G.R. No. 114427 February 6, 1995
50
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 decision1 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-
146222 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.
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 3 in 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 laymen. 31
With these principles in mind, we are of the opinion that Condition 3 of
the subject policy is not totally free from ambiguity and must, perforce,
be meticulously analyzed. Such analysis leads us to conclude that (a)
the prohibition applies only to double insurance, and (b) the nullity of
the policy shall only be to the extent exceeding P200,000.00 of the
total policies obtained.
The first conclusion is supported by the portion of the condition
referring to other insurance "covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only
hereby insured," and the portion regarding the insured's declaration
on the subheading CO-INSURANCE that the co-insurer is Mercantile
Insurance Co., Inc. in the sum of P50,000.00. A double insurance
exists where the same person is insured by several insurers
separately in respect of the same subject and interest. As earlier
stated, the insurable interests of a mortgagor and a mortgagee on the
mortgaged property are distinct and separate. Since the two policies
of the PFIC do not cover the same interest as that covered by the
policy of the private respondent, no double insurance exists. The non-
disclosure then of the former policies was not fatal to the petitioner's
right to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition
shall not apply if the total insurance in force at the time of loss does
not exceed P200,000.00, the private respondent was amenable to
assume a 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 the incorporation of "other insurance" clause in fire
policies is to prevent over-insurance and thus avert the perpetration of
fraud. When a property owner obtains insurance policies from two or
more insurers in a total amount that exceeds the property's value, the
insured may have an inducement to destroy the property for the
purpose of collecting the insurance. The public as well as the insurer
is interested in preventing a situation in which a fire would be profitable
to the insured.32
[G.R. No. 84628. November 16, 1989.]
HEIRS OF ILDEFONSO COSCOLLUELA, SR., INC., Petitioner, v.
RICO GENERAL INSURANCE CORPORATION, COURT OF
APPEALS (11th Division), and HON. ENRIQUE T. JOCSON,
Judge, Regional Trial Court of Negros Occidental
Branch, Respondents.
Ildefonso S. Villanueva and Rolando N. Medalla for Petitioner.
Limbaga, Bana-ag, Bana-ag & Associates for Private
Respondent.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; COMPLAINT;
REQUISITES FOR THE EXISTENCE OF A CAUSE OF ACTION. —
After a review of the records, the Court finds that the allegations set
forth in the complaint sufficiently establish a cause of action. The
following are the requisites for the existence of a cause of action: (1)
a right in favor of the plaintiff by whatever means and under whatever
law it arises or is created; (2) an obligation on the part of the named
defendant to respect, or not to violate such right; and (3) an act or
omission on the part of the said defendant constituting a violation of
the plaintiff’s right or a breach of the obligation of the defendant to the
plaintiff. (Cole v. Vda. de Gregoria, 116 SCRA 670 [1982]; Baliwag
Transit, Inc. v. Ople, G. R. No. 57642, March 16, 1989).
2. ID.; ID.; ID.; ID.; INSURER’S REFUSAL TO PAY PETITIONER’S
CLAIM AND THE LATTER’S INCURRENCE OF COST FOR LEGAL
ASSISTANCE, A SUFFICIENT CAUSE OF ACTION. — The facts as
alleged clearly define the existence of a right of the petitioner to a just
claim against the insurer for the payment of the indemnity for a loss
due to an event against which the petitioner’s vehicle was insured. The
insurance contract mentioned therein manifests a right to pursue a
claim and a duty on the part of the insurer or private respondent to
compensate the insured in case of a risk insured against. The refusal
of the insurer to satisfy the claim and the consequent loss to the
petitioner in incurring the cost of acquiring legal assistance on the
matter constitutes a violation or an injury brought to the petitioner.
There is, therefore, a sufficient cause of action upon which the trial
court can render a valid judgment. (Tañedo v. Bernad, et al; G. R. No.
66520, August 30, 1988).
3. ID.; ID.; ID.; A MOTION TO DISMISS COMPLAINT ON GROUND
OF FAILURE TO STATE A CAUSE OF ACTION ADMITS THE
TRUTH OF THE FACTS THEREIN; EXCEPTION TO THE
PRINCIPLE. — The Court is very much cognizant of the principle that
a motion to dismiss on the ground of failure to state a cause of action
stated in the complaint hypothetically admits the truth of the facts
therein. The Court notes the following limitations on the hypothetical
admission: "The hypothetical admission is however limited to the
relevant and material facts well pleaded in the complaint and
inferences fairly deducible therefrom. The admission does not extend
to conclusions or interpretations of law; nor does it cover allegations
of fact the falsity of which is subject to judicial notice." (U. Bañez
Electric Light Co. v. Abra Electric Cooperative, Inc., 119 SCRA 90
[1982])
4. COMMERCIAL LAW; INSURANCE; PROVISION LIMITING
LIABILITY MUST BE INTERPRETED LIBERALLY IN FAVOR OF THE
INSURED. — We also reiterate the established rule that when the
terms of an insurance contract contain limitations on liability, the court
"should construe them in such a way as to preclude the insurer from
non-compliance with his obligations." (Taurus Taxi Co. Inc. v. Capital
Insurance and Surety Company, Inc., 24 SCRA 454 [1968]) A policy
of insurance with a narration of exceptions tending to work a forfeiture
of the policy shall be interpreted liberally in favor of the insured and
strictly against the insurance company or the party for whose benefit
they are inserted. (Eagle Star Insurance, Ltd. v. Chia Yu, 96 Phil. 696
[1955]; Trinidad v. Orient Protective Asso., 67 Phil. 181 [1939];
Serrano v. Court of Appeals, 130 SCRA 327 [1984]; and National
Power Corp. v. Court of Appeals, 145 SCRA 533 [1986])
5. ID.; ID.; ID.; FAILURE TO ESTABLISH THAT LOSS WAS DUE TO
RISK NOT INSURED RENDERS INSURERS LIABLE; CASE AT
BAR. — We agree with the petitioner’s claim that the burden of proof
to show that the insured is not liable because of an excepted risk is on
the private Respondent. The Rules of Court in its Section 1, Rule 131
provides that "each party must prove his affirmative allegations."
(Summit Guaranty and Insurance Co., Inc. v. Court of Appeals, 110
SCRA 241 [1981]; Tai Tong Chuache & Co. v. Insurance
Commissioner, 158 SCRA 366 [1988]; Paris-Manila Perfume Co. v.
Phoenix Assurance Co., 49 Phil. 753 [1926]). Where the insurer
denies liability for a loss alleged to be due to a risk not insured against,
but fails to establish the truth of such fact by concrete proofs, the Court
rules that the insurer is liable under the terms and conditions of the
policy by which it has bound itself. In this case, the dismissal order
without hearing and reception of evidence to prove that the firing
incident was indeed a result of a civil commotion, rebellion or
insurrection constitutes reversible error on the part of the trial court.
6. REMEDIAL LAW; CIVIL PROCEDURE; MOTION TO DISMISS;
DETERMINATION OF INSURER’S LIABILITY MUST NOT BE
THRESHED OUT IN A MOTION TO DISMISS BUT IN A FULL-
BLOWN TRIAL. — The Court stresses that it would be a grave and
dangerous procedure for the courts to permit insurance companies to
escape liability through a motion to dismiss without the benefit of
hearing and evidence every time someone is killed, or as in this case,
property is damaged in an ambush. The question on the nature of the
firing incident for the purpose of determining whether or not the insurer
is liable must first be threshed out and resolved in a full-blown trial.
7. ID.; ID.; ID.; ID.; GOVERNMENT’S PROCLAMATION AS TO
EXISTENCE OF REBELLION NOT NECESSARY; ISSUE
DEVELOPS DURING TRIAL OR MUST AWAIT LEGISLATION. —
The evidence to be received does not even have to relate to the
existence of an official government proclamation of the nature of the
incident because the latter is not an explicit requirement in the
exception clause resolved in a mere motion to dismiss and is, for
purposes of this petition for review on certiorari, immaterial. This
particular issue on when to take cognizance of a rebellion for purposes
of the law on contracts and obligations should have been developed
during the trial on the merits or may have to await remedial legislation
in Insurance Law or a decision in a more appropriate case.
8. ID.; APPEAL; WHERE THE JUDGE RULED OUT THE REMEDY
OF APPEAL, RECOURSE MUST BE THROUGH SPECIAL CIVIL
ACTION. — The judge ruled out the remedy of appeal which was
supposed to be availed of as a matter of right. In filing a petition
for certiorari, the petitioner was acting upon the instructions of the
judge. Under a situation where there was no more plain, speedy and
adequate remedy in the ordinary course of law, the only available
recourse was to file a special civil action of certiorari to determine
whether or not the dismissal order was issued with grave abuse of
discretion.
9. ID.; APPEAL; RECOURSE FROM THE DECISION OF THE
REGIONAL TRIAL COURT IN ITS APPELLATE JURISDICTION TO
THE COURT OF APPEALS IS BY PETITION FOR REVIEW. — A
petition for review before the Court of Appeals could have been
availed of if what is challenged is an adverse decision of the Regional
Trial Court in its appellate capacity affirming, modifying or reversing a
decision of a municipal trial court or lower tribunal. (Section 22, Batas
Pambansa Blg. 129 and Section 22 (6) of the Interim Rules).
10. ID.; ID.; RECOURSE FROM THE DECISION OF THE REGIONAL
TRIAL COURT ON A COMPLAINT ORIGINALLY FILED WITH IT IS
BY FILING A NOTICE OF APPEAL. — In this case, the petitioner
assailed the dismissal order of the Regional Trial Court of a complaint
originally filed with it. This adverse order which had the effect of a
judgment on the merits, may be appealed to the Court of Appeals by
filing a notice of appeal within fifteen (15) days from receipt of notice
of the order both on questions of law and of fact, (Section 39, Batas
Pambansa Blg. 129 and Section 19 (a) of the Interim Rules).
DECISION
GUTIERREZ, JR., J.:
The main issues raised in this petition for review on certiorari are
whether the Court of Appeals erred in: (1) affirming the dismissal by
the trial court of the complaint for damages on the ground of lack of
cause of action, and in (2) denying due course to a petition
for certiorari on the ground that the remedy of the petitioner to assail
said order is appeal.
Petitioner, Heirs of Ildefonso Coscoluella, Inc. is a domestic
corporation and the registered owner of an Isuzu KBD Pick-up truck
bearing Motor No. 663296 and Plate No. UV-FAW-189. The vehicle
was insured with the private respondent Rico General Insurance
Corporation for a consideration of P100,000.00 excluding third party
liability under Commercial Vehicle Policy No. CV-122415 per Renewal
Certificate No. 02189. The premiums and other expenses for
insurance paid covered the period from October 1, 1986 to October 1,
1987.chanrobles virtual lawlibrary
On August 28, 1987 and within the period covered by the insurance,
the insured vehicle was severely damaged and rendered
unserviceable when fired upon by a group of unidentified armed
persons at Hacienda Puyas, Barangay Blumentritt, Murcia, Negros
Occidental. In the same incident, four persons died.
Petitioner filed its claim of P80,000.00 for the repair of the vehicle but
private respondent, in a letter dated October 8, 1987, refused to grant
it. As a consequence, the petitioner was prompted to file a complaint
with the Regional Trial Court, 6th Judicial Region, Branch 47 at
Bacolod City, docketed as Civil Case No. 4707, to recover the claim
of P80,000.00 plus interest and attorney’s fees.
The private respondent filed a motion to dismiss alleging that the
complaint lacks a cause of action because the firing by armed men is
a risk excepted under the following provisions in the insurance
policy:jgc:chanrobles.com.ph
"The Company shall not be liable under any Section of the Policy in
respect of: —
1. . . .
2. . . .
3. Except in respect of claims arising under Sections I and II of the
policy, any accident, loss, damage or liability directly or indirectly,
proximately or remotely occasioned by, contributed to by or traceable
to, or arising out of, or in connection with flood, typhoon, hurricane,
volcanic eruption, earthquake or other convulsion of nature, invasion,
the act of foreign enemies, hostilities or warlike operations (whether
war be declared or not), civil commotion, mutiny, rebellion,
insurrection, military or usurped power, or by any direct or indirect
consequences of any of the said occurrences and in the event of any
claim hereunder, the insured shall prove that the accident, loss or
damage or liability arose independently of, and was in no way
connected with, or occasioned by, or contributed to, any of the said
occurrences, or any consequence thereof, and in default of such proof,
the Company shall not be liable to make any payment in respect of
such claim." (Italics supplied; see Rollo, p. 33, 71)cralawnad
The private respondent alleged that the firing was "an indirect
consequence of rebellion, insurrection or civil commotion." The
petitioner opposed the motion, saying that the quoted provision does
not apply in the absence of an official governmental proclamation of
any of the above-enumerated conditions.
The trial court ordered the dismissal of the complaint for lack of cause
of action stating that the damage arose from a civil commotion or was
a direct result thereof. (Rollo, p. 37)
A motion for reconsideration filed by the petitioner was denied by the
trial court which further noted that "Courts can take effective
cognizance of the general civil disturbance in the country akin to civil
war without any executive proclamation of the existence of such
unsettling condition." (Rollo, p. 38)
A second motion for reconsideration was filed but was later withdrawn.
Petitioner filed a notice of appeal which was given due course.
However, the trial court, stated in its order that "the records of the case
will not be transmitted to the Court of Appeals, the appropriate remedy
being (a) petition for review by way of certiorari." In that same order,
the trial court took cognizance of the withdrawal of the second motion
for reconsideration but noted the police blotter appended to said
motion which showed that "other than M-16 Armalite Rifles (the
number of which were not specified for unknown reasons), nothing
else was taken by the attackers." (Rollo, p. 40)
Thereafter, the petitioner filed a petition for certiorari with the Court of
Appeals. The appellate court denied the petition, affirmed the trial
court’s dismissal order, and also ruled that an appeal in the ordinary
course of law, not a special civil action of certiorari, is the proper
remedy for the petitioner in assailing the dismissal order.
Hence, this petition to review the respondent appellate court’s
decision.
Petitioner asserts that its complaint states a cause of action since
ultimate facts were alleged as follows:chanrobles law library
"3. — That, on August 28, 1987, the ISUZU KBD PICK-UP referred to
in the preceding paragraph was damaged as a result of an incident at
Hda. Puyas, Barangay Blumentritt, Murcia, Negros Occidental, when
it was fired upon by a group of unidentified armed persons causing
even the death of four (4) persons and rendering the said vehicle
almost totally damaged and unserviceable;
4. — That when the said incident occurred on August 28, 1987, the
said ISUZU KBD PICK-UP was insured by the defendant for
P100,000.00 excluding third-party liability under Commercial Vehicle
Policy No. CV/122415 per Renewal Certificate No. 02189 a copy of
which is herewith attached as Annex "B" ; and with the premiums and
other expenses thereon duly paid for under Official Receipt No. 691,
dated September 8, 1986, covering the period from October 1, 1986
to October 1, 1987, a copy of the same being attached hereto as
Annex "C" ;
5. — That, the damage on said motor vehicle being a "fait accompli"
and that it was insured by the defendant at the time it was damaged,
it is the obligation of the defendant to restore the said vehicle to its
former physical and running condition when it was insured however
defendant refused and still refuses and fails, despite demands in
writing made by plaintiff and its counsel to that effect, copies of said
letters attached hereto as Annexes "D" & "E" ;
6. — That, for purposes of restoring the ISUZU KBD PICK-UP insured
by the defendant to its former physical and running condition when it
was insured, as mentioned above, would cost P80,000.00, which will
include repair, repainting, replacement of spare parts, labor, etc., the
said amount having arrived at upon inspection and appraisal of the
said motor vehicle by knowledgeable and technical people;
7. — That, as a consequence of defendant’s refusal to settle or pay
the just claim of plaintiff, plaintiff has been compelled to hire the legal
services of counsel for the protection of its rights and interest at the
agreed fee of P15,000.00, for and as attorney’s fees, which sum
plaintiff is claiming from the defendant." (At pp. 29-30, Rollo)
Petitioner further maintains that the order of dismissal was erroneous
in that: it overlooked the principle that a motion to dismiss a complaint
on the ground of failure to state a cause of action hypothetically admits
the allegations in the complaint; no trial was held for the reception of
proof that the firing incident was a direct or indirect result of a civil
commotion, mutiny, insurrection or rebellion; private respondent had
the burden of proof to show that the cause was really an excepted risk;
and in any case, the nature of the incident as a "civil disturbance" must
first be officially proclaimed by the executive branch of the
government. Private respondent, on the other hand, argues that the
accident was really a result of a civil commotion, one of the fatalities
being a military officer. (Rollo, p. 59)
After a review of the records, the Court finds that the allegations set
forth in the complaint sufficiently establish a cause of action. The
following are the requisites for the existence of a cause of action: (1)
a right in favor of the plaintiff by whatever means and under whatever
law it arises or is created; (2) an obligation on the part of the named
defendant to respect, or not to violate such right; and (3) an act or
omission on the part of the said defendant constituting a violation of
the plaintiff’s right or a breach of the obligation of the defendant to the
plaintiff. (Cole v. Vda. de Gregoria, 116 SCRA 670 [1982]; Baliwag
Transit, Inc. v. Ople, G. R. No. 57642, March 16, 1989)
The facts as alleged clearly define the existence of a right of the
petitioner to a just claim against the insurer for the payment of the
indemnity for a loss due to an event against which the petitioner’s
vehicle was insured. The insurance contract mentioned therein
manifests a right to pursue a claim and a duty on the part of the insurer
or private respondent to compensate the insured in case of a risk
insured against. The refusal of the insurer to satisfy the claim and the
consequent loss to the petitioner in incurring the cost of acquiring legal
assistance on the matter constitutes a violation or an injury brought to
the petitioner.chanrobles law library
There is, therefore, a sufficient cause of action upon which the trial
court can render a valid judgment. (Tañedo v. Bernad, et al; G. R. No.
66520, August 30, 1988).
The Court is very much cognizant of the principle that a motion to
dismiss on the ground of failure to state a cause of action stated in the
complaint hypothetically admits the truth of the facts therein. The Court
notes the following limitations on the hypothetical
admission:jgc:chanrobles.com.ph
"The hypothetical admission is however limited to the relevant and
material facts well pleaded in the complaint and inferences fairly
deducible therefrom. The admission does not extend to conclusions
or interpretations of law; nor does it cover allegations of fact the falsity
of which is subject to judicial notice." (U. Bañez Electric Light Co. v.
Abra Electric Cooperative, Inc., 119 SCRA 90 [1982])
Applying the above principle, we hold that the private respondent’s
motion to dismiss hypothetically admits the facts alleged in the
complaint. We do not find anything in the complaint which does not
deserve admission by the motion since there are no "conclusions or
interpretations of law" nor "allegations of fact the falsity of which is
subject to judicial notice." It is clear that the complaint does no more
and no less than state simply that the van was damaged due to the
firing by unidentified armed men. Since the complaint does not
explicitly state nor intimate civil strife which private respondent insists
to be the cause of the damage, the motion to dismiss cannot go
beyond the admission of the facts stated and inferences reasonably
deducible from them. Any other assertion by the private respondent is
subject to proof. Meanwhile, the sufficiency of the petitioner’s cause of
action has been shown since, admitting the facts alleged, a valid
judgment can be rendered.
The private respondent’s invocation of the exceptions clause in the
insurance policy as the basis for its non-liability and the consequent
dismissal of the complaint is without merit. We also reiterate the
established rule that when the terms of an insurance contract contain
limitations on liability, the court "should construe them in such a way
as to preclude the insurer from non-compliance with his obligations."
(Taurus Taxi Co. Inc. v. Capital Insurance and Surety Company, Inc.,
24 SCRA 454 [1968]) A policy of insurance with a narration of
exceptions tending to work a forfeiture of the policy shall be interpreted
liberally in favor of the insured and strictly against the insurance
company or the party for whose benefit they are inserted. (Eagle Star
Insurance, Ltd. v. Chia Yu, 96 Phil. 696 [1955]; Trinidad v. Orient
Protective Asso., 67 Phil. 181 [1939]; Serrano v. Court of Appeals, 130
SCRA 327 [1984]; and National Power Corp. v. Court of Appeals, 145
SCRA 533 [1986])
The facts alleged in the complaint do not give a complete scenario of
the real nature of the firing incident. Hence, it was incumbent upon the
trial judge to have made a deeper scrutiny into the circumstances of
the case by receiving evidence instead of summarily disposing of the
case. Contrary to what the respondent appellate court says, this case
does not present a pure question of law but demands a factual
determination of whether the incident was a result of events falling
under the exceptions to the liability of private respondent contained in
the policy of insurance.cralawnad
We agree with the petitioner’s claim that the burden of proof to show
that the insured is not liable because of an excepted risk is on the
private Respondent. The Rules of Court in its Section 1, Rule 131
provides that "each party must prove his affirmative allegations."
(Summit Guaranty and Insurance Co., Inc. v. Court of Appeals, 110
SCRA 241 [1981]; Tai Tong Chuache & Co. v. Insurance
Commissioner, 158 SCRA 366 [1988]; Paris-Manila Perfume Co. v.
Phoenix Assurance Co., 49 Phil. 753 [1926]). Where the insurer
denies liability for a loss alleged to be due to a risk not insured against,
but fails to establish the truth of such fact by concrete proofs, the Court
rules that the insurer is liable under the terms and conditions of the
policy by which it has bound itself. In this case, the dismissal order
without hearing and reception of evidence to prove that the firing
incident was indeed a result of a civil commotion, rebellion or
insurrection constitutes reversible error on the part of the trial court.
The Court stresses that it would be a grave and dangerous procedure
for the courts to permit insurance companies to escape liability through
a motion to dismiss without the benefit of hearing and evidence every
time someone is killed, or as in this case, property is damaged in an
ambush. The question on the nature of the firing incident for the
purpose of determining whether or not the insurer is liable must first
be threshed out and resolved in a full-blown trial.
The evidence to be received does not even have to relate to the
existence of an official government proclamation of the nature of the
incident because the latter is not an explicit requirement in the
exception clause resolved in a mere motion to dismiss and is, for
purposes of this petition for review on certiorari, immaterial. This
particular issue on when to take cognizance of a rebellion for purposes
of the law on contracts and obligations should have been developed
during the trial on the merits or may have to await remedial legislation
in Insurance Law or a decision in a more appropriate case.
The petitioner also questions the reasoning of the Court of Appeals in
denying due course to the petition for certiorari. The appellate court
said that even assuming for the sake of argument that the dismissal
order by the trial court was not procedurally correct for lack of hearing,
there was only an "error of judgment or procedure" correctible only by
appeal then available in the ordinary course of law and not by a special
civil action of certiorari which cannot be a substitute for appeal.
The records show that the remedy of appeal was actually intended to
be pursued by petitioner. However, the appeal was rendered
unfeasible when the trial judge refused to transmit the records to the
appellate court. (see Rollo, p. 40) The judge, in effect, ruled out the
remedy of appeal which was supposed to be availed of as a matter of
right. In filing a petition for certiorari, the petitioner was acting upon the
instructions of the judge. Under a situation where there was no more
plain, speedy and adequate remedy in the ordinary course of law, the
only available recourse was to file a special civil action of certiorari to
determine whether or not the dismissal order was issued with grave
abuse of discretion.chanrobles virtual lawlibrary
It is apparent, moreover, that the respondent appellate court failed to
appreciate the petitioner’s predicament. The trial judge, aside from
dismissing the complaint which we now rule to have a sufficient cause WHEREFORE, considering the foregoing, the petition is hereby
of action, likewise prevented an ordinary appeal to prosper in GRANTED. The decision of the respondent Court of Appeals affirming
contravention of what is provided for by the rules of procedure. the dismissal order by the Regional Trial Court. is hereby REVERSED
and SET ASIDE. Let the case be remanded to the lower court for trial
The April 6, 1988 order of the trial judge stating that the appropriate on the merits.
remedy was a petition for review by way of certiorari is deplorable. The
lower court cannot even distinguish between an original petition SO ORDERED.
for certiorari and a petition for review by way of certiorari. A petition for
review before the Court of Appeals could have been availed of if what
is challenged is an adverse decision of the Regional Trial Court in its
appellate capacity affirming, modifying or reversing a decision of a
municipal trial court or lower tribunal. (Section 22, Batas Pambansa
Blg. 129 and Section 22 (6) of the Interim Rules). In this case, the
petitioner assailed the dismissal order of the Regional Trial Court of a
complaint originally filed with it. This adverse order which had the
effect of a judgment on the merits, may be appealed to the Court of
Appeals by filing a notice of appeal within fifteen (15) days from receipt
of notice of the order both on questions of law and of fact, (Section 39,
Batas Pambansa Blg. 129 and Section 19 (a) of the Interim Rules).
This was exactly what petitioner did after its motion for reconsideration
was denied. Unfortunately, the trial judge failed to see the propriety of
this recourse. And the Court of Appeals compounded the problem
when it denied the petitioner any remedy arising from the Judge’s
wrong instructions.

The filing of the petition for certiorari was proper. Petitioner has
satisfactorily shown before the respondent appellate court that the trial
judge "acted whimsically in total disregard of evidence material to and
even decisive of the controversy." (Pure Foods Corp. v. National Labor
Relations Commission, G. R. No. 78591, March 21, 1989).chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph

The extraordinary writ of certiorari is always available where there is

no appeal or any other plain, speedy and adequate remedy in the
ordinary course of law. (Tropical Homes, Inc. v. National Housing
Authority, 152 SCRA 540 [1987]; Pure Foods Corp. v. NLRC, supra).

Since the petitioner was denied the remedy of appeal, the Court
deems that a certiorari petition was in order.
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.
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
I issued, the purpose and function of the Cover Note
would
I 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
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.

2. The defense of delay as raised by private respondent in resisting

ACCORDINGLY, the appealed decision is set aside and the decision
the claim cannot be sustained. The law requires this ground of delay of the Court of First Instance is reinstated in toto with the affirmance
to be promptly and specifically asserted when a claim on the insurance of this Court. No special pronouncement as to costs.
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 SO ORDERED.
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
[G.R. Nos. 128833. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING
AND ELI D. LAO, petitioners, vs. COURT OF APPEALS
and GOYU & SONS, INC., respondents.
[G.R. No. 128834. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs.
COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU
& SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK
and BETTY CHIU SUK YING alias BETTY
GO, respondents.
[G.R. No. 128866. April 20, 1998]
MALAYAN INSURANCE INC., petitioner, vs. GOYU & SONS,
INC. respondent.
D EC I S I O N
MELO, J.:
The issues 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
commencing 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 attorneys fees. GOYUs
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 GOYUs application for approval by RCBCs
executive committee. A credit facility in the amount of P30 million was
initially granted. Upon GOYUs application and Uys and Laos
recommendation, RCBCs executive committee increased GOYUs
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 policies 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 GOYUs 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 GOYUs 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 GOYUs claims.
In an interlocutory order dated October 12, 1993 (Record, pp.
311-312), the Regional Trial Court of Manila (Branch 3), confirmed that
GOYUs 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 another Manila RTC sala (Branch 28) for the amount of
P8,696,838.75 (Exhibit 22-Malayan).
After trial, Branch 3 of the Manila RTC rendered judgment in favor
of GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
and against the defendant, Malayan Insurance Company, Inc. and
Rizal Commercial Banking Corporation, ordering the latter as follows:
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount
of P74,040,518.58 less the amount of
P50,000,000.00 which is deposited with this Court;
b. To pay the plaintiff damages by way of interest for the
duration of the delay since July 27, 1992 (ninety days
after defendant insurers receipt of the required proof
of loss and notice of loss) at the rate of twice the
ceiling prescribed by the Monetary Board, on the
following amounts:
1) P50,000,000.00 from July 27, 1992 up to the time
said amount was deposited with this Court on
January 7, 1994;
2) P24,040,518.58 from July 27, 1992 up to the time
when the writs of attachments were received
by defendant Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in
the amount of P2,000,000.00;
3. For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorneys fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the
plaintiff to pay its loan obligations with defendant 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.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is
hereby ordered to release immediately to the plaintiff the amount of
P50,000,000.00 deposited with the Court by defendant Malayan,
together with all the interests earned thereon.
 ( 4. And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons,
Record, pp. 478-479.)
From this judgment, all parties interposed their respective
appeals. GOYU was unsatisfied with the amounts awarded in its
favor. MICO and RCBC disputed the trial courts findings of liability on
their part. The Court of Appeals partly granted GOYUs appeal, but
sustained the findings of the trial court with respect to MICO and
RCBCs liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is
hereby modified as follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of
P74,040,518.58 less the amount of P50,505,594.60 (per O.R. No.
3649285) plus deposited in court and damages by way of interest
commencing July 27, 1992 until the time Goyu receives the said
amount at the rate of thirty-seven (37%) percent per annum which is
twice the ceiling prescribed by the Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING
CORPORATION:
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 attorneys fees.
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 RCBCs 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 review of the material facts as found by the two
courts below in relation to the pertinent and applicable laws, we find
merit in the submissions 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. Based 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., MICOs
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 separate 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 GOYUs 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 GOYUs 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
retained for Alchesters file (tsn, February 23, pp. 7-8). GOYU has not
denied having received from Alchester the originals of these
endorsements.
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 insured 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 GOYUs 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 RCBCs right to
the proceeds of the insurance policies 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 GOYUs 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 MICOs 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 credit 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 in this 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 policies were clearly intended.
Moreover, the laws evident intention to protect the interests of the
mortgagee 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 Amount : P6,603,586.43

Expiry Date : April 5, 1993 e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan

Amount : P9,646,224.92 Issue Date : January 18, 1992

Expiry Date : February 9, 1993

b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan Amount : P9,457,972.76

Issue Date : January 18, 1992

Expiry Date : February 9, 1993 f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan

Amount : P4,307,217.54 Issue Date : January 13, 1992

Expiry Date : January 13, 1993

Amount : P24,750,000.00

c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan

Issue Date : January 18, 1992 g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan

Expiry Date : February 15, 1993 Issue Date : May 29, 1991

Amount : P6,603,586.43 Expiry Date : June 27, 1992

Amount : P6,000,000.00

d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan

Issue Date : January 18, 1992 h. Policy Number : CI/F-128-03341 None

Expiry Date : (not legible) Issue Date : May 3, 1991

Expiry Date : May 3, 1992 The proceeds of the 8 insurance policies endorsed to RCBC
aggregate to P89,974,488.36. Being exclusively payable to RCBC by
Amount : P10,000,000.00 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 GOYUs other creditors up to
the extent of the GOYUs outstanding obligation in RCBCs
favor. Section 53 of the Insurance Code ordains that the insurance
i. Policy Number : F-114-07402 Exhibit 8-Malayan proceeds of the endorsed policies shall be applied exclusively to the
proper interest of the person for whose benefit it was made. In this
Issue Date : September 16, 1991 case, to the extent of GOYUs obligation with RCBC, the interest of
GOYU in the subject policies had been transferred to RCBC effective
Expiry Date : October 19, 1992 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
Amount : P32,252,125.20 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 GOYUs other
creditors. To the extent of GOYUs outstanding obligation with RCBC,
j. Policy Number : F-114-07525 Exhibit 9-Malayan all the rest of the other insurance policies above-listed which were
endorsed to RCBC, are, therefore, to be released from attachment,
Issue Date : November 20, 1991 garnishment, and levy by the other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is,
Expiry Date : December 5, 1992
the extent of GOYUs outstanding obligation with RCBC which the
proceeds of the 8 insurance policies will discharge and liquidate, or
Amount : P6,603,586.43 put differently, the actual amount of GOYUs liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial
court finding that GOYUS total obligation to RCBC was only
P68,785,060.04 as of April 27, 1992, thus sanctioning the trial courts
(pp. 456-457, Record; exclusion of Promissory Note No. 421-92 (renewal of Promissory Note
Folder of Exhibits for No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory
MICO.) Note No. 952-91) on the ground that their execution is highly
questionable for not only are these dated after the fire, but also
Policy Number F-114-07795 [(a) above] has not been because the signatures of either GOYU or any its representative are
endorsed. This fact was admitted by MICOs witness, Atty. Farolan conspicuously absent. Accordingly, the Court of Appeals speculated
(tsn, February 16, 1994, p. 25). Likewise, the record shows no thusly:
endorsement for Policy Number CI/F-128-03341 [(h) above]. Also,
one of the endorsement documents, Exhibit 5-Malayan, refers to a
Hence, this Court is inclined to conclude that said promissory notes
certain insurance policy number ACIA-F-07066, which is not among were pre-signed by plaintiff in blank terms, as averred by plaintiff, in
the insurance policies involved in the complaint. contemplation of the speedy grant of future loans, for the same
practice of procedure has always been adopted in its previous
dealings with the bank.
Rollo, pp. 181-182.)
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 that the ordinary course of business had been followed
(Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222
SCRA 486 [1993]). 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 amount (Travel-On, Inc. vs. Court of Appeals, 210
SCRA 351 [1992]).
Even casting aside the presumption of regularity of private
transactions, receipt of the loan amounting to P121,966,058.67
(Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the
testimony of Go Song Hiap when he answered the queries of the trial
court:
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you
received all the amounts stated therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to
29-RCBC?
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the amount I
asked which is correct, Your Honor.
COURT
(
Q: You mean to say the amounts indicated in Exhibits 1 to 29-
RCBC is 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 quoted,
GOYU also offered and admitted to RCBC that its obligation be fixed
at P116,301,992.60 as shown in its letter dated 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.
(
Exhibit BB.)
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 consider that said notes had for their origin transactions
consummated prior to the fire. Thus, careful attention must be paid to
the fact that Promissory Notes No. 420-92 and 421-92 are
mere renewals of Promissory Notes No. 908-91 and 952-91, loans
already availed of by GOYU.
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 that of the fire, are mere renewals of previous ones. The
proceeds of the loan represented by these promissory notes were Insurance Company: 6,095,145.81
admittedly received by GOYU. There is ample factual and legal basis
for giving GOYUs judicial admission of liability in the amount of 2) Proceeds from
P116,301,992.60 full force and effect
It should, however, be quickly added that whatever amount Equitable Insurance
RCBC may have recovered from the other insurers of the mortgaged
property will, nonetheless, have to be applied as payment against Company: 2,756,373.00
GOYUs obligation. But, contrary to the lower courts findings,
payments effected by GOYU prior to January 21, 1993 should no 3) Payment from
longer be deducted. Such payments had obviously been duly
considered by GOYU, in its aforequoted letter dated March 9, 1993,
foreign department
wherein it admitted that its past due account totaled P116,301,992.60
as of January 21, 1993.
negotiation: 203,584.89
The net obligation of GOYU, after deductions, is thus reduced to
P107,246,887.90 as of January 21, 1993, to wit: 9,055,104.70[3]

Total Obligation as admitted by GOYU as of January 21, NET AMOUNT as of January 21, 1993: P 107,246,887.90
1993: P116,301,992.60
The need for the payment of interest due upon the principal
Broken down as follows amount of the obligation, which is the cost of money to RCBC, the
primary end and the ultimate reason for RCBCs existence and being,
Principal[1] Interest was duly recognized by the trial court when it ruled favorably on
RCBCs counterclaim, ordering GOYU to pay its loan obligation with
Regular 80,535,946.32 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
FDU 7,548,025.17 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 courts ruling and ordered GOYU to pay the principal
amount of P68,785,069.04 without any interest, surcharges and
Total: 108,083,971.49 8,218,021.11[2] penalties (Rollo, p. 200).

LESS: It is to be noted in this regard that even the trial court hedgingly
and with much uncertainty deleted the payment of additional interest,
penalties, and charges, in this manner:
1) Proceeds from
Regarding defendant RCBCs commitment not to charge additional
Seaboard Eastern 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 latters pitiful situation. (Emphasis
supplied.)
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 Appeals 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 in Eastern 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
Raccrual thereof, is imposed, as follows:
e
c1. When the obligation is breached, and it consists in the payment of
o
a sum of money, i.e., a loan or forbearance of money, the interest due
r
should be that which may have been stipulated in
d
writing. Furthermore, the interest due shall itself earn legal interest
,
from the time it is judicially demanded. In the absence of stipulation,
pthe rate of interest shall be 12% per annum to be computed from
. default, i.e., from judicial or extrajudicial demand under and subject to
4
the provisions of Article 1169 of the Civil Code.
7
6
)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.
( anywhere from 9% to 27%, plus the penalty charges of 36%, to be
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 GOYUs 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 circumstances under which GOYU found itself after
the occurrence of the fire, the Court rules the surcharges rates ranging
definitely iniquitous and unconscionable. The Court tempers these
rates to 2% and 3%, respectively.Furthermore, in the light of GOYUs
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 spread 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 (Buffalo 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 orders 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 petitioners (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:
1. Dismissing the Complaint of private respondent GOYU in Civil Case
No. 93-65442 before Branch 3 of the Manila Regional 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
( trial court and its earned interest. The total amount due RCBC
with the
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.
G.R. No. 77530 October 5, 1989
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
PHILIPPINE AMERICAN GENERAL INSURANCE CO., respondent.
Cinco, Sarmiento, Ridad & Salinas for petitioner.
Fajardo Law Offices for private respondent.
GANCAYCO, J.:
Marinduque Mining Industrial Corporation (Marinduque for short)
shipped on board SS Arthur Maersk from Boston, U.S.A. a shipment
of one (1) skid carton parts for valves as evidenced by bill of lading
No. BOSF-45607 issued by the Maersk Lines dated April 25, 1980. 1
The shipment was ordered from Jamesbury, Singapore PTE, LTD.,
which issued the cargo's packing list 2 and Invoice number 3 showing
the contents of the carton. The consular invoice was issued by the
Philippine Consulate in Singapore for the shipment showing the
contents and its total price amounting to $39,419.60 as well as the
freight and other charges amounting to $2,791.73. 4 When the cargo
arrived in Manila, it was received and deposited in the office of Aboitiz
Shipping Corporation (Aboitiz for short) at Pier 4, North Harbor, Manila
for transhipment to Nonoc Island for which it issued bill of lading No.
23. 5
On July 7,1980 Marinduque, as consignee of the cargo, made a report
to the effect that said cargo was pilfered on the night of July 3, 1980
while there was heavy rain at the Aboitiz terminal and that of the total
value of the cargo of $42,209.33, only $7,412.00 worth remains of the
cargo with the recommendation that the claim be made against
Aboitiz. 6
The services of the Manila Adjusters and Surveyors Co. (Manila
Adjusters for brevity) were engaged by the Phil-American General
Insurance Co., Inc. (Phil Am for short) which came out with the report
that the cargo in question was delivered at Pier 4, North Harbor on
July 3, 1980 which cargo, when inspected on July 5, 1980 showed that
it was pilfered. The list of the remaining contents was in the report. 7 A
confirmatory report was submitted by the Manila Adjusters dated
November 8,1980. 8
On August 11, 1980, Marinduque filed a claim against Aboitiz in the
amount of P246,430.80 representing the value of the pilfered
cargo. 9 On the same day Marinduque filed a claim for the same
amount against the Phil-Am on the latter's policy MRN-01754 PAG. 10
On August 25, 1981 Phil-Am paid Marinduque the sum of P246,430.80
as insurer of the cargo. 11
Phil-Am then filed a complaint in the Regional Trial Court (RTC) of
Manila against Aboitiz for the recovery of the same amount alleging
that it has been subrogated to the rights of Marinduque.
In a decision rendered on January 11, 1984, the complaint was
dismissed with costs against the plaintiff. A motion for reconsideration
of this decision was denied in an order dated March 19,1984.
Hence the Phil-Am appealed to the Court of Appeals wherein in due
course a decision was rendered on December 17, 1986 reversing the
appealed order of dismissal of the complaint and ordering defendant
Aboitiz to pay plaintiff Phil-Am the sum of P246,430,80 plus
P15,000.00 as attorney's fees. 12 A motion for reconsideration thereof
was denied in a resolution of the appellate court dated February 27,
1987.
Hence the herein petition for review for certiorari filed by Aboitiz
predicated on five assignments of errors, the resolution of which
revolves on the singular issue of whether petitioner was properly held
liable to the private respondent by the appellate court.
The petition is devoid of merit.
The main thrust of the petition is that the findings of the trial court that
the insurance policy covering the cargo was issued at the time when
the cargo was already pilfered and that the coverage under Marine
Policy No. 100105 PAG never began and that Marine Policy No.
100184 did not attach to the shipment because the shipment was
never loaded on any vessel of the defendant should be entitled to
considerable weight.
The records of this case show that private respondent executed a
continuous and open insurance coverage covering goods of
Marinduque imported into and exported from the Philippines which
took effect after September 1, 1975, as contained in Marine Open
Policy No. 100184.13 A similar insurance coverage was also executed
by petitioner in favor of Marinduque for all its goods shipped or moved
within the territorial limits of the Philippines also effective after
September 1, 1975 and contained in Marine Open Policy No.
100185. 14
The questioned shipment is covered by this continuing open insurance
coverage from the time it was loaded aboard the SS Arthur Maersk in
Boston, U.S.A. to the time it was delivered to the possession of
petitioner at its offices at Pier 4 in Manila until it was pilfered when the
great majority of the cargo was lost on July 3, 1980.
The trial court in dismissing the complaint apparently relied on Marine
Risk Note No. 017545 which was issued by private respondent only
on July 28, 1980 15 after the shipment in question was already pilfered
.16 Obviously the trial court mistook said Marine Risk Note as an
insurance policy when it is not. It is only an acknowledgment or
declaration of the private respondent confirming the specific shipment
covered by its Marine Open Policy, the evaluation of the cargo and the
chargeable premium. 17
The contention of the petitioner that it could not be liable for the
pilferage of the cargo as it was stolen even before it was loaded on its
vessel is untenable. Petitioner received the cargo when it arrived in
Manila at its offices at Pier 4, North Harbor and it was while in its
possession and before loading it in its vessel that the cargo was
pilfered. Its liability is clear.
Petitioner also decries the proceedings before the lower court as ex-
parte without affording it due process. The records however show that
the petitioner was declared in default and thus the evidence for
Marinduque was received ex-parte in accordance with the rules.
Petitioner had only itself to blame under the circumstances.
WHEREFORE, the petition is DISMISSED with costs against
petitioner.
SO ORDERED.
G.R. No. 71360 July 16, 1986
DEVELOPMENT INSURANCE CORPORATION, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, and PHILIPPINE UNION
REALTY DEVELOPMENT CORPORATION, respondents.
Balgos & Perez Law Offices for petitioner.
Agustin M. Sundiam for private respondent.
CRUZ, J.:
A fire occurred in the building of the private respondent and it sued for
recovery of damages from the petitioner on the basis of an insurance
contract between them. The petitioner allegedly failed to answer on
time and was declared in default by the trial court. A judgment of
default was subsequently rendered on the strength of the evidence
submitted ex parte by the private respondent, which was allowed full
recovery of its claimed damages. On learning of this decision, the
petitioner moved to lift the order of default, invoking excusable neglect,
and to vacate the judgment by default. Its motion was denied. It then
went to the respondent court, which affirmed the decision of the trial
court in toto. The petitioner is now before us, hoping presumably that
it will fare better here than before the trial court and the Intermediate
Appellate Court. We shall see.
On the question of default, the record argues mightily against it. It is
indisputable that summons was served on it, through its senior vice-
president, on June 19,1980. On July 14, 1980, ten days after the
expiration of the original 15-day period to answer (excluding July 4),
its counsel filed an ex parte motion for an extension of five days within
which to file its answer. On July 18, 1980, the last day of the requested
extension-which at the time had not yet been granted-the same
counsel filed a second motion for another 5-day extension, fourteen
days after the expiry of the original period to file its answer. The trial
court nevertheless gave it five days from July 14, 1980, or until July
19, 1980, within which to file its answer. But it did not. It did so only on
July 26, 1980, after the expiry of the original and extended periods, or
twenty-one days after the July 5, deadline. As a consequence, the trial
court, on motion of the private respondent filed on July 28, 1980,
declared the petitioner in default. This was done almost one month
later, on August 25, 1980. Even so, the petitioner made no move at all
for two months thereafter. It was only on October 27, 1980, more than
one month after the judgment of default was rendered by the trial court
on September 26, 1980, that it filed a motion to lift the order of default
and vacate the judgment by default.1
The pattern of inexcusable neglect, if not deliberate delay, is all too
clear. The petitioner has slumbered on its right and awakened too late.
While it is true that in Trajano v. Cruz,2 which it cites, this Court
declared "that judgments by default are generally looked upon with
disfavor," the default judgment in that case was set aside precisely
because there was excusable neglect, Summons in that case was
served through "an employee in petitioners' office and not the person
in-charge," whereas in the present case summons was served on the
vice-president of the petitioner who however refused to accept it.
Furthermore, as Justice Guerrero noted, there was no evidence
showing that the petitioners in Trajano intended to unduly delay the
case.
Besides, the petitioners in Trajano had a valid defense against the
complaint filed against them, and this justified a relaxation of the
procedural rules to allow full hearing on the substantive issues raised.
In the instant case, by contrast, the petitioner must just the same fail
on the merits even if the default orders were to be lifted. As the
respondent Court observed, "Nothing would be gained by having the
order of default set aside considering the appellant has no valid
defense in its favor." 3
The petitioner's claim that the insurance covered only the building and
not the elevators is absurd, to say the least. This Court has little
patience with puerile arguments that affront common sense, let alone
basic legal principles with which even law students are familiar. The
circumstance that the building insured is seven stories high and so
had to be provided with elevators-a legal requirement known to the
petitioner as an insurance company-makes its contention all the more
ridiculous.
No less preposterous is the petitioner's claim that the elevators were
insured after the occurrence of the fire, a case of shutting the barn
door after the horse had escaped, so to speak.4 This pretense merits
scant attention. Equally undeserving of serious consideration is its
submission that the elevators were not damaged by the fire, against
the report of The arson investigators of the INP5 and, indeed, its own
expressed admission in its answer6 where it affirmed that the fire
"damaged or destroyed a portion of the 7th floor of the insured building
and more particularly a Hitachi elevator control panel." 7
There is no reason to disturb the factual findings of the lower court, as
affirmed by the Intermediate Appellate Court, that the heat and
moisture caused by the fire damaged although they did not actually
burn the elevators. Neither is this Court justified in reversing their
determination, also factual, of the value of the loss sustained by the
private respondent in the amount of P508,867.00.
The only remaining question to be settled is the amount of the
indemnity due to the private respondent under its insurance contract
with the petitioner. This will require an examination of this contract,
Policy No. RY/F-082, as renewed, by virtue of which the petitioner
insured the private respondent's building against fire for
P2,500,000.00. 8
The petitioner argues that since at the time of the fire the building
insured was worth P5,800,000.00, the private respondent should be
considered its own insurer for the difference between that amount and
the face value of the policy and should share pro rata in the loss
sustained. Accordingly, the private respondent is entitled to an
indemnity of only P67,629.31, the rest of the loss to be shouldered by
it alone. In support of this contention, the petitioner cites Condition 17
of the policy, which provides:
If the property hereby insured shall, at the breaking
out of any fire, be collectively of greater value than the
sum insured thereon then the insured shall be
considered as being his own insurer for the
difference, and shall bear a ratable proportion of the
loss accordingly. Every item, if more than one, of the
policy shall be separately subject to this condition.
However, there is no evidence on record that the building was worth
P5,800,000.00 at the time of the loss; only the petitioner says so and
it does not back up its self-serving estimate with any independent
corroboration. On the contrary, the building was insured at
P2,500,000.00, and this must be considered, by agreement of the
insurer and the insured, the actual value of the property insured on the
day the fire occurred. This valuation becomes even more believable if
it is remembered that at the time the building was burned it was still
under construction and not yet completed.
The Court notes that Policy RY/F-082 is an open policy and is subject
to the express condition that:
Open Policy
This is an open policy as defined in Section 57 of the
Insurance Act. In the event of loss, whether total or
partial, it is understood that the amount of the loss
shall be subject to appraisal and the liability of the
company, if established, shall be limited to the actual
loss, subject to the applicable terms, conditions,
warranties and clauses of this Policy, and in no case
shall exceed the amount of the policy.
As defined in the aforestated provision, which is now Section 60 of the
Insurance Code, "an open policy is one in which the value of the thing
insured is not agreed upon but is left to be ascertained in case of loss.
" This means that the actual loss, as determined, will represent the
total indemnity due the insured from the insurer except only that the
total indemnity shall not exceed the face value of the policy.
The actual loss has been ascertained in this case and, to repeat, this
Court will respect such factual determination in the absence of proof
that it was arrived at arbitrarily. There is no such showing. Hence,
applying the open policy clause as expressly agreed upon by the
parties in their contract, we hold that the private respondent is entitled
to the payment of indemnity under the said contract in the total amount
of P508,867.00.
The refusal of its vice-president to receive the private respondent's
complaint, as reported in the sheriff's return, was the first indication of
the petitioner's intention to prolong this case and postpone the
discharge of its obligation to the private respondent under this
agreement. That intention was revealed further in its subsequent acts-
or inaction-which indeed enabled it to avoid payment for more than
five years from the filing of the claim against it in 1980. The petitioner
has temporized long enough to avoid its legitimate responsibility; the
delay must and does end now.
WHEREFORE, the appealed decision is affirmed in full, with costs
against the petitioner.
SO ORDERED.