FILIPINO MERCHANTS INSURANCE CO., INC., petitioner, vs. COURT OF APPEALS and CHOA TIEK SENG, respondents.

Balgos & Perez Law Offices for petitioner. Lapuz Law office for private respondent.

REGALADO, J.: This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part of which reads: WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate from the date of filing of the complaint, and is modified with respect to the third party complaint in that (1) third party defendant E. Razon, Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal interest from the date of payment until the date of reimbursement, and (2) the third-party complaint against third party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed. 1 The facts as found by the trial court and adopted by the Court of Appeals are as follows: This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from the defendant insurance company the amount of P51,568.62 representing damages to said shipment which has been insured by the defendant insurance company under Policy No. M-2678. The defendant brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case Judgment is rendered against the third party plaintiff. It appears from the evidence presented that in December 1976, plaintiff insured said shipment with defendant insurance company under said cargo Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6Razon. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. Defendant's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report Exhibit F with the findings on the extent of shortage or loss on the bad order bags

totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation the plaintiff made a formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal claim statement was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance Company refused to pay the claim. Consequently, the plaintiff brought an action against said defendant as adverted to above and defendant presented a third party complaint against the vessel and the arrastre contractor. 2 The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal portion whereof reads: WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay the plaintiff the following amount: The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint; On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally reimbursement of the amounts paid by the third party plaintiff with legal interest from the date of such payment until the date of such reimbursement. Without pronouncement as to costs. 3 On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition with the following assignment of errors: 1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the marine insurance policy when it held the petitioner liable to the private respondent for the partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental cause to which the loss is attributable, thereby contradicting the very precedents cited by it in its decision as well as a prior decision of the same Division of the said court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove); 2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in the subject cargo, hence, the marine insurance policy taken out by private respondent is null and void; 3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable interest in the subject cargo, which bars its recovery on the policy. 4 On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that

the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy. We find said contention untenable. The "all risks clause" of the Institute Cargo Clauses read as follows: 5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage. 5 An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. 6 The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than a willful and fraudulent act of the insured. 7 This is pursuant to the very
purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property. 8 An "all asks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is written against all losses, that is, attributable to external causes. 9

The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. 10 As we held in Paris-Manila Perfumery Co. vs. Phoenix
Assurance Co., Ltd. 11 the basic rule is that the insurance company has the burden of proving that the loss is caused by the risk excepted and for want of such proof, the company is liable.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. 12 A marine insurance policy providing that the insurance was to be
"against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured. 13 The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due consideration of the authorities and jurisprudence it discussed ... it is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the lower court did not err in holding that the loss was covered by the policy. There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was packed was such that they could not hold their contents in the course of the necessary transit, much less any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had there been such a showing that spillage would have been a certainty, there may have been good reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessity to point to any particular cause. 14 Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. 15 Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property y. 16 Insurable interest in
property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. 17

Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. 18 The perfected contract of sale between him and the shipper of the
goods operates to vest in him an equitable title even before delivery or before be performed the conditions of the sale. 19 The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them. 20

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named destination. 21 It simply means that the seller must pay
the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. 22

Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it raised during the trial in the court below. It is a settled rule that an issue which has not been raised in the court a quo cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process. 23This is but a permuted restatement of the long settled rule
that when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. 24

If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case and also to dispose of petitioner's third assignment of error which consequently needs no further discussion. WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED in toto.

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PHILAMCARE HEALTH SYSTEMS, INC., Petitioner, v. COURT OF APPEALS and JULITA TRINOS, Respondents. DECISION

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question:
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Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). 1 The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondents husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services.
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Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. 2 During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied

her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day.
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On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90 53795. She asked for reimbursement of her expenses plus moral damages and attorneys fees. After trial, the lower court ruled against petitioners, viz:
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WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:
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1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; 2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff; 3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff; 4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit. SO ORDERED 3 On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente. 4 Petitioners motion for reconsideration was denied. 5 Hence, petitioner brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code 6 does not apply. Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last longer, 7 petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health.
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Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3. The insurer assumes the risk;

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4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group

of persons bearing a similar risk; and 5. In consideration of the insurers promise, the insured pays a premium. 8 Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides:
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Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children;

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(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends. In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. 9 Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.
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Petitioner argues that respondents husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondents husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. 10 Specifically, the Health Care Agreement signed by respondents husband states:
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We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime relative to any information acquired by him in his professional capacity upon any question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office Endorsement. 11 (Emphasis ours) In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicants medical history, thus:
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I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of ________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization. consultation. treatment or any other medical advice or examination. This authorization is in connection with the application for health care coverage only. A photographic copy of this authorization shall be as valid as the original. 12 (Emphasis ours) Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
c hanro b1es vi rt ual 1aw li bra ry

Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the

Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. 13 The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondents husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. 14 Thus,
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(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. 15 (Emphasis ours) The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. 16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. 17 In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:
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1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. 18 None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. 19 Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. 20 By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. 21 This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. 22 Anent the incontestability of the membership of respondents husband, we q uote with approval the following findings of the trial court:
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(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. 23 Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceaseds hospitalization, medication and the professional fees of the attending physicians. 24 WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.

______________ PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs. TRANS-ASIA SHIPPING LINES, INC., Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - x G.R. No. 151991 June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent. DECISION CHICO-NAZARIO, J: This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2002 Resolution3 of the Court of Appeals, denying PRUDENTIALs Motion for Reconsideration and TRANS-ASIAs Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside. The Facts The material antecedents as found by the court a quo and adopted by the appellate court are as follows:

Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANSASIA] reserved its right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey and determination by average adjuster Richard Hogg International (Phil.) of the damage sustained by reason of fire. An adjusters report on the fire in question was submitted by Richard Hogg International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115"). On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read (sic): "Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit "4") In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (Exhibit "5"). The letter reads: "After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED." This was followed by defendants letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4 Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended. In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest

and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorneys fees. The Ruling of the Trial Court On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL. It ruled that a determination of the parties liabilities hinged on whether TRANSASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract. 9 Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIALs contention that there was nothing in the adjustment of the particular average submitted by the adjuster that would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it should have so clearly stated as such. The court a quo did not award PRUDENTIALs claim for P500,000.00, representing expert survey fees on the ground of lack of sufficient basis in support thereof. Neither did it award attorneys fees on the rationalization that the instant case does not fall under the exceptions stated in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIALs counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without interest. The decretal portion of the Judgment of the RTC reads: WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action. On defendants counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it by the defendant, within a period of ten (10) days from and after this judgment shall have become final and executory.12 The Ruling of the Court of Appeals On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000 Judgment of the RTC. On the issue of TRANS-ASIAs alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The Court of

Appeals opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA. Instead, the Court of Appeals considered PRUDENTIALs admission that at the time the insurance contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence of a certification does not warrant denial of TRANS-ASIAs claim under the insurance policy. In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract dadhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the Court of Appeals, PRUDENTIALs renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by TRANSASIA. Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIALs partial payment to TRANS-ASIAs claim under the policy. Finally, the Court of Appeals denied TRANS-ASIAs prayer for attorneys fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code. Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise: WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by the average adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from the time Richard Hoggs Survey Report was completed, or on 13 August 1996, until the same is fully paid. All other claims and counterclaims are hereby DISMISSED. All costs against appellee.14 Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the Resolution dated 29 January 2002. The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following grounds, viz:
I. THE AWARD IS GROSSLY UNCONSCIONABLE. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANSASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY. III. THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY. IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER. V. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TRANS-ASIA. VI. THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT THEREOF. VII. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY. VIII. THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEYS FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIAS INSURANCE CLAIM. II. THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIAs Motion for Consolidation17 of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitions. In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the liability, if any, of either or both parties. Ruling of the Court Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the findings and conclusions of the trial court, or are not supported by the evidence on record.20 In the case at bar, we find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary.
I. A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of

TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 7421 of the Insurance Code. The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIALs Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination is reproduced hereunder, viz: ATTY. LIM Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken? A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty condition and on that basis the claim was denied. Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or violated by the plaintiff which constituted your basis for denying the claim as you testified. A Warranted Vessel Classed and Class Maintained. ATTY. LIM Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten clauses and the witness pointed out in particular the clause reading: "Warranted Vessel Classed and Class Maintained." COURT Q Will you explain that particular phrase? A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be entered in the classification society. COURT Slowly. WITNESS (continued) A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification society. So, if they failed to meet that standard, they are considered not members of that class, and thus breaching the warranty, that requires them to maintain membership or to maintain their class on that classification society. And it is not sufficient that the member of this classification society at the time of a loss, their

membership must be continuous for the whole length of the policy such that during the effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated, that again still a breach of the warranty that they maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic). ATTY. LIM Q Can you mention some classification societies that you know? A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine Registration of Ships Society, China Classification, NKK and Company Classification Society, and many others, we have among others, there are over 20 worldwide. 22 At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANSASIA breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach. In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case, otherwise, a verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIAs case, and to prove its special and affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED. We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED. Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIAs vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus: Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic). WITNESS A I recall that they were classed.

ATTY. LIM Q With what classification society? A I believe with Bureau Veritas.24 As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation. We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIALs records to the effect that TRANS-ASIAs "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more reason must we sustain the findings of the Court of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjusters survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board. We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer."25 However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy. B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIAs breach of warranty as alleged, ratiocinating, thus: Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26 PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of TRANS-ASIAs alleged breach, averring herein that the

subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANSASIA that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the issuance of the renewal policies cannot be a waiver because they were issued without knowledge of the alleged breach of warranty committed by TRANS-ASIA.27 We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIAs breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively. To our mind, the argument is made even more credulous by PRUDENTIALs lack of proof to support its allegation that the renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIALs claim that no certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIAs alleged breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty. The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge the burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL. II. A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy. It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder:
LOAN AND TRUST RECEIPT

Claim File No. MH-93-025 P3,000,000.00 Check No. PCIB066755

May 29, 1995

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/1353, repayable only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board. As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to prove our interest in said property. We also hereby agree to promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence, in our own name, but at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC. TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further submits that it is a customary practice for insurance companies in this country to extend loans gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue business without embarrassment while awaiting outcome of the settlement of their claims.30According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter. The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIAs claim on the insurance, thus: The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapter V thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive in interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute should correspond in fundamental points with the application in its country of origin x x x. xxxx Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended as a loan does not detract from its real character as payment of claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee where no provision or repayment of the money was made except upon condition that it be recovered from other parties and neither interest nor security for the asserted debts was provided for, the money constituted the payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan." What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to prove its interest in the said property." For all intents and purposes therefore, the money receipted is payment under the policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer of all remedies which the insured may have against third person whose negligence or wrongful act caused the loss covered by the insurance policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer. It has been referred to as the doctrine of substitution and rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form. 31 We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the policy of the claims due to TRANS-ASIA. First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board."32 Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of TRANSASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may have occasioned the loss. Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan

and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIAs claim on MH93/1353. III. A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363. Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26. B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorneys fees equivalent to 10% of P8,395,072.26. The Court of Appeals denied the grant of attorneys fees. It held that attorneys fees cannot be awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIAs claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals, attorneys fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds no application in the instant case. We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorneys fees and other expenses incurred by the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board on the amount of the claim due the insured from the date following the time prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment. To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorneys fees be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall consist of attorneys fees and other expenses incurred by the insured.37 Section 244 reads: In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorneys fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within

the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment. Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment of the insurance claims. In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latters claim for the amount of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance claim. As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latters right to the insurance claims, from the time proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIALs unreasonable delay in satisfying TRANS-ASIAs unpaid claims compelled the latter to file a suit for collection. Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorneys fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by this Court, we grant an award of attorneys fees equivalent to ten percent (10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar. C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be imposed double interest in accordance with Section 244 of the Insurance Code. Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary Board due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other than life insurance. Section 243 is hereunder reproduced: SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the

proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the ground that the claim is fraudulent. D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per annum. PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIALs stance that the award is extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a reference to TRANS-ASIAs prayer in the Complaint filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42 The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the Insurance Code.45There is no gainsaying that the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus: The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the insurance.46 E. The payment of double interest should be counted from 13 September 1996. The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although not raised by the parties, we find the computation of the duration of the delay made by the appellate court to be patently erroneous. To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANSASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 September 1996 only. IV. A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein, computed from the time of finality of judgment until the full satisfaction thereof in conformity with this Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a loan or forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance49of credit. We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest. Fallo WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we award the grant of attorneys fees and make a clarification that the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further clarification, that the same should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit:
1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363; 2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorneys fees equivalent to 10% of the amount of P8,395,072.26; 3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be imposed double interest at the rate of 24% per annum to be computed from 13 September 1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the full satisfaction thereof.

No costs. _____________
TIO KHE CHIO, petitioner, vs. THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY CORPORATION,respondents. Rodolfo M. Morelos for petitioner. Ferrer, Mariano, Sangalang & Gatdula for private respondent.

FERNAN, C.J.:p The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in actions for damages arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it should be twelve (12%) per cent pursuant to Articles 243 and 244 of the Insurance Code while private respondent Eastern Assurance and Surety Corporation (EASCO) claims that it should be six (6%) per cent under Article 2209 of the Civil Code. The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand (1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, U.S.A. Dallas, Texas, U.S.A. The goods were insured with respondent EASCO and shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached Manila on January 28, 1979, they were found to have been damaged by sea water which rendered the fishmeal useless. Petitioner filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim against the petitioner for the recovery of P18,387.86 representing the unpaid insurance premiums. On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's fees and the costs. 1 The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety Corporation." The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff enforcing the writ reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO moved to quash the writ alleging that the legal interest to be computed should be six (6%) per cent per annum in accordance with Article 2209 of the Civil Code and not twelve (12%) per cent as

insisted upon by petitioner's counsel. In its order of July 30, 1986, the trial court denied EASCO's motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals. On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which states: WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at 12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full payment of the amount, and the interest that the private respondent is entitled to collect from the petitioner is hereby reduced to 6% per annum. No pronouncement as to costs. 2 In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only is it unjust and unfair but it is also contrary to the correct interpretation of the fixing of interest rates under Sections 243 and 244 of the Insurance Code. And since petitioner's claims is based on an insurance contract, then it is the Insurance Code which must govern and not the Civil Code. We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per annum as correctly held by the Appellate Court. Section 243 of the Insurance Code provides: The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. Section 244 of the aforementioned Code also provides: In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment.

In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or withholding of payment on petitioner's claim. In fact, respondent court had this to say on EASCO's refusal to settle the claim of petitioner: ... EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while not sufficient to free it from liability under its policy, nevertheless is sufficient to negate any assertion that in refusing to pay, it acted unjustifiably. xxx xxx xxx The case posed some genuine issues of interpretation of the terms of the policy as to which persons may honestly differ. This is the reason the trial court did not say EASCO's refusal was unjustified. 3 Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They apply only when the court finds an unreasonable delay or refusal in the payment of the claims. Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to Presidential Decree No. 116 (Usury Law) which raised the legal rate of interest from six (6%) to twelve (12%) per cent apply to the case at bar as by the petitioner. The adjusted rate mentioned in the circular refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan. 4 In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158, the Court declared that the legal rate of interest is six (6%) per cent per annum, and not twelve (12%) per cent, where a judgment award is based on an action for damages for personal injury, not use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the Usury Law (amended by P.D. 116) are applicable only to interest by way of compensation for the use or forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code. Clearly, the applicable law is Article 2209 of the Civil Code which reads: If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six per cent per annum. And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance contract, the legal interest was properly pegged by the Appellate Court at six (6%) per cent. WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit. SO ORDERED.

___________
ARMANDO GEAGONIA, Petitioner, v. COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, Respondents.

SYLLABUS

1. COMMERCIAL LAW; INSURANCE; "OTHER INSURANCE" CLAUSE AS A CONDITION; ALLOWED TO PREVENT AN INCREASE IN THE MORAL HAZARD. 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. 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 conclusive 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 respondents Policy No. F-14622 is a condition which is nor proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code 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. However, in order to constitute a violation, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. 2. ID.; ID.; ID.; CONCEPT; GENERAL INSURANCE AND SURETY CORP. v. NG HUA (106 PHIL. 1117); NOT APPLICABLE IN CASE AT BAR. It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and Surety Corp. v. Ng Hua (106 Phil. 1117) or in Pioneer Insurance & Surety Corp. v. Yap, which read: "The insured shall give notice to the company of any insurance 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 v. Commercial Union Assurance Co. (55 Phil 329, 334 [1930]) 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 respondents 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 damage is not more than P200,000.00."
cralaw vi rtua 1aw lib rary

3. ID.; ID.; CONTRACT THEREOF MUST BE LIBERALLY CONSTRUED. 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 possible to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for such forfeiture. 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. The reason for this it 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. 4. ID.; ID.; INSURABLE INTEREST; EXTENT THEREOF BY MORTGAGEE AND MORTGAGOR; RULE. As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests may be covered by one policy, or each may take out a separate policy covering his interest, either at the same or at separate times. The mortgagors insurable interest covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the property. The mortgagees 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. Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee. 5. ID.; ID.; RULE WHEN A MORTGAGOR OBTAINED THEREOF FOR THE BENEFIT OF 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 mortgagees benefit, in which case the mortgagee acquires an equitable lien upon the proceeds. 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 itself. Hence, any act of the mortgagor which defeats his right will also defeat the right of the mortgagee. This kind of policy covers only such interest as the mortgagee has at the issuing of the

policy. 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. 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 a policy on the assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with loss payable clause. 6. ID.; ID.; DOUBLE INSURANCE; DOES NOT EXIST WHEN TWO (2) POLICIES DO NOT COVER THE SALE INTEREST; CASE AT BAR. 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 insureds 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 petitioners right to recover on the private respondents 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-insurers liability up to a loss not exceeding to 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 from two or more insurers in a total amount that exceeds the propertys 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.

DECISION

DAVIDE, JR., J.:

For our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing the decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner Armando Geagonia against private respondent Country Bankers Insurance Corporation. The petitioner is the owner of Normans Mart located in the public market o f San Francisco, Agusan del

Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTWs for men and women wear and other usual to assureds business."
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The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows: Zenco Sales, Inc. P55,698.00 F. Legaspi Gen. Merchandise 86,432.50 Cebu Tesing Textiles 250,000.00 (on credit) ======== P392,130.50 The policy contained the following condition:
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jgc:chanro bles. com.ph

"3. 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 or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless 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."
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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 petitioners insured stocks-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 petitioners 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:
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"MORTGAGEE: 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:

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P100,000. Phils. First CEB/F-24758" 4 The basis of the private respondents denial was the petitioners 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 attorneys fees and costs of litigation. He attached as Annex "M" 6 thereof his let ter 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 respondents 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 respondents policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the private respondents agent; and had it been so 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 petitioners 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:
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"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 attorneys fees. With costs. The compulsory counterclaim of respondent is hereby dismissed."
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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:

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"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 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 insurances 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). It 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. 14622. . . . Indeed private respondents allegation of lack of knowledge of the previous insurances is belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as follows:] x x x
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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 did 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 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 under the three policies are much below the value of my stocks lost. x x x

The letter contradicts private respondents pretension that he did not know that there were other insurances taken on the stock-in-trade and seriously puts in question his credibility."
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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 of excess of jurisdiction:
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"A . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASIJUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS; B . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND C . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE RESPONDENT."
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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 petitioners 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 petitioners complaint in I.C. Case No. 3340 as Annex "M" thereof and made an 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 facts 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.
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Condition 3 of the private respondents 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 the 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 covered by one policy, or each may take out a separate policy covering his interest, either at the same or at separate times. 18 The mortgagors 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 mortgagees insurable interest i s 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 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 mortgagees 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 itself. 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 a policy 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
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The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage clause which reads:
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"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of the policy."
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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. v. Ng Hua 26 or in Pioneer Insurance & Surety Corp. v. Yap, 27 which read:
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"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."
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or in the 1930 case of Santa Ana v. 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 respondents 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."
cha nrob lesvi rtua llawli bra ry

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 insureds declaration on the subheading COINSURANCE 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 petitioners right to recover on the private respondents policy.
chan roble svirtuallaw lib rary

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-insurers 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 propertys value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. 32 WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.