1.

[1994V438] PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS REYES,
petitioners, vs. HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and
RAMON MONTILLA PATERNO, JR., respondents1994 Jul 261st DivisionG.R. No. 76452D E C I S I
O N
QUIASON, J p:
This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules of Court, with
preliminary injunction or temporary restraining order, to annul and set aside the Order dated November
6, 1986 of the Insurance Commissioner and the entire proceedings taken in I.C. Special Case No. 1-86.
We grant the petition.
I
The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated April
17, 1986, to respondent Commissioner, alleging certain problems encountered by agents, supervisors,
managers and public consumers of the Philippine American Life Insurance Company (Philamlife) as a
result of certain practices by said company.
In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los Reyes, in
his capacity as Philamlife's president, to comment on respondent Paterno's letter.
In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested that
private respondent "submit some sort of a `bill of particular's listing and citing actual cases, facts, dates,
figures, provisions of law, rules and regulations, and all other pertinent date which are necessary to
enable him to prepare an intelligent reply" (Rollo, p. 37). A copy of this letter was sent by the Insurance
Commissioner to private respondent for his comments thereon.
On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining that
his letter-complaint of April 17, 1986 was sufficient in form and substance, and requested that a hearing
thereon be conducted.
Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated his
claim that private respondent's letter of May 16, 1986 did not supply the information he needed to
enable him to answer the letter-complaint.
On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the validity of
the Contract of Agency complained of by private respondent.
In said hearing, private respondent was required by respondent Commissioner to specify the provisions
of the agency contract which he claimed to be illegal.
On August 4, private respondent submitted a letter of specification to respondent Commissioner dated
July 31, 1986, reiterating his letter of April 17, 1986 and praying that the provisions on charges and fees
stated in the Contract of Agency executed between Philamlife and its agents, as well as the
implementing provisions as published in the agents' handbook, agency bulletins and circulars, be
declared as null and void. He also asked that the amounts of such charges and fees already deducted
and collected by Philamlife in connection therewith be reimbursed to the agents, with interest at the
prevailing rate reckoned from the date when they were deducted.
Respondent Commissioner furnished petitioner De los Reyes with a copy of private respondent's letter
of July 31, 1986, and requested his answer thereto.
Petitioner De los Reyes submitted an Answer dated September 8, 1986, stating inter alia that:
(1) Private respondent's letter of August 11, 1986 does not contain any of the particularly information
which Philamlife was seeking from him and which he promised to submit.
(2) That since the Commission's quasi-judicial power was being invoked with regard to the complaint,
private respondent must file a verified formal complaint before any further proceedings.
In his letter dated September 9, 1986, private respondent asked for the resumption of the hearing on his
complaint.
On October 1, private respondent executed and affidavit, verifying his letters of April 17, 1986 and July
31, 1986.
In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant Vice-President and
Executive Assistant to the President, asked that respondent Commission first rule on the questions of
the jurisdiction of the Insurance Commissioner over the subject mater of the letters-complaint and the
legal standing of private respondent.
On October 27, respondent Commissioner notified both parties of the hearing of the case on November
5, 1985.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds:
"I. The Subpoena/Notice has no legal basis and is premature because:
(1) No complaint sufficient in form and contents has been filed;
(2) No summons has been issued nor received by the respondent De los Reyes, and hence, no
jurisdiction has been acquired over his person;
(3) No answer has been filed, and hence, the hearing scheduled on November 5, 1985 in the
subpoena/notice, and wherein the respondent is required to appear, is premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction over:
(1) the subject matter or nature of the action; and
(2) over the parties involved" (rollo, p. 102).
In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The
dispositive portion of said Order reads:
NOW, THEREFORE, finding the position of complainant thru counsel tenable and considering the fact
that the instant case is an informal administrative litigation falling outside the operation of the
aforecited memorandum circular but cognizable by this Commission, the hearing officer, in open session
ruled as it is hereby ruled to deny the Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109).
Hence, this petition.
II
The main issue to be resolved is whether or not the resolution of the legality of the Contract of Agency
falls within the jurisdiction of the Insurance Commissioner.
Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of the
complaint in the exercise of its quasi-judicial powers. The Solicitor General, upholding the jurisdiction of
the Insurance Commissioner, claims that under Sections 414 and 415 of the Insurance Code, the
Commissioner has authority to nullify the alleged illegal provisions of the Contract of Agency.
III
The general regulatory authority of the Insurance Commissioner is described in Section 414 of the
Insurance Code, to wit:
"The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual benefit associations and trusts for charitable uses are
faithfully executed and to perform the duties imposed upon him by this Code, . . . ."
On the other hand, Section 415 provides:
"In addition to the administrative sanctions provided elsewhere in this Code, the Insurance
Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, their
directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of
any provision of this Code, or any order, instruction, regulation or ruling of the Insurance Commissioner,
or any commission of irregularities, and/or conducting business in an unsafe or unsound manner as may
be determined by the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or agents."
A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority
to regulate the business of insurance, which is defined as follows:
"(2) The term 'doing an insurance business' or 'transacting an insurance business,' within the meaning of
this Code, shall include (a) making or proposing to make, as insurer, any insurance contract; (b) making,
or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental of
the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing
to do any business in substance equivalent to any of the foregoing in a manner designed to evade the
provisions of this Code. (Insurance Code, Sec. 2 [2]; mphasis supplied.).
Since the contract of agency entered into between Philamlife and its agents is not included within the
meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction
over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.
With regard to private respondent's contention that the quasi-judicial power of the Insurance
Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule in the
negative. Section 416 of the Code in pertinent part, provides:
"The Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage
or liability for which an insurer may be answerable under any kind of policy or contract of insurance, or
for which such insurer may be liable under a contract of suretyship, or for which a insurer may be used
under any contract or reinsurance it may have entered into, or for which a mutual benefit association
may be held liable under the membership certificates it has issued to its members, where the amount of
any such loss, damage or liability, excluding interest, costs and attorney's fees, being claimed or sued
upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in
any single claim one hundred thousand pesos."
A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner is
limited by law "to claims and complaints involving any loss, damage or liability for which an insurer may
be answerable under any kind of policy or contract of insurance, . . . ." Hence, this power does not cover
the relation affecting the insurance company and its agents but is limited to adjudicating claims and
complaints filed by the insured against the insurance company.
While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the Insurance
Code, the provisions of said Chapter speak only of the licensing requirements and limitations imposed
on insurance agents and brokers.
The Insurance Code does not have provisions governing the relations between insurance companies and
their agents. It follows that the Insurance Commissioner cannot, in the exercise of its quasi-judicial
powers, assume jurisdiction over controversies between the insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989(,
and Investment Planning Corporation of the Philippines v. Social Security Commission, 21 SCRA 904
(1962), that an insurance company may have two classes of agents who sell its insurance policies: (1)
salaried employees who keep definite insurance policies: (1) salaried employees who keep definite
hours and work under the control and supervision of the company; and (2) registered representatives,
who work on commission basis.
Under the first category, the relationship between the insurance company and its agent is governed by
the Contract of Employment and the provisions of the Labor Code, while under the second category, the
same is governed by the Contract of Agency and the provisions of the Civil Code on the Agency. Disputes
involving the latter are cognizable by the regular courts.
WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance Commission
is SET ASIDE.
SO ORDERED.
Cruz (Chairman), Davide, Jr., Quiason and Kapunan, JJ., concur.
Bellosillo, J., is on leave.

2. [1986V191] MIDLAND INSURANCE CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE
COURT, & SISENANDO VILLAREAL, respondents.1986 Aug 132nd DivisionG.R. No. 71905D E C I
S I O N
ALAMPAY, J:
The petition for review on certiorari in this case seeks the nullification of the Order of the respondent
Intermediate Appellate Court under date August 14, 1985, dismissing the appeal of herein petitioner
despite respondent Court's letter-advice, dated February 8, 1985 directing the filing of petitioner-
appellant's brief.
The factual background of this case indicates that on October 1, 1984, a judgment was rendered by the
Insurance Commission in favor of complaint-appellee, Sisenando Villareal, and against herein petitioner
Midland Insurance Corporation. Petitioner received a copy of the decision on October 5, 1984 and it
filed a motion for reconsideration of said judgment on October 17, 1984. This motion was denied in an
Order dated October 26, 1984. On November 7, 1984, petitioner filed with the Insurance Commission its
notice of appeal from the subject decision to respondent Intermediate Appellate Court (IAC). This appeal
was docketed as AC-G.R. SP No. 04928 of said court.
Petitioner's appeal was initially accepted by the IAC as can be gleaned from the letter-advice dated
February 8, 1985, notifying petitioner's counsel to file appellant's brief. However, a Motion to Dismiss
appeal, dated March 1, 1985 was filed by the complainant-appellee on the ground that the petitioner
herein, as the appellant in said AC-G.R. SP No. 04928 failed to perfect its appeal within the reglementary
period. Despite the opposition thereto interposed by petitioner Midland Insurance Corporation, the
Respondent IAC, on August 14, 1985 granted the stated Motion to Dismiss on the ground that by said
court's computation of the elapsed period from the date of receipt by herein petitioner of the decision
of the Insurance Commission to the time the notice of appeal was filed before said Commission and
notice of appeal and manifestation submitted to the IAC on December 5, 1984, it would appear that
petitioner's appeal was belatedly made.
Respondent court in dismissing the petition said:
"Respondent-appellant's contention that under Batas Pambansa Blg. 129 the reglementary period of 15
days from receipt of the decision or judgment within which to file an appeal is not applicable to quasi-
judicial agencies such as the Insurance Commission, is gratuitous. The applicable rule is explicit in No.
12(c) . . ., providing for appellate procedure under the Interim Rules which state that 'appeals to the
Intermediate Appellate Court from quasi-judicial bodies shall continue to be governed by the provisions
of Republic Act No. 5434 insofar as the same is not inconsistent with the provisions of B.P. Blg. 129. The
pertinent provisions in Rep. Act No. 5434 provide:
'SEC. 2. Appeals to the Court of Appeals shall be filed within the fifteen (15) days from notice of the
ruling, award, order, decision or judgment . . .
'xxx xxx xxx
"There is no conflict between the period to appeal in R.A. No. 5434 and Sec 39, B.P. 129 which provides:
'Appeals. The period for appeal from final orders, resolutions, awards, judgments, or decisions of any
court in all cases shall be fifteen (15) days counted from the notice of the final order, resolution, award,
judgment, or decision appealed from: Provided, however, That in habeas corpus cases, the period for
appeal shall be forty-eight (48) hours from the notice of the judgment appeal from.
'xxx xxx xxx"
(Decision, AC-G.R. SP No. 04928, p. 92, Rollo, p. 16).
The petitioner's case, however, rests on the assumption that it had timely filed its appeal on November
7, 1984 because Section 2 of Republic Act No. 5434 which governs appeals originating from quasi-
judicial bodies grants a party ten (10) days from notice of the resolution denying a Motion for
Reconsideration. As notice of the denial of petitioner's motion for reconsideration by the Insurance
Commission was received by petitioner on October 30, 1984, the latter maintains that it had ten (10)
days thereafter or until November 9, 1984 within which to file its appeal and this was filed with the IAC
on November 7, 1984. Petitioner's submission is that the appeal was thus filed within the reglementary
period.
We find the petition impressed with merit and fully agree with the petitioner's submission regarding the
timeliness of its appeal.
It can be gleaned from the powers and duties of the Insurance Commissioner enumerated in Sections
414-416, 187, and 241 of the Insurance Code performs quasi-judicial functions - a term which applies to
the action, discretion, etc., of public administrative officers or bodies, who are required to investigate
facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis for
their official action and to exercise discretion of a judicial nature (Black's Law Dictionary, Fifth Ed., 1979,
p. 1121).
It is paragraph 22(c) of the Interim Rules and Guidelines, relative to the Implementation of the Judiciary
Reorganization Act of 1981 (Batas Pambansa Blg 129) which prescribes the procedure to be taken in the
Appellate Court with respect to appeals originating from Quasi-Judicial Bodies. It reads as follows:
"Paragraph 22(c). Appeals from Quasi-Judicial Bodies. The appeals to the Intermediate Appellate
Court from quasi-judicial bodies shall continue to be governed by the provisions of Republic Act No.
5434 insofar as the same is not inconsistent with the provisions of B.P. Blg. 129."
Section 2 of R.A. 5434 explicitly provides:
"Sec. 2. Appeals to the Court of Appeals shall be filed within fifteen (15) days from notice of the ruling,
award, order, decision or judgment or from the date of its last publication if required by law for its
effectivity or in case a motion for reconsideration is filed within that period of fifteen (15) days, then
within ten (10) days from Notice or publication, when required by law, of the resolution denying the
motion for reconsideration. No more than one motion for reconsideration shall be allowed by any part .
. . "
We find that petitioner herein is correct in maintaining that its appeal was timely filed. Petitioner's
motion for reconsideration was denied by the Insurance Commission and advice of such denial was
received by petitioner on October 30, 1984. As petitioner would then have ten (10) days from October
30, 1984 or until November 9, 1984, its appeal was well within the ten-day period within which an
appeal can be made to the respondent Intermediate Appellate Court.
What We note is that Respondent IAC fell into error because it failed to consider and apply the pivotal
Section 2 of R.A. 5434, which recites that "in case a motion for reconsideration is filed within that period
of fifteen (15) days, then within ten (10) days from Notice or publication, when required by law, of the
resolution denying the motion for reconsideration . . ." Respondent's court's failure to do so led to its
erroneous conclusion.
It should be considered that while Section 39 of B.P. Blg 129, in conjunction with Section 19(a) of the
Interim Rules, fixes a uniform fifteen (15) day period for appeal from notice of the final order,
resolution, award, judgment or decision of any court, Section 22(c) of the Interim Rules, however,
applies in particular to appeals to the Intermediate Appellate Court from quasi-judicial bodies. Said
Section 22(c) explicitly refers to the provisions of R.A. 5434, of which Section 2 thereof, had already
been above cited. There is no inconsistency between said section and B.P. 129 or its implementing
guidelines. B.P. 129 may not be said to have repealed said provision of R.A. 5434 for the Interim Rules
even expressly refer to said Section 2 of R.A. 5434. Said Section 2 should, therefore, be applied.
It should be stressed that the provision in Section 2 of R.A. No. 5434 which allows an additional ten (10)
days from notice of the denial of the motion for reconsideration does not extend the period for appeal
but merely furnishes an automatic ten-day allowance in the event that a motion for reconsideration is
interposed within the appeal period. In other words, this particular provision becomes operative only if
a motion for reconsideration is filed during the fifteen-day period. The period for appeal remains
untouched by Section 2 of R.A. 5434. Private respondent's submission, therefore, that this
interpretation runs counter to the avowed intent of the Judiciary Reorganization Act to set a uniform
and thus shorter period for appeals does not possess a persuasive ring.
Furthermore, even if viewed in the light of Section 416, paragraph 7 of the Insurance Code (P.D. 612, as
amended), which decrees that ". . . any party may appeal from a final order, ruling or decision of the
Commissioner by filing with the Commissioner within thirty (30) days from receipt of copy of such order,
ruling or decision a notice of appeal . . .," the timeliness of the petitioner's appeal to the Intermediate
Appellate Court stands unassailable. Petitioner received notice of the decision of the Insurance
Commissioner on October 5, 1984 and filed a motion for reconsideration on October 17, 1984, thereby
availing of eleven (11) days of the thirty (30) days limit in Section 416, par. 7, adverted to above.
Consequently, when petitioner received a copy of the Order denying said motion for reconsideration on
October 30, 1984, petitioner still had in its favor a total of nineteen (19) days from the aforestated date
inasmuch as the motion for reconsideration would suspend the running of the thirty-day period
prescribed for filing notice of appeal with the Insurance Commission (Rule 41, Section 3, Rules of Court).
Obviously, the filing of the notice of appeal on November 7, 1984 did not exceed the remaining nineteen
(19) days afforded to petitioner.
Thus, whether it be B.P. 129 or R.A. 5434 or the provisions of the Insurance Code, P.D. 612, as amended,
that should be considered and applied, the appeal in subject case made by Midland Insurance
Corporation must be deemed to be still timely filed.
It is also significant to note that in the recent decision of this Court in Gimenez Stockbrokerage and Co.
Inc., vs. Securities and Exchange Commission, No. L-68568, December 26, 1984, 133 SCRA 840-841, We
therein held
". . . the SEC erred in holding that the thirty-day period provided for in section 6 of Presidential Decree
No. 902-A was modified by section 39 of the Judiciary Revamp Law, Batas Pambansa Blg. 129, which
provides for a period of fifteen days for appealing from final orders, resolutions, awards, judgments or
decisions of any court. The SEC is not a Court. It is an administrative agency."
In the same manner that the SEC was held to be an administrative agency, with quasi-judicial functions,
the same consideration would apply to the Insurance Commission. Consequently, the period of appeal
from final orders, decisions, resolutions or awards of said Insurance Commission may not be necessarily
modified or limited by section 39 of Batas Pambansa Blg. 129.
IN VIEW OF ALL THE FOREGOING, the Order of the respondent Intermediate Appellate Court, dated
August 14, 1985, dismissing petitioner's appeal is hereby SET ASIDE and it is directed to give due course
to the petitioner's appeal in accordance with the rules and procedure prescribed therefor by said court.
No pronouncement as to costs.
Feria (Chairman), Fernan, Gutierrez, Jr., and Paras, JJ., concur.

3. G.R. No. L-109937 March 21, 1994 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G.
DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside
the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration
thereof.
We affirm the decision of the Court of Appeals with modification.I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of
P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor,
Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the
DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on
August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the
MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance"
and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to
the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP
MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI
coverage, being over the acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application.
The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused
to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan.
She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the
Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money
with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with
full knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the
insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it
paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully
paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against
the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent
Estate. As a result of these admissions, the trial court narrowed down the issues and, without opposition
from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered the
parties to submit their respective position papers and documentary evidence, which may serve as basis for
the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The
DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between
it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and
actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The dispositive
portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and
equity, the Court finds judgment for the plaintiff and against Defendant DBP, ordering the
latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as
amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest accumulated or
otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the
late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and
other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Cross-
claim of Defendant DBP is likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court
affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a
resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh.
"5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are true,
complete and correct to the best of my knowledge and belief and form part of my
application for insurance. It is understood and agreed that no insurance coverage shall be
effected unless and until this application is approved and the full premium is paid during my
continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be
approved by the insurance pool; and (2) when the full premium is paid during the continued good health of
the applicant. These two conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however,
did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00,
which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as
a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that
does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage.
Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP
compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August
11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made
Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the
application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila.
As service fee, DBP deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance
agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading
him and his family to believe that they had already fulfilled all the requirements for the MRI and that the
issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was
never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically
provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance
companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to
the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh.
"1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP
exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance
premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person is
aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's
authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal
on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the
latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable
when he acts without authority is founded upon the supposition that there has been some wrong or omission
on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes to
act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-
disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on the
unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into
play.
Article 19 provides:Every person must, in the exercise of his rights and in the performance of his duties, act
with justice give everyone his due and observe honesty and good faith.
Article 20 provides:Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 21 provides:Any person, who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it
not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another
insurance company, and therefore would have been fully insured by the time he died, is highly speculative.
Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage
from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day
after applying for the MRI, and on the twenty-third day from the date of release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly
proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of
proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447
[1916]). Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life
Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary
loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may
be recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the circumstances of each
case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to
respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its
authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00
would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines,
Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans
the amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and
(2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of
Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner.
SO ORDERED.
4. [1991V605] FIRST INTEGRATED BONDING & INSURANCE COMPANY, INC., petitioner,
vs. HON. HAROLD M. HERNANDO, VICTORINO ADVINCULA, ROMANA ADVINCULA,
SILVERIO BLANCO & THE SHERIFF OF MANILA and his DEPUTY SHERIFFS, respondents.
Octavio M. Zavas for petitioner.1991 Jul 311st DivisionG.R. No. 51221D E C I S I O N
MEDIALDEA, J.:
This petition for certiorari under Rule 65 of the Revised Rules of Court, seeks the annulment of the
amended decision of respondent trial court in Civil Case No. 1104 for allegedly having been rendered in
excess of jurisdiction. The same decision was sought to be annulled in a petition for relief from judgment
filed in the same case but the petition was denied for having been filed out of time.
The narration of facts below was taken from the pleadings filed by the parties. As regards the
proceedings following the promulgation of the amended decision, the dates were supplied in the
Comment and Answer filed by respondent judge and which were not disputed by petitioner.
Silverio Blanco was the owner of a passenger jeepney which he insured against liabilities for death and
injuries to third persons with First Integrated Bonding and Insurance Company, Inc. (First Insurance)
under Motor Vehicle Policy No. V-05-63751 with the face value of P30,000.00 (p. 15, Rollo).
On November 25, 1976, the said jeepney driven by Blanco himself bumped a five-year old child,
Deogracias Advincula, causing the latter's death.
A complaint (pp. 38-41, Rollo) for damages was brought by the child's parents, the Advincula spouses,
against Silverio Blanco. First Insurance was also impleaded in the complaint as the insurer. The
complaint was docketed as Civil Case No. 1104 of the Court of First Instance of Abra (now Regional Trial
Court).
Summons were served on Silverio Blanco and First Insurance. However, only Blanco filed an answer.
Upon motion of the Advincula spouses, First Insurance was declared in default (p. 45, Rollo) on January
19, 1978.
Thereafter, a pre-trial conference was conducted where the Advincula spouses presented the following
documentary evidence:
"Exhibit 'A' Marriage Certificate, Exhibit B - Birth Certificate, Exhibit B-1 The Certificate of the Local
Civil Registrar, Exhibit C Certificate of Death, Exhibit C-1 the official receipt of the burial permit,
Exhibit C-2 the autopsy report, Exhibit D filing fee under official receipt in the amount of P80.00,
Exhibit D-1 list of actual expenses in connection with the death and burial of the deceased Advincula,
Exhibit E Criminal Case No. 666 of the Municipal Court of Tayum, Abra entitled People of the
Philippines versus Silverio Blanco for Homicide thru Reckless Imprudence, Exhibit E-1 sworn statement
of Severino Balneg, Exhibit F Tax Declaration No. 906 in the name of Maria Blanco delivered by Silverio
Blanco to the plaintiffs as pledge of Silverio Blanco to settle the civil aspect of this case." (pp. 14-15,
Rollo).
On the basis of the evidence presented by the Advincula spouses, judgment was rendered by the trial
court on March 1, 1978, the dispositive portion of which states:
"WHEREFORE, for moral damages, this court adjudicates to the plaintiffs P5,000.00; for the life of
Deogracias Advincula P12,000.00, for funeral expenses, P3,663.50 and for attorney's fees, P3,000.00.
The satisfaction of these damages divulged (sic) independently now upon the defendant insurance
company and to pay the costs of the proceedings.
"SO ORDERED." (p. 16, Rollo)
First Insurance received a copy of the decision on March 14, 1978. Upon motion of the Advincula
spouses, the decision was amended on March 27, 1978 (p. 17, Rollo), which, in addition to the damages
granted in the original decision, awarded damages in the amount of P6,336.50 to Silverio Blanco.
The dispositive portion of the amended decision is quoted, as follows:
"WHEREFORE, for moral damages, this Court hereby adjudicates to the plaintiffs P5,000.00; for the life
of Deogracias Advincula P12,000.00; for funeral expenses P3,663.50 and for attorney's fees P3,000.00 or
in the total amount of P23,663.50 which must be satisfied independently by the defendant First
Integrated Bonding and Insurance Company, Inc. in favor of the plaintiffs and the balance of P6,336.50
shall also be paid by said defendant Insurance Company to the defendant Silverio Blanco. The grand
total under the insurance policy, Exhibit H, is P30,000.00.
"The defendant Insurance Company to pay the costs of the proceedings.
"SO ORDERED." (p. 17, Rollo)
The amended decision was received by First Instance on April 11, 1978. On May 11, 1978, entry of
judgment was made, a copy of which was furnished First Insurance on June 27, 1978. Upon motion of
the Advincula spouses, an order granting execution was issued by the court on June 14, 1978, which was
received by First Insurance on August 1, 1978 (pp. 31-32, Rollo).
On September 5, 1978, First Insurance filed a petition for relief from Judgment in the same case. The
petition was set for hearing on September 28, 1978. No appearance was entered by First Insurance on
the said date. On October 4, 1978, the trial court issued an order, denying the petition for relief from
judgment (pp. 33-34, Rollo), a copy of which was received by First Insurance on October 10, 1978 (p. 35,
Rollo). The order reads:
"The records of this case show that on April 11, 1978, the defendant First Integrated Bonding and
Insurance Company, Inc. received a copy of the amended decision dated March 27, 1978 and found on
page 30 of the records of this case; on May 11, 1978, the Deputy Clerk of Court entered the
corresponding entry of judgment and the First Integrated Bonding and Insurance Company, Inc. received
a copy thereof on June 27, 1978. On June 13, 1978, the plaintiffs moved for execution of judgment and
the same was granted pursuant to an Order of this Court dated June 14, 1978 and found on page 35 of
the records of this case.
"And now comes the petition for relief from the Order of execution and judgment with preliminary
injunction filed by First integrated Bonding and Insurance Co., Inc. and which was received by this Court
on September 5, 1978; on September 28, 1978, the plaintiffs filed their written opposition to the
petition for relief from judgment and preliminary injunction. The opposition is based on three grounds,
namely: 1. that the petition is filed out of time; 2. that there was gross and notorious negligence of the
Insurance Company; 3. that this case is within the jurisdiction of this Court and therefore the cause of
action of the plaintiffs deserves judicial consideration.
"It was on April 11, 1978 that the First Integrated Bonding and Insurance Co., Inc. received the amended
decision and the petition for relief from Order of Execution and judgment with preliminary injunction
was filed on September 5, 1978 or a period of 191 days already expired, that is, more than 6 months
already as required by Section 3, Rule 38 of the Rules of Court. Consequently, the first ground invoked
by the opposition must be sustained. On the second ground, the records of this case show that the First
Integrated Bonding and Insurance Co., Inc. was duly summoned and served a copy of the complaint on
August 16, 1977 and it was received by the President of the Insurance Company as shown by the
certificate of Service of the Sheriff of Manila and found in page 12 and page 13 of the records of this
case; after the reglementary period to file an answer expired, the plaintiffs move to declare the
defendant insurance company in default and likewise asked the Court that they be allowed to present
their evidence on January 23, 1978 and which was granted by this Court pursuant to an order dated
January 19, 1978 and found on page 16 of the records of this case; after the reception of the evidence
for the plaintiffs this Court rendered a decision on March 1, 1978 and which is found on pages 23 to 26
of the records of this case; subsequently, on March 27, 1978, an amended decision was issued by this
Court and it is found on page 30 of the records of this case. Clearly, therefore, the First Integrated
Bonding and Insurance Co., Inc. was grossly and notoriously negligent in giving the proper attention to
this case. This kind of gross and notorious negligence can not be considered excusable. The last ground
is that this Court has jurisdiction over the plaintiffs' cause of action against the insurance company. This
ground is well-taken because according to Section 416 of the Philippine Insurance Code, Presidential
Decree No. 612, it provides that the authority to adjudicate granted to the Commissioner of insurance
shall be concurrent with that of the civil courts, but the filing of a complaint with the commissioner shall
preclude the civil courts from taking cognizance of a suit involving the same subject matter.
Furthermore, the plaintiffs did not intervene in the criminal aspect of this case, instead, they filed a
separate and independent civil action on July 26, 1977 and which is now the present Civil Case No. 1104.
It may be added, that the matter of exhaustion of administrative remedy may be waived which has been
so in the present case because the First Integrated Bonding and Insurance Co., Inc. was declared in
default.
"In view of all the foregoing considerations, the petition for relief from the order of execution and
judgment with preliminary injunction, for lack of merit, is hereby denied.
"SO ORDERED." (pp. 33-34, Rollo)
First Insurance filed a motion for reconsideration of the order denying the petition for relief on May 14,
1979. The motion was set for hearing and again no appearance was entered by the movant First
Insurance (p. 35, Rollo), prompting the trial court to deny the same.
On August 13, 1979, the herein petitioner First Insurance filed this petition for certiorari on the following
grounds:
1. The trial court erred in deciding for the respondent spouse(s) where there exists no cause of action
against the herein petitioner.
2. The trial court erred when it abbreviated the proceeding and rendered judgment based only on the
documentary evidence presented during the pre-trial conference.
3. The trial court erred in holding the petitioner liable in excess of the limits of liability as provided for in
the policy contract.
On August 20, 1979, this Court issued a temporary restraining order enjoining the respondents from
enforcing the Writ of Execution dated August 1, 1978 (p. 19, Rollo)
It is the contention of the petitioner that the Advincula spouses have no cause of action against it. As
parents of the victim, they may proceed against the driver, Silverio Blanco on the basis of the provisions
of the New Civil Code.
However, they have no cause of action against First Insurance, because they are not parties to the
insurance contract.
It is settled that where the insurance contract provides for indemnity against liability to a third party,
such third party can directly sue the insurer (Cageua v. Fieldman's Insurance Co., Inc., G.R. No. 23276,
November 29, 1968, 26 SCRA 178). The liability of the insurer to such third person is based on contract
while the liability of the insured to the third party is based on tort (Malayan Insurance Co., Inc. v. CA, L-
36413, September 26, 1988, 165 SCRA 536). This rule was explained in the case of Shafer v. Judge, RTC
of Olongapo City, Br. 75, G.R. No. 78848, November 14, 1988:
"The injured for whom the contract of insurance is intended can sue directly the insurer. The general
purpose of statutes enabling an injured person to proceed directly against the insurer is to protect
injured persons against the insolvency of the insured who causes such injury, and to give such injured
person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally
construed so that their intended purpose may be accomplished. It has even been held that such a
provision creates a contractual relation which inures to the benefit of any and every person who may be
negligently injured by the named insured as if such injured person were specifically named in the policy.
"In the event that the injured fails or refuses to include the insurer as party defendant in his claim for
indemnity against the insured, the latter is not prevented by law to avail of the procedural rules
intended to avoid multiplicity of suits. Not even a 'no action' clause under the policy which requires that
a final judgment be first obtained against the insured and that only thereafter can the person insured
recover on the policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of
suits." (p. 391, 167 SCRA) mphasis supplied).
First Insurance cannot evade its liability as insurer by hiding under the cloak of the insured. Its liability is
primary and not dependent on the recovery of judgment from the insured.
"Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as
a result of a negligent operation and use of motor vehicles. The victims and or their dependents are
assured of immediate financial assistance, regardless of the financial capacity of the motor vehicle
owners.
". . . the insurer's liability accrues immediately upon the occurrence of the injury or event upon which
the liability depends, and does not depend on the recovery of judgment by the injured party against the
insured(Shafer v. Judge, RTC of Olongapo, supra, p. 390).
It is true that Blanco denied that he was negligent when the incident occurred.
However, during the pre-trial conference, when respondent judge admitted all the exhibits of the
plaintiffs to abbreviate the proceedings, no objection was interposed by Blanco. When a decision was
rendered based only on the exhibits of the plaintiffs, Blanco likewise did not object. No motion for
reconsideration was filed by either Blanco or First Insurance. Hence, the decision became final and may
no longer be attacked.
It should be noted also that First Insurance was declared in default because of its failure to file an
answer. As far as it was concerned, it failed to raise any triable issue. It lost its standing in court and
judgment may be rendered against it on the basis only of the evidence of the Advincula spouses.
Petitioner had been given its day in court. Despite its having been declared in default and its failure to
file a motion to lift the order of default, it was still notified of the subsequent proceedings in the trial
court. But no positive step was taken by it on time to vacate the order of default, the decision nor the
amended decision. Instead, it chose to file a petition for relief from judgment on September 1, 1978
almost five (5) months from its receipt of a copy of the amended decision on April 11, 1978. Clearly, the
said petition for relief from judgment was filed out of time. The rules require that such petitions must be
filed within sixty (60) days after the petitioner learns of the judgment and not more than six (6) months
after such judgment was entered (Rule 38, Section 3). The period fixed by Rule 38 of the Rules of Court is
non-extendible and never interrupted. It is not subject to any condition or contingency, because it is
itself devised to meet a condition or contingency. The remedy allowed by Rule 38 is an act of grace, as it
were, designed to give the aggrieved party another and last chance. Being in the position of one who
begs, such party's privilege is not to impose conditions, haggle or dilly-dally, but to grab what is offered
him. (Palomares, et al. v. Jimenez, et al., 90 Phil. 773, XVII, L.J., No. 3, p. 136, Rafanan v. Rafanan, 35 O.G.
228; Santos v. Manila Electric Co., G.R. L-7735, December 29, 1955; Gana v. Abaya, G.R. No. L-3106,
December 29, 1955, cited in Vicente J. Francisco, The Revised Rules of Court of the Philippines,
Annotated and Commented, Vol. 11, p. 580.
It appears that the award of damages in favor of Blanco has no basis. The complaint in Civil case 1104
was for damages brought by the spouses against Blanco and First Insurance. Blanco did not put up any
claim against the latter. However, since the said decision had already become final and executory, it can
no longer be corrected or amended. In the same vein, the claim of petitioner that its liability to third
parties under the insurance policy is limited to P20,000.00 only can no longer be given consideration at
this late stage, when the decision of the trial court awarding damages had already become final and
executory.
ACCORDINGLY, finding respondent judge to have acted within his jurisdiction in denying the petition for
relief from judgment, the petition is DISMISSED.
The questioned decision of the trial court in Civil Case No. 1104 having become final and executory, is
AFFIRMED. The temporary restraining order issued on August 20, 1979 is hereby lifted.
Costs against petitioner.
SO ORDERED.
5. [1967V213E] BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, vs. ENRIQUE MORA, ET AL.,
defendants-appellees.1967 May 29En BancG.R. No. L-20853D E C I S I O N
CASTRO, J.:
This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case
48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a
better right than the Bonifacio Bros. Inc. and the Ayala Auto Parts Company, appellants herein, to the
proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding &
Insurance Co. Inc., and directing payment of the said amount to the H.S. Reyes, Inc.
Enrique Mora, owner of an Oldsmobile sedan model 1956, bearing plate No. QC - 8088, mortgaged the
same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile, with the
latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding &
Insurance Co. Inc., and motor car insurance policy A-0615 was issued to Enrique Mora, the pertinent
provisions of which read:
"1. The Company (referring to the State Bonding & Insurance Co., Inc) will, subject to the Limits of
Liability, indemnify the Insured against loss of or damages to the Motor Vehicle and its accessories and
spare parts whilst thereon; (a) by accidental collision or overturning or collision or overturning
consequently upon mechanical breakdown or consequent upon wear and tear.
xxx xxx xxx
2. At its own option the Company may pay in cash the amount of the loss or damage or may repair,
reinstate, or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability
of the Company shall not exceed to value of the parts whichever is the less. The Insured's estimate of
value stated in the schedule will be the maximum amount payable by the Company in respect of any
claim for loss or damage.
xxx xxx xxx
4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which
the Company may he liable under this Policy provided that: (a) The estimated cost of such repair does
not exceed the Authorized Repair Limit. (b) A detailed estimate of the cost is forwarded to the Company
without delay, subject to the condition that 'Loss, if any, is payable to H.S. Reyes, Inc.', by virtue of the
fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a
clause in said insurance policy, any loss was made payable to the H.S. Reyes, Inc. as Mortgagee;
xxx xxx xxx
During the effectivity of an insurance contract, the car met with an accident. The insurance company
then assigned the accident to the H.H. Bayne Adjustment Co. for investigation and appraisal of the
damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the
Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto
Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H. H.
Bayne Adjustment Co. The insurance company, after claiming a franchise in the amount of P100, drew a
check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique
Mora or H.S. Reyes, Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and
delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the
consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and Ayala Auto Parts Co.
of the cost of repairs and materials.
Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc.
and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila
against Enrique Mora and the State Bonding & Insurance Co. Inc. for the collection of the sum of
P2,002.73. The insurance company filed its answer with a counterclaim for interpleader, requiring the
Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has a better right to
the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the
hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio Bros.
Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the
basis of which the Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better
right to the disputed amount, and ordering the State Bonding & Insurance Co. Inc. to pay to the H.S
Reyes, Inc. the said sum of P2,002.73. From this decision, the herein appellants elevated the case to the
Court of First Instance of Manila before which the stipulation of facts was reproduced. On October 19,
1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio
Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court
denied the motion. Hence, this appeal.
The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc and the
Ayala Auto Parts Co. on the one hand and the insurance company on the other. The appellants argue
that the insurance company and Enrique Mora are parties to the repair of the car as well as the to wage
thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 4 of the
insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle
necessitated by damage for which the company may liable under the policy provided that (a) the
estimated cost of such repair does not exceed the Authorized Repair Limit, and (b) a detailed estimate of
the cost is forwarded to the company without delay." It is stressed that the H.H. Bayne Adjustment
Company's recommendation of payment of the appellants' bill for materials and repairs for which the
latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co. acted for and
in representation of the insurance company.
This argument is, in our view, beside the point, because from the undisputed facts and from the
pleadings it will be seen that the appellants' alleged cause of action rests exclusively upon the terms of
the insurance contract. The appellants seek to recover the insurance proceeds, and for this purpose,
they rely upon paragraph 4 of the insurance contract document executed by and between the State
Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract
as parties thereto; nor is there any clause or provision thereof from which we can infer that there is an
obligation on the part of the insurance company to pay the cost of repairs directly to them. It is
fundamental that contracts take effect only between the parties thereto, except in some specific
instances provided by law where the contract contains some stipulation in favor of a third person. 1
Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a party
to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him
by the terms of the contract, provided that the contracting parties have clearly and deliberately
conferred a favor upon such person. 2 Consequently a third person not a party to the contract has no
action against the parties thereto, and cannot generally demand the enforcement of the same. 3 The
question of whether a third person has an enforcible interest in a contract, must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring a favor upon such third
person. In this connection, this Court has laid down the rule that the fairest test to determine whether
the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is
to rely upon the intention of the parties as disclosed by their contract. 4 In the instant case the
insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any
repairmen or material men in case of repair of the car in question. The parties to the insurance contract
omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand,
the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes,
Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently
opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the
intention of the Insurance Company to make itself liable to the repair shop or material men, it could
have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to
the insurance contract intended to confer upon the appellants the benefit claimed by them would
require as to ignore the indispensable requisite that a stipulation pour autrui must be clearly expressed
by the parties, which we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of
establishing privity between the appellant and the insurance company, such stipulation merely
establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair.
This paragraph therefore should not be construed as bringing into existence in favor of the appellants a
right of action against the insurance company as such intention can never be inferred therefrom.
Another cogent reason for not recognizing a right of action by the appellants against the insurance
company is that "a policy of insurance is a distinct and independent contract between the insured and
insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds
of it, unless there be some contract of trust, expressed or implied, by the insured and third person". 5
In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court
that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are
concerned. The appellant's claim, if at all, is merely equitable in nature and must be made effective
through Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This conclusion is
deducible not only from the principle governing the operation and effect of insurance contracts in
general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read:
"The insurance shall be applied exclusively to the proper interest of the person in whose name it is made
unless otherwise specified in the policy."
The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc." which
unmistakably shows the intention of the parties.
The final contention of the appellants is that the right of the H. S. Reyes, Inc. to the insurance proceeds
arises only if there was loss and not where there is mere damage as in the instant case. Suffice it to say
that any attempt to draw a distinction between "loss" and "damage" is uncalled for, because the word
"loss" in insurance law embraces injury or damage.
"Loss in insurance, defined. The injury or damage sustained by the insured in consequence of the
happening of one or more of the accidents or misfortune against which the insurer, in consideration of
the premium, has undertaken to indemnify the insured." (1 Bouv. Ins. No. 1215; Black's Law Dictionary;
Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).
Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.
Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.
Concepcion, C.J., Reyes, J. B. L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro,
JJ., concur.
6. [1971V37E] BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, PACITA, MARIA LOURDES, JOSE,
JR., RODRIGO, LINEDA, and LUIS, all surnamed CONSUEGRA, petitioners-appellants, vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, COMMISSIONER OF PUBLIC HIGHWAYS,
HIGHWAY DISTRICT ENGINEER OF1971 Jan 30En Banc
EN BANCG.R. No. L-28093D E C I S I O N
ZALDIVAR, J:
Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte,
dated March 7, 1967, in its Special Proceeding No. 1720.
The pertinent facts, culled from the stipulation of facts submitted by the parties, are the following:
The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office of the
District Engineer in the province of Surigao-del Norte. In his lifetime, Consuegra contracted two
marriages, the first with herein respondent Rosario Diaz, solemnized in the parish church of San Nicolas
de Tolentino, Surigao, Surigao, on July 15, 1937, out of which marriage were born two children, namely,
Jose Consuegra, Jr. and Pedro Consuegra, but both predeceased their father; and the second, which was
contracted in good faith while the first marriage was subsisting, with herein petitioner Basilia Berdin, on
May 1, 1957 in the same parish and municipality, out of which marriage were born seven children,
namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, * all surnamed Consuegra.
Being a member of the Government Service Insurance System (GSIS, for short) when Consuegra died on
September 26, 1965, the proceeds of his life insurance under policy No. 601801 were paid by the GSIS to
petitioner Basilia Berdin and her children who were the beneficiaries named in the policy. Having been
in the service of the government for 22.5028 years, Consuegra was entitled to retirement insurance
benefits in the sum of P6,304.47 pursuant to Section 12(c) of Commonwealth Act 186 as amended by
Republic Acts 1616 and 3836. Consuegra did not designate any beneficiary who would receive the
retirement insurance benefits due to him. Respondent Rosario Diaz, the widow by the first marriage,
filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only legal
heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his
retirement insurance benefits. Petitioner Basilia Berdin and her children, likewise, filed a similar claim
with the GSIS, asserting that being the beneficiaries named in the life insurance policy of Consuegra,
they are the only ones entitled to receive the retirement insurance benefits due the deceased
Consuegra. Resolving the conflicting claims, the GSIS ruled that the legal heirs of the late Jose Consuegra
were Rosario Diaz, his widow by his first marriage who is entitled to one-half, or 8/16, of the retirement
insurance benefits, on the one hand; and Basilia Berdin, his widow by the second marriage and their
seven children, on the other hand, who are entitled to the remaining one-half, or 8/16, each of them to
receive an equal share of 1/16.
Dissatisfied with the foregoing ruling and apportionment made by the GSIS, Basilia Berdin and her
children 1 filed on October 10, 1966 a petition for mandamus with preliminary injunction in the Court of
First Instance of Surigao naming as respondents the GSIS, the Commissioner of Public Highways, the
Highway District Engineer of Surigao del Norte, the Commissioner of Civil Service, and Rosario Diaz,
praying that they (petitioners therein) be declared the legal heirs and exclusive beneficiaries of the
retirement insurance of the late Jose Consuegra, and that writ of preliminary injunction be issued
restraining implementation of the adjudication made by the GSIS. October 26, 1966, the trial court
issued an order requiring therein respondents to file their respective answer refrained from issuing the
writ of preliminary injunction prayed for. On February 11, 1967, the parties submitted a stipulation of
facts, prayed that the same be admitted and approved and that judgment be rendered on the basis of
the stipulation of facts. On March 7, 1967, the court below rendered judgment, the pertinent portions of
which are quoted hereunder:
"This Court, in conformity with the foregoing stipulation of facts, likewise is in full accord with the
parties with respect to the authority cited by them in support of said stipulation and which is herein-
below cited for purposes of this judgment, to wit:
'When two women innocently and in good faith are legally united in holy matrimony to the same man,
they and their children, born of said wedlock, will be regarded as legitimate children and each family be
entitled to one half of the estate. Lao & Lao vs. Dee Tim, 45 Phil. 739; Estrella vs. Laong Masa, Inc., (CA)
39 OG 79; Pisalbon vs. Bejec, 74 Phil. 88.
"WHEREFORE, in view of the above premises, this Court is of the opinion that the foregoing stipulation
of facts is in order and in accordance with law and the same is hereby approved. Judgment, therefore, is
hereby rendered declaring the petitioner Basilia Berdin Vda. de Consuegra and her co-petitioners
Juliana, Pacita, Maria Lourdes, Jose Jr., Rodrigo, Lenida and Luis, all surnamed Consuegra, beneficiary
and entitled to one-half (1/2) of the retirement benefit in the amount of Six Thousand Three Hundred
Four Pesos and Fourty-Seven Centavos (P6,304.47) due to the deceased Jose Consuegra from the
Government Service Insurance System or the amount of P3,152.235 to be divided equally among them
in the proportional amount of 1/16 each. Likewise, the respondent Rosario Diaz Vda. de Consuegra is
hereby declared beneficiary and entitled to the other half of the retirement benefit of the late Jose
Consuegra or the amount of P3,152.235. The case with respect to the Highway District Engineer of
Surigao del Norte is hereby ordered dismissed."
Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children.
It is the contention of appellants that the lower court erred in not holding that the designated
beneficiaries in the life insurance of the late Jose Consuegra are also the exclusive beneficiaries in the
retirement insurance of said deceased. In other words, it is the submission of appellants that because
the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance, the
appellants who were the beneficiaries named in the life insurance should automatically be considered
the beneficiaries to receive the retirement insurance benefits, to the exclusion of respondent Rosario
Diaz. From the arguments adduced by appellants in their brief We gather that it is their stand that the
system of life insurance and the system of retirement insurance, that are provided for in
Commonwealth Act 186 as amended, are simply complementary to each other, or that one is a part or
an extension of the other, such that whoever is named the beneficiary in the life insurance is also the
beneficiary in the retirement insurance when no such beneficiary is named in the retirement insurance.
The contention of appellants is untenable.
It should be noted that the law creating the Government Service Insurance System is Commonwealth
Act 186 which was enacted by the National Assembly on November 14, 1936. As originally approved,
Commonwealth Act 186 provided for the compulsory membership in the Government Service Insurance
System of all regularly and permanently appointed officials and employees of the government,
considering as automatically insured on life all such officials and employees, and issuing to them the
corresponding membership policy under the terms and conditions as provided in the Act. 2
Originally, Commonwealth Act 186 provided for life insurance only. Commonwealth Act 186 was
amended by Republic Act 660 which was enacted by the Congress of the Philippines on June 16, 1951,
and, among others, the amendatory Act provided that aside from the system of life insurance under the
Government Service Insurance System there was also established the system of retirement insurance.
Thus, We will note in Republic Act 660 that there is a chapter on life insurance and another chapter on
retirement insurance. 3 Under the chapter on life insurance are sections 8, 9 and 10 of Commonwealth
Act 186, as amended; and under the chapter on retirement insurance are sections 11, 12, 13 and 13-A.
On May 31, 1957, Republic Act 1616 was enacted by Congress, amending section 12 of Commonwealth
Act 186 as amended by Republic Act 660, by adding thereto two new subsections, designated as
subsections (b) and (c). This subsection (c) of section 12 of Commonwealth Act 186, as amended by
Republic Acts 660,1616 and 3096, was again amended by Republic Act 3836 which was enacted on June
22, 1963. The pertinent provisions of subsection (c) of Section 12 of Commonwealth Act 186, as thus
amended and reamended, read as follows:
" Retirement is likewise allowed to a member, regardless of age, who has rendered at least twenty
years of service. The benefit shall, in addition to the return of his personal contributions plus interest
and the payment of the corresponding employer's premiums described in subsection (a) of Section 5
hereof, without interest, be only a gratuity equivalent to one month's salary for every year of service,
based on the highest rate received, but not to exceed twenty four months; Provided, That the retiring
officer or employee has been in the service of the said employer or office for at least four years,
immediately preceding his retirement.
xxx xxx xxx
"The gratuity is payable by the employer or office concerned which is hereby authorized to provide the
necessary appropriation to pay the same from any unexpended items of appropriations.
"Elective or appointive officials and employees paid gratuity under this subsection shall be entitled to
the commutation of the unused vacation and sick leave, based on the highest rate received, which they
may have to their credit at the time of retirement."
Jose Consuegra died on September 26, 1965, and so at the time of his death he had acquired rights
under the abovequoted provisions of subsection (c) of Section 12 of Com. Act 186, as finally amended by
Rep. Act 3836 on June 22, 1963. When Consuegra died on September 26, 1965, he had to his credit
22.5028 years of service in the government, and pursuant to the above-quoted provisions of subsection
(c) of Section 12 of Com. Act 186, as amended, on the basis of the highest rate of salary received by him
which was P282.83 per month, he was entitled to receive retirement insurance benefits in the amount
of P6,304.47. This is the retirement benefits that are the subject of dispute between the appellants, on
the one hand, and the appellee Rosario Diaz, on the other, in the present case. The question posed is: to
whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not, or failed
to, designate the beneficiary of his retirement insurance?
If Consuegra had 22.5028 years of service in the government when he died on September 26, 1965, it
follows that he started in the government service sometime during the early part of 1943, or before
1943. In 1943 Com. Act 186 was not yet amended, and the only benefits then provided for in said Com.
Act 186 were those that proceed from a life insurance. Upon entering the government service
Consuegra became a compulsory member of the GSIS, being automatically insured on his life, pursuant
to the provisions of Com. Act 186 which was in force at the time. During 1943 the operation of the
Government Service Insurance System was suspended because of the war, and the operation was
resumed sometime in 1946. When Consuegra designated his beneficiaries in his life insurance he could
not have intended those beneficiaries of his life insurance s also the beneficiaries of his retirement
insurance because the provisions on retirement insurance under the GSIS came about only when Com.
Act 186 was amended by Rep. 660 on June 16, 1951. Hence, it cannot be said that cause herein
appellants were designated beneficiaries Consuegra's life insurance they automatically became
beneficiaries also of his retirement insurance. Rep. Act 660 added to Com. Act 186 provisions regarding
retirement insurance, which are Sections 11, 12, and 13 of Com. Act 186, as amended. Subsection (b) of
Section 11 of Com. Act 186, as amended by Rep. Act 660, provides as follows:
"(b) Survivors benefit. Upon death before he becomes eligible for retirement, his beneficiaries as
recorded in the application for retirement annuity filed with the System shall be paid his own premiums
with interest of three per centum per annum, compounded monthly. If on his death he is eligible for
retirement, then the automatic retirement annuity or the annuity chosen by him previously shall he paid
accordingly."
The above-quoted provisions of subsection (b) of Section 11 of Commonwealth Act 186, as amended by
Rep. Act 660, clearly indicate that there is need for the employee to file an application for retirement
insurance benefits when he becomes a member of the GSIS, and he should state in his application the
beneficiary of his retirement insurance. Hence, the beneficiary named in the life insurance does not
automatically become the beneficiary in the retirement insurance unless the same beneficiary in the life
insurance is so designated in the application for retirement insurance.
Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, provides for a life insurance fund
and for a retirement insurance fund. There was no such provision in Com. Act 186 before it was
amended by Rep. Act 660. Thus, subsections (a) and (b) of Section 24 of Commonwealth Act 186, as
amended by Rep. Act 660, partly read as follows:
"(a) Life insurance fund. This shall consist of all premiums for life insurance benefit and/or earnings and
savings therefrom. It shall meet death claims as they may arise or such equities as any member may be
entitled to, under the conditions of his policy, and shall maintain the required reserves to the end of
guaranteeing the fulfillment of the life insurance contracts issued by the System . . ."
"(b) Retirement insurance fund. This shall consist of all contributions for retirement insurance benefit
and of earnings and savings therefrom. It shall meet annuity payments an establish the required
reserves to the end of guaranteeing the fulfillment of the contracts issued by the System . . ."
Thus, We see that the GSIS offers two separate and distinct systems of benefits to its members one is
the life insurance and the other is the retirement insurance. These two distinct systems of benefits are
paid out from two distinct and separate funds that are maintained by the GSIS.
In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in
the life insurance policy. As in the case of a life insurance provided for in the Insurance Act (Act 2427, as
amended), the beneficiary in a life insurance under the GSIS may not necessarily be an heir of the
insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be
so under the provisions of the Civil Code. 4 And in the absence of any beneficiary named in the life
insurance policy, the proceeds of the insurance will go to the estate of the insured.
Retirement insurance is primarily intended for the benefit of the employee to provide for his old age, or
incapacity, after rendering service in the government for a required number of years. If the employee
reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary
or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement
insurance can only claim the proceeds of the retirement insurance if the employee dies before
retirement. If the employee failed or overlooked to state the beneficiary of his retirement insurance, the
retirement benefits will accrue his estate and will be given to his legal heirs in accordance with law, as in
the case of a life insurance if no beneficiary is named in the insurance policy.
It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds
of the retirement insurance of the late Jose Consuegra should divided equally between his first living
wife Rosario on the one hand, and his second wife Basilia Berdin his children by her, on the other; and
the lower court did not commit error when it confirmed the action of the GSIS, it being accepted as a
fact that the second marriage of Jose Consuegra to Basilia Berdin was contracted in good faith. The
lower court has correctly applied the ruling of this Court in the case of Lao, et al. vs. Dee Tim, et al., 45
Phil. 739, as cited in the stipulation of facts and in the decision appealed from. 5 In the recent case of
Gomez vs. Lipana, L-23214, June 30, 1970, 6 this Court, in construing the rights of two women who
were married to the same man a situation more or less similar to the case of appellant Basilia Berdin
and appellee Rosario Diaz held "that since the defendant's first marriage has not been dissolved or
declared void the conjugal partnership established by that marriage has not ceased. Nor has the first
wife lost or relinquished her status as putative heir of her husband under the new Civil Code, entitled to
share in his estate upon his death should she survive him. Consequently, whether as conjugal partner in
a still subsisting marriage or as such putative heir she has an interest in the husband's share in the
property here in dispute.. " And with respect to the right of the second wife, this Court observed that
although the second marriage can be presumed to be void ab initio as it was celebrated while the first
marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as
the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its
nullity, "[t]he only just and equitable solution in this case would be to recognize the right of the second
wife to her share of one-half in the property acquired by her and her husband, and consider the other
half as pertaining to the conjugal partnership of the first marriage."
WHEREFORE, the decision appealed from is affirmed. with costs against petitioners-appellants. It is so
ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.
7. [1982V168] MAPALAD AISPORNA, petitioner, vs. THE COURT OF APPEALS and THE PEOPLE OF
THE PHILIPPINES, respondents.1982 Apr 121st DivisionG.R. No. L-39419D E C I S I O N
DE CASTRO, J.:
In this petition for certiorari, petitioner-accused Aisporna seeks the reversal of the decision dated
August 14, 1974 [1] in CA-G.R. No. 13243-CR entitled "People of the Philippines, plaintiff-appellee, vs.
Mapalad Aisporna, defendant-appellant" of respondent Court of Appeals affirming the judgment of the
City Court of Cabanatuan [2] rendered on August 2, 1971 which found the petitioner guilty for having
violated Section 189 of the Insurance Act (Act No. 2427, as amended) and sentenced her to pay a fine of
P500.00 with subsidiary imprisonment in case of insolvency, and to pay the costs.
Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189 of the
Insurance Act on November 21, 1970 in an information [3] which reads as follows:
"That on or before the 21st day of June, 1969, in the City of Cabanatuan, Republic of the Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, did then and there, willfully,
unlawfully and feloniously act as agent in the solicitation or procurement of an application for insurance
by soliciting therefor the application of one Eugenio S. Isidro, for and in behalf of Perla Compania de
Seguros, Inc., a duly organized insurance company, registered under the laws of the Republic of the
Philippines, resulting in the issuance of a Broad Personal Accident Policy No. 28PI-RSA 0001 in the
amount not exceeding FIVE THOUSAND PESOS (P5,000.00) dated June 21, 1969, without said accused
having first secured a certificate of authority to act as such agent from the office of the Insurance
Commissioner, Republic of the Philippines.
"CONTRARY TO LAW."
The facts, [4] as found by the respondent Court of Appeals are quoted hereunder:
"IT RESULTING: That there is no debate that since 7 March, 1969 and as of 21 June, 1969, appellant's
husband, Rodolfo S. Aisporna was duly licensed by Insurance Commission as agent to Perla Compania de
Seguros, with license to expire on 30 June, 1970, Exh. C; on that date, at Cabanatuan City, Personal
Accident Policy, Exh. D was issued by Perla thru its authorized representative, Rodolfo S. Aisporna, for a
period of twelve (12) months with beneficiary as Ana M. Isidro, and for P5,000.00; apparently, insured
died by violence during lifetime of policy, and for reasons not explained in record, present information
was filed by Fiscal, with assistance of private prosecutor, charging wife of Rodolfo with violation of Sec.
189 of Insurance Law for having, wilfully, unlawfully, and feloniously acted, 'as agent in the solicitation
for insurance by soliciting therefore the application of one Eugenio S. Isidro for and in behalf of Perla
Compaa de Seguros, . . . without said accused having first secured a certificate of authority to act as
such agent from the office of the Insurance Commission, Republic of the Philippines.' and in the trial,
People presented evidence that was hardly disputed, that aforementioned policy was issued with active
participation of appellant wife of Rodolfo, against which appellant in her defense sought to show that
being the wife of true agent, Rodolfo, she naturally helped him in his work, as clerk, and that policy was
merely a renewal and was issued because Isidro had called by telephone to renew, and at that time, her
husband, Rodolfo, was absent and so she left a note on top of her husband's desk to renew . . ."
Consequently, the trial court found herein petitioner guilty as charged. On appeal, the trial court's
decision was affirmed by the respondent appellate court finding the petitioner guilty of a violation of the
first paragraph of Section 189 of the Insurance Act. Hence, this present recourse was filed on October
22, 1974. [5]
In its resolution of October 28, 1974, [6] this Court resolved, without giving due course to this instant
petition, to require the respondent to comment on the aforesaid petition. In the comment [7] filed on
December 20, 1974, the respondent, represented by the Office of the Solicitor General, submitted that
petitioner may not be considered as having violated Section 189 of the Insurance Act. [8] On April 3,
1975, petitioner submitted his Brief [9] while the Solicitor General, on behalf of the respondent, filed a
manifestation [10] in lieu of a Brief on May 3, 1975 reiterating his stand that the petitioner has not
violated Section 189 of the Insurance Act.
In seeking reversal of the judgment of conviction, petitioner assigns the following errors [11] allegedly
committed by the appellate court:
"1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT OF COMPENSATION IS NOT
AN ESSENTIAL ELEMENT OF THE CRIME DEFINED BY THE FIRST PARAGRAPH OF SECTION 189 OF THE
INSURANCE ACT.
"2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT TO EXHIBITS F, F-1, TO F-17,
INCLUSIVE SUFFICIENT TO ESTABLISH PETITIONER'S GUILT BEYOND REASONABLE DOUBT.
"3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING HEREIN PETITIONER."
We find the petition meritorious.
The main issue raised is whether or not a person can be convicted of having violated the first paragraph
of Section 189 of the Insurance Act without reference to the second paragraph of the same section. In
other words, it is necessary to determine whether or not the agent mentioned in the first paragraph of
the aforesaid section is governed by the definition of an insurance agent found on its second paragraph.
The pertinent provision of Section 189 of the Insurance Act reads as follows:
"No insurance company doing business within the Philippine Islands, nor any agent thereof, shall pay
any commission or other compensation to any person for services in obtaining new insurance, unless
such person shall have first procured from the Insurance Commissioner a certificate of authority to act
as an agent of such company as hereinafter provided. No person shall act as agent, subagent, or broker
in the solicitation of procurement of applications for insurance, or receive for services in obtaining new
insurance, any commission or other compensation from any insurance company doing business in the
Philippine Islands, or agent thereof, without first procuring a certificate of authority so to act from the
Insurance Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. Such certificate shall be issued by the Insurance Commissioner only upon the written
application of persons desiring such authority, such application being approved and countersigned by
the company such person desires to represent, and shall be upon a form approved by the Insurance
Commissioner, giving such information as he may require. The Insurance Commissioner shall have the
right to refuse to issue or renew and to revoke any such certificate in his discretion. No such certificate
shall be valid, however, in any event after the first day of July of the year following the issuing of such
certificate. Renewal certificates may be issued upon the application of the company.
"Any person who for compensation solicits or obtains insurance on behalf of any insurance company, or
transmits for a person other than himself an application for a policy of insurance to or from such
company or offers or assumes to act in the negotiating of such insurance, shall be an insurance agent
within the intent of this section, and shall thereby become liable to all the duties, requirements,
liabilities, and penalties to which an agent of such company is subject.
"Any person or company violating the provisions of this section shall be fined in the sum of five hundred
pesos. On the conviction of any person acting as agent, subagent, or broker, of the commission of any
offense connected with the business of insurance, the Insurance Commissioner shall immediately revoke
the certificate of authority issued to him and no such certificate shall thereafter be issued to such
convicted person."
A careful perusal of the above-quoted provision shows that the first paragraph thereof prohibits a
person from acting as agent, subagent or broker in the solicitation or procurement of applications for
insurance without first procuring a certificate of authority so to act from the Insurance Commissioner,
while its second paragraph defines who is an insurance agent within the intent of this section and,
finally, the third paragraph thereof prescribes the penalty to be imposed for its violation.
The respondent appellate court ruled that the petitioner is prosecuted not under the second paragraph
of Section 189 of the aforesaid Act but under its first paragraph. Thus -
". . . it can no longer be denied that it was appellant's most active endeavors that resulted in issuance of
policy to Isidro, she was there and then acting as agent, and received the pay therefor - her defense that
she was only acting as helper of her husband can no longer be sustained, neither her point that she
received no compensation for issuance of the policy because 'any person who for compensation solicits
or obtains insurance on behalf of any insurance company or transmits for a person other than himself an
application for a policy of insurance to or from such company or offers or assumes to act in the
negotiating of such insurance, shall be an insurance agent within the intent of this section, and shall
thereby become liable to all the duties, requirements, liabilities, and penalties, to which an agent of
such company is subject.' paragraph 2, Sec. 189, Insurance Law, now it is true that information does not
even allege that she had obtained the insurance, 'for compensation' which is the gist of the offense in
Section 189 of the Insurance Law in its 2nd paragraph, but what appellant apparently overlooks is that
she is prosecuted not under the 2nd but under the 1st paragraph of Sec. 189 wherein it is provided that,
'No person shall act as agent, subagent, or broker, in the solicitation or procurement of applications for
insurance, or receive for services in obtaining new insurance any commission or other compensation
from any insurance company doing business in the Philippine Island, or agent thereof, without first
procuring a certificate of authority to act from the insurance commissioner, which must be renewed
annually on the first day of January, or within six months thereafter.' therefore, there was no technical
defect in the wording of the charge, so that Errors 2 and 4 must be overruled." [12]
From the above-mentioned ruling, the respondent appellate court seems to imply that the definition of
an insurance agent under the second paragraph of Section 189 is not applicable to the insurance agent
mentioned in the first paragraph. Parenthetically, the respondent court concludes that under the second
paragraph of Section 189, a person is an insurance agent if he solicits and obtains an insurance for
compensation, but, in its first paragraph, there is no necessity that a person solicits an insurance for
compensation in order to be called an insurance agent.
We find this to be a reversible error. As correctly pointed out by the Solicitor General, the definition of
an insurance agent as found in the second paragraph of Section 189 is intended to define the word
"agent" mentioned in the first and second paragraphs of the aforesaid section. More significantly, in its
second paragraph, it is explicitly provided that the definition of an insurance agent is within the intent of
Section 189. Hence -
"Any person who for compensation . . . shall be an insurance agent within the intent of this section, . . ."
Patently, the definition of an insurance agent under the second paragraph holds true with respect to the
agent mentioned in the other two paragraphs of the said section. The second paragraph of Section 189
is a definition and interpretative clause intended to qualify the term "agent" mentioned in both the first
and third paragraphs of the aforesaid section.
Applying the definition of an insurance agent in the second paragraph to the agent mentioned in the
first and second paragraphs would give harmony to the aforesaid three paragraphs of Section 189.
Legislative intent must be ascertained from a consideration of the statute as a whole. The particular
words, clauses and phrases should not be studied as detached and isolated expressions, but the whole
and every part of the statute must be considered in fixing the meaning of any of its parts and in order to
produce harmonious whole. [13] A statute must be so construed as to harmonize and give effect to all
its provisions whenever possible. [14] The meaning of the law, it must be borne in mind, is not to be
extracted from any single part, portion or section or from isolated words and phrases, clauses or
sentences but from a general consideration or view of the act as a whole. [15] Every part of the statute
must be interpreted with reference to the context. This means that every part of the statute must be
considered together with the other parts, and kept subservient to the general intent of the whole
enactment, not separately and independently. [16] More importantly, the doctrine of associated words
(Noscitur a Sociis) provides that where a particular word or phrase in a statement is ambiguous in itself
or is equally susceptible of various meanings, its true meaning may be made clear and specific by
considering the company in which it is found or with which it is associated. [17]
Considering that the definition of an insurance agent as found in the second paragraph is also applicable
to the agent mentioned in the first paragraph, to receive a compensation by the agent is an essential
element for a violation of the first paragraph of the aforesaid section. The appellate court has
established ultimately that the petitioner-accused did not receive any compensation for the issuance of
the insurance policy of Eugenio Isidro. Nevertheless, the accused was convicted by the appellate court
for, according to the latter, the receipt of compensation for issuing an insurance policy is not an
essential element for a violation of the first paragraph of Section 189 of the Insurance Act.
We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor for any
person for direct or indirect compensation to solicit insurance without a certificate of authority to act as
an insurance agent, an information, failing to allege that the solicitor was to receive compensation
either directly or indirectly, charges no offense. [18] In the case of Bolen vs. Stake, [19] the provision of
Section 3750, Snyder's Compiled Laws of Oklahoma 1909 is intended to penalize persons only who acted
as insurance solicitors without license, and while acting in such capacity negotiated and concluded
insurance contracts for compensation. It must be noted that the information, in the case at bar, does
not allege that the negotiation of an insurance contract by the accused with Eugenio Isidro was one for
compensation. This allegation is essential, and having been omitted, a conviction of the accused could
not be sustained. It is well-settled in our jurisprudence that to warrant conviction, every element of the
crime must be alleged and proved. [20]
After going over the records of this case, We are fully convinced, as the Solicitor General maintains, that
accused did not violate Section 189 of the Insurance Act.
WHEREFORE, the judgment appealed from is reversed and the accused is acquitted of the crime
charged, with costs de oficio.
SO ORDERED.
Teehankee, Acting C.J., Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.
Plana, J., took no part.
8. [1970V17E] LUZ PICAR, NANCY PICAR, JESSE PICAR, assisted by their mother, CONSOLACION
PICAR, plaintiffs-appellants, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-
appellee, REPUBLIC OF THE PHILIPPINES, as represented by the PROVINCIAL TREASURER OF
CAMARINES SUR,1970 May 29En BancG.R. No. L-25803D E C I S I O N
BARREDO, J:
Appeal on pure questions of law from the decision of the Court of First Instance of Camarines Sur in its
Civil Case No. 5673, dismissing the action instituted by the petitioners as designated beneficiaries in the
life insurance policy of one Napoleon F. Picar, a deceased government employee, against the
Government Service Insurance System, on the ground that due to the failure of the said petitioners to
submit a certificate of clearance from the money and property accountabilities of the deceased, they
have no cause of action against the defendant GSIS.
The case was submitted by all the parties for decision in the court below upon the following Stipulation
of Facts:
"1. That Policy No. 170329 issued in favor of the late Napoleon F. Picar, was, on September 13, 1961, in
force;
"2. That Napoleon F. Picar died on September 13, 1961;
"3. That Consolacion J. Picar is the guardian of all the minors who are the plaintiffs herein;
"4. That the beneficiaries in the insurance policy issued in favor of Napoleon F. Picar are the following:
Nancy Picar, Jesse Picar, Sylvia Picar, Luz Picar and Consolacion Picar;
"5. That the administrator of the estate of the late Napoleon F. Picar is the Provincial Treasurer of
Camarines Sur;
"6. That on September 30, 1961 a claim was presented to the G.S.I.S. for the proceeds of the life
insurance policy for relief or payment to the beneficiaries named therein;
"7. That the G.S.I.S. is withholding payment of the proceeds of the life insurance policy only on the
ground that no clearance was issued to the deceased by the employer of the deceased, the Provincial
Treasurer of Camarines Sur;
"8. That the Provincial Treasurer filed a claim for P9,746.07 to the intestate estate of the late Napoleon
Picar;
"9. That the basis of the government represented by the Provincial Treasurer of Camarines Sur in
intervening in this case (Civil Case No. 5673) is Section 26 of Commonwealth Act 186, as amended;
"10. That the plaintiffs are also withdrawing their claim for moral damages as well as attorney's fees,
but insist on the interest due from September 30, 1961 when the claim was made, up to the time the
insurance policy is fully paid;
"11. That the plaintiffs secured the services of counsel to claim this insurance policy in the amount of
P500.00."
On the basis of these stipulated facts, the court a quo, on August 30, 1965, dismissed the aforesaid
action of the beneficiaries. It ruled thus:
"The only issues to be decided in this case are: (1) whether it is legally necessary for the plaintiffs to
present a clearance from money and property accountabilities of the deceased to be issued by the
authorities concerned, and required by the defendant, GSIS, before the proceeds of the Policy No.
170329 is paid to the beneficiaries designated therein; and (2) whether the Republic of the Philippines,
as represented by the Provincial Treasurer of Camarines Sur, can legally lay claim to the proceeds of the
policy in question.
"The contract of insurance entered into by the insured, Napoleon F. Picar and the Government Service
Insurance System is governed by Commonwealth Act No. 186, the law creating the said insurance
system and not by Act 2427 as contended by the plaintiffs. While Act 2427 governs the contract of
insurance between Private Insurance Companies and private persons Commonwealth Act No. 186 on
the other hand, governs the contract of insurance between the Government Service Insurance System
and employees of the Philippine Government. The Government Service Insurance System was created
by Commonwealth Act 186 for the sole purpose and benefit of government employees, so much so, that
nobody can be insured with the Government Service Insurance System except when he is a government
employee. Hence, General Circular No. 52 of the General Auditing Office dated December 28, 1957 is
applicable to the insurance contract between the deceased Napoleon F. Picar and the defendant,
Government Service Insurance System. And due to the failure of the plaintiffs to submit a certificate of
clearance from the money and property accountabilities of the deceased, Napoleon F. Picar, they have
no cause of action against the defendant, Government Service Insurance System.
"As to the claim of the intervenor, Republic of the Philippines represented by the Provincial Treasurer of
Camarines Sur, the court is of the opinion and so holds, that it being the employer of the deceased,
Napoleon F. Picar, it has the right to the proceeds of said insurance to satisfy the indebtedness of said
deceased to the government, pursuant to the provision of Section 26 of Commonwealth Act 186.
"In view of all the foregoing considerations, judgment is hereby rendered; (a) dismissing the plaintiffs'
complaint with costs against them; and (b) declaring that the intervenor is legally entitled to the
proceeds of the life insurance policy of the defendant, Napoleon F. Picar."
It is from this holding of the court below that, as earlier stated in the opening paragraph of this decision,
the present appeal has been taken to this Court by the designated beneficiaries in the life insurance
policy here involved, the widow and the minor children of the late Napoleon F. Picar. Said appellants
here allege that the lower court erred: (a) in holding that the plaintiffs-appellants have no cause of
action against the defendant-appellee due to the failure of the plaintiffs-appellants to submit a
certificate of clearance of the deceased Napoleon F. Picar; and (b) in holding that the Republic of the
Philippines is the entity legally entitled to the proceeds of the policy on the life of Napoleon F. Picar.
Appellants vigorously contend that the proceeds of the life insurance policy here involved upon the
death of the insured employee during the endowment period belonged exclusively to the beneficiaries
designated in the policy and not to the estate of the insured; that, therefore, the said deceased's
employer the Provincial Treasurer of Camarines Sur or the Republic of the Philippines cannot legally lay
claim to the proceeds of such life insurance, since it is not part of the estate of said deceased employee;
and, consequently, the appellee Government Service Insurance System acted without legal authority
when it made the presentation of a certificate of clearance from money and property accountabilities of
the deceased to be secured from his employer as a condition precedent to the payment of the proceeds
of the life insurance in question to the appellants who are the designated beneficiaries in the policy. This
contention is untenable.
It is true that under general principles in the law of insurance, if a policy provides that the proceeds shall
be payable to the assured, if he lives to a certain date, and, in case of his death before that date, then
they shall be payable to the beneficiary designated, the benefit of the policy will inure to such
beneficiary in case the assured dies before the end of the period designated in the policy, 1 and,
generally, that the proceeds of a life insurance in which a third person is named beneficiary belong
exclusively to such beneficiary as an individual, they are not the property of the heirs of the insured, are
not subject to administration, and cannot properly be claimed or received by the administrator or other
legal representative of the insured as assets of his estate. 2 As correctly ruled by the lower court,
however, such general principles are not applicable to the life insurance herein involved which is
governed by specific law.
The law in point is Section 26 of Commonwealth Act 186 (the law creating the Government Service
Insurance System), as amended, which provides:
"SEC. 26. Exemption from legal process and liens. No policy of life insurance issued under this Act, or
the proceeds thereof, when paid to any member thereunder, nor any other benefit granted under this
Act, shall be liable to attachment, garnishment, or other proceeds, or to be seized, taken, appropriated,
or applied by any legal or equitable process or operation of law to pay any debt or liability of such
member, or his beneficiary, or any other person who may have a right thereunder; nor shall the
proceeds thereof, when not made payable to a named beneficiary, constitute a part of the estate of the
member for payment of his debt; Provided, however, That this section shall not apply when obligations
or indebtedness to the System and the employer are concerned, nor when the retirement annuity is
assigned to any person, corporation, association or bank or other financial institution, which is hereby
authorized."
The above-quoted provision is too clear to require the application of any rule of statutory construction
for purposes of showing the weakness of the position taken by herein appellants. As may be seen, it
recognizes the principles relied upon by them, but at the same time, it expressly provides that "this
section shall not apply when obligations or indebtedness to the System and the employer are
concerned." In other words, in life insurance policies issued by the GSIS in favor of government
employees, the proceeds even if not made payable to named beneficiaries and may, therefore, be
payable to the estate of the insured shall not constitute part of the estate of the member (insured) for
payment of his debt; but such proceeds whether or not made payable to named beneficiaries shall so
constitute part of the estate of the insured for payment of his debt and shall thereby be liable to
attachment, garnishment and other legal processes, when obligations or indebtedness to the GSIS and
the employer, that is, the government are concerned. There can be no doubt then that the appellee
Government Service Insurance System was right in requiring herein appellants to submit the necessary
clearance from money and property accountabilities of the deceased government employee whose
insurance policy is here involved, before paying them the proceeds of the policy concerned; and the
lower court did not err in holding that the appellants, for their failure to submit the certificate of
clearance required of them. have no cause of action against the GSIS. Similarly, since it is not disputed
by appellants that the Republic of the Philippines, employer of the deceased employee in this case, is
claiming the proceeds of his insurance on the basis of the provisions of the law above-quoted, We agree
with the appellee GSIS that the court a quo was right in declaring that the intervenor Republic of the
Philippines is legally entitled to the proceeds of the life insurance here put to question.
WHEREFORE, the decision appealed from is affirmed. On equitable considerations, no pronouncement
as to costs.
9. [1977V359] THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA
T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.1977 Oct 281st
DivisionG.R. No. L-44059D E C I S I O N
MARTIN, J:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Insular Life Assurance Co., Ltd.,
Policy No. 009929 on a whole-life plan for P5,882.00 with a rider for Accidental Death Benefits for the
same amount. Buenaventura C. Ebrado designated Carponia T. Ebrado as the revocable beneficiary in
his policy. He referred to her as his wife.
On October 21, 1969, Buenventura C. Ebrado died as a result of an accident when he was hit by a falling
branch of a tree. As the insurance policy was in force, The Insular Life Assurance Co., Ltd. stands liable to
pay the coverage of the policy in an amount of P11,745.73, representing the face value of the policy in
the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of
P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid
premiums and interest thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely
living as husband and wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim
as the widow of the deceased insured. She asserts that she is the one entitled to the insurance
proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co.,
Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial
order was entered reading as follows:
"During the pre-trial conference, the parties manifested to the court that there is no possibility of
amicable settlement. Hence, the Court proceeded to have the parties submit their evidence for the
purposes of the pre-trial and make admissions for the purpose of pre-trial. During this conference,
parties Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased
Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime
of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan,
dated September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as
evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia
Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his common-law wife,
Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal
wife; 4) that Buenaventura Ebrado died by accident on October 21, 1969 as evidenced by the death
certificate Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia
Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also
filed claim for the proceeds of said policy; 6) that in view of the adverse claims the insurance company
filed this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due
from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary
designated by the insured in the policy is Carponia Ebrado and the insured made reservation to change
the beneficiary but although the insured made the option to change the beneficiary, same was never
changed up to the time of his death and the legal wife did not have any opportunity to write the
company that there was reservation to change the designation of the beneficiary; 9) the parties agreed
that a decision be rendered based on this agreement and stipulation of facts as to who among the two
claimants is entitled to the policy.
"Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from
the receipt of this order.
SO ORDERED."
On September 25, 1972, the trial court rendered judgment declaring, among others, Carponia T. Ebrado
disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the
payment of the insurance proceeds to the estate of the deceased insured. The trial court held:
"It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery
or concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it
also necessary that a finding of such guilt or commission of those acts be made in a separate
independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the action brought to declare the nullity of the
donation).
It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T.
Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to exist and
that it is only necessary that such fact be established by preponderance of evidence in the trial. Since it
is agreed in their stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the marriage of the
insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the
insurance in question was purchased there is no question that defendant Carponia T. Ebrado is
disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to
the proceeds of the insurance upon the death of the insured."
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the
Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code
(PD No. 612, as amended) does not contain any specific provision grossly resolutory of the prime
question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shall be applied
exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized
upon to hold that the same includes the beneficiary. The word interest" highly suggests that the
provision refers only to the insured" and not to the beneficiary, since a contract of insurance is personal
in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and
descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance.
Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law Article
2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed by the general
rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who
is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life
insurance policy by the person who cannot make a donation to him." 4 Common-law spouses are,
definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides:
"The following donations shall be void:
"1.Those made between persons who were guilty of adultery or concubinage at the time of donation;
"Those made between persons found guilty of the same criminal offense, in consideration thereof;
"3.Those made to a public officer or his wife, descendants or ascendants by reason of his office.
"In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the
same action."
2.In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the
new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be
laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life
insurance policy of the person who cannot make the donation. 5 Under American law, a policy of life
insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a
will and determine the effect of a clause designating the beneficiary by rules under which wills are
interpreted. 6
3.Policy considerations and dictates of morality rightly justify the institution of 0a barrier between
common-law spouses in regard to property relations since such relationship ultimately encroaches upon
the nuptial and filial rights of the legitimate family. There is every reason to hold that the bar in
donations between legitimate spouses and those between illegitimate ones should be enforced in life
insurance policies since the same are based on similar consideration. As above pointed out, a beneficiary
in a life insurance policy is no different from a donee. Both the recipients of pure beneficence. So long as
marriage remains the threshold of family laws, reason and morality dictate that the impediments
imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate
relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be
restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
said:
"If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court
(Court of Appeals), `to prohibit donations in favor of the other consort and his descendants because of
fear and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our
ancient law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno'
(According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale `No Mutuato amore
invicem spoliarentur' of the Pandects (Bk, 24, Titl. 1 De donat, inter virum et uxorem); then there is very
reason to apply the same prohibitive policy to persons living together as husband and wife without the
benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years
bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is
correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1),
`it would not be just that such donations should subsist, lest the condition of those who incurred guilt
should turn out to be better.' So long as marriage remains the cornerstone of our family law, reason and
morality alike demand that the disabilities attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement, any other
conclusion cannot stand the test of scrutiny. It would be to indict the framers of the Civil Code for a
failure to apply a laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if
it is at all to be differentiated the policy of the law which embodies a deeply rooted notion of what is
just and what is right would be nullified if such irregular relationship instead of being visited with
disabilities would be attended with benefits. Certainly a legal norm should not be susceptible to such a
reproach. If there is every any occasion where the principle of statutory construction that what is within
the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose
discernible in such codal provision would not be attained. Whatever omission may be apparent in an
interpretation purely literal of the language used must be remedied by an adherence to its avowed
objective."
4.We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with regard to the disability on "persons
who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides:
"In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the
same action."
The underscored clause neatly conveys that no criminal conviction for the disqualifying offense is a
condition precedent. In fact, it cannot even be gleaned from the aforequoted provision that a criminal
prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved
"in the same action" for declaration of nullity of donation. And, it would be sufficient if evidence
preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal
cases is not demanded.
In the case before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that
during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with
whom he has two children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these
admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pre-trial, the
parties even agreed "that a decision be rendered based on this agreement and stipulation of facts as to
who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is
hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life
insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of
the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
10. [1989V563] THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, petitioner, vs.
HONORABLE GREGORIO G. PINEDA, in his capacity as Judge of the Court of First Instance of
Rizal, and RODOLFO C. DIMAYUGA, respondents.1989 Jul 192nd DivisionG.R. No. 54216D E C I
S I O N
PARAS, J.:
Challenged before Us in this petition for review on certiorari are the Orders of the respondent Judge
dated March 19, 1980 and June 10, 1980 granting the prayer in the petition in Sp. Proc. No. 9210 and
denying petitioner's Motion for Reconsideration, respectively.
The undisputed facts are as follows:
On January 15, 1968, private respondent procured an ordinary life insurance policy from the petitioner
company and designated his wife and children as irrevocable beneficiaries of said policy.
Under date February 22, 1980 private respondent filed a petition which was docketed as Civil Case No.
9210 of the then Court of First Instance of Rizal to amend the designation of the beneficiaries in his life
policy from irrevocable to revocable.
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the same date,
petitioner filed its Comment and/or Opposition to Petition.
When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio G. Pineda,
presiding Judge of the then Court of First Instance of Rizal, Pasig Branch XXI, denied petitioner's Urgent
Motion, thus allowing the private respondent to adduce evidence, the consequence of which was the
issuance of the questioned Order granting the petition.
Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order June 10,
1980. Hence, this petition raising the following issues for resolution:
I
WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES COULD BE CHANGED OR
AMENDED WITHOUT THE CONSENT OF ALL THE IRREVOCABLE BENEFICIARIES.
II
WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF WHOM IS ALREADY DECEASED
WHILE THE OTHERS ARE ALL MINORS, COULD VALIDLY GIVE CONSENT TO THE CHANGE OR
AMENDMENT IN THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES.
We are of the opinion that his Honor, the respondent Judge, was in error in issuing the questioned
Orders.
Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No.
2427 as amended, the policy having been procured in 1968. Under the said law, the beneficiary
designated in a life insurance contract cannot be changed without the consent of the beneficiary
because he has a vested interest in the policy (Gercio v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v.
Redfern and the International Assurance Co., Ltd., 72 Phil. 71).
In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which forms
part of Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the designation of
the beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210, Annex "C" of the Petition for
Review on Certiorari), to wit:
It is hereby understood and agreed that, notwithstanding the provisions of this policy to the contrary,
inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this Policy has been
made without reserving the right to change said beneficiary/beneficiaries, such designation may not be
surrendered to the Company, released or assigned; and no right or privilege under the Policy may be
exercised, or agreement made with the Company to any change in or amendment to the Policy, without
the consent of the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)
Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.
Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then
applicable, it is only with the consent of all the beneficiaries that any change or amendment in the policy
concerning the irrevocable beneficiaries may be legally and validly effected. Both the law and the policy
do not provide for any other exception, thus, abrogating the contention of the private respondent that
said designation can be amended if the Court finds a just, reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-wife
predeceased the insured) cannot be considered an effective ratification to the change of the
beneficiaries from irrevocable to revocable. Indubitable is the fact that all the six (6) children named as
beneficiaries were minors at the time, ** for which reason, they could not validly give their consent.
Neither could they act through their father-insured since their interests are quite divergent from one
another. In point is an excerpt from the Notes and Cases on Insurance Law by Campos and Campos,
1960, reading
"The insured . . . can do nothing to divest the beneficiary of his rights without his consent. He cannot
assign his policy, nor even take its cash surrender value without the consent of the beneficiary. Neither
can the insured's creditors seize the policy or any right thereunder. The insured may not even add
another beneficiary because by doing so, he diminishes the amount which the beneficiary may recover
and this he cannot do without the beneficiary's consent."
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance
contract, for otherwise, the vested rights of the irrevocable beneficiaries would be rendered
inconsequential.
Of equal importance is the well-settled rule that the contract between the parties is the law binding on
both of them and for so many times, this court has consistently issued pronouncements upholding the
validity and effectivity of contracts. Where there is nothing in the contract which is contrary to law, good
morals, good customs, public policy or public order the validity of the contract must be sustained.
Likewise, contracts which are the private laws of the contracting parties should be fulfilled according to
the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the
intention of the contracting parties, for contracts are obligatory, no matter in what form they may be,
whenever the essential requisites for their validity are present (Phoenix Assurance Co., Ltd. vs. United
States Lines, 22 SCRA 675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)
In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court ruled that:
". . . it is settled that the parties may establish such stipulations, clauses, terms, and conditions as they
may want to include; and as long as such agreements are not contrary to law, good morals, good
customs, public policy or public order, they shall have the force of law between them."
Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and does
not in any way violate the law, morals, customs, orders, etc. leaving no reason for Us to deny sanction
thereto.
Finally, the fact that the contract of insurance does not contain a contingency when the change in the
designation of beneficiaries could be validly effected means that it was never within the contemplation
of the parties. The lower court, in gratuitously providing for such contingency, made a new contract for
them, a proceeding which we cannot tolerate. Ergo, We cannot help but conclude that the lower court
acted in excess of its authority when it issued the Order dated March 19, 1980 amending the
designation of the beneficiaries from "irrevocable" to "revocable" over the disapprobation of the
petitioner insurance company.
WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby nullified
and set aside.
SO ORDERED.
11. [1988V108] PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF APPEALS
(SPECIAL THIRD DIVISION), IGNACIO DESIDERIO AND VICTORIA F. DESIDERIO,
respondents.1988 Feb 262nd DivisionG.R. No. L-43766D E C I S I O N
SARMIENTO, J.:
In its resolve to recover the trifling sum of P3,855.60, petitioner Philippine National Bank (PNB), a
premier banking institution, incredulous of the adverse decisions of three lower courts, to wit: the City
Court of Zamboanga City which rendered a decision the dispositive portion of which reads:
WHEREFORE, this Court hereby renders judgment in the following tenor:
That the complaint for the unpaid balance of the contractual loan of the Defendant Ignacio Desiderio
and Victoria F. Desiderio filed by the Philippine National Bank, is hereby ordered dismissed and that the
amount of P1,089.60 which the Defendants paid as partial payment to the Plaintiff Bank on account of
the loss contracted, is here by declared unrecoverable and the same shall inure to the benefit of the
Philippine National Bank.
That no pronouncement as to damages, costs and attorney's fees is hereby made, as the loss of the
things mortgaged were presumed to be caused by accident, no evidence having been presented to
prove the contrary; 1
the then CFI of Zamboanga City which affirmed the above in a decision the dispositive portion of which
reads:
IN VIEW OF THE FOREGOING, the appealed judgment of the City Court is affirmed insofar as it dismisses
the complaint as well as the counter-claim filed in the above entitled case; 2
and the Court of Appeals which likewise affirmed the above in a decision the dispositive portion of
which reads:
WHEREFORE, the appealed judgment, being in accordance with law and the evidence, is hereby affirmed
in toto, with costs against the petitioner; 3
has elevated this case to the highest court of the land with the following errors assigned:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER, AS ATTORNEY-IN-FACT OF PRIVATE
RESPONDENTS IS BOUND TO SUCCESSFULLY COLLECT THE INSURANCE PROCEEDS OF THE MORTGAGED
PROPERTY OF THE LATTER.
II
THE COURT OF APPEALS ERRED IN EXONERATING PRIVATE RESPONDENTS, BY WAY OF IMPLIED OFF-
SETTING, FROM ITS LOAN ACCOUNT WITH PETITIONER, THERE BEING NO COUNTERCLAIM FOR
DAMAGES FILED BASED ON BREACH OF DUTY. 4
The facts of the case are as follows:
More than a quarter century ago, on January 10, 1963, the private respondents-spouses applied for a
retailers' loan with the petitioner. The loan which was subsequently approved was secured by a chattel
mortgage consisting of the verified inventory of stocks in the store of the private respondents, located
at Marahui Street, Zamboanga City. In addition to this, the goods and merchandise, subject matter of
the mortgage, were insured with the Cosmopolitan Insurance Co. in the amount of P4,000.00 with the
petitioner as the beneficiary pursuant to the requirements of the latter.
On August 1, 1964, while the insurance and the chattel mortgage were still in force, and after the
private respondents had paid the petitioner the amount of P1,089.60 as partial payment of the loan in
accordance with the loan agreement, the insured building and merchandise of the private respondents
were totally destroyed by fire.
The petitioner sent several letters to the insurance company for the purpose of recovering the proceeds
of the insurance but to no avail. Sometime in 1966, the said insurance company became the subject of
liquidation. Seven years after the insured chattels mortgaged were burned, the petitioner filed a
complaint for collection against the private respondents.
We find no cogent reasons to disturb the ruling of the Court of Appeals.
The petitioner as the attorney-in-fact of the private respondents and as the beneficiary of the insurance
policy had the obligation to collect the proceeds of the policy. The argument of the petitioner to the
effect that there is no express provision in the Chattel Mortgage Contract which compels the petitioner
to collect the proceeds of the insurance in case of loss is a mere rationalization of one trying hard to put
the blame on another for its own fault or negligence. For "under the chattel mortgage covering the
goods offered as security for payment of the loan, the private respondents as mortgagors constituted
and appointed the petitioner as mortgagee their attorney-in-fact with full power and authority to collect
and receive any interest, income or benefits produced by the mortgaged property and apply such
amount collected and received in payment of the interest accruing and of the principal obligation. The
petitioner was itself the beneficiary of the insurance policy to which it was duly indorsed and made
payable, and was in possession thereof." 5
Indeed, and as found by the lower courts, the petitioner could have collected the insurance proceeds if
only it were not negligent. It had ample time and enough legal remedies, not to mention resources, to
collect the insurance proceeds where the same became due, yet, it merely sent demand letters to the
insurance company. And when the company did not act on the letters, the petitioner did not pursue
other remedies to press its claim. It did not even file a suit for the recovery of the insurance proceeds
against the insurance company before and even during the liquidation of the company. It allowed seven
long years to pass before finally deciding to file a collection case. Realizing that it could no longer collect
from the insurance company because the same had already folded up, the petitioner directed the
collection suit against the private respondents whose obligation with the petitioner had long been
extinguished.
For, indeed, under the facts obtaining, the private respondents cannot have been expected to initiate
moves for the collection of the insurance proceeds. It was the petitioner which was duty bound to
enforce the claim for the insurance proceeds, being, as earlier mentioned, the attorney-in-fact of the
private respondents and the beneficiary of the insurance policy.
It is sad that the private respondents, small time sari-sari store keepers, had to be dragged into this suit
if only because of the petitioner's resoluteness to recover what, to our minds, is too measly an amount,
not really worth litigating upon, in fact, not even worth wasting the time of this Court.
WHEREFORE, the petition is hereby DISMISSED and the appealed judgment AFFIRMED, in toto, with
triple costs against the petitioner.
SO ORDERED.
12. [1997V654] Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC.,
petitioners vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.1997
Aug 181st DivisionG.R. No. 124520D E C I S I O N
PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of
respondent Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private
respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects
placed at any stall or store or space in the leased premises without first obtaining the written consent
and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the
LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . . 1
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss
by fire the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the
United Insurance Co., Inc. (hereinafter United) without the written consent of private respondent CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it
wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract (between
the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein
defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00
as exemplary damages, P20,000.00 as attorney's fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11
January 1996, affirming the trial court decision, deleting however the awards for exemplary damages
and attorney's fees. A motion for reconsideration by United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE
CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND
VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED
INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN
TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF
PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO
APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON
THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING
TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. 2
The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease
contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire
insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises
is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written
consent of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy. 3
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of
some person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at
the time the insurance takes effect and at the time the loss occurs. 4 The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and collecting the proceeds
of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured
has or has not any interest in the property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises under the provisions of Section 17 of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of
the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest
over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the
policy to CKS under the provision of the lease contract previously quoted is void for being contrary to
law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses
Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property
insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained
a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and
distinct issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new
decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha
and Stella Uy-Cha.SO ORDERED.
Bellosillo, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
13. [1996V295] SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE HON. COURT OF
APPEALS, RICARDO TRINIDAD and ELISA TRINIDAD, respondents. / APPEARANCES OF
COUNSEL / Laboguis, Loyola, Atienza, Felipe, Santos & Associates for petitioner. / Dominador
R. Santiago for private respondents.1996 May 82nd DivisionG.R. No. 110597D E C I S I O N
ROMERO, J.:
Petitioner seeks review of the decision[1] of the Court of Appeals affirming the decision of the Regional
Trial Court of Manila which (1) dismissed the complaint for replevin and damages filed by petitioner
before the Metropolitan Trial Court of Manila and (2) ordered petitioner to pay private respondents
P10,000.00 as attorney's fees, P2,000.00 as litigation expenses plus costs of the suit.
The facts show that on August 1, 1983, private respondent spouses Ricardo and Elisa Trinidad purchased
one unit Isuzu Gemini car, 1983 model, yellow in color, from Autoworld Sales Corporation. The price
was P98,156.00 payable in 24 equal monthly installments of P4,089.00 every 15th of each month
beginning September 1983 to August 15, 1985.
To secure payment thereof, the Trinidads executed on the same date a promissory note and a deed of
chattel mortgage on the subject car in favor of Autoworld Sales Corporation.
Also on the same date, Autoworld assigned its interests on the promissory note and chattel mortgage to
Filinvest Credit Corporation (Filinvest). These assignments were made with due notice to private
respondents.
On April 15, 1984, private respondents delivered seventeen (17) checks to Filinvest Credit Corporation in
full payment of the car. The checks were in the same amount of P3,969.00 each, sixteen of which were
postdated to be applied for the remaining installments from April 15, 1984 to August 15, 1985. Proper
receipts were issued by Filinvest Credit Corporation to private respondents and all documents regarding
ownership of the car were released to them. Private respondents immediately used the car as a taxi, a
fact known to the vendor.
On November 8, 1985, Filinvest assigned all its rights and interests on the promissory note and chattel
mortgage in favor of petitioner.
On November 18, 1985, private respondent Ricardo Trinidad received a demand letter from petitioner
dated November 8, 1985 stating that an assignment of credit had been made by Filinvest in its favor and
that the Trinidads had not paid two successive installments on the car which had matured on July 15 and
August 15, 1985. No mention was made in the letter that Filinvest had paid insurance premiums to
Perla Compania de Seguros to insure the car against loss and damage corresponding to two years, i.e.,
from July 29, 1984 to July 29, 1985 and July 29, 1985 to July 29, 1986. Private respondents were also
never informed by Filinvest that their installment payments on the car were converted to premium
payments on the insurance.
After informing private respondents that they failed to pay the last two consecutive monthly
installments, petitioner demanded that either they pay the whole remaining balance of P6,977.67,
including accrued interest, or return possession of the car to petitioner.
When private respondents refused to pay the amount demanded or to return the car, petitioner filed an
action for replevin and damages with the Metropolitan Trial Court, Branch V, Manila. The sole issue
resolved by the trial court was whether private respondents were liable for the payment of the
insurance premiums effected by petitioner.
On July 24, 1990, a decision was rendered by the trial court in favor of petitioner, the dispositive portion
of which states:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff ordering the defendants to pay
plaintiff jointly and severally the sum of P6,977.67 plus interest thereon at the rate of 24% per annum
from January 8, 1986 until fully paid. To pay the sum of P4,773.04 as attorney's fees.
SO ORDERED.[2]
Private respondents appealed to the Regional Trial Court of Manila, Branch 46. The RTC found that a
renewal of insurance (caused by Filinvest on the mortgaged chattel) was issued twice by Perla Compania
de Seguros, Inc. in the name of Ricardo Trinidad for private car loss and damage. On both occasions, no
notice was made whatsoever to private respondents that Filinvest was applying the installment
payments made by them for the car to the payment of the insurance premiums. Furthermore, no notice
was made to private respondents that Filinvest had assigned the promissory note and chattel mortgage
to petitioner.
The RTC held that petitioner had no cause of action against private respondents because the latter
issued the checks with the understanding that they were to be applied to the payment in full of the car
and that the same were all duly encashed by petitioner. No prior demand having been made on private
respondents for the payment of the insurance premiums, the RTC held that the complaint was not a just
suit and dismissed the complaint, awarding P10,000.00 for attorney's fees, P2,000.00 as expenses for
litigation plus costs of the suit to private respondents.
Petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court.
Hence, this petition.
The central issue in this case is: whether or not petitioner should have applied the installment payments
made by private respondents for the payment of the car to the payment of the insurance premiums
without prior notice to private respondents.
The provision in the Chattel Mortgage subject of the controversy states:
"The said MORTGAGOR covenants and agrees that he will cause the property/ies herein above
mortgaged to be insured against loss or damage by accident, theft and fire for a period of one year from
date thereof and every year thereafter until the mortgage obligation is fully paid with an insurance
company, or companies acceptable to the MORTGAGEE in an amount not less than the outstanding
balance of the mortgage obligation; that he will make all loss, if any, under such policy or policies,
payable to the MORTGAGEE or its assigns as its interest may appear and forewith deliver such policy or
policies to the MORTGAGEE, the said MORTGAGOR further covenants and agrees that in default of his
affecting or renewing such insurance and delivering the policies so endorsed to the MORTGAGEE within
five (5) days after the execution of this mortgage or the expiry date of the insurance the MORTGAGEE,
may, at his option, but without any obligation to do so effect such insurance or obtain such renewal for
the account of the MORTGAGOR and that any money so disbursed by the MORTGAGEE shall be added
to the principal indebtedness hereby secured and shall become due and payable at the time for the
payment of the immediately coming or following installment to be due under the note aforesaid after
the date of such insurance renewal and shall bear interest at the same rate as the principal
indebtedness."[3] talics supplied)

Petitioner contends that the matter about the notice is deemed waived by private respondents because
the car should be fully covered at all times. Petitioner claims that if, as stated in the Chattel Mortgage,
private respondents failed to renew the insurance, petitioner is entitled to renew the same for the
account of private respondents without any notice to them.
The petition is unmeritorious.
While it is true that the Chattel Mortgage does not say that notice to the mortgagor of the renewal of
the insurance premium by the mortgagee is necessary, at the same time, there is no provision that
authorizes petitioner to apply the payments made to it for the payment of the chattel to the payment of
the said premiums. From the records of the case, it is clear that private respondents had fully paid for
the car. This fact was never rebutted by petitioner; it was the insurance premiums pertaining to the
two-year period from July 29, 1984 to July 29, 1986 that petitioner claims were not paid.
Both the Regional Trial Court and the Court of Appeals found that before the mortgagee (petitioner)
may effect the renewal of insurance, two conditions must be met: (1) Default by the mortgagor (private
respondents) in effecting renewal of the insurance and (2) failure to deliver the policy with endorsement
to petitioner.
The Court notes an additional element of the provisions regarding the renewal of the insurance;
specifically, that petitioner was under no obligation to effect the same. In other words, petitioner as
mortgagee was not duty-bound to renew the insurance in the event that private respondents failed to
do so; it was merely optional on its part.
The question now arises whether private respondents were in default for failing to have the car covered
by insurance for the period in question. Private respondents claim that the car was duly covered and
the Court finds no evidence on record showing this assertion to be false. Petitioner has averred,
however, that the insurance taken by private respondents was only for third-party liability and not the
comprehensive insurance required.
If petitioner was aware that the insurance coverage was inadequate, why did it not inform private
respondent about it? After all, since petitioner was under no obligation to effect renewal thereof, it is
but logical that it should relay to private respondents any defect of the insurance coverage before itself
assuming the same.
Furthermore, even if the car were not covered with the proper insurance, there is nothing in the
provisions of the Chattel Mortgage that authorizes petitioner to apply previous payments for the car to
the insurance. What is stated is: "x x x that any money so disbursed by the mortgagee shall be added to
the principal indebtedness hereby secured x x x" talics supplied). Clear is it that petitioner is not
obligated to convert any of the installments made by private respondents for the car to the payment for
the renewal of the insurance. Should it decide to do so, it has to send notice to private respondents
who had already paid in full the principal indebtedness in question.
When petitioner wrote private respondents the November 8, 1985 demand letter regarding non-
payment of the installments, no mention was made of unpaid insurance premiums. Thus, private
respondents were quite justified in ignoring the same since, to the best of their knowledge, they had
already paid for the car in full.
Finally, while we agree with the appellate court that the complaint against private respondent should be
dismissed, we find that the award of P10,000.00 as attorney's fees to them to be erroneous.
Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason of an
unjustified act or omission on the part of the party from whom it is sought. To be sure, private
respondents were forced to litigate to protect their rights but as we have previously held: "where no
sufficient showing of bad faith would be reflected in a party's persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorney's fee shall not be recovered as cost.[4]
Attorney's fees cannot be awarded to a party simply because the judgment was favorable to it, for that
amounts to imposing a premium on the right to redress grievances in Court.[5]
When it has not been sufficiently established that the complaint was filed to harass the other party or
when an action was filed in the sincere belief that the cause was meritorious, an award of attorney's
fees is not proper.[6]
The Court, therefore, deletes the award of P10,000.00 to private respondents as attorney's fees.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED with the modification that the
award of P10,000.00 as attorney's fees is hereby DELETED.
SO ORDERED.
14. [1995V90] ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and COUNTRY BANKERS
INSURANCE CORPORATION, respondents.1995 Feb 61st DivisionG.R. No. 114427D E C I S I O N
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 Norman's Mart located in the public market of San Francisco, Agusan del
Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-14622
2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and
women wear and other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his
inventory stocks amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc. P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
=========
P392,130.50
The policy contained the following condition:
"3. The insured shall give notice to the Company of any insurance or insurances already 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."
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured 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 petitioner's stocks-
in-trade were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter
PFIC). 3 These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia,
Prop.)" with a mortgage clause reading:
"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:
P100,000. - Phils. First CEB/F-24758" 4
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the
policy.
The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission
(Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for
attorney's fees and costs of litigation. He attached as Annex "M" 6 thereof his letter of 18 January 1991
which asked for the reconsideration of the denial. He admitted in the said letter that at the time he
obtained the private respondent's fire insurance policy he knew that the two policies issued by the PFIC
were already in existence; however, he had no knowledge of the provision in the private respondent's
policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the
private respondent's agent; and had it been 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 petitioner's testimony that he came to know of the PFIC policies only
when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and
paid for their premiums without informing him thereof. The Insurance Commission then decreed:
"WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the
sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the
amount of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is
hereby dismissed."
Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in
its resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by way of
a petition for review. The petition was docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of the existence of the two other policies issued
by the PFIC. It said:
"It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken
in the name of private respondent [petitioner herein]. The policy states that 'DISCOUNT MART (MR.
ARMANDO GEAGONIA, PROP)' was 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 respondent's 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:]
xxx xxx xxx
'Please be informed that I have no knowledge of the provision requiring me to inform your office about
my prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said
requirement at the time he was convincing me to insure with you. If he only 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.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know that there were other
insurances taken on the stock-in-trade and seriously puts in question his credibility."
His motion to reconsider the adverse decision having been denied, the petitioner filed the instant
petition. He contends therein that the Court of Appeals acted with grave abuse of discretion amounting
to lack of excess of jurisdiction:
"A - . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-
JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION
IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;
B - . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE
DURING THE HEARING OR TRIAL; AND
C - . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE
RESPONDENT."
The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy
from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy,
and (b) if he had, whether he is precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was not
offered in evidence and thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's
complaint in I.C. Case No. 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.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law.
Its incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides that
"[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy." Such a condition is a provision which
invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It
is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the policy. 16 However, in order
to constitute a violation, the other insurance must be upon 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 mortgagor's insurable interest
covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the full
value of the property. 19 The mortgagee's insurable interest is to the extent of the debt, since the
property is relied upon as security thereof, and in insuring he is not insuring the property but his interest
or lien thereon. His insurable interest is prima facie the value mortgaged and extends only the amount
of the debt, not exceeding the value of the mortgaged property. 20 Thus, separate insurances covering
different insurable interests may be obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial payee in several ways. He may become the
assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or the
original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as
his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached; or the policy, though by its
terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract
duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon
the proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by
the insurer but not made a party to the contract 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
The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage
clause which reads:
"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear
subject to the terms of the policy."
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which
read:
"The insured shall give notice to the company of any insurance or insurances already effected, or which
may subsequently be effected covering any of the property hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on
behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall
be forfeited."
or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co. 28 which provided "that any
outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by
the insured in writing and he must cause the company to add or insert it in the policy, without which
such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss,"
Condition 3 in the private respondent's policy No. F-14622 does not absolutely declare void any violation
thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances
in force at the time of the loss or damage is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor
of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest
protection which the insured was endeavoring to secure when he applied for insurance. It is also a
cardinal principle of law that forfeitures are not favored and that any construction which would result in
the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is possible
to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for
such forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies which tend to
work a forfeiture of insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom they are intended to
operate. 30 The reason for this is that, except for riders which may later be inserted, the insured sees
the contract already in its final form and has had no voice in the selection or arrangement of the words
employed therein. On the other hand, the language of the contract was carefully chosen and
deliberated upon by experts and legal advisers who had acted exclusively in the interest of the insurers
and the technical language employed therein is rarely understood by ordinary laymen. 31
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude
that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to
the extent exceeding P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the condition referring to other insurance "covering
any of the property or properties consisting of stocks in trade, goods in process and/or inventories only
hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE
that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists
where the same person is insured by several insurers separately in respect of the same subject and
interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged
property are distinct and separate. Since the two policies of the PFIC do not cover the same interest as
that covered by the policy of the private respondent, no double insurance exists. The non-disclosure
then of the former policies was not fatal to the petitioner's right to recover on the private respondent's
policy.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance
in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to
assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to
discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property
owner obtains insurance policies from two or more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a situation in which
a fire would be profitable to the insured. 32
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP
No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.
15. [1995V381] SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, vs. The Hon. COURT OF
APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents.1995 Jun 221st
DivisionG.R. No. 105135D E C I S I O N
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set
aside the Decision dated February 21,1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its
Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner.
He was issued Policy No. 3-903-766-X valued P100,000.00, with double indemnity in case of accidental
death. The designated beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclosed material
facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check
representing the total premiums paid in the amount of P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he answered the
following questions:
"5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
ECG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
"6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder?"
(Rollo, p. 53).
The deceased answered questions No. 5(a) in the affirmative but limited his answer to a consultation
with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough
and flu complications. The other questions were answered in the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his
confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani, filed
an action for specific performance against petitioner with the Regional Trial Court, Branch 191,
Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list off exhibits consisting
of medical records furnished by the Lung Center of the Philippines.
On January, 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition" (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of several
documents as well as allegations regarding the health of the insured. Private respondents failed to
oppose said request or reply thereto, thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
condemning the latter to pay the former the amount of One Hundred Thousand Pesos (P100,000.00) the
face value of insured's Insurance Policy No. 3903766, and the Accidental Death Benefit in the amount of
One Hundred Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the concept of reasonable
attorney's fees and the costs of the suit.
"Defendant's counterclaim is hereby Dismissed" (Rollo, pp. 43-44).
In the ruling of private respondents, the trial court concluded that the facts concealed by the insured
were made in good faith and under the belief that they need not be disclosed. Moreover, it held that the
health history of the insured was immaterial since the insurance policy was "non-medical."
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate
court ruled that petitioner cannot avoid its obligation by claiming concealment because the cause of
death was unrelated to the facts concealed by the insured. It also sustained the finding of the trial court
that the matters relating to the health history of the insured were irrelevant since the petitioner waived
the medical examination prior to the approval and issuance of the insurance policy. Moreover, the
appellate court agreed with the trial court that the policy was "non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied, hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this Court is not
absolute and admits of exceptions, such as when the judgment is based on a misappreciation of the
facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical." We disagree.
Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining. Said
Section provides:
"A neglect to communicate that which a party knows and ought to communicate, is called
concealment."
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of
the proposed contract or in making his inquiries (The Insurance Code, Sec 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters
relating to his health.
The information which the insured failed to disclose were material and relevant to the approval and the
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's
action on his application, either by approving it with the corresponding adjustment for a higher
premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of
the insured by petitioner in order for it to reasonably assess the risk involved in accepting the
application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend on
the actual or physical events which ensue.
Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his
bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that ". . . the waiver of a medical examination [in
a non-medical insurance contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes into consideration in deciding whether to issue
the policy or not . . . ."
Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which
allows the injured party to rescind a contract of insurance where there is concealment, ineffective (See
Vda de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries (Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48
[1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET
ASIDE.
SO ORDERED.
16. [1979V152] VICENTE E. TANG, petitioner, vs. HON. COURT OF APPEALS and PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY, respondents.1979 May 252nd DivisionG.R. No. L-
48563D E C I S I O N
ABAD SANTOS, J:
This is a petition to review on certiorari of the decision of the Court of Appeals (CA-G.R. No. 55407-R,
June 8, 1978) which affirmed the decision of the Court of First Instance of Manila in Civil Case No. 90062
wherein the petitioner herein was the plaintiff and Philippine American Life Insurance Co. the herein
respondent was the defendant. The action was for the enforcement of two insurance policies that had
been issued by the defendant company under the following circumstances.
On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate who spoke only Chinese,
applied for an insurance on her life for P60,000 with the respondent Company. The application consisted
of two parts, both in the English language. The second part of her application dealt with her state of
health and because her answers indicated that she was healthy, the Company issued her Policy No.
0690397, effective October 23, 1965, with her nephew Vicente E. Tang, herein petitioner, as her
beneficiary.
On November 15, 1965, Lee See Guat again applied with the respondent Company for an additional
insurance on her life for P40,000. Considering that her first application had just been approved, no
further medical examination was made but she was required to accomplish and submit Part I of the
application which reads: "I/WE HEREBY DECLARE AND AGREE that all questions, statements answers
contained herein, as well as those made to or to be made to the Medical Examiner in Part II are full,
complete and true and bind all parties in interest under the policy herein applied for; that there shall be
no contract of insurance unless a policy is issued on this application and the full first premium thereon,
according to the mode of payment specified in answer to question 4D above, actually paid during the
lifetime and good health of the Proposed Insured." Moreover, her answers in Part II of her previous
application were used in appraising her insurability for the second insurance. On November 28, 1965,
Policy No. 695632 was issued to Lee See Guat with the same Vicente E. Tang as her beneficiary.
On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two policies,
Vicente E. Tang claimed for their face value in the amount of P100,000 which the insurance company
refused to pay on the ground that the insured was guilty of concealment and misrepresentation at the
time she applied for the two policies. Hence, the filing of Civil Case No. 90062 in the Court of First
Instance of Manila which dismissed the claim because of the concealment practiced by the insured in
violation of the Insurance Law.
On appeal, the Court of Appeals, affirmed the decision. In its decision, the Court of Appeals stated, inter
alia: "There is no doubt that she deliberately concealed material facts about her physical condition and
history and/or conspired with whoever assisted her in relaying false information to the medical
examiner, assuming that the examiner could not communicate directly with her."
The issue in this appeal is the application of Art. 1332 of the Civil Code which stipulates:
"Art. 1332.When one of the parties is unable to read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former."
According to the Code Commission: "This rule is especially necessary in the Philippines where
unfortunately there is still a fairly large number of illiterates, and where documents are usually drawn
up in English or Spanish." (Report of the Code Commission, p. 136.) Art. 1332 supplements Art. 24 of the
Civil Code which provides that "In all contractual, property or other relations, when one of the parties is
at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender
age or other handicap, the court must be vigilant for his protection."
It is the position of the petitioner that because Lee See Guat was illiterate and spoke only Chinese, she
could not be held guilty of concealment of her health history because the applications for insurance
were in English and the insurer has not proved that the terms thereof had been fully explained to her.
It should be noted that under Art. 1332 abovequoted, the obligation to show that the terms of the
contract had been fully explained to the party who is unable to read or understand the language of the
contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here the
insurance company is not seeking to enforce the contracts; on the contrary, it is seeking to avoid their
performance. It is petitioner who is seeking to enforce them even as fraud or mistake is not alleged.
Accordingly, respondent company was under no obligation to prove that the terms of the insurance
contracts were fully explained to the other party. Even if we were to say that the insurer is the one
seeking the performance of the contracts by avoiding paying the claim, it has to be noted as above
stated that there has been no imputation of mistake or fraud by the illiterate insured whose personality
is represented by her beneficiary the petitioner herein. In sum, Art. 1332 is inapplicable to the case at
bar. Considering the findings of both the CFI and Court of Appeals that the insured was guilty of
concealment as to her state of health, we have to affirm.
WHEREFORE, the decision of the Court of Appeals is hereby affirmed. No special pronouncement as to
costs.
SO ORDERED.
17. [1993V506] THELMA VDA. DE CANILANG, petitioner, vs. HON. COURT OF APPEALS and GREAT
PACIFIC LIFE INSURANCE CORPORATION, respondents.1993 Jun 173rd DivisionG.R. No. 92492D
E C I S I O N
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from
"sinus tachycardia." The doctor prescribed the following for him: Trazepam, a tranquilizer; and Aptin, a
beta-blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was
found to have "acute bronchitis."
On the next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, petitioner Thelma
Canilang, as his beneficiary. 1 Jaime Canilang was issued ordinary life insurance Policy No. 345163, with
the face value of P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic anemia." 2
Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer
denied on 5 December 1983 upon the ground that the insured had concealed material information from
it.
Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of the
insurance proceeds. During the hearing called by the Insurance Commissioner, petitioner testified that
she was not aware of any serious illness suffered by her late husband 3 and that, as far as she knew,
her husband had died because of a kidney disorder. 4 A deposition given by Dr. Wilfredo Claudio was
presented by petitioner. There Dr. Claudio stated that he was the family physician of the deceased Jaime
Canilang 5 and that he had previously treated him for "sinus tachycardia" and "acute bronchitis." 6
Great Pacific for its part presented Dr. Esperanza Quismorio, a physician and a medical underwriter
working for Great Pacific 7 She testified that the deceased's insurance application had been approved
on the basis of his medical declaration. 8 She explained that as a rule, medical examinations are
required only in cases where the applicant has indicated in his application for insurance coverage that
he has previously undergone medical consultation and hospitalization. 9
In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great Pacific
to pay P19,700.00 plus legal interest and P2,000.00 as attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it would not have
affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the health condition of the applicant by the issuance
of the policy despite the lack of answers to "some of the pertinent questions" in the insurance
application;
3. there was no intentional concealment on the part of the insured Jaime Canilang as he had thought
that he was merely suffering from a minor ailment and simple cold; 10 and
4. Batas Pambansa Blg. 874 which voids an insurance contract, whether or not concealment was
intentionally made, was not applicable to Canilang's case as that law became effective only on 1 June
1985.
On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's counterclaim. The Court of
Appeals found that the use of the word "intentionally" by the Insurance Commissioner in defining and
resolving the issue agreed upon by the parties at pre-trial before the Insurance Commissioner was not
supported by the evidence; that the issue agreed upon by the parties had been whether the deceased
insured, Jaime Canilang, made a material concealment as to the state of his health at the time of the
filing of insurance application, justifying respondent's denial of the claim. The Court of Appeals also
found that the failure of Jaime Canilang to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great Pacific to enable the
latter to make proper inquiries. The Court of Appeals finally held that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging that:
"1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that the issue in
the case agreed upon between the parties before the Insurance Commission is whether or not Jaime
Canilang `intentionally' made material concealment in stating his state of health;
2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions does not
amount to fraud and private respondent is deemed to have waived inquiry thereto." 11
The medical declaration which was set out in the application for insurance executed by Jaime Canilang
read as follows:
"MEDICAL DECLARATION
`I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor received any medical or
surgical advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
_____________________________________________________________________________________
_____________________________________________________________________________________
__________________________________________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and statements are complete, true and correct. I hereby
agree that if there be any fraud or misrepresentation in the above statements material to the risk, the
INSURANCE COMPANY upon discovery within two (2) years from the effective date of insurance shall
have the right to declare such insurance null and void. That the liabilities of the Company under the said
Policy/TA/Certificate shall accrue and begin only from the date of commencement of risk stated in the
Policy/TA/Certificate, provided that the first premium is paid and the Policy/TA/Certificate is delivered
to, and accepted by me in person, when I am in actual good health.
Signed at Manila this 4th day of August, 1992.
Illegible
________________________
Signature of Applicant." 12
We note that in addition to the negative statements made by Mr. Canilang in paragraphs 1 and 2 of the
medical declaration, he failed to disclose in the appropriate space, under the caption "Exceptions," that
he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus
tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance
and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the Insurance Code of
1978, which went into effect on 11 June 1978. These provisions read as follows:
"Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment."
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all factors
within his knowledge which are material to the contract and as to which he makes no warranty, and
which the other has not the means of ascertaining." mphases supplied)
Under the foregoing provisions, the information concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is to say, information which was "material to
the contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which
reads:
"Sec. 31. Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in making his inquiries." mphases supplied)
"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute." 13 The
symptoms of this condition include pounding in the chest and sometimes faintness and weakness of the
person affected. The following elaboration was offered by Great Pacific and set out by the Court of
Appeals in its Decision:
"Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per minute. (Harrison's
Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among others, a common reaction to hear
disease, including myocardial infarction, and heart failure per se. (Henry J.L. Marriot, M.D.,
Electrocardiograph, 6th ed. [1977], p. 127.) The medication prescribed by Dr. Claudio for treatment of
Canilang's ailment on June 18, 1982, indicates the condition that said physician was trying to manage.
Thus, he prescribed Trazepam, (Philippine Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec. 1985,
p. 112.) which is anti-anxiety, anti-convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug,
for palpitations and nervous heart. Such treatment could have been a very material information to the
insurer in determining the action to be taken on Canilang's application for life insurance coverage." 14
We agree with the Court of Appeals that the information which Jaime Canilang failed to discloses was
material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and the medicines
prescribed by such doctor, in the insurance application, it may be reasonably assumed that Great Pacific
would have made further inquiries and would have probably refused to issue a non-medical insurance
policy or, at the very least, required a higher premium for the same coverage. 15 The materiality of the
information withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang. A man's
state of mind or subjective belief is not capable of proof in our judicial process, except through proof of
external acts or failure to act from which inferences as to his subjective belief may be reasonably drawn.
Neither does materiality depend upon the actual or physical events which ensue. Materiality relates
rather to the "probable and reasonable influence of the facts" upon the party to whom the
communication should have been made, in assessing the risk involved in making or omitting to make
further inquiries and in accepting the application for insurance; that "probable and reasonable influence
of the facts" concealed must, of course, be determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company, 16 this Court held that:
". . . if anything, the waiver of medical examination [in a non-medical insurance contract] renders even
more material the information required of the applicant concerning previous condition of health and
diseases suffered, for such information necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy or not . . .." 17 mphases supplied)
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed
that he was suffering from minor ailment like a common cold. Section 27 of the Insurance Code of 1978
as it existed from 1974 up to 1985, that is, throughout the time range material for present purposes,
provided that:
"Sec. 27. A concealment entitles the injured party to rescind a contract of insurance."
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
"Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to rescind a
contract of insurance." mphases supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by B.P. Blg. 874. This
subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read as follows:
"Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance." mphases supplied).
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase
"intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874)
intended to limit the kinds of concealment which generate a right to rescind on the part of the injured
party to "intentional concealments." This argument is not persuasive. As a simple matter of grammar, it
may be noted that "intentional" and "unintentional" cancel each other out. The net result therefore of
the phrase "whether intentional or unintentional" is precisely to leave unqualified the term
"concealment." Thus, Section 27 of the Insurance Code of 1978 is properly read as referring to "any
concealment" without regard to whether such concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact superfluous. The deletion of the phrase "whether
intentional or unintentional" could not have had the effect of imposing an affirmative requirement that
a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance.
The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof that
concealment must be "intentional" in order to authorize rescission by the injured party.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the
failure to communicate must have been intentional rather than merely inadvertent. For Jaime Canilang
could not have been unaware that this heart beat would at times rise to high and alarming levels and
that he had consulted a doctor twice in the two (2) months before applying for non-medical insurance.
Indeed, the last medical consultation took place just the day before the insurance application was filed.
In all probability, Jaime Canilang went to visit his doctor precisely because of the discomfort and concern
brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment on
the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from the
Insurance Code of 1978.
It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant issue was whether or not Jaime Canilang had
intentionally concealed material information from the insurer, was supported by the evidence of record,
i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of the Pre-trial Conference dated
15 October 1984, which "readily shows that the word `intentional' does not appear in the statement or
definition of the issue in the said Order and Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of
Appeals dated 16 October 1989 in C.A-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
18. [1989V495] EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners, vs. THE
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
respondents.1989 Jun 293rd DivisionG.R. No. 48049D E C I S I O N
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds from their late father's policy.
The facts of the case as found by the Court of Appeals are:
"Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners'
complaint against respondent Philippine American Life Insurance Company for the recovery of the
proceeds of Policy No. 1082467 in the amount of P80,000.00.
"On September 23, 1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in the
amount of P80,000.00 with respondent company. Said application was approved and Policy No.
1082467 was issued effective November 6, 1973, with petitioners the beneficiaries thereof (Exhibit A).
"On April 26, 1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed with respondent
company their claim for the proceeds of the life insurance policy. However, in a letter dated September
11, 1975, respondent company denied petitioners' claim and rescinded the policy by reason of the
alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on the policy were thereupon refunded.
"Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified and
unreasonable, petitioners filed on November 27, 1975, a complaint against the former with the Office of
the Insurance Commissioner, docketed as I.C. Case No. 218.
"After hearing the evidence of both parties, the Insurance Commissioner rendered judgment on August
3, 1977, dismissing petitioners' complaint." (Rollo, pp. 91-92)
The Court of Appeals dismissed the petitioners' appeal from the Insurance Commissioner's decision for
lack of merit.
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the right to rescind the
policy contract when insured is already dead is not in accordance with existing law and applicable
jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be allowed to avoid the
policy on grounds of concealment by the deceased assured, is contrary to the provisions of the policy
contract itself, as well as, of applicable legal provisions and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled in issuing the policy are
manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind the contract of
insurance as rescission must allegedly be done during the lifetime of the insured within two years and
prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
"Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision
of this chapter, such right must be exercised previous to the commencement of an action on the
contract.
"After a policy of life insurance made payable on the death of the insured shall have been in force during
the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent."
According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48
added to prevent the insurance company from exercising a right to rescind after the death of the
insured.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are concerned
if the insurance has been in force for at least two years during the insured's lifetime. The phrase "during
the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the
insured has died. The key phrase in the second paragraph of Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
"The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was thus
in force for a period of only one year and five months. Considering that the insured died before the two-
year period had lapsed, respondent company is not, therefore, barred from proving that the policy is
void ab initio by reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums paid on
September 11, 1975, previous to the commencement of this action on November 27, 1975." (Rollo, pp.
99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or misrepresentation by their late
father because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent
salesmen to do so. The petitioners state:
"Here then is a case of an assured whose application was submitted because of repeated visits and
solicitations by the insurer's agent. Assured did not knock at the door of the insurer to buy insurance. He
was the object of solicitations and visits.
"Assured was a man of means. He could have obtained a bigger insurance, not just P80,000.00. If his
purpose were to misrepresent and to conceal his ailments in anticipation of death during the two-year
period, he certainly could have gotten a bigger insurance. He did not.
"Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto. It was he
who accomplished the application, Part II, medical. Philamlife did not.
"Philamlife could have put to the witness stand its Agent Bievenido S. Guinto, a relative to Dr. Guinto,
Again Philamlife did not." (pp. 138-139, Rollo
xxx xxx xxx
"This Honorable Supreme Court has had occasion to denounce the pressure and practice indulged in by
agents in selling insurance. At one time or another most of us have been subjected to that pressure, that
practice. This court took judicial cognizance of the whirlwind pressure of insurance selling ---- especially
of the agent's practice of 'supplying the information, preparing and answering the application,
submitting the application to their companies, concluding the transactions and otherwise smoothing out
all difficulties."
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at page
205:
" 'It is of common knowledge that the selling of insurance today is subjected to the whirlwind pressure
of modern salesmanship.' "
" 'Insurance companies send detailed instructions to their agents to solicit and procure application.'
" 'These agents are to be found all over the length and breadth of the land. They are stimulated to more
active efforts by contests and by the keen competition offered by the other rival insurance companies.' "
" 'They supply all the information, prepare and answer the applications, submit the applications to their
companies, conclude the transactions, and otherwise smooth out all difficulties.' "
" 'The agents in short do what the company set them out to do.' "
"The Insular Life case was decided some forty years ago when the pressure of insurance salesmanship
was not overwhelming as it is now; when the population of this country was less than one-fourth of
what it is now; when the insurance companies competing with one another could be counted by the
fingers." (pp. 140-142, Rollo)
xxx xxx xxx
"In the face of all the above, it would be unjust if, having been subjected to the whirlwind pressure of
insurance salesmanship this Court itself has long denounced, the assured who dies within the two-year
period, should stand charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added
by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement
within which to contest the policy, whether or not, the insured still lives within such period. After two
years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no
longer lie. Congress felt this was a sufficient answer to the various tactics employed by insurance
companies to avoid liability. The petitioners' interpretation would give rise to the incongruous situation
where the beneficiaries of an insured who dies right after taking out and paying for a life insurance
policy, would be allowed to collect on the policy even if the insured fraudulently concealed material
facts.
The petitioners argue that no evidence was presented to show that the medical terms were explained in
a layman's language to the insured. They state that the insurer should have presented its two medical
field examiners as witnesses. Moreover, the petitioners allege that the policy intends that the medical
examination must be conducted before its issuance otherwise the insurer "waives whatever
imperfection by ratification."
We agree with the Court of Appeals which ruled:
"On the other hand, petitioners argue that no evidence was presented by respondent company to show
that the questions appearing in Part II of the application for insurance were asked, explained to and
understood by the deceased so as to prove concealment on his part. The same is not well taken. The
deceased, by affixing his signature on the application form, affirmed the correctness of all the entries
and answers appearing therein. It is but to be expected that he, a businessman, would not have affixed
his signature on the application form unless he clearly understood its significance. For, the presumption
is that a person intends the ordinary consequence of his voluntary act and takes ordinary care of his
concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].
"The evidence for respondent company shows that on September 19, 1972, the deceased was examined
by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January, 1973, the
deceased was complaining of progressive weight loss and abdominal pain and was diagnosed to be
suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao
Vitug, testified that the deceased came to see him on December 14, 1973 for consultation and claimed
to have been diabetic for five years. (t.s.n., Aug. 23, 1976, p. 5; Exhibit 6) Because of the concealment
made by the deceased of his consultations and treatments for hypertension, diabetes and liver
disorders, respondent company was thus misled into accepting the risk and approving his application as
medically standard (Exhibit 5-C) and dispensing with further medical investigation and examination
(Exhibit 5-A). For as long as no adverse medical history is revealed in the application form, and applicant
for insurance is presumed to be healthy and physically fit and no further medical investigation or
examination is conducted by respondent company. (t.s.n., April 8, 1976, pp. 6-8)." (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this
case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
"It is a matter of common knowledge that large amounts of money are collected from ignorant persons
by companies and associations which adopt high sounding titles and print the amount of benefits they
agree to pay in large black-faced type, following such undertakings by fine print conditions which
destroy the substance of the promise. All provisions, conditions, or exceptions which in any way tend to
work a forfeiture of the policy should be construed most strongly against those for whose benefit they
are inserted, and most favorably toward those against whom they are meant to operate. (Trinidad v.
Orient Protective Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in such a
way as to conceal from the applicant their importance. If a warning in bold red letters or a boxed
warning similar to that required for cigarette advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance Commission to provide as protection against
high pressure insurance salesmanship. We are limited in this petition to ascertaining whether or not the
respondent Court of Appeals committed reversible error. It is the petitioners' burden to show that the
factual findings of the respondent court are not based on substantial evidence or that its conclusions are
contrary to applicable law and jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
19. [1979V119] GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, vs. HONORABLE COURT OF
APPEALS, respondents./LAPULAPU D. MONDRAGON, petitioner, vs. COURT OF APPEALS and
NGO HING, respondents.1979 Apr 301st DivisionG.R. No. L-31845D E C I S I O N
DE CASTRO, J:
The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29,
1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through these
petitions for certiorari by way of appeal, from the amended decision of respondent Court of Appeals
which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants
(herein petitioners Great Pacific Life Assurance Company and Mondragon) jointly and severally to pay
plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the
date of the filing of the complaint, and the sum of P10,000.00 as attorney's fees plus costs of suits."
In its original decision, the respondent Court of Appeals set aside the appealed decision of the Court of
First Instance of Cebu, and absolved the petitioners from liability on the insurance policy, but ordered
the reimbursement to appellee (herein private respondent) the amount of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great
Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endowment
policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent
supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life
in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally
type-wrote the data on the application form which was signed by private respondent Ngo Hing. The
latter paid the annual premium, the sum of P1,077.75 going over to the Company, but he retained the
amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life. Upon the
payment of the insurance premium, the binding deposit receipt (Exhibit E) was issued to private
respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the insurance application. Then on April
30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit
3-M). The letter stated that the said life insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to the Company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific
Life again strongly recommending the approval of the 20-year endowment life insurance on the ground
that Pacific Life is the only insurance company not selling the 20-year endowment insurance plan to
children, pointing out that since 1954 the customers, especially the Chinese, were asking for such
coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of broncho-pneumonia. Thereupon, private respondent sought the payment of the
proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same
before the Court of First Instance of Cebu, which rendered the adverse decision as earlier referred to
against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a
temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing
concealed the state of health and physical condition of Helen Go, which rendered void the aforesaid
Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING
RECEIPT. These conditions state that:
"A. If the Company or its agent, shall have received the premium deposit . . . and the insurance
application, ON or PRIOR to the date of medical examination . . . said insurance shall be in force and in
effect from the date of such medical examination, for such period as is covered by the deposit . . .,
PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard
rates under its rule for the amount of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of insurance and/or
the kind of policy requested in the application but issue, or offers to issue a policy for a different plan
and/or amount . . ., the insurance shall not be in force and in effect until the applicant shall have
accepted the policy as issued or offered by the Company and shall have paid the full premium thereof. If
the applicant does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company declines to
approve the application, the insurance applied for shall not have been in force at any time and the sum
paid be returned to the applicant upon the surrender of this receipt."
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be
merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates,
and the company disapproves the application, the insurance applied for shall not be in force at any time,
and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether or
not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never become in force
at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not
insure outright. As held by this Court, where an agreement is made between the applicant and the
agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent.
The acceptance is merely conditional, and is subordinated to the act of the company in approving or
rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by
itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific
Life disapproved the insurance application in question on the ground that it is not offering the twenty-
year endowment insurance policy to children less than seven years of age. What it offered instead is
another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the
absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over
the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old
daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected between them.
Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in person or by their agents. . . . The contract, to
be binding from the date of the application, must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall
take effect. There can be no contract of insurance unless the minds of the parties have met in
agreement."
We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In the first place, there was no
contract perfected between the parties who had no meeting of their minds. Private respondent, being
an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said
company does not offer the life insurance applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the
recommendation of Mondragon for the acceptance and approval of the application in question along
with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for
children less than seven years. Nonetheless, the record discloses that Pacific Life bad rejected the
proposal and recommendation. Secondly, having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an office associate of petitioner Mondragon, private
respondent Ngo Hing must have known and followed the progress on the processing of such application
and could not pretend ignorance of the Company's rejection of the 20-year endowment life insurance
application.
At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate
Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the
amended decision of the respondent court which completely reversed the original decision, the
following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply
thereto of appellant Mondragon reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly communicated to Ngo Hing, father of
the minor applicant. I am not quite convinced that this was so. Ngo Hing, as father of the applicant
herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement
of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing
was "our associate" and that it was the latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable that the progress in the processing of
the application was not brought home to his knowledge. He must have been duly apprised of the
rejection of the application for a 20-year endowment plan otherwise Mondragon would not have
asserted that it was Ngo Hing himself who insisted on the application as originally filed thereby implicitly
declining the offer to consider the application under the Juvenile Triple Action Plan. Besides, the
associate of Mondragon that he was, Ngo Hing should only be presumed to know what kind of policies
are available in the company for minors below 7 years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the company into going into the business of issuing
endowment policies for minors just as other insurance companies allegedly do. Until such a definite
policy is, however, adopted by the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by then, issued at all." (Amended
Decision, Rollo, pp. 52-53).
2. Relative to the second issue of alleged concealment, this Court is of the firm belief that private
respondent had deliberately concealed the state of health and physical condition of his daughter Helen
Go. When private respondent supplied the required essential data for the insurance application form, he
was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical
defect could never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad faith,
withheld the fact material to the risk to be assumed by the insurance company. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known, his duty and responsibility to supply such a
material fact. Had he divulged said significant fact in the insurance application form, Pacific Life would
have verified the same and would have had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith (uberrima fides meaning good faith; absolute and
perfect candor or openness and honesty; the absence of any concealment or deception, however slight
[Black's Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer (Field man's
Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which
a party knows and ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of insurance (Section 26, id.:
Yu Pang Cheng vs. Court of Appeals, et al., 105 Phil. 930; Saturnino vs. Philippine American Life
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties with the
noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined,
having been committed by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered
absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse the
amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private
respondent.
SO ORDERED.
20. [1995V307] FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs. COURT OF APPEALS
and PRODUCERS BANK OF THE PHILIPPINES, respondents.1995 May 231st DivisionG.R. No.
115278D E C I S I O N
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is
liable under the Money, Security, and Payroll Robbery policy it issued to the issued to the private
respondent or whether recovery thereunder is precluded under the general exceptions clause thereof.
Both the trial court and the Court of Appeals held that there should be recovery. The petitioner
contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private
respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune
Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of
Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its
head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the following
stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate
original of which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00
under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo
de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place
while the armored car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong y de Vera, escorted by Security Guard
Saturnino Atiga y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff
by virtue of an Agreement executed on August 7, 1983, a duplicate original copy of which is hereto
attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue
of a contract of Security Service executed on October 25, 1982, a duplicate original copy of which is
hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard
Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint
is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime
before Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information is hereto
attached as Exhibit "E." The case is still being tried as of this date;
7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance
policy, attached hereto as Exhibit "A," specifically under page 1 thereof, "General Exceptions" Section
(b), which is marked as Exhibit "A-1," and which reads as follows:
"GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of the Insured whether acting alone or in
conjunction with others. . . . "
8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not
its "officer, employee, . . . trustee or authorized representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion
thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and
(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability under Policy No. 0207
(as mitigated by the P40,000.00 special clause deduction and by the recovered sum of P145,000.00),
with interest thereon at the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees; and
(c ) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It
said:
The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga,
their services as armored car driver and as security guard having been merely offered by PRC
Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and
salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields
the power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such - in a context which does not impress the Court
as translating into plaintiff's power to control the conduct of any assigned driver or security guard,
beyond perhaps entitling plaintiff to request a replacement for such driver or guard. The finding is
accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of
defendant's liability under the policy, particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the
"authorized representatives" of plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati
Head Office. Quite plainly - it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash
being transferred along a specified money route, and hence plaintiff's then designated "messenger"
adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No.
32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither
employees nor authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against
the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office,
Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the parties themselves have used. If
such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals,
195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple.
No other interpretation is necessary. The word "employee" should be taken to mean in the ordinary
sense.
The Labor Code is a special law specifically dealing with and specifically designed to protect labor and
therefore its definition as to employer-employee relationships insofar as the application/enforcement of
said Code is concerned must necessarily be inapplicable to an insurance contract which defendant-
appellant itself had formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it
has no power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C)
except only to ask for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the
Court of Appeals erred in holding it liable under the insurance policy because the loss falls within the
general exceptions clause considering that driver Magalong and security guard Atiga were Producers'
authorized representatives or employees in the transfer of the money and payroll from its branch office
in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one
branch to another, they effectively and necessarily became its authorized representatives in the care
and custody of the money. Assuming that they could not be considered authorized representatives, they
were, nevertheless, employees of Producers. It asserts that the existence of an employer-employee
relationship "is determined by law and being such, it cannot be the subject of agreement." Thus, if there
was in reality an employer-employee relationship between Producers, on the one hand, and Magalong
and Atiga, on the other, the provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that Producers is not their employer
and that it is absolved from any liability as an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3)
the presence or absence of a power to dismiss; and (4) the presence and absence of a power to control
the putative employee's conduct. Of the four, the right-of-control test has been held to be the decisive
factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and exercised by
Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but
"labor-only" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. - There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by such persons are
performing activities which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed by
him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in
International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the
project and the employed of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the
control of their conduct. Producers argued that the rule in International Timber Corp. is not applicable
to all cases but only when it becomes necessary to prevent any violation or circumvention of the Labor
Code, a social legislation whose provisions may set aside contracts entered into by parties in order to
give protection to the working man.
Producer further asseverates that what should be applied is the rule in American President Lines vs.
Clave, 8 to wit:
In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong
as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC
Management Systems and not to Magalong, it is clear that Magalong was not Producers' employee. As
to Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides
that the guards of the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the
scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance,
public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts
are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these,
the rights and obligations of the parties must be determined by the terms of their contract, taking into
consideration its purpose and always in accordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer - the moral hazard - is so great that insurers have found it necessary to fill up their policies
with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the
risk of all losses due to the hazards insured against." 10 Persons frequently excluded under such
provisions are those in the insured's service and employment. 11 The purpose of the exception is to
guard against liability should the theft be committed by one having unrestricted access to the property."
12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood
in common speech. 13 The terms "service" and "employment" are generally associated with the idea of
selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against
the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the insurer.
16 Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then
that if the terms of the contract are clear and unambiguous, there is no room construction and such
terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It
is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence
of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit
their liability and to impose whatever conditions they deem best upon their obligations not inconsistent
with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general exceptions
clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of the Insured whether acting alone or in
conjunction with others. . . .
There is marked disagreement between the parties on the correct meaning of the terms "employee"
and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to Producers' money or payroll. When it used then the term "employee," it
must have had in mind any person who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the determination of the employer-
employee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106
of the Labor Code which considers the employees under a "labor-only" contract as employees of the
party employing them and not of the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services
are "labor-only" contracts. Producers, however, insists that by the express terms thereof, it is not the
employer of Magalong. Notwithstanding such express assumption of PRC Management Systems and
Unicorn Security Services that the drivers and the security guards each shall supply to Producers are not
the latter's employees, it may, in fact, be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria provided for in Article 106 of the Labor Code, a
question of fact. Since the parties opted to submit the case for judgment on the basis of their stipulation
of facts which are strictly limited to the insurance policy, the contracts with PRC Management Systems
and Unicorn Security Services, the complaint for violation of P.D. No. 532, and the information therefor
filed by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and the PRC Management Systems and Unicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we are
satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay
City branch to its head office in Makati, its "authorized representatives" who served as such with its
teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In short, for these particular tasks,
the three acted as agents of Producers. A "representative" is defined as one who represents or stands in
the place of another; one who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV
No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil
Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED..
21. [1993V99] JULIETA ILAO & FELICIDAD REALTY CORPORATION, petitioners, vs. THE HON.
COURT OF APPEALS, MARCOS QUIROZ & SALVADOR PALAMING, respondents.1993 Feb 41st
DivisionG.R. No. 100188D E C I S I O N
GRIO-AQUINO, J p:
This petition for review seeks reversal of the adverse decision dated May 22, 1991 of the Court of
Appeals in CA-G.R. CV No. 21776 entitled, "Julieta Ilao, et al. vs. Marcos Quiroz, et al.," dismissing
petitioner's appeal from the judgment of the Regional Trial Court, National Capital Region, Branch 93-
Quezon City in Civil Case No. 47297 for damages.
On November 25, 1985, at around 9:30 a.m., Julieta Ilao was on board an Isuzu Gemini sedan bearing
Plate No. PBZ-200 owned by her employer, Felicidad Realty Corporation, and driven by the company
driver, Francisco Tomilloso, on her way to work in Cubao, Quezon City. While the car was at a full stop at
the intersection of Aurora Boulevard and Katipunan Road in Loyola Heights, Quezon City, an
International Harvester truck with Plate No NCZ-179, owned by Marcos Quiroz, and driven by his
employee, Salvador Palaming, bumped the rear portion of the sedan which was badly damaged as a
result of the accident. It was brought to the INTECO Repair Shop in Quezon City for repairs.
The car mishap was reported no the police and thereafter. Criminal Case No. 43663 was filed against the
truck driver in the Regional Trial Court of Quezon City. Branch 101, entitled, "People of the Philippines
vs. Salvador Palaming." On October 17, 1986, the Court convicted Palaming of simple imprudence under
Art. 365, par. 2 of the Revised Penal Code and imposed on him a penalty of one (1) month
imprisonment.
The company's car carried a comprehensive own-damage insurance coverage from the Central Surety
and Insurance Company. On January 2, 1986, the insurance company paid the insured, Felicidad Realty
Corporation, through Mrs. Ilao, P10,270.81 on its Own-Damage Claim No. PC-85/70, Policy No. PC-HO-
01968/85. The insured executed in favor of the insurance company a Release of Claim with Loss and
Subrogation Receipt (Exhs. 3 and 4). Ilao allegedly paid out of her own funds, the balance of P8,181.16,
on INTECO's repair bill. The cash receipt (Exh. C) shows however that amount was only a "partial
payment of Invoice No. 2153."
When Mrs. Ilao's demands on the truck owner, Marcos Quiroz, for payment of her damages, was not
heeded, she filed Civil Case No. 47297 entitled. "Julieta Ilao and Felicidad Realty Corporation vs. Marcos
Quiroz and Salvador Palaming," in the Regional Trial Court of Quezon City, Branch 93.
On November 29, 1988, the trial court rendered judgment in plaintiffs' favor, ordering the defendants to
jointly and severally pay:
1. P8,181.16 plus legal interest thereon from the filing of the complaint until full payment;
2. P10,800.00 as cost for the use of another car during all the time that the Isuzu Gemini was under
repair; and
3. P5,000.00 by way of attorney's fees, and the costs of suit.
The defendant appealed to the Court of Appeals (CA-G.R. CV No. 21776). While they did not dispute
their liability for the car accident, they questioned the cost of the repairs supposedly paid, and the
amount of damages allegedly suffered by Mrs. Ilao. Their main objection to the award of actual damages
by the trial court was that the same was mainly based on oral testimony of the appellee, Mrs. Ilao,
without adequate evidence to back it up.
On May 22, 1991, the Court of Appeals rendered a decision reversing the judgment of the trial court.
The appellate court found insufficient proof of the actual damages claimed.
Ilao filed this petition for review, alleging that the appellate court erred:
1. in holding that there was no adequate proof of her claim for damages; and
2. in setting aside the trial court's award of attorney's fees and the costs of suit.
The petition has no merit.
The records show that the damaged car was insured under a comprehensive own-damage policy with
the Central Surety & Insurance Company: that it had undergone complete repairs by authority of the
insurance company (Exh. 5 dated December 20, 1985) which specified that the cost of repairs should not
exceed P14,420.00 on labor and replaced parts. Actually, the insurance company paid the insured
P10,270.81 only (Exh. 4) on January 2, 1986 in consideration of which the latter signed a Release of
Claim with Loss and Subrogation Receipt (Exh. 3), releasing the insurance company from all actions on
account of all injuries and damages arising from the accident. This receipt released the insurance
company from all further liability under its policy with the Felicidad Realty Corporation and subrogated
it into the insured's right to recover what it paid, up to the amount of P10,270.81, from the owner
and/or driver of the offending truck. Although Ilao alleged that the total cost of repairs of the damaged
motor vehicle was P18,181.16, the bill for repairs, which was the best evidence of the cost of repairs,
was not presented to the court. The receipt, Exhibit "C," shows that the INTECO Repair Shop was paid
only P8,181.16 on January 10, 1986. No receipt proving that the Felicidad Realty Corporation paid
INTECO the sum of P10,270.81 which it had received from the insurance company, was presented in
evidence. We only have Mrs. Ilao's word for it.
If the repairs had cost P18,161.16, as claimed by Mrs. Ilao, it is strange why the insurance company paid
the insured P10,270.81 only, instead of P14,420.00, which was the limit of its liability under Exhibit 5.
Petitioner's claim for P10,800.00 as rentals supposedly paid to Gregorio Manahan for the use of a
Toyota Crown at P300.00 per day while the damaged company car was being repaired, was not proved.
The receipts for car rentals paid, if any, were not submitted to the trial court. The car rental contract
(Exh. D) only proves that there was an agreement between Mrs. Ilao and Gregorio Manahan for the
lease of a Toyota car for P300.00 per day. It does not prove that the contract was performed, i.e., that
she in fact used Manahan's car and paid the rentals due under the contract.
As plaintiff, the petitioner had the burden of proving her claims against the private respondent (Sec. 1,
Rule 132, Rules of Court). The Court of Appeals correctly found that she failed to discharge that burden
of proof.
In view of the dismissal of their complaint, the plaintiffs' claim for attorney's fees has no basis.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals, the petition for review
is DENIED.
SO ORDERED.
22. [1989V394] LAURA VELASCO and GRETA ACOSTA, petitioners, vs. HON. SERGIO A. F. APOSTOL
and MAHARLIKA INSURANCE CO., INC., respondents.1989 May 92nd DivisionG.R. No. 44588D
E C I S I O N
REGALADO, J.:
Petitioners Laura Velasco and Greta Acosta were the plaintiffs in Civil Case No. Q-19118 in the former
Court of First Instance of Rizal, Branch XVI, of which public respondent Hon. Sergio A. F. Apostol was the
presiding judge. The case was an offshoot of an incident adequately alleged in their complaint, dated
July 22, 1974, as follows:
"That on November 27, 1973, at about 2:30 p.m. plaintiffs were riding in their Mercury car, with Plate
No. 44-43 (H-Manila-73), owned by plaintiff Laura Velasco, and driven by their driver Restituto Guarra,
along Quezon Boulevard near the corner of Speaker Perez Street, Quezon City, toward the direction of
Manila, when, before reaching said corner, an N/S taxicab driven by defendant Dominador Santos and
with Plate No. 75-25L (TX-QC-73), registered in the name of defendants Alice Artuz, c/o Norberto
Santos, crossed the center island towards their direction, and finally collided with their car at the left
front part, and thereafter, the said taxicab tried to return to its original lane, but was unable to climb the
island, and instead, backtracked, hitting again plaintiffs' car in the left near portion, causing the latter's
back portion to turn toward the center hitting a jeepney on its right, which was travelling along their
side going toward Manila also;" 1
and amply substantiated in detail at the trial. 2
Originally sued as defendants were Dominador Santos, Alice Artuz and Norberto Santos, with plaintiffs
claiming actual, moral and exemplary damages plus attorney's fees. After an answer was filed by said
defendants, private respondent Maharlika Insurance Co., Inc. was impleaded as a defendant in an
amended complaint filed by the petitioner on April 4, 1975, with an allegation that the N/S taxicab
involved was insured against third party liability for P20,000.00 with private respondent at the time of
the accident. 3
In its answer to the amended complaint, respondent Maharlika Insurance Co., Inc. claimed that there
was no cause of action against it because at the time of the accident, the alleged insurance policy was
not in force due to non-payment of the premium thereon. It further averred that even if the taxicab had
been insured, the complaint would still be premature since the policy provides that the insurer would be
liable only when the insured becomes legally liable. 4
The trial court rendered judgment in favor of the plaintiffs, finding that the evidence on the negligence
of defendant Dominador Santos was uncontroverted and the proximate cause of the accident was his
negligence. 5 Defendants Dominador Santos, Alice Artuz and Norberto Santos were adjudged jointly and
severally liable to petitioners for the sums of P17,061.95 for the repair of their car, P17,000.00 for their
medical expenses P10,000.00 as moral damages and P10,000.00 as attorney's fees. 6 However,
Maharlika Insurance Co. was exonerated on the ground that the policy was not in force for failure of the
therein defendants to pay the initial premium and for their concealment of a material fact.
From the decision of the court a quo, petitioners elevated the case to this Court by a petition for review
on certiorari, with the averment that only questions of law are involved.
Petitioners fault the respondent judge for considering private respondent's defense of late payment of
premium when, according to them, "the same was waived at the pre-trial," 7 hence private respondent's
evidence of late payment should be disregarded supposedly because, as We understand petitioners'
argument, private respondent had thereby admitted that such fact was not in issue. They theorize that
what was stipulated in the pre-trial order "does not include the issue on whether defendant Maharlika
Insurance Co., Inc. is liable under the insurance policy, even as the premium was paid after the accident
in question." 8
The records show that at the pre-trial conference the issues stipulated by the parties for trial were the
following:
"Whether it was the driver of the plaintiffs' car or the driver of the defendants' car who was negligent.
"Whether defendant Maharlika Insurance Co., Inc. is liable under the insurance policy on account of the
negligence of defendant Dominador Santos." 9
Petitioners' position is bereft of merit. We have carefully examined the pre-trial order but We fail to
discern any intimation or semblance of a waiver or an admission on the part of Maharlika Insurance Co.,
Inc. Although there is no express statement as to the fact of late payment, this is necessarily deemed
included in or ineluctably inferred from the issue of whether the company is liable under the insurance
policy it had allegedly issued for the vehicle involved and on which petitioners seek to recover. A pre-
trial order is not meant to be a detailed catalogue of each and every issue that is to be or may be taken
up during the trial. Issues that are impliedly included therein or may be inferable therefrom by
necessary implication are as much integral parts of the pre-trial order as those that are expressly
stipulated.
In fact, it would be absurd and inexplicable for the respondent company to knowingly disregard or
deliberately abandon the issue of non-payment of the premium on the policy considering that it is the
very core of its defense. Correspondingly, We cannot but perceive here an undesirable resort to
technicalities to evade an issue determinative of a defense duly averred.
Furthermore, as private respondent correctly points out, evidence to prove such late payment was
introduced without any objection by the adverse party. 10 This lack of objection amounts to an implied
consent conferring jurisdiction on the court to try said issue. 11
Noteworthy, too is petitioners' vacillation on this particular score. In their reply to respondents'
comment, petitioners categorically stated that respondents' point regarding the lack of objection to the
evidence is well taken, hence they do not insist on this ground to review respondent court's decision. 12
However, in their amended reply, they reverted to their original position that it was a mistake for the
trial court to have considered the defense of lack of payment of premium. At any rate, We consider that
matter as duly disposed of by the preceding discussion.
Digressing from the procedural aspects of this case, We now consider petitioners' curative assertion that
private respondent had agreed to grant the then prospective insured a credit extension for the premium
due. It should be noted at the outset that this controversy arose under the aegis of the old insurance
law, Act No. 2427, as amended. The accident occurred on November 27, 1973 while the complaint by
reason thereof was filed on July 20, 1974, both before effectivity on December 18, 1974 of Presidential
Decree No. 612, the subsequent insurance law which repealed its predecessor.
The former insurance law, which applies to the case under consideration, provided that:
"An insurer is entitled to the payment of premium as soon as the thing insured is exposed to the peril
insured against, unless there is clear agreement to grant the insured credit extension of the premium
due. No policy issued by an insurance company is valid and binding unless and until the premium
thereof has been paid." 13
Consequently, the insurance policy in question would be valid and binding notwithstanding the non-
payment of the premium if there was a clear agreement to grant to the insured credit extension. Such
agreement may be express or implied.
Petitioners quote and rely on the following as authority for their cause:
"A condition requiring pre-payment of the premium is waived by a parol agreement to that effect,
acceptance of the premium after delivery of the policy, the unconditional delivery of the policy, the
giving of credit for the premiums, . . . or any other circumstances showing that pre-payment was not
intended to be insisted upon, as where there are any words or acts from which a reasonable inference
may be drawn that the insurer does not stand upon its rights to demand pre-payment. (Couch on
Insurance, 2d, Vol. 1, pp. 402-403.)" 14
As earlier stated, the accident for which respondent insurance company is sought to be held liable
occurred on November 27, 1973 while the initial premium was paid only on December 11, 1973.
Petitioners maintain that in spite of this late payment, the policy is nevertheless binding because there
was an implied agreement to grant a credit extension so as to make the policy effective. To them, the
subsequent acceptance of the premium and delivery of the policy estops the respondent company from
asserting that the policy is ineffective. 15
We see no cogent proof of any such implied agreement. The purported nexus between the delivery of
the policy and the grant of credit extension is too tenuous to support the conclusion for which
petitioners contend. The delivery of the policy was made on March 28, 1974 and only because the
premium had been paid, in fact, more than three months before such delivery. 16 As found by the court
below, said payment was accepted by the insurer without any knowledge that the risk insured against
had already occurred since such fact was concealed by the insured and was not revealed to the insurer.
17 Thus, the delivery of the policy was far from being unconditional. Had there really been a credit
extension, the insured would not have had any apprehension or hesitation to inform the respondent
insurance company at the time of or before the payment of the premium that an accident for which the
insurer may be held liable had already happened. In fact, there is authority to hold that under such
circumstances notice alone is necessary and the insured need not pay the premium because whatever
premium may have been due may already be deducted upon the satisfaction of the loss under the
policy. 18
Aside from the supposed unconditional delivery of the policy, which has been demonstrated to be
baseless, petitioners failed to point out "any other circumstances showing that prepayment of premium
was not intended to be insisted upon." They have thus failed to discharge the burden of proving their
allegation of the existence of the purported credit extension agreement. Indubitably, their insurance
claim must fail.
It may not be amiss to parenthetically mention in this regard that, in the present law, Section 77 of the
Insurance Code of 1978 19 has deleted the clause "unless there is clear agreement to grant the insured
credit extension of the premium due" which was then involved in this controversy.
There is no need to elaborate on the finding of the lower court that there was concealment by therein
defendants of a material fact, although legal effects of pertinence to this case could be drawn
therefrom. The fact withheld could not in any event have influenced the respondent company in
entering into the supposed contract or in estimating the character of the risk or in fixing the rate
premium, for the simple reason that no such contract existed between the defendants and the company
at the time of the accident. Accordingly, there was nothing to rescind at that point in time. What should
be apparent from such actuations of therein defendants, however, is the presence of bad faith on their
part, a reprehensible disregard of the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith. 20
WHEREFORE, finding no reversible error, the judgment appealed from is hereby AFFIRMED.
SO ORDERED.
23. [1996V315] SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO,
VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and ROSABELLA M.
RORALDO, petitioners, vs.COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE
CO., INC., respondents.1996 May 241st DivisionG.R. No. 119655BELLOSILLO, J.:
May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued
Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey
residential building located at 5855 Zobel Street, Makati City, together with all their personal effects
therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January
1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00
thus leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March
1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a claim
on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment
Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28
March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the
companies or their representatives in investigating the claim made by the claimant for his loss which
occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the
amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such
companies held by said claimant, nor the rights of either or any of the parties to this agreement, and
such action shall not be, or be claimed to be, an admission of liability on the part of said companies or
any of them. 1
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No.
2 and of Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission
proved futile. On 3 March 1988 Violets and the other petitioners sued FORTUNE for damages in the
amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per
annum, P100,000.00 moral damages, and attorney's fees equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of
the insured building and personal properties in the amount of P600,000.00 plus interest at the legal rate
of 6% per annum from the filing of the complaint until full payment, and attorney's fees equivalent to
20% of the total amount claimed plus costs of suit. 2
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable
to plaintiff-appellees therein but ordering defendant-appellant to return to the former the premium of
P2,983.50 plus 12% interest from 10 March 1987 until full payment. 3
Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the
appellate court, FORTUNE remains liable under the subject fire insurance policy in spite of the failure of
petitioners to pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. 4 The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the
policy will lapse and be forfeited by its own terms. 5
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNISSETH THAT only after payment to the Company in accordance with
Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period
aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property
herein described . . .
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company
official, shall be deemed invalid and of no effect.
Xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations which are or may
hereafter be in force provide for the payment of the stipulated premiums in periodic installments at
fixed percentage, it is hereby declared, agreed and warranted that this policy shall be deemed effective,
valid and binding upon the Company only when the premiums therefor have actually been paid in full
and duly acknowledged in a receipt signed by any authorized official or representative/agent of the
Company in such manner as provided herein. 6
Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only
been partially paid and the balance paid only after the peril insured against has occurred, the insurance
contract did not take effect and the insured cannot collect at all on the policy. This is fully supported by
Sec. 77 of the Insurance Code which provides
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
Apparently the crux of the controversy lies in the phrase "unless and until the premium thereof has
been paid." This leads us to the manner of payment envisioned by the law to make the insurance policy
operative and binding. For whatever judicial construction may be accorded the disputed phrase must
ultimately yield to the clear mandate of the law. The principle that where the law does not distinguish
the court should neither distinguish assumes that the legislature made no qualification on the use of a
general word or expression. In Escosura v. San Miguel Brewery, Inc., 7 the Court through Mr. Justice
Jesus G. Barrera, interpreting the phrase "with pay" used in connection with leaves of absence with pay
granted to employees, ruled
. . . the legislative practice seems to be that when the intention is to distinguish between full and partial
payment, the modifying term is used . . .
Citing C.A. No. 647 governing maternity leaves of married women in government, R. A. No. 679
regulating employment of women and children, R.A. No. 843 granting vacation and sick leaves to judges
of municipal courts and justices of the peace, and finally, Art. 1695 of the New Civil Code providing that
every househelp shall be allowed four (4) days vacation each month, which laws simply stated "with
pay," the Court concluded that it was undisputed that in all these laws the phrase "with pay" used
without any qualifying adjective meant that the employee was entitled to full compensation during his
leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of
the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on the
1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc. 8 where the Court through
Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium
made the policy effective during the whole period of the policy. In that case, the insurance company
commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense
the insured claimed that nonpayment of premium produced the cancellation of the insurance contract.
Ruling otherwise the Court held
It is clear . . . that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered
to appellant, and that on September 22 of the same year, the latter paid to the former the sum of
P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt
at all that, as between the insurer and the insured, there was not only a perfected contract of insurance
but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter
the obligation of the insurer to pay the insured the amount, for which the policy was issued in case the
conditions therefor had been complied with, arose and became binding upon it, while the obligation of
the insured to pay the remainder of the total amount of the premium due became demandable.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual
scenario is different. In Phoenix it was the insurance company that sued for the balance of the premium,
i.e., it recognized and admitted the existence of an insurance contract with the insured. In the case
before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy . . . is not in force until
the premium has been fully paid and duly receipted by the Company . . . Resultantly, it is correct to say
that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not
otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence
of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of
the premium without any other precondition to its enforceability as in the instant case, the insurer in
effect had shown its intention to continue with the existing contract of insurance, as in fact it was
enforcing its right to collect premium, or exact specific performance from the insured. This is not so
here. By express agreement of the parties, no vinculum juris or bond of law was to be established until
full payment was effected prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals 9 the parties mutually agreed that the
premiums could be paid in installments, which in fact they did for three (3) years, hence, this Court
refused to invalidate the insurance policy. In giving effect to the policy, the Court quoted with approval
the Court of Appeals
The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire
premium. Here, the parties . . . agreed to make the premiums payable in installments, and there is no
pretense that the parties never envisioned to make the insurance contract binding between them. It
was renewed for two succeeding years, the second and third policies being a renewal/replacement for
the previous one. And the insured never informed the insurer that it was terminating the policy because
the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the
insurance contract valid and binding without payment of premiums, there is nothing in said section
which suggests that the parties may not agree to allow payment of the premiums in installment, or to
consider the contract as valid and binding upon payment of the first premium. Otherwise we would
allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion
of payment of the entire premium, despite its voluntary acceptance of partial payments, a result
eschewed by basic considerations of fairness and equity . . .
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or
implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium as in
Phoenix, and expressly, by agreeing to make premiums payable in installments as in Tuscany. But
contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench.
Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal
thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and
duly receipted by the Company . . . and that this policy shall be deemed effective, valid and binding upon
the Company only when the premiums therefor have actually been paid in full and duly acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of
the Insurance Code the payment of partial premium by the assured in this particular instance should not
be considered the payment required by the law and the stipulation of the parties. Rather, it must be
taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount
has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full
payment must be made before the risk occurs for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever
resulted from the fractional payment of premium. The insurance contract itself expressly provided that
the policy would be effective only when the premium was paid in full. It would have been altogether
different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to
be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is
the intention of the parties as expressed in thepolicy. 10 Courts have no other function but to enforce
the same. The rule that contracts of insurance will be construed in favor of the insured and most
strongly against the insurer should not be permitted to have the effect of making a plain agreement
ambiguous and then construe it in favor of the insured. 11 Verily, it is elemental law that the payment of
premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner
prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when
accepted as a partial payment will not keep the policy alive even for such fractional part of the year as
the part payment bears to the wholepayment. 12
Applying further the rules of statutory construction, the position maintained by petitioners becomes
even more untenable. The case of South Sea Surety and Insurance Company, Inc. v. Court Of Appeals, 13
speaks only of two (2) statutory exceptions to the requirement of payment of the entire premium as a
prerequisite to the validity of the insurance contract. These exceptions are: (a) in case the insurance
coverage relates to life or industrial life (health) insurance when a grace period applies, and (b) when
the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being
declared by law to be then conclusive evidence of the premium payment. 14
A maxim of recognized practicality is the rule that the expressed exception or exemption excludes
others. Exceptio firmat regulim in casibus non exceptis. The express mention of exceptions operates to
exclude other exceptions; conversely, those which are not within the enumerated exceptions are
deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid,
and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence,
in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the
proceeds of the policy.
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of
insurance is primarily a risk distributing device, a mechanism by which all members of a group exposed
to a particular risk contribute premiums to an insurer. From these contributory funds are paid whatever
losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer,
that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and
the insured, that of parting with the amount required as premium, without receiving anything therefor
in case the contingency does not happen. To ensure payment for these losses, the law mandates all
insurance companies to maintain a legal reserve fund in favor of those claiming under their policies. 15
It should be understood that the integrity of this fund cannot be secured and maintained if by judicial
fiat partial offerings of premiums were to be construed as a legal nexus between the applicant and the
insurer despite an express agreement to the contrary. For what could prevent the insurance applicant
from deliberately or wilfully holding back full premium payment and wait for the risk insured against to
transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds
of the insurance? Worse, what if the insured makes an initial payment of only 10%, or even 1%, of the
required premium, and when the risk occurs simply points to the proceeds from where to source the
balance? Can an insurance company then exist and survive upon the payment of 1%, or even 10%, of the
premium stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of
the insurance should the risk insured against occur?
Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured
despite clearly defined obligations of the parties to the policy can be carried out to extremes that there
is the danger that we may, so to speak, "kill the goose that lays the golden egg." We are well aware of
insurance companies falling into the despicable habit of collecting premiums promptly yet resorting to
all kinds of excuses to deny or delay payment of just insurance claims. But, in this case, the law is
manifestly on the side of the insurer. For as long as the current Insurance Code remains unchanged and
partial payment of premiums is not mentioned at all as among the exceptions provided in Sees. 77 and
78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully
paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business
because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the
public, hence, the imperative need for its prompt payment and full satisfaction. 16 It must be
emphasized here that all actuarial calculations and various tabulations of probabilities of losses under
the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this
bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates.
But once payment of premium is left to the whim and caprice of the insured, as when the courts
tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of
P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners
have done in this case, on the principle that the strength of the vinculum juris is not measured by any
specific amount of premium payment, we will surely wreak havoc on the business and set to naught
what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and
benefits between the insurer and the insured.
The terms of the insurance policy constitute the measure of the insurer's liability. In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit
their liability and to impose whatever conditions they deem best upon their obligations not inconsistent
with public policy. 17 The validity of these limitations is by law passed upon by the Insurance
Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance
which insurers intend to issue or deliver. That the policy contract in the case at bench was approved and
allowed issuance simply reaffirms the validity of such policy, particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March
1995 is AFFIRMED.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.
Separate Opinions
VITUG, J., dissenting:
Does a mere partial payment of the premium on a fire insurance policy render it efficacious? In the
affirmative, is the contract in force conformably with its full face value, or is it merely pro tanto
effective? These issues are sought by the parties to be addressed in the instant petition for review.
The policy here involved was made out on 22 January 1987 by private respondent Fortune Life and
General Insurance Co., Inc. ("Fortune"), in favor of "Violeta R. Tibay and/or Nicolas Roraldo" against the
risk of fire on their 2-storey building. The insurance was for P600,000.00 covering the period from 23
January 1987 to 23 January 1988. Petitioner Violeta Tibay made, on 23 January 1987, a partial payment
of P600.00 out of the total agreed premium of P2,983.50 on the policy.
On 08 March 1987, the insured building was totally gutted by fire. Petitioner Violeta made full payment
of the premium two days later, or on 10 March 1987, the same date that she filed a claim on the
insurance policy. The payment was nevertheless accepted by Fortune. The insurance claim was referred
to Fortune's adjuster, Goodwill Adjustment Services, Inc. ("GASI"), which thereupon wrote petitioners
for the necessary documents to commence the investigation and the processing of the claim. Petitioners
furnished GASI with, among other things, the proof of loss.
Fortune, in the end, refused to pay the loss stating that it was not liable under the policy, the agreed
premium not having been paid in full at the time of loss. Then, in a letter dated 11 June 1987, Fortune
formally denied petitioner Violeta's claim for these reasons: (a) violation of Policy Condition No. 2; and
(b) violation of Section 77 of the Insurance Code.
Petitioner Violeta referred the matter to the Insurance Commission; no settlement, however, was
reached in that office.
Ultimately, on 03 March 1988, petitioners filed their complaint against Fortune.
On 19 July 1990, the trial court ruled in favor of petitioners and held private respondent Fortune liable.
On appeal interposed by Fortune, respondent Court of Appeals, in its decision of 24 March 1995,
reversed the trial court; thus:
WHEREFORE, the Decision appealed from is hereby REVERSED with MODIFICATION in that defendant-
appellant Fortune Life & General Insurance Co. Inc. is declared not liable to plaintiff-appellees Tibay et
al. under the subject fire insurance policy; however, said defendant-appellant is ORDERED to return to
plaintiff-appellees the paid premium in the amount of P2,983.50, plus 12% interest counted from 10
March 1987 until fully paid. No costs. 1
The appellate court justified its reversal of the trial court's decision on the following ratiocination:
Promptness of payment is essential in the business of life insurance. All the calculations of the company
are based on the hypothesis of prompt payments. They not only calculate on the receipt of the
premiums when due, but on the compounding interest upon them. It is on this basis that they are
enabled to offer assurance at the favorable rates they do. (Constantino vs. Asia Life Insurance Co., 87
SCRA 248) Taking this principle, and the above stipulation in the contract into account, the failure of
appellants to fully pay their premium prevented the contract of insurance from becoming binding an
Fortune.
Further, it is elementary that contract of insurance is uberrimae fidae and demand the most abundant
good faith. (Velasco us. Apostol, G.R. No. 44588, 173 SCRA 228, [1989]). Violeta made a full payment of
the premium two days after the building insured was destroyed by the fire. On the same day, Violeta
filed a claim based on the fire policy. This series of acts is tainted with misrepresentation and violates
the uberrimae fidae principle of insurance contract.
The act of Fortune in referring the claim to GASI does not constitute estoppel. Violeta had entered into a
"Non-Waiver Agreement" with the adjuster on March 28, 1987 which permitted Fortune to claim non-
payment of premium as a defense to defeat the claim of Tibay notwithstanding its referral of the claim
to the adjuster. 2
Hence, the petition for review.
I see merit in the petition. Section 77 of the Insurance Code reads:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
The payment of premium, subject to the stated exceptions, is deemed by the foregoing provisions to be
an element essential to establish the juridical relation between the insurer and the insured. Observe,
however, that the law neither requires, nor measures the strength of the vinculum juris by, any specific
amount of premium payment. It should thus be enough that payment on the premium, partly or in full,
is made by the insured which the insurer accepts. In fine, it is either that a juridical tie exists (by such
payment) or that it is not extant at all (by an absence thereof). Once the juridical relation comes into
being, the full efficacy, not merely pro tanto, of the insurance contract naturally follows. Verily, not only
is there an insurance perfected but also a partially performed contract. 3 In case of loss, recovery on the
basis of the full contract value, less the unpaid premium can accordingly be had; 4 conversely, if no loss
occurs, the insurer can demand the payment of the unpaid balance of the premium. The insured, on the
one hand, cannot avoid the obligation of paying the balance of the premium while the insurer, upon the
other hand, cannot treat the contract as valid only for the purpose of collecting premiums and as invalid
for the purpose of indemnity. 5
Nor would the non-payment of the balance due result in an AUTOMATIC cancellation of the insurance
contract; otherwise, the effect would be to place exclusively in the hands of one of the contracting
parties the right to decide whether the contract should stand or not 6 in possible disregard of the
MUTUALITY OF CONTRACTS RULE. 7 Instead, the parties should be able to demand from each other the
performance of whatever obligations they had assumed or, if desired, sue timely for the rescission of
the contract. 8 In the meanwhile, the contract endures, and an occurrence of the risk insured against
triggers the insurer's liability. Forthwith, legal compensation arises under the pertinent provisions 9 of
the Civil Code under which the mutual debts are, to the extent of the concurrent amount, extinguished
by mere operation of law.
The net result, such as in the case at bench, is that the insurer's liability to the insured would simply be
reduced by the balance of the premium still due from the latter. Thus, it becomes TOTALLY
INCONSEQUENTIAL whether the insured still remits or no longer remits payment of the balance of the
premium, the insurer's liability theretofore having already attached.
Fortune calls attention to the following provisions of the insurance policy, to wit:
This Policy of Insurance Witnesseth, That only after payment to the Company in accordance with Policy
Condition No. 2 of the total premiums by the insured as stipulated above for the period afore-
mentioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property
herein described, and contained, or described herein, and not elsewhere, in the sum or several sums
opposite thereto.
Xxx xxx xxx
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company
official, shall be deemed invalid and of no effect.
No payment in respect of any premium shall be deemed to be payment to the Company unless a printed
form of receipt for the same signed by an official or duly appointed Agent of the Company shall have
been given to the insured, except when such printed receipt is not available at the time of payment and
the Company or its representative accepts the premium in which case a temporary receipt other than
the printed form may be issued in lieu thereof.
Except only in those specific cases where corresponding rules and regulations which not are or may
hereafter be in force provide for the payment of the stipulated premiums in periodic installments at
fixed percentage, it is hereby declared, agreed and warranted that this policy shall be deemed effective,
valid and binding upon the Company only when the premiums therefor have actually been paid in full
and duly acknowledged in a receipt signed by any authorized official or representative/agent of the
Company in such manner as provided herein. 10
It must here be noted that the insured HAD MADE, and the insurer HAD ACCEPTED, a partial premium
payment on the policy weeks before the risk insured against took place.
An insurance is an aleatory contract which, unlike a conditional agreement whose efficacy is dependent
on stated condition, is at once effective upon its perfection although the occurrence of a condition or
event may later dictate the demandability of certain obligations thereunder. Founded on the autonomy
of contracts, the parties, of course, are generally not prevented from imposing conditions that alone
could trigger the contract's obligatory force. These conditions, however, must not be contrary to law,
morals, good customs, public order or public policy. 11
To say that the provisions in the policy issued by Fortune, i.e., that the insurance shall not "be . . . in
force until the premium has been fully paid," and that it "shall be deemed effective, valid and binding
upon the company only when the premiums therefor have actually been paid in full and duly
acknowledged," override the efficaciousness of the insurance contract despite the payment and
acceptance 12 of a part of the premium would be opposed not only to the precepts heretofore adverted
to on the correct application of Section 77, but also to the intent and spirit of Section 78, of the
Insurance Code
An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence
of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall
not be binding until the premium is actually paid.
which, like the aforequoted Section 77 of the Code, is not dependent on how much premium has been
paid.
It seems quite clear to me that on the day premium payment is made by the insured, albeit only a
portion of it, so long as it is accepted by the insurer, the insurance coverage becomes effective and
binding, any stipulation in the policy to the contrary notwithstanding. The insurer is not without
recourse; all that it needs is not to accept, if it wants to, any premium payment of less than full. But if it
does accept payment, reason dictates that it should not be allowed to deny the insurance contract upon
which very existence that payment is predicated.
Accordingly, I vote for the reversal of the decision appealed from and the reinstatement of the ruling of
the trial court.
Padilla, J., concurs.
24. [1987V579] MALAYAN INSURANCE CO., INC. (MICO), petitioner, vs. GREGORIA CRUZ
ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA,
respondents.1987 Oct 121st DivisionG.R. No. L-67835D E C I S I O N
CRUZ, J.:
When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope
for the suddenly somber future. The vanished abode becomes a charred and painful memory. Where
once stood a home, there is now, in the sighing wisps of smoke, only a gray desolation. The dying
embers leave ashes in the heart.
For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is
an aleatory contract. By such insurance, the insured in effect wagers that his house will be burned, with
the insurer assuring him against the loss, for a fee. If the house does burn, the insured, while losing his
house, wins the wager. The prize is the recompense to be given by the insurer to make good the loss the
insured has sustained.
It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to
recover for such loss. Sometimes it is his fault that he cannot collect, as where there is a defect
imputable to him in the insurance contract. Conversely, the reason may be an unjust refusal of the
insurer to acknowledge a just obligation, as has happened many times.
In the instant case the private respondent has been sustained by the Insurance Commission in her claim
for compensation for her burned property. The petitioner is now before us to dispute the decision, 1 on
the ground that there was no valid insurance contract at the time of the loss.
The chronology of the relevant antecedent facts is as follows:
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion
Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of P100,000.00, effective
July 22, 1981, until July 22, 1982. 2
On October 15, 1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent
the corresponding notice to Pinca. 3
On December 24, 1981, payment of the premium for Pinca was received by Domingo Adora, agent of
MICO. 4
On January 15, 1982, Adora remitted this payment to MICO, together with other payments. 5
On January 18, 1982, Pinca's property was completely burned. 6
On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had
been cancelled earlier. But Adora refused to accept it. 7
In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the
Insurance Commission. It is because she was ultimately sustained by the public respondent that the
petitioner has come to us for relief.
From the procedural viewpoint alone, the petition must be rejected. It is stillborn.
The records show that notice of the decision of the public respondent dated April 5, 1982, was received
by MICO on April 10, 1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied
on June 4, 1982. 9 Notice of this denial was received by MICO on June 13, 1982, as evidenced by Annex
"1," duly authenticated by the Insurance Commission. 10 The instant petition was filed with this Court
on July 2, 1982. 11
The position of the petitioner is that the petition is governed by Section 416 of the Insurance Code
giving it thirty days within which to appeal by certiorari to this Court. Alternatively, it also invokes Rule
45 of the Rules of Court. For their part, the public and private respondents insist that the applicable law
is B.P. 129, which they say governs not only courts of Justice but also quasi-judicial bodies like the
Insurance Commission. The period for appeal under this law is also fifteen days, as under Rule 45.
The pivotal date is the date the notice of the denial of the motion for reconsideration was received by
MICO.
MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order
of June 14, 1982, with a signed rubber-stamped notation on the upper left-hand corner that it was
received on June 18, 1982, by its legal department. It does not indicate from whom. At the bottom,
significantly, there is another signature under which are the ciphers "6-13-82," for which no explanation
has been given.
Against this document, the private respondent points in her Annex "1,"13 the authenticated copy of the
same Order with a rubber-stamped notation at the bottom thereof indicating that it was received for
the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-82." The signature may or may not have been
written by the same person who signed at the bottom of the petitioner's Annex "B."
Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-
13-82" appear on both annexes but also because it is the date authenticated by the administrative
division of the Insurance Commission. Annex "B" is at worst self-serving; at best, it might only indicate
that it was received on June 18, 1982, by the legal department of MICO, after it had been received
earlier by some other of its personnel on June 13, 1982. Whatever the reason for the delay in
transmitting it to the legal department need not detain us here.
Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision
of the Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or
fifteen days from such notice, and the reglementary period began to run again after June 13, 1981, date
of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was
filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would
end on June 28, 1982, or also four days from July 2, when the petition was filed.
If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the
fifteenth day after MICO received notice of the decision, only one more day would have remained for it
to appeal, to wit, June 14, 1982. That would make the petition eighteen days late by July 2.
Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies,
the petition would still be tardy. The law provides for a fixed period of ten days from notice of the denial
of a seasonable motion for reconsideration within which to appeal from the decision. Accordingly, that
ten-day period, counted from June 13, 1982, would have ended on June 23, 1982, making the petition
filed on July 2, 1982 nine days late.
Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.
On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the
policy had been cancelled before the occurrence of the loss are not acceptable. Its contention that the
claim was allowed without proof of loss is also untenable.
The petitioner relies heavily on Section 77 of the Insurance Code providing that:
"SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace period provision applies."
The above provision is not applicable because payment of the premium was in fact eventually made in
this case. Notably, the premium invoice issued to Pinca at the time of the delivery of the policy on June
7, 1981 was stamped "Payment Received" of the amount of P930.60 on "12-24-81" by Domingo Adora.
14 This is important because it suggests an understanding between MICO and the insured that such
payment could be made later, as agent Adora had assured Pinca. In any event, it is not denied that this
payment was actually made by Pinca to Adora, who remitted the same to MICO.
The payment was made on December 24, 1981, and the fire occurred on January 18, 1982. One
wonders: suppose the payment had been made and accepted in, say, August 1981, would the
commencement date of the policy have been changed to the date of the payment, or would the
payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the
insured property had not been burned, would that policy not have expired just the same on July 22,
1982, pursuant to its original terms, and not on December 24, 1982?
It would seem from MICO's own theory, that the policy would have become effective only upon
payment, if accepted, and so would have been valid only from December 24, 1981, but only up to July
22, 1982, according to the original terms. In other words, the policy would have run for only eight
months although the premium paid was for one whole year.
It is not disputed that the premium was actually paid by Pinca to Adora on December 24, 1981, who
received it on behalf of MICO, to which it was remitted on January 15, 1982. What is questioned is the
validity of Pinca's payment and of Adora's authority to receive it.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to
receive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code
that:
"SEC. 396. . . .
"Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of
insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of
any premium which is due on such policy or contract of insurance at the time of its issuance or delivery
or which becomes due thereon."
And it is a well-known principle under the law of agency that:
"Payment to an agent having authority to receive or collect payment is equivalent to payment to the
principal himself; such payment is complete when the money delivered is into the agent's hands and is a
discharge of the indebtedness owing to the principal." 15
There is the petitioner's argument, however, that Adora was not authorized to accept the premium
payment because six months had elapsed since the issuance of the insurance policy and such
acceptance was prohibited by the policy itself. It is argued that this prohibition was binding upon Pinca,
who made the payment to Adora at her own risk as she was bound to first check his authority to receive
it. 16
MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was
prohibited by the policy, it at the same time insists that the policy never came into force because the
premium had not been paid. One surely cannot have his cake and eat it too.
We do not share MICO's view that there was no existing insurance at the time of the loss sustained by
Pinca because her policy never became effective for non-payment of premium. Payment was in fact
made, rendering the policy operative as of June 22, 1981, and removing it from the provisions of Article
77.
Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64
(except "non-payment of premium") provided the cancellation was made in accordance therewith and
with Article 65.
Section 64 reads as follows:
"SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the
occurrence, after the effective date of the policy, of one or more of the following:
"(a) non-payment of premium;
"(b) conviction of a crime arising out of acts increasing the hazard insured against;
"(c ) discovery of fraud or material misrepresentation;
"(d) discovery of willful or reckless acts or commissions increasing the hazard insured against;
"(e) physical changes in the property insured which result in the property becoming uninsurable; or
"(f) a determination by the Commissioner that the continuation of the policy would violate or would
place the insurer in violation of this Code."
As for the method of cancellation, Section 65 provides as follows:
"SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or
delivered to the named insured at the address shown in the policy, and shall state (a) which of the
grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named
insured, the insurer will furnish the facts on which the cancellation is based."
A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured; 17
(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more
of the grounds mentioned. 18
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address
shown in the policy; 19
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon
written request of the insured, the insurer will furnish the facts on which the cancellation is based. 20
MICO claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To
support this assertion, it presented one of its employees, who testified that "the original of the
endorsement and credit memo" ---- presumably meaning the alleged cancellation ---- "were sent the
assured by mail through our mailing section." 21 However, there is no proof that the notice, assuming it
complied with the other requisites mentioned above, was actually mailed to and received by Pinca. All
MICO offers to show that the cancellation was communicated to the insured is its employee's testimony
that the said cancellation was sent "by mail through our mailing section," without more. The petitioner
then says that its "stand is enervated (sic) by the legal presumption of regularity and due performance
of duty."22 (not realizing perhaps that "enervated" means "debilitated," not "strengthened").
On the other hand, there is the flat denial of Pinca, who says she never received the claimed
cancellation and who, of course, did not have to prove such denial Considering the strict language of
Section 64 that no insurance policy shall be cancelled except upon prior notice, it behooved MICO to
make sure that the cancellation was actually sent to and received by the insured. The presumption cited
is unavailing against the positive duty enjoined by Section 64 upon MICO and the flat denial made by the
private respondent that she had received notice of the claimed cancellation.
It stands to reason that if Pinca had really received the said notice, she would not have made payment
on the original policy on December 24, 1981. Instead, she would have asked for a new insurance,
effective on that date and until one year later, and so taken advantage of the extended period. The
Court finds that if she did pay on that date, it was because she honestly believed that the policy issued
on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22, 1981, its
stipulated commencement date. After all, agent Adora was very accommodating and had earlier told
her "to call him up any time" she was ready with her payment on the policy earlier issued. She was
obviously only reciprocating in kind when she paid her premium for the period beginning July 22, 1981,
and not December 24, 1981.
MICO suggests that Pinca knew the policy had already been cancelled and that when she paid the
premium on December 24, 1981, her purpose was "to renew it." As this could not be done by the agent
alone under the terms of the original policy, the renewal thereof did not legally bind MICO, which had
not ratified it. To support this argument, MICO cites the following exchange:
"Q: Now, Madam Witness, on December 24, 1981, you made the alleged payment. Now, my question is
that, did it not come toyour mind that after the lapse of six (6) months, your policy was cancelled?
"A: I have thought of that but the agent told me to call him up at anytime.
"Q: So if you thought that your policy was already intended to revive cancelled policy?.
"Q: Misleading, Your Honor.
"Hearing Officer: The testimony of witness is that, she thought of that.
"Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the policy was cancelled.
Now, when you made the payment of December 24, 1981, your intention was to revive the policy if it
was already cancelled?
"A: Yes, to renew it." 23
A close study of the above transcript will show that Pinca meant to renew the policy if it had really been
already cancelled but not if it was still effective. It was all conditional. As it has not been shown that
there was a valid cancellation of the policy, there was consequently no need to renew it but to pay the
premium thereon. Payment was thus legally made on the original transaction and it could be, and was,
validly received on behalf of the insurer by its agent Adora. Adora, incidentally, had not been informed
of the cancellation either and saw no reason not to accept the said payment.
The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire
insurance policy is conclusive in case of total loss in the absence of fraud, 24 which is not shown here.
Loss and its amount may be determined on the basis of such proof as may be offered by the insured,
which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in this case, the
insured files notice and preliminary proof of loss and the insurer fails to specify to the former all the
defects thereof and without unnecessary delay, all objections to notice and proof of loss are deemed
waived under Section 90 of the Insurance Code.
The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's
loss should be considered sufficient. Notably, MICO submitted no evidence to the contrary nor did it
even question the extent of the loss in its answer before the Insurance Commission. It is also worth
observing that Pinca's property was not the only building burned in the fire that razed the commercial
district of Lao-ang, Samar, on January 18, 1982. 27
There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of
the loss imperative or indispensable, as MICO suggests. Section 325, which it cites, simply speaks of the
licensing and duties of adjusters.
We see in this case an obvious design to evade or at least delay the discharge of a just obligation
through efforts bordering on bad faith if not plain duplicity. We note that the motion for reconsideration
was filed on the fifteenth day from notice of the decision of the Insurance Commission and that there
was a feeble attempt to show that the notice of denial of the said motion was not received on June 13,
1982, to further hinder the proceedings and justify the filing of the petition with this Court fourteen
days after June 18, 1982. We also look askance at the alleged cancellation, of which the insured and
MICO's agent himself had no knowledge, and the curious fact that although Pinca's payment was
remitted to MICO by its agent on January 15, 1982, MICO sought to return it to Adora only on February
5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18,
1982. These circumstances make the motives of the petitioner highly suspect, to say the least, and cast
serious doubts upon its candor and bone fides.
WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981,
and its Order of June 4, 1981, are AFFIRMED in full, with costs against the petitioner. This decision is
immediately executory.
SO ORDERED.
25. [1995R346] SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner, vs. HON. COURT
OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., respondents.1995
Jun 23rd DivisionG.R. No. 102253R E S O L U T I O N
VITUG, J.:
Two issues on the subject of insurance are raised in this petition, that assails the decision of the Court of
Appeals (in CA-G.R. No. CV-20156), the first dealing on the requirement of premium payment and the
second relating to the agency relationship of parties under that contract.
The court litigation started when Valenzuela Hardwood and Industrial Supply, Inc. ("Hardwood"), filed
with the Regional Trial Court of the National Capital Judicial Region, Branch 171 in Valenzuela, Metro
Manila, a complaint for the recovery of the value of lost logs and freight charges from Seven Brothers
Shipping Corporation or, to the extent of its alleged insurance cover, from South Sea Surety and
Insurance Company.
The factual backdrop is described briefly by the appellate court thusly:
"It appeared that on 16 January 1984, plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.]
entered into an agreement with the defendant Seven Brothers whereby the latter undertook to load on
board its vessels M/V Seven Ambassador the former's lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.
"On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea
Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy
No. 84/24229 for P2,000,000.00 on said date.
"On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to
Mr. Victorio Chua.
"In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss
of the plaintiff's insured logs.
"On 30 January 1984, a check for P5,625.00 (Exh. 'E') to cover payment of the premium and
documentary stamps due on the policy was tendered to the insurer but was not accepted. Instead, the
South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of
inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code.
"On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the
payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise a
formal claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the
latter denied the claim." 1
In its decision, dated 11 May 1988, the trial court rendered judgment in favor of plaintiff Hardwood.
On appeal perfected by both the shipping firm and the insurance company, the Court of Appeals
affirmed the judgment of the court a quo only against the insurance corporation; in absolving the
shipping entity from liability, the appellate court ratiocinated:
"The primary issue to be resolved before us is whether defendants shipping corporation and the surety
company are liable to the plaintiff for the latter's lost logs.
"It appears that there is a stipulation in the charter party that the ship owner would be exempted from
liability in case of loss.
"The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the
liability of the shipping corporation. The provisions on common carriers should not be applied where the
carrier is not acting as such but as a private carrier.
"Under American jurisprudence a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.
"As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent
is valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
"The shipping corporation should not therefore be held liable for the loss of the logs." 2
In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc., petitioner
argues that it likewise should have been freed from any liability to Hardwood. It faults the appellate
court (a) for having supposedly disregarded Section 77 of the Insurance Code and (b) for holding Victorio
Chua to have been an authorized representative of the insurer.
Section 77 of the Insurance Code provides:
"SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an industrial life policy whenever the grace period provision
applies."
Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the
efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case the
insurance coverage relates to life or industrial life (health) insurance when a grace period applied and
(b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment
being declared by law to be then conclusive evidence of the premium payment (Secs. 77-78, Insurance
Code). The appellate court, contrary to what the petition suggests, did not make any pronouncement to
the contrary. Indeed, it has said:
"Concerning the issue as to whether there is a valid contract of insurance between plaintiff-appellee and
defendant-appellant South Sea Surety and Insurance Co., Inc., Section 77 of the Insurance Code explicitly
provides that notwithstanding any agreement to the contrary, no policy issued by an insurance company
is valid and binding unless and until the premium thereof has been paid. It is therefore important to
determine whether at the time of the loss, the premium was already paid." 3
No attempt to becloud the issues can disguise the fact that the sole question raised in the instant
petition is really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the check for the
insurance premium prior to the occurrence of the risk insured against has so acted as an agent of
petitioner. The appellate court, like the trial court, has found in the affirmative. Said the appellate court:
"In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by defendant insurance
company on 20 January 1984. At the time the vessel sank on 25 January 1984 resulting in the loss of the
insured logs, the insured had already delivered to Victorino Chua the check in payment of premium. But,
as Victorino Chua testified, it was only in the morning of 30 January 1984 or 5 days after the vessel sank
when his messenger tendered the check to defendant South Sea Surety and Insurance Co., Inc. (TSN, pp.
3-27, 16-17, 22 October 1985).
"The pivotal issue to be resolved to determine the liability of the surety corporation is whether Mr. Chua
acted as an agent of the surety company or of the insured when he received the check for insurance
premiums.
"Appellant surety company insists that Mr. Chua is an administrative assistant for the past ten years and
an agent for less than ten years of the Columbia Insurance Brokers, Ltd. He is paid a salary as
administrative assistant and a commission as agent based on the premiums he turns over to the broker.
Appellant therefore argues that Mr. Chua, having received the insurance premiums as an agent of the
Columbia Insurance Broker, acted as an agent of the insured under Section 301 of the Insurance Code
which provides as follows:
'Section 301. Any person who for any compensation, commission or other thing of value, acts or aids
in soliciting, negotiating or procuring the making of any insurance contact or in placing risk or taking out
insurance, on behalf of an insured other than himself , shall be an insurance broker within the intent of
this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to
which an insurance broker is subjected.'
"The appellees, upon the other hand, claim that the second paragraph of Section 306 of the Insurance
Code provides as follows:
'Section 306. . . . Any insurance company which delivers to an insurance agent or insurance broker a
policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy of contract of insurance at the time of its
issuance or delivery or which becomes due thereon.'
"On cross-examination in behalf of South Sea Surety and Insurance Co., Inc., Mr. Chua testified that the
marine cargo insurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at his
office to be delivered to the plaintiff.
"When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo
insurance policy for the plaintiff's logs, he is deemed to have been authorized by the South Sea Surety
and Insurance Co., Inc. to receive the premium which is due on its behalf.
"When therefore the insured logs were lost, the insured had already paid the premium to an agent of
the South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds
under the policy it issued to the insured." 4
We see no valid reason to discard the factual conclusions of the appellate court. Just as so correctly
pointed out by private respondent, it is not the function of this Court to assess and evaluate all over
again the evidence testimonial and documentary, adduced by the parties particularly where, such as
here, the findings of both the trial court and the appellate court on the matter coincide.
WHEREFORE, the resolution, dated 01 February 1993, granting due course to the petition is RECALLED,
and the petition is DENIED. Costs against petitioner.
SO ORDERED.
26. [1984V12] LUZON SURETY COMPANY, INC., plaintiff-appellee, vs. PASTOR T. QUEBRAR and
FRANCISCO KILAYKO, defendants-appellants.1984 Jan 312nd DivisionG.R. No. L-40517D E C I S
I O N
MAKASIAR, J.:
This is an appeal from the judgment of the Court of First Instance of Manila in Civil Case No. 52790 dated
November 3, 1964 which was certified to this Court by the Court of Appeals in its resolution dated
March 20, 1975.
On August 9, 1954, plaintiff-appellee issued two administrator's bond in the amount of P15,000.00 each,
in behalf of the defendant-appellant Pastor T. Quebrar, as administrator in Special Proceedings Nos.
3075 and 3076 of the Court of First Instance of Negros Occidental entitled "Re Testate Estate of A.B,
Chinsuy," and "Re Testate Estate of Cresenciana Lipa," respectively, (pp. 8-12, 17-21, ROA; p. 9, rec.). In
consideration of the suretyship, wherein the plaintiff-appellee Luzon Surety Company, Inc. was bound
jointly and severally with the defendant appellant Pastor T. Quebrar, the latter, together with Francisco
Kilayko, executed two indemnity agreements, wherein, among other things, they agreed, jointly and
severally, to pay the plaintiff-appellee "the sum of Three Hundred Pesos (P300.00) in advance as
premium thereof for every 12 months or fraction thereof, this . . . or any renewal or substitution thereof
is in effect" and to indemnify plaintiff-appellee against any and all damages, losses, costs, stamps, taxes,
penalties, charges and expenses, whatsoever, including the 15% of the account involved in any litigation,
for attorney's fees (pp. 12-16, 21-25, ROA; p. 9, rec.).
For the first year, from August 9, 1954 to August 9, 1955, the defendants-appellants paid P304.50 under
each indemnity agreement or a total of P609.00 for premiums and documentary stamps.
On June 6, 1957, the Court of First Instance of Negros Occidental approved the amended Project of
Partition and Accounts of defendant-appellant (p. 87, ROA; p. 9, rec.)
On May 8, 1962, the plaintiff-appellee demanded from the defendants-appellants the payment of the
premiums and documentary stamps from August 9, 1955.
On October 17, 1962, the defendants-appellants filed a motion for cancellation and/or reduction of
executor's bonds on the ground that "the heirs of these testate estates have already received their
respective shares" (pp. 69-70, ROA, p. 9, rec.).
On October 20, 1962, the Court of First Instance of Negros Occidental, acting on the motions filed by the
defendants-appellants ordered the bonds cancelled.
Plaintiff-appellee's demand amounted to P2,436.00 in each case, hence, a total of P4,872.00 for the
period of August 9, 1955 to October 20, 1962. The defendants-appellants refused to pay the said
amount of P4,872.00.
On January 8, 1963, the plaintiff-appellee filed the case with the Court of First Instance of Manila. During
the pre-trial, the parties presented their documentary evidences and agreed on the ultimate issue -
"whether or not the administrator's bonds were in force and effect from and after the year that they
were filed and approved by the court up to 1962, when they were cancelled." The defendants-
appellants offered P1,800.00 by way of amicable settlement which the plaintiff-appellee refused.
The lower court allowed the plaintiff to recover from the defendants-appellants, holding that:
"We find for the plaintiff. It is clear from the terms of the Order of the Court, in which these bonds were
filed, that the same were in force and effect from and after filing thereof up to and including 20
October, 1962, when the same were cancelled. It follows that the defendants are liable under the terms
of the Indemnity Agreements, notwithstanding that they have not expressly sought the renewal of these
bonds, because the same were in force and effect until they were cancelled by order of the Court. The
renewal of said bonds is presumed from the fact that the defendants did not ask for the cancellation of
the same; and their liability springs from the fact that defendant Administrator, Pastor Quebrar,
benefitted from the bonds during their lifetime.
"We find no merit in defendants' claim that the Administrator's bonds in question are not judicial bonds
but legal or conventional bonds only, since they were constituted by virtue of Rule 82, Sec. 1 of the Old
Rules of Court. Neither is there merit in defendants' claim that payments of premiums and documentary
stamps were conditions precedent to the effectivity of the bonds, since it was the defendant's duty to
pay for the premiums as long as the bonds were in force and effect. Finally, defendants' claim that they
are not liable under the Indemnity Agreements is also without merit, since the undertaking of
defendants under said Indemnity Agreements includes the payment of yearly premiums for the bonds.
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering
the defendants to pay the plaintiff, jointly and severally, the amount of P6,649.36 plus interest at the
legal rate from 27 July 1964 until fully paid, and the sum equivalent to 10% of the total amount due as
and or attorney's fees, and costs" (pp. 92-94, ROA; p. 9, rec.).
Defendants-appellants appealed to the Court of Appeals. On March 20, 1975, the Court of Appeals in a
resolution certified the herein case to this Court after finding that this case involves only errors or
questions of law.
1. The proper determination of the liability of the surety and of the principal on the bond must depend
primarily upon the language of the bond itself. The bonds herein were required by Section 1 of Rule 81
of the Rules of Court. While a bond is nonetheless a contract because it is required by statute (Midland
Co. vs. Broat, 52 NW 972), said statutory bonds are construed in the light of the statute creating the
obligation secured and the purposes for which the bond is required, as expressed in the statute (Michael
vs. Logan, 52 NW 972; Squires vs. Miller, 138 NW 1062). The statute which requires the giving of a bond
becomes a part of the bond and imparts into the bond any conditions prescribed by the statute (Scott
vs. United States Fidelity Co., 252 Ala 373, 41 So 2d 298; Employer's Liability Assurance Corp. vs. Lunt, 82
Ariz 320, 313 P2d 393).
The bonds in question herein contain practically the very same conditions in Sec. 1, Rule 81 of the Rules
of Court. Pertinent provision of the administrator's bonds is as follows:
"Therefore, if the said Pastor T. Quebrar faithfully prepares and presents to the Court, within three
months from the date of his appointment, a correct inventory of all the property of the deceased which
may have come into his possession or into the possession of any other person representing him
according to law, if he administers all the property of the deceased which at any time comes into his
possession or into the possession of any other person representing him; faithfully pays all the debts,
legacies, and bequests which encumber said estate, pays whatever dividends which the Court may
decide should be paid, and renders a just and true account of his administrations to the Court within a
year or at any other date that he may be required so to do, and faithfully executes all orders and
decrees of said Court, then in this case this obligation shall be void, otherwise it shall remain full force
and effect" (p. 9, 18, ROA; p. 9, rec.).
Section 1 of Rule 81 of the Rules of Court requires the administrator/executor to put up a bond for the
purpose of indemnifying the creditors, heirs, legatees and the estate. It is conditioned upon the faithful
performance of the administrator's trust (Mendoza vs. Pacheco, 64 Phil. 134).
Having in mind the purpose and intent of the law, the surety is then liable under the administrator's
bond, for as long as the administrator has duties to do as such administrator/executor. Since the liability
of the sureties is co-extensive with that of the administrator and embraces the performance of every
duty he is called upon to perform in the course of administration (Deobold vs. Oppermann, 111 NY 531,
19 NE 94), it follows that the administrator is still duty bound to respect the indemnity agreements
entered into by him in consideration of the suretyship.
It is shown that the defendant-appellant Pastor T. Quebrar, still had something to do as an
administrator/executor even after the approval of the amended project of partition and accounts on
June 6, 1957.
The contention of the defendants-appellants that the administrator's bond ceased to be of legal force
and effect with the approval of the project of partition and statement of accounts on June 6, 1957 is
without merit. The defendant-appellant Pastor T. Quebrar did not cease as administrator after June 6,
1957, for administration is for the purpose of liquidation of the estate and distribution of the residue
among the heirs and legatees. And liquidation means the determination of all the assets of the estate
and payment of all the debts and expenses (Flores vs. Flores, 48 Phil. 982). It appears that there were
still debts and expenses to be paid after June 6, 1957.
And in the case of Montemayor vs. Gutierrez (114 Phil. 95), an estate may be partitioned even before
the termination of the administration proceedings. Hence, the approval of the project of partition did
not necessarily terminate the administration proceedings. Notwithstanding the approval of the
partition, the Court of First Instance of Negros Occidental still had jurisdiction over the administration
proceedings of the estate of A.B. Chinsuy and Cresenciana Lipa.
2. The sureties of an administration bond are liable only as a rule, for matters occurring during the term
covered by the bond. And the term of a bond does not usually expire until the administration has been
closed and terminated in the manner directed by law (Hartford Accident and Indemnity Co. vs. White,
115 SW 2d 249). Thus, as long as the probate court retains jurisdiction of the estate, the bond
contemplates a continuing liability (Deobold vs. Oppermann, supra) notwithstanding the non-renewal of
the bond by the defendants-appellants.
It must be remembered that the probate court possesses an all-embracing power over the
administrator's bond and over the administration proceedings and it cannot be devoid of legal authority
to execute and make that bond answerable for the very purpose for which it was filed (Mendoza vs.
Pacheco, 64 Phil. 135).
It is the duty of the courts of probate jurisdiction to guard jealously the estate of the deceased persons
by intervening in the administration thereof in order to remedy or repair any injury that may be done
thereto (Dariano vs. Fernandez Fidalgo, 14 Phil. 62, 67; Sison vs. Azarraga, 30 Phil. 129, 134).
3. In cases like these where the pivotal point is the interpretation of the contracts entered into, it is
essential to scrutinize the very language used in the contracts. The two Indemnity Agreements provided
that:
"The undersigned, Pastor T. Quebrar and Dr. Francisco Kilayko, jointly and severally, bind ourselves unto
the Luzon Surety Co., Inc. . . . in consideration of it having become SURETY upon Civil Bond in the sum of
Fifteen Thousand Pesos (P15,000.00) . . . .in favor of the Republic of the Philippines in Special Proceeding
. . dated August 9, 1954, a copy of which is hereto attached and made an integral part hereof " ( mphasis
supplied; pp. 12-13, 21, ROA; p. 9, rec.).
To separately consider these two agreements would then be contrary to the intent of the parties in
making them integrated as a whole.
The contention then of the defendants-appellants that both the Administrator's Bonds and the
Indemnity Agreements ceased to have any force and effect, the former since June 6, 1957 with the
approval of the project of partition and the latter since August 9, 1955 with the non-payment of the
stated premiums, is without merit. Such construction of the said contracts entered into would render
futile the purpose for which they were made.
To allow the defendants-appellants to evade their liability under the Indemnity Agreements by non-
payment of the premiums would ultimately lead to giving the administrator the power to diminish or
reduce and altogether nullify his liability under the Administrator's Bonds. As already stated, this is
contrary to the intent and purpose of the law in providing for the administrator's bonds for the
protection of the creditors, heirs, legatees, and the estate.
4. Moreover, the lower court was correct in holding that there is no merit in the defendants' claim that
payments of premiums and documentary stamps are conditions precedent to the effectivity of the
bonds.
It is worthy to note that there is no provision or condition in the bond to the effect that it will terminate
at the end of the first year if the premium for continuation thereafter is not paid. And there is no clause
by which its obligation is avoided or even suspended by the failure of the obligee to pay an annual
premium (U.S. vs. Maryland Casualty Co. [DCMd] 129 F. Supp; Dale vs. Continental Insurance Co., 31 SW
266; Equitable Insurance C. vs. Harvey, 40 SW 1092).
It was held in the case of Fourth and First Bank and Trust Co. vs. Fidelity and Deposit Co. (281 SW 785),
that "at the end of the first year, the bond went on, whether or not the premium was paid or not . . .
Even on a failure to pay an annual premium, the contract ran on until affirmative action was taken to
avoid it. The obligation of the bond was therefore continuous." And in United States vs. American Surety
Co. of New York (172 F2d 135), it was held that "under a surety bond securing faithful performance of
duties by postal employee, liability for default of employee occurring in any one year would continue,
whether or not a renewal premium was paid for a later year."
The payment of the annual premium is to be enforced as part of the consideration, and not as a
condition (Woodfin vs. Asheville Mutual Insurance Co., 51 N.C. 558); for the payment was not made a
condition to the attaching or continuing of the contract (National Bank vs. National Surety Co., 144 A
576). The premium is the consideration for furnishing the bonds and the obligation to pay the same
subsists for as long as the liability of the surety shall exist (Reparations Commission vs. Universal Deep-
Sea Fishing Corp., L-21996, 83 SCRA 764, June 27, 1978). And in Arranz vs. Manila Fidelity and Surety Co.,
Inc. (101 Phil. 272), the "premium is the consideration for furnishing the bond or the guaranty. While the
liability of the surety subsists the premium is collectible from the principal. Lastly, in Manila Surety and
Fidelity Co., Inc. vs. Villarama (107 Phil. 891), it was held that "the one-year period mentioned therein
refers not to the duration or lifetime of the bond, but merely to the payment of premiums, and,
consequently, does not affect at all the effectivity or efficacy of such bond. But such non-payment alone
of the premiums for the succeeding years . . . does not necessarily extinguish or terminate the effectivity
of the counter-bond in the absence of an express stipulation in the contract making such non-payment
of premiums a cause for the extinguishment or termination of the undertaking. . . . There is no necessity
for an extension or renewal of the agreement because by specific provision thereof, the duration of the
counter-bond was made dependent upon the existence of the original bond."
5. It is true that in construing the liability of sureties, the principle of strictissimi juris applies (Asiatic
Petroleum Co. vs. De Pio, 46 Phil. 167; Standard Oil Co. of N.Y. vs. Cho Siong, 53 Phil. 205); but with the
advent of corporate surety, suretyship became regarded as insurance where, usually, provisions are
interpreted most favorably to the insured and against the insurer because ordinarily the bond is
prepared by the insurer who then has the opportunity to state plainly the term of its obligation (Surety
Co. vs. Pauly, 170 US 133, 18 S. Ct. 552, 42 L. Ed. 972).
This rule of construction is not applicable in the herein case because there is no ambiguity in the
language of the bond and more so when the bond is read in connection with the statutory provision
referred to.
With the payment of the premium for the first year, the surety already assumed the risk involved, that
is, in case defendant-appellant Pastor T. Quebrar defaults in his administrative duties. The surety
became liable under the bond for the faithful administration of the estate by the
administrator/executor. Hence, for as long as defendant-appellant Pastor T. Quebrar was administrator
of the estates, the bond was held liable and inevitably, the plaintiff-appellee's liability subsists since the
liability of the sureties is co-extensive with that of the administrator.
WHEREFORE, THE DECISION OF THE COURT OF FIRST INSTANCE OF MANILA DATED NOVEMBER 3, 1964
IS HEREBY AFFIRMED. WITH COSTS AGAINST DEFENDANTS-APPELLANTS.
27. [1979V267] IVOR ROBERT DAYTON GIBSON, petitioner, vs. HON. PEDRO A. REVILLA, in his
official capacity as Presiding Judge of Branch XII, Court of First Instance of Rizal, and LEPANTO
CONSOLIDATED MINING COMPANY, respondents.1979 Jul 301st DivisionG.R. No. L-41432D E C
I S I O N
GUERRERO, J:
This is a petition for review 1 seeking to set aside the Order of the Court of First Instance of Rizal, Branch
XIII, presided by respondent Judge Pedro A. Revilla, in Civil Case No. 20046 entitled "Lepanto
Consolidated Mining Company versus Malayan Insurance Company, Inc. " denying the motion of the
petitioner Ivor Robert Dayton Gibson for leave to intervene in said case, and to order the respondent
Judge to admit him as intervenor therein.
The antecedent facts of this case are as follows:
Lepanto Consolidated Mining Company (hereinafter referred to as Lepanto) filed on September 27, 1974
in the Court of First Instance of Rizal, Branch XIII a complaint with a plea for preliminary mandatory
injunction against Malayan Insurance Company, Inc., (hereinafter referred to as Malayan), docketed as
Civil Case No. 20046 seeking the following relief:
"(a) upon the filing of this complaint, a writ of preliminary mandatory injunction be issued directing
defendant to advance to plaintiff an interest-free loan of P1,831,695.75; and
(b) upon trial on the merits
(i) an accounting or average adjustments be made for the liquidation of the general average losses,
damages and expenses arising from the marine accidents subject of this action and the determination of
the contributions due from subject cargoes under the Policy;
(ii) defendant be ordered to pay plaintiff the amounts under item (i) above, with interest thereon at the
rate of 12% per annum, from February 20, 1972 as to the cargo's contribution relative to the 'Hermonsa'
and from March 27, 1972 as to the cargo's contribution relative to the 'General Aguinaldo;'
(iii) the amount of P1,831,695.75 as interest-free loan due plaintiff from defendant be declared
repayable upon and only to the extent of any corresponding recovery from the owners of the 'Hermosa'
and 'General Aguinaldo;'"
Lepanto also sought payment of interest on delayed loan amounts, exemplary damages of at least
P500,000.00, attorney's fees and other litigation expenses, and other cumulative and/or alternative
reliefs as may be lawful, just or equitable in the premises.
The civil suit thus instituted by Lepanto against Malayan was founded on the fact that on Sept. 9, 1971,
Malayan issued Marine Open Policy No. LIDC-MOP-001171 covering all shipments of copper, gold and
silver concentrates in bulk from Poro, San Fernando, La Union to Tacoma, Washington or to other places
in the United States which Lepanto may make on and after August 1, 1971 and until the cancellation of
the policy upon thirty (30) days' written notice. Thereafter, Malayan obtained reinsurance abroad
through Sedgwick, Collins & Co., Limited, a London insurance brokerage. The Memorandum of Insurance
issued by Sedgwick to Malayan on September 24, 1971 listed three groups of underwriters or reinsurers
and their reinsurance interest are as follows:
Lloyds 62.808%
Companies (I.L.U.) 34.705%
Other Companies 2.487%
100.000%
At the top of the list of underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% of the risk
assumed by the reinsurer, which syndicate number petitioner Ivor Robert Dayton Gibson claims to be
himself.
In November, 1971, a cargo of concentrates was shipped by Lepanto on the M/V Hermosa at Poro, San
Fernando, La Union destined for Tacoma, Washington. During the sea voyage, while the vessel was in
the Northern Pacific Ocean south of Japan on or about Nov. 11, 1971, it encountered heavy weather and
rough seas which caused it to roll, pitch and vibrate heavily so that certain shifting boards in the vessel
broke and part of the cargo shifted transversely, thereby causing a list. The vessel deviated to Moji,
Japan and after the shifting boards were repaired and/or replaced, it proceeded on its trip to Tacoma,
but about the end of the month, the ship once again met with strong winds, monsoon rains, severe
winter and very rough seas and it rolled, pitched and vibrated heavily so other shifting boards broke and
part of the cargo also shifted causing a heavier list. The captain of the boat, fearing that the vessel might
sink, sailed to Osaka and unloaded the cargo. Expenses were incurred by Lepanto relative to the cargo
while in Japan but eventually the cargo was transhipped to Tacoma via another vessel.
Also in November, 1971, another cargo of concentrates was shipped by Lepanto on board the M/V
General Aguinaldo at Poro, San Fernando, La Union and destined for Tacoma, Washington. Similarly,
during the sea voyage on or about November 30, 1971 in the Northern Pacific Ocean southeast of Japan,
it met with heavy weather and rough seas, causing it to pitch, roll and vibrate heavily so that certain
shifting boards in the vessel broke and part of the cargo shifted transversely which caused the listing of
the vessel. The captain, fearing also that the vessel might sink, sailed for Miyako, Japan, unloaded the
cargo and expenses were incurred relative to the cargo while in Japan. Thereafter, the cargo was
transhipped to Tacoma on board another vessel.
Lepanto notified Malayan and another insurer, Commercial Union in London in November and
December, 1971 of the accidents. Formal claims under the open policy were also filed by Lepanto with
Malayan in March and July, 1972 upon the conclusion of the voyages and the determination of the
shortweight.
The claims were denied by Malayan tentatively at first claiming that it needed time to determine
whether or not the marine accidents resulted from the inherent vice or nature of the cargo and finally
Malayan rejected Lepanto's insurance claim for the reason that the cargoes were inherently vicious on
loading and such condition caused the listing of the vessel.
Hence, the complaint filed by Lepanto against Malayan in Civil Case No. 20046 for the interest-free loan
to Lepanto as stipulated in the policy computed at P1,831,695.75.
Malayan filed a motion to dismiss the case on three grounds: 1. that the instant case has been brought
in the name of other than the real party in interest; 2. that the complaint states no cause of action; and
3. that the claim set forth in the complaint has been extinguished.
On December 4, 1974, Malayan's motion to dismiss was denied. On January 17, 1975, Malayan filed its
Answers incorporating as part of its special and affirmative defenses the following allegations:
"(5) Defendant acted in good faith in rejecting plaintiff's insurance claims, not only because of the
circumstances and reasons set forth in the preceding sub-paragraphs (1) to (4) which defendant had
been reasonably led to believe by reports of reputed experts and or by legal advice as justifying
rejection, but also because, as plaintiff had been repeatedly told, it is under constraint, on one hand, by
customs of the insurance trade to adhere to the decisions of the lead insurers, and on another hand, by
its contract with its reinsurer which among others, prohibit settlement of the reinsured claims without
the reinsurer's assent."
On January 27, 1975, Lepanto filed its reply. On January 30, 1975, the Court denied Lepanto's motion for
mandatory preliminary injunction "without prejudice to reconsider the said motion after the pre-trial of
this case shall have been concluded." On March 19, 1975, the first pre-trial conference was held and on
March 25, 1975, the parties filed their Stipulation of Facts and Issues, which Stipulations was approved
en toto in the trial court's order of April 1, 1975.
Subsequently, pre-trial conferences were held on April 3, 1975, May 21, 1975, and June 19, 1975 when
Lepanto concluded its evidence. Defendant through counsel reserved its right to make a formal offer of
its evidence at the continuation of the hearing scheduled on July 16, 1975.
Then on June 25, 1975, petitioner Ivor Robert Dayton Gibson filed a motion to intervene as defendant,
which motion is as follows:
"MOTION TO INTERVENE
COMES NOW Ivor Robert Dayton Gibson, Reinsurer in the above entitled case, through undersigned
counsel, and to this Honorable Court respectfully alleges that:
1. Movant is of legal age, a British citizen, with address at Lloyd's Lime Street, London, EC3:
2. Movant is the leading re-insurer of the risks and liabilities assumed by defendant Malayan Insurance
Co., Inc. in a contract of marine insurance involving two (2) separate shipments of copper concentrates
aboard the MV "Hermosa" and the MV "General Aguinaldo" shipped by Lepanto Consolidated Mining
Co., Inc. to American Smelting & Refining Co. from Poro Point, San Fernando, La Union, to Tacoma,
Washington for which defendant issued Policy No. LIDC-MOP-001/71 dated September 9, 1971, in the
amount of 20% of the declared value of each shipment but not to exceed US$2,000,000 per shipment.
3. Prior to these two shipments and after defendant Malayan contracted with Lepanto to insure these
two (2) copper concentrates shipments against risks of loss and damage, defendant Malayan, in turn, re-
insured its liabilities for losses and damages in accordance with the terms of their reinsurance contract.
4. fter the defendant Malayan filed Answer to this suit, movant was informed that defendant made
express reservations 'to file in due time a third-party complaint against the lead insurers and/or its
reinsurers' (par. XVIII, Answer).
5. Movant has a legal interest in the subject matter of litigation in that he stands to be held liable to pay
on its re-insurance contract should judgment be rendered requiring the defendant to pay the claim of
the plaintiff.
6. To avoid multiplicity of suits and allow all parties who have any relation to the cause of action,
whether legally or in equity, to ventilate expeditiously every issue relevant to the suit, it is respectfully
submitted that movant be allowed to intervene as a defendant in the interest of justice.
7. By the very nature of a contract of reinsurance and considering that the reinsurer is obliged 'to pay as
may be paid thereon' (referring to the original policies), although this is subject to other stipulations and
conditions of the re-insurance contract, it will serve better the ends of justice if a full disclosure of all
pertinent facts and issues is made with the participation of the movant at this trial where his interests
have been and are already inevitably at stake."
Counsel for the movant submitted the foregoing motion for the consideration and resolution of the
Court on June 30, 1975. The motion to intervene was opposed by Lepanto on the following grounds: 1.
Movant Ivor Robert Dayton Gibson has no legal interest in the matter in litigation or in the success of
either plaintiff or defendant; 2. Movant is estopped by his laches from intervening in this action; 3. The
intervention is intended for delay and if allowed, will unduly delay the proceedings between plaintiff
and defendant; and 4. The rights, if any, of movant are not prejudiced by the present suit and will be
fully protected in a separate action against him and his co-insurers by defendant herein.
Replying to Lepanto's opposition, movant Ivor Robert Dayton Gibson contended that 1. Contrary to
oppositor's contention, movant Gibson has a legal interest in the matter in litigation because a contract
of reinsurance between the defendant Malayan Insurance Company, Inc. and the movant herein is a
contract of indemnity against liability, and 'not merely against damage, and therefore, movant has a
direct and immediate interest in the success of defendant Malayan Insurance Company, Inc.; 2. Neither
estoppel nor laches applies to the movant since the motion to intervene was filed seasonably on June
25, 1975 during the period of introduction of evidence by defendant Malayan; 3. The intervention is not
intended for delay; movant is merely asserting a legal right or interest in the pending case with the
request for opportunity to appear and be joined so that he could protect or assert such right or interest;
and 4. The filing of an independent and separate suit proposed by the plaintiff is condemned by the
basic and fundamental principles against multiplicity of suits.
On July 26, 1975, Lepanto filed a Rejoinder to the movant's "Reply to Opposition." On July 28, 1975,
Malayan made a manifestation that it had no objection to the "Motion to Intervene" of Ivor Robert
Dayton Gibson and on July 31, 1975, movant made a Sur-Rejoinder to Lepanto's Rejoinder.
On August 18, 1975, the Court a quo resolved to deny the Motion for Intervention in the following:
"ORDER
Ivor Robert Dayton Gibson, thru counsel, has presented before this Court a motion to intervene on June
25, 1975. In his motion, he alleges that he is a British citizen with address at Lloyd's Lime Street, London,
EC3; that he is the leading re-insurer of the risks and liabilities assumed by defendant Malayan Insurance
Company, Inc. in the contract of manner insurance involving the shipments subject of the instant suit.
He further contends that he has a legal interest in the subject matter of litigation for he stands liable on
his reinsurances contract should judgment be rendered against the defendant and that this intervention
would avoid a multiplicity of suits. Plaintiff vigorously opposed the motion contending that movant Ivor
Robert Dayton Gibson has no legal interest in the matter in litigation or in the success of either parties in
this suit; that he is estopped by laches; that the intervention is intended for delay and will unduly delay
the proceedings between plaintiff and defendant; and that movant will not be prejudiced by the present
suit and can be fully protected in any separate action which defendant may file against him and his co-
insurers.
Considering the grounds of the opposition, the Court believes that the third and fourth grounds raised in
the opposition appear highly meritorious. Since movant Ivor Robert Dayton Gibson appears to be only
one of several re insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is
highly probable that other re-insurers may likewise intervene. This would definitely disrupt the trial
between plaintiff and defendant, the principal protagonists in this suit. To allow the intervention would
certainly unduly delay the proceedings between plaintiff and defendant especially at this stage where
plaintiff had already rested its case. It would also compound the issues as more parties and more
matters will have to be litigated. At any rate, Ivor Robert Dayton Gibson may protect whatever interest
he has in a separate action.
IN VIEW OF ALL THE FOREGOING, the Court resolves to deny the motion for intervention.
SO ORDERED.
Pasig, Rizal, August 18, 1975.
(SGD) PEDRO A. REVILLA
Judge"
Not satisfied with the denial of his Motion to Intervene, petitioner now comes before Us seeking to set
aside the order of denial and to order the respondent Judge to admit him as intervenor. By resolution of
this Court dated November 17, 1975, the petition was denied due course for lack of merit, but upon
petitioner's motion for reconsideration, the petition was allowed in the Resolution of February 18, 1976,
treating it as a special civil action.
The principal issue is whether the lower court committed, reversible error in refusing the intervention of
petitioner Ivor Robert Dayton Gibson in the suit between Lepanto and Malayan.
We lay down the law on Intervention as found in Sec. 2, Rule 12 of the Rules of Court:
"Section 2. Intervention. A person may, before or during a trial, be permitted by the court, in its
discretion, to intervene in an action, if he has legal interest in the matter in litigation, or in the success of
either of the parties or an interest against both, or when he is so situated as to be adversely affected by
a distribution or other disposition of property in the custody of the court or of an officer thereof.
(a) Motion for intervention. A person desiring to intervene shall file a motion for leave of court with
notice upon all the parties to the action.
(b) Discretion of court. In allowing or disallowing a motion for intervention, the court, in the exercise of
discretion, shall consider whether or not the intervention will unduly delay or prejudice the adjudication
of the rights of the original parties and whether or not the intervenor's rights may be fully protected in a
separate proceeding.
(c) Complaint or answer in intervention. The intervention shall be made by complaint filed and served in
a regular form, and may be answered as if it were an original complaint; but where intervenor unites
with the defendant in resisting the claims of the plaintiff, the intervention may be made in the form of
an answer to the complaint.
(d) Time. Unless a different period is filed by the court, the complaint or answer in intervention shall be
filed within ten (10) days from notice of the order permitting such intervention."
According to pertinent jurisprudence, the term "intervention" refers to the proceeding by which one not
originally a party to an action is permitted, on his own application, to appear therein and join one of the
original parties in maintaining the action or defense, or to assert a claim or defense against some or all
of the parties to the proceeding as originally instituted. Such a third party may, upon the discretion of
the court, become a party to a pending proceedings between others for the protection of some rights or
interest alleged by him to be affected by such proceedings. 2
Intervention is not a matter of absolute right but may be permitted by the court when the applicant
shows facts which satisfy the requirements of the statute authorizing intervention. 3 Under our rules of
Court, what qualifies a person to intervene is his possession of a legal interest in the matter in litigation,
or in the success of either of the parties, or an interest against both; or when he is so situated as to be
adversely affected by a distribution or other disposition of property in the custody of the court or an
officer thereof 4 As regards the legal interest as qualifying factor, this Court has ruled that such interest
must be of a direct and immediate character so that the intervenor will either gain or lose by the direct
legal operation of the judgment. The interest must be actual and material, a concern which is more than
mere curiosity, or academic or sentimental desire; it must not be indirect and contingent, indirect and
remote, conjectural, consequential or collateral. 5 However, notwithstanding the presence of a legal
interest, permission to intervene is subject to the sound discretion of the court, the exercise of which is
limited by considering "whether or not the intervention will unduly delay or prejudice the adjudication
of the rights of the original parties and whether or not the intervenor's rights may be fully protected in a
separate proceeding" 6 Once judicial discretion is exercised, the action of the court cannot be reviewed
or controlled by mandamus however erroneous it may be, except only when there is an arbitrary or
capricious exercise of discretion, in which case, the fault is correctible by mandamus if there be no other
adequate and speedy remedy. 7
As may be noted in the questioned Order, respondent Judge denied the Motion to Intervene on the last
two grounds of Lepanto's Opposition, namely: "3. The intervention is intended for delay and if allowed,
will unduly delay the proceedings between plaintiff and defendant; and 4. The rights, if any, of movant
are not prejudiced by the present suit and will be fully protected in a separate action against him and his
co-insurers by defendant herein.
Respondent Judge, reasoning out his Order, ruled that "(s)ince movant Ivor Robert Dayton Gibson
appears to be only one of several co-insurers of the risks and liabilities assumed by Malayan Insurance
Company, Inc., it is highly probable that other re-insurers may likewise intervene. This would definitely
disrupt the trial between plaintiff and defendant, the principal protagonists in this suit. To allow the
intervention would certainly unduly delay the proceedings between plaintiff and defendant especially at
this stage where plaintiff had already rested its case. It would also compound the issues as more parties
and more matters will have to be litigated. At any rate, Ivor Robert Dayton Gibson may protect whatever
interest he has in a separate action."
In his petition, petitioner submits that the respondent Judge, in refusing to permit/allow him to
intervene in Civil Case No. 20046, incorrectly interpreted and/or appreciated the purpose/intent of the
pertinent rules of procedure that govern intervention of parties in a given action and that the
respondent Judge erred: (1) In concluding that to allow the intervention of herein petitioner "would
definitely disrupt the trial" and "would certainly unduly delay the proceedings," when such
apprehension appears to be clearly immaterial in determining when intervention is proper or not; (2) In
viewing the alleged availability of another recourse on the part of herein petitioner to protect his
interest, i.e. separate action, as an added justification to deny his intervention, despite the fact that the
applicable rule of procedure in this regard (Section 2, Rule 12) does not preclude intervention even if
another separate action is appropriate and/or available; and (3) In its obvious disregard of the very rule
(Section 2, Rule 12) precisely designed to apply on cases where intervention is sought, thereby departing
from the accepted and usual procedure under the premises.
After carefully considering the arguments of both the petitioner and Lepanto, the facts and
circumstances obtaining in the case at bar and applying Rule 12, Sec. 2 of the Rules of Court and the
doctrines enunciated by the Supreme Court on the matter, We rule that the respondent Judge
committed no error of law in denying petitioner's Motion to Intervene. And neither has he abused his
discretion in his denial of petitioner's Motion for Intervention.
It is quite crystal clear that the questioned Order of the respondent Court was based strictly and
squarely on Section 2(b) of Rule 12 which specifically directs the Court in allowing or disallowing a
motion for intervention in the exercise of discretion to consider whether or not the intervention will
unduly delay or prejudice the adjudication of the rights of the original parties and whether or not the
intervenor's rights may be fully protected in a separate proceeding. The Court a quo has specifically and
correctly complied with the Rule's mandate and We cannot fault the respondent Judge therefore.
We reject the contention of the petitioner that the question regarding delay in the adjudication of the
rights of the original contending parties, while recognized as factors in allowing or disallowing
intervention, should assume a secondary role to the primary and imperative requirement that the legal
interest of the would-be intervenor in the matter under litigation must be clearly shown and that once
the legal interest of the would be intervenor is clearly shown, the fact that his intervention may work to
delay a little the main conflict between the parties should not by itself justify the denial of intervention.
Petitioner's contention is untenable. The first paragraph of Section 2, Rule 12 prescribes the time to
intervene and also who may intervene, that is, one who has legal interest in the matter in litigation, or in
the success of either of the parties or an interest against both or when he is so situated as to be
adversely affected by a distribution or other disposition of property in the custody of the court or of an
officer thereof Paragraph (b) of the same section directs what matters are to be considered in exercising
discretion to allow or disallow a motion for intervention, which are whether or not the intervention will
unduly delay or prejudice the adjudication of the rights of the original parties and whether or not the
intervenor's rights may be fully protected in a separate proceeding. Clearly, for the Court to permit
intervention, it must be shown that movant is possessed of legal interest in the matter in litigation or
otherwise qualified under the first paragraph of Section 2, and the Court must also consider the matters
mentioned in paragraph (b) thereof. The latter are not and should not be taken as secondary to the
former for both must concur since they are equally important, requisite and necessary for consideration
in the exercise of discretion by the Court to allow or disallow intervention. We cannot invest nor render
primary or secondary importance to either of 'these requirements for the law does not make any
distinction. Each case must be decided according to its facts and merits, subject to the discretion of the
Court.
From the particular facts and circumstances of the case at bar, We are satisfied that the respondent
Judge has not abused his discretion in denying petitioner's Motion to Intervene. We agree with the
holding of the respondent Court that since movant Ivor Robert Dayton Gibson appears to be only one of
several re-insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly
probable that other re-insurers may likewise intervene. The record shows that aside from the petitioner
there are sixty-three (63) other syndicate members of Lloyds, the twenty-six (26) companies in the
"I.L.U." group holding a 34.705% reinsurance interest and the two (2) "Other Companies" holding the
balance of the reinsurances, as listed in Annex "A", Sur-Rejoinder to Lepanto's Rejoinder, pp. 136-138,
Records. The high probability that these other re-insurers like the petitioner herein may likewise
intervene if the latter's motion is granted is not an arbitrary assumption of the Court. Considering
petitioner's assertion that he will have the opportunity to show, among others, that the losses and
damages purportedly sustained by Lepanto occurred not from the perils of the seas but from perils of
the ships; that Lepanto is not the real party in interest; that it has no cause of action; and, neither has it
complied with its obligations under the policy which makes the filing of the complaint premature (p.
118, Records, Reply to Opposition) if petitioner is allowed to intervene, We hold that there is good and
sufficient basis for the Court a quo to declare that the trial between Lepanto and Malayan would be
definitely disrupted and would certainly unduly delay the proceedings between the parties especially at
the stage where Lepanto had already rested its case and that the issues would also be compounded as
more parties and more matters will have to be litigated. In other words, the Court's discretion is justified
and reasonable.
We also hold that respondent Judge committed no reversible error in further sustaining the fourth
ground of Lepanto's Opposition to the Motion to Intervene that the rights, if any, of petitioner are not
prejudiced by the present suit and will be fully protected in a separate action against him and his co-
insurers by Malayan.
Petitioner contends that this rights would not be fully protected in a separate proceeding because "(a)
decision in favor of Lepanto, declaring Malayan liable on its insurance policies would necessarily and
injuriously affect the interests of petitioner, (which) interest as a re-insurer of Malayan's risk is not only
indicate but material, direct and immediate and for such interest to be in any manner prejudiced
without first giving petitioner a chance to be heard would be violative of due process. Upon the other
hand, a decision in favor of Malayan, recognizing it as not liable under its insurance policies, could
subject petitioner to the danger of having to admit that Malayan had not breached its insurance
contract with the entity (Lloyds) of which petitioner is the leading syndicate member." (Petitioner's
Memorandum p. 230, Records). Petitioner also asserts that "by the very nature of a contract of
reinsurance and considering that the re-insurer is obliged 'to pay as may be paid thereon' (referring to
the original policies), although this is subject to other stipulations and conditions of the reinsurance
contract, it will serve better the ends of justice if a full disclosure of all pertinent facts and issues is made
with the participation of the movant at this trial where his interests have been and are already inevitably
at stake." (Petition, p. 18, Records)
On the contrary, Lepanto insists that petitioner will have his day in court and his rights can be fully
protected in a separate proceeding. According to Lepanto, if it loses the case against Malayan, petitioner
cannot possibly be liable to Malayan for indemnity on the reinsurances. If Lepanto wins, then petitioner,
the sixty-three (63) other syndicate members of Lloyds, the twenty-six (26) companies in the "I.L.U."
group holding a 34.705% reinsurance interest and the two (2) "Other Companies" holding the balance of
the reinsurances are free either to pay Malayan or to resist Malayan and thus force Malayan to sue in
whatever country most of them, qualitatively and not quantitatively, may be served with summons.
Petitioner's contention that he has to pay once Malayan is finally adjudged to pay Lepanto because of
the very nature of a contract of reinsurance and considering that the re-insurer is obliged 'to pay as may
be paid thereon' (referring to the original policies), although this is subject to other stipulations and
conditions of the reinsurance contract, is without merit. The general rule in the law of reinsurance is
that the re-insurer is entitled to avail itself of every defense which the re-insured (which is Malayan)
might urge in an action by the person originally insured (which is Lepanto). Specifically, the rule is stated
thus
"Sec. 1238. In an action on a contract of reinsurance, as a general rule the reinsurer is entitled to avail
itself of every defense which the reinsured might urge in an action by the person originally insured; . . ."
The same rule is stated otherwise in 44 Am. Jur. 2d, Sec. 1862, p. 793, as follows:
"Moreover, where an action is brought against the reinsurer by the reinsured, the former may assert
any defense that the latter might have made in an action on the policy of original insurance." (Eagle Ins.
Co. vs. Lafayette Ins. Co., 91 Ind. 443)
As to the effect of the clause "to pay as may be paid thereon" contained in petitioner's re-insurance
contract, Arnould, on the Law of Marine Insurance and Average, 13th Ed., Vol. 1, Section 327, p. 315,
states the rule, thus:
"It has been decided that this clause does not preclude the reinsurer from insisting upon proper proof
that a loss strictly within the terms of the original policy has taken place."
"This clause does not enable the original underwriter to recover from his re-insurer to an extent beyond
the subscription of the latter."
It is significant and revealing that petitioner himself admits in his Memorandum, p. 231, Records, that
"(o)f course, petitioner, if finally sued in London, (he) could avail himself of remedies available to him."
He adds that "such a procedure, if not entirely time-consuming, would actually beg the issue on hand.
Petitioner believes that his defenses on the claims ventilated in the court a quo can be appreciated only
here; elsewhere in view of the peculiar circumstances surrounding Lepanto's claims the basic issue will
be obfuscated and perhaps even obliterated by arguments on procedural niceties." However, such a
procedural problem is no legal ground to compel allowance of and insist on his intervention.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby dismissed. No costs.
SO ORDERED.
28. [1987V293] NORMAN NODA, petitioner, vs. HONORABLE GREGORIA CRUZ-ARNALDO, in her
capacity as Insurance Commissioner, and ZENITH INSURANCE CORPORATION,
respondents.1987 Jun 222nd DivisionG.R. No. L-57322D E C I S I O N
FERNAN, J.:
This is a petition to review the decision of the Insurance Commissioner in I.C. No. 1070, entitled
"Norman Noda vs. Zenith Insurance Corporation" regarding the enforcement of two fire insurance
policies.
In 1977, petitioner Norman R. Noda obtained from respondent Zenith Insurance Corporation, through
its general agent, Alico General Insurance Agency, two fire insurance policies [1] No. F-03724 with a face
value of P30,000 covering the goods and stocks in trade in his business establishment at the market site
in Mangagoy, Bislig, Surigao del Sur for the period from March 3, 1977 to March 3, 1978 and [2] No. F-
03734 with a face value in the aggregate amount of P100,000 for the period from May 10, 1977 to May
10, 1978 and consisting of Item 1 for P40,000 on household furniture, fixtures, fittings and other
personal effects, and Item 2 for P60,000 on stocks in trade usual to petitioner's retail business situated
in a two-storey building at 039 Barreda St., also in Mangagoy, Bislig, Surigao del Sur, the ground floor of
which the petitioner used as store and the second floor as family quarters. 1
While both policies were in force, fire destroyed petitioner's insured properties at the market site on
September 5, 1977 and at Barreda St. on November 9, 1977. When petitioner failed to obtain indemnity
on his claims from respondent Zenith, he filed a complaint with the Insurance Commission on October 6,
1978 praying that respondent company be ordered to pay him "the sum of P130.000 representing the
value of the two [2] policies insured by respondent with interest at 12% per annum, plus damages,
attorney's fees and other expenses of litigation . . . ."
In its answer Zenith interposed that petitioner had no cause of action; that Policy No. F-03724 was not in
full force and effect at the time of the fire because the premium on the policy was not paid; that Zenith's
liability under Policy No. F-03734, if any, was limited to P15,472.50 in view of the co-insurance; and that
petitioner failed to substantiate his claim as to the value of the goods reputedly destroyed by fire and
consequently, Zenith could not be held answerable for the same.
While the case was pending with the Insurance Commission, Zenith, on March 4, 1980, settled
petitioner's fire loss claim under Item 1 of Policy No. 03734 in the amount of P15,472.50. 4
On March 3, 1981, the Insurance Commissioner rendered the assailed decision. Brushing aside as
unfounded Zenith's allegation that Policy No. F-03734 was ineffectual because of non-payment of
premium, respondent Commissioner allowed petitioner to recover under said policy and ordered Zenith
to pay him the amount of P20,000 with legal interest from the date the complaint was filed, including
P1,000 as attorney's fees but excluding the actual, moral and exemplary damages prayed for. 5 As for
petitioner's claim under Policy No. F-03734, she held that in view of the payment of P15,472.50 to
petitioner, Zenith had fully discharged its liability under said policy which covered furniture, fixtures,
fittings and other personal belongings of petitioner.
It must be noted that in allowing recovery under Policy No. F-03734, respondent Commissioner placed
much weight on the final report prepared by Dela Merced Adjustment Corporation, an independent fire,
marine and casualty adjuster contracted by Zenith to investigate the claims of its various policyholders.
Said report concluded that "the sound value of P26,666.67 represent[ed] the whole loss and damage"
incurred by petitioner, but with the application of the three-fourths loss clause, Zenith's liability was
reduced to P20,000. 6
Maintaining that respondent Commissioner failed to take into account that there were two separate
items under Policy No. F-03734 and that his P60,000 claim under Item 2, covering stocks in trade at
Barreda Street, still remained unresolved despite payment to him of P15,472.50, petitioner asked for a
reconsideration. Upon its denial, petitioner filed the instant petition for certiorari contending that the
Insurance Commissioner erred [1] in finding that with Zenith's payment of P15,472.50 under Policy No.
F-03734, that aspect of petitioner's claim had been fully settled, leaving only the claim of P30,000 under
Policy No. 03724 unsatisfied; [2] in denying petitioner's demand for P60,000 under Item 2 of Policy No.
F-03734 and [3] in not awarding in favor of petitioner exemplary damages for Zenith's unjustified and
wanton refusal to pay petitioner's claim under the said two insurance contracts. Petitioner did not
dispute in his appeal the award of P20,000 under Policy No. F-03724 and the denial of actual and moral
damages.
Zenith has admitted in its comment on the petition that its payment of P15,472.50 was only in
satisfaction of petitioner's claim under Item 1 of Policy No. F-03734. What is now in contention before
us is petitioner's claim under Item 2 of that policy which respondent Commissioner rejected because
petitioner allegedly relied merely on the report of Zenith's adjuster without bothering to produce
supporting documents indicating that he had made several purchases and suffered immense losses by
reason of the fire.
We find that respondent Commissioner acted with grave abuse of discretion when she denied
petitioner's claim for indemnity under Policy No. F-03734 because of what she perceived as insufficient
proof.
To prove the existence of the stocks in trade covered by Policy No. F-03734, petitioner offered his
testimony and that of his wife as well as documentary exhibits. 7 The foregoing evidence for petitioner
preponderantly showed the presence of some P590,000 worth of goods in his retail store during the fire
of November 9, 1977.
While the insurer, and the Insurance Commissioner for that matter, have the right to reject proofs of
loss if they are unsatisfactory, they may not set up for themselves an arbitrary standard of satisfaction.
Substantial compliance with the requirements will always be deemed sufficient. 8
More significantly, this Court has observed that respondent Zenith introduced in evidence the final
report on Policy No. F-03734 submitted by its own adjuster, Dela Merced Adjustment Corporation. 9
Respondent Commissioner however ignored such report, reasoning that with regard to Item 2 of Policy
No. F-03734, the claim for loss of the stocks in trade was not successfully proven in view of petitioner's
failure to present evidence; that the adjuster's report deserved scant consideration since the allegations
therein were not substantiated, and that said report did not even make a recommendation for payment.
We disagree. A scrutiny of the above mentioned adjuster's report reveals that together with the formal
demand for full indemnity, petitioner submitted his income tax return for 1978, purchase invoices,
certification from his suppliers as to his purchases, and other supporting papers. The report even took
into account the appraisals of the other adjusters and concluded that the total loss sustained by
petitioner in his household effects and stocks in trade reached P379,302.12. But after apportioning said
amount among petitioner's six different insurers [the co-insurance being known to Zenith], the liability
of Zenith was placed at P60,592.10. It therefore recommended that Zenith pay the petitioner the
amount of P60,592.10.
Indeed, petitioner had every reason to expect that respondent Commissioner would give equal weight
and credence to the adjuster's report [on Policy No. F-03734] as she had done with the other. After all,
said document was offered as evidence by Zenith itself and could very well be considered as an
admission of its liability up to the amount recommended. It would have been pointless for Zenith to
have introduced said report as its evidence if it did not agree with its findings and ultimate proposals.
Being in the nature of an admission against interest, it is the best evidence which affords the greatest
certainty of the facts in dispute. 10 Respondent Commissioner should not have perfunctorily dismissed
that particular evidence as a worthless piece of paper.
We are convinced that petitioner has satisfactorily established his claim for indemnity under Policy No.
F-03734. In that respect, judgment was improperly rendered against him and the same must accordingly
be modified.
The denial of petitioner's demand for exemplary damages by respondent Commissioner must, however,
be sustained. There is no showing that Zenith, in contesting payment, had acted in a wanton, oppressive
or malevolent manner to warrant the imposition of corrective damages. 11
WHEREFORE, judgment is hereby rendered ordering respondent Zenith Insurance Corporation to pay
petitioner Norman R. Noda the sum of P60,592.10 with legal interest from the filing of the complaint
until full payment, but deducting therefrom the amount of P15,472.50 which it had earlier paid to
petitioner.
SO ORDERED.
29. [1990V20] ZENITH INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and
LAWRENCE FERNANDEZ, respondents.1990 May 141st DivisionG.R. No. 85296D E C I S I O N
MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled,
"Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant" which
affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No. CEB-1215
and the denial of petitioner's Motion for Reconsideration.
The antecedent facts are as follows:
On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage" under
private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the car
figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedly being
given a run around by Zenith for two (2) months, Fernandez filed a complaint with the Regional Trial
Court of Cebu for sum of money and damages resulting from the refusal of Zenith to pay the amount
claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside from actual damages and
interests, Fernandez also prayed for more damages in the amount of P10,000.00, exemplary damages of
P5,000.00, attorney's fees of P3,000.00 and litigation expenses of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected. After the
issues had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved to
November 4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case although at an
amount lower than private respondent's claim. On November 14, 1983, the trial court terminated the
pre-trial. Subsequently, Fernandez presented his evidence. Petitioner Zenith, however, failed to present
its evidence in new of its failure to appear in court, without justifiable reason, on the day scheduled for
the purpose. The trial court issued an order on August 23, 1984 submitting the case for decision without
Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a petition for certiorari with the Court of Appeals
assailing the order of the trial court submitting the case for decision without petitioner's evidence. The
petition was docketed as C.A.-G.R. No. 04644. However, the petition was denied due course on April 29,
1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered by the trial court in favor of private respondent Fernandez.
The dispositive portion of the trial court's decision provides:
"WHEREFORE, defendant is hereby ordered to pay to the plaintiff:.
1. The amount of P3,640.00 representing the damage incurred plus interest at the rate of twice the
prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs." (p. 9, Rollo)
Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June 20,
1986, ordered the execution of the decision pending appeal. The order was assailed by petitioner in a
petition for certiorari with the Court of Appeals on October 23, 1986 in C.A. G.R No. 10420 but which
petition was also dismissed on December 24, 1986 (p. 69, Rollo).
On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was
granted in the same order granting private respondent's motion for execution pending appeal. The
appeal to respondent court assigned the following errors:
"I. The lower court erred in denying defendant appellant to adduce evidence in its behalf.
II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount of P3,640.00 in
its decision.
III. The lower court erred in awarding moral damages, attorney's fees and exemplary damages, the
worst is that, the court awarded damages more than what are prayed for in the complaint." (p. 12,
Rollo)
On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the trial
court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduce evidence is a
closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition questioning the trial
court's order submitting the case for decision without Zenith's evidence, was dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was
denied on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on
October 18, 1988 on the allegation that respondent Court of Appeals' decision and resolution ran
counter to applicable decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:
a) The legal basis of respondent Court of Appeals in awarding moral damages, exemplary damages
and attorney's fees in an amount more than that prayed for in the complaint.
b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was arrived at after
deducting P250.00 and P274.00 as deductible franchise and 20% depreciation on parts as agreed upon
in the contract of insurance.
Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral
damages, the lower court awarded twice the amount, or P20,000.00 without factual or legal basis; while
private respondent prayed for P5,000.00 exemplary damages, the trial court awarded P20,000.00; and
while private respondent prayed for P3,000.00 attorney's fees, the trial court awarded P5,000.00.
The propriety of the award of moral damages, exemplary damages and attorney's fees is the main issue
raised herein by petitioner.
The award of damages in case of unreasonable delay in the payment of insurance claims is governed by
the Philippine Insurance Code, which provides:
"SEC. 244. 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 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."
It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the proceeds
of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other expenses
incurred by the insured person by reason of such unreasonable denial or withholding of payment; 3)
interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim due the
injured; and 4) the amount of the claim.
As regards the award of moral and exemplary damages, the rules under the Civil Code of the Philippines
shall govern.
"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction.
Moral damages are emphatically not intended to enrich a complainant at the expense of a defendant,
they are awarded only to enable the injured party to obtain means, diversions or amusements that will
serve to alleviate the moral suffering he has undergone by reason of the defendant's culpable action." (J.
Cezar S. Sangco, Philippine Law on Torts and Damages, Revised Edition, p. 539) (See also R and B Surety
& Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22, 1984; 129 SCRA 745). While it is true that no proof
of pecuniary loss is necessary in order that moral damages may be adjudicated, the assessment of which
is left to the discretion of the court according to the circumstances of each case (Art. 2216, New Civil
Code), it is equally true that in awarding moral damages in case of breach of contract, there must be a
showing that the breach was wanton and deliberately injurious or the one responsible acted fraudently
or in bad faith (Perez v. Court of Appeals, G.R. No. L-20238, January 30, 1965; 13 SCRA 137; Solis v.
Salvador, G.R. No. L-17022, August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that
private respondent was given a "run-around" for two months, which is the basis for the award of the
damages granted under the Insurance Code for unreasonable delay in the payment of the claim.
However, the act of petitioner of delaying payment for two months cannot be considered as so wanton
or malevolent to justify an award of P20,000.00 as moral damages, taking into consideration also the
fact that the actual damage on the car was only P3,460. In the pre-trial of the case, it was shown that
there was no total disclaimer by respondent. The reason for petitioner's failure to indemnify private
respondent within the two-month period was that the parties could not come to an agreement as
regards the amount of the actual damage on the car. The amount of P10,000.00 prayed for by private
respondent as moral damages is equitable.
On the other hand, exemplary or corrective damages are imposed by way of example or correction for
the public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-Arnaldo, G.R.
No. 57322, June 22, 1987; 151 SCRA 227, exemplary damages were not awarded as the insurance
company had not acted in wanton, oppressive or malevolent manner. The same is true in the case at
bar.
The amount of P5,000.00 awarded as attorney's fees is justified under the circumstances of this case
considering that there were other petitions filed and defended by private respondent in connection with
this case.
As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been
established before the trial court and affirmed by the appellate court. Respondent appellate court
correctly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had no basis.
Respondent court ruled:
"Under its second assigned error, defendant-appellant puts forward two arguments, both of which are
entirely without merit. It is contented that the amount recoverable under the insurance policy
defendant-appellant issued over the car of plaintiff-appellee is subject to deductible franchise, and . . .
"The policy (Exhibit G, pp. 4-9, Record), does not mention any deductible franchise, . . ." (p. 13, Rollo)
Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary damages
is hereby deleted. The awards due to private respondent Fernandez are as follows:
1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the Monetary Board
computed from the time of submission of proof of loss;
2) P10,000.00 as moral damages;
3) P5,000.00 as attorney's fees;
4) P3,000.00 as litigation expenses and
5) Costs
ACCORDINGLY, the appealed decision is MODIFIED as above stated.
SO ORDERED.
30. [1989V452] CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE
SOCIETY OF CANTON, LTD., PARAMOUNT INSURANCE CORP., PHILIPPINE BRITISH INSURANCE
CO., & PHILIPPINE FIRST INSURANCE CO., petitioners, vs. HON. COURT OF APPEALS & EMILIA
CHAN LUGAY, respondents.1989 Jun 51st DivisionG.R. No. 85624D E C I S I O N
GRIO-AQUINO, J.:
It has been the sad experience of many who sought protection from disaster or tragedy through
insurance, to realize that insurance is quite easy to buy but difficult to collect. Insurance companies are
prone to invent excuses to avoid their just obligations (American Home Ins. Co. vs. Court of Appeals, 109
SCRA 180). This case is one such instance.
Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in broad daylight, she
is still waiting to collect the proceeds of seven (7) fire policies which the petitioners sold to her.
The petitioners are the six (6) insurance companies that issued fire insurance policies for the total sum
of P4,000,000 to the Cebu Filipina Press of Cebu City, as follows:
1. Cathay Insurance Company for P1,000,000 under Fire Insurance Policy No. F-31056 dated June 10,
1981 renewing Policy No. F-27942 (Exh. B-5), covering the period from June 20, 1981 to June 20, 1982
(Exh. B);
2. Empire Insurance Company for P600,000 under Fire Insurance Policy No. YASCO/F-1101 dated
March 7, 1981, renewing Policy No. F-1096 (Exh. C-5), covering the period from March 19, 1981 to
March 19, 1982 (Exh. C);
3. Union Insurance Society of Canton, Ltd, for P600,000 under Fire Insurance Policy No: NU-0530
dated May 5, 1981, renewing Policy No. MU-223903 (Exh. D-5), covering the period from May 21, 1981
to May 21, 1982 (Exh. D);
4. Paramount Insurance Corp. for P500,000 under Fire Insurance Policy No. 25311 dated July 1, 1981,
covering the period from July 15, 1981 to July 15, 1982 (Exh. E);
5. Philippine British Insurance Company for P600,000 under Fire Insurance Policy No. PB-107861 dated
July 6, 1981, renewing Policy No. PB-933 11 (Exh. F-5), covering the period from July 10, 1981 to July 10,
1982 (Exh. F).
6. Philippine British Insurance Company for P600,000 under another Fire Insurance Policy No. PB-
107848 dated July 1, 1981, renewing Policy No. PB-102653 (Exh G-5), covering the period from July 5,
1981 to July 6, 1982 (Exh. G); and
7. Philippine First Insurance Company for P600,000 under Fire Insurance Policy No. CEB-G-0515 dated
January 28, 1981, covering the period from February 16, 1981 to February 16, 1982 (Exh. H). (p. 76,
Rollo.)
The fire policies described the insured property as "stocks of printing materials, papers and general
merchandise usual to the Assured's trade" (p. 53, Rollo) stored in a one-storey building of strong
materials housing the Cebu Filipina Press located at UNNO Pres. Quirino cor. Don V. Sotto Sts.,
Mabolo, Cebu City. The co-insurers were indicated in each of the policies. All, except one policy
(Paramount's), were renewals of earlier policies issued for the same property.
On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina Press was razed by
electrical fire together with all the stocks and merchandise stored in the premises.
On January 15, 1982, Mrs. Lugay, owner and operator of the printing press, submitted sworn
Statements of Loss and Formal Claims to the insurers, through their adjusters. She claimed a total
1099 of P4,595,000.
She submitted proofs of loss required by the adjusters. After nearly ten (10) months of waiting for the
insurers to pay her claim, she sued to collect on December 15, 1982. The insurance companies denied
liability, alleging violation of certain conditions of the policy, misdeclaration, and even arson which
was not seriously pressed for, come the pre-trial, the petitioners offered to pay 50% of her claim, but
she insisted on full recovery.
After the trial on the merits, the court rendered judgment in her favor, as follows:
". . . directing payment by Cathay Insurance Company, Inc., the amount of P1,000,000, by Empire the
amount of P500,000.00, by Union Insurance Society of Canton Limited the amount of P500,000.00, by
Paramount Insurance Company, the amount of P500,000.00, by Philippine British Insurance Company,
Inc., the amount of P500,000.00, by Philippine First Insurance Company, Inc., the amount of
P500,000.00 and by the Philippine British Insurance the amount of P500,000.00; for all the defendants
jointly and severally to pay P48,000.00 representing expenses of the plaintiff, and a separate amount of
20% of the P4,000,000.00 representing fees of counsel; and interests at the rate of twice the ceiling
being prescribed by the Monetary Board starting from the time when the case was filed; and finally,
with costs. (Decision, Court of Appeals, pp. 1-3.)" (p. 77, Rollo.)
On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67, Rollo). Hence, this
petition for review under Rule 45 of the Rules of Court wherein the petitioners allege that the Court of
Appeals erred:
1. in holding that the private respondent's cause of action had already accrued when the complaint
was filed on December 16, 1982 and in not holding that the action is premature;
2. in finding that sufficient proofs of loss had been presented by the private respondent;
3. in not holding that the private respondent's claim for loss was inflated;
4. in awarding damages to the private respondent in the form of interests equivalent to double the
interest ceiling set by the Monetary Board despite absence of a finding of unreasonable withholding or
refusal to pay the claim; and
5. in awarding exorbitant attorney's fees.
It is plain to see that all these grounds of the petition for review present factual issues which, in view of
the provision in Section 2, Rule 45 of the Rules of Court that "only questions of law may be raised" this
Court may not inquire into by conducting a tedious reassessment of the "maze of testimonial and
documentary evidence" (p. 57, Rollo) of the parties. Referring to the evidence presented at the trial of
this case, the Court of Appeals said:
"We are impressed indeed with the patience, diligence and perseverance of the trial judge in wading
through the voluminous documents, making an exhaustive examination and detailed evaluation of the
evidence, and thus emerging from the maze of testimonial and documentary evidence with accuracy of
perception in determining the merits of the respective claims of the litigants. Accordingly, We are
constrained to honor and stamp our imprimatur to the findings of fact and conclusions of the trial court
since, admittedly, it was in a better position than We are to examine the real evidence, as well as to
observe the demeanor of the witnesses while testifying in the case (Chase vs. Buencamino, Sr., 136 SCRA
365)." (p. 57, Rollo.)
The finding of the trial court and the Court of Appeals that the insured's cause of action had already
accrued before she filed her complaint is supported by Section 243 of the Insurance Code which fixes a
maximum period of 90 days after receipt of the proofs of loss by the insurer for the latter to pay the
insured's claim.
"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 . . ." (Insurance Code.)
As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981 and the proofs of
loss were submitted from January 15, 1982 through June 21, 1982 in compliance with the adjusters'
numerous requests for various documents, payment should have been made within 90 days thereafter,
or on or before September 21, 1982. Hence, when the assured filed her complaint on December 15,
1982, her cause of action had already accrued.
There is no merit in the petitioners' contention that the proofs of loss were insufficient because
respondent Emilia Chan Lugay failed to comply with the adjuster's request for the submission of her
bank statements. Condition No. 13 of the insurance policy on proofs of loss, provides:
"13. The insured shall give immediate written notice to the company of any loss, protect the property
from further damage, forthwith separate the damaged and undamaged personal property, put it in the
best possible order, furnish a complete inventory of the destroyed damaged and undamaged property,
showing in detail quantities, costs, actual cash value and the amount of loss claimed; AND WITHIN SIXTY
DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED
SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed and sworn to by the insured, stating the
knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of
the insured and of all others in the property, the actual cash value of each item thereof and the amount
of loss therein, all encumbrances thereon, all other contracts of insurance, whether valid or not covering
any of said property, any changes in the title, use, occupation, location, possession or exposures of said
property since the issuing of this policy, by whom and for what purpose any buildings herein described
and the several parts thereof were occupied at the time of the loss and whether or not they stood on
leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if
required, verified plans and specifications of any building, fixtures or machinery destroyed or damaged.
The insured as often as may be reasonably required shall exhibit to any person designated by the
Company all that remains of any property therein described, and submit to examination under oath by
any person named by the Company, and subscribe the same; as often as may be reasonably required,
shall produce for examination all books of account, bills, invoices, and other vouchers, or certified copies
thereof if originals be lost. At such reasonable time and place as may be designated by the Company or
its representative, and shall permit extracts and copies thereof to be made.
"No claim under this policy shall be payable unless the terms of this condition have been complied
with." (pp. 55-56, Rollo.)
Condition No. 13, as the Court of Appeals observed, does not require the insured to produce her bank
statements. Therefore, the insured was not obligated to produce them and the insurers had no right to
ask for them. Condition No. 13 was prepared by the insurers themselves, hence, it "should be taken
most strongly" (p. 58, Rollo) against them.
The Court of Appeals found that the insured "fully complied with the requirements of Condition No. 13"
(p. 58, Rollo). The adjuster's demand for the assured's bank statements (which under the law on the
secrecy of bank deposits, she need not disclose) would add more requirements to Condition No. 13 of
the insurance contract, and, as pointed out by the Appellate Court, "would amount to giving the insurers
limitless latitude in making unreasonable demands if only to evade and avoid liability" (p. 58, Rollo).
Nor was the claim inflated. Both the trial court and the Court of Appeals noted that the proofs were
ample and "more than enough . . . for defendants (insurers) to do a just assessment supporting the 1981
fire claim for an amount exceeding four million pesos" (p. 60, Rollo).
The trial court's award (which was affirmed by the Court of Appeals) of double interest on the private
respondent's claim is lawful and justified under Sections 243 and 244 of the Insurance Code which
provide:
"Sec. 243 . . . 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, . . ."
"Sec. 244. 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 unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of claim due the insured, . . ." (p. 66, Rollo.)
Section 243 of the Insurance Code is in fact embodied in provision No. 29 of the policies issued by the
petitioners to the private respondents (p. 82, Rollo).
The petitioners' contention that the charging of double interest was improper because no unreasonable
delay in the processing of the fire claim was proven, is refuted by the trial court's explicit finding that
"there was a delay that was not reasonable in processing the claim and doing payments" (p. 81, Rollo).
Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by
the failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the
Insurance Code.
As provided in Section 244 also, by reason of the delay and the consequent filing of this suit by the
insured, the insurers "shall be adjudged to pay damages which shall consist of attorney's fees and other
expenses incurred by the insured." In view of the not insubstantial value of the private respondent's
claims and the considerable time and effort expended by them and their counsel in prosecuting these
claims for the past eight (8) years, We hold that attorney's fees were properly awarded to the private
respondents. However, an award equivalent to ten (10%) percent of the proceeds of the policies would
be more reasonable than the 20% awarded by the trial court and the Appellate Court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is affirmed, except the award
of attorney's fees to the private respondents which is hereby reduced to ten (10%) percent of the
proceeds of the insurance policies sued upon. Costs against the petitioners.
SO ORDERED.
31. [1991V193] SUN INSURANCE OFFICE, LTD., petitioner, vs. COURT OF APPEALS and EMILIO TAN,
respondents.
Alfonso Felix, Jr., for petitioner.
William B. Devilles for private respondent.1991 Mar 132nd DivisionG.R. No. 89741D E C I S I O N
PARAS, J.:
This is a petition for review on certiorari of the June 20, 1989 decision 1 of the Court of Appeals in CA-
G.R. SP. Case No. 13848 affirming the November 3, 1987 and January 14, 1988 Orders of the Regional
Trial Court 2 of Iloilo, Branch 27, in Civil Case No. 16817, denying the motion to dismiss and the
subsequent motion for reconsideration; and the August 22, 1989 resolution of the same court denying
the motion for reconsideration.
On August 15, 1983, herein private respondent Emilio Tan took from herein petitioner a P300,000.00
property insurance policy to cover his interest in the electrical supply store of his brother housed in a
building in Iloilo City. Four (4) days after the issuance of the policy, the building was burned including the
insured store. On August 20, 1983, Tan filed his claim for fire loss with petitioner, but on February 29,
1984, petitioner wrote Tan denying the latter's claim. On April 3, 1984, Tan wrote petitioner, seeking
reconsideration of the denial of his claim. On September 3, 1985, Tan's counsel wrote the Insurer
inquiring about the status of his April 3, 1984 request for reconsideration.
Petitioner answered the letter on October 11, 1985, advising Tan's counsel that the Insurer's denial of
Tan's claim remained unchanged, enclosing copies of petitioners' letters of February 29, 1984 and May
17, 1985 (response to petition for reconsideration). On November 20, 1985, Tan filed Civil Case No.
16817 with the Regional Trial Court of Iloilo, Branch 27 but petitioner filed a motion to dismiss on the
alleged ground that the action had already prescribed. Said motion was denied in an order dated
November 3, 1987; and petitioner's motion for reconsideration was also denied in an order dated
January 14, 1988.
Petitioner went to the Court of Appeals and sought the nullification of the said Nov. 3, 1987 and January
14, 1988 orders, but the Court of Appeals, in its June 20, 1989 decision denied the petition and held that
the court a quo may continue until its final termination.
A motion for reconsideration was filed, but the same was denied by the Court of Appeals in its
resolution of August 22, 1989 (Rollo, pp. 42-43).
Hence, the instant petition.
The Second Division of this Court, in its resolution of December 18, 1989 resolved to give due course to
the petition and to require the parties to submit simultaneous memoranda (Ibid., p 56).
Petitioner raised two (2) issues which may be stated in substance, as follows:
I
WHETHER OR NOT THE FILING OF A MOTION FOR RECONSIDERATION INTERRUPTS THE TWELVE (12)
MONTHS PRESCRIPTIVE PERIOD TO CONTEST THE DENIAL OF THE INSURANCE CLAIM; and.
II
WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL ONLY IF IT CONTAINS
WORDS TO THE EFFECT THAT THE DENIAL IS FINAL.
The answer to the first issue is in the negative.
While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed
liberally in favor of the insured and strictly against the insurer company, yet, contracts of insurance, like
other contracts, are to be construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense (Pacific Banking Corp. v. Court of Appeals, 168 SCRA 1[1988]).
Condition 27 of the Insurance Policy, which is the subject of the conflicting contentions of the parties,
reads:
"27. Action or suit clause If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or in any court of competent jurisdiction within twelve (12) months
from receipt of notice of such rejection, or in case of arbitration taking place as provided herein, within
twelve (12) months after due notice of the award made by the arbitrator or arbitrators or umpire, then
the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be
recoverable hereunder."
As the terms are very clear and free from any doubt or ambiguity whatsoever, it must be taken and
understood in its plain, ordinary and popular sense pursuant to the above-cited principle laid down by
this Court.
Respondent Tan, in his letter addressed to the petitioner insurance company dated April 3, 1984 (Rollo,
pp. 50-52), admitted that he received a copy of the letter of rejection on April 2, 1984. Thus, the 12-
month prescriptive period started to run from the said date of April 2, 1984, for such is the plain
meaning and intention of Section 27 of the insurance policy.
While the question of whether or not the insured was definitely advised of the rejection of his claim
through the letter (Rollo, pp. 48-49) of petitioner dated February 29, 1984, may arise, the certainty of
the denial of Tan's claim was clearly manifested in said letter, the pertinent portion of which reads:
"We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz, Iloilo City.
"We now have the report of our adjusters and after a thorough and careful review of the same and the
accompanying documents at hand, we are rejecting, much to our regrets, liability for the claim under
our policies for one or more of the following reasons:
1. . . .
2. . . .
"For your information, we have referred all these matters to our lawyers for their opinion as to the
compensability of your claim, particularly referring to the above violations. It is their opinion and in fact
their strong recommendation to us to deny your claim. By this letter, we do not intend to waive or
relinquish any of our rights or defenses under our policies of insurance."
It is also important to note the principle laid down by this Court in the case of Ang v. Fulton Fire
Insurance Co., (2 SCRA 945 [1961]), to wit:
"The condition contained in an insurance policy that claims must be presented within one year after
rejection is not merely a procedural requirement but an important matter essential to a prompt
settlement of claims against insurance companies as it demands that insurance suits be brought by the
insured while the evidence as to the origin and cause of destruction have not yet disappeared."
In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity
of bringing suits against the Insurer within one year from the rejection of the claim. The contention of
the respondents that the one-year prescriptive period does not start to run until the petition for
reconsideration had been resolved by the insurer, runs counter to the declared purpose for requiring
that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from
the denial of the claim.
To uphold respondents' contention would contradict and defeat the very principle which this Court had
laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time until
any evidence which may be considered against them is destroyed.
It is apparent that Section 27 of the insurance policy was stipulated pursuant to Section 63 of the
Insurance Code, which states that:
"Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of
action accrues, is void."
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent's view, two rulings of this Court have been cited, namely, the case of
Eagle Star Insurance Co. vs. Chia Yu (96 Phil. 696 [1955]), where the Court held:
"The right of the insured to the payment of his loss accrues from the happening of the loss. However,
the cause of action in an insurance contract does not accrue until the insured's claim is finally rejected
by the insurer. This is because before such final rejection there is no real necessity for bringing suit."
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:
"Since 'cause of action' requires as essential elements not only a legal right of the plaintiff and a
correlated obligation of the defendant in violation of the said legal right, the cause of action does not
accrue until the party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this
case to pay the amount of the bond)."
Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured's
cause of action or his right to file a claim either in the Insurance Commission or in a court of competent
jurisdiction commences from the time of the denial of his claim by the Insurer, either expressly or
impliedly.
But as pointed out by the petitioner insurance company, the rejection referred to should be construed
as the rejection, in the first instance, for if what is being referred to is a reiterated rejection conveyed in
a resolution of a petition for reconsideration, such should have been expressly stipulated.
Thus, to allow the filing of a motion for reconsideration to suspend the running of the prescriptive
period of twelve months, a whole new body of rules on the matter should be promulgated so as to avoid
any conflict that may be brought by it, such as:
a) whether the mere filing of a plea for reconsideration of a denial is sufficient or must it be supported
by arguments/affidavits/ material evidence;
b) how many petitions for reconsideration should be permitted?
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the same cannot
be taken to mean the rejection of a petition for reconsideration as insisted by respondents. Such was
clearly not the meaning contemplated by this Court. The Insurance policy in said case provides that the
insured should file his claim, first, with the carrier and then with the insurer.
The "final rejection" being referred to in said case is the rejection by the insurance company.
PREMISES CONSIDERED, the questioned decision of the Court of Appeals is REVERSED and SET ASIDE,
and Civil Case No. 16817 filed with the Regional Trial Court is hereby DISMISSED.
SO ORDERED.
32. [1996V537] RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and
TRANSOCEAN TRANSPORT CORPORATION, respondents.1996 Aug 283rd DivisionG.R. No.
96727PANGANIBAN, J.:
Was a trust relationship established between an insurer and the two insureds over the balance of the
insurance proceeds being held by the insurer for the account of the two insureds, pending a final
settlement by and between the two insureds of their respective claims to said proceeds? Can the insurer
whether or not considered a trustee be held liable for interest on the said insurance proceeds, which
proceeds the said insurer failed or neglected to deposit in an interest-bearing account, contrary to the
specific written instructions of the two insureds? And should attorney's fees be awarded in this case?
These questions confronted the Court in resolving the instant petition for review on certiorari, which
assailed the Decision 1 of the Court of Appeals 2 promulgated October 25, 1990 affirming and modifying
the decision 3 dated September 19, 1986 of the Regional Trial Court of Manila, Branch 33, 4 in Civil Case
No. 125886.
The Facts
As culled from the stipulations between the parties and the assailed Decision, the factual background of
this case is as follows:
On December 5, 1961, the Reparations Commission (hereinafter referred to as REPACOM) sold to
private respondent Transocean Transport Corporation the vessel 'M/V TRANSOCEAN SHIPPER' payable
in twenty (20) annual installments. On June 22, 1974, the said vessel was insured with petitioner Rizal
Surety & Insurance Company for US$3,500,000.00, with stipulated value in Philippine Currency of
P23,763,000.00 under Marine Hull Policy MH-1322 and MH-1331. 5 The said policies named REPACOM
and herein private respondent as the insured. Subsequently, petitioner reinsured the vessel with a
foreign insurance firm.
Sometime in February, 1975, during the effectivity of the aforementioned marine insurance policies, the
vessel 'M/V TRANSOCEAN SHIPPER' was lost in the Mediterranean Sea. The insured filed claims against
herein petitioner for the insurance proceeds. Shortly thereafter, a partial compromise agreement was
entered into between the REPACOM and respondent Transocean regarding the insurance proceeds.
On April 18, 1975, anticipating payment of the insurance proceeds in dollars, private respondent
requested the Central Bank (CB) to allow it to retain the expected dollar insurance proceeds for a period
of three (3) months, to enable it to complete its study and decide on how to utilize the said amount 6.
The CB granted the request subject to conditions, one of which was that the proceeds be deposited with
a local commercial bank in a special dollar account up to and until July 31, 1975. 7
On November 18, 1975, private respondent and REPACOM requested petitioner to pay the insurance
proceeds in their joint names, 8 despite problems regarding the amount of their respective claims.
On November 20, 1975, the CB authorized petitioner to receive the insurance proceeds from the English
re-insurance firm in foreign currency and to deposit it in the same currency with any local bank in a non-
interest bearing account, jointly in the names of private respondent and REPACOM. 9
On December 2, 1975, upon the request of petitioner, 10 CB authorized it to receive and deposit the
dollar insurance proceeds in a non-interest bearing account in the name of petitioner and for the joint
account of REPACOM and private respondent. 11
On January 3, 1976, petitioner informed private respondent and REPACOM that the entire insurance
proceeds for the loss of the vessel M/V "Transocean Shipper", consisting of: (a) P2,614,150.00 from local
insurance companies and reinsurers, and (b) US$3,083,850.00 from the petitioner's London insurance
broker, had been deposited with Prudential Bank and Trust Company, Escolta Branch, Manila, the latter
sum in a non-interest bearing account as authorized by CB. 12
On January 29, 1976, private respondent and REPACOM entered into a partial compromise agreement,
13 wherein they agreed to divide and distribute the insurance proceeds in such a manner that each
would receive as its initial share thereof that portion not disputed by the other party (thus, REPACOM
US$434,618.00, and private respondent US$1,931,153.00), leaving the balance in dispute for future
settlement, either by way of compromise agreement or court litigation, pending which the said balance
would continue to be kept in the same bank account in trust for private respondent and REPACOM
unless the parties otherwise agree to transfer said balance to another bank account. Copies of this
compromise agreement were sent to petitioner.
In response to the March 10, 1976 letter-request of the parties, the CB on March 15, 1976 authorized
private respondent and REPACOM to transfer the balance of the insurance proceeds, amounting to
US$718,078.20, into an interest-bearing special dollar account with any local commercial bank. 14 The
CB's letter-authorization was addressed to REPACOM, with private respondent and petitioner duly copy-
furnished.
Having obtained the CB authorization, REPACOM and private respondent then wrote the petitioner on
April 21, 1976, requesting the latter to remit the said US$718,078.20 to the Philippine National Bank,
Escolta Branch for their joint account. 15
In a reply dated May 10, 1976, petitioner indicated that it would effect the requested remittance when
both REPACOM and private respondent shall have unconditionally and absolutely released petitioner
from all liabilities under its policies by executing and delivering the Loss and Subrogation Receipt
prepared by petitioner. 16
Because the parties proposed certain amendments and corrections to the Loss and Subrogation Receipt,
a revised version thereof was finally presented to the Office of the Solicitor General, and on May 25,
1977, then Acting Solicitor General Vicente V. Mendoza wrote petitioner demanding that it pay interest
on the dollar balance per the CB letter-authority. His letter read in relevant part. 17
From the foregoing, it is clear that effective as of the date of your receipt of a copy of the letter of the
Central Bank authorizing the deposit of the amount in an interest-bearing special dollar account . . . , the
same should bear interest at the authorized rates, and it was your duty as trustee of the said funds to
see to it that the same earned the interest authorized by the Central Bank. As trustee, you were morally
and legally bound to deposit the funds under terms most advantageous to the beneficiaries. If you did
not wish to transfer the deposit from the Prudential Bank and Trust Company, which we understand is
your sister company, to another bank where it could earn interest, it was your obligation to require the
Prudential Bank and Trust Company, at least, to place the deposit to an interest-bearing account.
In view hereof, we hereby demand in behalf of the Reparations Commission payment of interest on the
dollar deposit from the date of your receipt of the authorization by the Central Bank at the authorized
rates.
In a reply dated June 14, 1977, petitioner through counsel rejected the Acting Solicitor General's
demand, asserting that (i) there was no trust relationship, express or implied, involved in the
transaction; (ii) there was no obligation on the part of petitioner to transfer the dollar deposit into an
interest-bearing account because the CB authorization was given to REPACOM and not to petitioner, (iii)
REPACOM did not ask petitioner to place the dollars in an interest-bearing account, and, (iv) no Loss and
Subrogation Receipt was executed.
On October 10, 1977, private respondent and REPACOM sent petitioner the duly executed Loss and
Subrogation Receipt, dated January 31, 1977, without prejudice to their claim for interest on the dollar
balance from the time CB authorized its placement in an interest bearing account.
On February 27, 1978, a final compromise agreement 18 was entered into between private respondent
and REPACOM, whereby the latter, in consideration of an additional sum of one million pesos paid to it
by the former, transferred, conveyed and assigned to the former all its rights, interests and claims in and
to the insurance proceeds. The dollar balance of the insurance proceeds was then remitted to the
Philippine National Bank, Escolta branch for the sole account of private respondent.
On April 14, 1978, a demand letter for interest on the said dollar balance was sent by private
respondent's counsel to petitioner and Prudential Bank, which neither replied thereto nor complied
therewith.
On August 15, 1979, private respondent filed with the Regional Trial Court of Manila, Branch 33, a
complaint for collection of unearned interest on the dollar balance of the insurance proceeds.
On September 19, 1986, the trial court issued its decision holding that (i) a trust relationship existed
between petitioner as trustee and private respondent and REPACOM as beneficiaries, (ii) from April 21,
1976, petitioner should have deposited the remaining dollar deposit in an interest-bearing account
either by remitting the same to the PNB in compliance with the request of REPACOM and private
respondent, or by transferring the same into an interest-bearing account with Prudential Bank, and (iii)
this duty to deposit the funds in an interest-bearing account ended when private respondent signed the
Loss and Subrogation Receipt on January 31, 1977. Thus, petitioner was ordered to pay (1) interest on
the balance of US$718,078.20 at 6% per annum, computed from April 21, 1976 until January 31, 1977
based on the then prevailing peso-dollar rate of exchange; (2) interest of 6% per annum on the accrued
interest earned until fully paid; (3) 10% of the total amount claimed as attorney's fees and (4) costs of
suit. 19 The complaint against defendant Prudential Bank and Trust was dismissed for lack of merit.
Both petitioner and private respondent appealed the trial court's decision. Private respondent alleged
that the trial court erred when it absolved defendant Prudential Bank from liability and when it ruled
that the interest on the balance of the dollar deposit, for which petitioner was held liable, should be
computed only until January 31, 1977 (when the Loss and Subrogation Receipt was signed) instead of
January 10, 1978 (when the actual transfer of the dollar deposit was made to the bank chosen by private
respondent). 20 On the other hand, petitioner charged that the trial court had seriously erred in finding
that a trust relationship, existed and that petitioner was liable for the interest on the dollar balance
despite the execution of the Loss and Subrogation Receipt wherein petitioner was unconditionally and
absolutely released from all its liabilities under the marine hull policies. 21
On October 25, 1990, the Court of Appeals upheld the judgment of the trial court, and confirmed that a
trust had in fact been established and that petitioner became liable for interest on the dollar account in
its capacity as trustee, not as insurer. As for the Loss and Subrogation document, the appellate Court
ruled that petitioner gave undue importance thereto, and that the execution thereof did not bar the
claims for accrued interest. By virtue of that document, petitioner was released only from its liabilities
arising from the insurance policies, i.e., in respect of the principal amount representing the insurance
proceeds, but not insofar as its liability for accrued interest was concerned, which arose from the
violation of its duty as trustee i.e., its refusal to deposit the dollar balance in an interest-bearing
account, under terms most advantageous to the beneficiaries. The respondent Court modified the trial
court's judgment by ordering petitioner to pay said interest computed from April 21, 1976 up to January
10, 1978.
On December 17, 1990, the Court of Appeals denied the petitioner's motion for reconsideration.
Hence, this petition.
Assignment of Errors
Petitioner alleges that the Court of Appeals erred:
I. . . . when it held that Rizal is liable to Transocean for supposed interest on the balance of
US$718,078.20 after admitting that Transocean and REPACOM had unconditionally and absolutely
released and discharged Rizal from its total liabilities when they signed the loss and subrogation receipt .
. . on January 31, 1977;
II. . . . in assuming that REPACOM and Transocean on one hand and Rizal, on the other, intended to
create a trust;
III. . . . in not holding that Transocean had acted in palpable bad faith and with malice in filing this
clearly unfounded civil action, and in not ordering Transocean to pay to Rizal moral and punitive
damages . . . , plus attorney's fees and expenses of litigation . . . ; and
IV. . . . in affirming the RTC decision which incorrectly awarded attorney's fees and costs of suit to
Transocean. 22
The foregoing grounds are almost exactly the same grounds pleaded by petitioner before the
respondent Court. At the heart of the matter is the question of whether the petitioner is liable for
accrued interest on the dollar balance of the insurance proceeds. Reiterating the arguments it ventilated
before the respondent appellate Court, petitioner continues to deny the existence of the trust, alleging
that it never intended to enter into a fiduciary relationship with private respondent and REPACOM and
that it held on to the dollar balance only as a means to protect its interest. Furthermore, petitioner
insists that the Loss and Subrogation Receipt signed by the insureds released and absolved petitioner
from all liabilities, including the claimed interest.
Briefly, the key issues in this case may be re-stated thus:
I. The existence of a trust relationship;
II. The significance of the Loss and Subrogation Receipt;
III. Petitioner's liability for accrued interest on the dollar balance; and
IV. Correctness of the award of attorney's fees.
The Court's Ruling
The shop-worn arguments recycled by petitioner are mainly devoid of merit. We searched for
arguments that could constitute reversible errors committed by the respondent Court, but found only
one in the last issue.
First Issue: The Trust Relationship
Crucial in the resolution of this case is the determination of the role played by petitioner. Did it act
merely as an insurer, or was it also a trustee? In ruling that petitioner was a trustee of the private
respondent and REPACOM, the Court of Appeals ratiocinated thus:
The respondent (trial) court sustained the theory of TRANSOCEAN and was of the view that RIZAL held
the dollar balance of US$718,078.20 as trustee for the benefit of REPACOM and plaintiff corporation
(private respondent herein) upon consideration of the following facts and the said court's observation
1. That pursuant to RIZAL's letter to the Central Bank dated November 25, 1975, it requested that is
authority to deposit the dollar proceeds with any local bank be amended by allowing it to deposit the
same in the name of "Rizal Surety & Insurance Company for the joint account of the Reparations
Commission and Transocean Transport Corporation." It further states, to wit:
This is in conformity with our agreement on this matter with the respective officers of our insureds,
Reparations Commission and Transocean Transport Corporation, during our conference held in the
office of Solicitor General Estelito Mendoza, last 18 November 1975. (Exhibit I)
From these facts, it is very clear that the parties thereto intended that the entire dollar insurance
proceeds be held in trust by defendant RIZAL for the benefit of REPACOM and plaintiff corporation.
2. This agreement was further fortified by the Central Bank's reply to the above-mentioned letter
authorizing RIZAL to deposit the dollar insurance proceeds in the name of "Rizal Surety & Insurance
Company for the joint account of Transocean Transport Corporation and Reparations Commission"
(Exhibit J).
3. Likewise, defendant RIZAL's letter to REPACOM and plaintiff corporation confirming the fact that the
insurance proceeds were then deposited with Prudential Bank and it was recorded under the name of
Rizal Surety & Insurance Company for the joint account of Transocean Transport Corporation and
REPACOM (Exhibit L).
4. The partial compromise agreement entered into between the insureds on January 29, 1976 over the
division of the insurance proceeds which provides as follows:
4. The disputed portion or the balance of the insurance proceeds remaining after deducting the
undisputed portions as agreed above shall be kept in the same bank deposit in trust for and in the joint
name of REPACOM and TRANSOCEAN until such time as there is a court decision or a compromise
agreement on the full amount or portion thereof, or until such time as REPACOM and TRANSOCEAN
shall agree jointly to transfer such balance to another bank account.
It appears clearly that even from the start of the communications among themselves, especially
between defendant RIZAL on one hand and REPACOM and the plaintiff corporation, on the other hand,
it shows that the parties intended that the dollar insurance proceeds be held in the name of defendant
RIZAL for the joint benefit of REPACOM and plaintiff corporation. No repudiation was ever made or any
one of the parties for that matter questioned said agreement. There was, therefore, created a trust
relationship between RIZAL on one hand and the REPACOM and plaintiff corporation on the other, over
the dollar insurance proceeds of the lost vessel. . . .
Indeed, the aforesaid enumerated facts sufficiently manifest the intention between REPACOM and
TRANSOCEAN on one hand and RIZAL, on the other, to create a trust.
It was RIZAL itself which requested the Central Bank that it be allowed to deposit the dollars in its name
and "for the joint account of REPACOM and TRANSOCEAN" instead of in the joint account of REPACOM
and TRANSOCEAN as originally authorized. Moreover, the Partial Compromise Agreement explicitly
states that the dollars "shall be kept in the same bank deposits in trust for and in the joint name of
REPACOM and TRANSOCEAN". While it is true, that RIZAL was not a party to the Compromise
Agreement, nevertheless, RIZAL was furnished a copy of the same and did not in any way manifest
objection thereto. On the contrary, RIZAL even implemented certain provisions thereof.
Xxx xxx xxx
The intention to create a trust relation can be inferred from the surrounding factual circumstances.
Thus:
Such a manifestation can in fact be determined merely by construction of, and inference from, the
surrounding factual circumstances, so long as the proof thereof is clear, satisfactory, and convincing, and
does not rest on loose, equivocal or indefinite declarations (Medina vs. CA, 109 SCRA 437).
Petitioner claims that respondent Court was misled by the trial court's crucial mis-assumption that
petitioner was the one which took the initiative of requesting 23 authorization from CB to deposit the
dollar proceeds in its name, into concluding that a trust relationship had been created. Petitioner insists
that it did so only in reaction to the earlier CB letter dated November 20, 1975 which first ordered
petitioner to receive the dollar insurance proceeds and deposit the same with any local bank in a non-
interest bearing account in the names of Transocean and REPACOM jointly, and that it (petitioner) made
such request to avoid having the dollar proceeds paid directly to the account of the two insured, as that
would be tantamount to full payment of the loss without first securing petitioner's release from its
liabilities under the insurance policies. In short, petitioner claims it was just trying to protect its interest
when it made such request. Petitioner further scores the respondent Court for relying on the two
insured's arrangement contained in the Partial Compromise Agreement that the dollar balance be kept
in the same bank deposit (held by petitioner) "in trust for and in the joint name of REPACOM and
TRANSOCEAN". Petitioner insists it was never a party to said compromise agreement, and that
therefore, it should not be held bound by anything contained therein, and simply because it "did not in
any way manifest objection thereto" 24
Petitioner's arguments notwithstanding, we hold that the courts below were correct in concluding that a
trust relationship existed. It is basic in law that a trust is the right, enforceable solely in equity, to the
beneficial enjoyment of property, the legal title to which is vested in another. 25 It is a fiduciary
relationship 26 concerning property which obliges a person holding it (i.e., the trustee) to deal with the
property for the benefit of another (i.e. the beneficiary). The Civil Code provides that:
Art. 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor
or of the parties. . . .
Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that a
trust is clearly intended.
Express trusts are created by direct and positive acts of the parties, by some writing or deed, or will, or
by words either expressly or impliedly evincing an intention to create a trust. 27
The evidence on record is clear that petitioner held on to the dollar balance of the insurance proceeds
because (1) private respondent and REPACOM requested it to do so as they had not yet agreed on the
amount of their respective claims, and the Final Compromise Agreement was yet to be executed, and (2)
they had not, prior to January 31, 1977, signed the Loss and Subrogation Receipt in favor of petitioner.
Furthermore, petitioner's letter dated November 20, 1975 addressed to the CB expressly stated that the
deposit in Prudential Bank was being made in its name for the joint account of the private respondent
and REPACOM. Petitioner never claimed ownership over the funds in said deposit. In fact, it made
several tenders of payment to the private respondent and REPACOM, albeit the latter declined to accept
since the dispute as to their respective claims could not yet be resolved at that time. By its own
allegation, petitioner held on to the dollar balance of the insurance proceeds to protect its interest, as it
was not yet granted the right of subrogation over the total loss of the vessel. As petitioner continued
holding on to the deposit for the benefit of private respondent and REPACOM, petitioner obviously
recognized its fiduciary relationship with said parties. This is the essence of the trust flowing from the
actions and communications of petitioner.
In Mindanao Development Authority vs. Court of Appeals, 28 this Court held:
. . . It is fundamental in the law of trusts that certain requirements must exist before an express trust will
be recognized. Basically, these elements include a competent trustor and trustee, an ascertainable trust
res, and sufficiently certain beneficiaries. Stilted formalities are unnecessary, but nevertheless each of
the above elements is required to be established, and, if any one of them is missing, it is fatal to the
trusts (sic). Furthermore, there must be a present and complete disposition of the trust property,
notwithstanding that the enjoyment in the beneficiary will take place in the future. It is essential, too,
that the purpose be an active one to prevent trust from being executed into a legal estate or interest,
and one that is not in contravention of some prohibition of statute or rule of public policy. There must
also be some power of administration other than a mere duty to perform a contract although the
contract is for a third-party beneficiary. A declaration of terms is essential, and these must be stated
with reasonable certainty in order that the trustee may administer, and that the court, if called upon so
to do, may enforce, the trust. (citing Sec. 31, Trusts, Am Jur 2d, pp. 278-279.)
Undeniably, all the abovementioned elements are present in the instant case. Petitioner's argument
that it was never a party to the Partial Compromise Agreement is unavailing, since, upon being furnished
a copy of the same, it undoubtedly became aware if it was not already aware even prior thereto that
the parties to said agreement considered petitioner as their trustee in respect of said dollar balance; in
short, it is all too evident that petitioner fully grasped the situation and realized that private respondent
and REPACOM were constituting petitioner their trustee. Yet, petitioner not only did not manifest any
objection thereto, but it instead proceeded to accept its role and responsibility as such trustee by
implementing the compromise agreement. Equally as significant, petitioner never committed any act
amounting to an unequivocal repudiation of its role as trustee.
Petitioner's desperate attempt to establish a viable defense by way of its allegation that no fiduciary
relationship could have existed because of the joint insured's adversary positions with respect to the
insurance proceeds deserves scant consideration. The so-called adversary positions of the parties had no
effect on the trust as it never changed the position of the parties in relation to each other and to the
dollar proceeds, i.e., petitioner held it for private respondent and REPACOM, which were the real
owners of the money.
Second Issue: The Significance Of TheLoss and Subrogation Receipt
The respondent Court committed no reversible error in its appreciation of the Loss and Subrogation
Receipt, which reads in relevant part.
. . . we have unconditionally and absolutely accepted full payment from Rizal Surety & Insurance
Company, as insurer, of its total liabilities.
In consideration of this full payment, we hereby assign, cede and transfer to said Insurance Company
any and all claims, interests and demands of whatever nature against any person, entity, corporation or
property arising from or otherwise connected with such total loss of the insured property and we
hereby acknowledge that the said Company is subrogated in our place and stead to any and all claims,
interests and demands that we have, or in the future might have, against all persons, entities,
corporations or properties to the full extent of the abovementioned payment received by us.
Said receipt absolved the petitioner only from all claims arising from the insurance policies it issued. It
did not exculpate petitioner from its liability for the accrued interest as this obligation arose in
connection with its role as trustee and its unjustified refusal to deposit the money in an interest-bearing
account as required.
The respondent Court correctly held that:
RIZAL gives undue importance to the Loss and Subrogation Receipt (Exh. U-1) signed by TRANSOCEAN
and REPACOM in an effort to absolve itself from liability.
The execution of the said Loss and Subrogation Receipt did not preclude the joint insured from claiming
the accrued interest. TRANSOCEAN and REPACOM released RIZAL only from its (RIZAL) liabilities arising
from the insurance policies issued, that is, in regard to the principal amount representing the insurance
proceeds but not to the accrued interest which stemmed from its refusal to deposit the disputed dollar
portion in violation of its duty as a trustee to deposit the same under the terms most advantageous to
TRANSOCEAN and REPACOM. Corollary thereto, RIZAL was subrogated to the rights which stemmed
from the insurance contract but not to those which arise from the trust relationship; otherwise, that
would lead to an absurd situation.
At most, the signing of the Loss and Subrogation Receipt was a valid pre-condition before petitioner
could be compelled to turn over the whole amount of the insurance proceeds to the two insured. Thus,
in response to the letter of private respondent and REPACOM to petitioner dated April 21, 1975,
petitioner reiterated its offer to pay the balance of the insurance claim provided the former sign the
Loss and Subrogation Receipt. But this was done only on October 10, 1977.
Third Issue: Liability Of Petitioner ForAccrued Interest
Petitioner argues, rather unconvincingly, that it was of the belief that, as it was never the trustee for the
insured and thus was under no obligation to execute the instruction to transfer the dollar balance into
an interest-bearing account, therefore, it was also not obligated and hence it did not bother to advise
private respondent and REPACOM that it would neither remit the dollar balance to the insured's bank of
choice as specifically instructed, nor just deposit the same in an interest-bearing account at Prudential
Bank. Petitioner's other contention that it was not bound by the CB order, despite its having been
informed thereof and copy furnished by private respondent and REPACOM, simply because said order
was not directed to it, is even more ridiculous and undeserving of further comment.
Originally, petitioner, as shown by its November 25, 1975 letter, only agreed to receive and deposit the
money under its name for the joint account of the private respondent and REPACOM in a non-interest
bearing account. At that point, as trustee, it could have easily discharged its obligation by simply
transferring and paying the dollar balance to private respondent and REPACOM and by so doing, would
have dissolved the trust. However, when the trustors instructed petitioner as trustee to deposit the
funds in an interest-bearing account, the latter ought, as a matter of ordinary common sense and
common decency, to have at least informed the insured that it could not or would not, for whatever
reason, carry out said instructions. This is the very least it could have done if indeed it wanted to
repudiate its role as trustee or be relieved of its obligations as such trustee at that point. Instead of
doing thus, petitioner chose to remain silent. After petitioner's receipt of the April 21, 1976 letter of
private respondent and REPACOM requesting petitioner to remit the the dollar balance to an interest-
bearing account, petitioner merely tendered payment of the said dollar balance in exchange for the
signed Loss and Subrogation Receipt. This falls far short of the requirement to clearly inform the trustor-
beneficiaries of petitioner's refusal or inability to comply with said request/instruction. Such silence and
inaction in the face of specific written instructions from the trustors-beneficiaries could not but have
misled the latter into thinking that the trustee was amenable to and was carrying out their instructions,
there being no reason for them to think otherwise. This in turn prevented the trustors-beneficiaries
from early on taking action to discharge the unwilling trustee and appointing a new trustee in its place
or from otherwise effecting the transfer of the deposit into an interest-bearing account. The result was
that the trustors-beneficiaries, private respondent and REPACOM, suffered prejudice in the form of loss
of interest income on the dollar balance. As already mentioned, such prejudice could have been
prevented had petitioner acted promptly and in good faith by communicating its real intentions to the
trustors.
Beyond the foregoing considerations, we must also make mention of the matter of undue enrichment.
We agree with private respondent that the dollar balance of US$718,078.20 was certainly a large sum of
money. Leaving such an enormous amount in a non-interest bearing bank account for an extended
period of time about one year and nine months would undoubtedly have not only prejudiced the
owner(s) of the funds, but, equally as true, would have resulted to the immense benefit of Prudential
Bank (which happens to be a sister company of the petitioner), which beyond the shadow of a doubt
must have earned income thereon by utilizing and relending the same without having to pay any
interest cost thereon. However one looks at it, it is grossly unfair for anyone to earn income on the
money of another and still refuse to share any part of that income with the latter. And whether
petitioner benefited directly, or indirectly as by enabling its sister company to earn income on the dollar
balance, is immaterial. The fact is that petitioner's violation of its duty as trustee was at the expense of
private respondent, and for the ultimate benefit of petitioner or its stockholders. This we cannot let
pass.
Fourth Issue: Award of Attorney's Fees is Improper
Petitioner argues that respondent Court erred in affirming the RTC's award of attorney's fees and costs
of suit, repeating the oft-heard refrain that it is not sound public policy to place a premium on the right
to litigate.
It is well settled that attorney's fees should not be awarded in the absence of stipulation except under
the instances enumerated in Art. 2208 of the New Civil Code. As held by this Court in Solid Homes, Inc.
vs. Court of Appeals: 29
Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason of an
unjustified act or omission of the party from whom it is sought. While judicial discretion is here extant,
an award thereof demands, nevertheless, a factual, legal or equitable justification. The matter cannot
and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337; Stronghold
Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619).
In the case at bench, the records do not show enough basis for sustaining the award for attorney's fees
and to adjudge its payment by petitioner. . . .
Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals 30 that:
In Abrogar v. Intermediate Appellate Court [G.R. No. 67970, January 15, 1988, 157 SCRA 57] the Court
had occasion to state that "[t]he reason for the award of attorney's fees must be stated in the text of
the court's decision, otherwise, if it is stated only in the dispositive portion of the decision, the same
must be disallowed on appeal. . . .
The Court finds that the same situation obtains in this case. A perusal of the text of the decisions of the
trial court and the appellate Court reveals the absence of any justification for the award of attorney's
fees made in the fallo or dispositive portions. Hence, the same should be disallowed and deleted.
WHEREFORE, the petition is DENIED, and the assailed Decision is hereby AFFIRMED with the sole
modification that the award of attorney's fees in favor of private respondent is DELETED.
SO ORDERED.
33. [1997V417] THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.1997 Jun 111st DivisionG.R.
No. 116940D E C I S I O N
BELLOSILLO, J:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the
extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be
subrogated to the rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and
operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola
softdrink bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers
Philippines, Inc., Cebu. 1 The shipment was insured with petitioner Philippine American General
Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG.
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same day.
At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of
Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-
liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles
that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to file an
insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the
shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were due
to the vessel's unseaworthiness as she was put to sea in an unstable condition. It further alleged that
the vessel was improperly manned and that its officers were grossly negligent in failing to take
appropriate measures to proceed to a nearby port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of
subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over "MV Asilda" together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce. 2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of
Appeals set aside the dismissal and remanded the case to the lower court for trial on the merits.
FELMAN filed a petition for certiorari with this Court but it was subsequently denied on 13 February
1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that "MV Asilda"
was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine
Coast Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel and
its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should
attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in
which case, Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could not
recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied
warranty on the vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured
was an undue, wrong and mistaken payment. Since it was not legally owing, it did not give PHILAMGEN
the right of subrogation so as to permit it to bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994
respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy as
2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while the
vessel possessed the necessary Coast Guard certification indicating its seaworthiness with respect to the
structure of the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the appellate
court denied the claim of PHILAMGEN on the ground that the assured's implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the
rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of
abandonment had absolved the shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the
port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should
apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the
shipper had against FELMAN, the shipowner.
"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as
well as the chief mate of the vessel confirmed that the weather was fine when they left the port of
Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink
bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes
for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck.
4 The ship captain stated that around four o'clock in the morning of 7 July 1983 he was awakened by the
officer on duty to inform him that the vessel had hit a floating log. At that time he noticed that the
weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he
observed that the vessel was listing slightly to starboard and would not correct itself despite the heavy
rolling and pitching. He then ordered his crew to shift the cargo from starboard to portside until the
vessel was balanced. At about seven o'clock in the morning, the master of the vessel stopped the engine
because the vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to
starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume full
speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on
his next move, some of the cargo on deck were thrown overboard and seawater entered the engine
room and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to
abandon ship. Shortly thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to the entry of
seawater through a hole in the hull caused by the vessel's collision with a partially submerged log. 5
The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which was
adopted by the Court of Appeals, reads
We found in the course of our investigation that a reasonable explanation for the series of lists
experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel was top-
heavy which is to say that while the vessel may not have been overloaded, yet the distribution or
stowage of the cargo on board was done in such a manner that the vessel was in top-heavy condition at
the time of her departure and which condition rendered her unstable and unseaworthy for that
particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel . .
. and it was not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we
believe strongly that had her cargo been confined to those that could have been accommodated under
deck, her stability would not have been affected and the vessel would not have been in any danger of
capsizing, even given the prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was
rendered unseaworthy for the purpose of carrying the type of cargo because the weight of the deck
cargo so decreased the vessel's metacentric height as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that
ships are precisely designed to be able to navigate safely even during heavy weather and frequently we
hear of ships safely and successfully weathering encounters with typhoons and although they may
sustain some amount of damage, the sinking of ship during heavy weather is not a frequent occurrence
and is not likely to occur unless they are inherently unstable and unseaworthy . . .
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V "Asilda" was her
condition of unseaworthiness arising from her having been top-heavy when she departed from the Port
of Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore in the
category of an inevitable occurrence mphasis supplied). 6
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate
cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's allegations,
evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days
after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the
vicinity of the sinking. Considering that the ship's hatches were properly secured, the empty Coca-Cola
cases recovered could have come only from the vessel's deck cargo. It is settled that carrying a deck
cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not
interfere with the proper management of the ship. However, in this case it was established that "MV
Asilda" was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo
deck resulted in the decrease of the vessel's metacentric height 7 thus making it unstable. The strong
winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such
merely contributed to its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. 8 Simply put,
the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel.
This liability however can be limited through abandonment of the vessel, its equipment and freightage
as provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent could
still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the
shipowner and the captain. 9 The international rule is to the effect that the right of abandonment of
vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or
average was occasioned by the shipowner's own fault. 10 It must be stressed at this point that Art. 587
speaks only of situations where the fault or negligence is committed solely by the captain. Where the
shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier. 11
It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness
even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount
of cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through
the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of
Commerce.
Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case . . ." In the
event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the
shipowner, was not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found "MV Asilda" unseaworthy
with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that
rendered the assured not entitled to the payment of his claim under the policy. Hence, when
PHILAMGEN paid the claim of the bottling firm there was in effect a "voluntary payment" and no right of
subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer
that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written
on the face of the policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n every marine
insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine
insurance, a warranty is implied that the ship is seaworthy." Under Sec. 114, a ship is "seaworthy when
reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated
by the parties to the policy." Thus it becomes the obligation of the cargo owner to look for a reliable
common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel
but he has full control in the selection of the common carrier that will transport his goods. He also has
full discretion in the choice of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly
pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law
will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy
in the clearest language. 13 And where the policy stipulates that the seaworthiness of the vessel as
between the assured and the assurer is admitted, the question of seaworthiness cannot be raised by the
assurer without showing concealment or misrepresentation by the assured. 14
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has
dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-
PAG reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or
Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as
between the Assured and the Company shall not prejudice the insurance. The seaworthiness of the
vessel as between the Assured and the Assurers is hereby admitted." 15
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states
"(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . ." 16
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things:
(a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. 17 The insertion of such waiver clauses in cargo
policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel.
Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of
unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case,
PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action
against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the assurer to
the assured operates as an equitable assignment to the assurer of all the remedies which the assured
may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by
the insurance company of the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice,
equity and good conscience ought to pay. 19 Therefore, the payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN.
Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of
1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand
Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November
1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code. 20
SO ORDERED.
34. [1982V88] PACIFIC TIMBER EXPORT CORPORATION, petitioner, vs. THE HONORABLE COURT
OF APPEALS and WORKMEN'S INSURANCE COMPANY, INC., respondents.1982 Feb 251st
DivisionG.R. No. L-38613D E C I S I O N
DE CASTRO, J.:
This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court
of First Instance of Manila in favor of petitioner and against private respondent which ordered the latter
to pay the sum of P11,042.04 with interest at the rate of 12% from receipt of notice of loss on April 15,
1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the costs [1] thereby
dismissing petitioner's complaint with costs. [2]
The findings of fact of the Court of Appeals, which are generally binding upon this Court, except as shall
be indicated in the discussion of the opinion of this Court the substantial correctness of such particular
finding having been disputed, thereby raising a question of law reviewable by this Court [3] are as
follows:
"On March 19, 1963, the plaintiff secured temporary insurance from the defendant for its exportation of
1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon
Province to Okinawa and Tokyo, Japan. The defendant issued on said date Cover Note No. 1010, insuring
the said cargo of the plaintiff "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE
COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance
Commissioner" (Exhibit A).
"The regular marine cargo policies were issued by the defendant in favor of the plaintiff on April 2, 1963.
The two marine policies bore the numbers of 53 HO 1032 and 53 HO 1033 (Exhibits B and C,
respectively). Policy No. 53 HO 1032 (Exhibit B) was for 542 pieces of logs equivalent to 499,950 board
feet. Policy No. 53 HO 1033 was for 853 pieces of logs equivalent to 695, 548 board feet (Exhibit C). The
total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent
of 1,195,498 bd. ft.
"After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two marine
policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during
loading operations in the Diapitan Bay. The logs were to be loaded on the 'SS Woodlock' which Docked
about 500 meters from the shortline of the Diapitan Bay. The logs were taken from the log pond of the
plaintiff and from which they were towed in rafts to the vessel. At about 10:00 o'clock a.m. on March 29,
1963, while the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs
which were rafted together to break loose from each other 45 pieces of logs were salvaged, but 30
pieces were verified to have been lost or washed away as a result of the accident.
"In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'approximately 32
pieces of logs' during loading of the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:
'April 4, 1963
Workmen's Insurance Company, Inc.
Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft., Philippine Lauan
and Apitong Logs. We would like to inform you that we have received advance preliminary report from
our Office in Diapitan, Quezon that we have lost approximately 32 pieces of logs during loading of the
S.S. Woodlock.
We will send you an accurate report all the details including values as soon as same will be reported to
us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd). EMMANUEL S. ATILANO
Asst. General Manager'
Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15,
1963, as shown by the stamp impression appearing on the left bottom corner of said letter. The plaintiff
subsequently submitted a 'Claim Statement' demanding payment of the loss under Policies Nos. 53 HO
1033, in the total amount of P19,286.79 (Exhibit G).
"On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation to inspect the
loss and assess the damage. The adjustment company submitted its 'Report' on August 23, 1963 (Exhibit
H). In said report, the adjuster found that 'the loss of 30 pieces of logs is not covered by Policies Nos. 53
HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded on board the 'SS
Woodlock'. However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note
No. 1010 insured for $70,000.00.
"On September 14, 1963, the adjustment company submitted a computation of the defendant's
probable liability on the loss sustained by the shipment, in the total amount of P11,042.04 (Exhibit 4).
"On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the ground that
defendant's investigation revealed that the entire shipment of logs covered by the two marines policies
No. 53 HO 1032 and 53 HO 1033 were received in good order at their point of destination. It was further
stated that the said loss may not be considered as covered under Cover Note No. 1010 because the said
Note had become 'null and void by virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033'
(Exhibit J-1). The denial of the claim by the defendant was brought by the plaintiff to the attention of the
Insurance Commissioner by means of a letter dated March 21, 1964 (Exhibit K). In a reply letter dated
March 30, 1964, Insurance Commissioner Francisco Y. Mandanas observed that 'it is only fair and
equitable to indemnify the insured under Cover Note No. 1010,' and advised early settlement of the said
marine loss and salvage claim (Exhibit L).
"On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of their
attorneys, the claim of the plaintiff is being denied on the ground that the cover note is null and void for
lack of valuable consideration (Exhibit M)." [4]
Petitioner assigned as errors of the Court of Appeals, the following:
I
"THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND VOID FOR LACK OF
VALUABLE CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS
FOR THE COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY
PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON ALL ITS
COVER NOTES.
II
"THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS RELEASED FROM
LIABILITY UNDER THE COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE
THE COURT DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT PROMPTLY AND
SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN GIVING NOTICE OF LOSS AND,
CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE
ACT." [5]
1. Petitioner contends that the Cover Note was issued with a consideration when, by express
stipulation, the cover note is made subject to the terms and conditions of the marine policies, and the
payment of premiums is one of the terms of the policies. From this undisputed fact, We uphold
petitioner's submission that the Cover Note was not without consideration for which the respondent
court held the Cover Note as null and void, and denied recovery therefrom. The fact that no separate
premium was paid on the Cover Note before the loss insured against occurred, does not militate against
the validity of petitioner's contention, for no such premium could have been paid, since by the nature of
the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that
would serve as basis for the computation of the premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a Cover Note. This is a fact admitted by an official of
respondent company, Juan Jose Camacho, in charge of issuing cover notes of the respondent company
(p. 33, tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement
issued by private respondent after the issuance of the two regular marine insurance policies, thereby
leaving no account unpaid by petitioner due on the insurance coverage, which must be deemed to
include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the
regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught
or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is
a mere offer. [6]
It may be true that the marine insurance policies issued were for logs no longer including those which
had been lost during loading operations. This had to be so because the risk insured against is not for loss
during loading operations anymore, but for loss during transit, the logs having already been safely
placed aboard. This would make no difference, however, insofar as the liability on the cover note is
concerned, for the number or volume of logs lost can be determined independently, as in fact it had
been so ascertained at the instance of private respondent itself when it sent its own adjuster to
investigate and assess the loss, after the issuance of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well as its computation of
respondent's liability on the insurance coverage. This coverage could not have been no other than what
was stipulated in the Cover Note, for no loss or damage had to be assessed on the coverage arising from
the marine insurance policies. For obvious reasons, it was not necessary to ask petitioner to pay
premium on the Cover Note, for the loss insured against having already occurred, the more practical
procedure is simply to deduct the premium from the amount due the petitioner on the Cover Note. The
non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose what is
due it as if there had been payment of premium, for non-payment by it was not chargeable against its
fault. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note,
liability on the note would have already arisen even before payment of premium. This is how the cover
note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of
commerce, and is supported by the doctrine that where a policy is delivered without requiring payment
of the premium, the presumption is that a credit was intended and policy is valid. [7]
2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The
law requires this ground of delay to be promptly and specifically asserted when a claim on the insurance
agreement is made. The undisputed facts show that instead of invoking the ground of delay in objecting
to petitioner's claim of recovery on the cover note, it took steps clearly indicative that this particular
ground for objection to the claim was never in its mind. The nature of this specific ground for resisting a
claim places the insurer on duty to inquire when the loss took place, so that it could determine whether
delay would be a valid ground upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was on
April 15, 1963, was to set in motion from July 1963 what would be necessary to determine the cause
and extent of the loss, with a view to the payment thereof on the insurance agreement. Thus it sent its
adjuster to investigate and assess the loss in July, 1963. The adjuster submitted his report on August 23,
1963 and his computation of respondent's liability on September 14, 1963. From April 15,1963 to July
1963, enough time was available for private respondent to determine if petitioner was guilty of delay in
communicating the loss to respondent company. In the proceedings that took place later in the Office of
the Insurance Commissioner, private respondent should then have raised this ground of delay to avoid
liability. It did not do so. It must be because it did not find any delay, as this Court fails to find a real and
substantial sign thereof. But even on the assumption that there was delay, this Court is satisfied and
convinced that as expressly provided by law, waiver can successfully be raised against private
respondent. Thus Section 84 of the Insurance Act provides:
"Section 84. - Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any
act of his or if he omits to take objection promptly and specifically upon that ground."
From what has been said, We find duly substantiated petitioner's assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is
reinstated in toto with the affirmance of this Court. No special pronouncement as to costs.
SO ORDERED.
35. G.R. No. 100970 September 2, 1992 FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary mandatory
injunction to annul and set aside the decision of the Court of Appeals dated July 11, 1991,
1
affirming the
decision dated March 20, 1990 of the Insurance Commission
2
in ordering petitioner Finman General
Assurance Corporation to pay private respondent Julia Surposa the proceeds of the personal accident
Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman
General Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and
Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries.
3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18, 1988
as a result of a stab wound inflicted by one of the three (3) unidentified men without provocation and
warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way
home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual
Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice of
claim with the petitioner insurance company which denied said claim contending that murder and assault are
not within the scope of the coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance Commission which
subsequently rendered a decision, the pertinent portion of which reads:
In the light of the foregoing. we find respondent liable to pay complainant the sum of
P15,000.00 representing the proceeds of the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same cannot be
entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the sum of
P15,000.00 with legal interest from the date of the filing of the complaint until fully satisfied.
With costs.
4

On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in
applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy since death
resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the
cause of death of the insured was not accidental but rather a deliberate and intentional act of the assailant in
killing the former as indicated by the location of the lone stab wound on the insured. Therefore, said death
was committed with deliberate intent which, by the very nature of a personal accident insurance policy,
cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in insurance contracts have not acquired any
technical meaning, and are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happen 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.
. . . The generally accepted rule is that, death or injury does not result from accident or accidental
means within the terms of an accident-policy if it is the natural result of the insured's voluntary
act, unaccompanied by anything unforeseen except the death or injury. There is no accident
when a deliberate act is performed unless some additional, unexpected, independent, and
unforeseen happening occurs which produces or brings about the result of injury or death. In
other words, where the death or injury is not the natural or probable result of the insured's
voluntary act, or if something unforeseen occurs in the doing of the act which produces the
injury, the resulting death is within the protection of the policies insuring against death or injury
from accident.
5

As correctly pointed out by the respondent appellate court in its decision:
In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or
murder as a result of his voluntary act considering the very nature of these crimes. In the first
place, the insured and his companion were on their way home from attending a festival. They
were confronted by unidentified persons. The record is barren of any circumstance showing how
the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured
precisely because the killer wanted to take his life. In any event, while the act may not exempt
the unknown perpetrator from criminal liability, the fact remains that the happening was a pure
accident on the part of the victim. The insured died from an event that took place without his
foresight or expectation, an event that proceeded from an unusual effect of a known cause and,
therefore, not expected. Neither can it be said that where was a capricious desire on the part of
the accused to expose his life to danger considering that he was just going home after attending
a festival.
6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10)
circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or loss
suffered by the insured as a result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" the mention of one thing implies the exclusion of another thing is therefore applicable in the
instant case since murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy cannot be considered by implication to
discharge the petitioner insurance company from liability for, any injury, disability or loss suffered by the
insured. Thus, the failure of the petitioner insurance company to include death resulting from murder or
assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt
itself from liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.
Moreover,
it is well settled that contracts of insurance are to be construed liberally in favor of the insured
and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be
interpreted in favor of its beneficiary.
7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the petition
forcertiorari with restraining order and preliminary injunction is hereby DENIED for lack of merit.
SO ORDERED.
36. G.R. No. L-60887 November 13, 1991 PERLA COMPANIA DE SEGUROS, INC., petitioner,
vs. HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES, HONORATO BORBON, SR., OFFICE OF THE
PROVINCIAL SHERIFF, PROVINCE OF CEBU, respondents.
Hector L. Fernandez for petitioner.
Domingo Quibranza and Vicente A. Quibranza for private respondents.
FELICIANO, J.:p
The present Petition for Certiorari seeks to annul: (a) the Order dated 6 August 1979 1 which ordered the
Provincial Sheriff to garnish the third-party liability insurance policy issued by petitioner Perla Compania de
Seguros, Inc. ("Perla") in favor of Nelia Enriquez, judgment debtor in Civil Case No. R-15391; (b) the Order
dated 24 October 1979 2 which denied the motion for reconsideration of the 6 August 1979 Order; and (c)
the Order dated 8 April 1980 3 which ordered the issuance of an alias writ of garnishment against petitioner.
In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in the name of Nelia Enriquez, and
driven by Cosme Casas, was travelling from Cebu City to Danao City. While passing through Liloan, Cebu, the
Cimarron PUJ collided with a private jeep owned by the late Calixto Palmes (husband of private respondent
Primitiva Palmes) who was then driving the private jeep. The impact of the collision was such that the private
jeep was flung away to a distance of about thirty (30) feet and then fell on its right side pinning down Calixto
Palmes. He died as a result of cardio-respiratory arrest due to a crushed chest. 4 The accident also caused
physical injuries on the part of Adeudatus Borbon who was then only two (2) years old.
On 25 June 1976, private respondents Primitiva Palmes (widow of Calixto Palmes) and Honorato Borbon, Sr.
(father of minor Adeudatus Borbon) filed a complaint 5 against Cosme Casas and Nelia Enriquez (assisted by
her husband Leonardo Enriquez) before the then Court of First Instance of Cebu, Branch 3, claiming actual,
moral, nominal and exemplary damages as a result of the accident.
The claim of private respondent Honorato Borbon, Sr., being distinct and separate from that of co-plaintiff
Primitiva Palmes, and the amount thereof falling properly within the jurisdiction of the inferior court,
respondent Judge Jose R. Ramolete ordered the Borbon claim excluded from the complaint, without
prejudice to its being filed with the proper inferior court.
On 4 April 1977, the Court of First Instance rendered a Decision 6 in favor of private respondent Primitiva
Palmes, ordering common carrier Nelia Enriquez to pay her P10,000.00 as moral damages, P12,000.00 as
compensatory damages for the death of Calixto Palmes, P3,000.00 as exemplary damages, P5,000.00 as
actual damages, and P1,000.00 as attorney's fees.
The judgment of the trial court became final and executory and a writ of execution was thereafter issued. The
writ of execution was, however, returned unsatisfied. Consequently, the judgment debtor Nelia Enriquez was
summoned before the trial court for examination on 23 July 1979. She declared under oath that the Cimarron
PUJ registered in her name was covered by a third-party liability insurance policy issued by petitioner Perla.
Thus, on 31 July 1979, private respondent Palmes filed a motion for garnishment 7 praying that an order of
garnishment be issued against the insurance policy issued by petitioner in favor of the judgment debtor. On 6
August 1979, respondent Judge issued an Order 8 directing the Provincial Sheriff or his deputy to garnish the
third-party liability insurance policy.
Petitioner then appeared before the trial court and moved for reconsideration of the 6 August 1979 Order
and for quashal of the writ of garnishment, 9 alleging that the writ was void on the ground that it (Perla) was
not a party to the case and that jurisdiction over its person had never been acquired by the trial court by
service of summons or by any process. The trial court denied petitioner's motion.10 An Order for issuance of
an alias writ of garnishment was subsequently issued on 8 April 1980. 11
More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with this Court on
25 June 1982 alleging grave abuse of discretion on the part of respondent Judge Ramolete in ordering
garnishment of the third-party liability insurance contract issued by petitioner Perla in favor of the judgment
debtor, Nelia Enriquez. The Petition should have been dismissed forthwith for having been filed way out of
time but, for reasons which do not appear on the record, was nonetheless entertained.
In this Petition, petitioner Perla reiterates its contention that its insurance contract cannot be subjected to
garnishment or execution to satisfy the judgment in Civil Case No. R-15391 because petitioner was not a
party to the case and the trial court did not acquire jurisdiction over petitioner's person. Perla further argues
that the writ of garnishment had been issued solely on the basis of the testimony of the judgment debtor
during the examination on 23 July 1979 to the effect that the Cimarron PUJ was covered by a third-party
liability insurance issued by Perla, without granting it the opportunity to set up any defenses which it may
have under the insurance contract; and that the proceedings taken against petitioner are contrary to the
procedure laid down in Economic Insurance Company, Inc. v. Torres, et al., 12 which held that under Rule 39,
Section 45, the Court "may only authorize" the judgment creditor to institute an action against a third person
who holds property belonging to the judgment debtor.
We find no grave abuse of discretion or act in excess of or without jurisdiction on the part of respondent
Judge Ramolete in ordering the garnishment of the judgment debtor's third-party liability insurance.
Garnishment has been defined as a species of attachment for reaching any property or credits pertaining or
payable to a judgment debtor. 13 In legal contemplation, it is a forced novation by the substitution of
creditors: 14the judgment debtor, who is the original creditor of the garnishee is, through service of the writ
of garnishment, substituted by the judgment creditor who thereby becomes creditor of the garnishee.
Garnishment has also been described as a warning to a person having in his possession property or credits of
the judgment debtor, not to pay the money or deliver the property to the latter, but rather to appear and
answer the plaintiff's suit. 15
In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is not
necessary that summons be served upon him. The garnishee need not be impleaded as a party to the case.
All that is necessary for the trial court lawfully to bind the person of the garnishee or any person who has in
his possession credits belonging to the judgment debtor is service upon him of the writ of garnishment.
The Rules of Court themselves do not require that the garnishee be served with summons or impleaded in
the case in order to make him liable.
Rule 39, Section 15 provides:
Sec. 15. Execution of money judgments. The officer must enforce an execution of a money
judgment by levying on all the property, real or personal of every name and nature
whatsoever, and which may be disposed of for value, of the judgment debtor not exempt
from execution . . .
Real property, stocks, shares, debts, credits, and other personal property, or any interest in
either real or personal property, may be levied on in like manner and with like effect as
under a writ of attachment. (Emphasis supplied).
Rule 57, Section 7(e) in turn reads:
Sec. 7. Attachment of real and personal property; recording thereof. Properties shall be
attached by the officer executing the order in the following manner:
xxx xxx xxx
(e) Debts and credits, and other personal property not capable of manual delivery,
by leaving with the person owing such debts, or having his possession or under his control
such credits or other personal property, or with his agent, a copy of the order, and notice
that the debts owing by him to the party against whom attachment is issued, and the credits
and other personal property in his possession, or under his control, belonging to said party,
are attached in pursuance of such order;
xxx xxx xxx
(Emphasis supplied)
Through service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a "forced
intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to compliance with all
orders and processes of the trial court with a view to the complete satisfaction of the judgment of the court.
In Bautista v. Barredo, 16 the Court, through Mr. Justice Bautista Angelo, held:
While it is true that defendant Jose M. Barredo was not a party in Civil Case No. 1636 when
it was instituted by appellant against the Philippine Ready Mix Concrete Company, Inc.,
however, jurisdiction was acquired over him by the court and he became a virtual party to
the case when, after final judgment was rendered in said case against the company, the
sheriff served upon him a writ of garnishment in behalf of appellant. Thus, as held by this
Court in the case of Tayabas Land Company vs. Sharruf, 41 Phil. 382, the proceeding by
garnishment is a species of attachment for reaching credits belonging to the judgment
debtor and owing to him from a stranger to the litigation. By means of the citation, the
stranger becomes a forced intervenor; and the court, having acquired jurisdiction over him
by means of the citation, requires him to pay his debt, not to his former creditor, but to the
new creditor, who is creditor in the main litigation. (Emphasis supplied).
In Rizal Commercial Banking Corporation v. De Castro, 17 the Court stressed that the asset or credit garnished
is thereupon subjected to a specific lien:
The garnishment of property to satisfy a writ of execution operates as an attachment and fastens
upon the property a lien by which the property is brought under the jurisdiction of the court
issuing the writ. It is brought into custodia legis, under the sole control of such
court. 18 (Emphasis supplied)
In the present case, there can be no doubt, therefore, that the trial court actually acquired jurisdiction over
petitioner Perla when it was served with the writ of garnishment of the third-party liability insurance policy it
had issued in favor of judgment debtor Nelia Enriquez. Perla cannot successfully evade liability thereon by
such a contention.
Every interest which the judgment debtor may have in property may be subjected to execution.19 In the
instant case, the judgment debtor Nelia Enriquez clearly had an interest in the proceeds of the third-party
liability insurance contract. In a third-party liability insurance contract, the insurer assumes the obligation of
paying the injured third party to whom the insured is liable. 20 The insurer becomes liable as soon as the
liability of the insured to the injured third person attaches. Prior payment by the insured to the injured third
person is not necessary in order that the obligation of the insurer may arise. From the moment that the
insured became liable to the third person, the insured acquired an interest in the insurance contract, which
interest may be garnished like any other credit. 21
Petitioner also contends that in order that it may be held liable under the third-party liability insurance, a
separate action should have been commenced by private respondents to establish petitioner's liability.
Petitioner invokesEconomic Insurance Company, Inc. vs. Torres, 22 which stated:
It is clear from Section 45, Rule 39 that if a persons alleged to have property of the judgment
debtor or to be indebted to him claims an interest in the property adverse to him or denies
the debt, the court may only authorize the judgment creditor to institute an action against
such person for the recovery of such interest or debt. Said section does not authorize the
court to make a finding that the third person has in his possession property belonging to the
judgment debtor or is indebted to him and to order said third person to pay the amount to
the judgment creditor.
It has been held that the only power of the court in proceedings supplemental to execution is
to niake an order authorizing the creditor to sue in the proper court to recover an
indebtedness due to the judgment debtor. The court has no jurisdiction to try summarily the
question whether the third party served with notice of execution and levy is indebted to
defendant when such indebtedness is denied. To make an order in relation to property
which the garnishee claimed to own in his own right, requiring its application in satisfaction
of judgment of another, would be to deprive the garnishee of property upon summary
proceeding and without due process of law. (Emphasis supplied)
But reliance by petitioner on the case of Economic Insurance Company, Inc. v. Torres (supra) is misplaced. The
Court there held that a separate action needs to be commenced when the garnishee "claims an interest in
the property adverse to him (judgment debtor) or denies the debt." In the instant case, petitioner Perla did
not deny before the trial court that it had indeed issued a third-party liability insurance policy in favor of the
judgment debtor. Petitioner moreover refrained from setting up any substantive defense which it might have
against the insured-judgment debtor. The only ground asserted by petitioner in its "Motion for
Reconsideration of the Order dated August 6, 1979 and to Quash Notice of Garnishment" was lack of
jurisdiction of the trial court for failure to implead it in the case by serving it with summons. Accordingly, Rule
39, Section 45 of the Rules of Court is not applicable in the instant case, and we see no need to require a
separate action against Perla: a writ of garnishment suffices to hold petitioner answerable to the judgment
creditor. If Perla had any substantive defenses against the judgment debtor, it is properly deemed to have
waived them by laches.
WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED for having been filed out of time
and for lack of merit. The assailed Orders of the trial court are hereby AFFIRMED. Costs against petitioner.
This Decision is immediately executory.
SO ORDERED.
37. G.R. No. 76101-02 September 30, 1991 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.
38. [1992V543] SUN INSURANCE OFFICE, LTD., petitioner, vs. THE HON. COURT OF APPEALS and
NERISSA LIM, respondents.1992 July 171st DivisionG.R. No. 92383D E C I S I O N
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife
Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that there
was no suicide. It argued, however, that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at
about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was in a
happy mood (but not drunk) and was playing with his handgun, from which he had previously removed
the magazine. As she watched the television, he stood in front of her and pointed the gun at her. She
pushed it aside and said it might be loaded. He assured her it was not and then pointed it to his temple.
The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The
petitioner was sentenced to pay her P200,000.00, representing the face value of the policy, with interest
at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P50,000.00 as actual
and compensatory damages; and P5,000.00 as attorney's fees, plus the cost of the suit. This decision
was affirmed on appeal, and the motion for reconsideration was denied. 3 The petitioner then came to
this Court of Appeals for approving the payment of the claim and the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification in law, and when
used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by change or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that 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 case, and therefore not expected. 4
An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence or
casualty to the insured without his design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected and
independent and unforeseen occurrence that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the insurance contract and contends
that the private petitioner's claim is barred by such provision. It is there stated:
Exceptions
The company shall not be liable in respect of.
1. Bodily injury.
xxx xxx xxx
b. consequent upon.
i) The insured persons attempting to commit suicide or wilfully exposing himself to needless peril
except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that
the insured willfully exposed himself to needless peril and thus removed himself from the coverage of
the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless
peril are in pari materia because they both signify a disregard for one's life. The only difference is in
degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless
risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device may not actually be intending to commit
suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing himself to
needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to his temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per se
dangerous and should therefore be handled cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressed assured her that the gun
was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was
precisely intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance polices were never intended to reward the insured for his tendency to show off or
for his miscalculations. They were intended to provide for contingencies. Hence, when I miscalculate and
jump from the Quezon Bridge into the Pasig River in the belief that I can overcome the current, I have
wilfully exposed myself to peril and must accept the consequences of my act. If I drown I cannot go to
the insurance company to ask them to compensate me for my failure to swim as well as I thought I
could. The insured in the case at bar deliberately put the gun to his head and pulled the trigger. He
wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance
company to ask for compensation. That might frighten the insurance people to death. We also agree
that under the circumstances narrated, his
beneficiary would not be able to collect on the insurance policy for it is clear that when he braved the
currents below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below
were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent
his widow from recovering from the insurance policy he obtained precisely against accident. There is
nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if
the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by
negligence. There are only four exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar. *
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the
assured. There is no reason to deviate from this rule, especially in view of the circumstances of this case
as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue
raised in this case is, as the petitioner correctly observed, one of first impression. It is evident that the
petitioner was acting in good faith when it resisted the private respondent's claim on the ground that
the death of the insured was covered by the exception. The issue was indeed debatable and was clearly
not raised only for the purpose of evading a legitimate obligation. We hold therefore that the award of
moral and exemplary damages and of attorney's fees is unjust and so must be disapproved.
In order that a person may be made liable to the payment of moral damages, the law requires that his
act be wrongful. The adverse result of an action does not per se make the act wrongful and subject the
act or to the payment of moral damages. The law could not have meant to impose a penalty on the right
to litigate; such right is so precious that moral damages may not be charged on those who may exercise
it erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the
action wrongful because in most cases one party will lose; we would be imposing an unjust condition or
limitation on the right to litigate. We hold that the award of moral damages in the case at bar is not
justified by the facts and circumstances, as well as the law.
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the
fact of winning alone that entitles him to recover such damages of the exceptional circumstances
enumerated in Art. 2208.
Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney's fees thereby
putting premium on the right to litigate which should not be so. For those expenses, the law deems the
award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED insofar as it holds the
petitioner liable to the private respondent in the sum of P200,000.00 representing the face value of the
insurance contract, with interest at the legal rate from the date of the filing of the complaint until the
full amount is paid, but MODIFIED with the deletion of all awards for damages, including attorney's fees,
except the costs of the suit.
SO ORDERED.
39. [1982V504] REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-
appellants, vs. MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST
INSTANCE OF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.1982 Sep 301st
DivisionG.R. No. L-34200D E C I S I O N
VASQUEZ, J.:
The question of law raised in this case that justified a direct appeal from a decision of the Court of First
Instance Rizal, Branch V, Quezon City, to be taken directly to the Supreme Court is whether or not the
acceptance by the private respondent insurance corporation of the premium and the issuance of the
corresponding certificate of insurance should be deemed a waiver of the exclusionary condition of
overage stated in the said certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz applied with respondent
insurance corporation for insurance coverage against accident and injuries. She filled up the blank
application form given to her and filed the same with the respondent insurance corporation. In the said
application form which was dated April 15, 1969, she gave the date of her birth as July 11, 1904. On the
same date, she paid the sum of P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the respondent insurance corporation. (Rollo, p.
27,) Upon the filing of said application and the payment of the premium on the policy applied for, the
respondent insurance corporation issued to Carmen O. Lapuz its Certificate of Insurance No. 128866.
(Rollo, p. 28.) The policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuz died in
a vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the named beneficiary
in the policy, filed her claim for the proceeds of the insurance, submitting all the necessary papers and
other requisites with the private respondent. Her claim having been denied, Regina L. Edillon instituted
this action in the Court of First Instance of Rizal on August 27, 1969.
In resisting the claim of the petitioner, the respondent insurance corporation relies on a provision
contained in the Certificate of Insurance, excluding its liability to pay claims under the policy in behalf of
"persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years . . . . " It is
pointed out that the insured being over sixty (60) years of age when she applied for the insurance
coverage, the policy was null and void, and no risk on the part of the respondent insurance corporation
had arisen therefrom.
The trial court sustained the contention of the private respondent and dismissed the complaint; ordered
the petitioner to pay attorney's fees in the sum of ONE THOUSAND (P1,000.00) PESOS in favor of the
private respondent; and ordered the private respondent to return the sum of TWENTY (P20.00) PESOS
received by way of premium on the insurancy policy. It was reasoned out that a policy of insurance
being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or she
is entering into; the insured in this case, upon learning from its terms that she could not have been
qualified under the conditions stated in said contract, what she should have done is simply to ask for a
refund of the premium that she paid. It was further argued by the trial court that the ruling calling for a
liberal interpretation of an insurance contract in favor of the insured and strictly against the insurer may
not be applied in the present case in view of the peculiar facts and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of the insured Carmen O. Lapuz was not concealed
to the insurance company. Her application for insurance coverage which was on a printed form
furnished by private respondent and which contained very few items of information clearly indicated
her age of the time of filing the same to be almost 65 years of age. Despite such information which could
hardly be overlooked in the application form, considering its prominence thereon and its materiality to
the coverage applied for, respondent insurance corporation received her payment premium and issued
the corresponding certificate of insurance without question. The accident which resulted in the death
the insured, a risk covered by the policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the
insurance coverage was applied for. There was sufficient time for the private respondent to process the
application and to notice that the applicant was over 60 years of age and thereby cancel the policy on
that ground if it was minded to do so. If the private respondent failed to act, it is either because it was
willing to waive such disqualification; or, through the negligence or incompetence of its employees for
which it has only itself to blame, it simply overlooked such fact. Under the circumstances, the insurance
corporation is already deemed in estoppel. It inaction to revoke the policy despite a departure from the
exclusionary condition contained in the said policy constituted a waiver of such condition, as was held in
the case of "Que Chee Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil, 85. This case involved a claim on
an insurance policy which contained a provision as to the installation of fire hydrants the number of
which depended on the height of the external wall perimeter of the bodega that was insured. When it
was determined that the bodega should have eleven (11) fire hydrants in the compound as required by
the terms of the policy, instead of only two (2) that it had, the claim under the policy was resisted on
that ground. In ruling that the said deviation from the terms of the policy did not prevent the claim
under the same, this Court stated the following:
"We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to
claim violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the
number of hydrants demanded therein never existed from the very beginning, the appellant
nevertheless issued the policies in question subject to such warranty, and received the corresponding
premiums. It would be perilously close to conniving at fraud upon the insured to allow appellant to claim
now as void ab initio the policies that it had issued to the plaintiff without warning of their fatal defect,
of which it was informed, and after it had misled the defendant into believing that the policies were
effective.
The insurance company was aware, even before the policies were issued, that in the premises insured
there were only two fire hydrants installed by Que Chee Gan and two others nearby, owned by the
municipality of Tabaco, contrary to the requirements of the warranty in question. Such fact appears
from positive testimony for the insured that appellant's agents inspected the premises; and the simple
denials of appellant's representative (Jamiczon) can not overcome that proof. That such Inspection was
made it moreover rendered probable by its being a prerequisite for the fixing of the discount on the
premium to which the insured was entitled, since the discount depended on the number of hydrants,
and the fire fighting equipment available (See 'Scale of Allowances' to which the policies were expressly
made subject). The law, supported by a long line of cases, is expressed by American Jurisprudence (Vol.
29, pp. 611-612) to be as follows:
'It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts,
and the insurer is stopped thereafter from asserting the breach of such conditions. The law is charitable
enough to assume, in the absence of any showing to the contrary, that an insurance company intends to
execute a valid contract in return for the premium received; and when the policy contains a condition
which renders it voidable at its inception, and this result is known to the insurer, it will be presumed to
have intended to waive the conditions and to execute a binding contract, rather than to have deceived
the insured into thinking he is insured when in fact he is not, and to have taken his money without
consideration.' (29 Am. Jur., Insurance, section 807, at pp. 611-612.)
The reason for the rule is not difficult to find.
'The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's
money for a policy of insurance which it then knows to be void and of no effect, though it knows as it
must, that the assured believes it to valid and binding, is so contrary to the dictates of honesty and fair
dealing, and so closely related to positive fraud, as to be abhorrent to fairminded men. It would be to
allow the company to treat the policy as valid long enough to get the premium on it, and leave it at
liberty to repudiate it the next moment. This cannot be deemed to be the real intention of the parties.
To hold that a literal construction of the policy expressed the true intention of the company would be to
indict it, for fraudulent poses and designs which we cannot believe it to be guilty of.' (Wilson vs.
Commercial Union Assurance Co., 96 Atl. 540, 543-544)."
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., 65
SCRA 134, which involved a violation of the provision of the policy requiring the payment of premiums
before the insurance shall become effective. The company issued the policy upon the execution of a
promissory note for the payment of the premium. A check given subsequent by the insured as partial
payment of the premium was dishonored for lack of funds. Despite such deviation from the terms of the
policy, the insurer was held liable.
"Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay the
insurance premium within thirty (30) days from the effective date of policy. By so doing, it has impliedly
agreed to modify the tenor of the insurance policy and in effect, waived the provision therein that it
would only pay for the loss or damage in case the same occurs after the payment of the premium.
Considering that the insurance policy is silent as to the mode of payment, Capital Insurance is deemed
to have accepted the promissory note in payment of the premium. This rendered the policy immediately
operative on the date it was delivered. The view taken in most cases in the United States:
"'. . . is that although one of conditions of an insurance policy is that 'it shall not be valid or binding until
the first premium is paid', if it is silent as to the mode of payment, promissory notes received by the
company must be deemed to have been accepted in payment of the premium. In other words, a
requirement for the payment of the first or initial premium in advance or actual cash may be waived by
acceptance of a promissory note. . . .'"
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu thereof, the
private respondent insurance corporation is hereby ordered to pay the petitioner the sum of TEN
THOUSAND (P10,000) PESOS as proceeds of Insurance Certificate No. 128866 with interest at the legal
rate from May 31, 1969 until fully paid, the further sum of TWO THOUSAND (P2,000.00) PESOS as and
for attorney's fees, and the costs of suit.
SO ORDERED.
40. [1982V203] ROSITA YAP VDA. DE CHI, petitioner, vs. HON. SANTIAGO O. TAADA, Presiding
Judge of Br. V of the Court of First Instance of Cebu, SOUTHERN ISLANDS HOSPITAL and
CHONG HUA HOSPITAL, respondents.1982 Jan 302nd DivisionG.R. No. L-27274D E C I S I O N
CONCEPCION JR., J.:
Petition for certiorari, prohibition, and injunction with preliminary injunction, to annul and set aside the
orders of the respondent Court issued in Civil Case No. R-7400 of the Court of First Instance of Cebu,
entitled: "Rosita Yap Vda. de Chi, plaintiff versus Alfonso Corominas, Jr. and Simplicio Lawas,
defendants; Alfonso Corominas, Jr., third-party plaintiff, versus Capital Insurance & Surety Co., Inc.,
third-party," dated July 23 and July 30, 1966, directing the defendants and the surety company to pay
the Southern Islands General Hospital and the Chong Hua Hospital the sums of P686.35 and P4,238.56,
respectively, as well as the order dated August 13, 1966, denying the motion for the reconsideration of
said orders.
As a result of a vehicular accident wherein a passenger bus, owned and operated by Alfonso Corominas,
Jr., and driven by Simplicio Lawas, fell into an embankment in Lobo, Sogod, Cebu on June 8, 1961,
thereby causing serious physical injuries to one of its passengers therein, herein petitioner, Rosita Yap
Vda. de Chi, which necessitated her hospitalization for more than five months and rendered her a
helpless invalid needing constant care and medical attention, an action for recovery of damages was
filed by the petitioner against Alfonso Corominas, Jr., and Simplicio Lawas with the Court of First
Instance of Cebu, docketed therein as Civil Case No. R-7400. Since the vehicle was insured with the
Capital Insurance & Surety Co., Inc., a third-party complaint was filed against the surety company.
After trial thereof, the respondent Court rendered a decision on July 3, 1964, the dispositive portion of
which reads, as follows:
"WHEREFORE, based on all the foregoing considerations, judgment is hereby rendered in favor of the
plaintiff and against the defendants Alfonso Corominas, Jr., and Simplicio Lawas, ordering the latter to
pay jointly and severally, to the former, the said total sum of P40,302.31, plus costs; and, in turn, the
third-party defendant, the Capital Insurance and Surety Co., Inc. is hereby adjudged and ordered to pay
the same amount of P40,302.31 to the said defendant Alfonso Corominas, Jr., by way of indemnifying
the said defendant, as third-party plaintiff, is condemned and ordered to pay to the plaintiff but the said
third-party defendant, under this judgment is simultaneously adjudged and ordered to make the
necessary indemnification to the said Alfonso Corominas, Jr., irrespective as to whether the latter has
actually or not actually made partial full payment and settlement to the plaintiff of the said amount of
P40,302.31, plus costs, which he is ordered to pay to the plaintiff once this judgment has become final
and executory." [1]
The judgment having become final, a writ of execution was issued against the defendants and the surety
company. Thereafter, the herein petitioner and the surety company entered into an agreement
providing for a mode of payment of the judgment, and of the amount of P40,302.31, only P6,700.00 has
remained unpaid up to the filing of the instant petition. [2]
On July 23, 1966, the respondent Court, upon motion of the Southern Islands Hospital, issued an order
which reads, as follows:
"Considering the motion of the Southern Islands Hospital, represented by the fiscal, to order the Capital
insurance Co. to pay the said hospital directly the sum of P686.35 out of the balance of the judgment,
and it appearing that the claim of the hospital is just and legal, being recognized in the judgment.
"WHEREFORE, the motion is hereby granted. The Capital Insurance & Surety Co., Inc. is hereby ordered
to pay directly to the Southern Islands Hospital the amount of P686.35 out of the residue of the unpaid
judgment." [3]
On July 30, 1966, the respondent Court, upon motion, issued another order, requiring the defendant
Alfonso Corominas, Jr. and the Capital Insurance and Surety Co., Inc., to pay the herein respondent,
Chong Hua Hospital, the amount of P4,238.56. [4]
On August 10, 1966, the herein petitioner filed a motion for the reconsideration of the said orders,
claiming that the issuance of the orders in question was absolutely and clearly beyond the power and
jurisdiction of the respondent Court in that the herein respondents Southern Islands Hospital and Chong
Hua Hospital are not parties to the case and that said orders have the effect of altering, changing,
modifying and varying the judgment, which has long become final and almost completely executed, as
well as of disturbing the settled and adjudicated rights of the parties in said Civil Case No. R - 7400; and
that, granting arguendo, that the respondents Southern Islands Hospital and Chong Hua Hospital have
individual claims against the petitioner, the same should be ventilated in separate and independent
actions before courts of competent jurisdiction, where the petitioner could be given a chance or
opportunity to exercise her fundamental right to explain or to set up defenses, such as deposits made
and other defenses personal to her - matters or issues which are new and which were not treated or
considered by the respondent Court at the time of the rendition of the judgment. [5]
The respondents filed their opposition thereto, [6] and on August 13, 1966 the respondent Court
denied the motion for reconsideration. [7]
Hence, the instant petition to annul and set aside the orders of July 23, July 30, and August 13, 1966.
The private respondent, Chong Hua Hospital, [8] maintains that no error had been committed by the
respondent Court although the private respondent, Chong Hua Hospital, was not a formal party in the
case since the petitioner had been found to have incurred the amount of P4,238.56, as expenses for her
treatment and hospitalization and confinement in the Chong Hua Hospital and the respondent Court
was merely executing that portion of the decision when it ordered the defendants and the surety
company to pay said amount to the private respondent.
Technically it was error for the respondent Court to order the defendants and the surety company to
pay the respondents Southern Islands Hospital and Chong Hua Hospital the amounts of P686.35 and
P4,238.56, respectively, from the balance of the judgment yet to be paid to the herein petitioner by the
defendants and the surety company since the said respondents are not parties in the case. The
judgment sought to be executed specifically ordered the defendants Alfonso Corominas, Jr. and
Simplicio Lawas to pay, jointly and severally, the plaintiff Rosita Yap Vda. de Chi, the amount of
P40,302.31, plus costs; and for the surety company to indemnify the defendant Alfonso Corominas, Jr.
the amount of P40,302.31, which the said defendant is ordered to pay the plaintiff. Consequently, to
order the payment of certain portions thereof to the herein respondent hospitals, Southern Islands
Hospital and Chong Hua Hospital, would be to modify, alter, or vary the terms of the judgment. While
said respondents may have an interest over the said amounts claimed by them, their remedy was not to
file a mere ex-parte motions before the court of competent jurisdiction, since the judgment rendered in
the case had already become final and almost executed and the law allows no intervention after the trial
has been terminated. [9]
On the other hand, it cannot also be denied that the sums of money in question have been awarded to
the herein petitioner as expenses for her hospitalization in the respondent hospitals and are based upon
petitioner's own evidence. [10] To order the filing of a separate and independent action to recover a
claim where the respondent hospitals concerned will have to prove exactly a claim which had already
been tried, litigated and adjudged would unduly result in multiplicity of suits. [11]
Considering that the herein respondents claim that the herein petitioner has not yet paid the amounts
she incurred for hospitalization, the interests of justice will be best served if a hearing be conducted to
determine whether or not the hospital bills have been paid, instead of requiring the respondent
hospitals to file separate actions to recover their respective claims.
WHEREFORE, judgment is hereby rendered setting aside the orders issued by the respondent court on
July 23, 1966, July 30, 1966, and August 13, 1966, in Civil Case No. R-7400 of the Court of First Instance
of Cebu, and ordering the respondent court to conduct a hearing, after proper notice to the parties, to
determine whether or not the hospital bills incurred by the petitioner Rosita Yap Vda. de Chi with the
Southern Islands General Hospital and the Chong Hua Hospital have been paid, and thereafter, to render
a decision accordingly. No costs.
SO ORDERED.
41. [1988V951] SHERMAN SHAFER, petitioner, vs. HON. JUDGE, REGIONAL TRIAL COURT
OLONGAPO CITY, BRANCH 75, AND MAKATI INSURANCE COMPANY, INC., respondents.1988
Nov 142nd DivisionG.R. No. 78848D E C I S I O N
PADILLA, J.:
This is a petition for review on certiorari of the Order ** of the Regional Trial Court, Olongapo City,
Branch 75, dated 24 April 1986 dismissing petitioner's third party complaint filed in Criminal Case No.
381-85, a prosecution for reckless imprudence resulting in damage to property and serious physical
injuries. 1
On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No. 0889, 2 over his
Ford Laser car with Plate No. CFN-361 from Makati Insurance Company, Inc., for third party liability
(TPL). During the effectivity of the policy, an information 3 for reckless imprudence resulting in damage
to property and serious physical injuries was filed against petitioner. The information reads as follows:
"That on or about the seventeeth (17th) day of May 1985, in the City of Olongapo, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, being then the driver and in
actual physical control of a Ford Laser car bearing Plate No. CFN-361, did then and there wilfully,
unlawfully and criminally drive, operate and manage the said Ford Laser car in a careless, reckless and
imprudent manner without exercising reasonable caution, diligence and due care to avoid accident to
persons and damage to property and in disregard of existing traffic rules and regulations, causing by
such carelessness, recklessness and imprudence the said Ford Laser car to hit and bump a Volkswagen
car bearing Plate No. NJE-338 owned and driven by Felino Ilano y Legaspi, thereby causing damage in
the total amount of P12, 345.00 Pesos, Philippine Currency, and as a result thereof one Jovencio
Poblete, Sr. who was on board of the said Volkswagen car sustained physical injuries, to wit:
'1. 2 cm. laceration of left side of tongue.
'2. 6 cm. laceration with partial transection of muscle (almost full thickness) left side of face.
'3. Full thickness laceration of lower lip and adjacent skin.
which injuries causing [sic] deformity on the face." 4
The owner of the damaged Volkswagen car filed a separate civil action against petitioner for damages,
while Jovencio Poblete, Sr., who was a passenger in the Volkswagen car when allegedly hit and bumped
by the car driven by petitioner, did not reserve his right to file a separate civil action for damages.
Instead, in the course of the trial in the criminal case, Poblete, Sr. testified on his claim for damages for
the serious physical injuries which he claimed to have sustained as a result of the accident.
Upon motion, petitioner was granted leave by the former presiding judge of the trial court to file a third
party complaint against the herein private respondent, Makati Insurance Company, Inc. Said insurance
company, however, moved to vacate the order granting leave to petitioner to file a third party
complaint against it and/or to dismiss the same. 5
On 24 April 1987, the court a quo issued an order dismissing the third party complaint on the ground
that it was premature, based on the premise that unless the accused (herein petitioner) is found guilty
and sentenced to pay the offended party. (Poblete, Sr.) indemnity or damages, the third party complaint
is without cause of action. The court further stated that the better procedure is for the accused
(petitioner) to wait for the outcome of the criminal aspect of the case to determine whether or not the
accused, also the third party plaintiff, has a cause of action against the third party defendant for the
enforcement of its third party liability (TPL) under the insurance contract. 6 Petitioner moved for
reconsideration of said order, but the motion was denied; 7 hence, this petition.
It is the contention of herein petitioner that the dismissal of the third party complaint amounts to a
denial or curtailment of his right to defend himself in the civil aspect of the case. Petitioner further
raises the legal question of whether the accused in a criminal action for reckless imprudence, where the
civil action is jointly prosecuted, can legally implead the insurance company as third party defendant
under its private car insurance policy, as one of his modes of defense in the civil aspect of said
proceedings.
On the other hand, the insurance company submits that a third party complaint is, under the rules,
available only if the defendant has a right to demand contribution, indemnity, subrogation or any other
relief in respect of plaintiffs claim, to minimize the number of lawsuits and avoid the necessity of
bringing two (2) or more suits involving the same subject matter. The insurance company further
contends that the contract of motor vehicle insurance, the damages and attorney's fees claimed by
accused third party plaintiff are matters entirely different from his criminal liability in the reckless
imprudence case, and that petitioner has no cause of action against the insurer until petitioner's liability
shall have been determined by final judgment, as stipulated in the contract of insurance. 8
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as
a result of a negligent operation and use of motor vehicles. 9 The victims and/or their defendants are
assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners.
The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for loss
or damage. Where an insurance policy insures directly against liability, the insurer's liability accrues
immediately upon the occurrence of the injury or event upon which the liability depends, and does not
depend on the recovery of judgment by the injured party against the insured. 10
The injured for whom the contract of insurance is intended can sue directly the insurer. The general
purpose of statutes enabling an injured person to proceed directly against the insurer is to protect
injured persons against the insolvency of the insured who causes such injury, and to give such injured
person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally
construed so that their intended purpose may be accomplished. It has even been held that such a
provision creates a contractual relation which inures to the benefit of any and every person who may be
negligently injured by the named insured as if such injured person were specifically named in the policy.
11
In the event that the injured fails or refuses to include the insurer as party defendant in his claim for
indemnity against the insured, the latter is not prevented by law to avail of the procedural rules
intended to avoid multiplicity of suits. Note even a "no action" clause under the policy which requires
that a final judgment be first obtained against the insured and that only thereafter can the person
insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding
multiplicity of suits. 12
In the instant case, the court a quo erred in dismissing petitioner's third party complaint on the ground
that petitioner had no cause of action yet against the insurance company (third party defendant). There
is no need on the part of the insured to wait for the decision of the trial court finding him guilty of
reckless imprudence. The occurrence of the injury to the third party immediately gave rise to the liability
of the insurer under its policy.
A third party complaint is a device allowed by the rules of procedure by which the defendant can bring
the original into the original suit a party against whom he will have a claim for indemnity or
remuneration as a result of a liability established against him in the original suit. 13 Third party
complaints are allowed to minimize the number of lawsuits and avoid the necessity of bringing two (2)
or more actions involving the same subject matter. They are predicated on the need for expediency and
the avoidance of unnecessary lawsuits. If it appears probable that a second action will result if the
plaintiff prevails, and that this result can be avoided by allowing the third party complaint to remain,
then the motion to dismiss the third party complaint should be denied. 14
Respondent insurance company's contention that the third party complaint involves extraneous matter
which will only clutter, complicate and delay the criminal case is without merit. An offense causes two
(2) classes of injuries - the first is the social injury produced by the criminal act which is sought to be
repaired thru the imposition of the corresponding penalty, and the second is the personal injury caused
to the of the victim of the crime, which injury is sought to be compensated thru indemnity, which is civil
in nature. 15
In the instant case, the civil aspect of the offense charged, i.e., serious physical injuries allegedly
suffered by Jovencio Poblete, Sr., was impliedly instituted with the criminal case. Petitioner may thus
raise all defenses available to him insofar as the criminal and civil aspects of the case are concerned. The
claim of petitioner for payment of indemnity to the injured third party, under the insurance policy, for
the alleged bodily injuries caused to said third party, arose from the offense charged in the criminal
case, from which the injured (Jovencio Poblete, Sr.) has sought to recover civil damages. Hence, such
claim of petitioner against the insurance company cannot be regarded as not related to the criminal
action.
WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April 1987 is SET ASIDE
and a new one entered admitting petitioner's third party complaint against the private respondent
Makati Insurance Company, Inc.
SO ORDERED.
42. G.R. No. L-49699 August 8, 1988 PERLA COMPANIA de SEGUROS, INC., petitioner,
vs.HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance of Camarines
Norte, Branch III, ERNESTO A. RAMOS and GOYENA ZENAROSA-RAMOS, for themselves and as
Guardian Ad Litem for Minors JOBET, BANJO, DAVID and GRACE all surnamed RAMOS, FERNANDO
M. ABCEDE, SR., for himself and Guardian Ad Litem for minor FERNANDO G. ABCEDE, JR., MIGUEL
JEREZ MAGO as Guardian Ad Litem for minors ARLEEN R. MAGO, and ANACLETA J.
ZENAROSA., respondents.
Jose B. Sanez for petitioner.
James B. Pajares for private respondents.
CORTES, J.:
The instant petition for certiorari and prohibition with preliminary injunction concerns the ability of insurers
under the "no fault indemnity" provision of the Insurance Code. *
On December 27, 1977, in a collision between the IH Scout in which private respondents were riding and a
Superlines bus along the national highway in Sta. Elena, Camarines Norte, private respondents sustained
physics injuries in varying degrees of gravity. Thus, they filed with the Court of First Instance of Camarines
Norte on February 23,1978 a complaint for damages against Superlines, the bus driver and petitioner, the
insurer of the bus [Rollo, pp. 27-39.] The bus was insured with petitioner for the amount of P50,000.00 as and
for passenger liability and P50,000.00 as and for third party liability. The vehicle in which private respondents
were riding was insured with Malayan Insurance Co.
Even before summons could be served, respondent judge issued an order dated March 1, 1978 [Rollo, pp. 40-
41], the pertinent portion of which stated:
The second incident is the prayer for an order of this court for the Insurance Company, Perla
Compania de Seguros, Inc., to pay immediately the P5,000.00 under the "no fault clause" as
provided for under Section 378 of the Insurance Code, and finding that the requisite
documents to be attached in the record, the said Insurance Company is therefore directed
to pay the plaintiffs (private respondents herein) within five (5) days from receipt of this
order.
Petitioner denied in its Answer its alleged liability under the "no fault indemnity" provision [Rollo, p. 44] and
likewise moved for the reconsideration of the order. Petitioner held the position that under Sec. 378 of the
Insurance Code, the insurer liable to pay the P5,000.00 is the insurer of the vehicle in which private
respondents were riding, not petitioner, as the provision states that "[i]n the case of an occupant of a vehicle,
claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting
from." Respondent judge, however, denied reconsideration. A second motion for reconsideration was filed
by petitioner. However, in an order dated January 3, 1979, respondent judge denied the second motion for
reconsideration and ordered the issuance of a writ of execution [Rollo, p. 69.] Hence, the instant petition
praying principally for the annulment and setting aside of respondent judge's orders dated March 1, 1978
and January 3, 1979.
The Court issued a temporary restraining order on January 24,1979 [Rollo pp. 73-74.]
The sole issue raised in this petition is whether or not petitioner is the insurer liable to indemnify private
respondents under Sec. 378 of the Insurance Code.
The key to the resolution of the issue is of courts e Sec. 378, which provides:
Sec. 378. Any claim for death or injury to any passenger or third party pursuant to the
provision of this chapter shall be paid without the necessity of proving fault or negligence of
any kind. Provided, That for purposes of this section
(i) The indemnity in respect of any one person shall not exceed five thousand pesos;
(ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to
substantiate the claim:
(a) Police report of accident, and
(b) Death certificate and evidence sufficient to establish the proper payee,
or
(c) Medical report and evidence of medical or hospital disbursement in
respect of which refund is claimed;
(iii) Claim may be made against one motor vehicle only. In the case of an occupant of a
vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding,
mounting or dismounting from. In any other case, claim shall lie against the insurer of the
directly offending vehicle. In all cases, the right of the party paying the claim to recover
against the owner of the vehicle responsible for the accident shall be maintained. [Emphasis
supplied.]
From a reading of the provision, which is couched in straight-forward and unambiguous language, the
following rules on claims under the "no fault indemnity" provision, where proof of fault or negligence is not
necessary for payment of any claim for death Or injury to a passenger or a third party, are established:
1. A claim may be made against one motor vehicle only.
2. If the victim is an occupant of a vehicle, the claim shall lie against the insurer of the vehicle. in which he is
riding, mounting or dismounting from.
3. In any other case (i.e. if the victim is not an occupant of a vehicle), the claim shall lie against the insurer of
the directly offending vehicle.
4. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible
for the accident shall be maintained.
The law is very clear the claim shall lie against the insurer of the vehicle in which the "occupant" ** is
riding, and no other. The claimant is not free to choose from which insurer he will claim the "no fault
indemnity," as the law, by using the word "shall, makes it mandatory that the claim be made against the
insurer of the vehicle in which the occupant is riding, mounting or dismounting from.
That said vehicle might not be the one that caused the accident is of no moment since the law itself provides
that the party paying the claim under Sec. 378 may recover against the owner of the vehicle responsible for
the accident. This is precisely the essence of "no fault indemnity" insurance which was introduced to and
made part of our laws in order to provide victims of vehicular accidents or their heirs immediate
compensation, although in a limited amount, pending final determination of who is responsible for the
accident and liable for the victims'injuries or death. In turn, the "no fault indemnity" provision is part and
parcel of the Insurance Code provisions on compulsory motor vehicle ability insurance [Sec. 373-389] and
should be read together with the requirement for compulsory passenger and/or third party liability insurance
[Sec. 377] which was mandated in order to ensure ready compensation for victims of vehicular accidents.
Irrespective of whether or not fault or negligence lies with the driver of the Superlines bus, as private
respondents were not occupants of the bus, they cannot claim the "no fault indemnity" provided in Sec. 378
from petitioner. The claim should be made against the insurer of the vehicle they were riding. This is very
clear from the law. Undoubtedly, in ordering petitioner to pay private respondents the 'no fault indemnity,'
respondent judge gravely abused his discretion in a manner that amounts to lack of jurisdiction. The issuance
of the corrective writ of certiorari is therefore warranted.
WHEREFORE, the petition is GRANTED and respondent judge's order dated March 1, 1978, requiring
petitioner to pay private respondents the amount of P5,000.00 as "no fault indemnity' under Sec. 378 of the
Insurance Code, and that of January 3, 1979, denying the second motion for reconsideration and issuing a
writ of execution, are ANNULLED and SET ASIDE. The temporary restraining order issued by the Court on
January 24, 1979 is made permanent.
SO ORDERED.
43. [1997V372] TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner vs. HON. COURT OF
APPEALS and VICENTE MENDOZA, respondents.1997 May 221st DivisionG.R. No. 82036D E C I
S I O N
HERMOSISIMA, JR., J.:
The petition herein seeks the review and reversal of the decision 1 of respondent Court of Appeals 2
affirming in toto the judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by private
respondent Vicente Mendoza, Jr. as heir of his mother who was killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and
the alleged insurer of the vehicle which featured in the vehicular accident into one complaint.
The erring taxicab was allegedly covered by a third-party liability insurance policy issued by petitioner
Travellers Insurance & Surety Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza
de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman
corner Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons
witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After
the bumping, the old woman was seen sprawled on the pavement. Right away, the good Samaritan that
he was, Mavilla ran towards the old woman and held her on his lap to inquire from her what had
happened, but obviously she was already in shock and could not talk. At this moment, a private jeep
stopped. With the driver of that vehicle, the two helped board the old woman on the jeep and brought
her to the Mary Johnston Hospital in Tondo.
. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to
Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue
when Lopez saw the plaintiff and his brother who were crying near the scene of the accident. Upon
learning that the two were the sons of the old woman, Lopez told them what had happened. The
Mendoza brothers were then able to trace their mother at the Mary Johnston Hospital where they were
advised by the attending physician that they should bring the patient to the National Orthopedic
Hospital because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital where
she expired at 9:00 o'clock that same morning. Death was caused by "traumatic shock" as a result of the
severe injuries she sustained . . .
. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter was
running fast, so much so that because of the strong impact the old woman was thrown away and she fell
on the pavement. . . . In truth, in that related criminal case against defendant Dumlao . . . the trial court
found as a fact that therein accused "was driving the subject taxicab in a careless, reckless and
imprudent manner and at a speed greater than what was reasonable and proper without taking the
necessary precaution to avoid accident to persons . . . considering the condition of the traffic at the
place at the time aforementioned" . . . Moreover, the driver fled from the scene of the accident and
without rendering assistance to the victim. . . .
. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though not
necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which,
when it passed by him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon,
with baggage bar attached on the baggage compartment and with an antenae [sic] attached at the right
rear side. The same descriptions were revealed by Ernesto Lopez, who further described the taxi to have
. . . reflectorized decorations on the edges of the glass at the back . . . A third witness in the person of
Eulogio Tabalno . . . made similar descriptions although, because of the fast speed of the taxi, he was
only able to detect the last digit of the plate number which is "8". . . . [T]he police proceeded to the
garage of Lady Love Taxi and then and there they took possession of such a taxi and later impounded it
in the impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing
to that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.
. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi
bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle was driven last July 20,
1980 by one Rodrigo Dumlao. . ." . . . It was on the basis of this affidavit of the registered owner that
caused the police to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and
eventually convicted of the offense . . . . . . . [S]aid Dumlao absconded in that criminal case, specially at
the time of the promulgation of the judgment therein so much so that he is now a fugitive from justice.
6
Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady
Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondent's
mother. Subsequently, private respondent amended his complaint to include petitioner as the
compulsory insurer of the said taxicab under Certificate of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the "Heirs of the
late Feliza Vineza de Mendoza," and against defendants Rodrigo Dumlao, Armando Abellon and
Travellers Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the
former the following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate of
12% per annum from October 17, 1980, when the complaint was filed, until the said amount is fully
paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
SO ORDERED. 7
Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of
the trial court was affirmed by respondent appellate court. Petitioner's Motion for Reconsideration 8 of
September 22, 1987 was denied in a Resolution 9 dated February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady
Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-party liability
insurance, private respondent failed to file a written notice of claim with petitioner as required by
Section 384 of P.D. No. 612, otherwise known as the Insurance Code.
We find the petition to be meritorious.
I
When private respondent filed his amended complaint to implead petitioner as party defendant and
therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit
private respondent's mother, private respondent did not attach a copy of the insurance contract to the
amended complaint. Private respondent does not deny this omission.
It is significant to point out at this juncture that the right of a third person to sue the insurer depends on
whether the contract of insurance is intended to benefit third persons also or only the insured.
A policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured
shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . is one for
indemnity against liability; from the fact then that the insured is liable to the third person, such third
person is entitled to sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the
contract of insurance is intended to benefit third persons also or on the insured And the test applied has
been this: Where the contract provides for indemnity against liability to third persons, then third
persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against
actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely
to reimburse the insured for liability actually discharged by him thru payment to third persons, said third
persons' recourse being thus limited to the insured alone. 10
Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial
court could not have been able to apprise itself of the real nature and pecuniary limits of petitioner's
liability. More importantly, the trial court could not have possibly ascertained the right of private
respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial court
never saw nor read the insurance contract and learned of its terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love
taxicab that fatally hit private respondent's mother, considering that petitioner precisely presented the
defense of lack of insurance coverage before the trial court. Neither did the trial court issue a subpoena
duces tecum to have the insurance contract produced before it under pain of contempt.
We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly
and severally with the owner and the driver of the Lady Love taxicab, for damages accruing to private
respondent.
Apparently, the trial court did not distinguish between the private respondent's cause of action against
the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former
is based on torts and quasi-delicts while the latter is based on contract. Confusing these two sources of
obligations as they arise from the same act of the taxicab fatally hitting private respondent's mother,
and in the face of overwhelming evidence of the reckless imprudence of the driver of the Lady Love
taxicab, the trial court brushed aside its ignorance of the terms and conditions of the insurance contract
and forthwith found all three the driver of the taxicab, the owner of the taxicab, and the alleged insurer
of the taxicab jointly and severally liable for actual, moral and exemplary damages as well as attorney's
fees and litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent
appellate court grievously erred in not having reversed the trial court on this ground.
While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under
indemnity contracts against third-party liability does not mean that the insurer can be held solidarily
liable with the insured and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort. 11
Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors.
On the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice
Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification
that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may
be compelled by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding the
qualification made by the trial court. But, how can petitioner be obliged to pay the entire obligation
when the amount stated in its insurance policy with respondent Sio Choy for indemnity against third-
party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial court to
the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay
P29,103.00 is made solidary is an evident breach of the concept of a solidary obligation. 12
The above principles take on more significance in the light of the counter-allegation of petitioner that,
assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to only
P50,000.00, this being its standard amount of coverage in vehicle insurance policies. It bears repeating
that no copy of the insurance contract was ever proffered before the trial court by the private
respondent, notwithstanding knowledge of the fact that the latter's complaint against petitioner is one
under a written contract. Thus, the trial court proceeded to hold petitioner liable for an award of
damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial court
was under the erroneous presumption that petitioner could be found liable absent proof of the contract
and based merely on the proof of reckless imprudence on the part of the driver of the Lady Love taxicab
that fatally hit private respondent's mother.
II
Petitioner did not tire in arguing before the trial court and the respondent appellate court that,
assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private
respondent's cause of action against petitioner did not successfully accrue because he failed to file with
petitioner a written notice of claim within six (6) months from the date of the accident as required by
Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private respondent's mother, during
which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section
384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of claim setting forth
the amount of his loss, and/or the nature, extent and duration of the injuries sustained as certified by a
duly licensed physician. Notice of claim must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury
must be brought in proper cases, with the Commission or the Courts within one year from date of
accident, otherwise the claimant's right of action shall prescribe.
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled that the
one year prescription period to bring suit in court against the insurer should be counted from the time
that the insurer rejects the written claim filed therewith by the insured, the beneficiary or the third
person interested under the insurance policy. We explained:
It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to
hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner
company to prevent the filing of a formal action against it. Bearing in mind that if it succeeds in doing so
until one year lapses from the date of the accident it could set up the defense of prescription, petitioner
company made private respondents believe that their claims would be settled in order that the latter
will not find it necessary to immediately bring suit. In violation of its duties to adopt and implement
reasonable standards for the prompt investigation of claims and to effectuate prompt, fair and equitable
settlement of claims, and with manifest bad faith, petitioner company devised means and ways of
stalling the settlement proceeding . . . No steps were taken to process the claim and no rejection of said
claim was ever made even if private respondent had already complied with all the requirements. . . .
This Court has made the observation that some insurance companies have been inventing excuses to
avoid their just obligations and it is only the State that can give the protection which the insuring public
needs from possible abuses of the insurers. 14
It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically
provide that "action or suit for recovery of damage due to loss or injury must be brought in proper
cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise the
claimant's right of action shall prescribe". 15
We have certainly ruled with consistency that the prescriptive period to bring suit in court under an
insurance policy, begins to run from the date of the insurer's rejection of the claim filed by the insured,
the beneficiary or any person claiming under an insurance contract. This ruling is premised upon the
compliance by the persons suing under an insurance contract, with the indispensable requirement of
having filed the written claim mandated by Section 384 of the insurance Code before and after its
amendment. Absent such written claim filed by the person suing under an insurance contract, no cause
of action accrues under such insurance contract, considering that it is the rejection of that claim that
triggers the running of the one-year prescriptive period to bring suit in court, and there can be no
opportunity for the insurer to even reject a claim if none has been filed in the first place, as in the
instant case.
The one-year period should instead be counted from the date of rejection by the insurer as this is the
time when the cause of action accrues. . . .
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:
The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance
company. This is because, before such final rejection, there was no real necessity for bringing suit.
The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance
and Surety Co., viz:
Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a
correlative obligation of the defendant but also an act or omission of the defendant in violation of said
legal right, the cause of action does not accrue until the party obligated refuses, expressly or impliedly,
to comply with its duty. 16
When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected
by petitioner, and private respondent does not dispute such asseveration through a denial in his
pleadings, we are constrained to rule that respondent appellate court committed reversible error in
finding petitioner liable under an insurance contract the existence of which had not at all been proven in
court. Even if there were such a contract, private respondent's cause of action can not prevail because
he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under
this legal provision, to have waived his rights as against petitioner-insurer.
WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 09416 and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and
SET ASIDE insofar as Travelers Insurance & Surety Corporation was found jointly and severally liable to
pay actual, moral and exemplary damages, death indemnity, attorney's fees and litigation expenses in
Civil Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in said case is
hereby ordered dismissed.
No pronouncement as to costs.
SO ORDERED.
44. [1996V710] JACQUELINE JIMENEZ VDA. DE GABRIEL, petitioner,vs.HON. COURT OF APPEALS
and FORTUNE INSURANCE & SURETY COMPANY, INC., respondents.1996 Nov 141st
DivisionG.R. No. 103883VITUG, J.:
The petition for review on certiorari in this case seeks the reversal of the decision 1 of the Court of
Appeals setting aside the judgment of the Regional Trial Court of Manila, Branch 55, which has ordered
private respondent Fortune Insurance & Surety Company, Inc., to pay petitioner Jacqueline Jimenez vda.
de Gabriel, the surviving spouse and beneficiary in an accident (group) insurance of her deceased
husband, the amount of P100,000.00, plus legal interest.
Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation
("ECDC") at its construction project in Iraq. He was covered by a personal accident insurance in the
amount of P100,000.00 under a group policy 2 procured from private respondent by ECDC for its
overseas workers. The insured risk was for "(b)odily injury caused by violent accidental external and
visible means which injury (would) solely and independently of any other cause" 3 result in death or
disability.
On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983, ECDC
reported Gabriel's death to private respondent by telephone. 4 Among the documents thereafter
submitted to private respondent were a copy of the death certificate 5 issued by the Ministry of Health
of the Republic of Iraq which stated
REASON OF DEATH: UNDER EXAMINATION NOW NOT YET KNOWN 6
and an autopsy report 7 of the National Bureau of Investigation ("NBI") to the effect that "(d)ue to
advanced state of postmortem decomposition, cause of death (could) not be determined." 8 Private
respondent referred the insurance claim to Mission Adjustment Service, Inc.
Following a series of communications between petitioner and private respondent, the latter, on 22
September 1983, ultimately denied the claim of ECDC on the ground of prescription. 9 Petitioner went
to the Regional Trial Court of Manila. In her complaint against ECDC and private respondent, she averred
that her husband died of electrocution while in the performance of his work and prayed for the recovery
of P100,000.00 for insurance indemnification and of various other sums by way of actual, moral, and
exemplary damages, plus attorney's fees and costs of suit.
Private respondent filed its answer, which was not verified, admitting the genuineness and due
execution of the insurance policy; it alleged, however, that since both the death certificate issued by the
Iraqi Ministry of Health and the autopsy report of the NBI failed to disclose the cause of Gabriel's death,
it denied liability under the policy. In addition, private respondent raised the defense of "prescription,"
invoking Section 384 10 of the Insurance Code. Later, private respondent filed an amended answer, still
unverified, reiterating its original defenses but, this time, additionally putting up a counterclaim and a
crossclaim.
The trial court dismissed the case against ECDC for the failure of petitioner to take steps to cause the
service of the fourth alias summons on ECDC. The dismissal was without prejudice.
The case proceeded against private respondent alone. On 28 May 1987, the trial court rendered its
decision 11 in favor (partly) of petitioner's claim. In arriving at its conclusion, the trial court held that
private respondent was deemed to have waived the defense, i.e., that the cause of Gabriel's death was
not covered by the policy, when the latter failed to impugn by evidence petitioner's averment on the
matter. With regard to the defense of prescription, the court considered the complaint to have been
timely filed or within one (1) year from private respondent's denial of the claim.
Petitioner and private respondent both appealed to the Court of Appeals. Petitioner contended that the
lower court should have awarded all the claims she had asked for. Private respondent asserted, on its
part, that the lower court erred in ruling (a) that the insurer had waived the defense that Gabriel's death
was not caused by the insured peril ("violent accidental external and visible means") specified in the
policy and (b) that the cause of action had not prescribed.
The Court of Appeals, on 18 September 1991, reversed the decision of the lower court. The appellate
court held that petitioner had failed to substantiate her allegation that her husband's death was caused
by a risk insured against. The appellate court observed that the only evidence presented by petitioner, in
her attempt to show the circumstances that led to the death of the insured, were her own affidavit and
a letter allegedly written by a co-worker of the deceased in Iraq which, unfortunately for her, were held
to be bothhearsay. 12
The motion for reconsideration was denied. 13
Petitioner's recourse to this Court must also fail.
On the issue of "prescription," private respondent correctly invoked Section 384 of the Insurance Code;
viz:
Sec. 384. Any person having any claim pon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of claim setting forth
the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice
of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed
waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases,
with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's
right of action shall prescribe.
The notice of death was given to private respondent, concededly, more than a year after the death of
petitioner's husband. Private respondent, in invoking prescription, was not referring to the one-year
period from the denial of the claim within which to file an action against an insurer but obviously to the
written notice of claim that had to be submitted within six months from the time of the accident.
Petitioner argues that private respondent must be deemed to have waived its right to controvert the
claim, that is, to show that the cause of death is an excepted peril, by failing to have its answers (to the
Request for Admission sent by petitioner) duly verified. It is true that a matter of which a written
request for admission is made shall be deemed impliedly admitted "unless, within a period designated in
the request, which shall not be less than ten (10) days after service thereof, or within such further time
as the court may allow on motion and notice, the party to whom the request is directed serves upon the
party requesting the admission a sworn statement either denying specifically the matters of which an
admission is requested or setting forth in detail the reasons why he cannot truthfully either admit or
deny those matters;" 14 however, the verification, like in most cases required by the rules of procedure,
is a formal, not jurisdictional, requirement, and mainly intended to secure an assurance that matters
which are alleged are done in good faith or are true and correct and not of mere speculation. When
circumstances warrant, the court may simply order the correction of unverified pleadings or act on it
and waive strict compliance with the rules in order that the ends of justice may thereby be served. 15 In
the case of answers to written requests for admission particularly, the court can allow the party making
the admission, whether made expressly or deemed to have been made impliedly, "to withdraw or
amend it upon such terms as may be just." 16
The appellate court acted neither erroneously nor with grave abuse of discretion when it seconded the
court a quo and ruled:
As to the allegation of the plaintiff-appellant that the matters requested by her to be admitted by the
defendant-appellant under the Request for Admission were already deemed admitted by the latter for
its failure to answer it under oath, has already been properly laid to rest when the lower court in its
Order of May 28, 1987 correctly ruled:
At the outset, it must be stressed that the defendant indeed filed a written answer to the request for
admission, sans verification. The case of Motor Service Co., Inc. vs. Yellow Taxicab Co., Inc., et al. may
not therefore be controlling, or actually opposite. In said case, there was an absolute failure on the part
of the defendant to answer the request for admission, and thus the court was justified in rendering a
summary judgment. Here, however, as clearly intimated elsewhere above, the defendant answered in
writing practically every question posed in the request for admission. The Court believes, under the
peculiar circumstance, that the more controlling jurisprudence on the mater would be those cited by the
defendant in its memorandum, particularly the case of Quimpo vs. de la Victoria, 46 SCRA 139.
Prescinding from the foregoing, there is absolutely no basis in fact and in law for the lower court to hold
that the appellant insurance company was deemed to have waived the defense, that the death of
plaintiff-appellant's husband was not caused by violent accidental external and visible means' as
contemplated in the insurance policy. The Death Certificate (Exh. 9) and the Autopsy Report (Exh. 10),
more than controverted the allegation of the plaintiff-appellant as to the cause of death of her husband.
17
The insurance policy expressly provided that to be compensable, the injury or death should be caused
by "violent accidental external and visible means." In attempting to prove the cause of her husband's
death, all that petitioner could submit were a letter sent to her by her husband's co-worker, stating that
Gabriel died when he tried to haul water out of a tank while its submerged motor was still functioning,
18 and petitioner's sinumpaangsalaysay 19 which merely confirmed the receipt and stated contents of
the letter. Said the appellate court in this regard:
. . . . It must be noted that the only evidence presented by her to prove the circumstances surrounding
her husband's death were her purported affidavit and the letter allegedly written by the deceased co-
worker in Iraq. The said affidavit however suffers from procedural infirmity as it was not even testified
to or identified by the affiant (plaintiff-appellant) herself. This self-serving affidavit therefore is a mere
hearsay under the rules, . . . .
Xxx xxx xxx
In like manner, the letter allegedly written by the deceased's co-worker which was never identified to in
court by the supposed author, suffers from the same defect as the affidavit of the plaintiff-appellant. 20
Not one of the other documents submitted, to wit, the POEA decision, dated 06 June 1984, 21 the death
certificate issued by the Ministry of Health of Iraq and the NBI autopsy report, 22 could give any
probative value to petitioner's claim. The POEA decision did not make any categorical holding on the
specific cause of Gabriel's death. Neither did the death certificate issued by the health authorities in Iraq
nor the NBI autopsy report provide any clue on the cause of death. All that appeared to be clear was the
fact of Gabriel's demise on 22 May 1982 in Iraq.
Evidence, in fine, is utterly wanting to establish that the insured suffered from an accidental death, the
risk covered by the policy. In an accident insurance, the insured's beneficiary has the burden of proof in
demonstrating that the cause of death is due to the covered peril. Once that fact is established, the
burden then shifts to the insurer to show any excepted peril that may have been stipulated by the
parties. An "accident insurance" is not thus to be likened to an ordinary life insurance where the
insured's death, regardless of the cause thereof, would normally be compensable. The latter is akin in
property insurance to an "all risk" coverage where the insured, on the aspect of burden of proof, has
merely to show the condition of the property insured when the policy attaches and the fact of loss or
damage during the period of the policy and where, thereafter, the burden would be on the insurer to
show any "excluded peril." When, however, the insured risk is specified, like in the case before us, it lies
with the claimant of the insurance proceeds to initially prove that the loss is caused by the covered peril.
While petitioner did fail in substantiating her allegation that the death of her husband was due to an
accident, considering, however, the uncertainty on the real cause of death, private respondent might
find its way clear into still taking a second look on the matter and perhaps help ease the load of
petitioner's loss.
WHEREFORE, the decision appealed from is AFFIRMED. No costs.
SO ORDERED.
45. [1992V607] FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR,
LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all
surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA,
petitioners, vs. HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City,
Branch II, and AFISCO INSURANCE CORPORATION, respondents.1992 Aug 63rd DivisionG.R.
No. 60506D E C I S I O N
ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operator-owner of a common
carrier which figured in an accident causing the death of a third person is sought to be defined in this
petition for certiorari.
The facts as found by the trial court are as follows:
" . . . . Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here in
Davao City. On December 20, 1978, early morning, Lope Maglana was on his way to his work station,
driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an accident that
resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito
Into, operated and owned by defendant Destrajo. From the investigation conducted by the traffic
investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city
poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken
jeep, bumped the motorcycle driven by the deceased who was going towards the direction of Lasa,
Davao City. The point of impact was on the lane of the motorcycle and the deceased was thrown from
the road and met his untimely death." 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and
attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for
brevity) before the then Court of First Instance of Davao, Branch II. An information for homicide thru
reckless imprudence was also filed against Pepito Into.
During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one (1)
year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine (9)
months and eleven (11) days of prision correcional, as maximum, with all the accessory penalties
provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand
pesos (P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand pesos
(P5,000.00) in the concept of moral and exemplary damages with costs. No appeal was interposed by
the accused who later applied for probation. 2
On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised
sufficient diligence as the operator of the jeepney. The dispositive portion of the decision reads:
"WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant Destrajo, ordering
him to pay plaintiffs the sum of P28,000.00 for loss of income; to pay plaintiffs the sum of P12,000.00
which amount shall be deducted in the event judgment in Criminal Case No. 3527-D against the driver,
accused Into, shall have been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and
burial expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which shall be
deducted in the event judgment (sic) in Criminal Case No. 3527-D against the driver, accused Into; to pay
plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs of suit.
The defendant insurance company is ordered to reimburse defendant Destrajo whatever amounts the
latter shall have paid only up to the extent of its insurance coverage.
SO ORDERED." 3
Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of
the decision contending that AFISCO should not merely be held secondarily liable because the Insurance
Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the
operator of the vehicle, although only up to the extent of the insurance coverage." 4 Hence, they argued
that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have been awarded in
their favor.
In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code does
not expressly provide for a solidary obligation, the presumption is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since
the insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only
up to the extent of the insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is direct,
primary and solidary with the jeepney operator because the petitioners became direct beneficiaries
under the provision of the policy which, in effect, is a stipulation pour autrui. 6 This motion was likewise
denied for lack of merit.
Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal of
the lower court's decision in its entirety, prays for the setting aside or modification of the second
paragraph of the dispositive portion of said decision. Petitioners reassert their position that the
insurance company is directly and solidarily liable with the negligent operator up to the extent of its
insurance coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base their claim is as follows:
"SECTION 1 LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the
insured in respect of.
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in
respect of the liability incurred to such person indemnify his personal representatives in terms of, and
subject to the terms and conditions hereof." 7
The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by
petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance
policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of
the injury or event upon which the liability depends, and does not depend on the recovery of judgment
by the injured party against the insured." 8 The underlying reason behind the third party liability (TPL) of
the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of
the insured who causes such injury, and to give such injured person a certain beneficial interest in the
proceeds of the policy . . . ." 9
Since petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's
liability is now limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance
Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to the nature of
the liability of the insurer and the insured vis-a-vis the third party injured in an accident. We
categorically ruled thus:
"While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be held solidarily
liable with the insured and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured third
party), but it cannot, as incorrectly held by the trial court, be made `solidarily' liable with the two
principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer
were solidarily liable with said two (2) respondents by reason of the indemnity contract against third
party liability under which an insurer can be directly sued by a third party this will result in a violation
of the principles underlying solidary obligation and insurance contracts" talics supplied).
The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in
ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may
enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer
undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an
unknown or contingent event. 11 Thus, petitioner therein, which, under the insurance contract is liable
only up to P20,000.00, can not be made solidarily liable with the insured for the entire obligation of
P29,013.00 otherwise there would result "an evident breach of the concept of solidary obligation."
Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy
is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in
accordance with the decision of the lower court. Since under both the law and the insurance policy,
AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive portion of the
decision in question may have unwittingly sown confusion among the petitioners and their counsel.
What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under
the explicit terms of the insurance contract.
In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not
solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners
have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the
entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance
coverage.
While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that the
lower court erred in the computation of the probable loss of income. Using the formula: 2/3 of (80-56) x
P12,000.00, it awarded P28,000.00. 13 Upon recomputation, the correct amount is P192,000.00. Being
a "plain error," we opt to correct the same. 14
Furthermore, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to
P50,000.00. 15
WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of P28,800.00
representing loss of income is INCREASED to P192,000.00 and the death indemnity of P12,000.00 to
P50,000.00.
SO ORDERED.

46. G.R. No. L-54171 October 28, 1980 JEWEL VILLACORTA, assisted by her husband, GUERRERO
VILLACORTA, petitioner, vs.THE INSURANCE COMMISSION and EMPIRE INSURANCE
COMPANY, respondents.
TEEHANKEE, Acting C.J.:
The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and holds that
where the insured's car is wrongfully taken without the insured's consent from the car service and repair
shop to whom it had been entrusted for check-up and repairs (assuming that such taking was for a joy ride, in
the course of which it was totally smashed in an accident), respondent insurer is liable and must pay insured
for the total loss of the insured vehicle under the theft clause of the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980 of respondent insurance
commission are as follows:
Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00 Own
Damage; P30,000.00 Theft; and P30,000.00 Third Party Liability, effective May 16, 1977
to May 16, 1978. On May 9, 1978, the vehicle was brought to the Sunday Machine Works,
Inc., for general check-up and repairs. On May 11, 1978, while it was in the custody of the
Sunday Machine Works, the car was allegedly taken by six (6) persons and driven out to
Montalban, Rizal. While travelling along Mabini St., Sitio Palyasan, Barrio Burgos, going
North at Montalban, Rizal, the car figured in an accident, hitting and bumping a gravel and
sand truck parked at the right side of the road going south. As a consequence, the gravel and
sand truck veered to the right side of the pavement going south and the car veered to the
right side of the pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well, suffered
extensive damage. Complainant, thereafter, filed a claim for total loss with the respondent
company but claim was denied. Hence, complainant, was compelled to institute the present
action.
The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire Insurance
Company admittedly undertook to indemnify the petitioner-insured against loss or damage to the car (a) by
accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act.
Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the total loss
of the vehicle against private respondent, sustaining respondent insurer's contention that the accident did
not fall within the provisions of the policy either for the Own Damage or Theft coverage, invoking the policy
provision on "Authorized Driver" clause.
1

Respondent commission upheld private respondent's contention on the "Authorized Driver" clause in this
wise: "It must be observed that under the above-quoted provisions, the policy limits the use of the insured
vehicle to two (2) persons only, namely: the insured himself or any person on his (insured's) permission.
Under the second category, it is to be noted that the words "any person' is qualified by the phrase
... on the insured's order or with his permission.' It is therefore clear that if the person
driving is other than the insured, he must have been duly authorized by the insured, to drive
the vehicle to make the insurance company liable for the driver's negligence. Complainant
admitted that she did not know the person who drove her vehicle at the time of the
accident, much less consented to the use of the same (par. 5 of the complaint). Her husband
likewise admitted that he neither knew this driver Benito Mabasa (Exhibit '4'). With these
declarations of complainant and her husband, we hold that the person who drove the
vehicle, in the person of Benito Mabasa, is not an authorized driver of the complainant.
Apparently, this is a violation of the 'Authorized Driver' clause of the policy.
Respondent commission likewise upheld private respondent's assertion that the car was not stolen and
therefore not covered by the Theft clause, ruling that "The element of 'taking' in Article 308 of the Revised
Penal Code means that the act of depriving another of the possession and dominion of a movable thing is
coupled ... with the intention. at the time of the 'taking', of withholding it with the character of permanency
(People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must have been shown a felonious intent upon
the part of the taker of the car, and the intent must be an intent permanently to deprive the insured of his
car," and that "Such was not the case in this instance. The fact that the car was taken by one of the residents
of the Sunday Machine Works, and the withholding of the same, for a joy ride should not be construed to
mean 'taking' under Art. 308 of the Revised Penal Code. If at all there was a 'taking', the same was merely
temporary in nature. A temporary taking is held not a taking insured against (48 A LR 2d., page 15)."
The Court finds respondent commission's dismissal of the complaint to be contrary to the evidence and the
law.
First, respondent commission's ruling that the person who drove the vehicle in the person of Benito Mabasa,
who, according to its finding, was one of the residents of the Sunday Machine Works, Inc. to whom the car
had been entrusted for general check-up and repairs was not an "authorized driver" of petitioner-
complainant is too restrictive and contrary to the established principle that insurance contracts, being
contracts of adhesion where the only participation of the other party is the signing of his signature or his
"adhesion" thereto, "obviously call for greater strictness and vigilance on the part of courts of justice with a
view of protecting the weaker party from abuse and imposition, and prevent their becoming traps for the
unwary.
2

The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a person
other than the insured owner, who drives the car on the insured's order, such as his regular driver, or with his
permission, such as a friend or member of the family or the employees of a car service or repair shop must be
duly licensed drivers and have no disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his car key
to the shop owner and employees who are presumed to have the insured's permission to drive the car for
legitimate purposes of checking or road-testing the car. The mere happenstance that the employee(s) of the
shop owner diverts the use of the car to his own illicit or unauthorized purpose in violation of the trust
reposed in the shop by the insured car owner does not mean that the "authorized driver" clause has been
violated such as to bar recovery, provided that such employee is duly qualified to drive under a valid driver's
license.
The situation is no different from the regular or family driver, who instead of carrying out the owner's order
to fetch the children from school takes out his girl friend instead for a joy ride and instead wrecks the car.
There is no question of his being an "authorized driver" which allows recovery of the loss although his trip
was for a personal or illicit purpose without the owner's authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft clause, not
the "authorized driver" clause, that applies), where a car is admittedly as in this case unlawfully and
wrongfully taken by some people, be they employees of the car shop or not to whom it had been entrusted,
and taken on a long trip to Montalban without the owner's consent or knowledge, such taking constitutes or
partakes of the nature of theft as defined in Article 308 of the Revised Penal Code, viz. "Who are liable for
theft. Theft is committed by any person who, with intent to gain but without violence against or
intimidation of persons nor force upon things, shall take personal property of another without the latter's
consent," for purposes of recovering the loss under the policy in question.
The Court rejects respondent commission's premise that there must be an intent on the part of the taker of
the car "permanently to deprive the insured of his car" and that since the taking here was for a "joy ride" and
"merely temporary in nature," a "temporary taking is held not a taking insured against."
The evidence does not warrant respondent commission's findings that it was a mere "joy ride". From the very
investigator's report cited in its comment,
3
the police found from the waist of the car driver Benito Mabasa
Bartolome who smashed the car and was found dead right after the incident "one cal. 45 Colt. and one apple
type grenade," hardly the materials one would bring along on a "joy ride". Then, again, it is equally evident
that the taking proved to be quite permanent rather than temporary, for the car was totally smashed in the
fatal accident and was never returned in serviceable and useful condition to petitioner-owner.
Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy ride", the
Court sustains as the better view that which holds that when a person, either with the object of going to a
certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to
another, without the consent of its owner, he is guilty of theft because by taking possession of the personal
property belonging to another and using it, his intent to gain is evident since he derives therefrom utility,
satisfaction, enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds that the
use of a thing constitutes gain and Cuello Calon who calls it "hurt de uso. "
4

The insurer must therefore indemnify the petitioner-owner for the total loss of the insured car in the sum of
P35,000.00 under the theft clause of the policy, subject to the filing of such claim for reimbursement or
payment as it may have as subrogee against the Sunday Machine Works, Inc.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing private
respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of the complaint until
full payment is made and to pay the costs of suit.
SO ORDERED.
47. G.R. No. 98414 February 8, 1993 FIRST QUEZON CITY INSURANCE COMPANY,
INC., petitioner, vs.THE HON. COURT OF APPEALS and DE DIOS MARIKINA TRANSPORTATION
CO., respondents.
Ponciano U. Pitarque for petitioner.
De Dios & Taoingan Law Offices and Ponce Enrile, Cayetano, Reyes for private respondent.
GRIO-AQUINO, J.:
Before the Court is a petition filed by the First Quezon City Insurance Company, Inc., seeking to limit to
P12,000.00, the amount specified in the insurance contract, its liability to indemnify the respondent, De Dios
Marikina Transportation Company (DMTC, for short), for the damages suffered by a passenger, Jose V. del
Rosario, who accidentally fell off the bus.
The undisputed facts are:
On June 10, 1984, at about 3:00 p.m., after sending off certain seamen at the departure area
of then known as Manila International Airport (MIA), Plaintiff Jose V. del Rosario proceeded
to the loading and unloading zone for public utility bus stop, which was located in front of
the MIA, to wait for a passenger bus bound for Quezon City. While at the bus stop, the
plaintiff saw a DMTC bus bearing body No. 236 and plate No. NVU-798 and which, per its
signboard, was plying the Pasay to Quezon City (passing Espaa) route. As it approach the
bus stop, the bus slowed down with all its doors wide open: while moving at a crawling
pace, i.e., as slow as an "ordinary walk," it was taking several passengers, about five or seven
of them including the plaintiff, all of whom managed to board the bus while it was already at
the bus stop; plaintiff was the last one to board the bus.
While the plaintiff was still on the bus' running board with his hand on the bus door's handle
bar, the slowly moving bus sped forward at a high speed, as a result of which, the plaintiff
lost his balance and fell from the bus. As plaintiff clung instinctively to the handle bar, he
was dragged by the bus along the asphalted road for about two (2) seconds. Plaintiff
screamed of pain and anguished even as the other passengers shouted and the bus' driver,
Gil Agpalo, an employee of defendant and third-party plaintiff DMTC, abruptly stopped the
bus. Then, Gil forthwith fled from the scene, leaving the bus and the injured plaintiff behind.
Thereafter, the plaintiff was brought to the Manila Sanitarium and Hospital where he was
given immediate medical treatment at the emergency ward. The doctors performed a major
surgical operation on plaintiff's right leg. This leg was extensively lacerated: its skin and
tissues were exposed and detached from the muscles. Treatment was done under special
anesthesia and consisted of debridement or cleaning repair and suturing of the injured
tissue. While at the hospital, plaintiff was febrile or feverish for about forty (40) days. On
July 12, 1984, a second major surgical operation, i.e., a skin grafting operation, was
performed on plaintiff's right leg.
Plaintiff was confined at the hospital for a total period of forty (40) days, from June 10, 1984
to August 26, 1984. During his stay at the hospital, plaintiff incurred medical expenses in the
total amount of P69,444.41. Plaintiff's medical expenses were advanced by his employer
Maglines but he was required to reimburse Maglines on a staggered basis by way of salary
deductions. Plaintiff was released from the hospital on August 29, 1984. After his release, he
returned to the hospital from time to time for further treatment and checkup. The injuries
had left plaintiff with a huge, ugly scar running almost the entire length of his right leg. Also,
the plaintiff incurred lost earning by way of unearned salaries amounting to P7,500.00 due
to said physical injuries and the consequent hospital confinement.
Plaintiff filed on June 26, 1985 the aforesaid complaint against DMTC and its driver, Gil
Agpalo. Agpalo was later dropped as a party defendant because he could not be served with
summons. Upon filing its answer on August 20, 1985, defendant DMTC filed a third-party
complaint against First Quezon City Insurance Co. Inc. Sometime on September 17, 1985 this
third-party defendant filed its answer to the third-party complaint.
After the trial, the court a quo rendered the appealed decision, the decretal portion of which
ordains:
WHEREFORE, the judgment is hereby rendered dismissing defendant De
Dios Marikina Transportation Co. Inc.'s counterclaim for lack of merit and
ordering said defendant to pay plaintiff Jose V. del Rosario: (a) the sum of
P76,944.41, as the actual and compensatory damages; (b) the sum of
P15,000.00, as moral and exemplary damages; and (c) the sum of
P33,641.50 as attorney's fees, as well as to pay the cost of suit; and as
regards the third-party complaint herein ordering third-party defendant
First Quezon City Insurance Co., Inc. to indemnify third-party plaintiff De
Dios Marikina Transportation Co., Inc. in the sum of P12,000.00 with
interest thereon at the legal rate from date of filing of the third-party
complaint on August 20, 1985, until full payment thereof. Further, there
being no satisfactory warrant therefor, the court hereby dismisses the rest
of the claims in the complaint and third-party complaint herein. (pp. 11-
13, Rollo.)
The bus company appealed to the Court of Appeals on February 11, 1991. The Court of Appeals modified the
dispositive part of the decision of the trial court as follows:
WHEREFORE, with the following modifications, first in appellee's complaint: that the award
of attorney's fees be reduced to P5,000.00 and that the cost of suit be deleted; and second,
as regards the third-party complaint, that the third-party defendant First Quezon City
Insurance Co., Inc., be ordered to indemnify third-party plaintiff DMTC, herein appellant the
sum of P50,090.00 with legal interest thereon from date of filing of the third-party complaint
on August 20, 1985 until its full payment, the decision appealed from is AFFIRMED in all
other respects. No costs. (p. 19, Rollo.)
The insurance company (now the petitioner) filed a motion for reconsideration which was denied in a
resolution dated April 22, 1991.
Hence, this petition for review, assailing the appellate courts' interpretation of the provision of the insurance
contract on the limit of the insurer's liability.
We find merit in the petition.
The insurance company clearly passed the maximum limit of the petitioner's liability for damages arising from
death or bodily injury at P12,000.00 per passenger and its maximum liability per accident at P50,000.00.
Since only one passenger was injured in the accident, the insurer's liability for the damages suffered by said
passenger is pegged to the amount of P12,000.00 only. What does the limit of P50,000.00 per accident
mean? It means that the insurer's liability for any single accident will not exceed P50,000.00 regardless of the
number of passengers killed or injured therein. For example, if ten (10) passengers had been injured by the
operation of the insured bus, the insurer's liability for the accident would not be P120,000.00 (at the rate of
P12,000.00 per passenger) but would be limited to only P50,000.00 for the entire accident, as provided in the
insurance contract.
The bus company may not recover from the insurance company (herein petitioner) more than P 12,000.00
per passenger killed or injured, or fifty thousand (P50,000.00) pesos per accident even if under the judgment
of the court, the erring bus operator will have to pay more than P12,000.00 to each injured passenger. The
trial court's interpretation of the insurance contract was the correct interpretation.
WHEREFORE, the petition for review is GRANTED. The decision promulgated on February 11, 1991 by the
Court of Appeals in CA-G.R.
No. 24938, ordering the third-party defendant, First Quezon City Insurance Co., to indemnify the private
respondent, De Dios Marikina Transportation Co. Inc. (DMTC), the sum of P50,000.00 for the damages of the
passenger Jose V. Del Rosario, is hereby modified by reducing the award to P12,000.00 only. Costs against the
private respondent, De Dios Marikina Transportation Co., Inc.
SO ORDERED.
48. G.R. No. 90273-75 November 15, 1989 FINMAN GENERAL ASSURANCE
CORP., petitioner, vs.WILLIAM INOCENCIO, ET AL. AND EDWIN CARDONES, THE ADMINISTRATOR,
PHILIPPINE OVERSEAS AND EMPLOYMENT ADMINISTRATION, THE SECRETARY OF LABOR AND
EMPLOYMENT, respondents.
David I. Unay, Jr. for petitioner.
R E S O L U T I O N
FELICIANO, J.:
Pan Pacific Overseas Recruiting Services, Inc. ("Pan Pacific") is a private, fee-charging, recruitment and
employment agency. T in accordance with the requirements of Section 4, Rule II, Book II of the Rules and
Regulations of the Philippine Overseas Employment Administration (POEA), Pan Pacific posted a surety bond
issued by petitioner Finman General Assurance Corporation ("Finman") and was granted a license to operate
by the POEA.
Private respondents William Inocencio, Perfecto Palero, Jr., Edwin Cardones and one Edwin Hernandez filed
with the POEA separate complaints against Pan Pacific for violation of Articles 32 and 34 (a) of the Labor
Code, as amended and for refund of placement fees paid to Pan Pacific. The complainants alleged that Pan
Pacific charged and collected such fees from them but did not secure employment for them.
Acting on the complaints, the POEA Administrator motu proprio impleaded petitioner Finman as party
respondent in its capacity as surety for Pan Pacific. Separate summonses were served upon Finman and Pan
Pacific. The return of the summons served on Pan Pacific at its official address registered in the POEA records,
showed that Pan Pacific had moved out therefrom; no prior notice of transfer or change of address was
furnished by Pan Pacific to the POEA as required under POEA rules. The POEA considered that constructive
service of the complaints had been effected upon Pan Pacific and proceeded accordingly.
For its part, petitioner Finman filed an answer denying liability and pleading, by way of special and affirmative
defenses, that: (1) the POEA had no "jurisdiction over surety bonds," that jurisdiction being vested in the
Insurance Commission or the regular courts; (2) it (Finman) had not violated Articles 32 and 34 (a) of the
Labor Code and complainants' claims had accrued during the suspension of the principal obligor, Pan Pacific;
(3) complainants had no cause of action against Finman, since it was not privy to the transactions between
them and Pan Pacific and had not received any moneys from them; and (4) the amounts claimed by
complainants had been paid by them as deposits and not as placement fees.
A hearing was held by the POEA on 14 April 1988, at which time complainants presented their evidence.
Petitioner Finman, though notified of this hearing, did not appear.
On 30 May 1989, the POEA Administrator issued an Order which, in its dispositive portion, said:
WHEREFORE, premises considered, respondents are hereby ordered to pay jointly and
severally complainants' claims as follows:
1. William Inocencio P6,000 .00
2. Perfecto Palero, Sr. P5,500 .00
3. Edwin Cardones P2,000 .00
Respondent agency is ordered to release Cardones' passport, the expenses or obtaining the
same of which (sic) shall be deducted from the amount of P2,000.00 as it appears that it was
respondent agency who applied for the processing thereof. The claim of Edwin Hernandez is
dismissed without prejudice.
For the established violations respondent agency is hereby imposed a penalty fine in the
amount of P60,000.00. Further, the ban earlier imposed upon it is herein reiterated.
SO ORDERED.
Petitioner Finman went on appeal to the Secretary of Labor insisting that: (1) the POEA had no authority to
implead petitioner as party respondent in the proceedings before the POEA; and that (2) the POEA had no
authority to enforce directly the surety bond against petitioner. In an Order dated 3 August 1989, the
Secretary of Labor upheld the POEA Order appealed from and denied the appeal for lack of merit.
Petitioner Finman now comes before this Court on a Petition for certiorari with prayer for preliminary
injunction or temporary restraining order, raising much the same issues it had already ventilated before the
POEA and the Secretary of Labor. It is contended once again by petitioner Finman that the POEA had no
authority to implead petitioner in the proceedings commenced by private respondents: and that the POEA
was not authorized to require, in those same proceedings, petitioner to pay private respondents' claims for
refund against Pan Pacific on the basis of the surety bond issued by petitioner.
Petitioner's contentions are interrelated and will be dealt with together. They are, however, quite bereft of
merit and must be rejected.
Petitioner cannot seriously dispute the direct and solidary nature of its obligations under its own surety bond.
Under Section 176 of the Insurance Code, as amended, the liability of a surety in a surety bond is joint and
several with the principal obligor. Petitioner's bond was posted by Pan Pacific in compliance with the
requirements of Article 31 of the Labor Code, which states that
Art. 31. Bonds. All applicants for license or authority shall post such cash and surety bonds
as determined by the Secretary of Labor to guarantee compliance with prescribed
recruitment procedures, rules and regulations, and terms and, conditions of employment as
appropriate.
The Secretary of Labor shall have the exclusive power to determine, decide, order or direct
payment from, or application of, the cash and surety bond for any claim or injury covered
and guaranteed by the bonds. (Emphasis supplied).
The tenor and scope of petitioner Finman's obligations under the bond it issued are set out in broad ranging
terms by Section 4, Rule II, Book I of the POEA Rules and Regulations:
Section 4. Payment of Fees and Posting of Bonds. Upon approval of the application by the
Minister, the applicant shall pay an annual license fee of P6,000.00. It shall also post a cash bond
of P100,000.00 and asurety bond of P150,000.00 from a bonding company acceptable to the
Administration duly accredited by the Office of the Insurance Commission. The bonds shall
answer for all valid and legal claims arising from violations of the conditions for the grant and use
of the license or authority and contracts of employment. The bonds shall likewise guarantee
compliance with the provisions of the Labor Code and its implementing rules and regulations
relating to recruitment and placement, the rules of the Administration and relevant issuances of
the Ministry and all liabilities which the Administration may impose. The surety bonds shall
include the condition that notice of garnishment to the principal is notice to the
surety.
1
(Emphasis supplied).
While petitioner Finman has refrained from attaching a copy of the bond it had issued to its Petition for
Certiorari, there can be no question that the conditions of the Finman surety bond Pan Pacific had posted
with the POEA include the italicized portions of Section 4, Rule 11, Book I quoted above. It is settled doctrine
that the conditions of a bond specified and required in the provisions of the statute or regulation providing
for the submission of the bond, are incorporated or built into all bonds tendered under that statute or
regulation, even though not there set out in printer's ink.
2

In the case at bar, the POEA held, and the Secretary of Labor affirmed, that Pan Pacific had violated Article 32
of the Labor Code, as amended
Article 32. Fees to be paid by workers. Any person applying with a private fee charging
employment agency for employment assistance shall not be charged any fee until he has
obtained employment through its efforts or has actually commenced employment. Such fee
shall be always covered with the approved receipt clearly showing the amount paid. The
Secretary of Labor shall promulgate a schedule of allowable fees. (Emphasis supplied).
as well as Article 34 (a) of the same Code:
Article 34. Prohibited practices. It shall be unlawful for any individual, entity, licensee, or
holder of authority:
(a) To charge or accept, directly or indirectly, any amount than that specified in the schedule
of allowable fees prescribed by the Secretary of Labor, or to make a worker pay any amount
greater than actually received by him as a loan or advance. (Emphasis supplied)
There is, hence, no question that, both under the Labor Code
3
and the POEA Rules and Regulations,
4
Pan
Pacific had violated at least one of the conditions for the grant and continued use of the recruitment license
granted to it. There can, similarly, be no question that the POEA Administrator and the Secretary of Labor are
authorized to require Pan Pacific to refund the placement fees it had charged private respondents without
securing employment for them and to impose the fine of P60,000.00 upon Pan Pacific. Article 36 of the Labor
Code authorizes the Secretary of Labor "to restrict and regulate" the recruitment and placement activities of
agencies like Pan Pacific and "to issue orders and promulgate rules and regulations to carry out the objectives
and implement the provisions of [Title I on "Recruitment and Placement of Workers]," including of course,
Article 32 on "Fees to be paid by workers," quoted earlier. Upon the other hand, Section 13 of Rule VI, Book I
of the POEA Rules and Regulations expressly authorize the POEA Administrator or the Secretary of Labor to
impose fines "in addition to or in lieu of the penalties of suspension or cancellation" of the violator
recruitment agency's license.
If Pan Pacific is liable to private respondents for the refunds claimed by them and to the POEA for the fine of
P60,000.00, and if petitioner Finman is solidarily liable with Pan Pacific under the operative terms of the
bond, it must follow that Finman is liable both to the private respondents and to the POEA. Petitioner Finman
asserts, however, that the POEA had no authority to implead it in the proceedings against Pan Pacific.
We are not persuaded by this assertion. Clearly, petitioner Finman is a party-in-interest in, certainly a proper
party to, the proceedings private respondents had initiated against Pan Pacific the principal obligor. Since Pan
Pacific had thoughtfully refrained from notifying the POEA of its new address and from responding to the
complaints, petitioner Finman may well I be regarded as an indispensable party to the proceedings before
the POEA. Whether Finman was an indepensable or merely a proper party to the proceedings, we believe and
so hold that the POEA could properly implead it as party respondent either upon the request of the private
respondents or, as it happened, motu propio. Such is the situation under the Revised Rules of Court
5
and the
application thereof, directly or by analogy, by the POEA can certainly not be regarded as arbitrary, oppressive
or capricious.
The fundamental argument of Finman is that its liability under its own bond must be determined and
enforced, not by the POEA or the Secretary of Labor, but rather by the Insurance Commission or by the
regular courts. Once more, we are not moved by petitioner's argument.
There appears nothing so special or unique about the determination of a surety's liability under its bond as to
restrict that determination to the Office of the Insurance Commissioner and to the regular courts of justice
exclusively. The exact opposite is strongly stressed by the second paragraph of Article 31 of the Labor Code:
Art. 31. Bonds. ... ...
The secretary of Labor shall have the exclusive power to determine, decide, order or direct
payment from, or application of, the cash or surety bond for any claim or injury covered and
guaranteed by the bonds. (Emphasis supplied)
We believe and so hold that to compel the POEA and private respondents the beneficiaries of Finman's bond-
to go to the Insurance Commissioner or to a regular court of law to enforce that bond, would be to collide
with the public policy which requires prompt resolution of claims against private recruitment and placement
agencies. The Court will take judicial notice of the appealing frequency with which some, perhaps many, of
such agencies have cheated workers avid for overseas employment by, e.g., collecting placement fees
without securing employment for them at all, extracting exorbitant fees or "kickbacks" from those for whom
employment is actually obtained, abandoning hapless and unlettered workers to exploitative foreign
principals, and so on. Cash and surety bonds are required by the POEA and its predecessor agencies from
recruitment and employment companies precisely as a means of ensuring prompt and effective recourse
against such companies when held liable for applicants or workers' claims. Clearly that public policy will be
effectively negated if POEA and the Department of Labor and Employment were held powerless to compel a
surety company to make good on its solidary undertaking in the same quasi-judicial proceeding where the
liability of the principal obligor, the recruitment or employment agency, is determined and fixed and where
the surety is given reasonable opportunity to present any defenses it or the principal obligor may be entitled
to set up. Petitioner surety whose liability to private respondents and the POEA is neither more nor less than
that of Pan Pacific, is not entitled to another or different procedure for determination or fixing of that liability
than that which Pan Pacific is entitled and subject to.
WHEREFORE, the Petition for certiorari with prayer for preliminary injunction or temporary restraining order
is hereby DISMISSED for lack of merit. Costs against petitioner. This Resolution is immediately executory.
49. G.R. No. L-43862 January 13, 1989MERCANTILE INSURANCE CO., INC., plaintiff-appellee, vs.FELIPE
YSMAEL, JR., & CO., INC., defendants-appellants.
Beltran, Evangelista & Cuasay for plaintiff-appellee.
Abraham F. Sarmiento Law Office for defendants-appellants.
BIDIN, J.:
This is an appeal from the decision** dated October 30, 1971 of the Court of First Instance of Manila (now
Regional Trial Court) in Civil Case No. 82168 entitled "Mercantile Insurance Co., Inc. (herein referred to as the
plaintiff-appellee) vs. Felipe Ysmael, Jr. &. Co., Inc., et al (hereinafter referred to as the defendant-appellant)
ordering defendants-appellants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr., to pay jointly and
severally to the plaintiff the sum of P100,000.00 plus 15% thereof as attorney's fees, and costs. On appeal to
the Court of Appeals, this case which involves only a question of law, was certified to this Court.
The factual milieu of this case as found by the trial court is as follows:
Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an
overdraft line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National
Bank. The latter was willing to grant credit accommodation of P2,000,000.00 applied for
provided that the applicant shall have filed a bond in the sum of P140,000.00 to guarantee
the payment of the said amount. Accordingly, on March 6, 1967, Felipe Ysmael, Jr. & Co.,
Inc., represented by Felipe Ysmael filed surety bond No. G(16) 007 of Mercantile Insurance
Co., Inc. in the sum of P100,000.00 (Exh. A). On December 4, 1967, Felipe Ysmael Jr. & Co.,
Inc. as principal and the Mercantile Insurance Co., Inc. executed another surety bond
MERICO Bond No. G (16) 0030 in the sum of P40,000.00. It is the condition in both bonds
that if the principal Felipe Ysmael, Jr. & Co., Inc. shall perform and fulfill its undertakings
with the Philippine National Bank, then these surety bonds shall be null and void (Exh. B).
As security and in consideration of the execution of the surety bonds, exhibits A and B,
Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as
president and in his personal capacity executed with the plaintiff Mercantile Insurance Co.,
Inc. an indemnity agreement (Exh. D) wherein the defendants Felipe Ysmael, Jr. & Co., Inc.
and Felipe Ysmael, Jr. bound themselves jointly and severally to indemnify the plaintiff, hold
save it harmless from and against any and all payments, damages, costs, losses, penalties,
charges and expenses which said company as surety (relative to MERICO Bond No. 0007)
shall incur or become liable to pay plus an additional amount as attorney's fees equal to 20%
of the amount due to the company, Paragraph 3 of the indemnity agreement expressly
provides:
3) ACCRUAL OF ACTION: Notwithstanding the provisions of the next preceding paragraph,
where the obligation involves a liquidated amount for the payment of which the company
has become legally liable under the terms of the obligation and its suretyship undertaking or
by the demand of the obligee or otherwise and the latter has merely allowed the COMPANY
a term or extension for payment of the latter's demand the full amount necessary to
discharge the COMPANY's aforesaid liability irrespective of whether or not payment has
actually been made by the COMPANY, the COMPANY for the protection of its interest may
forthwith proceed against the undersigned or either of them by court action or otherwise to
enforce payment even prior to making payment to the obligee which may hereafter be done
by the COMPANY.
On September 6, 1967, Gabriel Daza, Jr., Edgardo L. Tordesillas and Augusta Torres in their
official capacities and the defendants executed another indemnity agreement (Exh. E) with
the plaintiff in consideration of the surety bond (referring to MERICO Bond No. G (16) 0030.
In the indemnity agreement (Exh. E) the same provisions of paragraph 3 found in exhibit D is
provided for.
By agreement dated September 5, 1967 (Exh. C), the amount of the Bond was reduced by
P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in view of
the aforesaid reduction is P100,000.00 (Exh. C), P60,000.00 on Surety Bond No. 0007 plus
P40,000.00 on Surety Bond No. 0030.
In view of the failure of the defendants to pay the overdraft and credit line with the
Philippine National Bank demanded from the Mercantile Insurance Co., Inc. settlement of its
obligation under surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6,
1970 and No. G (-16)- 0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P)
otherwise drastic measures for collection to protect the interest of the bank would be taken.
Attached to the demand letter is a statement of account.
By letter of December 17, 1970, the Legal Department of plaintiff company wrote a letter of
demand to the defendants (Exhs. G and H) inviting their attention to the letter of demand of
the Philippine National Bank sent to the plaintiff and demanding from the defendants the
settlement of said account. These letters were received as shown by the registry return
receipts (Exhs. G-2 and H-2). Since the defendants failed to settle their obligation with the
Philippine National Bank, on February 10, 1971, plaintiff brought the present action.
Instead of filing their answer, the defendants (appellants herein) filed a motion to DISMISS, which motion
was subsequently denied. Thereafter, the defendants filed their answer and the case was set for pre-trial. On
the date scheduled for pre-trial, the defendants and their counsel failed to appear, thus on motion of the
plaintiff, they were declared in default and plaintiff was allowed to present its evidence ex-parte. Upon
motion for reconsideration filed by the defendants, the case was ordered re-opened and the case was
scheduled for reception of defendant's evidence. Thereafter, the parties were required to submit their
respective memoranda and the case was submitted for decision. On October 30, 1971, the trial court
rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the foregoing considerations, judgment is rendered for the plaintiff
and the defendants are ordered to pay jointly and severally the plaintiff the sum of
P100,000.00 plus the further sum of 15% thereof in the concept of reasonable attorney's
fees and the costs.
Plaintiff upon payment of this judgment, shall deliver the sum of P100,000.00 to the
Philippine National Bank in partial satisfaction of the obligation of the defendants to said
Bank.
SO ORDERED.
50. [G.R. No. 55466 : December 3, 1990.]191 SCRA 805-813MANILA SURETY & FIDELITY CO., INC.,
Petitioner, vs. COURT OF APPEALS and WILLIAM H. QUASHA, Respondents.
D E C I S I O N

PARAS, J.:
This is a petition for review on certiorari of the resolution of the Court of Appeals dated August 5, 1980 * in CA G.R.
No. 42461-R entitled "Republic of the Philippines vs. Leon Bessire, et al.", affirming with modification the lower
court's judgment dated April 30, 1968 ** with respect to the payment of 12% interest per annum and denying
petitioner's motion for reconsideration dated October 6, 1980.
The facts as found by the Court of Appeals are as follows:
Sometime after 1951, the Republic of the Philippines, thru its Bureau of Internal Revenue, assessed the Bessire
Housing Corporation (BESCO) in the amount of P16,840.04 representing percentage taxes for the year 1951.
Apparently pressed for payment, the manager thereof (Leon Bessire) executed in his personal capacity on October
30, 1956, with Mutual Security Insurance Corporation an "Ordinary Bond for Payment of Taxes", known as MUSIC
S-575-A, wherein the parties undertook to jointly and severally pay the Republic the aforementioned assessment
in twelve (12) equal installments as scheduled therein. On the same day that the bond was posted Leon Bessire,
Manila Surety and Corazon Santos Escobar in her personal capacity and as attorney-in-fact of Eduardo Escobar
signed an indemnity agreement binding themselves solidarily to indemnify Mutual Security for any damages or
losses it may sustain as a result of its having consented to become a surety in favor of the Bureau of Internal
Revenue (BIR). On December 28, 1956, Leon Bessire paid the first installment of P1,403.34 due on November 30,
1956 and another installment on a later date. He failed to pay the succeeding installments thus prompting the
Commissioner of Internal Revenue to send a letter of February 20, 1958 that unless Mr. Bessire paid P14,035.36
plus the accrued delinquency penalties within 15 days, the bond would be forfeited. A letter of demand was also
sent on the same date to Mutual Security. (Rollo, p. 32-33; Petition, Annex A, pp. 2-3)
On May 19, 1958, Atty. William H. Quasha as substitute for Corazon Santos Escobar signed an Indemnity
Agreement whereby he undertook to jointly and severally with Leon Bessire and BESCO, indemnify Manila Surety
for any damage or loss it may suffer in consequence of its having consented to continue being counter surety upon
the indemnity agreement MUSIC S-575-A (Rollo, p. 67; Comment, p. 2). On July 18, 1958 the Acting Commissioner
of Internal Revenue acknowledged the payment by Leon Bessire of P300.00 and demanded the full payment of the
balance of P13,733.36 on or before July 31, 1958. A letter of demand was also sent to Mutual Security (Rollo, pp.
33-34; Petition, Annex A, pp. 3-4).
On July 31, 1958, Leon Bessire sent a check for P1,403.34 and asked for further time to pay the outstanding
balance in view of his financial difficulties. On September 26, 1958, the Acting Commissioner of Internal Revenue
wrote Leon Bessire to pay the P12,330.02 in full on or before October 15, 1958 and Mutual Security to do the same
or steps for the forfeiture of the bond would be taken (Rollo, p. 34; Petition, Annex A, p. 4).
Leon Bessire made further payments: P400.00 on November 13, 1958; P500.00 on February 13, 1959; P500.00 on
May 12, 1959; and P500.00 on October 28, 1959. On April 7, 1960, a letter of demand was again sent to Leon
Bessire giving him until April 30, 1960 to pay the balance of P10,430.02 and a letter of substantially the same tenor
to Mutual Security. On June 12, 1961, Leon Bessire died. (Rollo, pp. 34-35; Petition, Annex A, pp. 4-5).: nad
On February 9, 1962, the Republic of the Philippines upon the request of the BIR filed a complaint against Leon
Bessire and Mutual Security Insurance Corporation (Mutual), to have the surety bond guaranteeing the payment of
percentage taxes forfeited and for the said defendants jointly and severally to pay P10,032.02 plus interest at the
legal rate and costs (Rollo, p. 31).: rd
On March 7, 1962, Mutual filed its answer with cross claim against Leon Bessire. On July 5, 1963 it filed a third
party complaint against petitioner, Manila Surety and Fidelity Co., Inc. (Manila Surety). On July 26, 1963, Manila
Surety filed a fourth-party complaint against herein private respondent, William H. Quasha (Rollo, p. 32; Petition,
Annex A, p. 2).
After trial on the merits, the lower court, through then Judge Luis B. Reyes, rendered its decision on April 20, 1968,
the dispositive portion of which reads:
"Wherefore, judgment is rendered as follows:
"1. Declaring Surety Bond MUSIC S-575-A, issued by defendant Mutual Security Insurance Corporation,
forfeited and ordering said defendant to pay plaintiff the sum of P10,030.02 plus the legal rate of interest
from February 9, 1962, the date of the filing of the suit, until said amount is fully paid, and to pay the
costs of this suit.
"2. Ordering third party defendant Manila Surety Fidelity Co. Inc., to pay third party plaintiff Mutual
Security Insurance Corporation whatever amount the latter as defendant, is adjudged to pay plaintiff, plus
interest at 12% per annum from the date of payment which interest shall be accumulated and added to
the principal quarterly and shall earn interest at the same rate, and attorneys' fees equivalent to 10% of
the total amount due under the surety bond, and
"3. Ordering fourth party defendant to pay and/or indemnify fourth party plaintiff Manila Surety &
Fidelity Co., Inc. the amount of the judgment which it is ordered to pay in favor of third party plaintiff
Mutual Security Insurance Corporation, with interest thereon at the rate of 12% per annum from July 3,
1963, until fully paid, and the sum equivalent to 10% of the total amount claimed, as and for attorneys'
fees.
"The counterclaim of fourth party defendant is dismissed.
"SO ORDERED."