendant RCBC in interest commencing July
the amount of P68,785,069.04, as of April 27, 1992 until the time
27, 1992, with interest thereon at the rate Goyu receives the said
stipulated in the respective promissory amount at the rate of
notes (without surcharges and penalties) thirty-seven (37%)
per computation, pp. 14-A, 14-B & 14-C. percent per annum which
is twice the ceiling
FURTHER, the Clerk of Court of the Regional Trial Court prescribed by the
of Manila is hereby ordered to release immediately to the Monetary Board.
plaintiff the amount of P50,000,000.00 deposited with the
Court by defendant Malayan, together with all the interest 2. FOR DEFENDANT RIZAL
earned thereon. COMMERCIAL BANKING
CORPORATION;
(Record, pp. 478-479.)
a) To pay the plaintiff
actual and compensatory
 damages in the amount of
P5,000,000.00.
3. FOR DEFENDANTS MALAYAN
INSURANCE CO., INC., RIZAL
COMMERCIAL BANKING
CORPORATION, UY CHUN BING AND
ELI D. LAO:
a) To pay the plaintiff
jointly and severally the
following amounts:
1. P1,500,000.00 as
exemplary damages;
2. P1,500,000.00 as and
for attorney's fees.
4. And on RCBC's Counterclaim, ordering
the plaintiff Goyu & Sons, Inc. to pay its
loan obligation with RCBC in the amount
of P68,785,069.04 as of April 27, 1992
without any interest, surcharges and
penalties.
The Clerk of the Court of the Regional Trial Court of
Manila is hereby ordered to immediately release to Goyu
& Sons, Inc. the amount of P50,505,594.60 (per O.R. No.
3649285) deposited with it by Malayan Insurance Co.,
Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866,
respectively, seeking review and consequent reversal of the above
dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A.
G.R. No. CV-48376, which case, by virtue of the Court of Appeals'
resolution dated August 7, 1996, was consolidated with C.A. G.R. No.
CV-46162 (subject of herein G.R. No. 128833). At issue in said petition is
RCBC's right to intervene in the action between Alfredo C. Sebastian
(the creditor) and GOYU (the debtor), where the subject insurance
policies were attached in favor of Sebastian.
After a careful reviews of the material facts as found by the two courts
below in relation to the pertinent and applicable laws, we find merit in the
submission of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to
several related issues which are now submitted in the petitions before
us. This Court, however, discerns one primary and central issue, and this
is, whether or not RCBC, as mortgagee, has any right over the insurance
policies taken by GOYU, the mortgagor, in case of the occurrence of
loss.
As earlier mentioned, accordant with the credit facilities extended by
RCBC to GOYU, the latter executed several mortgage contracts in favor
of RCBC. It was expressly stipulated in these mortgage contracts that
GOYU shall insure the mortgaged property with any of the insurance
companies acceptable to RCBC. GOYU indeed insured the mortgaged
property with MICO, an insurance company acceptable to RCBC. Bases
on their stipulations in the mortgage contracts, GOYU was supposed to
endorse these insurance policies in favor of, and deliver them, to RCBC.
Alchester Insurance Agency, Inc., MICO's underwriter from whom GOYU
obtained the subject insurance policies, prepared the nine endorsements
(see Exh. "1-Malayan" to "9-Malayan"; also Exh. "51-RCBC" to "59-
RCBC"), copies of which were delivered to GOYU, RCBC, and MICO.
However, because these endorsements do not bear the signature of any
officer of GOYU, the trial court, as well as the Court of Appeals,
concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separated and
distinct insurable interests in the same mortgaged property, such that
each one of them may insure the same property for his own sole benefit.
There is no question that GOYU could insure the mortgaged property for
its own exclusive benefit. In the present case, although it appears that
GOYU obtained the subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their contemporaneous
acts, must be given due consideration in order to better serve the
interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester
could arrive at the idea of endorsing any specific insurance policy in
favor of any particular beneficiary or payee other than the insured had
not such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely
took the insurance policies from MICO, a sister company of RCBC, and
not just from any other insurance company. Alchester would not have
found out that the subject pieces of property were mortgaged to RCBC
had not such information been voluntarily disclosed by GOYU itself. Had
it not been for GOYU, Alchester would not have known of GOYU's
intention of obtaining insurance coverage in compliance with its
undertaking in the mortgage contracts with RCBC, and verily, Alchester
would not have endorsed the policies to RCBC had it not been so
directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court
is constrained to rule in favor of mortgagor RCBC. The basis and
purpose of the doctrine was explained in Philippine National Bank
vs. Court of Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of
public, policy, fair dealing, good faith and justice, and its
purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to
whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to
aid the law in the administration of justice where without
its aid injustice might result. It has been applied by this
Court wherever and whenever special circumstances of a
case so demand.
(p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go,
through a certain Mr. Yam, she prepared in quadruplicate on February
11, 1992 the nine endorsement documents for GOYU's nine insurance
policies in favor of RCBC. The original copies of each of these nine
endorsement documents were sent to GOYU, and the others were sent
to RCBC and MICO, while the fourth copies were detained for
Alchester's file (tsn, February 23, pp. 7-8). GOYU has not denied having
received from Alchester the originals of these documents.
RCBC, in good faith, relied upon the endorsement documents sent to it
as this was only pursuant to the stipulation in the mortgage contracts.
We find such reliance to be justified under the circumstances of the
case. GOYU failed to seasonably repudiate the authority of the person or
persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss insure against,
it was too late for GOYU to disown the endorsements for any imagined
or contrived lack of authority of Alchester to prepare and issue said
endorsements. If there had not been actually an implied ratification of
said endorsements by virtue of GOYU's inaction in this case, GOYU is at
the very least estopped from assailing their operative effects. To permit
GOYU to capitalize on its non-confirmation of these endorsements while
it continued to enjoy the benefits of the credit facilities of RCBC which
believed in good faith that there was due endorsement pursuant to their
mortgage contracts, is to countenance grave contravention of public
policy, fair dealing, good faith, and justice. Such an unjust situation, the
Court cannot sanction. Under the peculiar circumstances obtaining in
this case, the Court is bound to recognize RCBC's right to the proceeds
of the insurance polices if not for the actual endorsement of the policies,
at least on the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the
interest of the person in whose name or for whose benefit it is made. The
peculiarity of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision, it
having been sufficiently established that it was the intention of the parties
to designate RCBC as the party for whose benefit the insurance policies
were taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of
mortgage contracts entered into between RCBC and GOYU in
consideration of and for securing GOYU's credit facilities from RCBC.
The mortgage contracts contained common provisions whereby GOYU,
as mortgagor, undertook to have the mortgaged property properly
covered against any loss by an insurance company acceptable to
RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged
property from MICO, no less than a sister company of RCBC and
definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter,
Alchester Insurance Agency, Inc., and copies thereof were sent to
GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity
of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits
of the credit facilities extended by RCBC which was conditioned upon
the endorsement of the insurance policies to be taken by GOYU to cover
the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of
the endorsement documents prepared by Alchester, GOYU, despite the
absence of its written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the
benefits of its credits facilities and GOYU continued to benefit therefrom.
Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU. The
intention of the parties will have to be given full force and effect particular
case. The insurance proceeds may, therefore, be exclusively applied to
RCBC, which under the factual circumstances of the case, is truly the
person or entity for whose benefit the polices were clearly intended.
Moreover, the law's evident intention to protect the interests of the
mortgage upon the mortgaged property is expressed in Article 2127 of
the Civil Code which states:
Art. 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits, and the
rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for
public use, with the declarations, amplifications and
limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes
into the hands of a third person.
Significantly, the Court notes that out of the 10 insurance policies subject
of this case, only 8 of them appear to have been subject of the
endorsements prepared and delivered by Alchester for and upon
instructions of GOYU as shown below:
INSURANCE POLICY PARTICULARS
ENDORSEMENT
a. Policy Number F-114-07795 None
Issue Date March 18, 1992
Expiry Date April 5, 1993
Amount P9,646,224.92
b. Policy Number ACIA/F-174-07660
Exhibit "1-Malayan"
Issue Date January 18, 1992
Expiry Date February 9, 1993
Amount P4,307,217.54
c. Policy Number ACIA/F-114-07661
Exhibit "2-Malayan"
Issue Date January 18, 1992
Expiry Date February 15, 1993
Amount P6,603,586.43
d. Policy Number ACIA/F-114-07662
Exhibit "3-Malayan"
Issue Date January 18, 1992
Expiry Date (not legible)
Amount P6,603,586.43
e. Policy Number ACIA/F-114-07663
Exhibit "4-Malayan"
Issue Date January 18, 1992
Expiry Date February 9, 1993
Amount P9,457,972.76
f. Policy Number ACIA/F-114-07623
Exhibit "7-Malayan"
Issue Date January 13, 1992
Expiry Date January 13, 1993
Amount P24,750,000.00
g. Policy Number ACIA/F-174-07223
Exhibit "6-Malayan"
Issue Date May 29, 1991
Expiry Date June 27, 1992
Amount P6,000,000.00
h. Policy Number CI/F-128-03341 None
Issue Date May 3, 1991
Expiry Date May 3, 1992
Amount P10,000,000.00
i. Policy Number F-114-07402 Exhibit "8-
Malayan"
Issue Date September 16, 1991
Expiry Date October 19, 1992
Amount P32,252,125.20
j. Policy Number F-114-07525 Exhibit "9-
Malayan"
Issue Date November 20, 1991
Expiry Date December 5, 1992
Amount P6,603,586.43
(pp. 456-457, Record; Folder of Exhibits for MICO.)
Policy Number F-114-07795 [(a) above] has not been endorsed. This
fact was admitted by MICO's witness, Atty. Farolan (tsn, February 16,
1994, p. 25). Likewise, the record shows no endorsement for Policy
Number CI/F-128-03341 [(h) above]. Also, one of the endorsement
documents, Exhibit "5-Malayan", refers to a certain insurance policy
number ACIA-F-07066, which is not among the insurance policies
involved in the complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate
to P89,974,488.36. Being excessively payable to RCBC by reason of the
endorsement by Alchester to RCBC, which we already ruled to have the
force and effect of an endorsement by GOYU itself, these 8 policies can
not be attached by GOYU's other creditors up to the extent of the
GOYU's outstanding obligation in RCBC's favor. Section 53 of the
Insurance Code ordains that the insurance proceeds of the endorsed
policies shall be applied exclusively to the proper interest of the person
for whose benefit it was made. In this case, to the extent of GOYU's
obligation with RCBC, the interest of GOYU in the subject policies had
been transferred to RCBC effective as of the time of the endorsement.
These policies may no longer be attached by the other creditors of
GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which
may nonetheless forthwith be dismissed for being moot and academic in
view of the results reached herein. Only the two other policies amounting
to P19,646,224.92 may be validly attached, garnished, and levied upon
by GOYU's other creditors. To the extent of GOYU's outstanding
obligation with RCBC, all the rest of the other insurance policies above-
listed which were endorsed to RCBC, are, therefore, to be released from was admitted by GOYU as indicated in the testimony of Go Song Hiap
attachment, garnishment, and levy by the other creditors of GOYU. when he answered the queries of the trial court.

This brings us to the next issue to be resolved, which is, the extent of ATTY. NATIVIDAD
GOYU's outstanding obligation with RCBC which the proceeds of the 8
insurance policies will discharge and liquidate, or put differently, the Q: But insofar as the amount stated in
actual amount of GOYU's liability to RCBC. Exhibits 1 to 29-RCBC, you received all
the amounts stated therein?
The Court of Appeals simply echoed the declaration of the trial court
finding that GOYU's total obligation to RCBC was only P68,785,060.04 A: Yes, sir, I received the amount.
as of April 27, 1992, thus sanctioning the trial court's exclusion of
Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) COURT
and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-
91) on the ground that their execution is highly questionable for not only He is asking if he received all the
are these dated after the fire, but also because the signatures of either amounts stated in Exhibits 1 to 29-
GOYU or any its representative are conspicuously absent. Accordingly, RCBC?
the Court of Appeals speculated thusly:
WITNESS:
. . . Hence, this Court is inclined to conclude that said
promissory notes were pre-signed by plaintiff in bank Yes, Your Honor, I received all the
terms, as averred by plaintiff, in contemplation of the amounts.
speedy grant of future loans, for the same practice of
procedure has always been adopted in its previous COURT
dealings with the bank.
Indicated in the Promissory Notes?
(Rollo, pp. 181-182.)
WITNESS
The fact that the promissory notes bear dates posterior to the fire does
not necessarily mean that the documents are spurious, for it is presumed A. The promissory Notes they did not give
that the ordinary course of business had been followed (Metropolitan to me but the amount I asked which is
Bank and Trust Company vs. Quilts and All, Inc., 22 SCRA 486 [1993]). correct, Your Honor.
The obligor and not the holder of the negotiable instrument has the
burden of proof of showing that he no longer owes the obligee any COURT
amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
Q Your mean to say the amounts
Even casting aside the presumption of regularity of private transactions, indicated in Exhibits 1 to 29-RCBC is
receipt of the loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) correct?
 A Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all the
proceeds of the 29 promissory notes as hereinabove quotes, GOYU also
offered and admitted to RCBC that is obligation be fixed at
P116,301,992.60 as shown in its letter date March 9, 1993, which
pertinently reads:
We wish to inform you, therefore that we are ready and
willing to pay the current past due account of this
company in the amount of P116,301,992.60 as of 21
January 1993, specified in pars. 15, p. 10, and 18, p. 13
of your affidavits of Third Party Claims in the Urban case
at Makati, Metro Manila and in the Zamboanga case at
Zamboanga city, respectively, less the total of
P8,851,519.71 paid from the Seaboard and Equitable
insurance companies and other legitimate deductions.
We accept and confirm this amount of P116,301,992.60
as stated as true and correct.
admission of liability in the amount of P116,301,992.60 full force and
effect.
It should, however, be quickly added that whatever amount RCBC may
have recovered from the other insurers of the mortgage property will,
nonetheless, have to be applied as payment against GOYU's obligation.
But, contrary to the lower courts' findings, payments effected by GOYU
prior to January 21, 1993 should no longer be deducted. Such payments
had obviously been duly considered by GOYU, in its aforequoted letter
date March 9, 1993, wherein it admitted that its past due account totaled
P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to
P107,246,887.90 as of January 21, 1993, to wit:
Total Obligation as admitted by GOYU
as of January 21, 1993: P116,301,992.60
Broken down as follows:
Principal 1 Interest

(Exhibit BB.) Regular 80,535,946.32

FDU 27,548,025.17
The Court of Appeals erred in placing much significance on the fact that ____________
the excluded promissory notes are dated after the fire. It failed to Total 108,083,971.49 8,218,021.11 2
consider that said notes had for their origin transactions
consummated prior to the fire. Thus, careful attention must be paid to the LESS:
fact that Promissory Notes No. 420-92 and 421-92 are mere renewalsof
Promissory Notes No. 908-91 and 952-91, loans already availed of by 1) Proceeds from
GOYU. Seaboard Eastern
Insurance Company 6,095,145.81
The two courts below erred in failing to see that the promissory notes
which they ruled should be excluded for bearing dates which are after 2) Proceeds from
that of the fire, are mere renewals of previous ones. The proceeds of the Equitable Insurance
loan represented by these promissory notes were admittedly received by Company 2,756,373.00
GOYU. There is ample factual and legal basis for giving GOYU's judicial
 3) Payment from
foreign department
negotiation: 203,584.89
___________
9,055,104.70 3
================
NET AMOUNT as of January 21, 1993 P107,246,887.90
The need for the payment of interest due the principal amount of the
obligation, which is the cost of money to RCBC, the primary end and the
ultimate reason for RCBC's existence and being, was duly recognized by
the trial court when it ruled favorably on RCBC's counterclaim, ordering
GOYU "to pay its loan obligation with RCBC in the amount of
P68,785,069.04, as of April 27, 1992, with interest thereon at the rate
stipulated in the respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B 14-C" (Record, p. 479).
Inexplicably, the Court of Appeals, without even laying down the factual
or legal justification for its ruling, modified the trial court's ruling and
ordered GOYU "to pay the principal amount of P68,785,069.04 without
any interest, surcharges and penalties" (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with
much uncertainty deleted the payment ofadditional interest, penalties,
and charges, in this manner:
Regarding defendant RCBC's commitment not to charge
additional interest, penalties and surcharges, the same
does not require that it be embodied in a document or
some form of writing to be binding and enforceable. The
principle is well known that generally a verbal agreement
or contract is no less binding and effective than a written
one. And the existence of such a verbal agreement has
been amply established by the evidence in this case. In
any event, regardless of the existence of such verbal
agreement, it would still be unjust and inequitable for
defendant RCBC to charge the plaintiff with surcharges
and penalties considering the latter's pitiful situation.
(Emphasis supplied).
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is
separate and distinct from that of surcharges and penalties. What may
justify a court in not allowing the creditor to charge surcharges and
penalties despite express stipulation therefor in a valid agreement, may
not equally justify non-payment of interest. The charging of interest for
loans forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its
existence or being. It is inconceivable for a bank to grant loans for which
it will not charge any interest at all. We fail to find justification for the
Court of Appeal's outright deletion of the payment of interest as agreed
upon in the respective promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following
rules of thumb laid down by this Court inEastern Shipping Lines,
Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the actual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
 default,i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly,
where the demand is established with reasonable
certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest
shall begin to run only from the date of the judgment of
the court is made (at which time the quantification of
damages may be deemed to have been reasonably
ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
(pp. 95-97).
There being written stipulations as to the rate of interest owing on each
specific promissory note as summarized and tabulated by the trial court
in its decision (pp. 470 and 471, Record) such agreed interest rates must
be followed. This is very clear from paragraph II, sub-paragraph 1 quoted
above.
On the issue of payment of surcharges and penalties, we partly agree
that GOYU's pitiful situation must be taken into account. We do not
agree, however, that payment of any amount as surcharges and
penalties should altogether be deleted. Even assuming that RCBC,
through its responsible officers, herein petitioners Eli Lao and Uy Chun
Bing, may have relayed its assurance for assistance to GOYU
immediately after the occurrence of the fire, we cannot accept the lower
courts' finding that RCBC had thereby ipso facto effectively waived
collection of any additional interests, surcharges, and penalties from
GOYU. Assurances of assistance are one thing, but waiver of additional
interests, surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of
default partake of the nature of liquidated damages, covered by Section
4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides:
Art. 2227. Liquidated damages, whether intended as a
indemnity or penalty, shall be equitably reduced if they
are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each
case. It should be stressed that the Court will not make any sweeping
ruling that surcharges and penalties imposed by banks for non-payment
of the loans extended by them are generally iniquitous and
unconscionable. What may be iniquitous and unconscionable in one
case, may be totally just and equitable in another. This provision of law
will have to be applied to the established facts of any given case. Given
the circumstance under which GOYU found itself after the occurrence of
the fire, the Court rules the surcharges rates ranging anywhere from 9%
to 27%, plus the penalty charges of 36%, to be definitely iniquitous and
unconscionable. The Court tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of GOYU's offer to pay the amount
of P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which
RCBC refused, we find it more in keeping with justice and equity for
RCBC not to charge additional interest, surcharges, and penalties from
that time onward.
Given the factual milieu hereover, we rule that it was error to hold MICO
liable in damages for denying or withholding the proceeds of the
insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements
of the insurance policies, RCBC has the right to claim the insurance
proceeds, in substitution of the property lost in the fire. Having assigned
its rights, GOYU lost its standing as the beneficiary of the said insurance
policies.
Secondly, for an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay must
be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs.
CA. 185 SCRA 403 [1990]). It is generally agreed, however, that an
insurer may in good faith and honesty entertain a difference of opinion as
to its liability. Accordingly, the statutory penalty for vexatious refusal of an
insurer to pay a claim should not be inflicted unless the evidence and
circumstances show that such refusal was willful and without reasonable
cause as the facts appear to a reasonable and prudent man (Bufallo Ins.
Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins.
Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St. Rep 307; Kusnetsky vs.
Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at
bar does not show that MICO wantonly and in bad faith delayed the
release of the proceeds. The problem in the determination of who is the
actual beneficiary of the insurance policies, aggravated by the claim of
various creditors who wanted to partake of the insurance proceeds, not
to mention the importance of the endorsement to RCBC, to our mind,
and as now borne out by the outcome herein, justified MICO in
withholding payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals
said that RCBC cannot avail itself of two simultaneous remedies in
enforcing the claim of an unpaid creditor, one for specific performance
and the other for foreclosure. In doing so, said the appellate court, the
second action is deemed barred, RCBC having split a single cause of
action (Rollo, pp. 195-199). The Court of Appeals was too
accommodating in giving due consideration to this argument of GOYU,
for the foreclosure suit is still pending appeal before the same Court of
Appeals in CA G.R. CV No. 46247, the case having been elevated by
RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division
of the Court of Appeals pre-empted the resolution of said foreclosure
case which is not before it. This is plain reversible error if not grave
abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691 [1995]):
It should have been enough, nonetheless, for the
appellate court to merely set aside the questioned
ordered of the trial court for having been issued by the
latter with grave abuse of discretion. In likewise enjoining
permanently herein petitioner "from entering in and
interfering with the use or occupation and enjoyment of
petitioner's (now private respondent) residential house
and compound," the appellate court in effect, precipitately
resolved with finality the case for injunction that was yet
to be heard on the merits by the lower court. Elevated to
the appellate court, it might be stressed, were mere
incidents of the principal case still pending with the trial
court. In Municipality of Bian, Laguna vs. Court of
Appeals, 219 SCRA 69, we ruled that the Court of
Appeals would have "no jurisdiction in
a certiorari proceeding involving an incident in a case to
rule on the merits of the main case itself which was not
on appeal before it.
(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the
Zamboanga Regional Trial Court, since it has been determined that
RCBC has the right to the insurance proceeds, the subject matter of
intervention is rendered moot and academic. Respondent Sebastian
must, however, yield to the preferential right of RCBC over the MICO
insurance policies. It is basic and fundamental that the first mortgagee
has superior rights over junior mortgagees or attaching creditors (Alpha
Insurance & Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life
Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and
resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No.
46162 are hereby REVERSED and SET ASIDE, and a new one entered:
and academic in view of the results herein arrived at. Respondent
Sebastian's right as attaching creditor must yield to the preferential rights
of Rizal Commercial Banking Corporation over the Malayan insurance
policies as first mortgagee.
SO ORDERED.

1. Dismissing the Complaint of private respondent GOYU

in Civil Case No. 93-65442 before Branch 3 of the Manila
Trial Court for lack of merit;

2. Ordering Malayan Insurance Company, Inc. to deliver

to Rizal Commercial Banking Corporation the proceeds
of the insurance policies in the amount of
P51,862,390.94 (per report of adjuster Toplis & Harding
(Far East), Inc., Exhibits "2" and "2-1"), less the amount
of P50,505,594.60 (per O.R. No. 3649285);

3. Ordering the Clerk of Court to release the amount of

P50,505,594.60 including the interests earned to Rizal
Commercial Banking Corporation;

4. Ordering Goyu & Sons, Inc. to pay its loan obligation

with Rizal Commercial Banking Corporation in the
principal amount of P107,246,887.90, with interest at the
respective rates stipulated in each promissory note from
January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21,
1993 to March 9, 1993, minus payments made by
Malayan Insurance Company, Inc. and the proceeds of
the amount deposited with the trial court and its earned
interest. The total amount due RCBC at the time of the
finality of this judgment shall earn interest at the legal
rate of 12% in lieu of all other stipulated interests and
charges until fully paid.

The petition of Rizal Commercial Banking Corporation against the

respondent Court in CA-GR CV 48376 is DISMISSED for being moot
 Company of North America (respondent) against Gaisano Cagayan, Inc.
(petitioner); and the CA Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue

Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products
bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI
separately obtained from respondent fire insurance policies with book
debt endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials which
have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines."2 The policies defined book debts
as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this
Policy."3 The policies also provide for the following conditions:

Republic of the Philippines 1. Warranted that the Company shall not be liable for any unpaid
SUPREME COURT account in respect of the merchandise sold and delivered by the
Manila Insured which are outstanding at the date of loss for a period in
excess of six (6) months from the date of the covering invoice or
FIRST DIVISION actual delivery of the merchandise whichever shall first occur.

G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the
Decision1 dated October 11, 2000 of the Court of Appeals (CA) in CA-
G.R. CV No. 61848 which set aside the Decision dated August 31, 1998
of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No.
92-322 and upheld the causes of action for damages of Insurance
2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all
amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On
February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro
City, owned by petitioner, was consumed by fire. Included in the items
lost or destroyed in the fire were stocks of ready-made clothing materials
sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their claims
under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid accounts of
petitioner on the sale and delivery of ready-made clothing materials with
IMC was P2,119,205.00 while with LSPI it was P535,613.00; that
respondent paid the claims of IMC and LSPI and, by virtue thereof,
respondent was subrogated to their rights against petitioner; that
respondent made several demands for payment upon petitioner but
these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends
that it could not be held liable because the property covered by the
insurance policies were destroyed due to fortuities event or force
majeure; that respondent's right of subrogation has no basis inasmuch
as there was no breach of contract committed by it since the loss was
due to fire which it could not prevent or foresee; that IMC and LSPI
never communicated to it that they insured their properties; that it never
consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.8 It held that the fire was purely accidental; that
the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the debtor of
IMC and LSPI; that since the sales invoices state that "it is further
agreed that merely for purpose of securing the payment of purchase
price, the above-described merchandise remains the property of the
vendor until the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the
CA rendered its decision setting aside the decision of the RTC. The
dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by
the plaintiff-appellant to the insured Inter Capitol Marketing
Corporation, plus legal interest from the time of demand until fully
paid;
2. the amount of P535,613.00 representing the amount paid by
the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus
legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss of
the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under Article
1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time
the loss under the principle of res perit domino; that petitioner's
obligation to IMC and LSPI is not the delivery of the lost goods but the
payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by
subrogation, the insurer has the right to go against petitioner; that, being
a fire insurance with book debt endorsements, what was insured was the
vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA
in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the
following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK
OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD
TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE
IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present
case cannot be deemed to be over credit since an insurance "on credit"
belies not only the nature of fire insurance but the express terms of the
policies; that it was not credit that was insured since respondent paid on
the occasion of the loss of the insured goods to fire and not because of
the non-payment by petitioner of any obligation; that, even if the
insurance is deemed as one over credit, there was no loss as the
accounts were not yet due since no prior demands were made by IMC
and LSPI against petitioner for payment of the debt and such demands
came from respondent only after it had already paid IMC and LSPI under
the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the
goods, petitioner-buyer IMC and LSPI assumed the risk of loss when
they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be
maintained thereon by IMC and LSPI since all risk had transferred to
petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured
nor was its consent or approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent in the obligation to
pay, limiting its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready-
made clothing materials was transferred upon delivery to petitioner, IMC
and LSPI have insurable interest over said goods as creditors who stand
to suffer direct pecuniary loss from its destruction by fire; that petitioner
is liable for loss of the ready-made clothing materials since it failed to
overcome the presumption of liability under Article 126516 of the Civil
Code; that the fire was caused through petitioner's negligence in failing
to provide stringent measures of caution, care and maintenance on its
property because electric wires do not usually short circuit unless there
are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of
gross and evident bad faith in refusing to pay respondent's valid claim
and should be liable to respondent for contracted lawyer's fees, litigation
expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in
cases brought before it from the CA is limited to reviewing questions of
law which involves no examination of the probative value of the evidence
presented by the litigants or any of them.18 The Supreme Court is not a
trier of facts; it is not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are generally
conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which
factual issues may be resolved by this Court, such as: (1) when the
findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the CA went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings
are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioner's main and
reply briefs are not disputed by the respondent; (10) when the findings of
fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.21 Exceptions (4),
(5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy.
Petitioner claims that the CA erred in construing a fire insurance policy
on book debts as one covering the unpaid accounts of IMC and LSPI
since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.22 In this case, the
questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in
the Philippines."23 ; and defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of
the loss covered under this Policy."24 Nowhere is it provided in the
questioned insurance policies that the subject of the insurance is the
goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they
do not justify an attempt to read into it any alleged intention of the
parties, the terms are to be understood literally just as they appear on
the face of the contract.25 Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which remained unpaid 45
days after the loss through fire, and not the loss or destruction of the
goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales invoices that
"[i]t is further agreed that merely for purpose of securing the payment of
the purchase price the above described merchandise remains the
property of the vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the
Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's
risk until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership in
the goods has been retained by the seller merely to secure performance
by the buyer of his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will
pay its debt, the risk of loss is borne by the buyer.27 Accordingly,
petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have
an insurable interest until full payment of the value of the delivered
goods. Unlike the civil law concept of res perit domino, where ownership
is the basis for consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of title, but
whether insured has substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured." Parenthetically, under Section 14 of the
same Code, an insurable interest in property may consist in: (a) an
existing interest; (b) an inchoate interest founded on existing interest; or
(c) an expectancy, coupled with an existing interest in that out of which
the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject matter
of the insurance, and neither the title nor a beneficial interest is requisite
to the existence of such an interest, it is sufficient that the insured is so
situated with reference to the property that he would be liable to loss
should it be injured or destroyed by the peril against which it is
insured.29 Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its
destruction.30Indeed, a vendor or seller retains an insurable interest in
the property sold so long as he has any interest therein, in other words,
so long as he would suffer by its destruction, as where he has a vendor's
lien.31 In this case, the insurable interest of IMC and LSPI pertain to the
unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous
event under Article 117432 of the Civil Code is misplaced. As held earlier,
petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for
loss of goods by fire but for petitioner's accounts with IMC and LSPI that
remained unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the failure of the
debtor to make the payment even by reason of a fortuitous event shall
not relieve him of his liability.33 The rationale for this is that the rule that
an obligor should be held exempt from liability when the loss occurs thru
a fortuitous event only holds true when the obligation consists in the
delivery of a determinate thing and there is no stipulation holding him
liable even in case of fortuitous event. It does not apply when the
obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind does
not extinguish the obligation." If the obligation is generic in the sense that
the object thereof is designated merely by its class or genus without any
particular designation or physical segregation from all others of the same
class, the loss or destruction of anything of the same kind even without
the debtor's fault and before he has incurred in delay will not have the
effect of extinguishing the obligation.35This rule is based on the principle
that the genus of a thing can never perish. Genus nunquan perit.36 An
obligation to pay money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are
matters immaterial to this case. What is relevant here is whether it has
been established that petitioner has outstanding accounts with IMC and
LSPI.
With respect to IMC, the respondent has adequately established its
claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding
account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the
check voucher evidencing payment to IMC. Exhibit "F" 40 is the
subrogation receipt executed by IMC in favor of respondent upon receipt
of the insurance proceeds. All these documents have been properly
identified, presented and marked as exhibits in court. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of
respondent as insurer and IMC as the insured, but also the amount paid
to settle the insurance claim. The right of subrogation accrues simply
upon payment by the insurance company of the insurance
claim.41Respondent's action against petitioner is squarely sanctioned by
Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its
cause of action. No evidentiary weight can be given to Exhibit "F Levi
Strauss",42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed petitioner's
building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of

LSPI; no subrogation receipt was offered in evidence. Thus, there is no
evidence that respondent has been subrogated to any right which LSPI
may have against petitioner. Failure to substantiate the claim of
subrogation is fatal to petitioner's case for recovery of the amount
of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision

dated October 11, 2000 and Resolution dated April 11, 2001 of the Court
of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATIONthat the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

CHAPTER IV
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.
BELLOSILLO, J.:
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.
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.
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.
 The facts are undisputed and may be related as follows:

On April 15, 1991, petitioner issued five (5) insurance policies covering
respondent's various property described therein against fire, for the
period from May 22, 1991 to May 22, 1992.

In March 1992, petitioner evaluated the policies and decided not to

renew them upon expiration of their terms on May 22, 1992. Petitioner
advised respondent's broker, Zuellig Insurance Brokers, Inc. of its
intention not to renew the policies.

On April 6, 1992, petitioner gave written notice to respondent of the non-

renewal of the policies at the address stated in the policies.

Republic of the Philippines On June 13, 1992, fire razed respondent's property covered by three of
SUPREME COURT the insurance policies petitioner issued.
Manila
On July 13, 1992, respondent presented to petitioner's cashier at its
FIRST DIVISION head office five (5) manager's checks in the total amount of
P225,753.95, representing premium for the renewal of the policies from
May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent
under the policies prior to July 14, 1992.
G.R. No. 137172 June 15, 1999
On July 14, 1992, respondent filed with petitioner its formal claim for
UCPB GENERAL INSURANCE CO., INC., petitioner, indemnification of the insured property razed by fire.
vs.
MASAGANA TELAMART, INC., respondent. On the same day, July 14, 1992, petitioner returned to respondent the
five (5) manager's checks that it tendered, and at the same time rejected
respondent's claim for the reasons (a) that the policies had expired and
were not renewed, and (b) that the fire occurred on June 13, 1992,
PARDO, J.: before respondent's tender of premium payment.

The case is an appeal via certiorari seeking to set aside the decision of
the Court of Appeals, 1 affirming with modification that of the Regional Trial
Court, Branch 58, Makati, ordering petitioner to pay respondent the sum of
P18,645,000.00, as the proceeds of the insurance coverage of respondent's
property razed by fire; 25% of the total amount due as attorney's fees and
P25,000.00 as litigation expenses, and costs.
On July 21, 1992, respondent filed with the Regional Trial Court, Branch
58, Makati City, a civil complaint against petitioner for recovery of
P18,645,000.00, representing the face value of the policies covering
respondent's insured property razed by fire, and for attorney's fees. 2
On October 23, 1992, after its motion to dismiss had been denied,
petitioner filed an answer to the complaint. It alleged that the complaint
"fails to state a cause of action"; that petitioner was not liable to
respondent for insurance proceeds under the policies because at the
time of the loss of respondent's property due to fire, the policies had long
expired and were not renewed. 3
After due trial, on March 10, 1993, the Regional Trial Court, Branch 58,
Makati, rendered decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the
defendant, as follows:
(1) Authorizing and allowing the plaintiff to
consign/deposit with this Court the sum of P225,753.95
(refused by the defendant) as full payment of the
corresponding premiums for the replacement-renewal
policies for Exhibits A, B, C, D and E;
(2) Declaring plaintiff to have fully complied with its
obligation to pay the premium thereby rendering the
replacement-renewal policy of Exhibits A, B, C, D and E
effective and binding for the duration May 22, 1992 until
May 22, 1993; and, ordering defendant to deliver
forthwith to plaintiff the said replacement-renewal
policies;
(3) Declaring Exhibits A & B, in force from August 22,
1991 up to August 23, 1992 and August 9, 1991 to
August 9, 1992, respectively; and
(4) Ordering the defendant to pay plaintiff the sums of:
(a) P18,645,000.00 representing the latter's claim for
indemnity under Exhibits A, B & C and/or its
replacement-renewal policies; (b) 25% of the total
amount due as and for attorney's fees; (c) P25,000.00 as
necessary litigation expenses; and, (d) the costs of suit.
All other claims and counterclaims asserted by the
parties are denied and/or dismissed, including plaintiff's
claim for interests.
SO ORDERED.
Makati, Metro-Manila, March 10, 1993.
ZOSIMO Z. ANGELES.
Judge. 4
In due time, petitioner appealed to the Court of Appeals. 5
On September 7, 1998, the Court of Appeals promulgated its
decision 6 affirming that of the Regional Trial Court with the modification that
item No. 3 of the dispositive portion was deleted, and the award of attorney's
fees was reduced to 10% of the total amount due. 7
The Court of Appeals held that following previous practise, respondent
was allowed a sixty (60) to ninety (90) day credit term for the renewal of
its policies, and that the acceptance of the late premium payment
suggested an understanding that payment could be made later.
Hence, this appeal.
By resolution adopted on March 24, 1999, we required respondent to
comment on the petition, not to file a motion to dismiss within ten (10)
days from notice. 8 On April 22, 1999, respondent filed its comment. 9
Respondent submits that the Court of Appeals correctly ruled that no
timely notice of non-renewal was sent. The notice of non-renewal sent to
broker Zuellig which claimed that it verbally notified the insurance
agency but not respondent itself did not suffice. Respondent submits
further that the Court of Appeals did not err in finding that there existed a
sixty (60) to ninety (90) days credit agreement between UCPB and
Masagana, and that, finally, the Supreme Court could not review factual
findings of the lower court affirmed by the Court of Appeals. 10
We give due course to the appeal.
The basic issue raised is whether the fire insurance policies issued by
petitioner to the respondent covering the period May 22, 1991 to May 22,
1992, had expired on the latter date or had been extended or renewed
by an implied credit arrangement though actual payment of premium
was tendered on a later date after the occurrence of the risk (fire)
insured against.
The answer is easily found in the Insurance Code. No, an insurance
policy, other than life, issued originally or on renewal, is not valid and
binding until actual payment of the premium. Any agreement to the
contrary is void. 11The parties may not agree expressly or impliedly on the
extension of creditor time to pay the premium and consider the policy
binding before actual payment.
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the
Court of Appeals, is not applicable. In that case, payment of the premium
was in fact actually made on December 24, 1981, and the fire occurred on
January 18, 1982. Here, the payment of the premium for renewal of the
policies was tendered on July 13, 1992, a month after the fire occurred on
June 13, 1992. The assured did not even give the insurer a notice of loss
within a reasonable time after occurrence of the fire.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the
decision of the Court of Appeals in CA-G.R. CV No. 42321.
In lieu thereof the Court renders judgment dismissing respondent's
complaint and petitioner's counterclaims thereto filed with the Regional
Trial Court, Branch 58, Makati City, in Civil Case No. 92-2023. Without
costs. SO ORDERED.
1wphi1.nt
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 137172 April 4, 2001
UCPB GENERAL INSURANCE CO., INC., petitioner,
vs.
MASAGANA TELAMART, INC., respondent.
RESOLUTION
DAVIDE, JR., C.J.:
In our decision of 15 June 1999 in this case, we reversed and set aside
the assailed decision 1 of the Court of Appeals, which affirmed with
modification the judgment of the trial court (a) allowing Respondent to
consign the sum of P225,753.95 as full payment of the premiums for the
renewal of the five insurance policies on Respondent's properties; (b)
declaring the replacement-renewal policies effective and binding from 22
May 1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned properties
covered by the renewal-replacement policies. The modification consisted
in the (1) deletion of the trial court's declaration that three of the policies
were in force from August 1991 to August 1992; and (2) reduction of the
award of the attorney's fees from 25% to 10% of the total amount due
the Respondent.
The material operative facts upon which the appealed judgment was
based are summarized by the Court of Appeals in its assailed decision
as follows:
Plaintiff [herein Respondent] obtained from defendant [herein
Petitioner] five (5) insurance policies (Exhibits "A" to "E", Record,
pp. 158-175) on its properties [in Pasay City and Manila] . . . .
All five (5) policies reflect on their face the effectivity term: "from
4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June
13, 1992, plaintiffs properties located at 2410-2432 and 2442-
2450 Taft Avenue, Pasay City were razed by fire. On July 13,
1992, plaintiff tendered, and defendant accepted, five (5)
Equitable Bank Manager's Checks in the total amount of
P225,753.45 as renewal premium payments for which Official
Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191)
was issued by defendant. On July 14, 1992, Masagana made its
formal demand for indemnification for the burned insured
properties. On the same day, defendant returned the five (5)
manager's checks stating in its letter (Exhibit "R" / "8", Record, p.
 192) that it was rejecting Masagana's claim on the following
grounds:
"a) Said policies expired last May 22, 1992 and were not
renewed for another term;
b) Defendant had put plaintiff and its alleged broker on
notice of non-renewal earlier; and
c) The properties covered by the said policies were
burned in a fire that took place last June 13, 1992, or
before tender of premium payment."
(Record, p. 5)
Hence Masagana filed this case.
The Court of Appeals disagreed with Petitioner's stand that
Respondent's tender of payment of the premiums on 13 July 1992 did
not result in the renewal of the policies, having been made beyond the
effective date of renewal as provided under Policy Condition No. 26,
which states:
26. Renewal Clause. Unless the company at least forty five
days in advance of the end of the policy period mails or delivers
to the assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages, the assured shall
be entitled to renew the policy upon payment of the premium due
on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof
exists that Respondent, which had procured insurance coverage from
Petitioner for a number of years, had been granted a 60 to 90-day credit
term for the renewal of the policies. Such a practice had existed up to
the time the claims were filed. Thus:
Fire Insurance Policy No. 34658 covering May 22, 1990 to May
22, 1991 was issued on May 7, 1990 but premium was paid
more than 90 days later on August 31, 1990 under O.R. No.
4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for
Insurance Risk Coverage from May 22, 1990 to May 22, 1991
was issued by UCPB on May 4, 1990 but premium was collected
by UCPB only on July 13, 1990 or more than 60 days later under
O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other
policies: Fire Insurance Policy No. 34657 covering risks from
May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but
premium therefor was paid only on July 19, 1990 under O.R. No.
46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661
covering risks from May 22, 1990 to May 22, 1991 was issued on
May 3, 1990 but premium was paid only on July 19, 1990 under
O.R. No. 46582 (Exhs. "X" and "X-1"). Fire Insurance Policy No.
34688 for insurance coverage from May 22, 1990 to May 22,
1991 was issued on May 7, 1990 but premium was paid only on
July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire
Insurance Policy No. 29126 to cover insurance risks from May
22, 1989 to May 22, 1990 was issued on May 22, 1989 but
premium therefor was collected only on July 25, 1990[sic] under
O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy
No. HO/F-26408 covering risks from January 12, 1989 to
January 12, 1990 was issued to Intratrade Phils. (Masagana's
sister company) dated December 10, 1988 but premium therefor
was paid only on February 15, 1989 under O.R. No. 38075
(Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was
issued on May 22, 1989 but premium was paid only on July 25,
1989 under O.R. No. 40800 for insurance coverage from May 22,
1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance
Policy No. 29127 was issued on May 22, 1989 but premium was
paid only on July 17, 1989 under O.R. No. 40682 for insurance
risk coverage from May 22, 1989 to May 22, 1990 (Exhs. "DD"
and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued
on June 15, 1989 but premium was paid only on February 13,
1990 under O.R. No. 39233 for insurance coverage from May 22,
1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance
Policy No. 26303 was issued on November 22, 1988 but
premium therefor was collected only on March 15, 1989 under
O.R. NO. 38573 for insurance risks coverage from December 15,
1988 to December 15, 1989 (Exhs. "FF" and "FF-1").
Moreover, according to the Court of Appeals the following circumstances
constitute preponderant proof that no timely notice of non-renewal was
made by Petitioner:
 (1) Defendant-appellant received the confirmation (Exhibit "11",
Record, p. 350) from Ultramar Reinsurance Brokers that
plaintiff's reinsurance facility had been confirmed up to 67.5%
only on April 15, 1992 as indicated on Exhibit "11". Apparently,
the notice of non-renewal (Exhibit "7," Record, p. 320) was sent
not earlier than said date, or within 45 days from the expiry dates
of the policies as provided under Policy Condition No. 26; (2)
Defendant insurer unconditionally accepted, and issued an
official receipt for, the premium payment on July 1[3], 1992 which
indicates defendant's willingness to assume the risk despite only
a 67.5% reinsurance cover[age]; and (3) Defendant insurer
appointed Esteban Adjusters and Valuers to investigate plaintiff's
claim as shown by the letter dated July 17, 1992 (Exhibit "11",
Record, p. 254).
In our decision of 15 June 1999, we defined the main issue to be
"whether the fire insurance policies issued by petitioner to the
respondent covering the period from May 22, 1991 to May 22, 1992 . . .
had been extended or renewed by an implied credit arrangement though
actual payment of premium was tendered on a later date and after the
occurrence of the (fire) risk insured against." We resolved this issue in
the negative in view of Section 77 of the Insurance Code and our
decisions in Valenzuela v. Court of Appeals; 2 South Sea Surety and
Insurance Co., Inc. v. Court of Appeals; 3 and Tibay v. Court of
Appeals. 4 Accordingly, we reversed and set aside the decision of the
Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the
adverse verdict. It alleges in the motion that we had made in the decision
our own findings of facts, which are not in accord with those of the trial
court and the Court of Appeals. The courts below correctly found that no
notice of non-renewal was made within 45 days before 22 May 1992, or
before the expiration date of the fire insurance policies. Thus, the
policies in question were renewed by operation of law and were effective
and valid on 30 June 1992 when the fire occurred, since the premiums
were paid within the 60- to 90-day credit term.
Respondent likewise disagrees with our ruling that parties may neither
agree expressly or impliedly on the extension of credit or time to pay the
premium nor consider a policy binding before actual payment. It urges
the Court to take judicial notice of the fact that despite the express
provision of Section 77 of the Insurance Code, extension of credit terms
in premium payment has been the prevalent practice in the insurance
industry. Most insurance companies, including Petitioner, extend credit
terms because Section 77 of the Insurance Code is not a prohibitive
injunction but is merely designed for the protection of the parties to an
insurance contract. The Code itself, in Section 78, authorizes the validity
of a policy notwithstanding non-payment of premiums.
Respondent also asserts that the principle of estoppel applies to
Petitioner. Despite its awareness of Section 77 Petitioner persuaded and
induced Respondent to believe that payment of premium on the 60- to
90-day credit term was perfectly alright; in fact it accepted payments
within 60 to 90 days after the due dates. By extending credit and
habitually accepting payments 60 to 90 days from the effective dates of
the policies, it has implicitly agreed to modify the tenor of the insurance
policy and in effect waived the provision therein that it would pay only for
the loss or damage in case the same occurred after payment of the
premium.
Petitioner filed an opposition to the Respondent's motion for
reconsideration. It argues that both the trial court and the Court of
Appeals overlooked the fact that on 6 April 1992 Petitioner sent by
ordinary mail to Respondent a notice of non-renewal and sent by
personal delivery a copy thereof to Respondent's broker, Zuellig. Both
courts likewise ignored the fact that Respondent was fully aware of the
notice of non-renewal. A reading of Section 66 of the Insurance Code
readily shows that in order for an insured to be entitled to a renewal of a
non-life policy, payment of the premium due on the effective date of
renewal should first be made. Respondent's argument that Section 77 is
not a prohibitive provision finds no authoritative support.
Upon a meticulous review of the records and reevaluation of the issues
raised in the motion for reconsideration and the pleadings filed thereafter
by the parties, we resolved to grant the motion for reconsideration. The
following facts, as found by the trial court and the Court of Appeals, are
indeed duly established:
1. For years, Petitioner had been issuing fire policies to the
Respondent, and these policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day
credit term within which to pay the premiums on the renewed
policies.
3. There was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by
 ordinary mail was received by Respondent, and the copy thereof
allegedly sent to Zuellig was ever transmitted to Respondent.
4. The premiums for the policies in question in the aggregate
amount of P225,753.95 were paid by Respondent within the 60-
to 90-day credit term and were duly accepted and received by
Petitioner's cashier.
The instant case has to rise or fall on the core issue of whether Section
77 of the Insurance Code of 1978 (P.D. No. 1460) must be strictly
applied to Petitioner's advantage despite its practice of granting a 60- to
90-day credit term for the payment of premiums.
Section 77 of the Insurance Code of 1978 provides:
SECTION 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.
This Section is a reproduction of Section 77 of P.D. No. 612 (The
Insurance Code) promulgated on 18 December 1974. In turn, this
Section has its source in Section 72 of Act No. 2427 otherwise known as
the Insurance Act as amended by R.A. No. 3540, approved on 21 June
1963, which read:
SECTION 72. An insurer is entitled to payment of premium as
soon as the thing insured is exposed to the peril insured
against, unless there is clear agreement to grant the insured
credit extension of the premium due. No policy issued by an
insurance company is valid and binding unless and until the
premium thereof has been paid. (Italic supplied)
It can be seen at once that Section 77 does not restate the portion of
Section 72 expressly permitting an agreement to extend the period to
pay the premium. But are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of
a life or industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which
provides:
SECTION 78. Any acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding, notwithstanding
any stipulation therein that it shall not be binding until premium is
actually paid.
A third exception was laid down in Makati Tuscany Condominium
Corporation vs. Court of Appeals, 5 wherein we ruled that Section 77 may
not apply if the parties have agreed to the payment in installments of the
premium and partial payment has been made at the time of loss. We
said therein, thus:
We hold that the subject policies are valid even if the premiums
were paid on installments. The records clearly show that the
petitioners 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 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 prepaid in full.
Not only that. In Tuscany, we also quoted with approval the following
pronouncement of the Court of Appeals in its Resolution denying the
motion for reconsideration of 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 entered DENYING the instant petition for failure of Petitioner to
the insurance policy of receipt of premium as conclusive sufficiently show that a reversible error was committed by the
evidence of payment so far as to make the policy binding despite Court of Appeals in its challenged decision, which is hereby
the fact that premium is actually unpaid. Section 77 merely AFFIRMED in toto.
precludes the parties from stipulating that the policy is valid even
if premiums are not paid, but does not expressly prohibit an No pronouncement as to cost.
agreement granting credit extension, and such an agreement is
not contrary to morals, good customs, public order or public SO ORDERED.
policy (De Leon, The Insurance Code, p. 175). So is an
understanding to allow insured to pay premiums in installments
not so prescribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have
voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court

of Appeals, Tuscany has provided a fourth exception to Section 77,
namely, that the insurer may grant credit extension for the payment of
the premium. This simply means that if the insurer has granted the
insured a credit term for the payment of the premium and loss occurs
before the expiration of the term, recovery on the policy should be
allowed even though the premium is paid after the loss but within the
credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an

insurance contract to provide a credit term within which to pay the
premiums. That agreement is not against the law, morals, good customs,
public order or public policy. The agreement binds the parties. Article
1306 of the Civil Code provides:

ARTICLE 1306. The contracting parties may establish such

stipulations clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery

on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of
premiums despite its full awareness of Section 77. Estoppel bars it from
taking refuge under said Section, since Respondent relied in good faith
on such practice. Estoppel then is the fifth exception to Section 77.

WHEREFORE, the Decision in this case of 15 June 1999 is

RECONSIDERED and SET ASIDE, and a new one is hereby
 G.R. No. 130421 June 28, 1999

AMERICAN HOME ASSURANCE COMPANY, petitioner,

vs.
ANTONIO CHUA, respondent.

DAVIDE, JR. C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, petitioner seeks the reversal of the decision 1 of the Court
of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of
the Regional Trial Court, Makati City, Branch 150 (hereafter trial court), in
Civil Case No. 91-1009.

Petitioner is a domestic corporation engaged in the insurance business.

Sometime in 1990, respondent obtained from petitioner a fire insurance
covering the stock-in-trade of his business, Moonlight Enterprises,
located at Valencia, Bukidnon. The insurance was due to expire on 25
March 1990.

On 5 April 1990 respondent issued PCIBank Check No. 352123 in the

amount of P2,983.50 to petitioner's agent, James Uy, as payment for the
renewal of the policy. In turn, the latter delivered Renewal Certificate No.
00099047 to respondent. The check was drawn against a Manila bank
and deposited in petitioner's bank account in Cagayan de Oro City. The
corresponding official receipt was issued on 10 April. Subsequently, a
new insurance policy, Policy No. 206-4234498-7, was issued, whereby
petitioner undertook to indemnify respondent for any damage or loss
Republic of the Philippines arising from fire up to P200,000 for the period 25 March 1990 to 25
SUPREME COURT March 1991.
Manila
On 6 April 1990 Moonlight Enterprises was completely razed by fire.
FIRST DIVISION Total loss was estimated between P4,000,000 and P5,000,000.
Respondent filed an insurance claim with petitioner and four other co-
insurers, namely, Pioneer Insurance and Surety Corporation, Prudential
Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and
Domestic Insurance Company of the Philippines. Petitioner refused to
honor the claim notwithstanding several demands by respondent, thus,
the latter filed an action against petitioner before the trial court.
In its defense, petitioner claimed there was no existing insurance
contract when the fire occurred since respondent did not pay the
premium. It also alleged that even assuming there was a contract,
respondent violated several conditions of the policy, particularly: (1) his
submission of fraudulent income tax return and financial statements; (2)
his failure to establish the actual loss, which petitioner assessed at
P70,000; and (3) his failure to notify to petitioner of any insurance
already effected to cover the insured goods. These violations, petitioner
insisted, justified the denial of the claim.
The trial court ruled in favor of respondent. It found that respondent paid
by way of check a day before the fire occurred. The check, which was
deposited in petitioner's bank account, was even acknowledged in the
renewal certificate issued by petitioner's agent. It declared that the
alleged fraudulent documents were limited to the disparity between the
official receipts issued by the Bureau of Internal Revenue (BIR) and the
income tax returns for the years 1987 to 1989. All the other documents
were found to be genuine. Nonetheless, it gave credence to the BIR
certification that respondent paid the corresponding taxes due for the
questioned years.
As to respondent's failure to notify petitioner of the other insurance
contracts covering the same goods, the trial court held that petitioner
failed to show that such omission was intentional and fraudulent. Finally,
it noted that petitioner's investigation of respondent's claim was done in
collaboration with the representatives of other insurance companies who
found no irregularity therein. In fact, Pioneer Insurance and Surety
Corporation and Prudential Guarantee and Assurance, Inc. promptly
paid the claims filed by respondent.
The trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor of
[respondent] and against the [petitioner] ordering the
latter to pay the former the following:
1. P200,000.00, representing the amount
of the insurance, plus legal interest from
the date of filing of this case;
2. P200,000.00 as moral damages;
3. P200,000.00 as loss of profit;
4. P100,000.00 as exemplary damages;
5. P50,000.00 as attorney's fees; and
6. Cost of suit.
On appeal, the assailed decision was affirmed in toto by the Court of
Appeals. The Court of Appeals found that respondent's claim was
substantially proved and petitioner's unjustified refusal to pay the claim
entitled respondent to the award of damages.
Its motion for reconsideration of the judgment having been denied,
petitioner filed the petition in this case. Petitioner reiterates its stand that
there was no existing insurance contract between the parties. It invokes
Section 77 of the Insurance Code, which provides:
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 life
or an industrial life policy whenever the grace period
provision applies.
 and cites the case of Arce v. Capital Insurance & Surety
Co., Inc., 2 where we ruled that unless and until the premium is paid
there is no insurance.
Petitioner emphasizes that when the fire occurred on 6 April 1990 the
insurance contract was not yet subsisting pursuant to Article 1249 3 of the
Civil Code, which recognizes that a check can only effect payment once it
has been cashed. Although respondent testified that he gave the check on 5
April to a certain James Uy, the check, drawn against a Manila bank and
deposited in a Cagayan de Oro City bank, could not have been cleared by 6
April, the date of the fire. In fact, the official receipt issued for respondent's
check payment was dated 10 April 1990, four days after the fire occurred.
premium. At this precise moment the contract of insurance was executed
and already in effect. Respondent also claims that it is standard operating
procedure in the provinces to pay insurance premiums by check when
collected by insurance agents.
On the issue of damages, respondent maintains that the amounts
awarded were reasonable. He cites numerous trips he had to make from
Cagayan de Oro City to Manila to follow up his rightful claim. He imputes
bad faith on petitioner who made enforcement of his claim difficult in the
hope that he would eventually abandon it. He further emphasizes that
the adjusters of the other insurance companies recommended payment
of his claim, and they complied therewith.

Citing jurisprudence, 4 petitioner also contends that respondent's non- In its reply, petitioner alleges that the petition questions the conclusions
disclosure of the other insurance contracts rendered the policy void. It of law made by the trial court and the Court of Appeals.
underscores the trial court's neglect in considering the Commission on
Audit's certification that the BIR receipts submitted by respondent were, in Petitioner invokes respondent's admission that his check for the renewal
effect, fake since they were issued to other persons. Finally, petitioner
of the policy was received only on 10 April 1990, taking into account that
argues that the award of damages was excessive and unreasonable
the policy period was 25 March 1990 to 25 March 1991. The official
considering that it did not act in bad faith in denying respondent's claim.
receipt was dated 10 April 1990. Anent respondent's testimony that the
check was given to petitioner's agent, a certain James Uy, the latter
Respondent counters that the issue of non-payment of premium is a
points out that even respondent was not sure if Uy was indeed its agent.
question of fact which can no longer be assailed. The trial court's finding
It faults respondent for not producing Uy as his witness and not taking
on the matter, which was affirmed by the Court of Appeals, is conclusive.
any receipt from him upon presentment of the check. Even assuming
that the check was received a day before the concurrence of the fire,
Respondent refutes the reason for petitioner's denial of his claim. As
there still could not have been payment until the check was cleared.
found by the trial court, petitioner's loss adjuster admitted prior
knowledge of respondent's existing insurance contracts with the other
Moreover, petitioner denies respondent's allegation that it intended a
insurance companies. Nonetheless, the loss adjuster recommended the
renewal of the contract for the renewal certificate clearly specified the
denial of the claim, not because of the said contracts, but because he
following conditions:
was suspicious of the authenticity of certain documents which
respondent submitted in filing his claim.
Subject to the payment by the assured of the amount due
prior to renewal date, the policy shall be renewed for the
To bolster his argument, respondent cites Section 66 of the Insurance
period stated.
Code, 5 which requires the insurer to give a notice to the insured of its
intention to terminate the policy forty-five days before the policy period ends.
Any payment tendered other than in cash is received
In the instant case, petitioner opted not to terminate the policy. Instead, it
renewed the policy by sending its agent to respondent, who was issued a
subject to actual cash collection.
renewal certificate upon delivery of his check payment for the renewal of
 Subject to no loss prior to premium and payment. If there
be any loss, is not covered [sic].
Petitioner asserts that an insurance contract can only be
enforced upon the payment of the premium, which should have
been made before the renewal period.
Finally, in assailing the excessive damages awarded to respondent
petitioner stresses that the policy in issue was limited to a liability of
P200,000; but the trial court granted the following monetary awards:
P200,000 as actual damages; P200,000 as moral damages; P100,000
as exemplary damages; and P50,000 as attorney's fees.
The following issues must be resolved: first, whether there was a valid
payment of premium, considering that respondent's check was cashed
after the occurrence of the fire; second, whether respondent violated the
policy by his submission of fraudulent documents and non-disclosure of
the other existing insurance contracts; and finally, whether respondent is
entitled to the award of damages.
The general rule in insurance laws is that unless the premium is paid the
insurance policy is not valid and binding. The only exceptions are life and
industrial life insurance. 6 Whether payment was indeed made is a question
of fact which is best determined by the trial court. The trial court found, as
affirmed by the Court of Appeals, that there was a valid check payment by
respondent to petitioner. Well-settled is the rule that the factual findings and
conclusions of the trial court and the Court of Appeals are entitled to great
weight and respect, and will not be disturbed on appeal in the absence of
any clear showing that the trial court overlooked certain facts or
circumstances which would substantially affect the disposition of the
case. 7 We see no reason to depart from this ruling.
According to the trial court the renewal certificate issued to respondent
contained the acknowledgment that premium had been paid. It is not
disputed that the check drawn by respondent in favor of petitioner and
delivered to its agent was honored when presented and petitioner
forthwith issued its official receipt to respondent on 10 April 1990.
Section 306 of the Insurance Code provides that any insurance company
which delivers a policy or contract of insurance to an insurance agent or
insurance broker 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 or contract of insurance at the time of its issuance or delivery
or which becomes due thereon. 8 In the instant case, the best evidence of
such authority is the fact that petitioner accepted the check and issued the
official receipt for the payment. It is, as well, bound by its agent's
acknowledgment of receipt of payment.
Sec. 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance
of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid.
This Section establishes a legal fiction of payment and should be
interpreted as an exception to Section 77.9
Is respondent guilty of the policy violations imputed against him? We are
not convinced by petitioner's arguments. The submission of the alleged
fraudulent documents pertained to respondent's income tax returns for
1987 to 1989. Respondent, however, presented a BIR certification that
he had paid the proper taxes for the said years. The trial court and the
Court of Appeals gave credence to the certification and it being a
question of fact, we hold that said finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the
disclosure of existing co-insurers, non-disclosure thereof is a violation
that entitles the insurer to avoid the policy. This condition is common in
fire insurance policies and is known as the "other insurance clause." The
purpose for the inclusion of this clause is to prevent an increase in the
moral hazard. We have ruled on its validity and the case of Geagonia
v. Court of Appeals 10 clearly illustrates such principle. However, we see an
exception in the instant case.
Citing Section 29 11 of the Insurance Code, the trial court reasoned that
respondent's failure to disclose was not intentional and fraudulent. The
application of Section 29 is misplaced. Section 29 concerns concealment
which is intentional. The relevant provision is Section 75, 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.
To constitute a violation the other existing insurance contracts must be
upon the same subject matter and with the same interest and
risk. 12 Indeed, respondent acquired several co-insurers and he failed to
disclose this information to petitioner. Nonetheless, petitioner is estopped
from must invoking this argument. The trial court cited the testimony of
petitioner's loss adjuster who admitted previous knowledge of the co-
insurers. Thus,
COURT:
Q The matter of additional insurance of
other companies, was that ever
discussed in your investigation?
A Yes, sir.
Q In other words, from the start, you were
aware the insured was insured with other
companies like Pioneer and so on?
A Yes, Your Honor.
Q But in your report you never
recommended the denial of the claim
simply because of the non-disclosure of
other insurance? [sic]
A Yes, Your Honor.
Q In other words, to be emphatic about
this, the only reason you recommended
the denial of the claim, you found three
documents to be spurious. That is your
only basis?
A Yes, Your Honor. 13 [Emphasis supplied]
Indubitably, it cannot be said that petitioner was deceived by respondent
by the latter's non-disclosure of the other insurance contracts when
petitioner actually had prior knowledge thereof. Petitioner's loss adjuster
had known all along of the other existing insurance contracts, yet, he did
not use that as basis for his recommendation of denial. The loss
adjuster, being an employee of petitioner, is deemed a representative of
the latter whose awareness of the other insurance contracts binds
petitioner. We, therefore, hold that there was no violation of the "other
insurance" clause by respondent.
Petitioner is liable to pay its share of the loss. The trial court and the
Court of Appeals were correct in awarding P200,000 for this. There is,
however, merit in petitioner's grievance against the damages and
attorney's fees awarded.
There is no legal and factual basis for the award of P200,000 for loss of
profit. It cannot be denied that the fire totally gutted respondent's
business; thus, respondent no longer had any business to operate. His
loss of profit cannot be shouldered by petitioner whose obligation is
limited to the object of insurance, which was the stock-in-trade, and not
the expected loss in income or profit.
Neither can we approve the award of moral and exemplary damages. At
the core of this case is petitioner's alleged breach of its obligation under
a contract of insurance. Under Article 2220 of the Civil Code, moral
damages may be awarded in breaches of contracts where the defendant
acted fraudulently or in bad faith. We find no such fraud or bad faith. It
must again be stressed that moral damages are emphatically not
intended to enrich a plaintiff at the expense of the defendant. Such
damages are awarded only to enable the injured party to obtain means,
diversion or amusements that will serve to obviate the moral suffering he
has undergone, by reason of the defendant's culpable action. Its award
is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and it must be proportional to the suffering
inflicted. 14 When awarded, moral damages must not be palpably and
scandalously excessive as to indicate that it was the result of passion,
prejudice or corruption on the part of the trial court judge. 15

The law 16 is likewise clear that in contracts and quasi-contracts the court
may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner. Nothing thereof can
be attributed to petitioner which merely tried to resist what it claimed to be
an unfounded claim for enforcement of the fire insurance policy.

As to attorney's fees, the general rule is that attorney's fees cannot be

recovered as part of damages because of the policy that no premium
should be placed on the right to litigate. 17 In short, the grant of attorney's
fees as part of damages is the exception rather than the rule; counsel's fees
are not awarded every time a party prevails in a suit. It can be awarded only
in the cases enumerated in Article 2208 of the Civil Code, and in all cases it
must be reasonable. 18Thereunder, the trial court may award attorney's fees
where it deems just and equitable that it be so granted. While we respect the
trial court's exercise of its discretion in this case, the award of P50,000 is
unreasonable and excessive. It should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The challenged

decision of the Court of Appeals in CA-G.R. No. 40751 is hereby
MODIFIED by a) deleting the awards of P200,000 for loss of profit,
P200,000 as moral damages and P100,000 as exemplary damages, and
b) reducing the award of attorney's fees from P50,000 to P10,000.

No pronouncement as to costs.

Melo, Kapunan, Pardo and Santiago, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
 FIRST DIVISION
G.R. No. 119655 May 24, 1996
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M.
RORALDO, VICTORINA M. RORALDO, VIRGILIO M. RORALDO,
MYRNA M. RORALDO and ROSABELLA M. RORALDO, petitioners,
vs.
COURT OF APPEALS and FORTUNE LIFE AND GENERAL
INSURANCE CO., INC., respondents.
BELLOSILLO, J.:p
May a fire insurance policy be valid, binding and enforceable upon mere
partial payment of premium?
On 22 January 1987 private respondent Fortune Life and General
Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No.
136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-
storey residential building located at 5855 Zobel Street, Makati City,
together with all their personal effects therein. The insurance was for
P600,000.00 covering the period from 23 January 1987 to 23 January
1988. On 23 January 1987, of the total premium of P2,983.50, petitioner
Violeta Tibay only paid P600.00 thus leaving a considerable balance
unpaid.
On 8 March 1987 the insured building was completely destroyed by fire.
Two days later or on 10 March 1987 Violeta Tibay paid the balance of
the premium. On the same day, she filed with FORTUNE a claim on the
fire insurance policy. Her claim was accordingly referred to its adjuster,
Goodwill Adjustment Services, Inc. (GASI), which immediately wrote
Violeta requesting her to furnish it with the necessary documents for the
investigation and processing of her claim. Petitioner forthwith complied.
On 28 March 1987 she signed a non-waiver agreement with GASI to the
effect that any action taken by the companies or their representatives in
investigating the claim made by the claimant for his loss which occurred
at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or
ascertainment of the amount of actual cash value and loss, shall not
waive or invalidate any condition of the policies of such companies held
by said claimant, nor the rights of either or any of the parties to this
agreement, and such action shall not be, or be claimed to be, an
admission of liability on the part of said companies or any of them. 1
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for
violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code.
Efforts to settle the case before the Insurance Commission proved futile.
On 3 March 1988 Violets and the other petitioners sued FORTUNE for
damages in the amount of P600,000.00 representing the total coverage
of the fire insurance policy plus 12% interest per annum, P100,000.00
moral damages, and attorney's fees equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged
FORTUNE liable for the total value of the insured building and personal
properties in the amount of P600,000.00 plus interest at the legal rate of
6% per annum from the filing of the complaint until full payment, and
attorney's fees equivalent to 20% of the total amount claimed plus costs
of suit. 2
On 24 March 1995 the Court of Appeals reversed the court a quo by
declaring FORTUNE not to be liable to plaintiff-appellees therein but
ordering defendant-appellant to return to the former the premium of
P2,983.50 plus 12% interest from 10 March 1987 until full payment. 3
Hence this petition for review with petitioners contending mainly that
contrary to the conclusion of the appellate court, FORTUNE remains
liable under the subject fire insurance policy in spite of the failure of
petitioners to pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. 4 The consideration is the premium, which
must be paid at the time and in the way and manner specified in the policy,
and if not so paid, the policy will lapse and be forfeited by its own terms. 5
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNISSETH
THAT only after payment to the Company in accordance
with Policy Condition No. 2 of the total premiums by the
insured as stipulated above for the period
aforementioned for insuring against Loss or Damage by
Fire or Lightning as herein appears, the Property herein
described . . .
2. This policy including any renewal thereof and/or any
endorsement thereon is not in force until the premium
has been fully paid to and duly receipted by the
Company in the manner provided herein.
Any supplementary agreement seeking to amend this
condition prepared by agent, broker or Company official,
shall be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding
rules and regulations which are or may hereafter be in
force provide for the payment of the stipulated premiums
in periodic installments at fixed percentage, it is hereby
declared, agreed and warranted that this policy shall be
deemed effective, valid and binding upon the Company
only when the premiums therefor have actually been
paid in full and duly acknowledged in a receipt signed by
any authorized official or representative/agent of the
Company in such manner as provided herein. (emphasis
supplied). 6
Clearly the Policy provides for payment of premium in full. Accordingly,
where the premium has only been partially paid and the balance paid
only after the peril insured against has occurred, the insurance contract
did not take effect and the insured cannot collect at all on the policy. This
is fully supported by Sec. 77 of the Insurance Code which 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 (emphasis supplied).
Apparently the crux of the controversy lies in the phrase "unless and
until the premium thereof has been paid." This leads us to the manner of
payment envisioned by the law to make the insurance policy operative
and binding. For whatever judicial construction may be accorded the
disputed phrase must ultimately yield to the clear mandate of the law.
The principle that where the law does not distinguish the court should
neither distinguish assumes that the legislature made no qualification on
the use of a general word or expression. In Escosura v. San Miguel
Brewery, Inc., 7 the Court through Mr. Justice Jesus G. Barrera, interpreting
the phrase "with pay" used in connection with leaves of absence with pay
granted to employees, ruled
. . . the legislative practice seems to be that when the
intention is to distinguish between full and partial
payment, the modifying term is used . . .
Citing C.A. No. 647 governing maternity leaves of married
women in government, R. A. No. 679 regulating employment of
women and children, R.A. No. 843 granting vacation and sick
leaves to judges of municipal courts and justices of the peace,
and finally, Art. 1695 of the New Civil Code providing that every
househelp shall be allowed four (4) days vacation each month,
which laws simply stated "with pay," the Court concluded that it
was undisputed that in all these laws the phrase "with pay" used
without any qualifying adjective meant that the employee was
entitled to full compensation during his leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the
policy despite partial payment of the premium due and the express
stipulation thereof to the contrary, petitioners rely heavily on the 1967
case ofPhilippine Phoenix and Insurance Co., Inc. v. Woodworks,
Inc. 8 where the Court through Mr. Justice Arsenio P. Dizon sustained the
ruling of the trial court that partial payment of the premium made the policy
effective during the whole period of the policy. In that case, the insurance
company commenced action against the insured for the unpaid balance on a
fire insurance policy. In its defense the insured claimed that nonpayment of
premium produced the cancellation of the insurance contract. Ruling
otherwise the Court held
It is clear . . . 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.
The 1967 Phoenix case is not persuasive; neither is it decisive of the
instant dispute. For one, the factual scenario is different. In Phoenix it
was the insurance company that sued for the balance of the
premium, i.e., it recognized and admitted the existence of an insurance
contract with the insured. In the case before us, there is, quite unlike in
Phoenix, a specific stipulation that (t)his policy . . . is not in force until the
premium has been fully paid and duly receipted by the
Company . . . Resultantly, it is correct to say that in Phoenix a contract
was perfected upon partial payment of the premium since the parties
had not otherwise stipulated that prepayment of the premium in full was
a condition precedent to the existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later
demanding the remainder of the premium without any other precondition
to its enforceability as in the instant case, the insurer in effect had shown
its intention to continue with the existing contract of insurance, as in fact
it was enforcing its right to collect premium, or exact specific
performance from the insured. This is not so here. By express
agreement of the parties, novinculum juris or bond of law was to be
established until full payment was effected prior to the occurrence of the
risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals 9 the parties
mutually agreed that the premiums could be paid in installments, which in
fact they did for three (3) years, hence, this Court refused to invalidate the
insurance policy. In giving effect to the policy, the Court quoted with approval
the Court of Appeals
The obligation to pay premiums when due is ordinarily an
indivisible obligation to pay the entire premium. Here, the
parties . . . 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 basic
considerations of fairness and equity . . .
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the
waiver, either express or implied, of prepayment in full by the insurer:
impliedly, by suing for the balance of the premium as in Phoenix, and
expressly, by agreeing to make premiums payable in installments as in
Tuscany. But contrary to the stance taken by petitioners, there is no
waiver express or implied in the case at bench. Precisely, the insurer and
the insured expressly stipulated that (t)his policy including any renewal
thereof and/or any indorsement thereon is not in force until the premium
has been fully paid to and duly receipted by the Company . . . and that
this policy shall be deemed effective, valid and binding upon the
Company only when the premiums therefor have actually been paid in
full and duly acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken
in conjunction with Sec. 77 of the Insurance Code the payment of partial
premium by the assured in this particular instance should not be
considered the payment required by the law and the stipulation of the
parties. Rather, it must be taken in the concept of a deposit to be held in
trust by the insurer until such time that the full amount has been
tendered and duly receipted for. In other words, as expressly agreed
upon in the contract, full payment must be made before the risk occurs
for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the
assured according to law ever resulted from the fractional payment of
premium. The insurance contract itself expressly provided that the policy
would be effective only when the premium was paid in full. It would have
been altogether different were it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not to be insured by FORTUNE
under the terms of its policy and they freely opted to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the
construction of an insurance contract is the intention of the parties as
expressed in the
policy. 10 Courts have no other function but to enforce the same. The rule
that contracts of insurance will be construed in favor of the insured and most
strongly against the insurer should not be permitted to have the effect of
making a plain agreement ambiguous and then construe it in favor of the
insured. 11 Verily, it is elemental law that the payment of premium is requisite
to keep the policy of insurance in force. If the premium is not paid in the
manner prescribed in the policy as intended by the parties the policy is
ineffective. Partial payment even when accepted as a partial payment will
not keep the policy alive even for such fractional part of the year as the part
payment bears to the whole
payment. 12
Applying further the rules of statutory construction, the position
maintained by petitioners becomes even more untenable. The case
of South Sea Surety and Insurance Company, Inc. v. Court Of
Appeals, 13 speaks only of two (2) statutory exceptions to the requirement of
payment of the entire premium as a prerequisite to the validity of the
insurance contract. These 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. 14
A maxim of recognized practicality is the rule that the expressed
exception or exemption excludes others.Exceptio firmat regulim in
casibus non exceptis. The express mention of exceptions operates to
exclude other exceptions; conversely, those which are not within the
enumerated exceptions are deemed included in the general rule. Thus,
under Sec. 77, as well as Sec. 78, until the premium is paid, and the law
has not expressly excepted partial payments, there is no valid and
binding contract. Hence, in the absence of clear waiver of prepayment in
full by the insurer, the insured cannot collect on the proceeds of the
policy.
In the desire to safeguard the interest of the assured, it must not be
ignored that the contract of insurance is primarily a risk distributing
device, a mechanism by which all members of a group exposed to a
particular risk contribute premiums to an insurer. From these contributory
funds are paid whatever losses occur due to exposure to the peril
insured against. Each party therefore takes a risk: the insurer, that of
being compelled upon the happening of the contingency to pay the entire
sum agreed upon, and the insured, that of parting with the amount
required as premium, without receiving anything therefor in case the
contingency does not happen. To ensure payment for these losses, the
law mandates all insurance companies to maintain a legal reserve fund
in favor of those claiming under their policies. 15 It should be understood
that the integrity of this fund cannot be secured and maintained if by judicial
fiat partial offerings of premiums were to be construed as a
legal nexus between the applicant and the insurer despite an express
agreement to the contrary. For what could prevent the insurance applicant
from deliberately or wilfully holding back full premium payment and wait for
the risk insured against to transpire and then conveniently pass on the
balance of the premium to be deducted from the proceeds of the insurance?
Worse, what if the insured makes an initial payment of only 10%, or even
1%, of the required premium, and when the risk occurs simply points to the
proceeds from where to source the balance? Can an insurance company
then exist and survive upon the payment of 1%, or even 10%, of the
premium stipulated in the policy on the basis that, after all, the insurer can
deduct from the proceeds of the insurance should the risk insured against
occur?
Interpreting the contract of insurance stringently against the insurer but
liberally in favor of the insured despite clearly defined obligations of the
parties to the policy can be carried out to extremes that there is the
danger that we may, so to speak, "kill the goose that lays the golden
egg." We are well aware of insurance companies falling into the
despicable habit of collecting premiums promptly yet resorting to all
kinds of excuses to deny or delay payment of just insurance claims. But,
in this case, the law is manifestly on the side of the insurer. For as long
as the current Insurance Code remains unchanged and partial payment
of premiums is not mentioned at all as among the exceptions provided in
Sees. 77 and 78, no policy of insurance can ever pretend to be
efficacious or effective until premium has been fully paid.
And so it must be. For it cannot be disputed that premium is the elixir
vitae of the insurance business because by law the insurer must
maintain a legal reserve fund to meet its contingent obligations to the
public, hence, the imperative need for its prompt payment and full
satisfaction. 16 It must be emphasized here that all actuarial calculations and
various tabulations of probabilities of losses under the risks insured against
are based on the sound hypothesis of prompt payment of premiums. Upon
this bedrock insurance firms are enabled to offer the assurance of security to
the public at favorable rates. But once payment of premium is left to the
whim and caprice of the insured, as when the courts tolerate the payment of
a mere P600.00 as partial undertaking out of the stipulated total premium of
P2,983.50 and the balance to be paid even after the risk insured against has
occurred, as petitioners have done in this case, on the principle that the
strength of the vinculum juris is not measured by any specific amount of
premium payment, we will surely wreak havoc on the business and set to
naught what has taken actuarians centuries to devise to arrive at a fair and
equitable distribution of risks and benefits between the insurer and the
insured.
The terms of the insurance policy constitute the measure of the insurer's
liability. In the absence of statutory prohibition to the contrary, insurance
companies have the same rights as individuals to limit their liability and
to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy. 17 The validity of these limitations is by law
passed upon by the Insurance Commissioner who is empowered to approve
all forms of policies, certificates or contracts of insurance which insurers
intend to issue or deliver. That the policy contract in the case at bench was
approved and allowed issuance simply reaffirms the validity of such policy,
particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the
Court of Appeals dated 24 March 1995 is AFFIRMED.
SO ORDERED.
 FIRST DIVISION

G.R. No. L-25317 August 6, 1979

PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, plaintiff-

appellee,
vs.
WOODWORKS, INC., defendant-appellant.

Zosimo Rivas for appellant.

Manuel O. Chan for appellee.

MELENCIO-HERRERA, J.:

This case was certified to this Tribunal by the Court of Appeals in its
Resolution of October 4, 1965 on a pure question of law and "because
the issues raised are practically the same as those in CA-G.R. No.
32017-R" between the same parties, which case had been forwarded to
us on April 1, 1964. The latter case, "Philippine Phoenix Surety &
Insurance Inc. vs. Woodworks, Inc.," docketed in this Court as L-22684,
was decided on August 31, 1967 and has been reported in 20 SCRA
1270.

Specifically, this action is for recovery of unpaid premium on a fire

insurance policy issued by plaintiff, Philippine Phoenix Surety &
Insurance Company, in favor of defendant Woodworks, Inc.

The following are the established facts:

On July 21, 1960, upon defendant's application, plaintiff issued in its

favor Fire Insurance Policy No. 9749 for P500,000.00 whereby plaintiff
insured defendant's building, machinery and equipment for a term of one
year from July 21, 1960 to July 21, 1961 against loss by fire. The
Republic of the Philippines
premium and other charges including the margin fee surcharge of
SUPREME COURT
Manila
P590.76 and the documentary stamps in the amount of P156.60 affixed
on the Policy, amounted to P10,593.36.
It is undisputed that defendant did not pay the premium stipulated in the
Policy when it was issued nor at any time thereafter.
On April 19, 1961, or before the expiration of the one-year term, plaintiff
notified defendant, through its Indorsement No. F-6963/61, of the
cancellation of the Policy allegedly upon request of defendant. 1 The
latter has denied having made such a request. In said Indorsement, plaintiff
credited defendant with the amount of P3,110.25 for the unexpired period of
94 days, and claimed the balance of P7,483.11 representing ,learned
premium from July 21, 1960 to 18th April 1961 or, say 271 days." On July 6,
1961, plaintiff demanded in writing for the payment of said
amount. 2Defendant, through counsel, disclaimed any liability in its reply-
letter of August 15, 1961, contending, in essence, that it need not pay
premium "because the Insurer did not stand liable for any indemnity during
the period the premiums were not paid." 3
On January 30, 1962, plaintiff commenced action in the Court of First
Instance of Manila, Branch IV (Civil Case No. 49468), to recover the
amount of P7,483.11 as "earned premium." Defendant controverted
basically on the theory that its failure "to pay the premium after the
issuance of the policy put an end to the insurance contract and rendered
the policy unenforceable." 4
On September 13, 1962, judgment was rendered in plaintiff's favor
"ordering defendant to pay plaintiff the sum of P7,483.11, with interest
thereon at the rate of 6%, per annum from January 30, 1962, until the
principal shall have been fully paid, plus the sum of P700.00 as
attorney's fees of the plaintiff, and the costs of the suit." From this
adverse Decision, defendant appealed to the Court of Appeals which, as
heretofore stated, certified the case to us on a question of law.
The errors assigned read:
1. The lower court erred in sustaining that Fire Insurance
Policy, Exhibit A, was a binding contract even if the
premium stated in the policy has not been paid.
2. That the lower court erred in sustaining that the
premium in Insurance Policy, Exhibit B, became an
obligation which was demandable even after the period
in the Policy has expired.
3. The lower court erred in not deciding that a premium
not paid is not a debt enforceable by action of the insurer.
We find the appeal meritorious.
Insurance is "a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event." 5 The consideration is the "premium". "The
premium must be paid at the time and in the way and manner specified in
the policy and, if not so paid, the policy will lapse and be forfeited by its own
terms." 6
The provisions on premium in the subject Policy read:
THIS POLICY OF INSURANCE WITNESSETH, THAT in
consideration of MESSRS. WOODWORKS, INC.
hereinafter called the Insured, paying to the PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., hereinafter
called the Company, the sum of PESOS NINE
THOUSAND EIGHT HUNDRED FORTY SIX ONLY
the Premium for the first period hereinafter mentioned. ...
xxx xxx xxx
THE COMPANY HEREBY AGREES with the Insured ...
that if the Property above described, or any part thereof,
shall be destroyed or damaged by Fire or Lightning after
payment of Premium, at any time between 4:00 o'clock in
the afternoon of the TWENTY FIRST day of JULY One
Thousand Nine Hundred and SIXTY and 4:00 o'clock in
the afternoon of the TWENTY FIRST day of JULY One
Thousand Nine Hundred and SIXTY ONE. ... (Emphasis
supplied)
Paragraph "2" of the Policy further contained the following condition:
2. No payment in respect of any premium shall be
deemed to be payment to the Company unless a printed
form of receipt for the same signed by an Official or duly-
appointed Agent of the Company shall have been given
to the Insured.
Paragraph "10" of the Policy also provided:
10. This insurance may be terminated at any time at the
request of the Insured, in which case the Company will
retain the customary short period rate for the time the
policy has been in force. This insurance may also at any
time be terminated at the option of the Company, on
notice to that effect being given to the Insured, in which
case the Company shall be liable to repay on demand a
ratable proportion of the premium for the unexpired term
from the date of the cancelment.
Clearly, the Policy provides for pre-payment of premium. Accordingly;
"when the policy is tendered the insured must pay the premium unless
credit is given or there is a waiver, or some agreement obviating the
necessity for prepayment." 7 To constitute an extension of credit there must
be a clear and express agreement therefor." 8
From the Policy provisions, we fail to find any clear agreement that a
credit extension was accorded defendant. And even if it were to be
presumed that plaintiff had extended credit from the circumstances of the
unconditional delivery of the Policy without prepayment of the premium,
yet it is obvious that defendant had not accepted the insurer's offer to
extend credit, which is essential for the validity of such agreement.
An acceptance of an offer to allow credit, if one was
made, is as essential to make a valid agreement for
credit, to change a conditional delivery of an insurance
policy to an unconditional delivery, as it is to make any
other contract. Such an acceptance could not be merely
a mental act or state of mind, but would require a
promise to pay made known in some manner to
defendant. 9
In this respect, the instant case differs from that involving the same
parties entitled Philippine Phoenix Surety & Insurance Inc. vs.
Woodworks, Inc., 10 where recovery of the balance of the unpaid premium
was allowed inasmuch as in that case "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." This is not the situation obtaining here
where no partial payment of premiums has been made whatsoever.
Since the premium had not been paid, the policy must be deemed to
have lapsed.
The non-payment of premiums does not merely suspend
but put, an end to an insurance contract, since the time
of the payment is peculiarly of the essence of the
contract. 11
... the rule is that under policy provisions that upon the
failure to make a payment of a premium or assessment
at the time provided for, the policy shall become void or
forfeited, or the obligation of the insurer shall cease, or
words to like effect, because the contract so prescribes
and because such a stipulation is a material and
essential part of the contract. This is true, for instance, in
the case of life, health and accident, fire and hail
insurance policies. 12
In fact, if the peril insured against had occurred, plaintiff, as insurer,
would have had a valid defense against recovery under the Policy it had
issued. Explicit in the Policy itself is plaintiff's agreement to indemnify
defendant for loss by fire only "after payment of premium,"
supra. Compliance by the insured with the terms of the contract is a
condition precedent to the right of recovery.
The burden is on an insured to keep a policy in force by
the payment of premiums, rather than on the insurer to
 exert every effort to prevent the insured from allowing a
policy to elapse through a failure to make premium
payments. The continuance of the insurer's obligation is
conditional upon the payment of premiums, so that no
recovery can be had upon a lapsed policy, the
contractual relation between the parties having ceased. 13

Moreover, "an insurer cannot treat a contract as valid for the purpose of
collecting premiums and invalid for the purpose of indemnity." 14

The foregoing findings are buttressed by section 77 of the Insurance

Code (Presidential Decree No. 612, promulgated on December 18,
1974), which now provides that no contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid, notwithstanding any agreement to the contrary.

WHEREFORE, the judgment appealed from is reversed, and plaintiff's

complaint hereby dismissed.

Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ.,

concur. CHAPTER V
Makasiar, J., is on leave. Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-38613 February 25, 1982

PACIFIC TIMBER EXPORT CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S
INSURANCE COMPANY, INC., respondents.

DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals
reversing the decision of the Court of First Instance of Manila in favor of
petitioner and against private respondent which ordered the latter to pay
the sum of Pll,042.04 with interest at the rate of 12% interest from
receipt of notice of loss on April 15, 1963 up to the complete payment,
the sum of P3,000.00 as attorney's fees and the costs 1 thereby
dismissing petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally
binding upon this Court, Except as shall be indicated in the discussion of
the opinion of this Court the substantial correctness of still particular
finding having been disputed, thereby raising a question of law
reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance
from the defendant for its exportation of 1,250,000 board
feet of Philippine Lauan and Apitong logs to be shipped
from the Diapitan. Bay, Quezon Province to Okinawa and
Tokyo, Japan. The defendant issued on said date Cover
Note No. 1010, insuring the said cargo of the plaintiff
"Subject to the Terms and Conditions of the
WORKMEN'S INSURANCE COMPANY, INC. printed
Marine Policy form as filed with and approved by the
Office of the Insurance Commissioner (Exhibit A).
The regular marine cargo policies were issued by the
defendant in favor of the plaintiff on April 2, 1963. The
two marine policies bore the numbers 53 HO 1032 and
53 HO 1033 (Exhibits B and C, respectively). Policy No.
53 H0 1033 (Exhibit B) was for 542 pieces of logs
equivalent to 499,950 board feet. Policy No. 53 H0 1033
was for 853 pieces of logs equivalent to 695,548 board
feet (Exhibit C). The total cargo insured under the two
marine policies accordingly consisted of 1,395 logs, or
the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A),
but before the issuance of the two marine policies Nos.
53 HO 1032 and 53 HO 1033, some of the logs intended
to be exported were lost during loading operations in the
Diapitan Bay. The logs were to be loaded on the 'SS
Woodlock' which docked about 500 meters from the
shoreline of the Diapitan Bay. The logs were taken from
the log pond of the plaintiff and from which they were
towed in rafts to the vessel. At about 10:00 o'clock a. m.
on March 29, 1963, while the logs were alongside the
vessel, bad weather developed resulting in 75 pieces of
logs which were rafted together co break loose from each
other. 45 pieces of logs were salvaged, but 30 pieces
were verified to have been lost or washed away as a
result of the accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about
the loss of 'appropriately 32 pieces of log's during loading of the 'SS
Woodlock'. The said letter (Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for
shipment of 1,250,000 bd. ft. Philippine Lauan and
Apitong Logs. We would like to inform you that we have
received advance preliminary report from our Office in
Diapitan, Quezon that we have lost approximately 32
pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details
including values as soon as same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in
the office of the defendant only on April 15, 1963, as
shown by the stamp impression appearing on the left
bottom corner of said letter. The plaintiff subsequently
submitted a 'Claim Statement demanding payment of the
loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in
the total amount of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First
Philippine Adjustment Corporation to inspect the loss and
assess the damage. The adjustment company submitted
its 'Report on August 23, 1963 (Exhibit H). In said report,
the adjuster found that 'the loss of 30 pieces of logs is not
covered by Policies Nos. 53 HO 1032 and 1033
inasmuch as said policies covered the actual number of
logs loaded on board the 'SS Woodlock' However, the
loss of 30 pieces of logs is within the 1,250,000 bd. ft.
covered by Cover Note 1010 insured for $70,000.00.
On September 14, 1963, the adjustment company
submitted a computation of the defendant's probable
liability on the loss sustained by the shipment, in the total
amount of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff
denying the latter's claim, on the ground they defendant's
investigation revealed that the entire shipment of logs
covered by the two marines policies No. 53 110 1032 and
713 HO 1033 were received in good order at their point
of destination. It was further stated that the said loss may
be considered as covered under Cover Note No. 1010
because the said Note had become 'null and void by
virtue of the issuance of Marine Policy Nos. 53 HO 1032
and 1033'(Exhibit J-1). The denial of the claim by the
defendant was brought by the plaintiff to the attention of
the Insurance Commissioner by means of a letter dated
March 21, 1964 (Exhibit K). In a reply letter dated March
30, 1964, Insurance Commissioner Francisco Y.
Mandanas observed that 'it is only fair and equitable to
indemnify the insured under Cover Note No. 1010', and
advised early settlement of the said marine loss and
salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance
Commissioner that, on advice of their attorneys, the
claim of the plaintiff is being denied on the ground that
the cover note is null and void for lack of valuable
consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT
THE COVER NOTE WAS NULL AND VOID FOR LACK
OF VALUABLE CONSIDERATION BECAUSE THE
COURT DISREGARDED THE PROVEN FACTS THAT
PREMIUMS FOR THE COMPREHENSIVE INSURANCE
COVERAGE THAT INCLUDED THE COVER NOTE
WAS PAID BY PETITIONER AND THAT INCLUDED THE
COVER NOTE WAS PAID BY PETITIONER AND THAT
NO SEPARATE PREMIUMS ARE COLLECTED BY
PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT
PRIVATE RESPONDENT WAS RELEASED FROM
LIABILITY UNDER THE COVER NOTE DUE TO
UNREASONABLE DELAY IN GIVING NOTICE OF LOSS
BECAUSE THE COURT DISREGARDED THE PROVEN
FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE
CLAIM ON THE GROUND OF DELAY IN GIVING
 NOTICE OF LOSS AND, CONSEQUENTLY,
OBJECTIONS ON THAT GROUND ARE WAIVED
UNDER SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a
consideration when, by express stipulation, the cover note is made
subject to the terms and conditions of the marine policies, and the
payment of premiums is one of the terms of the policies. From this
undisputed fact, We uphold petitioner's submission that the Cover Note
was not without consideration for which the respondent court held the
Cover Note as null and void, and denied recovery therefrom. The fact
that no separate premium was paid on the Cover Note before the loss
insured against occurred, does not militate against the validity of
petitioner's contention, for no such premium could have been paid, since
by the nature of the Cover Note, it did not contain, as all Cover Notes do
not contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a Cover Note. This is a
fact admitted by an official of respondent company, Juan Jose Camacho,
in charge of issuing cover notes of the respondent company (p. 33, tsn,
September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums
as called for by the statement issued by private respondent after the
issuance of the two regular marine insurance policies, thereby leaving no
account unpaid by petitioner due on the insurance coverage, which must
be deemed to include the Cover Note. If the Note is to be treated as a
separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would
be set at naught or rendered meaningless, for it is in a real sense a
contract, not a mere application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no
longer including those which had been lost during loading operations.
This had to be so because the risk insured against is not for loss during
operations anymore, but for loss during transit, the logs having already
been safely placed aboard. This would make no difference, however,
insofar as the liability on the cover note is concerned, for the number or
volume of logs lost can be determined independently as in fact it had
been so ascertained at the instance of private respondent itself when it
sent its own adjuster to investigate and assess the loss, after the
issuance of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well
as its computation of respondent's liability on the insurance coverage.
This coverage could not have been no other than what was stipulated in
the Cover Note, for no loss or damage had to be assessed on the
coverage arising from the marine insurance policies. For obvious
reasons, it was not necessary to ask petitioner to pay premium on the
Cover Note, for the loss insured against having already occurred, the
more practical procedure is simply to deduct the premium from the
amount due the petitioner on the Cover Note. The non-payment of
premium on the Cover Note is, therefore, no cause for the petitioner to
lose what is due it as if there had been payment of premium, for non-
payment by it was not chargeable against its fault. Had all the logs been
lost during the loading operations, but after the issuance of the Cover
Note, liability on the note would have already arisen even before
payment of premium. This is how the cover note as a "binder" should
legally operate otherwise, it would serve no practical purpose in the
realm of commerce, and is supported by the doctrine that where a policy
is delivered without requiring payment of the premium, the presumption
is that a credit was intended and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the
claim cannot be sustained. The law requires this ground of delay to be
promptly and specifically asserted when a claim on the insurance
agreement is made. The undisputed facts show that instead of invoking
the ground of delay in objecting to petitioner's claim of recovery on the
cover note, it took steps clearly indicative that this particular ground for
objection to the claim was never in its mind. The nature of this specific
ground for resisting a claim places the insurer on duty to inquire when
the loss took place, so that it could determine whether delay would be a
valid ground upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of
the notice of loss, which was on April 15, 1963, was to set in motion from
July 1963 what would be necessary to determine the cause and extent
of the loss, with a view to the payment thereof on the insurance
agreement. Thus it sent its adjuster to investigate and assess the loss in
July, 1963. The adjuster submitted his report on August 23, 1963 and its
computation of respondent's liability on September 14, 1963. From April
1963 to July, 1963, enough time was available for private respondent to
determine if petitioner was guilty of delay in communicating the loss to
respondent company. In the proceedings that took place later in the
Office of the Insurance Commissioner, private respondent should then
have raised this ground of delay to avoid liability. It did not do so. It must
be because it did not find any delay, as this Court fails to find a real and
substantial sign thereof. But even on the assumption that there was
delay, this Court is satisfied and convinced that as expressly provided by
law, waiver can successfully be raised against private respondent. Thus
Section 84 of the Insurance Act provides:

Section 84.Delay in the presentation to an insurer of

notice or proof of loss is waived if caused by any act of
his or if he omits to take objection promptly and
specifically upon that ground.

From what has been said, We find duly substantiated petitioner's

assignments of error.

ACCORDINGLY, the appealed decision is set aside and the decision of

the Court of First Instance is reinstated in toto with the affirmance of this
Court. No special pronouncement as to costs.

SO ORDERED.
 because the petitioners in both cases seek similar relief, through these
petitions for certiorari by way of appeal, from the amended decision of
respondent Court of Appeals which affirmed in toto the decision of the
Court of First Instance of Cebu, ordering "the defendants (herein
petitioners Great Pacific Ligfe Assurance Company and Mondragon)
jointly and severally to pay plaintiff (herein private respondent Ngo Hing)
the amount of P50,000.00 with interest at 6% from the date of the filing
Republic of the Philippines of the complaint, and the sum of P1,077.75, without interest.
SUPREME COURT
Manila It appears that on March 14, 1957, private respondent Ngo Hing filed an
application with the Great Pacific Life Assurance Company (hereinafter
FIRST DIVISION referred to as Pacific Life) for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go.
G.R. No. L-31845 April 30, 1979 Said respondent supplied the essential data which petitioner Lapulapu
D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, the corresponding form in his own handwriting (Exhibit I-M). Mondragon
vs. finally type-wrote the data on the application form which was signed by
HONORABLE COURT OF APPEALS, respondents. private respondent Ngo Hing. The latter paid the annual premuim the
sum of P1,077.75 going over to the Company, but he reatined the
G.R. No. L-31878 April 30, 1979 amount of P1,317.00 as his commission for being a duly authorized
agebt of Pacific Life. Upon the payment of the insurance premuim, the
LAPULAPU D. MONDRAGON, petitioner, binding deposit receipt (Exhibit E) was issued to private respondent Ngo
vs. Hing. Likewise, petitioner Mondragon handwrote at the bottom of the
HON. COURT OF APPEALS and NGO HING, respondents. back page of the application form his strong recommendation for the
approval of the insurance application. Then on April 30, 1957,
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Mondragon received a letter from Pacific Life disapproving the insurance
Manalo for petitioner Company. application (Exhibit 3-M). The letter stated that the said life insurance
application for 20-year endowment plan is not available for minors below
Voltaire Garcia for petitioner Mondragon. seven years old, but Pacific Life can consider the same under the
Juvenile Triple Action Plan, and advised that if the offer is acceptable,
Pelaez, Pelaez & Pelaez for respondent Ngo Hing. the Juvenile Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the
Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58),
not communicated by petitioner Mondragon to private respondent Ngo
Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again
strongly recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go
died of influenza with complication of bronchopneumonia. Thereupon,
private respondent sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered the
adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit
receipt (Exhibit E) constituted a temporary contract of the life insurance
in question; and (2) whether private respondent Ngo Hing concealed the
state of health and physical condition of Helen Go, which rendered void
the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a
deposit is considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the
premium deposit ... and the insurance application, ON or
PRIOR to the date of medical examination ... said
insurance shan be in force and in effect from the date of
such medical examination, for such period as is covered
by the deposit ...,PROVIDED the company shall be
satisfied that on said date the applicant was insurable on
standard rates under its rule for the amount of insurance
and the kind of policy requested in the application.
D. If the Company does not accept the application on
standard rate for the amount of insurance and/or the kind
of policy requested in the application but issue, or offers
to issue a policy for a different plan and/or amount ..., the
insurance shall not be in force and in effect until the
applicant shall have accepted the policy as issued
or offered by the Company and shall have paid the full
premium thereof. If the applicant does not accept the
policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under
Condition A above, and the Company declines to
approve the application the insurance applied for shall
not have been in force at any time and the sum paid be
returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding
deposit receipt is intended to be merely a provisional or temporary
insurance contract and only upon compliance of the following conditions:
(1) that the company shall be satisfied that the applicant was insurable
on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be reftmded; and (3) that if the
applicant is not ble according to the standard rates, and the company
disapproves the application, the insurance applied for shall not be in
force at any time, and the premium paid shall be returned to the
applicant.
Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the
company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for
processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant
is "insurable on standard rates." Since petitioner Pacific Life disapproved
the insurance application of respondent Ngo Hing, the binding deposit
receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure outright. As held by this Court,
where an agreement is made between the applicant and the agent, no
liability shall attach until the principal approves the risk and a receipt is
given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself (De Lim vs. Sun Life Assurance Company of
Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April
30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
application in question on the ground that it is not offering the twenty-
year endowment insurance policy to children less than seven years of
age. What it offered instead is another plan known as the Juvenile Triple
Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year endowment life insurance in the
amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance
contract duly perfected between thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a
contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract,
one that leaves nothing to be dione, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be
no contract of insurance unless the minds of the parties have met in
agreement."
We are not impressed with private respondent's contention that failure of
petitioner Mondragon to communicate to him the rejection of the
insurance application would not have any adverse effect on the allegedly
perfected temporary contract (Respondent's Brief, pp. 13-14). In this first
place, there was no contract perfected between the parties who had no
meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said
company does not offer the life insurance applied for. When he filed the
insurance application in dispute, private respondent was, therefore, only
taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in
question along with his proposal that the insurance company starts to
offer the 20-year endowment insurance plan for children less than seven
years. Nonetheless, the record discloses that Pacific Life had rejected
the proposal and recommendation. Secondly, having an insurable
interest on the life of his one-year old daughter, aside from being an
insurance agent and an offense associate of petitioner Mondragon,
private respondent Ngo Hing must have known and followed the
progress on the processing of such application and could not pretend
ignorance of the Company's rejection of the 20-year endowment life
insurance application.
At this juncture, We find it fit to quote with approval, the very apt
observation of then Appellate Associate Justice Ruperto G. Martin who
later came up to this Court, from his dissenting opinion to the amended
decision of the respondent court which completely reversed the original
decision, the following:
Of course, there is the insinuation that neither the
memorandum of rejection (Exhibit 3-M) nor the reply
thereto of appellant Mondragon reiterating the desire for
applicant's father to have the application considered as
one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor
applicant. I am not quite conninced that this was so. Ngo
Hing, as father of the applicant herself, was precisely the
"underwriter who wrote this case" (Exhibit H-1). The
unchallenged statement of appellant Mondragon in his
letter of May 6, 1957) (Exhibit 4-M), specifically admits
that said Ngo Hing was "our associate" and that it was
the latter who "insisted that the plan be placed on the 20-
year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the
application was not brought home to his knowledge. He
must have been duly apprised of the rejection of the
application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing
himself who insisted on the application as originally filed,
thereby implictly declining the offer to consider the
application under the Juvenile Triple Action Plan.
Besides, the associate of Mondragon that he was, Ngo
Hing should only be presumed to know what kind of
policies are available in the company for minors below 7
 years old. What he and Mondragon were apparently We are thus constrained to hold that no insurance contract was
trying to do in the premises was merely to prod the perfected between the parties with the noncompliance of the conditions
company into going into the business of issuing provided in the binding receipt, and concealment, as legally defined,
endowment policies for minors just as other insurance having been comraitted by herein private respondent.
companies allegedly do. Until such a definite policy is
however, adopted by the company, it can hardly be said WHEREFORE, the decision appealed from is hereby set aside, and in
that it could have been bound at all under the binding slip lieu thereof, one is hereby entered absolving petitioners Lapulapu D.
for a plan of insurance that it could not have, by then Mondragon and Great Pacific Life Assurance Company from their civil
issued at all. (Amended Decision, Rollo, pp- 52-53). liabilities as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of P1,077.75, without
2. Relative to the second issue of alleged concealment. this Court is of interest, to private respondent, Ngo Hing. Costs against private
the firm belief that private respondent had deliberately concealed the respondent.
state of health and piysical condition of his daughter Helen Go. Wher
private regpondeit supplied the required essential data for the insurance SO ORDERED.
application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could
never be ensconced nor disguished. Nonetheless, private respondent, in
apparent bad faith, withheld the fact materal to the risk to be assumed by
the insurance compary. As an insurance agent of Pacific Life, he ought to
know, as he surely must have known. his duty and responsibility to such
a material fact. Had he diamond said significant fact in the insurance
application fom Pacific Life would have verified the same and would
have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides

meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however slight
[Black's Law Dictionary, 2nd Edition], not for the alone but equally so for
the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25
SCRA 70). Concealment is a neglect to communicate that which a partY
knows aDd Ought to communicate (Section 25, Act No. 2427). Whether
intentional or unintentional the concealment entitles the insurer to
rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs.
Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American
Life Insurance Company, 7 SCRA 316). Private respondent appears
guilty thereof.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 139776 August 1, 2002

PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE

COMPANY, petitioner,
vs.
JUDGE LORE R. VALENCIA-BAGALACSA, Regional Trial Court of
Libmanan, Camarines Sur, Branch 56, and EDUARDO Z.
LUMANIOG, CELSO Z. LUMANIOG and RUBEN Z.
LUMANIOG, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules

of Court. Petitioner Philippine American Life and General Insurance
Company prays that the decision of the Court of Appeals promulgated on
April 30, 1999 be reversed and set aside and that the Complaint filed
against it by private respondents Eduardo Z. Lumaniog, Celso Z.
Lumaniog and Ruben Z. Lumaniog before the Regional Trial Court of
Libmanan, Camarines Sur, docketed as Civil Case No. L-787 be ordered
dismissed on ground of prescription of action.

The facts of the case:

On June 20, 1995, private respondents, as legitimate children and forced

heirs of their late father, Faustino Lumaniog, filed with the aforesaid
RTC, a complaint for recovery of sum of money against petitioner
alleging that: their father was insured by petitioner under Life Insurance
Policy No. 1305486 with a face value of P50,000.00; their father died of
"coronary thrombosis" on November 25, 1980; on June 22, 1981, they
claimed and continuously claimed for all the proceeds and interests
under the life insurance policy in the amount of P641,000.00, despite
repeated demands for payment and/or settlement of the claim due from
petitioner, the last of which is on December 1, 1994, petitioner finally
refused or disallowed said claim on February 14, 1995; 1 and so, they
filed their complaint on June 20, 1995.
Petitioner filed an Answer with Counterclaim and Motion to Dismiss,
contending that: the cause of action of private respondents had
prescribed and they are guilty of laches; it had denied private
respondents claim in a letter dated March 12, 1982, signed by its then
Assistant Vice President, Amado Dimalanta, on ground of concealment
on the part of the deceased insured Faustino when he asserted in his
application for insurance coverage that he had not been treated for
indication of "chest pain, palpitation, high blood pressure, rheumatic
fever, heart murmur, heart attack or other disorder of the heart or blood
vessel" when in fact he was a known hypertensive since 1974; private
respondents sent a letter dated May 25, 19832 requesting for
reconsideration of the denial; in a letter dated July 11, 1983, it reiterated
its decision to deny the claim for payment of the proceeds;3 more than
ten (10) years later, or on December 1, 1994, it received a letter from
Jose C. Claro, a provincial board member of the province of Camarines
Sur, reiterating the early request for reconsideration which it denied in a
letter dated February 14, 1995.4
Private respondents opposed the motion to dismiss. 5
On June 7, 1996, the RTC issued an Order which reads:
"After a perusal of the motion to dismiss filed by defendants counsel and
the objection submitted by plaintiffs counsel, the Court finds that the
matters treated in their respective pleadings are evidentiary in nature,
hence, the necessity of a trial on the merits.
"Set therefore the hearing in this case on August 1, 1996 at 8:30 a.m.,
considering that the calendar of the Court is already filled up until the
end of July. Notify parties and counsels.
"SO ORDERED."6
Petitioners motion for reconsideration was denied by the RTC in its
Order dated December 12, 1997 upholding however in the same Order
the claim of private respondents counsel that the running of the 10-year
period was "stopped" on May 25, 1983 when private respondents
requested for a reconsideration of the denial and it was only on February
14, 1995 when petitioner finally decided to deny their claim that the 10-
year period began to run.7
Petitioner filed a petition for certiorari (docketed as CA-G.R. SP No.
47885) under Rule 65 of the Rules of Court in the Court of Appeals and
after the comment of the private respondents and reply of petitioner, the
appellate court rendered its Decision, dated April 30, 1999, portions of
which read as follows:
"Thus, this Court of the opinion and so holds that the prescriptive period
to bring the present action commences to run only on February 14, 1995
(Rollo, pp. 25-26), the date when the petitioner finally rejected the claim
of private respondents and not in 1983. The ten year period should
instead be counted from the date of rejection by the insurer in this case
February 14, 1995 since this is the time when the cause of action
accrues.
"This fact was supported further by the letter of the petitioner to Atty.
Claro dated December 20, 1994, stating that they were reviewing the
claim and shall advise Atty. Claro of their action regarding his request for
reconsideration (Id., p. 53).
"In the case of Summit Guaranty and Insurance Co., Inc. Vs. De
Guzman (151 SCRA 389, 397-398), citing the case of Eagle Star
Insurance Co., Ltd., et al. vs. Chia Yu, the Supreme Court held that:
The plaintiffs cause of action did not accrue until his claim was finally
rejected by the insurance company. This is because, before such final
rejection, there was no real necessity for bringing suit.
"In the same case, the case of ACCFA vs. Alpha Insurance and Surety
Co., was likewise cited where the Supreme Court ruled in this wise:
Since a cause of action requires, as essential elements, not only a
legal right of the plaintiff and a correlative of the defendant but also an
act or omission of the defendant in violation of said legal right, the cause
of action does not accrue until the party obligated refuses, expressly or
impliedly, to comply with its duty.
"Hence, We find no grave abuse of discretion committed by the court a
quo when it issued the Orders dated June 7, 1996 and dated December
12, 1997.
"WHEREFORE, the instant petition for certiorari with prayer for issuance
of temporary restraining order and/or preliminary injunction is DENIED
DUE COURSE and is accordingly DISMISSED by this Court for lack of
merit.
"Costs against the petitioner.
"SO ORDERED."8
Hence, the present petition for review. Petitioner posits the following
issues:
"A. Whether or not the complaint filed by private respondents for
payment of life insurance proceeds is already barred by prescription of
action.
"B. Whether or not an extrajudicial demand made after an action has
prescribed shall cause the revival of the action."9
Private respondents filed their Comment and petitioners, their Reply.
Before we determine whether the Court of Appeals had committed any
reversible error, we must necessarily first ascertain whether or not the
RTC committed grave abuse of discretion in issuing the Orders dated
June 7, 1996 and December 12, 1997.
Notably, the RTC was initially correct in issuing the Order dated June 7,
1996 when it set the case below for hearing as there are matters in the
respective pleadings of the parties "that are evidentiary in nature, hence
the necessity of a trial on the merits"10, in effect, denying the motion to
dismiss, pursuant to the then prevailing Section 3, Rule 16, of the Rules
of Court, to wit:
"Sec. 3. Hearing and order. - After hearing the court may deny or grant
the motion or allow amendment of pleading, or may defer the hearing
and determination of the motion until the trial if the ground alleged
therein does not appear to be indubitable."
before it was amended by the 1997 Rules of Civil Procedure, effective
July 1, 1997.11
It must be emphasized that petitioner had specifically alleged in the
Answer that it had denied private respondents claim per its letter dated
July 11, 1983.12 Hence, due process demands that it be given the
opportunity to prove that private respondents had received said letter,
dated July 11, 1983. Said letter is crucial to petitioners defense that the
filing of the complaint for recovery of sum of money in June, 1995 is
beyond the 10-year prescriptive period13.
It is for the above reason that the RTC committed a grave abuse of
discretion when, in resolving the motion for reconsideration of petitioner,
it arbitrarily ruled in its Order dated December 12, 1997, that the period
of ten (10) years had not yet lapsed. It based its finding on a mere
explanation of the private respondents counsel and not on evidence
presented by the parties as to the date when to reckon the prescriptive
period. Portions of the Order dated December 12, 1997 read:
"A perusal of the record will likewise reveal that plaintiffs counsel
explained that the running of the ten (10) year period was stopped on
May 25, 1983, upon demand of Celso Lomaniog for the compliance of
the contract and reconsideration of the decision. Counsel also wrote the
President of the Company on December 1, 1994, asking for
reconsideration. The letter was answered by the Assistant Vice President
of the Claims Department of Philamlife, with the advise that the
company is reviewing the claim. On February 14, 1995, Atty. Abis sent a
letter to counsel, finally deciding the plaintiffs claim. Thus, the period of
prescription should commence to run only from February 14, 1995, when
Atty. Abis finally decided plaintiffs claim.
1wphi1
"It is evident from the foregoing that the ten (10) year period for plaintiffs
to claim the insurance proceeds has not yet prescribed. The final
determination denying the claim was made only on February 14, 1995.
Hence, when the instant case was filed on June 20, 1995, the ten year
period has not yet lapsed. Moreover, defendants counsel failed to
comply with the requirements of the Rules in filing his motion for
reconsideration."14 (emphasis supplied)
WHEREFORE, the petition is partly GRANTED. The assailed decision of
the Court of Appeals dated April 30, 1999 insofar only as it upheld the
Order dated December 12, 1997 is REVERSED and SET ASIDE. A new
judgment is entered reversing and setting aside the Order dated
December 12, 1997 of the Regional Trial Court of Libmanan, Camarines
Sur (Branch 56) and affirming its Order dated June 20, 1995. Said RTC
is directed to proceed with dispatch with Civil Case No. L-787.
No costs.
SO ORDERED.

The ruling of the RTC that the cause of action of private respondents had
not prescribed, is arbitrary and patently erroneous for not being founded
on evidence on record, and therefore, the same is void.15

Consequently, while the Court of Appeals did not err in upholding the
June 7, 1986 Order of the RTC, it committed a reversible error when it
declared that the RTC did not commit any grave abuse of discretion in
issuing the Order dated December 12, 1997.

The appellate court should have granted the petition for certiorari
assailing said Order of December 12, 1997. Certiorari is an appropriate
remedy to assail an interlocutory order (1) when the tribunal issued such
order without or in excess of jurisdiction or with grave abuse of discretion
and (2) when the assailed interlocutory order is patently erroneous and
the remedy of appeal would not afford adequate and expeditious
relief.16 Said Order was issued with grave abuse of discretion for being
patently erroneous and arbitrary, thus, depriving petitioner of due
process, as discussed earlier.

CHPATER VI
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 113899 October 13, 1999
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the
Decision 1 dated May 17, 1993, of the Court of Appeals and its
Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate
court affirmed in toto the judgment of the Misamis Oriental Regional Trial
Court, Branch 18, in an insurance claim filed by private respondent against
Great Pacific Life Assurance Co. The dispositive portion of the trial court's
decision reads:
WHEREFORE, judgment is rendered adjudging the
defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy No. G-
1907, in relation to Certification B-18558 liable and
ordered to pay to the DEVELOPMENT BANK OF THE
PHILIPPINES as creditor of the insured Dr. Wilfredo
Leuterio, the amount of EIGHTY SIX THOUSAND TWO
HUNDRED PESOS (P86,200.00); dismissing the claims
for damages, attorney's fees and litigation expenses in
the complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to the
plaintiffs, other than the widow-beneficiary, for lack of
cause of action. 3
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner Great
Pacific Life Assurance Corporation (hereinafter Grepalife) and
Development Bank of the Philippines (hereinafter DBP). Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing
debtor of DBP applied for membership in the group life insurance plan. In
an application form, Dr. Leuterio answered questions concerning his
health condition as follows:
7. Have you ever had, or consulted, a
physician for a heart condition, high blood
pressure, cancer, diabetes, lung; kidney
or stomach disorder or any other physical
impairment?
Answer: No. If so give details
_____________.
8. Are you now, to the best of your
knowledge, in good health?
Answer: [x] Yes [ ] NO. 4
On November 15, 1983, Grepalife issued Certificate No. B-18558, as
insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage
indebtedness amounting to eighty-six thousand, two hundred
(P86,200.00) pesos. 1wphi1.nt
On August 6, 1984, Dr. Leuterio died due to "massive cerebral
hemorrhage." Consequently, DBP submitted a death claim to Grepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically
healthy when he applied for an insurance coverage on November 15,
1983. Grepalife insisted that Dr. Leuterio did not disclose he had been
suffering from hypertension, which caused his death. Allegedly, such
non-disclosure constituted concealment that justified the denial of the
claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent
Medarda V. Leuterio, filed a complaint with the Regional Trial Court of
Misamis Oriental, Branch 18, against Grepalife for "Specific Performance
with Damages." 5 During the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejia's findings, based partly from the
information given by the respondent widow, stated that Dr. Leuterio
complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied,
hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of
respondent widow and against Grepalife. On May 17, 1993, the Court of
Appeals sustained the trial court's decision. Hence, the present petition.
Petitioners interposed the following assigned errors:
1. THE LOWER COURT ERRED IN
HOLDING DEFENDANT-APPELLANT
LIABLE TO THE DEVELOPMENT BANK
OF THE PHILIPPINES (DBP) WHICH IS
NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS OF A
MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF
PLAINTIFF'S HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN
BORROWERS, INSTEAD OF
DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner
Grepalife] FOR LACK OF CAUSE OF
ACTION.
2. THE LOWER COURT ERRED IN NOT
DISMISSING THE CASE FOR WANT OF
JURISDICTION OVER THE SUBJECT
OR NATURE OF THE ACTION AND
OVER THE PERSON OF THE
DEFENDANT.
3. THE LOWER COURT ERRED IN
ORDERING DEFENDANT-APPELLANT
TO PAY TO DBP THE AMOUNT OF
P86,200.00 IN THE ABSENCE OF ANY
EVIDENCE TO SHOW HOW MUCH
WAS THE ACTUAL AMOUNT PAYABLE
TO DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT WITH
DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN
HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS
APPLICATION FOR MEMBERSHIP IN
THE GROUP LIFE INSURANCE PLAN
BETWEEN DEFENDANT-APPELLANT
OF THE INSURANCE CLAIM ARISING
FROM THE DEATH OF WILFREDO
LEUTERIO. 6
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in
holding petitioner liable to DBP as
beneficiary in a group life insurance
contract from a complaint filed by the
widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in
not finding that Dr. Leuterio concealed
that he had hypertension, which would
vitiate the insurance contract?
3. Whether the Court of Appeals erred in
holding Grepalife liable in the amount of
eighty six thousand, two hundred
 (P86,200.00) pesos without proof of the
actual outstanding mortgage payable by
the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr.
Leuterio, not the real party in interest, hence the trial court acquired no
jurisdiction over the case. It argues that when the Court of Appeals
affirmed the trial court's judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the indispensable party
who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in
mortgaged properties and the parties to this type of contract. The
rationale of a group insurance policy of mortgagors, otherwise known as
the "mortgage redemption insurance," is a device for the protection of
both the mortgagee and the mortgagor. On the part of the mortgagee, it
has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to
the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation. 7 In a similar vein, ample protection
is given to the mortgagor under such a concept so that in the event of death;
the mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. 8 Consequently, where
the mortgagor pays the insurance premium under the group insurance
policy, making the loss payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply an
appointee of the insurance fund, such loss-payable clause does not make
the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of
property effects insurance in his own name providing that
the loss shall be payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who
does not cease to be a party to the original contract, and
any act of his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect, although
the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be
performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it
had been performed by the mortgagor.
The insured private respondent did not cede to the mortgagee all his
rights or interests in the insurance, the policy stating that: "In the event of
the debtor's death before his indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the outstanding indebtedness
shall first be paid to the creditor and the balance of sum assured, if there
is any, shall then be paid to the beneficiary/ies designated by the
debtor." 10 When DBP submitted the insurance claim against petitioner, the
latter denied payment thereof, interposing the defense of concealment
committed by the insured. Thereafter, DBP collected the debt from the
mortgagor and took the necessary action of foreclosure on the residential lot
of private respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire & Marine
Ins. Co. 12 we held:
Insured, being the person with whom the contract was
made, is primarily the proper person to bring suit
thereon. * * * Subject to some exceptions, insured may
thus sue, although the policy is taken wholly or in part for
the benefit of another person named or unnamed, and
although it is expressly made payable to another as his
interest may appear or otherwise. * * * Although a policy
issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the
mortgagor may sue thereon in his own name, especially
where the mortgagee's interest is less than the full
amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read
the following:
Insured may be regarded as the real party in interest,
although he has assigned the policy for the purpose of
 collection, or has assigned as collateral security any
judgment he may obtain. 13
And since a policy of insurance upon life or health may pass by transfer,
will or succession to any person, whether he has an insurable interest or
not, and such person may recover it whatever the insured might have
recovered,14 the widow of the decedent Dr. Leuterio may file the suit against
the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the
petitioner interposed as its defense to annul the insurance contract.
Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. Concealment exists
where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally
withholds the same. 15
Petitioner merely relied on the testimony of the attending physician, Dr.
Hernando Mejia, as supported by the information given by the widow of
the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the
cause of death of Dr. Leuterio was a duly documented hospital record,
and that the widow's declaration that her husband had "possible
hypertension several years ago" should not be considered as hearsay,
but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr.
Mejia did not conduct an autopsy on the body of the decedent. As the
attending physician, Dr. Mejia stated that he had no knowledge of Dr.
Leuterio's any previous hospital confinement. 16 Dr. Leuterio's death
certificate stated that hypertension was only "the possible cause of death."
The private respondent's statement, as to the medical history of her
husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as
hearsay.
The question of whether there was concealment was aptly answered by
the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance
application that he was in good health and that he had
not consulted a doctor or any of the enumerated
ailments, including hypertension; when he died the
attending physician had certified in the death certificate
that the former died of cerebral hemorrhage, probably
secondary to hypertension. From this report, the
appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured's
widow who was not even sure if the medicines taken by
Dr. Leuterio were for hypertension, the appellant had not
proven nor produced any witness who could attest to Dr.
Leuterio's medical history . . .
xxx xxx xxx
Appellant insurance company had failed to establish that
there was concealment made by the insured, hence, it
cannot refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract.18 Misrepresentation as a defense
of the insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon
the insurer. 19 In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the
proceeds of the insurance.1wphi1.nt
And that brings us to the last point in the review of the case at bar. Petitioner
claims that there was no evidence as to the amount of Dr. Leuterio's
outstanding indebtedness to DBP at the time of the mortgagor's death.
Hence, for private respondent's failure to establish the same, the action for
specific performance should be dismissed. Petitioner's claim is without merit.
A life insurance policy is a valued policy. 20 Unless the interest of a person
insured is susceptible of exact pecuniary measurement, the measure of FIRST DIVISION
indemnity under a policy of insurance upon life or health is the sum fixed in
the policy. 21 The mortgagor paid the premium according to the coverage of
his insurance, which states that:
G.R. No. 105135 June 22, 1995
The policy states that upon receipt of due proof of the
Debtor's death during the terms of this insurance, a death SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
benefit in the amount of P86,200.00 shall be paid. vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and
In the event of the debtor's death before his indebtedness
BERNARDA BACANI, respondents.
with the creditor shall have been fully paid, an amount to
pay the outstanding indebtedness shall first be paid to the
Creditor and the balance of the Sum Assured, if there is any
shall then be paid to the beneficiary/ies designated by the
debtor."22 (Emphasis omitted) QUIASON, J.:

However, we noted that the Court of Appeals' decision was promulgated on
May 17, 1993. In private respondent's memorandum, she states that DBP
foreclosed in 1995 their residential lot, in satisfaction of mortgagor's
outstanding loan. Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the
expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot
collect the insurance proceeds, after it already foreclosed on the mortgage.
The proceeds now rightly belong to Dr. Leuterio's heirs represented by his
widow, herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution
of the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED with
MODIFICATION that the petitioner is ORDERED to pay the insurance
proceeds amounting to Eighty-six thousand, two hundred (P86,200.00)
pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon
presentation of proof of prior settlement of mortgagor's indebtedness to
Development Bank of the Philippines. Costs against petitioner.
1wphi1.nt
This is a petition for review for certiorari under Rule 45 of the Revised
Rules of Court to reverse and set aside the Decision dated February 21,
1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its
Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance
contract for himself from petitioner. He was issued Policy No. 3-903-766-
X valued at P100,000.00, with double indemnity in case of accidental
death. The designated beneficiary was his mother, respondent Bernarda
Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent
Bernarda Bacani filed a claim with petitioner, seeking the benefits of the
insurance policy taken by her son. Petitioner conducted an investigation

and its findings prompted it to reject the claim.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
In its letter, petitioner informed respondent Bernarda Bacani, that the
insured did not disclose material facts relevant to the issuance of the
policy, thus rendering the contract of insurance voidable. A check
representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.
Petitioner claimed that the insured gave false statements in his
application when he answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health
practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any
hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited
his answer to a consultation with a certain Dr. Reinaldo D. Raymundo of
the Chinese General Hospital on February 1986, for cough and flu
complications. The other questions were answered in the negative
(Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for
insurance, the insured was examined and confined at the Lung Center of
the Philippines, where he was diagnosed for renal failure. During his
confinement, the deceased was subjected to urinalysis, ultra-sonography
and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband,
respondent Rolando Bacani, filed an action for specific performance
against petitioner with the Regional Trial Court, Branch 191, Valenzuela,
Metro Manila. Petitioner filed its answer with counterclaim and a list of
exhibits consisting of medical records furnished by the Lung Center of
the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation
with Prayer for Summary Judgment" where they manifested that they
"have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition
(Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and
due execution of several documents as well as allegations regarding the
health of the insured. Private respondents failed to oppose said request
or reply thereto, thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court
decided in favor of private respondents. The dispositive portion of the
decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and against the defendant, condemning the
latter to pay the former the amount of One Hundred
Thousand Pesos (P100,000.00) the face value of
insured's Insurance Policy No. 3903766, and the
Accidental Death Benefit in the amount of One Hundred
Thousand Pesos (P100,000.00) and further sum of
P5,000.00 in the concept of reasonable attorney's fees
and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp.
43-44).
In ruling for private respondents, the trial court concluded that the facts
concealed by the insured were made in good faith and under a belief
that they need not be disclosed. Moreover, it held that the health history
of the insured was immaterial since the insurance policy was "non-
medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision
of the trial court. The appellate court ruled that petitioner cannot avoid its
obligation by claiming concealment because the cause of death was
unrelated to the facts concealed by the insured. It also sustained the
finding of the trial court that matters relating to the health history of the
insured were irrelevant since petitioner waived the medical examination
prior to the approval and issuance of the insurance policy. Moreover, the
appellate court agreed with the trial court that the policy was "non-
medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court
are binding on this Court is not absolute and admits of exceptions, such
as when the judgment is based on a misappreciation of the facts
(Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed
there was concealment and misrepresentation, however, the same was
made in "good faith" and the facts concealed or misrepresented were
irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a
contract of insurance to communicate to the other, in good faith, all facts
within his knowledge which are material to the contract and as to which
he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:
A neglect to communicate that which a party knows and
ought to communicate, is called concealment.
Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom
communication is due, in forming his estimate of the disadvantages of
the proposed contract or in making his inquiries (The Insurance Code,
Sec. 31).
The terms of the contract are clear. The insured is specifically required to
disclose to the insurer matters relating to his health.
The information which the insured failed to disclose were material and
relevant to the approval and issuance of the insurance policy. The
matters concealed would have definitely affected petitioner's action on
his application, either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a disclosure may
have warranted a medical examination of the insured by petitioner in
order for it to reasonably assess the risk involved in accepting the
application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held
that materiality of the information withheld does not depend on the state
of mind of the insured. Neither does it depend on the actual or physical
events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to
disclose the fact that he was hospitalized for two weeks prior to filing his
application for insurance, raises grave doubts about his bonafides. It
appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the
insured debunks the materiality of the facts concealed, is untenable. We
reiterate our ruling in Saturnino v. Philippine American Life Insurance
Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical
examination [in a non-medical insurance contract] renders even more
material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into
consideration in deciding whether to issue the policy or not . . . "

Moreover, such argument of private respondents would make Section 27

of the Insurance Code, which allows the injured party to rescind a
contract of insurance where there is concealment, ineffective (See Vda.
de Canilang v. Court of Appeals, supra).

Anent the finding that the facts concealed had no bearing to the cause of
death of the insured, it is well settled that the insured need not die of the
disease he had failed to disclose to the insurer. It is sufficient that his
non-disclosure misled the insurer in forming his estimates of the risks of
the proposed insurance policy or in making inquiries (Henson v. The
Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).

We, therefore, rule that petitioner properly exercised its right to rescind
the contract of insurance by reason of the concealment employed by the
insured. It must be emphasized that rescission was exercised within the
two-year contestability period as recognized in Section 48 of The
Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court Republic of the Philippines
of Appeals is REVERSED and SET ASIDE. SUPREME COURT
Manila
SO ORDERED.
FIRST DIVISION

G.R. No. 125678 March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for

a health care coverage with petitioner Philamcare Health Systems, Inc.
In the standard application form, he answered no to the following
question:
Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer,
liver disease, asthma or peptic ulcer? (If Yes, give details).1
The application was approved for a period of one year from March 1,
1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents husband
was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient
benefits" such as annual physical examinations, preventive health care
and other out-patient services.
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly
discovered at the time of Ernanis confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form.
Thus, respondent paid the hospitalization expenses herself, amounting
to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where he
died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente, which was docketed as Civil Case No.
90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital
coverage of the late Ernani Trinos in the amount of P76,000.00
plus interest, until the amount is fully paid to plaintiff who paid the
same;
2. Defendants to pay the reduced amount of moral damages of
P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as
exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of
suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court
but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioners motion for reconsideration was denied. 5 Hence,
petitioner brought the instant petition for review, raising the primary
argument that a health care agreement is not an insurance contract;
hence the "incontestability clause" under the Insurance Code 6 does not
apply.
1wphi1.nt
Petitioner argues that the agreement grants "living benefits," such as
medical check-ups and hospitalization which a member may immediately
enjoy so long as he is alive upon effectivity of the agreement until its
expiration one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the agreement
without any indemnification, unlike in an insurance contract where the
insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance
contracts which last longer,7 petitioner argues that the incontestability
clause does not apply, as the same requires an effectivity period of at
least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as
an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing
a similar risk; and
5. In consideration of the insurers promise, the insured pays a
premium.8
Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person has
an insurable interest in the life and health of himself. Section 10
provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment
of money, respecting property or service, of which death or
illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in
him depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity.9 Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in
his application. It appears that in the application for health coverage,
petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination.10 Specifically, the Health Care Agreement signed by
respondents husband states:
 We hereby declare and agree that all statement and answers
contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall
be no contract of health care coverage unless and until an
Agreement is issued on this application and the full Membership
Fee according to the mode of payment applied for is actually
paid during the lifetime and good health of proposed Members;
that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in
writing in the application;that any physician is, by these presents,
expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional
capacity upon any question affecting the eligibility for health care
coverage of the Proposed Members and that the acceptance of
any Agreement issued on this application shall be a ratification of
any correction in or addition to this application as stated in the
space for Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicants medical
history, thus:
I hereby authorize any person, organization, or entity that has
any record or knowledge of my health and/or that of __________
to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment
or any other medical advice or examination. This authorization is
in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid
as the original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of
agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning
and liability of Philamcare shall be limited to return of all
Membership Fees paid. An undisclosed or misrepresented
information is deemed material if its revelation would have
resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or
benefits applied for.13
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on
opinion rather than fact, especially coming from respondents husband
who was not a medical doctor. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will
not avoid a policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the policy
if there is no actual fraud in inducing the acceptance of the risk,
or its acceptance at a lower rate of premium, and this is likewise
the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such
case the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry. There is a clear
distinction between such a case and one in which the insured is
fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually
untrue, or the impossibility of which is shown by the facts within
his knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual fraud.15 (Underscoring
ours)
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract.16 Concealment as a defense
for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with
or without the authority to investigate, petitioner is liable for claims made
under the contract. Having assumed a responsibility under the
agreement, petitioner is bound to answer the same to the extent agreed
upon. In the end, the liability of the health care provider attaches once
the member is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits which he has
prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on the
contract.17 In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-
compliance with his obligation.19 Being a contract of adhesion, the terms
of an insurance contract are to be construed strictly against the party
which prepared the contract the insurer.20 By reason of the exclusive
control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid
forfeiture.21 This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.22
Anent the incontestability of the membership of respondents husband,
we quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient
was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no
longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still alive.
The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the hospital and
medical expenses. She is therefore entitled to reimbursement. The
records adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the
attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The Republic of the Philippines
assailed decision of the Court of Appeals dated December 14, 1995 SUPREME COURT
is AFFIRMED. Manila

SO ORDERED. THIRD DIVISION

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,

vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, respondents.

Simeon C. Sato for petitioner.

FELICIANO, J.:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and

was diagnosed as suffering from "sinus tachycardia." The doctor
prescribed the following fro him: Trazepam, a tranquilizer; and Aptin, a
beta-blocker drug. Mr. Canilang consulted the same doctor again on 3
August 1982 and this time was found to have "acute bronchitis."

On next day, 4 August 1982, Jaime Canilang applied for a "non-medical"

insurance policy with respondent Great Pacific Life Assurance Company
("Great Pacific") naming his wife, Thelma Canilang, as his
beneficiary. 1 Jaime Canilang was issued ordinary life insurance Policy No.
345163, with the face value of P19,700, effective as of 9 August 1982.

On 5 August 1983, Jaime Canilang died of "congestive heart failure,"

"anemia," and "chronic anemia." 2 Petitioner, widow and beneficiary of the
insured, filed a claim with Great Pacific which the insurer denied on 5
December 1983 upon the ground that the insured had concealed material
information from it.

Petitioner then filed a complaint against Great Pacific with the Insurance
Commission for recovery of the insurance proceeds. During the hearing
called by the Insurance Commissioner, petitioner testified that she was
not aware of any serious illness suffered by her late husband 3 and that,
as far as she knew, her husband had died because of a kidney disorder. 4 A
deposition given by Dr. Wilfredo Claudio was presented by petitioner. There
Dr. Claudio stated that he was the family physician of the deceased Jaime
Canilang 5 and that he had previously treated him for "sinus tachycardia" and
"acute bronchitis." 6 Great Pacific for its part presented Dr. Esperanza
Quismorio, a physician
and a medical underwriter working for Great Pacific. 7 She testified that the
deceased's insurance application had been approved on the basis of his
medical declaration. 8 She explained that as a rule, medical examinations
are required only in cases where the applicant has indicated in his
application for insurance coverage that he has previously undergone
medical consultation and hospitalization. 9
In a decision dated 5 November 1985, Insurance Commissioner
Armando Ansaldo ordered Great Pacific to pay P19,700 plus legal
interest and P2,000.00 as attorney's fees after holding that:
On appeal by Great Pacific, the Court of Appeals reversed and set aside
the decision of the Insurance Commissioner and dismissed Thelma
Canilang's complaint and Great Pacific's counterclaim. The Court of
Appealed found that the use of the word "intentionally" by the Insurance
Commissioner in defining and resolving the issue agreed upon by the
parties at pre-trial before the Insurance Commissioner was not
supported by the evidence; that the issue agreed upon by the parties
had been whether the deceased insured, Jaime Canilang, made
a material concealment as the state of his health at the time of the filing
of insurance application, justifying respondent's denial of the claim. The
Court of Appeals also found that the failure of Jaime Canilang to
disclose previous medical consultation and treatment constituted
material information which should have been communicated to Great
Pacific to enable the latter to make proper inquiries. The Court of
Appeals finally held that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect of the case at
bar which involves concealment.

Petitioner Thelma Canilang is now before this Court on a Petition for

1. the ailment of Jaime Canilang was not so serious that,
Review on Certiorari alleging that:
even if it had been disclosed, it would not have affected
Great Pacific's decision to insure him;
1. . . . the Honorable Court of Appeals, speaking with due
respect, erred in not holding that the issue in the case
2. Great Pacific had waived its right to inquire into the
agreed upon between the parties before the Insurance
health condition of the applicant by the issuance of the
Commission is whether or not Jaime Canilang
policy despite the lack of answers to "some of the
"intentionally" made material concealment in stating his
pertinent questions" in the insurance application;
state of health;
3. there was no intentional concealment on the part of
2. . . . at any rate, the non-disclosure of certain facts
the insured Jaime Canilang as he had thought that he
about his previous health conditions does not amount to
was merely suffering from a minor ailment and simple
fraud and private respondent is deemed to have waived
cold; 10 and
inquiry thereto. 11
4. Batas Pambansa Blg. 847 which voids an insurance
The medical declaration which was set out in the application for
contract, whether or not concealment was intentionally
insurance executed by Jaime Canilang read as follows:
made, was not applicable to Canilang's case as that law
became effective only on 1 June 1985.
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium
or infirmary, nor receive any medical or surgical
advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician
for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney, stomach disorder, or any other
physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
_____________________________________________
___________________________________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and
statements are complete, true and correct. I
hereby agree that if there be any fraud or
misrepresentation in the above statements material to
the risk, the INSURANCE COMPANY upon discovery
within two (2) years from the effective date of insurance
shall have the right to declare such insurance null and
void. That the liabilities of the Company under the said
Policy/TA/Certificate shall accrue and begin only from the
date of commencement of risk stated in the
Policy/TA/Certificate, provided that the first premium is
paid and the Policy/TA/Certificate is delivered to, and
accepted by me in person, when I am in actual good
health.
Signed at Manila his 4th day of August, 1992.
Illegible
Signature
We note that in addition to the negative statements made by Mr.
Canilang in paragraph 1 and 2 of the medical declaration, he failed to
disclose in the appropriate space, under the caption "Exceptions," that
he had twice consulted Dr. Wilfredo B. Claudio who had found him to be
suffering from "sinus tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time Great Pacific
issued the contract of insurance and at the time Jaime Canilang died,
are set out in P.D. No. 1460, also known as the Insurance Code of 1978,
which went into effect on 11 June 1978. These provisions read as
follows:
Sec. 26. A neglect to communicate that which a party
knows and ought to communicate, is called a
concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must
communicate to the other, in good faith, all factorswithin
his knowledge which are material to the contract and as
to which he makes no warranty, and which the other has
not the means of ascertaining. (Emphasis supplied)
Under the foregoing provisions, the information concealed must be
information which the concealing party knew and "ought to [have]
communicate[d]," that is to say, information which was "material to the
contract." The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:
Sec. 31. Materially is to be determined not by the event,
but solely by the probable and reasonable influence of
the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the
 proposed contract, or in making his inquiries. (Emphasis
supplied)
"Sinus tachycardia" is considered present "when the heart rate exceeds
100 beats per minute." 13 The symptoms of this condition include pounding
in the chest and sometimes faintness and weakness of the person affected.
The following elaboration was offered by Great Pacific and set out by the
Court of Appeals in its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate
faster than 100 beats per minute. (Harrison' s Principles
of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among
others, a common reaction to heart disease, including
myocardial infarction, and heart failure per se. (Henry
J.L. Marriot, M.D.,Electrocardiography, 6th ed., [1977], p.
127.) The medication prescribed by Dr. Claudio for
treatment of Canilang's ailment on June 18, 1982,
indicates the condition that said physician was trying to
manage. Thus, he prescribed Trazepam, (Philippine
Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec.
1985, p. 112) which is anti-anxiety, anti-convulsant,
muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug,
for palpitations and nervous heart. Such treatment could
have been a very material information to the insurer in
determining the action to be take on Canilang's
application for life insurance coverage. 14
We agree with the Court of Appeals that the information which Jaime
Canilang failed to disclose was material to the ability of Great Pacific to
estimate the probable risk he presented as a subject of life insurance.
Had Canilang disclosed his visits to his doctor, the diagnosis made and
medicines prescribed by such doctor, in the insurance application, it may
be reasonably assumed that Great Pacific would have made further
inquiries and would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher premium for the
same coverage. 15 The materiality of the information withheld by Great
Pacific did not depend upon the state of mind of Jaime Canilang. A man's
state of mind or subjective belief is not capable of proof in our judicial
process, except through proof of external acts or failure to act from which
inferences as to his subjective belief may be reasonably drawn. Neither
does materiality depend upon the actual or physical events which ensue.
Materiality relates rather to the "probable and reasonable influence of the
facts" upon the party to whom the communication should have been made,
in assessing the risk involved in making or omitting to make further inquiries
and in accepting the application for insurance; that "probable and
reasonable influence of the facts" concealed must, of course, be determined
objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance
policy. In Saturnino v. Philippine-American Life Insurance
Company, 16 this Court held that:
. . . if anything, the waiver of medical examination [in a
non-medical insurance contract] renders even more
material the information required of the applicant
concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an
important factor which the insurer takes into
consideration in deciding whether to issue the policy or
not . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the failure of Great
Pacific to convey certain information to the insurer was not "intentional"
in nature, for the reason that Jaime Canilang believed that he was
suffering from minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to 1985, that is,
throughout the time range material for present purposes, provided that:
Sec. 27. A concealment entitles the injured party to
rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to
1974, had provided:
Sec. 26. A concealment, whether intentional or
unintentional, entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was
amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the
Insurance Code of 1978 so as to read as follows:
Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to have
been that by deleting the phrase "intentional or unintentional," the
Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874)
intended to limit the kinds of concealment which generate a right to
rescind on the part of the injured party to "intentional concealments."
This argument is not persuasive. As a simple matter of grammar, it may
be noted that "intentional" and "unintentional" cancel each other out. The
net result therefore of the phrase "whether intentional or unitentional" is
precisely to leave unqualified the term "concealment." Thus, Section 27
of the Insurance Code of 1978 is properly read as referring to
"any concealment" without regard to whether such concealment is
intentional or unintentional. The phrase "whether intentional or
unintentional" was in fact superfluous. The deletion of the phrase
"whether intentional or unintentional" could not have had the effect of
imposing an affirmative requirement that a concealment must be
intentional if it is to entitle the injured party to rescind a contract of
insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase
"whether intentional or unintentional" merely underscored the fact that all
throughout (from 1914 to 1985), the statute did not require proof that
concealment must be "intentional" in order to authorize rescission by the
injured party.
application was filed. In all probability, Jaime Canilang went to visit his
doctor precisely because of the discomfort and concern brought about
by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had
waived inquiry into the concealment by issuing the insurance policy
notwithstanding Canilang's failure to set out answers to some of the
questions in the insurance application. Such failure precisely constituted
concealment on the part of Canilang. Petitioner's argument, if accepted,
would obviously erase Section 27 from the Insurance Code of 1978.
It remains only to note that the Court of Appeals finding that the parties
had not agreed in the pretrial before the Insurance Commission that the
relevant issue was whether or not Jaime Canilang
had intentionally concealed material information from the insurer, was
supported by the evidence of record, i.e., the Pre-trial Order itself dated
17 October 1984 and the Minutes of the Pre-trial Conference dated 15
October 1984, which "readily shows that the word "intentional" does not
appear in the statement or definition of the issue in the said Order and
Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and
the Decision of the Court of Appeals dated 16 October 1989 in C.A.-G.R.
SP No. 08696 is hereby AFFIRMED. No pronouncement as to the costs.
SO ORDERED.

In any case, in the case at bar, the nature of the facts not conveyed to
the insurer was such that the failure to communicate must have
been intentional rather than merely inadvertent. For Jaime Canilang
could not have been unaware that his heart beat would at times rise to
high and alarming levels and that he had consulted a doctor twice in the
two (2) months before applying for non-medical insurance. Indeed, the
last medical consultation took place just the day before the insurance
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO

TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY, respondents.

O.F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision

affirming the decision of the Insurance Commissioner which dismissed
the petitioners' complaint against respondent Philippine American Life
Insurance Company for the recovery of the proceeds from their late
father's policy. The facts of the case as found by the Court of Appeals
are:

Petitioners appeal from the Decision of the Insurance

Commissioner dismissing herein petitioners' complaint
against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No.
1082467 in the amount of P 80,000.00.

On September 23,1973, Tan Lee Siong, father of herein

petitioners, applied for life insurance in the amount of P
80,000.00 with respondent company. Said application
 was approved and Policy No. 1082467 was issued
effective November 6,1973, with petitioners the
beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma
(Exhibit B). Petitioners then filed with respondent
company their claim for the proceeds of the life insurance
policy. However, in a letter dated September 11, 1975,
respondent company denied petitioners' claim and
rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts
made by the deceased Tan Lee Siong in his application
for insurance (Exhibit 3). The premiums paid on the
policy were thereupon refunded .
Alleging that respondent company's refusal to pay them
the proceeds of the policy was unjustified and
unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the
Insurance Commissioner, docketed as I.C. Case No.
218.
After hearing the evidence of both parties, the Insurance
Commissioner rendered judgment on August 9, 1977,
dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the
Insurance Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to
wit:
A. The conclusion in law of respondent Court that
respondent insurer has the right to rescind the policy
contract when insured is already dead is not in
accordance with existing law and applicable
jurisprudence.
B. The conclusion in law of respondent Court that
respondent insurer may be allowed to avoid the policy on
grounds of concealment by the deceased assured, is
contrary to the provisions of the policy contract itself, as
well as, of applicable legal provisions and established
jurisprudence.
C. The inference of respondent Court that respondent
insurer was misled in issuing the policy are manifestly
mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the
right to rescind the contract of insurance as rescission must allegedly be
done during the lifetime of the insured within two years and prior to the
commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the
death of the insured shall have been in force during the
lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was amended and the
second paragraph of Section 48 added to prevent the insurance
company from exercising a right to rescind after the death of the insured.
The so-called "incontestability clause" precludes the insurer from raising
the defenses of false representations or concealment of material facts
insofar as health and previous diseases are concerned if the insurance
has been in force for at least two years during the insured's lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the
policy is no longer considered in force after the insured has died. The
key phrase in the second paragraph of Section 48 is "for a period of two
years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the
insured died on April 26,1975. The policy was thus in
force for a period of only one year and five months.
Considering that the insured died before the two-year
period had lapsed, respondent company is not, therefore,
barred from proving that the policy is void ab initio by
reason of the insured's fraudulent concealment or
misrepresentation. Moreover, respondent company
rescinded the contract of insurance and refunded the
premiums paid on September 11, 1975, previous to the
commencement of this action on November 27,1975.
(Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or
misrepresentation by their late father because Tan Lee Siong did not
have to buy insurance. He was only pressured by insistent salesmen to
do so. The petitioners state:
We call attention to what this Honorable Court said in Insular Life v.
Feliciano, et al., 73 Phil. 201; at page 205:
Here then is a case of an assured whose application was
submitted because of repeated visits and solicitations by
the insurer's agent. Assured did not knock at the door of
the insurer to buy insurance. He was the object of
solicitations and visits.
Assured was a man of means. He could have obtained a
bigger insurance, not just P 80,000.00. If his purpose
were to misrepresent and to conceal his ailments in
anticipation of death during the two-year period, he
certainly could have gotten a bigger insurance. He did
not.
Insurer Philamlife could have presented as witness its
Medical Examiner Dr. Urbano Guinto. It was he who
accomplished the application, Part II, medical. Philamlife
did not.
Philamlife could have put to the witness stand its Agent
Bienvenido S. Guinto, a relative to Dr. Guinto, Again
Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to
denounce the pressure and practice indulged in by
agents in selling insurance. At one time or another most
of us have been subjected to that pressure, that practice.
This court took judicial cognizance of the whirlwind
pressure of insurance selling-especially of the agent's
practice of 'supplying the
information, preparing and answering the
application, submitting the application to their
companies, concluding the transactions and
otherwisesmoothing out all difficulties.
 It is of common knowledge that the selling of insurance
today is subjected to the whirlwind pressureof modern
salesmanship.
Insurance companies send detailed instructions to their
agents to solicit and procure applications.
These agents are to be found all over the length and
breadth of the land. They are stimulated to more active
efforts by contests and by the keen competition offered
by the other rival insurance companies.
They supply all the information, prepare and answer the
applications, submit the applications to their companies,
conclude the transactions, and otherwise smooth out all
difficulties.
The agents in short do what the company set them out to
do.
The Insular Life case was decided some forty years ago
when the pressure of insurance salesmanship was not
overwhelming as it is now; when the population of this
country was less than one-fourth of what it is now; when
the insurance companies competing with one another
could be counted by the fingers. (pp. 140-142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having
been subjected to the whirlwind pressure of insurance
salesmanship this Court itself has long denounced, the
assured who dies within the two-year period, should
stand charged of fraudulent concealment and
misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the
"incontestability clause" added by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance
contract or of its last reinstatement within which to contest the policy,
whether or not, the insured still lives within such period. After two years,
the defenses of concealment or misrepresentation, no matter how patent
or well founded, no longer lie. Congress felt this was a sufficient answer
to the various tactics employed by insurance companies to avoid liability.
The petitioners' interpretation would give rise to the incongruous
situation where the beneficiaries of an insured who dies right after taking
out and paying for a life insurance policy, would be allowed to collect on
the policy even if the insured fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that the
medical terms were explained in a layman's language to the insured.
They state that the insurer should have presented its two medical field
examiners as witnesses. Moreover, the petitioners allege that the policy
intends that the medical examination must be conducted before its
issuance otherwise the insurer "waives whatever imperfection by
ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence
was presented by respondent company to show that the
questions appearing in Part II of the application for
insurance were asked, explained to and understood by
the deceased so as to prove concealment on his part.
The same is not well taken. The deceased, by affixing his
signature on the application form, affirmed the
correctness of all the entries and answers appearing
therein. It is but to be expected that he, a businessman,
would not have affixed his signature on the application
form unless he clearly understood its significance. For,
the presumption is that a person intends the ordinary
consequence of his voluntary act and takes ordinary care
of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of
Court].
 The evidence for respondent company shows that on
September 19,1972, the deceased was examined by Dr.
Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was
complaining of progressive weight loss and abdominal
pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another
physician, Dr. Wenceslao Vitug, testified that the
deceased came to see him on December 14, 1973 for
consolation and claimed to have been diabetic for five
years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6) Because of
the concealment made by the deceased of his
consultations and treatments for hypertension, diabetes
and liver disorders, respondent company was thus
misled into accepting the risk and approving his
application as medically standard (Exhibit 5- C) and
dispensing with further medical investigation and
examination (Exhibit 5-A). For as long as no adverse
medical history is revealed in the application form, an
applicant for insurance is presumed to be healthy and
physically fit and no further medical investigation or
examination is conducted by respondent company.
(t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or
"contract of adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83
SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts
of money are collected from ignorant persons by
companies and associations which adopt high sounding
titles and print the amount of benefits they agree to pay
in large black-faced type, following such undertakings by
fine print conditions which destroy the substance of the
promise. All provisions, conditions, or exceptions which in
any way tend to work a forfeiture of the policy should be
construed most strongly against those for whose benefit
they are inserted, and most favorably toward those
against whom they are meant to operate. (Trinidad v.
Orient Protective Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for
insurance regarding the insured's medical history are in smaller print
than the rest of the printed form or that they are designed in such a way
as to conceal from the applicant their importance. If a warning in bold red
letters or a boxed warning similar to that required for cigarette
advertisements by the Surgeon General of the United States is
necessary, that is for Congress or the Insurance Commission to provide
as protection against high pressure insurance salesmanship. We are
limited in this petition to ascertaining whether or not the respondent
Court of Appeals committed reversible error. It is the petitioners' burden
to show that the factual findings of the respondent court are not based
on substantial evidence or that its conclusions are contrary to applicable
law and jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The
questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
 On October 23, 1997 Manuel Florendo filed an application for
comprehensive pension plan with respondent Philam Plans, Inc. (Philam
Plans) after some convincing by respondent Perla Abcede. The plan had
a pre-need price of P997,050.00, payable in 10 years, and had a
maturity value of P2,890,000.00 after 20 years.1 Manuel signed the
application and left to Perla the task of supplying the information needed
in the application.2Respondent Ma. Celeste Abcede, Perlas daughter,
signed the application as sales counselor.3

Aside from pension benefits, the comprehensive pension plan also

provided life insurance coverage to Florendo.4This was covered by a
Group Master Policy that Philippine American Life Insurance Company
(Philam Life) issued to Philam Plans.5 Under the master policy, Philam
Life was to automatically provide life insurance coverage, including
Republic of the Philippines accidental death, to all who signed up for Philam Plans comprehensive
SUPREME COURT pension plan.6 If the plan holder died before the maturity of the plan, his
Manila beneficiary was to instead receive the proceeds of the life insurance,
equivalent to the pre-need price. Further, the life insurance was to take
THIRD DIVISION care of any unpaid premium until the pension plan matured, entitling the
beneficiary to the maturity value of the pension plan.7
G.R. No. 186983 February 22, 2012
On October 30, 1997 Philam Plans issued Pension Plan Agreement
MA. LOURDES S. FLORENDO, Petitioner, PP430055848 to Manuel, with petitioner Ma. Lourdes S. Florendo, his
vs. wife, as beneficiary. In time, Manuel paid his quarterly premiums. 9
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE
ABCEDE, Respondents. Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the
DECISION payment of the benefits under her husbands plan. 10 Because Manuel
died before his pension plan matured and his wife was to get only the
ABAD, J.: benefits of his life insurance, Philam Plans forwarded her claim to Philam
Life.11
This case is about an insureds alleged concealment in his pension plan
application of his true state of health and its effect on the life insurance On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her
portion of that plan in case of death. claim. Philam Life found that Manuel was on maintenance medicine for
his heart and had an implanted pacemaker. Further, he suffered from
The Facts and the Case diabetes mellitus and was taking insulin. Lourdes renewed her demand
for payment under the plan13 but Philam Plans rejected it,14 prompting her
to file the present action against the pension plan company before the
Regional Trial Court (RTC) of Quezon City.15
On March 30, 2006 the RTC rendered judgment,16 ordering Philam
Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits
from her husbands pension plan, namely: P997,050.00, the proceeds of
his term insurance, and P2,890,000.00 lump sum pension benefit upon
maturity of his plan; P100,000.00 as moral damages; and to pay the
costs of the suit. The RTC ruled that Manuel was not guilty of concealing
the state of his health from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC
decision,17 holding that insurance policies are traditionally contracts
uberrimae fidae or contracts of utmost good faith. As such, it required
Manuel to disclose to Philam Plans conditions affecting the risk of which
he was aware or material facts that he knew or ought to know.18
Issues Presented
The issues presented in this case are:
1. Whether or not the CA erred in finding Manuel guilty of
concealing his illness when he kept blank and did not answer
questions in his pension plan application regarding the ailments
he suffered from;
2. Whether or not the CA erred in holding that Manuel was bound
by the failure of respondents Perla and Ma. Celeste to declare
the condition of Manuels health in the pension plan application;
and
3. Whether or not the CA erred in finding that Philam Plans
approval of Manuels pension plan application and acceptance of
his premium payments precluded it from denying Lourdes claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuels
pension plan application relating to his medical history, Philam Plans
should have returned it to him for completion. Since Philam Plans chose
to approve the application just as it was, it cannot cry concealment on
Manuels part. Further, Lourdes adds that Philam Plans never queried
Manuel directly regarding the state of his health. Consequently, it could
not blame him for not mentioning it.19
But Lourdes is shifting to Philam Plans the burden of putting on the
pension plan application the true state of Manuels health. She forgets
that since Philam Plans waived medical examination for Manuel, it had
to rely largely on his stating the truth regarding his health in his
application. For, after all, he knew more than anyone that he had been
under treatment for heart condition and diabetes for more than five years
preceding his submission of that application. But he kept those crucial
facts from Philam Plans.
Besides, when Manuel signed the pension plan application, he adopted
as his own the written representations and declarations embodied in it. It
is clear from these representations that he concealed his chronic heart
ailment and diabetes from Philam Plans. The pertinent portion of his
representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:
xxxx
(c) I have never been treated for heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or
any other physical impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal otherwise, please
give details in the space provided for:
Date of confinement : ____________________________
 Name of Hospital or Clinic : ____________________________
Name of Attending Physician :
____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in the details
regarding his continuing treatments for heart condition and diabetes, the
assumption is that he has never been treated for the said illnesses in the
last five years preceding his application. This is implicit from the phrase
"If your answer to any of the statements above (specifically, the
statement: I have never been treated for heart condition or diabetes)
reveal otherwise, please give details in the space provided for." But this
is untrue since he had been on "Coumadin," a treatment for venous
thrombosis,21 and insulin, a drug used in the treatment of diabetes
mellitus, at that time.22
Lourdes insists that Manuel had concealed nothing since Perla, the
soliciting agent, knew that Manuel had a pacemaker implanted on his
chest in the 70s or about 20 years before he signed up for the pension
plan.23 But by its tenor, the responsibility for preparing the application
belonged to Manuel. Nothing in it implies that someone else may provide
the information that Philam Plans needed. Manuel cannot sign the
application and disown the responsibility for having it filled up. If he
furnished Perla the needed information and delegated to her the filling
up of the application, then she acted on his instruction, not on Philam
Plans instruction.
Lourdes next points out that it made no difference if Manuel failed to
reveal the fact that he had a pacemaker implant in the early 70s since
this did not fall within the five-year timeframe that the disclosure
contemplated.24But a pacemaker is an electronic device implanted into
the body and connected to the wall of the heart, designed to provide
regular, mild, electric shock that stimulates the contraction of the heart
muscles and restores normalcy to the heartbeat.25 That Manuel still had
his pacemaker when he applied for a pension plan in October 1997 is an
admission that he remained under treatment for irregular heartbeat
within five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his
heart condition and diabetes when he submitted his pension plan
application. These clearly fell within the five-year period. More, even if
Perlas knowledge of Manuels pacemaker may be applied to Philam
Plans under the theory of imputed knowledge,26 it is not claimed that
Perla was aware of his two other afflictions that needed medical
treatments. Pursuant to Section 2727 of the Insurance Code, Manuels
concealment entitles Philam Plans to rescind its contract of insurance
with him.
Two. Lourdes contends that the mere fact that Manuel signed the
application in blank and let Perla fill in the required details did not make
her his agent and bind him to her concealment of his true state of health.
Since there is no evidence of collusion between them, Perlas fault must
be considered solely her own and cannot prejudice Manuel. 28
But Manuel forgot that in signing the pension plan application, he
certified that he wrote all the information stated in it or had someone do it
under his direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan
Program described herein in accordance with the General Provisions set
forth in this application and hereby certify that the date and other
information stated herein are written by me or under my direction. x x
x.29 (Emphasis supplied)
Assuming that it was Perla who filled up the application form, Manuel is
still bound by what it contains since he certified that he authorized her
action. Philam Plans had every right to act on the faith of that
certification.
Lourdes could not seek comfort from her claim that Perla had assured
Manuel that the state of his health would not hinder the approval of his
application and that what is written on his application made no difference
to the insurance company. But, indubitably, Manuel was made aware
when he signed the pension plan application that, in granting the same,
Philam Plans and Philam Life were acting on the truth of the
representations contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is based on the
truth of the foregoing representations and is subject to the provisions of
the Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN
LIFE INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis supplied)
As the Court said in New Life Enterprises v. Court of Appeals: 31
It may be true that x x x insured persons may accept policies without
reading them, and that this is not negligence per se. But, this is not
without any exception. It is and was incumbent upon petitioner Sy to
read the insurance contracts, and this can be reasonably expected of
him considering that he has been a businessman since 1965 and the
contract concerns indemnity in case of loss in his money-making trade of
which important consideration he could not have been unaware as it was
precisely the reason for his procuring the same.32
The same may be said of Manuel, a civil engineer and manager of a
construction company.33 He could be expected to know that one must
read every document, especially if it creates rights and obligations
affecting him, before signing the same. Manuel is not unschooled that
the Court must come to his succor. It could reasonably be expected that
he would not trifle with something that would provide additional financial
security to him and to his wife in his twilight years.
Three. In a final attempt to defend her claim for benefits under Manuels
pension plan, Lourdes points out that any defect or insufficiency in the
information provided by his pension plan application should be deemed
waived after the same has been approved, the policy has been issued,
and the premiums have been collected. 34
The Court cannot agree. The comprehensive pension plan that Philam
Plans issued contains a one-year incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no
longer contest for health reasons any claim for insurance under this
Agreement, except for the reason that installment has not been paid
(lapsed), or that you are not insurable at the time you bought this
pension program by reason of age. If this Agreement lapses but is
reinstated afterwards, the one (1) year contestability period shall start
again on the date of approval of your request for reinstatement.351wphi1
The above incontestability clause precludes the insurer from disowning
liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insured after a year of its
issuance.
Since Manuel died on the eleventh month following the issuance of his
plan,36 the one year incontestability period has not yet set in.
Consequently, Philam Plans was not barred from questioning Lourdes
entitlement to the benefits of her husbands pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the
Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.
SO ORDERED.
CHAPTER VII
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-20853 May 29, 1967

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants,

vs.
ENRIQUE MORA, ET AL., defendants-appellees.

G. Magsaysay for plaintiffs-appellants.

Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc.
J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee.

CASTRO, J.:

This is an appeal from the decision of the Court of First Instance of

Manila, Branch XV, in civil case 48823, affirming the decision of the
Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a
better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts
Company, appellants herein, to the proceeds of motor insurance policy
A-0615, in the sum of P2,002.73, issued by the State Bonding &
Insurance Co. Inc., and directing payment of the said amount to the H.
Reyes, Inc.
Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate
No. QC- mortgaged the same to the H.S. Reyes, Inc., with the condition
that the former would insure the automobile with the latter as beneficiary.
The automobile was thereafter insured on June 23, 1959 with the State
Bonding & Insurance Co., Inc., and motor car insurance policy A-0615
was issued to Enrique Mora, the pertinent provisions of which read:
1. The Company (referring to the State Bonding & Insurance Co.,
Inc.) will, subject to the Limits of Liability, indemnify the Insured
against loss of or damages to the Motor Vehicle and its
accessories and spare parts whilst thereon; (a) by accidental
collision or overturning or collision or overturning consequent
upon mechanical breakdown or consequent upon wear and tear,
xxx xxx xxx
2. At its own option the Company may pay in cash the amount of
the loss or damage or may repair, reinstate, or replace the Motor
Vehicle or any part thereof or its accessories or spare parts. The
liability of the Company shall not exceed the value of the parts
whichever is the less. The Insured's estimate of value stated in
the schedule will be the maximum amount payable by the
Company in respect of any claim for loss or damage. 1wph1.t
xxx xxx xxx
4. The Insured may authorize the repair of the Motor Vehicle
necessitated by damage for which the Company may be liable
under this Policy provided that: (a) The estimated cost of such
repair does not exceed the Authorized Repair Limit, (b) A detailed
estimate of the cost is forwarded to the Company without delay,
subject to the condition that "Loss, if any is payable to H.S.
Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was
mortgaged in favor of the said H.S. Reyes, Inc. and that under a
clause in said insurance policy, any loss was made payable to
the H.S. Reyes, Inc. as Mortgagee;
xxx xxx xxx
During the effectivity of the insurance contract, the car met with an
accident. The insurance company then assigned the accident to the
Bayne Adjustment Co. for investigation and appraisal of the damage.
Enrique Mora, without the knowledge and consent of the H.S. Reyes,
Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and
materials, some of which were supplied by the Ayala Auto Parts Co. For
the cost of labor and materials, Enrique Mora was billed at P2,102.73
through the H.H. Bayne Adjustment Co. The insurance company after
claiming a franchise in the amount of P100, drew a check in the amount
of P2,002.73, as proceeds of the insurance policy, payable to the order
of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the
H.H. Bayne Adjustment Co. for disposition and delivery to the proper
party. In the meantime, the car was delivered to Enrique Mora without
the consent of the H.S. Reyes, Inc., and without payment to the
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs
and materials.
Upon the theory that the insurance proceeds should be paid directly to
them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May
8, 1961 a complaint with the Municipal Court of Manila against Enrique
Mora and the State Bonding & Insurance Co., Inc. for the collection of
the sum of P2,002.73 The insurance company filed its answer with a
counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the
H.S. Reyes, Inc. to interplead in order to determine who has better right
to the insurance proceeds in question. Enrique Mora was declared in
default for failure to appear at the hearing, and evidence against him
was received ex parte. However, the counsel for the Bonifacio Bros. Inc.,
Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted
a stipulation of facts, on the basis of which are Municipal Court rendered
a decision declaring the H.S. Reyes, Inc. as having a better right to the
disputed amount and ordering State Bonding & Insurance Co. Inc. to pay
to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision,
the appellants elevated the case to the Court of First Instance of Manila
which the stipulation of facts was reproduced. On October 19, 1962 the
latter court rendered a decision, affirming the decision of the Municipal
Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for
reconsideration of the decision, but the trial court denied the motion.
Hence, this appeal.
The main issue raised is whether there is privity of contract between the
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and
the insurance company on the other. The appellants argue that the
insurance company and Enrique Mora are parties to the repair of the car
as well as the towage thereof performed. The authority for this assertion
is to be found, it is alleged, in paragraph 4 of the insurance contract
which provides that "the insured may authorize the repair of the Motor
Vehicle necessitated by damage for which the company may be liable
under the policy provided that (a) the estimated cost of such repair does
not exceed the Authorized Repair Limit, and (b) a detailed estimate of
the cost is forwarded to the company without delay." It is stressed that
the H.H. Bayne Adjustment Company's recommendation of payment of
the appellants' bill for materials and repairs for which the latter drew a
check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment
Co. acted for and in representation of the insurance company.
This argument is, in our view, beside the point, because from the
undisputed facts and from the pleadings it will be seen that the
appellants' alleged cause of action rests exclusively upon the terms of
the insurance contract. The appellants seek to recover the insurance
proceeds, and for this purpose, they rely upon paragraph 4 of the
insurance contract document executed by and between the State
Bonding & Insurance Company, Inc. and Enrique Mora. The appellants
are not mentioned in the contract as parties thereto nor is there any
clause or provision thereof from which we can infer that there is an
obligation on the part of the insurance company to pay the cost of
repairs directly to them. It is fundamental that contracts take effect only
between the parties thereto, except in some specific instances provided
by law where the contract contains some stipulation in favor of a third
person.1 Such stipulation is known as stipulation pour autrui or a
provision in favor of a third person not a pay to the contract. Under this
doctrine, a third person is allowed to avail himself of a benefit granted to
him by the terms of the contract, provided that the contracting parties
have clearly and deliberately conferred a favor upon such
person.2 Consequently, a third person not a party to the contract has no
action against the parties thereto, and cannot generally demand the
enforcement of the same.3 The question of whether a third person has
an enforcible interest in a contract, must be settled by determining
whether the contracting parties intended to tender him such an interest
by deliberately inserting terms in their agreement with the avowed
purpose of conferring a favor upon such third person. In this connection,
this Court has laid down the rule that the fairest test to determine
whether the interest of a third person in a contract is a stipulation pour
autrui or merely an incidental interest, is to rely upon the intention of the
parties as disclosed by their contract.4 In the instant case the insurance
contract does not contain any words or clauses to disclose an intent to
give any benefit to any repairmen or materialmen in case of repair of the
car in question. The parties to the insurance contract omitted such
stipulation, which is a circumstance that supports the said conclusion.
On the other hand, the "loss payable" clause of the insurance policy
stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that
it was only the H.S. Reyes, Inc. which they intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance
Company that it has vehemently opposed the assertion or pretension of
the appellants that they are privy to the contract. If it were the intention of
the insurance company to make itself liable to the repair shop or
materialmen, it could have easily inserted in the contract a stipulation to
that effect. To hold now that the original parties to the insurance contract
intended to confer upon the appellants the benefit claimed by them
would require us to ignore the indespensable requisite that a
stipulation pour autrui must be clearly expressed by the parties, which
we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof
would show that instead of establishing privity between the appellants
and the insurance company, such stipulation merely establishes the
procedure that the insured has to follow in order to be entitled to
indemnity for repair. This paragraph therefore should not be construed
as bringing into existence in favor of the appellants a right of action
against the insurance company as such intention can never be inferred insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary;
therefrom. Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial
Laws, Vol. 1, 1961 ed. p. 608).
Another cogent reason for not recognizing a right of action by the
appellants against the insurance company is that "a policy of insurance Indeed, according to sec. 120 of the Insurance Act, a loss may be either
is a distinct and independent contract between the insured and insurer, total or partial.
and third persons have no right either in a court of equity, or in a court of
law, to the proceeds of it, unless there be some contract of trust, Accordingly, the judgment appealed from is hereby affirmed, at
expressed or implied between the insured and third person."5 In this appellants' cost.
case, no contract of trust, expressed or implied exists. We, therefore,
agree with the trial court that no cause of action exists in favor of the Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon,
appellants in so far as the proceeds of insurance are concerned. The J.P., Zaldivar, Sanchez and Castro, JJ., concur.
appellants' claim, if at all, is merely equitable in nature and must be
made effective through Enrique Mora who entered into a contract with
the Bonifacio Bros. Inc. This conclusion is deducible not only from the
principle governing the operation and effect of insurance contracts in
general, but is clearly covered by the express provisions of section 50 of
the Insurance Act which read:

The insurance shall be applied exclusively to the proper interests

of the person in whose name it is made unless otherwise
specified in the policy.

The policy in question has been so framed that "Loss, if any, is payable
to H.S. Reyes, Inc.," which unmistakably shows the intention of the
parties.

The final contention of the appellants is that the right of the H.S. Reyes,
Inc. to the insurance proceeds arises only if there was loss and not
where there is mere damage as in the instant case. Suffice it to say that
any attempt to draw a distinction between "loss" and "damage" is
uncalled for, because the word "loss" in insurance law embraces injury or
damage.

Loss in insurance, defined. The injury or damage sustained by

the insured in consequence of the happening of one or more of
the accidents or misfortune against which the insurer, in
consideration of the premium, has undertaken to indemnify the
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO, defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife
named as beneficiary in the life insurance policy of a legally married man
claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The
Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for
P5,882.00 with a, rider for Accidental Death for the same amount
Buenaventura C. Ebrado designated T. Ebrado as the revocable
beneficiary in his policy. He to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t
when he was hit by a failing branch of a tree. As the policy was in force,
The Insular Life Assurance Co., Ltd. liable to pay the coverage in the
total amount of P11,745.73, representing the face value of the policy in
the amount of P5,882.00 plus the additional benefits for accidental death
also in the amount of P5,882.00 and the refund of P18.00 paid for the
premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the
Policy as the designated beneficiary therein, although she admits that
she and the insured Buenaventura C. Ebrado were merely living as
husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the
deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer,
The Insular Life Assurance Co., Ltd. commenced an action for
Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on
July 8, 1972, after which, a pre-trial order was entered reading as
follows:+.wph!1
During the pre-trial conference, the parties manifested to
the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the
parties submit their evidence for the purpose of the pre-
trial and make admissions for the purpose of pretrial.
During this conference, parties Carponia T. Ebrado and
Pascuala Ebrado agreed and stipulated: 1) that the
deceased Buenaventura Ebrado was married to
Pascuala Ebrado with whom she has six (legitimate)
namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo
and Helen, all surnamed Ebrado; 2) that during the
lifetime of the deceased, he was insured with Insular Life
Assurance Co. Under Policy No. 009929 whole life plan,
dated September 1, 1968 for the sum of P5,882.00 with
the rider for accidental death benefit as evidenced by
Exhibits A for plaintiffs and Exhibit 1 for the defendant
Pascuala and Exhibit 7 for Carponia Ebrado; 3) that
during the lifetime of Buenaventura Ebrado, he was living
with his common-wife, Carponia Ebrado, with whom she
had 2 children although he was not legally separated
from his legal wife; 4) that Buenaventura in accident on
 October 21, 1969 as evidenced by the death Exhibit 3
and affidavit of the police report of his death Exhibit 5; 5)
that complainant Carponia Ebrado filed claim with the
Insular Life Assurance Co. which was contested by
Pascuala Ebrado who also filed claim for the proceeds of
said policy 6) that in view ofthe adverse claims the
insurance company filed this action against the two
herein claimants Carponia and Pascuala Ebrado; 7) that
there is now due from the Insular Life Assurance Co. as
proceeds of the policy P11,745.73; 8) that the beneficiary
designated by the insured in the policy is Carponia
Ebrado and the insured made reservation to change the
beneficiary but although the insured made the option to
change the beneficiary, same was never changed up to
the time of his death and the wife did not have any
opportunity to write the company that there was
reservation to change the designation of the parties
agreed that a decision be rendered based on and
stipulation of facts as to who among the two claimants is
entitled to the policy.
Upon motion of the parties, they are given ten (10) days
to file their simultaneous memoranda from the receipt of
this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring
among others, Carponia T. Ebrado disqualified from becoming
beneficiary of the insured Buenaventura Cristor Ebrado and directing the
payment of the insurance proceeds to the estate of the deceased
insured. The trial court held:
+.wph!1 or even the new Insurance Code (PD No. 612, as amended) does not
It is patent from the last paragraph of Art. 739 of the Civil
Code that a criminal conviction for adultery or
concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of
those acts be made in a separate independent action
brought for the purpose. The guilt of the donee
(beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to
declare the nullity of the donation).
It is, however, essential that such adultery or
concubinage exists at the time defendant Carponia T.
Ebrado was made beneficiary in the policy in question for
the disqualification and incapacity to exist and that it is
only necessary that such fact be established by
preponderance of evidence in the trial. Since it is agreed
in their stipulation above-quoted that the deceased
insured and defendant Carponia T. Ebrado were living
together as husband and wife without being legally
married and that the marriage of the insured with the
other defendant Pascuala Vda. de Ebrado was valid and
still existing at the time the insurance in question was
purchased there is no question that defendant Carponia
T. Ebrado is disqualified from becoming the beneficiary of
the policy in question and as such she is not entitled to
the proceeds of the insurance upon the death of the
insured.
From this judgment, Carponia T. Ebrado appealed to the Court of
Appeals, but on July 11, 1976, the Appellate Court certified the case to
Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended)
contain any specific provision grossly resolutory of the prime question at
hand. Section 50 of the Insurance Act which provides that "(t)he
insurance shag be applied exclusively to the proper interest of the
person in whose name it is made" 1 cannot be validly seized upon to hold
that the mm includes the beneficiary. The word "interest" highly suggests
that the provision refers only to the "insured" and not to the beneficiary,
since a contract of insurance is personal in character. 2 Otherwise, the
prohibitory laws against illicit relationships especially on property and
descent will be rendered nugatory, as the same could easily be
circumvented by modes of insurance. Rather, the general rules of civil law
should be applied to resolve this void in the Insurance Law. Article 2011 of
the New Civil Code states: "The contract of insurance is governed by special
laws. Matters not expressly provided for in such special laws shall be
regulated by this Code." When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed by the general
rules of the civil law regulating contracts. 3 And under Article 2012 of the
same Code, "any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a fife insurance policy by
the person who cannot make a donation to him. 4 Common-law spouses are,
definitely, barred from receiving donations from each other. Article 739 of the
new Civil Code provides:
+.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of
adultery or concubinage at the time of donation;
Those made between persons found guilty of the same
criminal offense, in consideration thereof;
3. Those made to a public officer or his wife,
descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration
of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil donation
insofar as the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of Article
2012 cannot be laid aside: any person who cannot receive a donation
cannot be named as beneficiary in the life insurance policy of the person
who cannot make the donation.5 Under American law, a policy of life
insurance is considered as a testament and in construing it, the courts will,
so far as possible treat it as a will and determine the effect of a clause
designating the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the
institution of a barrier between common law spouses in record to
Property relations since such hip ultimately encroaches upon the nuptial
and filial rights of the legitimate family There is every reason to hold that
the bar in donations between legitimate spouses and those between
illegitimate ones should be enforced in life insurance policies since the
same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Both
are recipients of pure beneficence. So long as manage remains the
threshold of family laws, reason and morality dictate that the
impediments imposed upon married couple should likewise be imposed
upon extra-marital relationship. If legitimate relationship is circumscribed
by these legal disabilities, with more reason should an illicit relationship
be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this
Court, through Justice Fernando, said:
+.wph!1
If the policy of the law is, in the language of the opinion of
the then Justice J.B.L. Reyes of that court (Court of
Appeals), 'to prohibit donations in favor of the other
consort and his descendants because of and undue and
improper pressure and influence upon the donor, a
prejudice deeply rooted in our ancient law;" por-que no
se enganen desponjandose el uno al otro por amor que
han de consuno' (According to) the Partidas (Part IV, Tit.
XI, LAW IV), reiterating the rationale 'No Mutuato amore
invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De
donat, inter virum et uxorem); then there is very reason
to apply the same prohibitive policy to persons living
together as husband and wife without the benefit of
nuptials. For it is not to be doubted that assent to such
irregular connection for thirty years bespeaks greater
influence of one party over the other, so that the danger
that the law seeks to avoid is correspondingly increased.
 Moreover, as already pointed out by Ulpian (in his lib. 32
ad Sabinum, fr. 1), 'it would not be just that such
donations should subsist, lest the condition 6f those who
incurred guilt should turn out to be better.' So long as
marriage remains the cornerstone of our family law,
reason and morality alike demand that the disabilities
attached to marriage should likewise attach to
concubinage.
It is hardly necessary to add that even in the absence of
the above pronouncement, any other conclusion cannot
stand the test of scrutiny. It would be to indict the frame
of the Civil Code for a failure to apply a laudable rule to a
situation which in its essentials cannot be distinguished.
Moreover, if it is at all to be differentiated the policy of the
law which embodies a deeply rooted notion of what is
just and what is right would be nullified if such irregular
relationship instead of being visited with disabilities would
be attended with benefits. Certainly a legal norm should
not be susceptible to such a reproach. If there is every
any occasion where the principle of statutory construction
that what is within the spirit of the law is as much a part
of it as what is written, this is it. Otherwise the basic
purpose discernible in such codal provision would not be
attained. Whatever omission may be apparent in an
interpretation purely literal of the language used must be
remedied by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is
exacted before the disabilities mentioned in Article 739 may effectuate.
More specifically, with record to the disability on "persons who were
guilty of adultery or concubinage at the time of the donation," Article 739
itself provides:
+.wph!1
In the case referred to in No. 1, the action for declaration
of nullity may be brought by the spouse of the donor or
donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for
the offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary, the
law plainly states that the guilt of the party may be proved "in the same
acting for declaration of nullity of donation. And, it would be sufficient if
evidence preponderates upon the guilt of the consort for the offense
indicated. The quantum of proof in criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law relationship
between the insured and the beneficiary has been conveniently supplied
by the stipulations between the parties in the pre-trial conference of the
case. It case agreed upon and stipulated therein that the deceased
insured Buenaventura C. Ebrado was married to Pascuala Ebrado with
whom she has six legitimate children; that during his lifetime, the
deceased insured was living with his common-law wife, Carponia
Ebrado, with whom he has two children. These stipulations are nothing
less thanjudicial admissions which, as a consequence, no longer require
proof and cannot be contradicted. 8 A fortiori, on the basis of these
admissions, a judgment may be validly rendered without going through the
rigors of a trial for the sole purpose of proving the illicit liaison between the
insured and the beneficiary. In fact, in that pretrial, the parties even agreed
"that a decision be rendered based on this agreement and stipulation of
facts as to who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby
affirmed. Carponia T. Ebrado is hereby declared disqualified to be the
beneficiary of the late Buenaventura C. Ebrado in his life insurance
policy. As a consequence, the proceeds of the policy are hereby held
payable to the estate of the deceased insured. Costs against Carponia T.
Ebrado.
SO ORDERED.
 G.R. No. L-28093 January 30, 1971

BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, PACITA, MARIA

LOURDES, JOSE, JR., RODRIGO, LINEDA and LUIS, all surnamed
CONSUEGRA, petitioners-appellants,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, COMMISSIONER
OF PUBLIC HIGHWAYS, HIGHWAY DISTRICT ENGINEER OF
SURIGAO DEL NORTE, COMMISSIONER OF CIVIL SERVICE, and
ROSARIO DIAZ,respondents-appellees.

Bernardino O. Almeda for petitioners-appellants.

Binag and Arevalo, Jr. for respondent-appellee Government Service

Insurance System.

Office of the Solicitor General for other respondents-appellees.

ZALDIVAR, J.:

Appeal on purely questions of law from the decision of the Court of First
Instance of Surigao del Norte, dated March 7, 1967, in its Special
Proceeding No. 1720.

The pertinent facts, culled from the stipulation of facts submitted by the
parties, are the following:

The late Jose Consuegra, at the time of his death, was employed as a
shop foreman of the office of the District Engineer in the province of
Surigao del Norte. In his lifetime, Consuegra contracted two marriages,
Republic of the Philippines the first with herein respondent Rosario Diaz, solemnized in the parish
SUPREME COURT church of San Nicolas de Tolentino, Surigao, Surigao, on July 15, 1937,
Manila out of which marriage were born two children, namely, Jose Consuegra,
Jr. and Pedro Consuegra, but both predeceased their father; and the
EN BANC
second, which was contracted in good faith while the first marriage was preliminary injunction be issued restraining the implementation of the
subsisting, with herein petitioner Basilia Berdin, on May 1, 1957 in the adjudication made by the GSIS. On October 26, 1966, the trial court issued
same parish and municipality, out of which marriage were born seven an order requiring therein respondents to file their respective answers, but
children, namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida refrained from issuing the writ of preliminary injunction prayed for. On
and Luz, all surnamed Consuegra. February 11, 1967, the parties submitted a stipulation of facts, prayed that
the same be admitted and approved and that judgment be rendered on the
Being a member of the Government Service Insurance System (GSIS, basis of the stipulation of facts. On March 7, 1967, the court below rendered
judgment, the pertinent portions of which are quoted hereunder:
for short) when Consuegra died on September 26, 1965, the proceeds of
his life insurance under policy No. 601801 were paid by the GSIS to
This Court, in conformity with the foregoing stipulation of
petitioner Basilia Berdin and her children who were the beneficiaries
facts, likewise is in full accord with the parties with
named in the policy. Having been in the service of the government for
respect to the authority cited by them in support of said
22.5028 years, Consuegra was entitled to retirement insurance benefits
stipulation and which is herein-below cited for purposes
in the sum of P6,304.47 pursuant to Section 12(c) of Commonwealth Act
of this judgment, to wit:
186 as amended by Republic Acts 1616 and 3836. Consuegra did not
designate any beneficiary who would receive the retirement insurance
"When two women innocently and in good faith are
benefits due to him. Respondent Rosario Diaz, the widow by the first
legally united in holy matrimony to the same man, they
marriage, filed a claim with the GSIS asking that the retirement
and their children, born of said wedlock, will be regarded
insurance benefits be paid to her as the only legal heir of Consuegra,
as legitimate children and each family be entitled to one
considering that the deceased did not designate any beneficiary with
half of the estate. Lao & Lao vs. Dee Tim, 45 Phil. 739;
respect to his retirement insurance benefits. Petitioner Basilia Berdin and
Estrella vs. Laong Masa, Inc., (CA) 39 OG 79; Pisalbon
her children, likewise, filed a similar claim with the GSIS, asserting that
vs. Bejec, 74 Phil. 88.
being the beneficiaries named in the life insurance policy of Consuegra,
they are the only ones entitled to receive the retirement insurance
WHEREFORE, in view of the above premises, this Court
benefits due the deceased Consuegra. Resolving the conflicting claims,
is of the opinion that the foregoing stipulation of facts is in
the GSIS ruled that the legal heirs of the late Jose Consuegra were
order and in accordance with law and the same is hereby
Rosario Diaz, his widow by his first marriage who is entitled to one-half,
approved. Judgment, therefore, is hereby rendered
or 8/16, of the retirement insurance benefits, on the one hand; and
declaring the petitioner Basilia Berdin Vda. de Consuegra
Basilia Berdin, his widow by the second marriage and their seven
and her co-petitioners Juliana, Pacita, Maria Lourdes,
children, on the other hand, who are entitled to the remaining one-half,
Jose, Jr., Rodrigo, Lenida and Luis, all surnamed
or 8/16, each of them to receive an equal share of 1/16.
Consuegra, beneficiary and entitled to one-half (1/2) of
the retirement benefit in the amount of Six Thousand
Dissatisfied with the foregoing ruling and apportionment made by the
Three Hundred Four Pesos and Fourty-Seven Centavos
GSIS, Basilia Berdin and her children1 filed on October 10, 1966 a petition
for mandamus with preliminary injunction in the Court of First Instance of (P6,304.47) due to the deceased Jose Consuegra from
Surigao, naming as respondents the GSIS, the Commissioner of Public the Government Service Insurance System or the
Highways, the Highway District Engineer of Surigao del Norte, the amount of P3,152.235 to be divided equally among them
Commissioner of Civil Service, and Rosario Diaz, praying that they in the proportional amount of 1/16 each. Likewise, the
(petitioners therein) be declared the legal heirs and exclusive beneficiaries respondent Rosario Diaz Vda. de Consuegra is hereby
of the retirement insurance of the late Jose Consuegra, and that a writ of declared beneficiary and entitled to the other half of the
 retirement benefit of the late Jose Consuegra or the
amount of P3,152.235. The case with respect to the
Highway District Engineer of Surigao del Norte is hereby
ordered dismissed.
Hence the present appeal by herein petitioners-appellants, Basilia
Berdin and her children.
It is the contention of appellants that the lower court erred in not holding
that the designated beneficiaries in the life insurance of the late Jose
Consuegra are also the exclusive beneficiaries in the retirement
insurance of said deceased. In other words, it is the submission of
appellants that because the deceased Jose Consuegra failed to
designate the beneficiaries in his retirement insurance, the appellants
who were the beneficiaries named in the life insurance should
automatically be considered the beneficiaries to receive the retirement
insurance benefits, to the exclusion of respondent Rosario Diaz. From
the arguments adduced by appellants in their brief We gather that it is
their stand that the system of life insurance and the system of retirement
insurance, that are provided for in Commonwealth Act 186 as amended,
are simply complementary to each other, or that one is a part or an
extension of the other, such that whoever is named the beneficiary in the
life insurance is also the beneficiary in the retirement insurance when no
such beneficiary is named in the retirement insurance.
The contention of appellants is untenable.
It should be noted that the law creating the Government Service
Insurance System is Commonwealth Act 186 which was enacted by the
National Assembly on November 14, 1936. As originally approved,
Commonwealth Act 186 provided for the compulsory membership in the
Government Service Insurance System of all regularly and permanently
appointed officials and employees of the government, considering as
automatically insured on life all such officials and employees, and issuing
to them the corresponding membership policy under the terms and
conditions as provided in the Act.2
Originally, Commonwealth Act 186 provided for life insurance only.
Commonwealth Act 186 was amended by Republic Act 660 which was
enacted by the Congress of the Philippines on June 16, 1951, and,
among others, the amendatory Act provided that aside from the system
of life insurance under the Government Service Insurance System there
was also established the system of retirement insurance. Thus, We will
note in Republic Act 660 that there is a chapter on life insurance and
another chapter on retirement insurance. 3 Under the chapter on life
insurance are sections 8, 9 and 10 of Commonwealth Act 186, as
amended; and under the chapter on retirement insurance are sections
11, 12, 13 and 13-A. On May 31, 1957, Republic Act 1616 was enacted
by Congress, amending section 12 of Commonwealth Act 186 as
amended by Republic Act 660, by adding thereto two new subsections,
designated as subsections (b) and (c). This subsection (c) of section 12
of Commonwealth Act 186, as amended by Republic Acts 660, 1616 and
3096, was again amended by Republic Act 3836 which was enacted on
June 22, 1963. The pertinent provisions of subsection (c) of Section 12
lwph1.t
of Commonwealth Act 186, as thus amended and reamended, read as
follows:
(c) Retirement is likewise allowed to a member,
regardless of age, who has rendered at least twenty
years of service. The benefit shall, in addition to the
return of his personal contributions plus interest and the
payment of the corresponding employer's premiums
described in subsection (a) of Section 5 hereof, without
interest, be only a gratuity equivalent to one month's
salary for every year of service, based on the highest
rate received, but not to exceed twenty-four
months; Provided, That the retiring officer or employee
has been in the service of the said employer or office for
at least four years, immediately preceding his retirement.
xxx xxx xxx
The gratuity is payable by the employer or office
concerned which is hereby authorized to provide the
 necessary appropriation to pay the same from any
unexpended items of appropriations.
Elective or appointive officials and employees paid
gratuity under this subsection shall be entitled to the
commutation of the unused vacation and sick leave,
based on the highest rate received, which they may have
to their credit at the time of retirement.
Jose Consuegra died on September 26, 1965, and so at the time of his
death he had acquired rights under the above-quoted provisions of
subsection (c) of Section 12 of Com. Act 186, as finally amended by
Rep. Act 3836 on June 22, 1963. When Consuegra died on September
26, 1965, he had to his credit 22.5028 years of service in the
government, and pursuant to the above-quoted provisions of subsection
(c) of Section 12 of Com. Act 186, as amended, on the basis of the
highest rate of salary received by him which was P282.83 per month, he
was entitled to receive retirement insurance benefits in the amount of
P6,304.47. This is the retirement benefits that are the subject of dispute
between the appellants, on the one hand, and the appellee Rosario
Diaz, on the other, in the present case. The question posed is: to whom
should this retirement insurance benefits of Jose Consuegra be paid,
because he did not, or failed to, designate the beneficiary of his
retirement insurance?
If Consuegra had 22.5028 years of service in the government when he
died on September 26, 1965, it follows that he started in the government
service sometime during the early part of 1943, or before 1943. In 1943
Com. Act 186 was not yet amended, and the only benefits then provided
for in said Com. Act 186 were those that proceed from a life insurance.
Upon entering the government service Consuegra became a compulsory
member of the GSIS, being automatically insured on his life, pursuant to
the provisions of Com. Act 186 which was in force at the time. During
1943 the operation of the Government Service Insurance System was
suspended because of the war, and the operation was resumed
sometime in 1946. When Consuegra designated his beneficiaries in his
life insurance he could not have intended those beneficiaries of his life
insurance as also the beneficiaries of his retirement insurance because
the provisions on retirement insurance under the GSIS came about only
when Com. Act 186 was amended by Rep. Act 660 on June 16, 1951.
Hence, it cannot be said that because herein appellants were designated
beneficiaries in Consuegra's life insurance they automatically became
the beneficiaries also of his retirement insurance. Rep. Act 660 added to
Com. Act 186 provisions regarding retirement insurance, which are
Sections 11, 12, and 13 of Com. Act 186, as amended. Subsection (b) of
Section 11 of Com. Act 186, as amended by Rep. Act 660, provides as
follows:
(b) Survivors benefit. Upon death before he becomes
eligible for retirement, his beneficiaries as recorded in the
application for retirement annuity filed with the System
shall be paid his own premiums with interest of three per
centum per annum, compounded monthly. If on his death
he is eligible for retirement, then the automatic retirement
annuity or the annuity chosen by him previously shall be
paid accordingly.
The above-quoted provisions of subsection (b) of Section 11 of
Commonwealth Act 186, as amended by Rep. Act 660, clearly indicate
that there is need for the employee to file an application for retirement
insurance benefits when he becomes a member of the GSIS, and he
should state in his application the beneficiary of his retirement insurance.
Hence, the beneficiary named in the life insurance does not
automatically become the beneficiary in the retirement insurance unless
the same beneficiary in the life insurance is so designated in the
application for retirement insurance.
Section 24 of Commonwealth Act 186, as amended by Rep. Act 660,
provides for a life insurance fund and for a retirement insurance fund.
There was no such provision in Com. Act 186 before it was amended by
Rep. Act 660. Thus, subsections (a) and (b) of Section 24 of
Commonwealth Act 186, as amended by Rep. Act 660, partly read as
follows:
(a) Life insurance fund. This shall consist of all
premiums for life insurance benefit and/or earnings and
 savings therefrom. It shall meet death claims as they
may arise or such equities as any member may be
entitled to, under the conditions of his policy, and shall
maintain the required reserves to the end of
guaranteeing the fulfillment of the life insurance contracts
issued by the System ...
(b) Retirement insurance fund. This shall consist of all
contributions for retirement insurance benefit and of
earnings and savings therefrom. It shall meet annuity
payments and establish the required reserves to the end
of guaranteeing the fulfillment of the contracts issued by
the System. ...
Thus, We see that the GSIS offers two separate and distinct systems of
benefits to its members one is the life insurance and the other is the
retirement insurance. These two distinct systems of benefits are paid out
from two distinct and separate funds that are maintained by the GSIS.
In the case of the proceeds of a life insurance, the same are paid to
whoever is named the beneficiary in the life insurance policy. As in the
case of a life insurance provided for in the Insurance Act (Act 2427, as
amended), the beneficiary in a life insurance under the GSIS may not
necessarily be a heir of the insured. The insured in a life insurance may
designate any person as beneficiary unless disqualified to be so under
the provisions of the Civil Code.4 And in the absence of any beneficiary
named in the life insurance policy, the proceeds of the insurance will go to
the estate of the insured.
Retirement insurance is primarily intended for the benefit of the
employee to provide for his old age, or incapacity, after rendering
service in the government for a required number of years. If the
employee reaches the age of retirement, he gets the retirement benefits
even to the exclusion of the beneficiary or beneficiaries named in his
application for retirement insurance. The beneficiary of the retirement
insurance can only claim the proceeds of the retirement insurance if the
employee dies before retirement. If the employee failed or overlooked to
state the beneficiary of his retirement insurance, the retirement benefits
will accrue to his estate and will be given to his legal heirs in accordance
with law, as in the case of a life insurance if no beneficiary is named in
the insurance policy.
It is Our view, therefore, that the respondent GSIS had correctly acted
when it ruled that the proceeds of the retirement insurance of the late
Jose Consuegra should be divided equally between his first living wife
Rosario Diaz, on the one hand, and his second wife Basilia Berdin and
his children by her, on the other; and the lower court did not commit error
when it confirmed the action of the GSIS, it being accepted as a fact that
the second marriage of Jose Consuegra to Basilia Berdin was
contracted in good faith. The lower court has correctly applied the ruling
of this Court in the case of Lao, et al. vs. Dee Tim, et al., 45 Phil. 739 as
cited in the stipulation of facts and in the decision appealed from. 5 In the
recent case of Gomez vs. Lipana, L-23214, June 30, 1970, 6 this Court, in
construing the rights of two women who were married to the same man a
situation more or less similar to the case of appellant Basilia Berdin and
appellee Rosario Diaz held "that since the defendant's first marriage has
not been dissolved or declared void the conjugal partnership established by
that marriage has not ceased. Nor has the first wife lost or relinquished her
status as putative heir of her husband under the new Civil Code, entitled to
share in his estate upon his death should she survive him. Consequently,
whether as conjugal partner in a still subsisting marriage or as such putative
heir she has an interest in the husband's share in the property here in
dispute.... " And with respect to the right of the second wife, this Court
observed that although the second marriage can be presumed to be void ab
initio as it was celebrated while the first marriage was still subsisting, still
there is need for judicial declaration of such nullity. And inasmuch as the
conjugal partnership formed by the second marriage was dissolved before
judicial declaration of its nullity, "[t]he only lust and equitable solution in this
case would be to recognize the right of the second wife to her share of one-
half in the property acquired by her and her husband and consider the other
half as pertaining to the conjugal partnership of the first marriage."
WHEREFORE, the decision appealed from is affirmed, with costs
against petitioners-appellants. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Baguio City
FIRST DIVISION
G.R. No. 171406 April 4, 2011
ASIAN TERMINALS, INC., Petitioner,
vs.
MALAYAN INSURANCE, CO., INC., Respondent.
DECISION
DEL CASTILLO, J.:
Once the insurer pays the insured, equity demands reimbursement as
no one should benefit at the expense of another.
This Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court assails the July 14, 2005 Decision2and the February 14, 2006
Resolution3 of the Court of Appeals (CA) in CA G.R. CV No. 61798.
Factual Antecedents
On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on
board the vessel MV "Jinlian I" 60,000 plastic bags of soda ash dense
(each bag weighing 50 kilograms) from China to Manila.4 The shipment,
with an invoice value of US$456,000.00, was insured with respondent
Malayan Insurance Company, Inc. under Marine Risk Note No. RN-
0001-21430, and covered by a Bill of Lading issued by Tianjin Navigation
Company with Philippine Banking Corporation as the consignee and
Chemphil Albright and Wilson Corporation as the notify party.5
On November 21, 1995, upon arrival of the vessel at Pier 9, South
Harbor, Manila,6 the stevedores of petitioner Asian Terminals, Inc., a duly
registered domestic corporation engaged in providing arrastre and
stevedoring services,7 unloaded the 60,000 bags of soda ash dense from
the vessel and brought them to the open storage area of petitioner for
temporary storage and safekeeping, pending clearance from the Bureau
of Customs and delivery to the consignee.8 When the unloading of the
bags was completed on November 28, 1995, 2,702 bags were found to
be in bad order condition.9
On November 29, 1995, the stevedores of petitioner began loading the
bags in the trucks of MEC Customs Brokerage for transport and delivery
to the consignee.10 On December 28, 1995, after all the bags were
unloaded in the warehouses of the consignee, a total of 2,881 bags were
in bad order condition due to spillage, caking, and hardening of the
contents.11
On April 19, 1996, respondent, as insurer, paid the value of the lost/
damaged cargoes to the consignee in the amount of P643,600.25.12
Ruling of the Regional Trial Court
On November 20, 1996, respondent, as subrogee of the consignee, filed
before the Regional Trial Court (RTC) of Manila, Branch 35, a
Complaint13 for damages against petitioner, the shipper Inchcape
Shipping Services, and the cargo broker MEC Customs Brokerage.14
After the filing of the Answers,15 trial ensued.
On June 26, 1998, the RTC rendered a Decision16 finding petitioner liable
for the damage/loss sustained by the shipment but absolving the other
defendants. The RTC found that the proximate cause of the damage/loss
was the negligence of petitioners stevedores who handled the unloading
of the cargoes from the vessel.17 The RTC emphasized that despite the
admonitions of Marine Cargo Surveyors Edgar Liceralde and Redentor
Antonio not to use steel hooks in retrieving and picking-up the bags,
petitioners stevedores continued to use such tools, which pierced the
bags and caused the spillage.18 The RTC, thus, ruled that petitioner, as
employer, is liable for the acts and omissions of its stevedores under
Articles 217619 and 2180 paragraph (4)20 of the Civil Code.21Hence, the
dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Asian Terminal,
Inc. to pay plaintiff Malayan Insurance Company, Inc. the sum
of P643,600.25 plus interest thereon at legal rate computed from
November 20, 1996, the date the Complaint was filed, until the principal
obligation is fully paid, and the costs.
The complaint of the plaintiff against defendants Inchcape Shipping
Services and MEC Customs Brokerage, and the counterclaims of said
defendants against the plaintiff are dismissed.
SO ORDERED. 22
Ruling of the Court of Appeals
Aggrieved, petitioner appealed23 to the CA but the appeal was denied. In
its July 14, 2005 Decision, the CA agreed with the RTC that the
damage/loss was caused by the negligence of petitioners stevedores in
handling and storing the subject shipment.24 The CA likewise rejected
petitioners assertion that it received the subject shipment in bad order
condition as this was belied by Marine Cargo Surveyors Redentor
Antonio and Edgar Liceralde, who both testified that the actual counting
of bad order bags was done only after all the bags were unloaded from
the vessel and that the Turn Over Survey of Bad Order Cargoes
(TOSBOC) upon which petitioner anchors its defense was prepared only
on November 28, 1995 or after the unloading of the bags was
completed.25 Thus, the CA disposed of the appeal as follows:
WHEREFORE, premises considered, the appeal is DENIED. The
assailed Decision dated June 26, 1998 of the Regional Trial Court of
Manila, Branch 35, in Civil Case No. 96-80945 is hereby AFFIRMED in
all respects.
SO ORDERED.26
Petitioner moved for reconsideration27 but the CA denied the same in a
Resolution28 dated February 14, 2006 for lack of merit.
Issues
Hence, the present recourse, petitioner contending that:
1. RESPONDENT-INSURER IS NOT ENTITLED TO THE
RELIEF GRANTED AS IT FAILED TO ESTABLISH ITS CAUSE
OF ACTION AGAINST HEREIN PETITIONER SINCE, AS THE
ALLEGED SUBROGEE, IT NEVER PRESENTED ANY VALID,
EXISTING, ENFORCEABLE INSURANCE POLICY OR ANY
COPY THEREOF IN COURT.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
OVERLOOKED THE FACT THAT THE TOSBOC & RESBOC
WERE ADOPTED AS COMMON EXHIBITS BY BOTH
PETITIONER AND RESPONDENT.
3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD,
VARIOUS DOCUMENTATIONS WOULD POINT TO THE
VESSELS LIABILITY AS THERE IS, IN THIS INSTANT CASE,
AN OVERWHELMING DOCUMENTARY EVIDENCE TO PROVE
THAT THE DAMAGE IN QUESTION WERE SUSTAINED WHEN
THE SHIPMENT WAS IN THE CUSTODY OF THE VESSEL.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
ADJUDGED HEREIN DEFENDANT LIABLE DUE TO [THE]
FACT THAT THE TURN OVER SURVEY OF BAD ORDER
CARGOES (TOSBOC) WAS PREPARED ONLY AFTER THE
COMPLETION OF THE DISCHARGING OPERATIONS OR ON
NOVEMBER 28, 1995. THUS, CONCLUDING THAT DAMAGE
TO THE CARGOES WAS DUE TO THE IMPROPER HANDLING
THEREOF BY ATI STEVEDORES.
5. THE HONORABLE COURT OF APPEALS ERRED IN NOT
TAKING JUDICIAL NOTICE OF THE CONTRACT FOR CARGO
HANDLING SERVICES BETWEEN PPA AND ATI AND
APPLYING THE PERTINENT PROVISIONS THEREOF AS
REGARDS ATIS LIABILITY.29
In sum, the issues are: (1) whether the non-presentation of the
insurance contract or policy is fatal to respondents cause of
 action; (2) whether the proximate cause of the damage/loss to
the shipment was the negligence of petitioners stevedores; and
(3) whether the court can take judicial notice of the Management
Contract between petitioner and the Philippine Ports Authority
(PPA) in determining petitioners liability.
Petitioners Arguments
Petitioner contends that respondent has no cause of action because it
failed to present the insurance contract or policy covering the subject
shipment.30 Petitioner argues that the Subrogation Receipt presented by
respondent is not sufficient to prove that the subject shipment was
insured and that respondent was validly subrogated to the rights of the
consignee.31 Thus, petitioner submits that without proof of a valid
subrogation, respondent is not entitled to any reimbursement.32
Petitioner likewise puts in issue the finding of the RTC, which was
affirmed by the CA, that the proximate cause of the damage/loss to the
shipment was the negligence of petitioners stevedores.33 Petitioner
avers that such finding is contrary to the documentary evidence, i.e., the
TOSBOC, the Request for Bad Order Survey (RESBOC) and the Report
of Survey.34 According to petitioner, these documents prove that it
received the subject shipment in bad order condition and that no
additional damage was sustained by the subject shipment under its
custody.35Petitioner asserts that although the TOSBOC was prepared
only after all the bags were unloaded by petitioners stevedores, this
does not mean that the damage/loss was caused by its stevedores.36
Petitioner also claims that the amount of damages should not be more
than P5,000.00, pursuant to its Management Contract for cargo handling
services with the PPA.37 Petitioner contends that the CA should have
taken judicial notice of the said contract since it is an official act of an
executive department subject to judicial cognizance.38
Respondents Arguments
Respondent, on the other hand, argues that the non-presentation of the
insurance contract or policy was not raised in the trial court. Thus, it
cannot be raised for the first time on appeal.39 Respondent likewise
contends that under prevailing jurisprudence, presentation of the
insurance policy is not indispensable.40 Moreover, with or without the
insurance contract or policy, respondent claims that it should be allowed
to recover under Article 123641 of the Civil Code.42 Respondent further
avers that "the right of subrogation has its roots in equity - it is designed
to promote and to accomplish justice and is the mode which equity
adopts to compel the ultimate payment of a debt by one who in justice,
equity and good conscience ought to pay."43
Respondent likewise maintains that the RTC and the CA correctly found
that the damage/loss sustained by the subject shipment was caused by
the negligent acts of petitioners stevedores.44 Such factual findings of
the RTC, affirmed by the CA, are conclusive and should no longer be
disturbed.45 In fact, under Section 146 of Rule 45 of the Rules of Court,
only questions of law may be raised in a petition for review on certiorari. 47
As to the Management Contract for cargo handling services, respondent
contends that this is outside the operation of judicial notice.48 And even if
it is not, petitioners liability cannot be limited by it since it is a contract of
adhesion.49
Our Ruling
The petition is bereft of merit.
Non-presentation of the insurance contract or policy is not fatal in the
instant case
Petitioner claims that respondents non-presentation of the insurance
contract or policy between the respondent and the consignee is fatal to
its cause of action.
We do not agree.
First of all, this was never raised as an issue before the RTC. In fact, it is
not among the issues agreed upon by the parties to be resolved during
the pre-trial.50 As we have said, "the determination of issues during the
pre-trial conference bars the consideration of other questions, whether
during trial or on appeal."51 Thus, "[t]he parties must disclose during pre-
trial all issues they intend to raise during the trial, except those involving
privileged or impeaching matters. x x x The basis of the rule is simple.
Petitioners are bound by the delimitation of the issues during the pre-trial
because they themselves agreed to the same."52
Neither was this issue raised on appeal.53 Basic is the rule that "issues or
grounds not raised below cannot be resolved on review by the Supreme
Court, for to allow the parties to raise new issues is antithetical to the
sporting idea of fair play, justice and due process."54
Besides, non-presentation of the insurance contract or policy is not
necessarily fatal.55 In Delsan Transport Lines, Inc. v. Court of
Appeals,56 we ruled that:
Anent the second issue, it is our view and so hold that the presentation
in evidence of the marine insurance policy is not indispensable in this
case before the insurer may recover from the common carrier the
insured value of the lost cargo in the exercise of its subrogatory right.
The subrogation receipt, by itself, is sufficient to establish not only the
relationship of herein private respondent as insurer and Caltex, as the
assured shipper of the lost cargo of industrial fuel oil, but also the
amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the
insurance claim.
The presentation of the insurance policy was necessary in the case of
Home Insurance Corporation v. CA (a case cited by petitioner) because
the shipment therein (hydraulic engines) passed through several stages
with different parties involved in each stage. First, from the shipper to the
port of departure; second, from the port of departure to the M/S Oriental
Statesman; third, from the M/S Oriental Statesman to the M/S Pacific
Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival;
fifth, from the port of arrival to the arrastre operator; sixth, from the
arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private
respondent therein); and lastly, from the hauler to the consignee. We
emphasized in that case that in the absence of proof of stipulations to
the contrary, the hauler can be liable only for any damage that occurred
from the time it received the cargo until it finally delivered it to the
consignee. Ordinarily, it cannot be held responsible for the handling of
the cargo before it actually received it. The insurance contract, which
was not presented in evidence in that case would have indicated the
scope of the insurers liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo
was sustained.57 (Emphasis supplied.)
In International Container Terminal Services, Inc. v. FGU Insurance
Corporation,58 we used the same line of reasoning in upholding the
Decision of the CA finding the arrastre contractor liable for the lost
shipment despite the failure of the insurance company to offer in
evidence the insurance contract or policy. We explained:
Indeed, jurisprudence has it that the marine insurance policy needs to be
presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage
Corp., the Court stated that the presentation of the marine insurance
policy was necessary, as the issues raised therein arose from the very
existence of an insurance contract between Malayan Insurance and its
consignee, ABB Koppel, even prior to the loss of the shipment. In
Wallem Philippines Shipping, Inc. v. Prudential Guarantee and
Assurance, Inc., the Court ruled that the insurance contract must be
presented in evidence in order to determine the extent of the coverage.
This was also the ruling of the Court in Home Insurance Corporation v.
Court of Appeals.
However, as in every general rule, there are admitted exceptions. In
Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that
the presentation of the insurance policy was not fatal because the loss of
the cargo undoubtedly occurred while on board the petitioners vessel,
unlike in Home Insurance in which the cargo passed through several
stages with different parties and it could not be determined when the
damage to the cargo occurred, such that the insurer should be liable for
it.
As in Delsan, there is no doubt that the loss of the cargo in the present
case occurred while in petitioners custody. Moreover, there is no issue
as regards the provisions of Marine Open Policy No. MOP-12763, such
that the presentation of the contract itself is necessary for perusal, not to
mention that its existence was already admitted by petitioner in open
court. And even though it was not offered in evidence, it still can be
considered by the court as long as they have been properly identified by
testimony duly recorded and they have themselves been incorporated in
the records of the case.59
Similarly, in this case, the presentation of the insurance contract or policy
was not necessary. Although petitioner objected to the admission of the
Subrogation Receipt in its Comment to respondents formal offer of
evidence on the ground that respondent failed to present the insurance
contract or policy,60 a perusal of petitioners Answer61and Pre-Trial
Brief62 shows that petitioner never questioned respondents right to
subrogation, nor did it dispute the coverage of the insurance contract or
policy. Since there was no issue regarding the validity of the insurance
contract or policy, or any provision thereof, respondent had no reason to
present the insurance contract or policy as evidence during the trial.
Factual findings of the CA, affirming the RTC, are conclusive and binding
Petitioners attempt to absolve itself from liability must likewise fail.
Only questions of law are allowed in petitions for review
on certiorari under Rule 45 of the Rules of Court. Thus, it is not our duty
"to review, examine, and evaluate or weigh all over again the probative
value of the evidence presented,"63 especially where the findings of both
the trial court and the appellate court coincide on the matter.64 As we
have often said, factual findings of the CA affirming those of the RTC are
conclusive and binding, except in the following cases: "(1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when
there is grave abuse of discretion; (3) when the findings are grounded
entirely on speculations, surmises or conjectures; (4) when the judgment
of the [CA] is based on misapprehension of facts; (5) when the [CA], in
making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (6) when the
findings of fact are conclusions without citation of specific evidence on
which they are based; (7) when the [CA] manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (8) when the
findings of fact of the [CA] are premised on the absence of evidence and
are contradicted by the evidence on record."65 None of these are availing
in the present case.
Both the RTC and the CA found the negligence of petitioners stevedores
to be the proximate cause of the damage/loss to the shipment. In
disregarding the contention of petitioner that such finding is contrary to
the documentary evidence, the CA had this to say:
ATI, however, contends that the finding of the trial court was contrary to
the documentary evidence of record, particularly, the Turn Over Survey
of Bad Order Cargoes dated November 28, 1995, which was executed
prior to the turn-over of the cargo by the carrier to the arrastre operator
ATI, and which showed that the shipment already contained 2,702
damaged bags.
We are not persuaded.
Contrary to ATIs assertion, witness Redentor Antonio, marine cargo
surveyor of Inchcape for the vessel Jinlian I which arrived on November
21, 1995 and up to completion of discharging on November 28,
1995, testified thatit was only after all the bags were unloaded from
the vessel that the actual counting of bad order bags was
made, thus:
xxxx
The above testimony of Redentor Antonio was corroborated by
Edgar Liceralde, marine cargo surveyor connected with SMS Average
Surveyors and Adjusters, Inc., the company requested by consignee
Chemphil Albright and Wilson Corporation to provide superintendence,
report the condition and determine the final outturn of quantity/weight of
the subject shipment. x x x
xxxx
Defendant-appellant ATI, for its part, presented its claim officer as
witness who testified that a survey was conducted by the shipping
company and ATI before the shipment was turned over to the possession
of ATI and that the Turn Over Survey of Bad Order Cargoes was
prepared by ATIs Bad Order (BO) Inspector.
Considering that the shipment arrived on November 21, 1998 and
the unloading operation commenced on said date and was
completed on November 26, 1998, while the Turn Over Survey of
Bad Order Cargoes, reflecting a figure of 2,702 damaged bags, was
prepared and signed on November 28, 1998 by ATIs BO Inspector
and co-signed by a representative of the shipping company, the trial
courts finding that the damage to the cargoes was due to the
improper handling thereof by ATIs stevedores cannot be said to be
without substantial support from the records.
We thus see no cogent reason to depart from the ruling of the trial court
that ATI should be made liable for the 2,702 bags of damaged shipment.
Needless to state, it is hornbook doctrine that the assessment of
witnesses and their testimonies is a matter best undertaken by the trial
court, which had the opportunity to observe the demeanor, conduct or
attitude of the witnesses. The findings of the trial court on this point are
accorded great respect and will not be reversed on appeal, unless it
overlooked substantial facts and circumstances which, if considered,
would materially affect the result of the case.
We also find ATI liable for the additional 179 damaged bags discovered
upon delivery of the shipment at the consignees warehouse in Pasig.
The final Report of Survey executed by SMS Average Surveyors &
Adjusters, Inc., and independent surveyor hired by the consignee, shows
that the subject shipment incurred a total of 2881 damaged bags.
The Report states that the withdrawal and delivery of the shipment took
about ninety-five (95) trips from November 29, 1995 to December 28,
1995 and it was upon completion of the delivery to consignees
warehouse where the final count of 2881 damaged bags was made. The
damage consisted of torn/bad order condition of the bags due to
spillages and caked/hardened portions.
We agree with the trial court that the damage to the shipment was
caused by the negligence of ATIs stevedores and for which ATI is liable
under Articles 2180 and 2176 of the Civil Code. The proximate cause of
the damage (i.e., torn bags, spillage of contents and caked/hardened
portions of the contents) was the improper handling of the cargoes by
ATIs stevedores, x x x
xxxx
ATI has not satisfactorily rebutted plaintiff-appellees evidence on the
negligence of ATIs stevedores in the handling and safekeeping of the
cargoes. x x x
xxxx
We find no reason to disagree with the trial courts conclusion. Indeed,
from the nature of the [damage] caused to the shipment, i.e., torn bags,
spillage of contents and hardened or caked portions of the contents, it is
not difficult to see that the damage caused was due to the negligence of
ATIs stevedores who used steel hooks to retrieve the bags from the
higher portions of the piles thereby piercing the bags and spilling their
contents, and who piled the bags in the open storage area of ATI with
insufficient cover thereby exposing them to the elements and [causing]
the contents to cake or harden.66
Clearly, the finding of negligence on the part of petitioners stevedores is
supported by both testimonial and documentary evidence. Hence, we
see no reason to disturb the same.
Judicial notice does not apply
Finally, petitioner implores us to take judicial notice of Section
7.01,67 Article VII of the Management Contract for cargo handling
services it entered with the PPA, which limits petitioners liability
to P5,000.00 per package.
Unfortunately for the petitioner, it cannot avail of judicial notice.
Sections 1 and 2 of Rule 129 of the Rules of Court provide that:
SECTION 1. Judicial notice, when mandatory. A court shall take
judicial notice, without the introduction of evidence, of the existence and
territorial extent of states, their political history, forms of government and
symbols of nationality, the law of nations, the admiralty and maritime
courts of the world and their seals, the political constitution and history of
the Philippines, the official acts of the legislative, executive and judicial
departments of the Philippines, the laws of nature, the measure of time,
and the geographical divisions. 1avvphi1
SEC. 2. Judicial notice, when discretionary. A court may take judicial
notice of matters which are of public knowledge, or are capable of
unquestionable demonstration or ought to be known to judges because
of their judicial functions.
The Management Contract entered into by petitioner and the PPA is
clearly not among the matters which the courts can take judicial notice
of. It cannot be considered an official act of the executive department.
The PPA, which was created by virtue of Presidential Decree No. 857, as
amended,68 is a government-owned and controlled corporation in charge
of administering the ports in the country.69 Obviously, the PPA was only
performing a proprietary function when it entered into a Management
Contract with petitioner. As such, judicial notice cannot be applied.
WHEREFORE, the petition is hereby DENIED. The assailed July 14,
2005 Decision and the February 14, 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 61798 are hereby AFFIRMED.
SO ORDERED.