Sec. 1 To 20 of Insurance Code Full Text Cases

Title I TO III (Sections 1 25), P.D.
1460 [INSURANCE]
A. Interpretation of insurance contracts; contract of adhesion:
[G.R. No. 119599. March 20, 1997]
MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON.
COURT OFAPPEALS and TKC MARKETING
CORPORATION,respondents.
DECISION
ROMERO, J.:
the arrest of the vessel and made a formal claim for the amount
ofUS$916,886.66, representing the dollar equivalent on the policies,
for non-delivery of the cargo. Private respondent likewise sought the
assistance of petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not
a peril covered by the policies. Private respondent, accordingly,
advised petitioner that it might tranship the cargo and requested an
extension of the insurance coverage until actual transhipment, which
extension was approved upon payment of additional premium. The
Assailed in this petition for review on certiorari is the decision of the
insurance coverage was extended under the same terms and
Court of Appeals in CA-G.R. No. 43023[1] which affirmed, with slight
conditions embodied in the original policies while in the process of
modification, the decision of the Regional Trial Court of Cebu, Branch
making arrangements for the transhipment of the cargo from Durban
15.
to Manila, covering the period October 4-December 19, 1989.
Private respondent TKC Marketing Corp. was the owner/consignee of
However, on December 11, 1989, the cargo was sold in Durban,
some 3,189.171metric tons of soya bean meal which was loaded on
South Africa, for US$154.40 per metric ton or a total of
board the ship MV Al Kaziemah on or about September 8, 1989 for
P10,304,231.75 due to its perishable nature which could no longer
carriage from the port of Rio del Grande, Brazil, to theport of Manila.
stand a voyage of twenty days to Manila and another twenty days for
Said cargo was insured against the risk of loss by petitioner Malayan
the discharge thereof. On January 5, 1990, private respondent
Insurance Corporation for which it issued two (2) Marine Cargo Policy
forthwith reduced its claim to US$448,806.09 (or its peso equivalent
Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP
of P9,879,928.89 at the exchange rate of P22.0138 per $1.00)
97800306 amounting to P1,195,005.45, both dated September 1989.
representing private respondent's loss after the proceeds of the sale
While the vessel was docked in Durban, South Africa on September

11, 1989 enroute to Manila, the civil authorities arrested and detained
were deducted from the original claim of $916,886.66

or P20,184,159.55.
it because of a lawsuit on a question of ownership and possession. As
Petitioner maintained its position that the arrest of the vessel by civil
a result, private respondent notified petitioner on October 4, 1989 of
authorities on a question of ownership was an excepted risk under the
Title I TO III (Sections 1 25), P.D. 1460 [INSURANCE]

marine insurance policies. This prompted private respondent to file a
words, arrest, restraint or detainment within the meaning of Clause 12
complaint for damages praying that aside from itsclaim, it be
(or F.C. & S. Clause) rules out detention by ordinary legal processes.
reimbursed the amount of P128,770.88 as legal expenses and the
Hence, arrests by civil authorities, such as what happened in the
interest it paid for the loan it obtained to finance the shipment
instant case, is an excepted risk under Clause 12 of the Institute
totalling P942,269.30. In addition, private respondent asked for moral
Cargo Clause or the F.C. & S. Clause. However, with the deletion of
damages amounting to P200,000.00, exemplary damages amounting
Clause 12 of the Institute Cargo Clause and the consequent adoption
to P200,000.00 and attorney's fees equivalent to 30% of what will be
or institution of the Institute War Clauses (Cargo), the arrest and
awarded by the court.
seizure by judicial processes which were excluded under the former
The lower court decided in favor of private respondent and required
policy became one of the covered risks.
petitioner to pay, aside from the insurance claim, consequential and
The appellate court added that the failure to deliver the consigned
liquidated damages amounting toP1,024,233.88, exemplary damages
goods in the port of destination is a loss compensable, not only under
amounting to P100,000.00, reimbursement in the amount equivalent
the Institute War Clause but also under the Theft, Pilferage, and Non-
to 10% of whatever is recovered as attorney's fees as well as the
delivery Clause (TNPD) of the insurance policies, as read in relation
costs of the suit. On private respondent's motion for reconsideration,
to Section 130 of the Insurance Code and as held in Williams v. Cole.
petitioner was also required to further pay interest at the rate of 12%
[2]
per annum on all amounts due and owing to the private respondent by
virtue of the lower court decision counted from the inception of this
case until the same is paid.
Furthermore, the appellate court contended that since the vessel was
prevented at an intermediate port from completing the voyage due to
its seizure by civil authorities, a perilinsured against, the liability of
On appeal, the Court of Appeals affirmed the decision of the lower
petitioner continued until the goods could have been transhipped. But
court stating that with the deletion of Clause 12 of the policies issued
due to the perishable nature of the goods, it had to be promptly sold to
to private respondent, the same became automatically covered under
minimize loss. Accordingly, the sale of the goods being reasonable
subsection 1.1 of Section 1 of the Institute War Clauses. The arrests,
and justified, it should not operate to discharge petitioner from its
restraints or detainments contemplated in the former clause were
contractual liability.
those effected by political or executive acts. Losses occasioned by riot

or ordinary judicial processes were not covered therein. In other
Hence this petition, claiming that the Court of Appeals erred:

1. In ruling that the arrest of the vessel was a risk covered under the
supported private respondent by accommodating the latter's request
subject insurance policies.
for an extension of the insurance coverage, notwithstanding that it
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private
respondent's claim.
was then under no legal obligation to do so.

Private respondent, on the other hand, argued that when it appealed
its case to the Court of Appeals, petitioner did not raise as an issue
the award of exemplary damages. It cannot now, for the first time,
4. In giving undue reliance to the doctrine that insurance policies are
raise the same before this Court. Likewise, petitioner cannot submit
strictly construed against the insurer.
for the first time on appeal its argument that it was wrong for the Court
In assigning the first error, petitioner submits the following: (a) an

arrest by civil authority is not compensable since the term "arrest"
refers to "political or executive acts" and does not include a loss
caused by riot or by ordinary judicial process as in this case; (b) the
of Appeals to have ruled the way it did based on facts that would need
inquiry into the evidence. Even if inquiry into the facts were possible,
such was not necessary because the coverage as ruled upon by the
Court of Appeals is evident from the very terms of the policies.
deletion of the Free from Capture or Seizure Clause would leave the
It also argued that petitioner, being the sole author of the policies,
assured covered solely for the perils specified by the wording of the
"arrests" should be strictly interpreted against it because the rule is
policy itself; (c) the rationale for the exclusion of an arrest pursuant to
that any ambiguity is to be taken contra proferentum. Risk policies
judicial authorities is to eliminate collusion between unscrupulous
should be construed reasonably and in a manner as to make effective
assured and civil authorities.
the intentions and expectations of the parties. It added that the
As to the second assigned error, petitioner submits that any loss

which private respondent may have incurred was in the nature and
form of unrecovered acquisition value brought about by a voluntary
sacrifice sale and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the
claim was a result of its honest belief that the arrest of the vessel was
not a compensable risk under the policies issued. In fact, petitioner
policies clearly stipulate that they cover the risks of non-delivery of an

entire package and that it was petitioner itself that invited and granted
the extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the
"Perils" clause of the subject policies in relation to the excluded risks
or warranty specifically stated therein.

By way of a historical background, marine insurance developed as an
MALAYAN INSURANCE COMPANY, INC., are contented, and do
all-risk coverage, using the phrase "perils of the sea" to encompass
hereby promise and bind themselves, their Heirs, Executors, Goods
the wide and varied range of risks that were covered.[3] The subject
and Chattel, to the ASSURED, his or their Executors, Administrators,
policies contain the "Perils" clause which is a standard form in any
or Assigns, for the true Performance of the Premises; confessing
marine insurance policy. Said clause reads:
themselves paid the Consideration due unto them for this
"Touching the adventures which the said MALAYAN INSURANCE
INSURANCE at and after the rate arranged." (Underscoring supplied)
CO., are content to bear, and to take upon them in this voyage; they
The exception or limitation to the "Perils" clause and the "All other
are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves,
perils" clause in the subject policies is specifically referred to as
Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the
Clause 12 called the "Free from Capture & Seizure Clause" or the
Sea, Arrests, Restraints and Detainments of all Kings, Princess and
F.C. & S. Clause which reads, thus:
Peoples, of what Nation, condition, or quality soever, Barratry of the

Master and Mariners, and of all other Perils, Losses, and Misfortunes,
that have come to hurt, detriment, or damage of the said goods and
merchandise or any part thereof . AND in case of any loss or
misfortune it shall be lawful to the ASSURED, their factors, servants
and assigns, to sue, labour, and travel for, in and about the defence,
safeguards, and recovery of the said goods and merchandises, and
ship, & c., or any part thereof, without prejudice to this INSURANCE;
to the charges whereof the said COMPANY, will contribute according
to the rate and quantity of the sum herein INSURED. AND it is
expressly declared and agreed that no acts of the Insurer or Insured
in recovering, saving, or preserving the Property insured shall be
considered as a Waiver, or Acceptance of Abandonment. And it is
"Warranted free of capture, seizure, arrest, restraint or detainment,

and the consequences thereof or of any attempt thereat; also from the
consequences of hostilities and warlike operations, whether there be
a declaration of war or not; but this warranty shall not exclude
collision, contact with any fixed or floating object (other than a mine or
torpedo), stranding, heavy weather or fire unless caused directly (and
independently of the nature of the voyage or service which the vessel
concerned or, in the case of a collision, any other vessel involved
therein is performing) by a hostile act by or against a belligerent
power and for the purpose of this warranty 'power' includes any
authorities maintaining naval, military or air forces in association with
power.
agreed by the said COMPANY, that this writing or Policy of
Further warranted free from the consequences of civil war, revolution,
INSURANCE shall be of as much Force and Effect as the surest
insurrection, or civil strike arising therefrom or piracy.
Writing or Policy of INSURANCE made in LONDON. And so the said

Should Clause 12 be deleted, the relevant current institute war
to warlike operations if this Court strictly construes the heading of the
clauses shall be deemed to form part of this insurance."
said Clauses. However, it also claims that the parties intended to
(Underscoring supplied)
include arrests, etc. even if it were not the result of hostilities or
However, the F. C. & S. Clause was deleted from the policies.

Consequently, the Institute War Clauses (Cargo) was deemed
incorporated which, in subsection 1.1 of Section 1, provides:
"1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine
warlike operations. It further claims that on the strength of

jurisprudence on the matter, the term "arrests" would only cover those
arising from political or executive acts, concluding that whether private
respondent's claim is anchored on subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) or the F.C. & S. Clause, the arrest of
the vessel by judicial authorities is an excluded risk.[4]
Policy by the clause warranted free of capture, seizure, arrest,
This Court cannot agree with petitioner's assertions, particularly when
restraint or detainment, and the consequences thereof of hostilities or
it alleges that in the "Perils" Clause, it assumed the risk of arrest
warlike operations, whether there be a declaration of war or not; but
caused solely by executive or political acts of the government of the
this warranty shall not exclude collision, contact with any fixed or
seizing state and thereby excludes "arrests" caused by ordinary legal
floating object (other than a mine or torpedo), stranding, heavy
processes, such as in the instant case.
weather or fire unless caused directly (and independently of the

nature on voyage or service which the vessel concerned or, in the
case of a collision any other vessel involved therein is performing) by
a hostile act by or against a belligerent power; and for the purpose of
this warranty 'power' includes any authority maintaining naval, military
or air forces in association with a power. Further warranted free from
the consequences of civil war, revolution, rebellion, insurrection, or
civil strike arising therefrom, or piracy."
With the incorporation of subsection 1.1 of Section 1 of the Institute

War Clauses, however, this Court agrees with the Court of Appeals
and the private respondent that "arrest" caused by ordinary judicial
process is deemed included among the covered risks. This
interpretation becomes inevitable when subsection 1.1 of Section 1 of
the Institute War Clauses provided that "this insurance covers the
risks excluded from the StandardForm of English Marine Policy by the
clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the
According to petitioner, the automatic incorporation of subsection 1.1
F.C. & S. Clause. Jurisprudentially, "arrests" caused by ordinary
of section 1 of the Institute War Clauses (Cargo), among others,
judicial process is also a risk excluded from the Standard Form of
means that any "capture, arrest, detention, etc." pertained exclusively
English Marine Policy by the F.C. & S. Clause.

Petitioner cannot adopt the argument that the "arrest" caused by
Institute War Clauses (Cargo) "pertained exclusively to warlike
ordinary judicial process is not included in the covered risk simply
operations" and yet it also stated that "the deletion of the F.C. & S.
because the F.C. & S. Clause under the Institute War Clauses can
Clause and the consequent incorporation of subsection 1.1 of Section
only be operative in case of hostilities or warlike operations on
1 of the Institute War Clauses (Cargo) was to include "arrest,
account of its heading "Institute War Clauses." This Court agrees with
etc. even if it were not a result of hostilities or warlike operations."[8]
the Court of Appeals when it held that ". . . Although the F.C. & S.
Clause may have originally been inserted in marine policies to protect
against risks of war, (see generally G. Gilmore & C. Black, The Law of
Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in
This Court cannot help the impression that petitioner is overly

straining its interpretation of the provisions of the policy in order to
avoid being liable for private respondent's claim.
recent years to include seizure or detention by civil authorities seems
This Court finds it pointless for petitioner to maintain its position that it
consistent with the general purposes of the clause, x x x"[5] In fact,
only insures risks of "arrest" occasioned by executive or political acts
petitioner itself averred that subsection 1.1 of Section 1 of the Institute
of government which is interpreted as not referring to those caused by
War Clauses included "arrest" even if it were not a result of hostilities
ordinary legal processes as contained in the "Perils" Clause; deletes
or warlike operations.[6] In this regard, since what was also excluded
the F.C. & S. Clause which excludes risks of arrest occasioned by
in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary
executive or political acts of the government and naturally, also those
judicial process, logically, such "arrest" would now become a covered
caused by ordinary legal processes; and, thereafter incorporates
risk under subsection 1.1 of Section 1 of the Institute War Clauses,
subsection 1.1 of Section 1 of the Institute War Clauses which now
regardless of whether or not said "arrest" by civil authorities occurred
includes in the coverage risks of arrest due to executive or political
in a state of war.
acts of a government but then still excludes "arrests" occasioned by
Petitioner itself seems to be confused about the application of the F.C.

& S. Clause as well as that of subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was
ordinary legal processes when subsection 1.1 of Section 1 of said

Clauses should also have included "arrests" previously excluded from
the coverage of the F.C. & S. Clause.
"originally incorporated in insurance policies to eliminatethe risks of
It has been held that a strained interpretation which is unnatural and
warlike operations". It also averred that the F.C. & S. Clause
forced, as to lead to an absurd conclusion or to render the policy
applies even if there be no war or warlike operations x x x"[7] In the
nonsensical, should, by all means, be avoided.[9] Likewise, it must be
same vein, it contended that subsection 1.1 of Section 1 of the
borne in mind that such contracts are invariably prepared by the

companies and must be accepted by the insured in the form in which
two interpretations, that which is most favorable to the insured is
they are written.[10] Any construction of a marine policy rendering it
adopted.[17]
void should be avoided.[11] Such policies will, therefore, be construed

strictly against the company in order to avoid a forfeiture, unless no
other result is possible from the language used.[12]
Indemnity and liability insurance policies are construed in accordance

with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer.[18] A
If a marine insurance company desires to limit or restrict the operation
contract of insurance, being a contract of adhesion, par excellence,
of the general provisions of its contract by special proviso, exception,
any ambiguity therein should be resolved against the insurer; in other
or exemption, it should express such limitation in clear and
words, it should be construed liberally in favor of the insured and
unmistakable language.[13] Obviously, the deletion of the F.C. & S.
strictly against the insurer. Limitations of liability should be regarded
Clause and the consequent incorporation of subsection 1.1 of Section
with extreme jealousy and must be construed in such a way as to
1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the
preclude the insurer from noncompliance with its obligations.[19]
risk of arrest occasioned by ordinary judicial process was expressly

indicated as an exception in the subject policies, there would have
been no controversy with respect to the interpretation of the subject
clauses.
Be that as it may, exceptions to the general coverage are construed
most strongly against the company.[14] Even an express exception in
a policy is to be construed against the underwriters by whom the
policy is framed, and for whose benefit the exception is introduced.
[15]
An insurance contract should be so interpreted as to carry out the
purpose for which the parties entered into the contract which is, to
insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning
of language in the policy.[16] Where restrictive provisions are open to
In view of the foregoing, this Court sees no need to discuss the other
issues presented.
WHEREFORE, the petition for review is DENIED and the decision of
the Court ofAppeals is AFFIRMED.
SO ORDERED.

G.R. No. L-16215
June 29, 1963
Section 2. Injury sustained by the wrecking or

disablement of a railroad passenger car or street
SIMEON DEL ROSARIO, plaintiff-appellee,
railway car in or on which the Insured is travelling as a
vs.
farepaying passenger. . . . . . . .
THE EQUITABLE INSURANCE AND CASUALTY CO.,

INC., defendant-appellant.
Section 3. Injury sustained by the burning of a church,
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
theatre, public library or municipal administration
K. V. Faylona for defendant-appellant.
building while the Insured is therein at the

commencement of the fire. . . . . . . .
P1,500.00
P2,000.00
PAREDES, J.:
Section 4. Injury sustained by the wrecking or
On February 7, 1957, the defendant Equitable Insurance and
disablement of a regular passenger elevator car in
Casualty Co., Inc., issued Personal Accident Policy No. 7136 on the
which the Insured is being conveyed as a passenger
life of Francisco del Rosario, alias PaquitoBolero, son of herein
(Elevator in mines excluded) P2,500.00
plaintiff-appellee, binding itself to pay the sum of P1,000.00 to

P3,000.00, as indemnity for the death of the insured. The pertinent
Section 5. Injury sustained by a stroke of lightning or by
provisions of the Policy, recite:
a cyclone. . . . . . . .
xxx
P3,000.00
Part I. Indemnity For Death
xxx
xxx
If the insured sustains any bodily injury which is effected solely
Part VI. Exceptions
through violent, external, visible and accidental means, and which
This policy shall not cover disappearance of the Insured nor shall it
shall result, independently of all other causes and within sixty (60)
cover Death, Disability, Hospital fees, or Loss of Time, caused to the
days from the occurrence thereof, in the Death of the Insured, the
insured:
Company shall pay the amount set opposite such injury:

. . . (h) By drowning except as a consequence of the wrecking or
Section 1. Injury sustained other than those specified
below unless excepted hereinafter. . . . . . . .
disablement in the Philippine waters of a passenger steam or motor

P1,000.00
vessel in which the Insured is travelling as a farepaying

passenger; . . . .

A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h)
In view of the foregoing, this policy is hereby surrendered and

CANCELLED.
LOSS COMPUTATION
embodied in PART VI of the policy is hereby waived by the company,
Amount of Insurance
and to form a part of the provision covered by the policy.
__________
On February 24, 1957, the insured Francisco del
P1,000.00
vvvvv
Rosario, alias Paquito Bolero, while onboard the motor launch
On the same date (September 13, 1957), Atty. Vicente J. Francisco,
"ISLAMA" together with 33 others, including his beneficiary in the
wrote defendant company acknowledging receipt by his client (plaintiff
Policy, Remedios Jayme, were forced to jump off said launch on
herein), of the P1,000.00, butinforming said company that said
account of fire which broke out on said vessel, resulting in the death
amount was not the correct one. Atty. Francisco claimed
of drowning, of the insured and beneficiary in the waters of

Jolo. 1wph1.t
The amount payable under the policy, I believe should be P1,500.00

under the provision of Section 2, part 1 of the policy, based on the rule
On April 13, 1957, Simeon del Rosario, father of the insured, and as
of pari materia as the death of the insured occurred under the
the sole heir, filed a claim for payment with defendant company, and
circumstances similar to that provided under the aforecited section.
on September 13, 1957, defendant company paid to him (plaintiff) the

sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The
receipt signed by plaintiff reads
Defendant company, upon receipt of the letter, referred the matter to

the Insurance Commissioner, who rendered an opinion that the
liability of the company was only P1,000.00, pursuant to Section 1,
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO.,
Part I of the Provisions of the policy (Exh. F, or 3). Because of the
INC., the sum of PESOS ONE THOUSAND (P1,000.00) Philippine
above opinion, defendant insurance company refused to pay more
Currency, being settlement in full for all claims and demands against
than P1,000.00. In the meantime, Atty. Vicente Francisco, in a
said Company as a result of an accident which occurred on February
subsequent letter to the insurance company, asked for P3,000.00
26, 1957, insured under out ACCIDENT Policy No. 7136, causing the
which the Company refused, to pay. Hence, a complaint for the
death of the Assured.
recovery of the balance of P2,000.00 more was instituted with the

Court of First Instance of Rizal (Pasay City, Branch VII), praying for it

further sum of P10,000.00 as attorney's fees, expenses of litigation
". . . . Under the terms of this policy, defendant company agreed to
and costs.
pay P1,000.00 to P3,000.00 as indemnity for the death of the insured.
Defendant Insurance Company presented a Motion to Dismiss,

alleging that the demand or claim is set forth in the complaint had
already been released, plaintiff having received the full amount due as
appearing in policy and as per opinion of the Insurance
Commissioner. An opposition to the motion to dismiss, was presented
by plaintiff, and other pleadings were subsequently file by the parties.
On December 28, 1957, the trial court deferred action on the motion
to dismiss until termination of the trial of the case, it appearing that the
ground thereof was not indubitable. In the Answer to the complaint,
defendant company practically admitted all the allegations therein,
denying only those which stated that under the policy its liability was
P3,000.00.
On September 1, 1958, the trial court promulgated an Amended
Decision, the pertinent portions of which read
xxx
xxx
xxx
The insured died of drowning. Death by drowning is covered by the

policy the pertinent provisions of which reads as follows:
xxx
xxx
xxx
"Part I of the policy fixes specific amounts as indemnities in case of

death resulting from "bodily injury which is effected solely thru
violence, external, visible and accidental means" but, Part I of the
Policy is not applicable in case of death by drowning because death
by drowning is not one resulting from "bodily injury which is affected
solely thru violent, external, visible and accidental means" as "Bodily
Injury" means a cut, a bruise, or a wound and drowning is death due
to suffocation and not to any cut, bruise or wound."
xxx
xxx
xxx
Besides, on the face of the policy Exhibit "A" itself, death by drowning
is a ground for recovery apart from the bodily injury because death by
bodily injury is covered by Part I of the policy while death by drowning
Since the contemporaneous and subsequent acts of the parties show
is covered by Part VI thereof. But while the policy mentions specific
that it was not their intention that the payment of P1,000.00 to the
amounts that may be recovered for death for bodily injury, yet, there is
plaintiff and the signing of the loss receipt exhibit "1" would be
not specific amount mentioned in the policy for death thru drowning
considered as releasing the defendant completely from its liability on
although the latter is, under Part VI of the policy, a ground for recovery
the policy in question, said intention of the parties should prevail over
thereunder. Since the defendant has bound itself to pay P1000.00 to
the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil
P3,000.00 as indemnity for the death of the insured but the policy
Code).
does not positively state any definite amount that may be recovered in

case of death by drowning, there is an ambiguity in this respect in the
the proven facts and circumstances, the findings and conclusions of
policy, which ambiguity must be interpreted in favor of the insured and
the trial court, are well taken, for they are supported by the generally
strictly against the insurer so as to allow greater indemnity.
accepted principles or rulings on insurance, which enunciate that
xxx
xxx
xxx
where there is an ambiguity with respect to the terms and conditions

of the policy, the same will be resolved against the one responsible
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant
thereof. It should be recalled in this connection, that generally, the
had already paid the amount of P1,000.00 to the plaintiff so that there
insured, has little, if any, participation in the preparation of the policy,
still remains a balance of P2,000.00 of the amount to which plaintiff is
together with the drafting of its terms and Conditions. The
entitled to recover under the policy Exhibit "A".
interpretation of obscure stipulations in a contract should not favor the
The plaintiff asks for an award of P10,000.00 as attorney's fees and

expenses of litigation. However, since it is evident that the defendant
party who cause the obscurity (Art. 1377, N.C.C.), which, in the case
at bar, is the insurance company.
had not acted in bad faith in refusing to pay plaintiff's claim, the Court
. . . . And so it has been generally held that the "terms in an insurance
cannot award plaintiff's claim for attorney's fees and expenses of
policy, which are ambiguous, equivocal or uncertain . . . are to be
litigation.
construed strictly against, the insurer, and liberally in favor of the
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and

sets aside its decision dated July 21, 1958 and hereby renders
judgment, ordering the defendant to pay plaintiff the sum of Two
Thousand (P2,000.00) Pesos and to pay the costs.
insured so as to effect the dominant purpose of indemnity or payment

to the insured, especially where a forfeiture is involved," (29 Am. Jur.
181) and the reason for this rule is that the "insured usually has no
voice in the selection or arrangement of the words employed and that
the language of the contract is selected with great care and
The above judgment was appealed to the Court of Appeals on three
deliberation by expert and legal advisers employed by, and acting
(3) counts. Said Court, in a Resolution dated September 29, 1959,
exclusively in the interest of, the insurance company" (44 C.J.S.
elevated the case to this Court, stating that the genuine issue is purely
1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16,
legal in nature.
1955.
All the parties agree that indemnity has to be paid. The conflict
. . . . Where two interpretations, equally fair, of languages used in an
centers on how much should the indemnity be. We believe that under
insurance policy may be made, that which allows the greater

indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48
Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas.
749).
DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review
on certiorari is whether the petitioner is liable under the Money,
At any event, the policy under consideration, covers death or disability
Security, and Payroll Robbery policy it issued to the private
by accidental means, and the appellant insurance company agreed to
respondent or whether recovery thereunder is precluded under the
pay P1,000.00 to P3,000.00. is indemnity for death of the insured.
generalexceptions clause thereof. Both the trial court and the Court of
In view of the conclusions reached, it would seem unnecessary to

discuss the other issues raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
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.
G.R. No. 115278 May 23, 1995
After joinder of issues, the parties asked the trial court to render
judgment based on the following stipulation of facts:
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
1. The plaintiff was insured by the defendants and an insurance policy
COURT OF APPEALS and PRODUCERS BANK OF THE
was issued, the duplicate original of which is hereto attached as
PHILIPPINES, respondents.
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
7. Demands were made by the plaintiff upon the defendant to pay the
Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed
amount of the loss of P725,000.00, but the latter refused to pay as the
of the said cash. The robbery took place while the armored car was
loss is excluded from the coverage of the insurance policy, attached
traveling along Taft Avenue in Pasay City;
hereto as Exhibit "A," specifically under page 1 thereof, "General
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
Exceptions" Section (b), which is marked as Exhibit "A-1," and which

reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
Services, Inc. with the plaintiff by virtue of a contract of Security
(b) any loss caused by any dishonest, fraudulent or criminal act of the
Service executed on October 25, 1982, a duplicate original copy of
insured or any officer, employee, partner, director, trustee or
which is hereto attached as Exhibit "C";
authorized representative of the Insured whether acting alone or in
5. After an investigation conducted by the Pasay police authorities,
conjunction with others. . . .
the driver Magalong and guard Atiga were charged, together with
8. The plaintiff opposes the contention of the defendant and contends
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
that Atiga and Magalong are not its "officer, employee, . . . trustee or
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of
authorized representative . . . at the time of the robbery. 1
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;
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
"employees" in avoidance of defendant's liability under the policy,
interest thereon at the legal rate, until fully paid;
particularly the general exceptions therein embodied.
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for
Neither is the Court prepared to accept the proposition that driver
attorney's fees; and
Magalong and guard Atiga were the "authorized representatives" of
(c) orders defendant to pay costs of suit.
plaintiff. They were merely an assigned armored car driver and

security guard, respectively, for the June 29, 1987 money transfer
All other claims and counterclaims are accordingly dismissed
from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
forthwith.
it was teller Maribeth Alampay who had "custody" of the
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
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
The Court is satisfied that plaintiff may not be said to have selected
docketed the case as CA-G.R. CV No. 32946. In its
and engaged Magalong and Atiga, their services as armored car
decision 4 promulgated on 3 May 1994, it affirmed in toto the
driver and as security guard having been merely offered by PRC
appealed decision.
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
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:
fulfillment of agreements to provide driving services and property
A policy or contract of insurance is to be construed liberally in favor of
protection as such in a context which does not impress the Court
the insured and strictly against the insurance company (New Life
as translating into plaintiff's power to control the conduct of any
Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance
assigned driver or security guard, beyond perhaps entitling plaintiff to
Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of
request are replacement for such driver guard. The finding is
insurance, like other contracts, are to be construed according to the
accordingly compelled that neither Magalong nor Atiga were plaintiff's
sense and meaning of the terms which the parties themselves have

used. If such terms are clear and unambiguous, they must be taken
security guard Atiga were Producers' authorized representatives or
and understood in their plain, ordinary and popular sense (New Life
employees in the transfer of the money and payroll from its branch
Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court
office in Pasay City to its head office in Makati.
of Appeals, 195 SCRA 193).
According to Fortune, when Producers commissioned a guard and a
The language used by defendant-appellant in the above quoted
driver to transfer its funds from one branch to another, they effectively
stipulation is plain, ordinary and simple. No other interpretation is
and necessarily became its authorized representatives in the care and
necessary. The word "employee" must be taken to mean in the
custody of the money. Assuming that they could not be considered
ordinary sense.
authorized representatives, they were, nevertheless, employees of
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
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 employeremployee 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 Atigawhich 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
On 20 June 1994, Fortune filed this petition for review on certiorari. It
absence of a power to control the putative employee's conduct. Of the
alleges that the trial court and the Court of Appeals erred in holding it
four, the right-of-control test has been held to be the decisive
liable under the insurance policy because the loss falls within the
factor. 6 It asserts that the power of control over Magalong and Atiga
general exceptions clause considering that driver Magalong and
was vested in and exercised by Producers. Fortune further insists that

PRC Management System and Unicorn Security Services are but
Code, a social legislation whose provisions may set aside contracts
"labor-only" contractors under Article 106 of the Labor Code which
entered into by parties in order to give protection to the working man.
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
Producers further asseverates that what should be applied is the rule

in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's
conduct.
considered merely as an agent of the employer who shall be
Since under Producers' contract with PRC Management Systems it is
responsible to the workers in the same manner and extent as if the
the latter which assigned Magalong as the driver of Producers'
latter were directly employed by him.
armored car and was responsible for his faithful discharge of his
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 employeremployeerelationship between the owner of the project and the
employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were
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, Producersrelies 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.
not its employees since it had nothing to do with their selection and
It should be noted that the insurance policy entered into by the parties
engagement, the payment of their wages, their dismissal, and the
is a theft or robbery insurance policy which is a form of casualty
control of their conduct. Producers argued that the rule in International
insurance. Section 174 of the Insurance Code provides:
Timber Corp. is not applicable to all cases but only when it becomes
necessary to prevent any violation or circumvention of the Labor

Sec. 174. Casualty insurance is insurance covering loss or liability
liability should the theft be committed by one having unrestricted
arising from accident or mishap, excluding certain types of loss which
access to the property. 12 In such cases, the terms specifying the
by law or custom are considered as falling exclusively within the
excluded classes are to be given their meaning as understood in
scope of insurance such as fire or marine. It includes, but is not
common speech. 13 The terms "service" and "employment" are
limited to, employer's liability insurance, public liability insurance,
generally associated with the idea of selection, control, and
motor vehicle liability insurance, plate glass insurance, burglary and
compensation. 14
theft insurance, personal accident and health insurance as written by

non-life insurance companies, and other substantially similar kinds of
insurance. (emphases supplied)
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
Except with respect to compulsory motor vehicle liability insurance,
insurer. 16 Limitations of liability should be regarded with extreme
the Insurance Code contains no other provisions applicable to
jealousy and must be construed
casualty insurance or to robbery insurance in particular. These
in such a way, as to preclude the insurer from non-compliance with its
contracts are, therefore, governed by the general provisions
obligation. 17 It goes without saying then that if the terms of the
applicable to all types of insurance. Outside of these, the rights and
contract are clear and unambiguous, there is no room for construction
obligations of the parties must be determined by the terms of their
and such terms cannot be enlarged or diminished by judicial
contract, taking into consideration its purpose and always in
construction. 18
accordance with the general principles of insurance law. 9
An insurance contract is a contract of indemnity upon the terms and
It has been aptly observed that in burglary, robbery, and theft
conditions specified therein. 19 It is settled that the terms of the policy
insurance, "the opportunity to defraud the insurer the moral hazard
constitute the measure of the insurer's liability. 20 In the absence of
is so great that insurers have found it necessary to fill up their
statutory prohibition to the contrary, insurance companies have the
policies with countless restrictions, many designed to reduce this
same rights as individuals to limit their liability and to impose whatever
hazard. Seldom does the insurer assume the risk of all losses due to
conditions they deem best upon their obligations not inconsistent with
the hazards insured against." 10 Persons frequently excluded under
public policy.
such provisions are those in the insured's service and

employment. 11 The purpose of the exception is to guard against
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
only" contract as employees of the party employing them and not of
exceptions clause of the policy which, for easy reference, is again
the party who supplied them to the employer. 22
quoted:
Fortune claims that Producers' contracts with PRC Management
GENERAL EXCEPTIONS
Systems and Unicorn Security Services are "labor-only" contracts.
The company shall not be liable under this policy in respect of
Producers, however, insists that by the express terms thereof, it is not
xxx xxx xxx
the employer of Magalong. Notwithstanding such express assumption

of PRC Management Systems and Unicorn Security Services that the
(b) any loss caused by any dishonest, fraudulent or criminal act of the
drivers and the security guards each shall supply to Producers are not
insured or any officer, employee, partner, director, trustee or
the latter's employees, it may, in fact, be that it is because the
authorized representative of the Insured whether acting alone or in
contracts are, indeed, "labor-only" contracts. Whether they are is, in
conjunction with others. . . . (emphases supplied)
the light of the criteria provided for in Article 106 of the Labor Code, a
There is marked disagreement between the parties on the correct

meaning of the terms "employee" and "authorized representatives."
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
It is clear to us that insofar as Fortune is concerned, it was its
Systems and Unicorn Security Services, the complaint for violation of
intention to exclude and exempt from protection and coverage losses
P.D. No. 532, and the information therefor filed by the City Fiscal of
arising from dishonest, fraudulent, or criminal acts of persons granted
Pasay City, there is a paucity of evidence as to whether the contracts
or having unrestricted access to Producers' money or payroll. When it
between Producers and PRC Management Systems and Unicorn
used then the term "employee," it must have had in mind any
Security Services are "labor-only" contracts.
personwho 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-
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 headoffice 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
G.R. No. 75605 January 22, 1993

RAFAEL (REX) VERENDIA, petitioner,
vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE
PHILIPPINES, respondents.
interchangeable with "agent." 23
G.R. No. 76399 January 22, 1993
In view of the foregoing, Fortune is exempt from liability under the
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,
general exceptions clause of the insurance policy.
vs.
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
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.

B.L. Padilla for petitioner.
Sabino Padilla, Jr. for Fidelity & Surety, Co.
complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.
MELO, J.:
SO ORDERED.
The two consolidated cases involved herein stemmed from the

issuance by Fidelity and Surety Insurance Company of the Philippines
(Fidelity for short) of its Fire Insurance Policy No. F-18876 effective
between June 23, 1980 and June 23, 1981 covering Rafael (Rex)
Verendia's residential building located at Tulip Drive, Beverly Hills,
Antipolo, Rizal in the amount of P385,000.00. Designated as

beneficiary was the Monte de Piedad & Savings Bank. Verendia also
Fidelity of his other insurance coverages with Country Bankers
insured the same building with two other companies, namely, The
Insurance and Development Insurance.
Country Bankers Insurance for P56,000.00 under Policy No. PDB-801913 expiring on May 12, 1981, and The Development Insurance for
P400,000.00 under Policy No. F-48867 expiring on June 30, 198l.
Verendia appealed to the then Intermediate Appellate Court and in a

decision promulgated on March 31, 1986, (CA-G.R. No. CV No.
02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate
While the three fire insurance policies were in force, the insured
court reversed for the following reasons: (a) there was no
property was completely destroyed by fire on the early morning of
misrepresentation concerning the lease for the contract was signed by
December 28, 1980. Fidelity was accordingly informed of the loss and
Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of
despite demands, refused payment under its policy, thus prompting
the policy contract requiring Verendia to give notice to Fidelity of other
Verendia to file a complaint with the then Court of First Instance of
contracts of insurance was waived by Fidelity as shown by its conduct
Quezon City, praying for payment of P385,000.00, legal interest
in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R.
thereon, plus attorney's fees and litigation expenses. The complaint
No. 76399).
was later amended to include Monte de Piedad as an "unwilling

defendant" (P. 16, Record).
Fidelity received a copy of the appellate court's decision on April 4,

1986, but instead of directly filing a motion for reconsideration within
Answering the complaint, Fidelity, among other things, averred that
15 days therefrom, Fidelity filed on April 21, 1986, a motion for
the policy was avoided by reason of over-insurance; that Verendia
extension of 3 days within which to file a motion for reconsideration.
maliciously represented that the building at the time of the fire was
The motion for extension was not filed on April 19, 1986 which was
leased under a contract executed on June 25, 1980 to a certain
the 15th day after receipt of the decision because said 15th day was a
Roberto Garcia, when actually it was a Marcelo Garcia who was the
Saturday and of course, the following day was a Sunday (p.
lessee.
14., Rollo of G.R. No. 75605). The motion for extension was granted
On May 24, 1983, the trial court rendered a decision, per Judge
Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses
set up by Fidelity, the trial court ruled that Paragraph 3 of the policy
was also violated by Verendia in that the insured failed to inform
by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had
in the meantime filed its motion for reconsideration on April 24, 1986
(p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion
for reconsideration on the ground that the motion for extension was

filed out of time because the 15th day from receipt of the decision
Manila (80 Phil. 160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]),
which fell on a Saturday was ignored by Fidelity, for indeed, so
and Joe vs. King (20 SCRA 1120 [1967]).
Verendia contended, the Intermediate Appellate Court has personnel

receiving pleadings even on Saturdays.
The above cases notwithstanding and because the Rules of Court do

not expressly prohibit the filing of a motion for extension of time to file
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and
a motion for reconsideration in regard to a final order or judgment,
after a motion for reconsideration was similarly brushed aside on July
magistrates, including those in the Court of Appeals, held sharply
22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No.
divided opinions on whether the period for appealing which also
75605 was initiated. Subsequently, or more specifically on October
includes the period for moving to reconsider may be extended. The
21, 1986, the appellate court denied Fidelity's motion for
matter was not definitely settled until this Court issued its Resolution
reconsideration and account thereof. Fidelity filed on March 31, 1986,
in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]),
the petition for review on certiorari now docketed as G.R. No. 76399.
declaring that beginning one month from the promulgation of the
The two petitions, inter-related as they are, were consolidated
resolution on May 30, 1986
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
. . . the rule shall be strictly enforced that no motion for extension of
Before we can even begin to look into the merits of the main case
time to file a motion for new trial or reconsideration shall be filed . . .
which is the petition for review oncertiorari, we must first determine
(at p. 212.)
whether the decision of the appellate court may still be reviewed, or

whether the same is beyond further judicial scrutiny. Stated otherwise,
before anything else, inquiry must be made into the issue of whether
Fidelity could have legally asked for an extension of the 15-day
reglementary period for appealing or for moving for reconsideration.
In the instant case, the motion for extension was filed and granted
before June 30, 1986, although, of course, Verendia's motion to
expunge the motion for reconsideration was not finally disposed until
July 22, 1986, or after the dictum in Habaluyas had taken effect.
Seemingly, therefore, the filing of the motion for extension came
As early as 1944, this Court through Justice Ozaeta already
before its formal proscription under Habaluyas, for which reason we
pronounced the doctrine that the pendency of a motion for extension
now turn our attention to G.R. No. 76399.
of time to perfect an appeal does not suspend the running of the

period sought to be extended (Garcia vs. Buenaventura 74 Phil. 611
[1944]). To the same effect were the rulings in Gibbs vs. CFI of
Reduced to bare essentials, the issues Fidelity raises therein are: (a)
whether or not the contract of lease submitted by Verendia to support

his claim on the fire insurance policy constitutes a false declaration
Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a
which would forfeit his benefits under Section 13 of the policy and (b)
couple of days after the effectivity of the insurance policy. When the
whether or not, in submitting the subrogation receipt in evidence,
rented residential building was razed to the ground on December 28,
Fidelity had in effect agreed to settle Verendia's claim in the amount
1980, it appears that Robert Garcia (or Roberto Garcia) was still
stated in said receipt. 1
within the premises. However, according to the investigation report
Verging on the factual, the issue of the veracity or falsity of the lease
contract could have been better resolved by the appellate court for, in
a petition for review on certiorari under Rule 45, the jurisdiction of this
Court is limited to the review of errors of law. The appellate court's
findings of fact are, therefore, conclusive upon this Court except in the
following cases: (1) when the conclusion is a finding grounded entirely
on speculation, surmises, or conjectures; (2) when the inference
prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the

building appeared to have "no occupant" and that Mr. Roberto Garcia
was "renting on the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated
testimony that Marcelo Garcia, whom he considered as the real
lessee, was occupying the building when it was burned (TSN, July 27,
1982, p.10).
made is manifestly absurd, mistaken, or impossible; (3) when there is
Robert Garcia disappeared after the fire. It was only on October 9,
grave abuse of discretion in the appreciation of facts; (4) when the
1981 that an adjuster was able to locate him. Robert Garcia then
judgment is premised on a misapprehension of facts; (5) when the
executed an affidavit before the National Intelligence and Security
findings of fact are conflicting; and (6) when the Court of Appeals in
Authority (NISA) to the effect that he was not the lessee of Verendia's
making its findings went beyond the issues of the case and the same
house and that his signature on the contract of lease was a complete
are contrary to the admissions of both appellant and appellee
forgery. Thus, on the strength of these facts, the adjuster submitted a
(Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view of the
report dated December 4, 1981 recommending the denial of
conflicting findings of the trial court and the appellate court on
Verendia's claim (Exh. "2").
important issues in these consolidated cases and it appearing that the

appellate court judgment is based on a misapprehension of facts, this
Court shall review the evidence on record.
Ironically, during the trial, Verendia admitted that it was not Robert
Garcia who signed the lease contract. According to Verendia, it was
signed by Marcelo Garcia, cousin of Robert, who had been paying the
The contract of lease upon which Verendia relies to support his claim
rentals all the while. Verendia, however, failed to explain why Marcelo
for insurance benefits, was entered into between him and one Robert
had to sign his cousin's name when he in fact was paying for the rent

and why he (Verendia) himself, the lessor, allowed such a ruse.
strictly construed against the insured. Verendia failed to live by the
Fidelity's conclusions on these proven facts appear, therefore, to have
terms of the policy, specifically Section 13 thereof which is expressed
sufficient bases; Verendia concocted the lease contract to deflect
in terms that are clear and unambiguous, that all benefits under the
responsibility for the fire towards an alleged "lessee", inflated the
policy shall be forfeited "If the claim be in any respect fraudulent, or if
value of the property by the alleged monthly rental of P6,500 when in
any false declaration be made or used in support thereof, or if any
fact, the Provincial Assessor of Rizal had assessed the property's fair
fraudulent means or devises are used by the Insured or anyone acting
market value to be only P40,300.00, insured the same property with
in his behalf to obtain any benefit under the policy". Verendia, having
two other insurance companies for a total coverage of around
presented a false declaration to support his claim for benefits in the
P900,000, and created a dead-end for the adjuster by the
form of a fraudulent lease contract, he forfeited all benefits therein by
disappearance of Robert Garcia.
virtue of Section 13 of the policy in the absence of proof that Fidelity
Basically a contract of indemnity, an insurance contract is the law

between the parties (Pacific Banking Corporation vs. Court of Appeals
168 SCRA 1 [1988]). Its terms and conditions constitute the measure
of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer (Oriental
waived such provision (Pacific Banking Corporation vs. Court of

Appeals, supra). Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance
contracts areuberrimae fidae and demand the most abundant good
faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).
Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991],
There is also no reason to conclude that by submitting the
citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185
subrogation receipt as evidence in court, Fidelity bound itself to a
SCRA 741 [1991]). As it is also a contract of adhesion, an insurance
"mutual agreement" to settle Verendia's claims in consideration of the
contract should be liberally construed in favor of the insured and
amount of P142,685.77. While the said receipt appears to have been
strictly against the insurer company which usually prepares it
a filled-up form of Fidelity, no representative of Fidelity had signed it. It
(Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652
is even incomplete as the blank spaces for a witness and his address
[1980]).
are not filled up. More significantly, the same receipt states that
Considering, however, the foregoing discussion pointing to the fact

that Verendia used a false lease contract to support his claim under
Fire Insurance Policy No. F-18876, the terms of the policy should be
Verendia had received the aforesaid amount. However, that Verendia

had not received the amount stated therein, is proven by the fact that
Verendia himself filed the complaint for the full amount of P385,000.00
stated in the policy. It might be that there had been efforts to settle

Verendia's claims, but surely, the subrogation receipt by itself does not
prove that a settlement had been arrived at and enforced. Thus, to
interpret Fidelity's presentation of the subrogation receipt in evidence
as indicative of its accession to its "terms" is not only wanting in
rational basis but would be substituting the will of the Court for that of
the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The
G.R. No. 94071 March 31, 1992
petition in G.R. No. 76399 is GRANTED and the decision of the then
NEW LIFE ENTERPRISES and JULIAN SY, petitioners,
Intermediate Appellate Court under review is REVERSED and SET
vs.
ASIDE and that of the trial court is hereby REINSTATED and
HON. COURT OF APPEALS, EQUITABLE INSURANCE
UPHELD.
CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC.
SO ORDERED.
and WESTERN GUARANTY CORPORATION, respondents.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

REGALADO, J.:
# Footnotes
This appeal by certiorari seeks the nullification of the

decision 1 of respondent Court of Appeals in CA-G.R. CV No. 13866
1 Fidelity appears to have agreed with the appellate court that it had
which reversed the decision of the Regional Trial Court, Branch LVII at
waived Verendia's failure to abide by policy condition No. 3 on
Lucena City, jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84
disclosure of other insurance policies by its failure to assign it as an
thereof and consequently ordered the dismissal of the aforesaid
error in the petition in G.R. No. 76399. It must have likewise realized
actions filed by herein petitioners.
the futility of assigning it as an error because on the first page of the

policy the following is typewritten: "Other insurances allowed, the
amounts to be declared in the event of loss or when required."
The undisputed background of this case as found by the court a

quo and adopted by respondent court, being sustained by the
evidence on record, we hereby reproduce the same with approval. 2

The antecedents of this case show that Julian Sy and Jose Sy Bang
fire in the total amount of P1,550,000.00.
have formed a business partnership in the City of Lucena. Under the
According to the certification issued by the Headquarters,Philippine
business name of New Life Enterprises, the partnership engaged
Constabulary /Integrated National Police,
in the sale of construction materials at its place of business, a two
Camp Crame, the cause of fire was
storey building situated at Iyam, Lucena City. The facts show that
electrical innature. According to the plaintiffs,
Julian Sy insured the stocks in trade of New Life Enterpriseswith
the building and the stocks inside were burned.
Western Guaranty Corporation, Reliance Surety and Insurance. Co.,
After the fire, JulianSy went to the agent of
Inc., and Equitable Insurance Corporation.
Reliance Insurance whom he asked to accompany him to the
On May 15, 1981, Western Guaranty Corporation

issued Fire Insurance Policy No. 37201 in the amount of P350,000.00.
This policy was renewed on May, 13, 1982.
office of thecompany so that he can file

his claim. He averred that in support of his claim, he
submitted the fireclearance, the insurance policies and inventory
of stocks. He further testified that the three insurance companies are
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
sister companies, and as a matter of fact when he was following-
Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed
up his claim with Equitable Insurance, the Claims Manager told him to
under Renewal Certificate No. 41997) An additional
go first to Reliance Insurance and if saidcompany agrees to pay, they
insurancewas issued by the same company on
would also pay. The same treatment was given him
November 12, 1981 under Fire Insurance Policy No. 71547 in the
by the otherinsurance
amount of P700,000.00.
companies. Ultimately, the three insurance companies denied
On February 8, 1982, Equitable Insurance
plaintiffs' claim for payment.
Corporation issued Fire Insurance Policy No. 39328 in the amount of
In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-
P200,000.00.
84) Western Guaranty Corporationthrough Claims Manager Bernard S
Thus when the building occupied by the New Life Enterprises

was gutted by fire at about 2:00
o'clockin the morning of October 19, 1982, the stocks in the
trade inside said building were insured against
. Razon told the plaintiff that his claim "is

denied for breach ofpolicy conditions." Reliance Insurance purveyed
the same message in its letter dated November 23,
1982 and signed by Executive Vice-President Mary Dee
Co (Exhibit "C" No. 7-84) which said that "plaintiff's

claim is denied for breach of policy conditions."
WHEREFORE, judgment in the above-entitled cases is rendered in
The letter of denial received by the plaintifffrom Equitable Insurance
the following manner, viz:
Corporation (Exhibit "C" No. 6-84) was of the same tenor, as said
letter dated February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find that certain
policy conditions were violated, therefore, we regret,
we have to deny your claim, as it is hereby denied in its entirety."
1. In Civil Case No. 6-84, judgment is rendered for the

plaintiff New Life Enterprises and against the defendant Equitable
Insurance Corporation ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insuredhas been unreaso
In relation to the case against Reliance
nably denied, pursuant to Sec. 244 of the Insurance Code, defendant i
Surety and Insurance Company, a certain Atty. Serafin
s furtherordered to pay the plaintiff attorney's fees in the amount of
D.Dator, acting in behalf of the
Twenty Thousand (P20,000.00)
plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 7-
Pesos. Allsums of money to be paid by virtue
84) toExecutive Vice-President Mary Dee Co asking that he
hereof shall bear interest at 12% per annum (pursuant
be informed as to the specific policy conditions allegedly
to Sec.244 of the Insurance Code) from
violated by the plaintiff. In her reply-letter dated March
February 14, 1983, (91st day from November 16,
30, 1983, Executive Vice-PresidentMary Dee Co informed Atty.
1982, when SwornStatement of Fire Claim
Dator that Julian Sy violated Policy Condition No.
was received from the insured) until they are fully paid;
"3" which requires theinsured

to give notice of any insurance or insurances already effected
covering the stocks in trade. 3
2. In Civil Case No. 784, judgment is rendered for the plaintiff Julian Sy and against
the defendantReliance Surety and Insurance Co.,
Because of the denial of their claims for payment by the three
Inc., ordering the latter to pay the former the sum
(3) insurance companies, petitioner filed separate
ofP1,000,000.00 (P300,000.00 under Policy
civil actions against the former before the Regional Trial
No. 69135 and P700,000.00 under Policy No. 71547)
Court of Lucena City, which cases were consolidated for trial,
andconsidering that payment of the claim of the
and thereafter the court below rendered its decision on December 19,
insured has been unreasonably denied, pursuant to
l986 with the following disposition:

Sec.244 of the Insurance Code, defendant is further ordered
As aforestated, respondent Court of Appeals reversed
to pay the plaintiff the amount of P100,000.00 as attorney's fees.
said judgment of the trial court, hence this petition the cruxwherein is
All sums of money to be paid by virtue hereof shall

bear interest at 12% per annum (pursuant to Sec.
244 of the Insurance Code) from February 14, 1983,
whether or not Conditions Nos. 3 and 27 of

the insurance contracts were violated by petitioners thereby resulting
in their forfeiture of all the benefits thereunder.
(91st day from November 16,
Condition No. 3 of said insurance policies, otherwise known as
1982 when SwornStatement of Fire Claim was received from the
the "Other Insurance Clause," is uniformlycontained
insured) until they are fully paid;
in all the aforestated insurance contracts of herein petitioners, as
3. In Civil Case No. 8-84, judgment is rendered for
follows:
the plaintiff New Life Enterprises and against thedefendant Western G
3. The insured shall give notice to the Company
uaranty Corporation ordering the latter to pay the sum of P350,000.00
of any insurance or insurances already effected, orwhich
to theConsolidated Bank and Trust Corporation,
may subsequently be effected, covering any of the property or
Lucena Branch, Lucena City, as stipulated on the
properties consisting of stocksin trade, goods in process
face ofPolicy No. 37201, and considering that payment of the
and/or inventories only hereby insured, and unless
aforementioned sum of money has been
such notice be givenand the particulars of such
unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
insurance or insurances be stated therein or endorsed on this policy
defendant is further ordered topay the
pursuant to Section 50 of the Insurance
plaintiff attorney's fees in the amount of P35,000.00.
Code, by or on behalf of the Company
All sums of money to be paid by virtue hereof shall bear interest at

12% per annum (pursuant to Sec. 244 of the Insurance
Code) from February 5, 1982, (91st day from 1st week of November
1983 when insured filed formal claim for full indemnity according to
adjuster Vetremar Dela Merced) until they are fully paid. 4
before the occurrenceof 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 loss ordamage not more than P200,000.00. 5
Petitioners admit that the respective insurance policies
issued by private respondents did not state or endorse thereon
the other insurance coverage obtained or subsequently effected on

the same stocks in trade for the loss of which
insurance should be stated in the
compensation is claimed by petitioners. 6 The policy
policy, as they have not even read policies. 8 These contentions
issued by respondent Western Guaranty Corporation(Western) did not
cannot pass judicial muster.
declare respondent Reliance Surety and Insurance Co., Inc.

(Reliance) and respondent Equitable Insurance
Corporation (Equitable) as co-insurers on the same stocks,
while Reliance's Policies covering the same stocks didnot
likewise declare Western and Equitable as such co-insurers. It is
further admitted by petitioners that Equitable's policy stated "nil" in the
space thereon requiring indication of any co-insurance although
there were three (3) policies subsisting on the same stocks in trade
at the time of the loss, namely, that of Western in
the amount of P350,000.00 and two (2) policies of Reliance in the
total amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance
effected or subsequently arranged by petitioners were
neither stated nor endorsed in the policies of the three (3) private
respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the
aforequoted Policy Condition No. 3.
The terms of the contract are clear and unambiguous.

The insured is specifically required to disclose to the insurer any other
insurance and its particulars which he may have effected on the
same subject matter. Theknowledge of such insurance
by the insurer's agents, even assuming the acquisition thereof by the
former, is notthe "notice" that would estop the insurers from denying
the claim. Besides, the so-called theory of imputed knowledge, that is,
knowledge of the agent is
knowledge of the principal, aside from being
of dubious applicabilityhere has likewise been roundly
refuted by respondent court whose factual findings we find
acceptable.
Thus, it points out that while petitioner Julian Sy
claimed that he had informed insurance agent Alvarez regarding the
co-insurance on the property, he contradicted
himself by inexplicably claiming that he had not read the termsof the
policies; that Yap Dam Chuan could not likewise have obtained such
Petitioners contend that they are not to be blamed for the omissions,
knowledge for the same reason, asidefrom the fact that
alleging that insurance agent Leon Alvarez (for Western) and Yap
the insurance with Western was obtained before those of
Kam Chuan (for Reliance and Equitable) knew about the existence of
Reliance and Equitable; and that theconclusion of
the additional insurance coverage and that they were not
the trial court that Reliance and Equitable are "sister
informed about the requirement that such other or additional
companies" is an unfounded conjecture drawnfrom the mere fact that

Yap Kam Chuan was an agent for both companies which also had the
obligations arising from contracts have the force of law between
same insuranceclaims adjuster. Availment of the
the contracting parties and should be compliedwith in good faith. 13
services of the same agents and adjusters by different companies is a

commonpractice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.
Petitioners should be aware of the fact that a party is not relieved of

the duty to exercise the ordinary care and
prudence that would be exacted in relation to other contracts. The
Furthermore, when the words and language of documents are clear
conformity of the insured to the terms of the
and plain or readily understandable by an ordinary reader thereof,
policy is implied from his failure to express any disagreement with
there is absolutely no room for interpretation or construction
what is provided for. 14 It may be true that themajority rule, as cited
anymore. 9 Courts are not allowed to make contracts
by petitioners, is that injured
for the parties; rather, they will intervene
persons may accept policies without reading them, and that this is not
only when the terms of the policy are ambiguous, equivocal,
negligence per se. 15 But, this is not without any exception. It is and
or uncertain. 10 The parties must abide by the
was incumbent upon petitioner Sy to read the insurance contracts,
terms of the contract because such terms constitute the
and this can be reasonably expected
measureof the insurer's liability and compliance therewith is a
of him considering that he has been a businessman since
condition precedent to the insured's right of recovery from the
1965 16 and the contract concerns indemnity in case
insurer.11
ofloss in his money-making trade of which important
While it is a cardinal principle of insurance law that a policy or contract

of insurance is to be construed liberally
infavor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be
consideration he could not have been unaware as it was pre-in case

of loss in his money-making trade of which important consideration he
could not have been unaware as it was precisely the reason for his
procuring the same.
construed according to the sense and meaning of the terms which
We reiterate our pronouncement in Pioneer Insurance and Surety
the parties themselves have used. If suchterms are clear and
Corporation vs. Yap: 17
unambiguous, they must be taken and understood in their

plain, ordinary and popular sense.12 Moreover,
...
And considering the terms of the policy which required the insured to
declare other insurances,the statement in question must be deemed t

o be a statement (warranty) binding on both insurer and insured, that
It is not disputed that the insured failed to reveal before the
there were no other insurance on the property. . . .
loss three other insurances. As found by the Court
The annotation then, must be deemed

to be a warranty that the property was not insured by any other policy.
Violation thereof entitled the insurer to rescind (Sec. 69, Insurance
Act). Suchmisrepresentation is fatal in the light of our views in Santa
Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329.
The materiality of non-disclosure of other insurance policies is not
open to doubt.
xxx xxx xxx
of Appeals, by reason of said unrevealed insurances, the

insured had been guilty of a
falsedeclaration; a clear misrepresentation and a vital one because
where the insured had been asked to reveal
but did not, that was deception. Otherwise stated, had the
insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from entering into such contract.
Hence, theinsured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but
The obvious purpose of the aforesaid requirement in the policy
a mere inference or suspicion is untenable. In fact,
is to prevent over-insurance and thus avert the perpetration of
concrete evidence of fraud or false declaration by
fraud. The public, as well as the insurer, is interested in preventing the
the insured was furnished by the petitioner itself when the facts
situation in which a fire would be profitable to
alleged in the policy under clauses "Co-Insurances Declared" and
the insured. According to Justice Story: "The insured has
"OtherInsurance Clause" are materially different from the actual
no right to complain, for he assents to comply
number of co-insurances taken over
with all the stipulations on his side, in order toentitle himself to the
thesubject property. Consequently, "the whole foundation of the
benefit of the contract, which, upon reason or principle, he
contract fails, the
has no right to askthe court to dispense with the
risk does not attachand the policy never becomes a contract between
performance of his own part of the agreement, and yet to
the parties." Representations of facts are the
bind the otherparty to obligations, which, but for those stipulations,
foundation of the contract and if the foundation does not
would not have been entered into."
exist, the superstructure does
Subsequently, in the case of Pacific Banking Corporation vs. Court of

Appeals, et al., 18 we held:
not arise.Falsehood in such representations is not shown to vary

or add to the contract, or to terminate a contract which has
once been made, but to show that no contract has ever

existed (Tolentino,Commercial Laws of the Philippines, p.
27. Action or suit
991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no
clause. If a claim be made and rejected and an action or suit be not
force and effect from the very beginning, as if it had
commenced
never been entered into, and which cannot be
either in the Insurance Commission or any court of competent jurisdict
validated either by time or by ratification
ion of notice of such rejection,or in case of arbitration taking place
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA,
as provided herein, within twelve (12) months after due
1986).
notice ofthe award made by the arbitrator or arbitrators
As the insurance policy against fire expressly required that notice

should be given by the insured ofother insurance upon the same
property, the total absence of such notice nullifies the policy.
To further warrant and justify the forfeiture of the
or umpire, then the claim shall for all purposes be

deemed to have been abandoned and shall not thereafter be
recoverable hereunder. 20
On this point, the trial court ruled:
benefits under the insurance contracts involved, we need
. . . However, because of the peculiar circumstances of this case, we
merelyto turn to Policy Condition No. 15 thereof, which reads in part:
hesitate
15. . . . if any false declaration be made or used

in support thereof, . . . all benefits under this Policy shall be
forfeited . . . . 19
in concluding thatplaintiff's right to ventilate his claim in court has been

barred by reason of the time constraint providedin the insurance contr
act. It is evident that after the plaintiff had received
the letter of denial, he stillfound it necessary to be informed of the spe
Additionally, insofar as the liability of respondent
cific causes or reasons for the denial of his claim, reasonfor which his
Reliance is concerned, it is not denied that the complaint for recovery
lawyer, Atty. Dator deemed it wise to send a
was filed in court by petitioners only on
letter of inquiry to the defendant which wasanswered by
January 31, 1984, or after more than one (1) year had
defendant's Executive Vice-President in a letter
elapsedfrom petitioners' receipt of the insurers' letter of
dated March 30, 1983, . . . . Assuming,gratuitously, that the letter of E
denial on November 29, 1982. Policy Condition No. 27 of their
xecutive Vice-President Mary Dee Co dated March 30, 1983, was
insurance contract with Reliance provides:
received by plaintiff on the same date, the period of limitation should

start to run only from said date in the spirit of fair play and
contention would contradict anddefeat the very principle which this
equity. . . . 21
Court had laid down. Moreover, it can easily be used by insured
We have perforce to reject this theory of the court below for being
contrary to what we have heretofore declared:
It is important to note the principle laid down
by this Court in the case of Ang vs. Fulton Fire Insurance Co. (2
SCRA 945 [1961]) to wit:
The condition contained in an insurance policy that claims must be pr
esented 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 demandsthat insurance suits be brought by
the insured while the evidence as to the
origin andcause 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 thepetition 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'
persons as a scheme or device to waste time

until any evidence which may be considered againstthem is
destroyed.
xxx xxx xxx
While in the Eagle Star case (96 Phil. 701),
this Court uses the phrase "final rejection", the
samecannot 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 ins
urance policy in said caseprovides that the insured should file his
claim first, with the carrier and then with the insurer.
The "finalrejection" being referred to in said case is the rejection by
the insurance company. 22
Furthermore, assuming arguendo that petitioners felt the
legitimate need to be clarified as to the policy condition violated, there
was a considerable lapse of time from their receipt of the insurer's
clarificatory letter dated March 30, 1983, up to the time the complaint
was filed in court on January 31, 1984. The oneyear prescriptive periodwas yet
to expire on November 29, 1983, or about eight (8) months from the
receipt of the clarificatory letter, butpetitioners let the
period lapse without bringing their action in court.
We accordingly find no "peculiarcircumstances" sufficient to

relax the enforcement of the one-year prescriptive period and
This is a petition for review on certiorari seeking to set aside: (a) the
we, therefore, hold thatpetitioners' claim was definitely filed out of
judgment of respondent Court of Appeals dated March 25, 1976 in
time.
CA-G.R. No. 50112-R, entitled National Power Corporation, Plaintiff-
WHEREFORE, finding no cogent reason to disturb the judgment

of respondent Court of Appeals, the same ishereby AFFIRMED.
SO ORDERED.
Appellee vs. The Philippine American Insurance Company, Inc.

Defendant-Appellant, which reversed the decision of the Court of First
Instance of Manila in Civil Case No. 70811 entitled "National Power
Corporation v. Far Eastern Electric, Inc., et al." and (b) respondent's
Court's resolution dated April 19, 1976 denying petitioner National
Power Corporation's Motion for Reconsideration (Petition, p. 13,
Rollo).
The undisputed facts of this case are as follows:
The National Power Corporation (NPC) entered into a contract with
the Far Eastern Electric, Inc. (FFEI) on December 26, 1962 for the
erection of the Angat Balintawak 115-KW-3-Phase transmission lines
G.R. No. L-43706 November 14, 1986
for the Angat Hydroelectric Project. FEEI agreed to complete the work
within 120 days from the signing of the contract, otherwise it would
NATIONAL POWER CORPORATION, petitioner,

vs.
COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC., respondents.
pay NPC P200.00 per calendar day as liquidated damages, while

NPC agreed to pay the sum of P97,829.00 as consideration. On the
other hand, Philippine American General Insurance Co., Inc.
(Philamgen) issued a surety bond in the amount of P30,672.00 for the
Conrado Q. Crucillo for petitioner.
faithful performance of the undertaking by FEEI, as required.
Gregorio D. David for private respondent.
The condition of the bond reads:

The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, INC. under this bond will expire One (1) year from final
PARAS, J.:

Completion and Acceptance and said bond will be cancelled 30 days
filed by the Contractor shall be answerable for the same and for any
after its expiration, unless surety is notified of any existing obligation
and all damages that the Corporation may suffer as a result thereof.
thereunder. (Exhibit 1-a)
(pp. 76-78, Printed Record on Appeal)
in correlation with the provisions of the construction contract between
FEEI started construction on December 26, 1962 but on May 30,
Petitioner and Far Eastern Electric, Inc. particularly the following
1963, both FEEI and Philamgen wrote NPC requesting the assistance
provisions of the Specifications. to wit:
of the latter to complete the project due to unavailability of the
1. Par. 1B-2l Release of Bond

1B-21 Release of Bond
The Contractor's performance bond will be released by the National
Power Corporation at the expiration of one (1) year from the
completion and final acceptance of the work, pursuant to the
provisions of Act No. 3959, and subject to the General Conditions of
this contract. (Page 49, Printed Record on Appeal); and
2. GP-19 of Specifications, which reads:
equipment of FEEI. The work was abandoned on June 26, 1963,

leaving the construction unfinished. On July 19, 1963, in a joint letter,
Philamgen and FEEI informed NPC that FEEI was giving up the
construction due to financial difficulties. On the same date, NPC wrote
Philamgen informing it of the withdrawal of FEEI from the work and
formally holding both FEEI and Philamgen liable for the cost of the
work to be completed as of July 20, 1962 plus damages.
The work was completed by NPC on September 30, 1963. On
January 30, 1967 NPC notified Philamgen that FEEI had an
outstanding obligation in the amount of P75,019.85, exclusive of
(a) Should the Contractor fail to complete the construction of the work
interest and damages, and demanded the remittance of the amount of
as herein specified and agreed upon, or if the work is abandoned, ...
the surety bond the answer for the cost of completion of the work. In
the Corporation shall have the power to take over the work by giving
reply, Philamgen requested for a detailed statement of account, but
notice in writing to that effect to the Contractor and his sureties of its
after receipt of the same, Philamgen did not pay as demanded but
intention to take over the construction work.
contended instead that its liability under the bond has expired on
(b) ... It is expressly agreed that in the event the corporation takes
over the work from the Contractor, the latter and his bondsmen shall
continue to be liable under this contract for any expense in the
completion of the work in excess of the contract price and the bond
September 20, 1964 and claimed that no notice of any obligation of

the surety was made within 30 days after its expiration. (Record on
Appeal, pp. 191-194; Rollo, pp. 62-64).

NPC filed Civil Case No. 70811 for collection of the amount of
required in the resolution of this Court of August 16, 1976, (Rollo, p.
P75,019.89 spent to complete the work abandoned; P144,000.00 as
70). In the resolution of September 20, 1976, the petition for certiorari
liquidated damages and P20,000.00 as attorney's fees. Only
was given due course (Rollo, p. 85). Petitioner's brief was filed on
Philamgen answered while FEEI was declared in default.
November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief
The trial court rendered judgment in favor of NPC, the dispositive

portion of which reads:
WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to
pay the plaintiff the sum of P75,019.86 plus interest at the legal rate
from September 21, 1967 until fully paid. Out of said amount, both
defendants, Far Eastern Electric, Inc., and the Philippine American
Insurance Company, Inc., are ordered to pay, jointly and severally, the
amount of P30,672.00 covered by Surety Bond No. 26268, dated
December 26, 1962, plus interest at the legal rate from September 21,
1967 until fully paid,
within the required period and this case was submitted for decision
without respondent's brief in the resolution of this Court of February
25. 1977) Rollo, p. 103).
In its brief, petitioner raised the following assignment of errors:
I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER SHOULD HAVE GIVEN NOTICE TO PRIVATE
RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION
WITHIN 30 DAYS FROM EXPIRATION OF THE BOND TO HOLD
SAID SURETY LIABLE THEREUNDER, DESPITE PETITIONER'S
Both defendants are also ordered to pay plaintiff the sum of P3,000.00
TAKING OVER OF THE WORK ABANDONED BY THE
as attorney's fees and costs.
CONTRACTOR BEFORE ITS COMPLETION.
On appeal by Philamgen, the Court of Appeals reversed the lower
II
court's decision and dismissed the complaint.

Hence this petition.
Respondent Philamgen filed its comment on the petition on August 6,
1978 (Rollo, p. 62) in compliance with the resolution dated June 16,
1976 of the First Division of this Court (Rollo, p. 52) while petitioner
NPC filed its Reply to the comment of respondent (Rollo, p. 76) as
ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL

NOTIFY PRIVATE RESPONDENT PHILAMGEN OF ANY EXISTING
OBLIGATION UNDER THE BOND DESPITE THE TAKE-OVER OF
WORK BY PETITIONER, RESPONDENT COURT OF APPEALS
NONETHELESS ERRED IN HOLDING THAT PETITIONER'S
LETTER DATED JULY 19, 1963 (EXH. E) TO PRIVATE

RESPONDENT WAS NOT SUFFICIENT COMPLIANCE WITH THE
On the other hand, private respondent insists that petitioner's notice
CONDITION OF THE BOND.
dated July 19, 1983 is not sufficient despite previous events that it had
III
knowledge of FEEI's failure to comply with the contract and claims

that it cannot be held liable under the bond without notice within thirty
RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING
days from the expiration of the bond, that there is a subsisting
PRIVATE RESPONDENT PHILAMGEN FROM ITS LIABILITY
obligation. Private respondent's contention is sustained by the Court
UNDER THE BOND.
of Appeals.
The decisive issue in this case is the correct interpretation and/or
The petition is impressed with merit.
application of the condition of the bond relative to its expiration, in

correlation with the provisions of the construction contract, the faithful
performance of which, said bond was issued to secure.
As correctly assessed by the trial court, the evidence on record shows

that as early as May 30, 1963, Philamgen was duly informed of the
failure of its principal to comply with its undertaking. In fact, said
The bone of contention in this case is the compliance with the notice
notice of failure was also signed by its Assistant Vice President. On
requirement as a condition in order to hold the surety liable under the
July 19, 1963, when FEEI informed NPC that it was abandoning the
bond.
construction job, the latter forthwith informed Philamgen of the fact on
Petitioner claims that it has already complied with such requirement

by virtue of its notice dated July 19, 1963 of abandonment of work by
FEEI and of its takeover to finish the construction, at the same time
formally holding both FEEI and Philamgen liable for the uncompleted
work and damages. It further argued that the notice required in the
bond within 30 days after its expiration of any existing obligation, is
applicable only in case the contractor itself had completed the
contract and not when the contractor failed to complete the work, from
the same date. Moreover, on August 1, 1963, the fact that Philamgen
was seasonably notified, was even bolstered by its request from NPC
for information of the percentage completed by the bond principal
prior to the relinquishment of the job to the latter and the reason for
said relinquishment. (Record on Appeal, pp. 193-195). The 30-day
notice adverted to in the surety bond applies to the completion of the
work by the contractor. This completion by the contractor never
materialized.
which arises the continued liability of the surety under its bond as
The surety bond must be read in its entirety and together with the
expressly provided for in the contract. Petitioner's contention was
contract between NPC and the contractors. The provisions must be
sustained by the trial court.

construed together to arrive at their true meaning. Certain stipulations
cannot be segregated and then made to control.
G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
Furthermore, it is well settled that contracts of insurance are to be
vs.
construed liberally in favor of the insured and strictly against the
HONORABLE COURT OF APPEALS, respondents.
insurer. Thus ambiguity in the words of an insurance contract should

be interpreted in favor of its beneficiary. (Serrano v. Court of Appeals,
130 SCRA 327, July 16, 1984).
In the case at bar, it cannot be denied that the breach of contract in
this case, that is, the abandonment of the unfinished work of the
G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
transmission line of the petitioner by the contractor Far Eastern
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna &
Electric, Inc. was within the effective date of the contract and the
Manalo for petitioner Company.
surety bond. Such abandonment gave rise to the continuing liability of

the bond as provided for in the contract which is deemed incorporated
in the surety bond executed for its completion. To rule therefore that
Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
private respondent was not properly notified would be gross error.

PREMISES CONSIDERED, the decision dated March 25, 1976 and
the resolution dated April 19, 1976 of the Court of Appeals are hereby
DE CASTRO, J.:
SET ASIDE, and a new one is hereby rendered reinstating the
The two above-entitled cases were ordered consolidated by the
decision of the Court of First Instance of Manila in Civil Case No.
Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p.
70811 entitled "National Power Corporation v. Far Eastern Electric,
58), because the petitioners in both cases seek similar relief, through
Inc., et al."
these petitions for certiorari by way of appeal, from the amended
SO ORDERED.
B. As a consensual contract:
decision of respondent Court of Appeals which affirmed in toto the

decision of the Court of First Instance of Cebu, ordering "the
defendants (herein petitioners Great Pacific Ligfe Assurance
Company and Mondragon) jointly and severally to pay plaintiff (herein

private respondent Ngo Hing) the amount of P50,000.00 with interest
The non-acceptance of the insurance plan by Pacific Life was
at 6% from the date of the filing of the complaint, and the sum of
allegedly not communicated by petitioner Mondragon to private
P1,077.75, without interest.
respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
It appears that on March 14, 1957, private respondent Ngo Hing filed
an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year endownment
policy in the amount of P50,000.00 on the life of his one-year old
back Pacific Life again strongly recommending the approval of the 20year endowment insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were asking for such
coverage (Exhibit 4-M).
daughter Helen Go. Said respondent supplied the essential data
It was when things were in such state that on May 28, 1957 Helen Go
which petitioner Lapulapu D. Mondragon, Branch Manager of the
died of influenza with complication of bronchopneumonia. Thereupon,
Pacific Life in Cebu City wrote on the corresponding form in his own
private respondent sought the payment of the proceeds of the
handwriting (Exhibit I-M). Mondragon finally type-wrote the data on
insurance, but having failed in his effort, he filed the action for the
the application form which was signed by private respondent Ngo
recovery of the same before the Court of First Instance of Cebu,
Hing. The latter paid the annual premuim the sum of P1,077.75 going
which rendered the adverse decision as earlier refered to against both
over to the Company, but he reatined the amount of P1,317.00 as his
petitioners.
commission for being a duly authorized agebt of Pacific Life. Upon the
payment of the insurance premuim, the binding deposit receipt
(Exhibit E) was issued to private respondent Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the
insurance application. Then on April 30, 1957, Mondragon received a
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.
letter from Pacific Life disapproving the insurance application (Exhibit
1. At the back of Exhibit E are condition precedents required before a
3-M). The letter stated that the said life insurance application for 20-
deposit is considered a BINDING RECEIPT. These conditions state
year endowment plan is not available for minors below seven years
that:
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.
A. If the Company or its agent, shan have received the premium

deposit ... and the insurance application, ON or PRIOR to the date of

medical examination ... said insurance shan be in force and in
the policy offered; otherwise, the deposit shall be reftmded; and (3)
effect from the date of such medical examination, for such period as is
that if the applicant is not ble according to the standard rates, and the
covered by the deposit ...,PROVIDED the company shall be satisfied
company disapproves the application, the insurance applied for shall
that on said date the applicant was insurable on standard rates under
not be in force at any time, and the premium paid shall be returned to
its rule for the amount of insurance and the kind of policy requested in
the applicant.
the application.
Clearly implied from the aforesaid conditions is that the binding
D. If the Company does not accept the application on standard rate
deposit receipt in question is merely an acknowledgment, on behalf of
for the amount of insurance and/or the kind of policy requested in the
the company, that the latter's branch office had received from the
application but issue, or offers to issue a policy for a different plan
applicant the insurance premium and had accepted the application
and/or amount ..., the insurance shall not be in force and in effect until
subject for processing by the insurance company; and that the latter
the applicant shall have accepted the policy as issued or offered by
will either approve or reject the same on the basis of whether or not
the Company and shall have paid the full premium thereof. If the
the applicant is "insurable on standard rates." Since petitioner Pacific
applicant does not accept the policy, the deposit shall be refunded.
Life disapproved the insurance application of respondent Ngo Hing,
E. If the applicant shall not have been insurable under Condition A

above, and the Company declines to approve the application the
the binding deposit receipt in question had never become in force at

any time.
insurance applied for shall not have been in force at any time and the
Upon this premise, the binding deposit receipt (Exhibit E) is,
sum paid be returned to the applicant upon the surrender of this
manifestly, merely conditional and does not insure outright. As held by
receipt. (Emphasis Ours).
this Court, where an agreement is made between the applicant and
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 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
allegedly perfected temporary contract (Respondent's Brief, pp. 13-
April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
14). In this first place, there was no contract perfected between the
application in question on the ground that it is not offering the twenty-
parties who had no meeting of their minds. Private respondet, being
year endowment insurance policy to children less than seven years of
an authorized insurance agent of Pacific Life at Cebu branch office, is
age. What it offered instead is another plan known as the Juvenile
indubitably aware that said company does not offer the life insurance
Triple Action, which private respondent failed to accept. In the
applied for. When he filed the insurance application in dispute, private
absence of a meeting of the minds between petitioner Pacific Life and
respondent was, therefore, only taking the chance that Pacific Life will
private respondent Ngo Hing over the 20-year endowment life
approve the recommendation of Mondragon for the acceptance and
insurance in the amount of P50,000.00 in favor of the latter's one-year
approval of the application in question along with his proposal that the
old daughter, and with the non-compliance of the abovequoted
insurance company starts to offer the 20-year endowment insurance
conditions stated in the disputed binding deposit receipt, there could
plan for children less than seven years. Nonetheless, the record
have been no insurance contract duly perfected between thenl
discloses that Pacific Life had rejected the proposal and
Accordingly, the deposit paid by private respondent shall have to be
recommendation. Secondly, having an insurable interest on the life of
refunded by Pacific Life.
his one-year old daughter, aside from being an insurance agent and
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
an offense associate of petitioner Mondragon, private respondent Ngo

Hing must have known and followed the progress on the processing
of such application and could not pretend ignorance of the Company's
rejection of the 20-year endowment life insurance application.
contract, one that leaves nothing to be dione, nothing to be
At this juncture, We find it fit to quote with approval, the very apt
completed, nothing to be passed upon, or determined, before it shall
observation of then Appellate Associate Justice Ruperto G. Martin
take effect. There can be no contract of insurance unless the minds of
who later came up to this Court, from his dissenting opinion to the
the parties have met in agreement."
amended decision of the respondent court which completely reversed
We are not impressed with private respondent's contention that failure
the original decision, the following:
of petitioner Mondragon to communicate to him the rejection of the
Of course, there is the insinuation that neither the memorandum of
insurance application would not have any adverse effect on the
rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon

reiterating the desire for applicant's father to have the application
2. Relative to the second issue of alleged concealment. this Court is
considered as one for a 20-year endowment plan was ever duly
of the firm belief that private respondent had deliberately concealed
communicated to Ngo; Hing, father of the minor applicant. I am not
the state of health and piysical condition of his daughter Helen Go.
quite conninced that this was so. Ngo Hing, as father of the applicant
Wher private regpondeit supplied the required essential data for the
herself, was precisely the "underwriter who wrote this case" (Exhibit
insurance application form, he was fully aware that his one-year old
H-1). The unchallenged statement of appellant Mondragon in his letter
daughter is typically a mongoloid child. Such a congenital physical
of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing
defect could never be ensconced nor disguished. Nonetheless,
was "our associate" and that it was the latter who "insisted that the
private respondent, in apparent bad faith, withheld the fact materal to
plan be placed on the 20-year endowment plan." Under these
the risk to be assumed by the insurance compary. As an insurance
circumstances, it is inconceivable that the progress in the processing
agent of Pacific Life, he ought to know, as he surely must have
of the application was not brought home to his knowledge. He must
known. his duty and responsibility to such a material fact. Had he
have been duly apprised of the rejection of the application for a 20-
diamond said significant fact in the insurance application fom Pacific
year endowment plan otherwise Mondragon would not have asserted
Life would have verified the same and would have had no choice but
that it was Ngo Hing himself who insisted on the application as
to disapprove the application outright.
originally filed, thereby implictly declining the offer to consider the

application under the Juvenile Triple Action Plan. Besides, the
associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company
for minors below 7 years old. What he and Mondragon were
apparently trying to do in the premises was merely to prod the
company into going into the business of issuing endowment policies
for minors just as other insurance companies allegedly do. Until such
a definite policy is however, adopted by the company, it can hardly be
said that it could have been bound at all under the binding slip for a
plan of insurance that it could not have, by then issued at all.
(Amended Decision, Rollo, pp- 52-53).
The contract of insurance is one of perfect good faith uberrima fides

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

We are thus constrained to hold that no insurance contract was
perfected between the parties with the noncompliance of the
conditions provided in the binding receipt, and concealment, as legally
defined, having been comraitted by herein private respondent.
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the
Decision of respondent Court of Appeals dated December 14,
1995[1] and its Resolution dated February 22, 1996[2] in CA-G.R. CV
WHEREFORE, the decision appealed from is hereby set aside, and in
No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong
lieu thereof, one is hereby entered absolving petitioners Lapulapu D.
Government Supplies Department v. South Sea Surety Insurance Co.,
Mondragon and Great Pacific Life Assurance Company from their civil
Inc. and The Charter Insurance Corporation.[3]
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.
In 1983, petitioner Hongkong Government Supplies Department

(Hongkong) contracted petitioner Mayer Steel Pipe Corporation
(Mayer) to manufacture and supply various steel pipes and
fittings. From August to October, 1983, Mayer shipped the pipes and
fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014,
MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC1022.[4]
Prior to the shipping, petitioner Mayer insured the pipes and fittings
C. As a contract of indemnity:
against all risks with private respondents South Sea Surety and
Insurance Co., Inc. (South Sea) and Charter Insurance Corp.
(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014,
[G.R. No. 124050. June 19, 1997]

MAYER STEEL PIPE CORPORATION and HONGKONG
GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs. COURT
OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC.
and the CHARTER INSURANCE CORPORATION, respondents.
DECISION
1015 and 1025 with a total amount of US$212,772.09 were insured

with respondent South Sea, while those covered by Invoice Nos.
1020, 1017 and 1022 with a total amount of US$149,470.00 were
insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial
Inspection (International) Inc. as third-party inspector to examine

whether the pipes and fittings are manufactured in accordance with
on the part of the insured. The dispositive portion of the decision
the specifications in the contract. Industrial Inspection certified all the
states:
pipes and fittings to be in good order condition before they were

loaded in the vessel.Nonetheless, when the goods reached
Hongkong, it was discovered that a substantial portion thereof was
damaged.
Petitioners filed a claim against private respondents for indemnity
under the insurance contract. Respondent Charter paid petitioner
Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of
repair of the damaged pipes. Private respondents refused to pay
because the insurance surveyor's report allegedly showed that the
damage is a factory defect.
On April 17, 1986, petitioners filed an action against private
respondents to recover the sum of HK$299,345.30. For their defense,
private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is
due to factory defects which are not covered by the insurance
policies.
WHEREFORE, judgment is hereby rendered ordering the defendants

jointly and severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with
legal rate of interest as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.[5]
Private respondents elevated the case to respondent Court of
Appeals.
Respondent court affirmed the finding of the trial court that the
damage is not due to factory defect and that it was covered by the "all
risks" insurance policies issued by private respondents to petitioner
Mayer. However, it set aside the decision of the trial court and
dismissed the complaint on the ground of prescription. It held that the
action is barred under Section 3(6) of the Carriage of Goods by Sea
The trial court ruled in favor of petitioners. It found that the damage to
Act since it was filed only on April 17, 1986, more than two years from
the goods is not due to manufacturing defects. It also noted that the
the time the goods were unloaded from the vessel. Section 3(6) of the
insurance contracts executed by petitioner Mayer and private
Carriage of Goods by Sea Act provides that "the carrier and the ship
respondents are "all risks" policies which insure against all causes of
shall be discharged from all liability in respect of loss or damage
conceivable loss or damage. The only exceptions are those excluded
unless suit is brought within one year after delivery of the goods or the
in the policy, or those sustained due to fraud or intentional misconduct
date when the goods should have been delivered." Respondent court

ruled that this provision applies not only to the carrier but also to the
however, affect the relationship between the shipper and the
insurer, citing Filipino Merchants Insurance Co., Inc. vs. Alejandro.[6]
insurer. The latter case is governed by the Insurance Code.
Hence this petition with the following assignments of error:
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro[8] and
1. The respondent Court of Appeals erred in holding that petitioners'

cause of action had already prescribed on the mistaken application of
the Carriage of Goods by Sea Act and the doctrine of Filipino
Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
the other cases[9] cited therein does not support respondent court's
view that the insurer's liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that case, the
shipper filed a complaint against the insurer for recovery of a sum of
money as indemnity for the loss and damage sustained by the insured
2. The respondent Court of Appeals committed an error in dismissing
goods. The insurer, in turn, filed a third-party complaint against the
the complaint.[7]
carrier for reimbursement of the amount it paid to the shipper. The
The petition is impressed with merit. Respondent court erred in

applying Section 3(6) of the Carriage of Goods by Sea Act.
insurer filed the third-party complaint on January 9, 1978, more than

one year after delivery of the goods on December 17, 1977. The court
held that the Insurer was already barred from filing a claim against the
Section 3(6) of the Carriage of Goods by Sea Act states that the
carrier because under the Carriage of Goods by Sea Act, the suit
carrier and the ship shall be discharged from all liability for loss or
against the carrier must be filed within one year after delivery of the
damage to the goods if no suit is filed within one year after delivery of
goods or the date when the goods should have been delivered. The
the goods or the date when they should have been delivered. Under
court said that "the coverage of the Act includes the insurer of the
this provision, only the carrier's liability is extinguished if no suit is
goods."[10]
brought within one year. But the liability of the insurer is not
extinguished because the insurer's liability is based not on the
contract of carriage but on the contract of insurance. A close reading
of the law reveals that the Carriage of Goods by Sea Act governs the
relationship between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines the
obligations of the carrier under the contract of carriage. It does not,
The Filipino Merchants case is different from the case at bar. In

Filipino Merchants, it was the insurer which filed a claim against the
carrier for reimbursement of the amount it paid to the shipper. In the
case at bar, it was the shipper which filed a claim against the
insurer. The basis of the shipper's claim is the "all risks" insurance
policies issued by private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. When
the court said in Filipino Merchants that Section 3(6) of the Carriage of
Goods by Sea Act applies to the insurer, it meant that the insurer, like
the shipper, may no longer file a claim against the carrier beyond the
one-year period provided in the law. But it does not mean that the
shipper may no longer file a claim against the insurer because the
basis of the insurer's liability is the insurance contract. An insurance
contract is a contract whereby one party, for a consideration known as
the premium, agrees to indemnify another for loss or damage which
he may suffer from a specified peril.[11] An "all risks" insurance policy
covers all kinds of loss other than those due to willful and fraudulent
act of the insured.[12] Thus, when private respondents issued the "all
risks" policies to petitioner Mayer, they bound themselves to indemnify
G.R. No. L-68037 July 29, 1992

PARAMOUNT INSURANCE CORPORATION, petitioner,
vs.
HON. MAXIMO M. JAPZON, Presiding Judge, Br. 36, RTC, Manila;
City Sheriff and Deputy Sheriffs Nestor Macabilin & Teodoro
Episcope, public respondents, JOSE LARA and ARSENIO
PAED, private respondents.
the latter in case of loss or damage to the goods insured. Such

obligation prescribes in ten years, in accordance with Article 1144 of
the New Civil Code.[13]
IN VIEW WHEREOF, the petition is GRANTED. The Decision of
respondent Court of Appeals dated December 14, 1995 and its
Resolution dated February 22, 1996 are hereby SET ASIDE and the
Decision of the Regional Trial Court is hereby REINSTATED. No
costs.
ROMERO, J.:
Assailed in this petition for certiorari and prohibition with preliminary
injunction is the decision 1 of the Regional Trial Court of Manila,
Branch 36 dated August 30, 1983 in Civil Case No. 82-4416 entitled
"Jose Lara and Arsenio Paed v. Willy Garcia, Emilio Macasieb,
Domingo Natividad, Willy Manuel, and Paramount Insurance Co. Inc."
ordering petitioner to pay private respondents an aggregate sum of
SO ORDERED.
P175,000.00 as insurer of a motor vehicle owned by Domingo

Natividad despite the absence of jurisdiction over its persons.

It appears that on May 27, 1978, Jose Lara contracted the services of
Thereafter, the adjustment of Natividad's claims were transferred to
a passenger jeepney with Plate No. PUJ K5-826, owned and operated
Speedway Adjustment and Appraisal Corporation which investigated
by Willy Garcia (Garcia for brevity), to transport his family, relatives
the facts surrounding the incident and recommended petitioner to pay
and friends from Manila to Pangasinan. The said jeepney was then
Natividad under its policy, using the "no fault" clause under the
driven by Emilio Macasieb (Macasieb for brevity).
Insurance Code as its basis of liability.
On the very same date, within the vicinity of Barangay Parsolingan in
A check in the amount of Eight Hundred Pesos (P800.00) covered by
Gerona, Tarlac, a Ford truck F-600 with Plate No. WL-628, then driven
Check No. EBC-10036191F was paid to Paed's wife, Priscilla Paed. It
by Willy Manuel (Manuel for brevity) while cruising the National
was covered by Voucher No. 32358. 3
Highway on its way to Manila, overtook an unidentified motor vehicle

and in the process hit and sideswept the said passenger jeepney then
driven by Macasieb. As a consequence of such mishap, the two (2)
passengers of the jeepney, namely: Jose Lara (Lara for brevity) and
Arsenio Paed (Paed for brevity) sustained physical injuries of varying
degrees. Specifically, Lara suffered serious physical injuries resulting
In addition to said amount, another check in the amount of Five

Thousand Pesos (P5,000.00) covered by EBC Check No. 3082 was
paid by Paramount to Central Luzon Doctor's Hospital covering the
expense for medical treatment and hospitalization of the victims, Lara
and Paed. It was covered by Voucher No. 32196. 4
in the amputation of his right arm while Paed suffered serious physical
On or about June 5, 1978, Lara and Paed filed a criminal case against
injuries which incapacitated him to work for more than two (2) weeks.
Manuel for Reckless Imprudence resulting in Damage to Property
Aside from bodily injuries suffered by its passengers, both vehicles
docketed as Criminal Case No. 2227 before the Municipal Trial Court
suffered minor damages at their respective points of impact. The
of Gerona, Tarlac. 5
insurer of said truck is herein petitioner Paramount Surety and

Insurance Co. Inc. 2
During the pendency of said criminal case, Lara filed a manifestation

reserving the right to file a separate civil action against the operators
After the said accident, Natividad filed a notice of claim with
of the two (2) vehicles, namely: Natividad and Garcia as well as the
Paramount and the latter lost no time in dispatching and/or contracting
two (2) drivers, Manuel and Macasieb. 6
an independent adjuster handling casualty and marine claims, the EM

Salvatierra Adjustment Office.
Accordingly, Lara and Paed filed on September 17, 1978 a civil case
for damages docketed as Civil Case No. 82-4416 against Garcia,

Macasieb, Manuel, Natividad, and impleaded Paramount, the latter as
After protracted proceedings which lasted for almost five years, the
insurer of the Ford truck. 7
Regional Trial Court of Manila, rendered a decision dated August 30,
A certain Atty. Segundo Gloria filed a notice of appearance dated
1983, the decretal portion of which states:
November 16, 1978 where he informed the court that he was
WHEREFORE, finding the evidence presented by plaintiff sufficient to
appearing for and in behalf of the defendants Natividad, Manuel and
prove the allegations of the complaint, judgment is hereby rendered in
Paramount. 8 Subsequently, on December 14, 1978, he filed an
favor of the plaintiffs and against the defendants ordering the latter to
answer with crossclaim and counterclaim. 9
pay jointly and severally plaintiff Jose Lara, the amount of P15,000.00
During the trial of Criminal Case No. 2227 for Reckless Imprudence
resulting in Damage to Property, accused Manuel pleaded guilty to the
crime charged on September 18, 1979, and was accordingly,
sentenced to imprisonment of six months of arresto mayor maximum
under Article 365 of the Revised Penal Code. 10
In the interim period, a fire gutted the City Hall of Manila on November
19, 1981 and the records of the case were burned to ashes.
Subsequently, on January 25, 1982, plaintiffs (herein private
respondents Lara and Paed) filed a petition for reconstitution of the
judicial records of the case 11 which was approved without any
opposition in the order of the court dated November 4, 1982. 12
On February 17, 1983, the court reiterated its order before the
reconstitution of the judicial records declaring defendants Natividad,
Manuel and Paramount in default in view of their continued failure to
appear during the trial of the case and allowed the plaintiffs (Lara and
Paed) to make a formal offer of exhibits and considered the case
submitted for decision. 13
for medical and hospitalization expenses; the sum of P80,000.00 as

moral and exemplary damages; the sum of P50,000.00 as
compensatory damages; to pay jointly and severally plaintiff Arsenio
Paed the sum of P20,000.00 as moral and actual damages and to pay
the sum of P10,000.00 by way of attorney's fees and the costs of
suit. 14
A copy of the said decision was served on the petitioner's counsel,
Atty. Segundo Gloria, on October 5, 1981. 15No appeal from the
judgment having been filed within the reglementary period or up to
October 20, 1983, the same became final and executory. So, on
March 2, 1984, Lara and Paed, now private respondents, filed an exparte motion for execution of the said judgment and the trial court
granted the same on July 10, 1984. 16
It was only on March 3, 1984 that Paramount, now petitioner, filed a
motion to set aside the Decision raising the issue that the court has
not validly acquired jurisdiction over its person. 17
Hence, the present recourse.

After deliberating on the petition, the Court issued a temporary
Jurisdiction over the person of the defendant in civil cases is acquired
restraining order on July 30, 1984 as prayed for and enjoined the
either by his voluntary appearance in court and his submission to its
respondents from enforcing the Decision dated August 30, 1983 and
authority or by service of summons. The service of summons is
the Writ of Execution dated July 10, 1984, both rendered and issued
intended to give notice to the defendant or respondent that an action
in Civil Case No. 82-4416. 18
has been commenced against it. The defendant or respondent is thus
The pivotal issue to be resolved in this case is whether or not the
put on guard as to the demands of the plaintiff or the petitioner. 23
court validly acquired jurisdiction over petitioner despite the
Consequently, petitioner's contentions that it was not properly served
appearance of Atty. Segundo M. Gloria who allegedly was not
with summons and that Atty. Segundo Gloria was not authorized to
retained or authorized to file an answer for it. 19
appear for and in its behalf are untenable.
Petitioner now claims that the Decision of the trial court dated August
In the case at bar, although petitioner questioned the propriety of the
30, 1983, should be set aside since the court has not validly acquired
service of summons, it however failed to substantiate its allegation
jurisdiction over its person, not having been validly served with
that it was not properly served with summons. Hence, the disputable
summons and a copy of the complaint nor did it actively participate in
presumption that official duty has been regularly performed
the said proceedings. It alleged that Atty. Segundo Gloria was not its
prevails. 24
retained counsel at that time nor was he authorized by petitioner to

act for and in its behalf; and that private respondents' claims for
moral, exemplary and compensatory damages as well as attorney's
fees are not recoverable from petitioner. 20
The records of the case, however, showed that all the pleadings,
including the answer with crossclaim and counterclaim filed by Atty.
Segundo Gloria stated that he represented the defendants Natividad,
Manuel and Paramount. In fact, he even filed a notice of appearance
The petition is devoid of merit.
informing the court that he is representing the said defendants. 25
Jurisdiction is the power with which courts are invested for
It is worth noting that this is not the first time petitioner raised the
administering justice, that is, for hearing and deciding cases. 21 In
issue of warrant of jurisdiction over its person as well as warrant of
order for the court to have authority to dispose of the case on the
authority of a lawyer to appear for and in its behalf. In the case
merits, it must acquire jurisdiction over the subject matter and the
docketed as G.R. No. 68066 entitled "Paramount Insurance Corp. v.
parties. 22
Luna," this Court had the opportunity to rule that "the mere filling of

the answer with crossclaim raised a presumption of authority to
3466 issued on February 23, 1978. 28 The said insurance policy
appear for petitioner Paramount Insurance Corporation . . . in
clearly and categorically placed the petitioners liability for all damages
accordance with Section 21, Rule 138 of the Rules of Court. Such
arising out of death or bodily injury sustained by one person as a
presumption is rebuttable, but only by clear and positive proof.
result of any one accident at P50,000.00. Said amount complied with
In the absence of such clear and positive proof, the presumption of

authority . . . should prevail over the petitioner's self-serving denial of
such authority.
the minimum fixed by law then prevailing, Section 377 of Presidential

Decree No. 6123 (which was retained by P.D. No. 1460, the Insurance
Code of 1978), which provided that the liability of land transportation
vehicle operators for bodily injuries sustained by a passenger arising
It strains credulity that a counsel who has no personal interest in the
out of the use of their vehicles shall not be less than P12,000.00.
case would fight for and defend a case with persistence and vigor if
Since the petitioner's liability under the insurance contract is neither
he has not been authorized or employed by the party concerned. 26
less than P12,000.00 nor contrary to law, morals, good customs,
To the mind of the Court, the instant petition is filed merely to derail its
execution. It took Paramount almost six years to question the
jurisdiction of the lower court. Moreover, as earlier adverted to, the
public order or public policy, said stipulation must be upheld as

effective and binding between the parties. Therefore, the terms of the
contract constitute the measure of the insurer's liability.29
controverted Decision of August 30, 1983, became final and executory
WHEREFORE, the petition is DISMISSED and the temporary
on October 20, 1983. In any event, it is axiomatic that there is no
restraining order of July 30, 1984 is LIFTED. The decision of the
justification in law and in fact for the reopening of a case which has
Regional Trial Court of Manila, Branch 36, dated August 30, 1983, is
long become final and which in fact was already executed on July 18,
hereby AFFIRMED with the MODIFICATION that petitioner be held
1984. Time and again, this Court has said that the doctrine of finality
liable to pay respondents Jose Lara and Arsenio Paed the amount of
of judgment is grounded on fundamental considerations of public
P50,000.00 each which is the limit of its liability under the insurance
policy and sound practice and at the risk of occasional error, the
policy minus the amounts of P5,000.00 and P800.00 which it paid for
judgments of courts must become final at some definite date fixed by
the hospitalization and medical expenses, respectively, of
law. 27
respondents.
However, there is merit in petitioner's contention that its liability is
Costs against petitioner.
limited only to P50,000.00 as expressed in Insurance Policy No. CV-
SO ORDERED.

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.
D. Right to Subrogation:
MV Asilda left the port of Zamboanga in fine weather at eight oclock 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
[G.R. No. 116940. June 11, 1997]

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC., petitioner, vs. COURT OF APPEALS and FELMAN
SHIPPING LINES,respondents.
DECISION
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 ofP755,250.00.
BELLOSILLO, J.:
Claiming its right of subrogation PHILAMGEN sought recourse
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
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.
subrogated to the rights of the insured upon payment of the insurance

claim.
In its complaint PHILAMGEN alleged that the sinking and total loss
of MV Asilda and its cargo were due to the vessels unseaworthiness
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
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
The lower court further ruled that assuming MV Asilda was
a nearby port or beach after the vessel started to list.
unseaworthy, still PHILAMGEN could not recover from FELMAN since
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.
the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its

implied warranty on the vessels 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 Asildaunseaworthy 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
On 28 February 1992 the trial court rendered judgment in favor of
cargo. Nonetheless, the appellate court denied the claim of
FELMAN.[3] It ruled that MV Asilda was seaworthy when it left the port
PHILAMGEN on the ground that the assureds implied warranty of
of Zamboanga as confirmed by certificates issued by the Philippine
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was
Coast Guard and the shipowners surveyor attesting to its
not properly subrogated to the rights and interests of the
seaworthiness. Thus the loss of the vessel and its entire shipment
shipper. Furthermore, respondent court held that the filing of notice of
could only be attributed to either a fortuitous event, in which case, no
abandonment had absolved the shipowner/agent from liability under
liability should attach unless there was a stipulation to the contrary, or
the limited liability rule.
to the negligence of the captain and his crew, in which case, Art. 587
of the Code of Commerce should apply.
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 ofCommerce should

apply; and, (c) whether PHILAMGEN was properly subrogated to the
cargo on deck were thrown overboard andseawater entered the
rights and legal actions which the shipper had against FELMAN, the
engine room and cargo holds of the vessel. At that instance, the
shipowner.
master of the vessel ordered his crew to abandon ship. Shortly
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
thereafter, MV Asilda capsized and sank. He ascribed the

sinking to the entry of seawater through a hole in the hull caused by
the vessels collision with a partially submerged log.[5]
Zamboanga. According to them, the vessel was carrying 7,500 cases
The Elite Adjusters, Inc., submitted a report regarding the sinking
of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200
of MV Asilda. The report, which was adopted by the Court of Appeals,
empty CO2 cylinders and an undetermined quantity of empty boxes
reads -
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 oclock 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
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.
vessel was balanced. At about seven oclock in the morning, the
In this connection, we wish to call attention to the fact that this vessel
master of the vessel stopped the engine because the vessel was
was designed as a fishing vessel x x x x and it was not designed to
listing dangerously to portside. He ordered his crew to shift the cargo
carry a substantial amount or quantity of cargo on deck. Therefore, we
back to starboard. The shifting of cargo took about an hour afterwhich
believe strongly that had her cargo been confined to those that could
he rang the engine room to resume full speed.
have been accommodated under deck, her stability would not have
At around eight forty-five, the vessel suddenly listed to portside and

before the captain could decide on his next move, some of the
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
the vicinity of the sinking. Considering that the ships hatches were
on its deck, the vessel was rendered unseaworthy for the purpose of
properly secured, the empty Coca-Cola cases recovered could have
carrying the type of cargo because the weight of the deck cargo so
come only from the vessels deck cargo. It is settled that carrying a
decreased the vessels metacentric height as to cause it to become
deck cargo raises the presumption of unseaworthiness unless it can
unstable.
be shown that the deck cargo will not interfere with the proper
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 x x x x
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 (underscoring supplied).[6]
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 vessels 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
We subscribe to the findings of the Elite Adjusters, Inc., and the Court
fault of the shipowner and the captain.[9] The international rule is to
of Appeals that the proximate cause of the sinking of MV Asilda was
the effect that the right of abandonment of vessels, as a legal
its being top-heavy. Contrary to the ship captains allegations,
limitation of a shipowners liability, does not apply to cases where the
evidence shows that approximately 2,500 cases of softdrink bottles
injury or average was occasioned by the shipowners own fault.[10] It
were stowed on deck. Several days after MV Asilda sank, an
must be stressed at this point that Art. 587 speaks only of situations
estimated 2,500 empty Coca-Cola plastic cases were recovered near
where the fault or negligence is committed solely by the

captain. Where the shipowner is likewise to be blamed, Art. 587 will
firm there was in effect a voluntary payment and no right of
not apply, and such situation will be covered by the provisions of the
subrogation accrued in its favor. In other words, when PHILAMGEN
Civil Code on common carrier.[11]
paid it did so at its own risk.
It was already established at the outset that the sinking of MV
It is generally held that in every marine insurance policy the assured
Asilda was due to its unseaworthiness even at the time of its
impliedly warrants to the assurer that the vessel is seaworthy and
departure from the port of Zamboanga. It was top-heavy as an
such warranty is as much a term of the contract as if expressly written
excessive amount of cargo was loaded on deck. Closer supervision
on the face of the policy.[12] Thus Sec. 113 of the Insurance Code
on the part of the shipowner could have prevented this fatal
provides that (i)n every marine insurance upon a ship or freight, or
miscalculation. As such, FELMAN was equally negligent. It cannot
freightage, or upon anything which is the subject of marine insurance,
therefore escape liability through the expedient of filing a notice of
a warranty is implied that the ship is seaworthy. Under Sec. 114, a
abandonment of the vessel by virtue of Art. 587 of the Code of
ship is seaworthy when reasonably fit to perform the service, and to
Commerce.
encounter the ordinary perils of the voyage, contemplated by the
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 x x x x" In the event of loss of goods, common carriers are
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.
presumed to have acted negligently. FELMAN, the shipowner, was not
We need not belabor the alleged breach of warranty of seaworthiness
able to rebut this presumption.
by the assured as painstakingly pointed out by FELMAN to stress that
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 is claim under
the policy. Hence, when PHILAMGEN paid the claim of the bottling
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
Having disposed of this matter, we move on to the legal basis for
concealment or misrepresentation by the assured.[14]
subrogation. PHILAMGENs action against FELMAN is squarely
The marine policy issued by PHILAMGEN to the Coca-Cola bottling
sanctioned by Art. 2207 of the Civil Code which provides:
firm in at least two (2) instances has dispensed with the usual
Art. 2207. If the plaintiffs property has been insured, and he has
warranty of worthiness. Paragraph 15 of the Marine Open Policy No.
received indemnity from the insurance company for the injury or loss
100367-PAG reads (t)he liberties as per Contract of Affreightment the
arising out of the wrong or breach of contract complained of, the
presence of the Negligence Clause and/or Latent Defect Clause in the
insurance company shall be subrogated to the rights of the insured
Bill of Lading and/or Charter Party and/or Contract of Affreightment as
against the wrongdoer or the person who has violated the contract. If
between the Assured and the Company shall not prejudice the
the amount paid by the insurance company does not fully cover the
insurance. The seaworthiness of the vessel as between the Assured
injury or loss, the aggrieved party shall be entitled to recover the
and the Assurers is hereby admitted.[15]
deficiency from the person causing the loss or injury.
The same clause is present in par. 8 of the Institute Cargo
In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we
Clauses (F.P.A.) of the policy which states (t)he seaworthiness of the
said that payment by the assurer to the assured operates as an
vessel as between the Assured and Underwriters in hereby admitted x
equitable assignment to the assurer of all the remedies
x x x"[16]
which the assured may have against the third party whose
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
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 realistic fact that cargo owners cannot control the state of the
The doctrine of subrogation has its roots in equity. It is designed to
vessel. Thus it can be said that with such categorical
promote and to accomplish justice and is the mode which equity
waiver, PHILAMGEN has accepted the risk of unseaworthiness so
adopts to compel the ultimate payment of a debt by one who in
that if the ship should sink by unseaworthiness, as what occurred in
justice, equity and good conscience ought to pay.[19] Therefore, the
this case, PHILAMGEN is liable.
payment made by PHILAMGEN to Coca-Cola Bottlers Philippines,

Inc., gave the former the right to bring an action as subrogee against
vs.
FELMAN. Having failed to rebut the presumption of fault, the liability
JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE
of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola
CO., INC., defendants-appellees.
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 Fiftyfive Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal
Conrado R. Ayuyao for plaintiffs-appellees.

Ponciano U. Pitargue for defendant-appellee First quezon City
Insurance Co., Inc.
Fernando B. Zamora for defendant-appellee Jamila & Company, Inc.
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.
AQUINO, J.:
Fireman's Fund and Insurance Company (Fireman's Fund for short)
and Firestone Tire and Rubber Company of the Philippines appealed
from the order dated October 18, 1966 of the Court of First Instance of
Manila, dismissing their complaint against Jamila & Co., Inc.
(hereinafter called Jamila) for the recovery of the sum of P11,925.00
plus interest, damages and attorney's fees (Civil Case No. 65658).
The gist of the complaint is that Jamila or the Veterans Philippine
G.R. No. L-27427 April 7, 1976
Scouts Security Agency contracted to supply security guards to

Firestone; that Jamila assumed responsibility for the acts of its
security guards; that First Quezon City Insurance Co., Inc. executed a
FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE

AND RUBBER COMPANY OF THE PHILIPPINES, plaintiffsappellants,
bond in the sum of P20,000.00 to guarantee Jamila's obligations

under that contract; that on May 18, 1963 properties of Firestone
valued at P11,925.00 were lost allegedly due to the acts of its
employees who connived with Jamila's security guard; that Fireman's

Fund, as insurer, paid to Firestone the amount of the loss; that
What is now to be recounted shows the lack of due care on the part of
Fireman's Fund was subrogated to Firestone's right to get
the lower court and the opposing lawyers in their management of the
reimbursement from Jamila, and that Jamila and its surety, First
case. Such lack of due care has given the case a farcical ambiance
Quezon City Insurance Co., Inc., failed to pay the amount of the loss
and might partially explain the long delay in its adjudication.
in spite of repeated demands.
Jamila, upon noticing that the order of September 3, 1966 had
Upon defendants' motions, the lower court in its order of July 22, 1966
obliterated its victory without any reason therefor, filed a motion for
dismissed the complaint as to Jamila on the ground that there was no
reconsideration. It had originally moved for the dismissal of the
allegation that it had consented to the subrogation and, therefore,
complaint on the ground of lack of cause of action. Its contention was
Fireman's Fund had no cause of action against it.
based on two grounds, to wit: (1) that the complaint did not allege that
In the same order the lower court dismissed the complaint as to First
Quezon City Insurance Co., Inc. on the ground of res judicata. It
appears that the same action was previously filed in Civil Case No.
56311 which was dismiss because of the failure of the same plaintiffs
and their counsel to appear at the pre trial.
Firestone and Fireman's Fund moved for the reconsideration of the
order of dismissal. The lower court on September 3, 1966 set aside its
order of dismissal. It sustained plaintiffs' contention that there was
no res judicataas to First Quezon City Insurance Co., Inc. because
Civil Case No. 56311 was dismissed without prejudice. Later, First
Quezon City Insurance Co., Inc. filed its answer to the complaint.
However, due to inadvertence, the lower court did not state in its order
of September 3, 1966 why it set aside its prior order dismissing the
complaint with respect to Jamila.
Firestone, pursuant to the contractual stipulation quoted in the

complaint, had investigated the loss and that Jamila was represented
in the investigation and (2) that Jamila did not consent to the
subrogation of Fireman's Fund to Firestone's right to get
reimbursement from Jamila and its surety. The lower court in its order
of dismissal had sustained the second ground.
Jamila in its motion for the reconsideration of the order of September
3, 1966 invoked the first ground which had never been passed upon
by the lower court. Firestone and Fireman's Fund in their opposition
joined battle, in a manner of speaking, on that first ground.
But the lower court in its order of October 18, 1966, granting Jamila's
motion for reconsideration, completely ignored that first ground. It
reverted to the second ground which was relied upon in its order of
September 3, 1966. The lower court reiterated its order of July 22,
1966 that Fireman's Fund had no cause of action against Jamila

because Jamila did not consent to the subrogation. The court did not
In this appeal Firestone and Fireman's Fund contend that the trial
mention Firestone, the co-plaintiff of Fireman's Fund.
court's dismissal of their complaint is contrary to the aforementioned
At this juncture, it may be noted that motions for reconsideration
article 2207 which provides for legal subrogation.
become interminable when the court's orders follow a seesaw pattern.
Jamila, in reply, stubbornly argues that legal subrogation under article
That phenomenon took place in this case.
2207 requires the debtor's consent; that legal subrogation takes place
Firestone and Fireman's Fund filed a motion for the reconsideration of

the lower court's order of October 18, 1966 on the ground that
Fireman's Fund Insurance Company was suing on the basis
of legal subrogation whereas the lower court erroneously predicated
its dismissal order on the theory that there was
no conventional subrogation because the debtor's consent was
lacking.
The plaintiffs cited article 2207 of the Civil Code which provides that "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".
The lower court denied plaintiffs' motion. They filed a second motion
for reconsideration. In that motion they sensibly called the lower
court's attention to the fact that the issue of subrogation was of no
moment because Firestone, the subrogor, is a party-plaintiff and could
in the cases mentioned in article 1302 of the Civil Code and the
instant case is not among the three cases enumerated in that article,
and that there could be no subrogation in this case because according
to the plaintiffs the contract between. Jamila and Firestone was
entered into on June 1, 1965 but the loss complained of occurred on
May 18, 1963.
With respect to the factual point raised by Jamila, it should be stated
that plaintiffs' counsel gratuitously alleged in their brief that Firestone
and Jamila entered into a "contract of guard services" on June
1, 1965. That allegation, which was uncalled for because it is not
found in the complaint, created confusion which heretofore did not
exist. No copy of the contract was annexed to the complaint.
That confusing statement was an obvious error since it was expressly
alleged in the complaint that the loss occurred on May 18, 1963. The
fact that such an error was committed is another instance
substantiating our previous observation that plaintiffs' counsel had not
exercised due care in the presentation of his case.
sue directly Jamila in its own right. Without resolving that contention,
The issue is whether the complaint of Firestone and Fireman's Fund
the lower court denied plaintiffs' second motion for reconsideration.
states a cause of action against Jamila.

We hold that Firestone is really a nominal, party in this case. It had
whole or in part paid by another" (83 C.J.S. 576, 678, note 16, citing
already been indemnified for the loss which it had sustained.
Fireman's Fund Indemnity Co. vs. State Compensation Insurance
Obviously, it joined as a party-plaintiff in order to help Fireman's Fund
Fund, 209 Pac. 2d 55).
to recover the amount of the loss from Jamila and First Quezon City
Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund
its cause of action against Jamila for breach of contract. Sufficient
ultimate facts are alleged in the complaint to sustain that cause of
action.
On the other hand, Fireman's Fund's action against Jamila is squarely
sanctioned by article 2207. As the insurer, Fireman's Fund is entitled
to go after the person or entity that violated its contractual
commitment to answer for the loss insured against (Cf. Philippine Air
Lines, Inc. vs. Heald Lumber Co., 101 Phil. 1032; Rizal Surety &
Insurance Co. vs. Manila Railroad Company, L-24043, April 25, 1968,
23 SCRA 205).
The trial court erred in applying to this case the rules on novation. The
plaintiffs in alleging in their complaint that Fireman's Fund "became a
party in interest in this case by virtue of a subrogation right given in its
favor by" Firestone, were not relying on the novation by change of
creditors as contemplated in articles 1291 and 1300 to 1303 of the
Civil Code but rather on article 2207.
Article 2207 is a restatement of a settled principle of American
jurisprudence. Subrogation has been referred to as the doctrine of
substitution. It "is an arm of equity that may guide or even force one to
pay a debt for which an obligation was incurred but which was in
"Subrogation is founded on principles of justice and equity, and its

operation is governed by principles of equity. It rests on the principle
that substantial justice should be attained regardless of form, that is,
its basis is the doing of complete, essential, and perfect justice
between all the parties without regard to form"(83 C.J.S. 579- 80)
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins.
Co. vs Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the
loss, the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may have against the third person whose.
negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745,
citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance
Co., 283 U. S. 294, 75 L. ed. 1037).
The right of subrogation is of the highest equity. The loss in the first
instance is that of the insured but after reimbursement or
compensation, it becomes the loss of the insurer (44 Am. Jur. 2d 746,
note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).
"Although many policies including policies in the standard form, now
provide for subrogation, and thus determine the rights of the insurer in
this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746).

Stated otherwise, when the insurance company pays for the loss,
Ramirez and Ortigas for petitioner.
such payment operates as an equitable assignment to the insurer of
Ewald Huenefeld for respondent.
the property and all remedies which the insured may have for the
recovery thereof. That right is not dependent upon, nor does it grow
PARAS, C.J.:
out of, any privity of contract, or upon written assignment of claim, and
On October 1, 1941, the respondent corporation, Christern Huenefeld,
payment to the insured makes the insurer an assignee in equity
& Co., Inc., after payment of corresponding premium, obtained from
(Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N. C.
the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the
456,142 SE 2d 18).
sum of P1000,000, covering merchandise contained in a building
Whether the plaintiffs would be able to prove their cause of action

against Jamila is another question.
located at No. 711 Roman Street, Binondo Manila. On February 27,

1942, or during the Japanese military occupation, the building and
insured merchandise were burned. In due time the respondent
Finding the trial court's order of dismissal to be legally untenable, the
submitted to the petitioner its claim under the policy. The salvage
same is set aside with costs against defendant-appellee Jamila & Co.,
goods were sold at public auction and, after deducting their value, the
Inc.
total loss suffered by the respondent was fixed at P92,650. The

petitioner refused to pay the claim on the ground that the policy in
SO ORDERED.
favor of the respondent had ceased to be in force on the date the

United States declared war against Germany, the respondent
Corporation (though organized under and by virtue of the laws of the
Philippines) being controlled by the German subjects and the
E. Who may be insured (Sec. 7):
petitioner being a company under American jurisdiction when said

policy was issued on October 1, 1941. The petitioner, however, in
pursuance of the order of the Director of Bureau of Financing,
G.R. No. L-2294
May 25, 1951
Philippine Executive Commission, dated April 9, 1943, paid to the

respondent the sum of P92,650 on April 19, 1943.
FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
The present action was filed on August 6, 1946, in the Court of First
CHRISTERN, HUENEFELD and CO., INC., respondent.
Instance of Manila for the purpose of recovering from the respondent

the sum of P92,650 above mentioned. The theory of the petitioner is
the United States in Clark vs. Uebersee Finanz Korporation, decided
that the insured merchandise were burned up after the policy issued
on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-
in 1941 in favor of the respondent corporation has ceased to be
153, in which the controls test has been adopted. In "Enemy
effective because of the outbreak of the war between the United
Corporation" by Martin Domke, a paper presented to the Second
States and Germany on December 10, 1941, and that the payment
International Conference of the Legal Profession held at the Hague
made by the petitioner to the respondent corporation during the
(Netherlands) in August. 1948 the following enlightening passages
Japanese military occupation was under pressure. After trial, the
appear:
Court of First Instance of Manila dismissed the action without

pronouncement as to costs. Upon appeal to the Court of Appeals, the
judgment of the Court of First Instance of Manila was affirmed, with
costs. The case is now before us on appeal by certiorari from the
decision of the Court of Appeals.
Since World War I, the determination of enemy nationality of

corporations has been discussion in many countries, belligerent and
neutral. A corporation was subject to enemy legislation when it was
controlled by enemies, namely managed under the influence of
individuals or corporations, themselves considered as enemies. It was
The Court of Appeals overruled the contention of the petitioner that
the English courts which first the Daimler case applied this new
the respondent corporation became an enemy when the United States
concept of "piercing the corporate veil," which was adopted by the
declared war against Germany, relying on English and American
peace of Treaties of 1919 and the Mixed Arbitral established after the
cases which held that a corporation is a citizen of the country or state
First World War.
by and under the laws of which it was created or organized. It rejected

the theory that nationality of private corporation is determine by the
character or citizenship of its controlling stockholders.
The United States of America did not adopt the control test during the
First World War. Courts refused to recognized the concept whereby
American-registered corporations could be considered as enemies
There is no question that majority of the stockholders of the
and thus subject to domestic legislation and administrative measures
respondent corporation were German subjects. This being so, we
regarding enemy property.
have to rule that said respondent became an enemy corporation upon

the outbreak of the war between the United States and Germany. The
English and American cases relied upon by the Court of Appeals have
lost their force in view of the latest decision of the Supreme Court of
World War II revived the problem again. It was known that German
and other enemy interests were cloaked by domestic corporation
structure. It was not only by legal ownership of shares that a material
influence could be exercised on the management of the corporation

but also by long term loans and other factual situations. For that
masqueraded under those innocent fronts. . . . The power of seizure
reason, legislation on enemy property enacted in various countries
and vesting was extended to all property of any foreign country or
during World War II adopted by statutory provisions to the control test
national so that no innocent appearing device could become a Trojan
and determined, to various degrees, the incidents of control. Court
horse."
decisions were rendered on the basis of such newly enacted statutory

provisions in determining enemy character of domestic corporation.
It becomes unnecessary, therefore, to dwell at length on the

authorities cited in support of the appealed decision. However, we
The United States did not, in the amendments of the Trading with the
may add that, in Haw Pia vs. China Banking Corporation,* 45 Off
Enemy Act during the last war, include as did other legislations the
Gaz., (Supp. 9) 299, we already held that China Banking Corporation
applications of the control test and again, as in World War I, courts
came within the meaning of the word "enemy" as used in the Trading
refused to apply this concept whereby the enemy character of an
with the Enemy Acts of civilized countries not only because it was
American or neutral-registered corporation is determined by the
incorporated under the laws of an enemy country but because it was
enemy nationality of the controlling stockholders.
controlled by enemies.
Measures of blocking foreign funds, the so called freezing regulations,
The Philippine Insurance Law (Act No. 2427, as amended,) in section
and other administrative practice in the treatment of foreign-owned
8, provides that "anyone except a public enemy may be insured." It
property in the United States allowed to large degree the
stands to reason that an insurance policy ceases to be allowable as
determination of enemy interest in domestic corporations and thus the
soon as an insured becomes a public enemy.
application of the control test. Court decisions sanctioned such

administrative practice enacted under the First War Powers Act of
1941, and more recently, on December 8, 1947, the Supreme Court of
the United States definitely approved of the control theory. In
Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss
corporation allegedly controlled by German interest, the Court: "The
property of all foreign interest was placed within the reach of the
vesting power (of the Alien Property Custodian) not to appropriate
friendly or neutral assets but to reach enemy interest which
Effect of war, generally. All intercourse between citizens of

belligerent powers which is inconsistent with a state of war is
prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which will
increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or receiving its protection; also all acts
concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance
upon trade with or by the enemy, upon the life or lives of aliens

engaged in service with the enemy; this for the reason that the
rules of justice (in the absence of specific provision in the Insurance
subjects of one country cannot be permitted to lend their assistance to
Law) require that the premium paid by the respondent for the period
protect by insurance the commerce or property of belligerent, alien
covered by its policy from December 11, 1941, should be returned by
subjects, or to do anything detrimental too their country's interest. The
the petitioner.
purpose of war is to cripple the power and exhaust the resources of

the enemy, and it is inconsistent that one country should destroy its
enemy's property and repay in insurance the value of what has been
so destroyed, or that it should in such manner increase the resources
of the enemy, or render it aid, and the commencement of war
determines, for like reasons, all trading intercourse with the enemy,
which prior thereto may have been lawful. All individuals therefore,
who compose the belligerent powers, exist, as to each other, in a
state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins.
Law, pp. 5352-5353.)
The Court of Appeals, in deciding the case, stated that the main issue
hinges on the question of whether the policy in question became null
and void upon the declaration of war between the United States and
Germany on December 10, 1941, and its judgment in favor of the
respondent corporation was predicated on its conclusion that the
policy did not cease to be in force. The Court of Appeals necessarily
assumed that, even if the payment by the petitioner to the respondent
was involuntary, its action is not tenable in view of the ruling on the
validity of the policy. As a matter of fact, the Court of Appeals held that
"any intimidation resorted to by the appellee was not unjust but the
In the case of an ordinary fire policy, which grants insurance only from
exercise of its lawful right to claim for and received the payment of the
year, or for some other specified term it is plain that when the parties
insurance policy," and that the ruling of the Bureau of Financing to the
become alien enemies, the contractual tie is broken and the
effect that "the appellee was entitled to payment from the appellant
contractual rights of the parties, so far as not vested. lost. (Vance, the
was, well founded." Factually, there can be no doubt that the Director
Law on Insurance, Sec. 44, p. 112.)
of the Bureau of Financing, in ordering the petitioner to pay the claim
The respondent having become an enemy corporation on December

10, 1941, the insurance policy issued in its favor on October 1, 1941,
by the petitioner (a Philippine corporation) had ceased to be valid and
enforcible, and since the insured goods were burned after December
10, 1941, and during the war, the respondent was not entitled to any
indemnity under said policy from the petitioner. However, elementary
of the respondent, merely obeyed the instruction of the Japanese

Military Administration, as may be seen from the following: "In view of
the findings and conclusion of this office contained in its decision on
Administrative Case dated February 9, 1943 copy of which was sent
to your office and the concurrence therein of the Financial Department
of the Japanese Military Administration, and following the instruction
of said authority, you are hereby ordered to pay the claim of Messrs.

Christern, Huenefeld & Co., Inc. The payment of said claim, however,
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. YIP WAI
should be made by means of crossed check." (Emphasis supplied.)
MING, accused-appellant.
It results that the petitioner is entitled to recover what paid to the
DECISION
respondent under the circumstances on this case. However, the

petitioner will be entitled to recover only the equivalent, in actual
MELO, J.:
Philippines currency of P92,650 paid on April 19, 1943, in accordance
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both
with the rate fixed in the Ballantyne scale.
Hongkong nationals, came to Manila on vacation on July 10,
Wherefore, the appealed decision is hereby reversed and the

respondent corporation is ordered to pay to the petitioner the sum of
P77,208.33, Philippine currency, less the amount of the premium, in
Philippine currency, that should be returned by the petitioner for the
unexpired term of the policy in question, beginning December 11,
1941. Without costs. So ordered.
1993. The two were engaged to be married. Hardly a day had passed
when Lam Po Chun was brutally beaten up and strangled to death in
their hotel room. On the day of the killing, July 11, 1993, Yip Wai Ming,
was touring Metro Manila with Filipino welcomers while Lam Po Chun
was left in the hotel room allegedly because she had a headache and
was not feeling well enough to do the sights.
For the slaying, an Information was lodged against Yip Wai Ming
on July 19, 1991, which averred:
That on or about July 11, 1993, in the City of Manila, Philippines, the
said accused did then and there wilfully, unlawfully and feloniously
with intent to kill with treachery and evident premeditation, did then
and there attack, assault and use personal violence upon one Lam Po
Chun by then and there mauling and strangling the latter, thereby
F. Insurable Interest in life (Sec. 10)
inflicting upon her mortal and fatal wounds which were the direct and
immediate cause of her death thereafter.
On May 15, 1995, Branch 44 of the Regional Trial Court of the
[G.R. No. 120959. November 14, 1996]
National Capital Judicial Region stationed in Manila and presided over

by the Honorable Lolita O. Gal-lang rendered a decision in essence
There was no eyewitness to the actual killing of Lam Po Chun. All the
finding that Yip Wai Ming killed his fiancee before he left for the Metro
evidence about the killing is circumstantial. The key issue in the
Manila tour. Disposed thus the trial court:
instant appeal is, therefore, whether or not the circumstantial evidence
WHEREFORE, in view of the foregoing established evidence,

judgment is hereby rendered convicting the accused Yip Wai Ming
linking accused-appellant to the killing is sufficient to sustain a

judgment of conviction beyond reasonable doubt.
beyond reasonable doubt of the crime of Murder as charged in the
The evidence upon which the prosecution convinced the trial court of
information and as defined in Article 248, paragraph 5 of the Revised
accused-appellants guilt beyond reasonable doubt is summarized in
Penal Code, and in accordance therewith the aggravating
the Solicitor-Generals brief as follows:
circumstance of evident premeditation which attended the commission

of the offense, the said accused Yip Wai Ming is hereby sentenced to
suffer the penalty of Reclusion Perpetua with all the accessory
penalties provided for by law.
On or about 7 oclock in the evening of July 10, 1993, appellant and

his fiancee Lam Po Chun who are both Hongkong nationals, checked
in at Park Hotel located at No. 1032-34 Belen St., Paco,Manila. They
were billeted at Room 210. Angel Gonzaga, the roomboy on duty,
Accused is likewise ordered to pay the heirs of the deceased Lam Po
assisted the couple in going up to their room located at the second
Chun of Hongkong the death indemnity for damages at Fifty
floor of the hotel (p. 14, tsn, October 13, 1993, p. 66, tsn, September
Thousand (P50,000.00) Pesos; Moral and compensatory damages of
1, 1993). When they reached Room 210, appellant got the key from
Fifty Thousand (P50,000.00) Pesos each or a total of One Hundred
Angel Gonzaga and informed the latter that they do not need any
Thousand Pesos (P100,000.00); plus costs of suit.
room service, particularly the bringing of foods and other orders to
The accused being detained, he is credited with the full extent of the
their room (pp. 67-69, tsn, September 1, 1993).
period under which he was under detention, in accordance with the
After staying for about an hour inside Room 210, the couple went
rules governing convicted prisoners.
down to the lobby of the hotel. Appellant asked the front desk
SO ORDERED.
(p. 69, Rollo.)
receptionist on duty to call a certain Gwen delos Santos and to

instruct her to pick them up the following day, July 11, 1993, a Sunday
at 10 oclock in the morning (pp. 21-25, tsn, September 8,1993).

At about past 8 oclock in the same evening of July 10, 1993, Cariza
During the whole morning of July 11, 1993, after appellant left the
Destreza, occupant of Room 211 which is adjacent to Room 210,
hotel until his return at 11 oclock in the evening, he did not call his
heard a noise which sounds like a heated argument between a man
fiancee Lam Po Chun to verify her physical condition (p. 44 tsn,
and a woman coming from the room occupied by appellant and Lam
October 18, 1993, p. 18, tsn, November 23, 1993).
Po Chun. The heated discussions lasted for thirty (30) minutes and
thereafter subsided.
When appellant arrived at 11 oclock p.m. on that day, he asked the

receptionist for the key of his room. Then together with Fortunato
In the following morning, that is, July 11, 1993, at around 9:15, the
Villa, the roomboy, proceeded to Room 210. When the lock was
same Cariza Destresa again heard a banging which sounds like
opened and the door was pushed, Lam Po Chun was found dead
somebody was thrown and stomped on the floor inside Room
lying face down on the bed covered with a blanket. Appellant removed
210.Cariza, who became curious, went near the wall dividing her
the blanket and pretended to exclaim My God, she is dead but did not
room and Room 210. She heard a cry of a woman as if she cannot
even embrace his fiancee. Instead, appellant asked the room boy to
breathe (pp. 23-24, tsn, August 30, 1993).
go down the hotel to inform the front desk, the security guard and
At about 10 oclock a.m., Gwen delos Santos, together with two lady
companions, arrived at the lobby of the Park Hotel. The receptionist
other hotel employees to call the police (pp. 8-27, tsn, October 18,
1993).
informed appellant by telephone of her arrival. In response, appellant
When the police arrived, they conducted an examination of the
came down without his fiancee Lam Po Chun. After a while he
condition of the doors and windows of the room as well as the body of
together with Gwen delos Santos and the latters companions, left the
the victim and the other surroundings. They found no signs of forcible
hotel. Before leaving, he gave instruction to the front desk receptionist
entry and they observed that no one can enter from the outside
not to disturb his fiancee at Room 210. He also ordered not to accept
except the one who has the key. The police also saw the victim
any telephone calls, no room cleaning and no room service (pp. 37-
wrapped in a colored blanket lying face down. When they removed
43, tsn, October 18, 1993).
the blanket and tried to change the position of her body, the latter was
When appellant left, the front desk receptionist, Enriqueta Patria,

noticed him to be in a hurry, perspiring and looking very scared (p. 32,
tsn, September 22, 1993).
already in state of rigor mortis, which indicates that the victim has
been dead for ten (10) to twelve (12) hours. The police calculated that
Lam Po Chun must have died between 9 to 10 in the morning of July
11, 1993 (pp. 2-29), tsn, September 22, 1993).

Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an
Hongkong. He met Lam Po Chun at a party in 1991. Both were
autopsy of the body of the victim. His examination (Exh. V) revealed
sportsminded and after a short courtship, the two began to have a
that the cause of death was asphyxia by strangulation. Dr. Lagonera
relationship, living together in the same apartment. The two
explained that asphyxia is caused by lack of oxygen entering the body
toured China and Macao together in 1992. In April, 1993 the two
when the entrance of air going to the respiratory system is blocked
decided to get married. In May 1993, they registered with the
(pp. 6-19, tsn, December 14, 1993).
Hongkong Marriage Registry. The wedding was set for August
Prior to the death of the victim, her brother, Lam Chi Keung, learned
29,1993.
that her life was insured with the Insurance Company of New
An office-mate of accused-appellant named Tessie Amay Ticar
Zealand in Causeway Bay, Hongkong, with appellant as the
encouraged him and Lam Po Chun to tour the Philippines in
beneficiary. The premium paid for the insurance was more than the
celebration of their engagement. After finishing the travel
monthly salary of the deceased as an insurance underwriter in
arrangements, the two were given by Ticar the names (Toots,
Hongkong (Exh. X).
Monique, and Gwen) of her cousins in Manila and their telephone
It was on the bases of the foregoing facts that appellant was charged
before the Regional Trial Court in Manila for the crime of murder
committed against the person of Lam Po Chun.
(pp. 3-7, Appellees Brief, ff. p. 176, Rollo.)
number. Photos of their Manila contacts were shown to them. In

addition to his Citibank credit card, accused-appellant
brought P24,000.00 secured at a Hongkong money exchange and
HK$4,000.00. Lam Po Chun had HK$3,000.00.
The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on
In his brief, accused-appellant offers explanatory facts and argues
board Cathay Pacific Flight CX 903. They arrived at Park Hotel
that the findings of fact of the trial court are based mainly on the
around 7 P.M. From their hotel room, accused-appellant called their
prosecution evidence displaying bias against accused-appellant. He
contact, Gwen delos Santos, by telephone informing her of their
contends that the court made unwarranted and unfounded
arrival. The two ate outside at McDonalds restaurant
conclusions on the basis of self-contradictory and conflicting

evidence.
Accused-appellant woke up the following morning - Sunday, July 11,

1993 - at around 8 oclock. After the usual amenities, including a
Accused-appellant, at the time of the commission of the crime, was a
shower, the two had breakfast in the hotel restaurant, then they went
customer relations officer of Well Motors Company in Kowloon,
back to their room. At around 10 oclock that same morning, accused-

appellant received a phone call from the hotel staff telling him that
showed that the call was made at 6:44 P.M. on July 11,
their visitors had arrived.
1993. Accused-appellant claims that, afterwards, he called up Lam Po
He then went to the lobby ahead of Lam Po Chun, introduced himself

to the delos Santos sisters, Gwen and Monique, and their mother. A
few minutes later, Lam Po Chun joined them. Two bottles of perfume
were given to the sisters as arrival gifts.
Gwen delos Santos invited the couple to tour the city but Lam Po
Chun decided to stay behind as it was very hot and she had a
headache. She excused herself and went up to her room, followed
later by accused-appellant to get another bottle of perfume.
Chun at their hotel room but the phone just kept on ringing with
nobody answering it. The group had dinner at the delos Santos house
in Tondo. After dinner, Gwen delos Santos brother and sister-in-law
arrived. They insisted in bringing their guest to a restaurant near
Manila Bay for coffee, but it was full so they proceeded to Tia Maria, a
Mexican restaurant in Makati.
Finally, the delos Santos family brought Andy Yip back to the Park
Hotel, arriving there at around 10:30 PM. Before the delos Santos
group left, there was an agreement that the following morning
Accused-appellant claims that before leaving, he instructed the clerk
accused-appellant and Lam Po Chun would join them in another city
at the front desk to give Lam Po Chun some medicine for headache
tour.
and, as much as possible, not to disturb her.
After accused-appellants knocks at the door of their room remained
Accused-appellant, Gwen, Monique, and the sisters mother took a
unanswered, he went back to the hotel front desk and asked the hotel
taxicab to Landmark Department Store where they window
staff to open the door for him. The room was dark. Accused-appellant
shopped. Accused-appellant states that from a telephone booth in the
put on the light switch. He wanted to give the roomboy who
store, he called Lam Po Chun but no one answered his call. From
accompanied him a P20 or P30 tip but his smallest bill was P100. He
Landmark where they had lunch, the four went to Shoemart
went to a side table to get some smaller change. It was then when he
Department Store in Makati. Accused-appellant bought a Giordano T-
noticed the disordered room, a glass case and wallet on the floor, and
shirt at Landmark and chocolates at Shoemart. Gwen delos Santos
Lam Po Chun lying face down on one of the beds.
brought the group to the house of her aunt, Edna Bayona, at Roces,
Quezon City. From Roces St., Gwen delos Santos brought the group
to her home in Balut, Tondo. Using the delos Santos telephone,
accused-appellant called his office in Hongkong. The PLDT receipt
Accused-appellant tried to wake Lam Po Chun up by calling her name

but when she did not respond, he lifted up her face, moving her body
sidewards. He saw blood. Shocked, he shouted at the roomboy to call
a doctor.

Several people rushed to Room 210. A foreigner looked at Lam Po
Chun and said she was dead. The foreigner placed his arms around
accused-appellant who was slumped on the floor and motioned for
him to leave the room. Accused-appellant refused, but he was made
to move out and to go to the lobby, at which place, dazed and crying,
he called up Gwen delos Santos to inform her of what
happened. Gwen could not believe what she heard, but she assured
accused-appellant that they were going to the hotel. Policemen then
arrived.
In the instant appeal, accused-appellant, through his new counsel,
III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSEDAPPELLANT COMMITTED A CRIME OF MURDER AGGRAVATED
BY EVIDENT PREMEDITATION.
IV
THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE
TESTIMONY OF OFFICER ALEJANDRO YANQUILING, JR.
V
former Justice Ramon C. Fernandez, assigns the following alleged
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF
errors:
CARISA DESTREZA WHO INCURRED SERIOUS
I
THE TRIAL COURT ERRED IN NOT FINDING THAT THE
CONTRADICTIONS ON MATERIAL POINTS.

VI
ACCUSED-APPELLANT WAS ARRESTED WITHOUT WARRANT,
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES
WAS TORTURED AND WAS NOT INFORMED THAT HE HAD THE
OF THE OTHER PROSECUTION WITNESSES THAT
RIGHT TO REMAIN SILENT AND BE ASSISTED BY INDEPENDENT
CONTRADICTED EACH OTHER ON MATERIAL POINTS.
AND COMPETENT COUNSEL DURING CUSTODIAL

INVESTIGATION.
II
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSEDAPPELLANT HAD THE VICTIM APPLE INSURED AND LATER
KILLED HER FOR THE INSURANCE PROCEEDS.
VII
THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES
OF THE WITNESSES OF THE ACCUSED ARE INCREDIBLE.
VIII

THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION
1993. Marriage date was set for August 29, 1993. This date was only
HAS ESTABLISHED THE GUILT OF THE ACCUSED-APPELLANT
a month and a half away from the date of death of Lam Po Chun. In
BY PROOF BEYOND REASONABLE DOUBT.
the absence of direct evidence indubitably showing that accused-
IX
appellant was the perpetrator of the killing, motive becomes

important. The theory developed by the prosecution was not only of a
THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING
cold-blooded crime but a well-planned one, including its timing up to
THE ACCUSED-APPELLANT OF THE CRIME CHARGED IN THE
the half hour. It is not the kind of crime that a man would commit
INFORMATION.
against his wife-to-be unless a strong motive for it existed.
(pp. 80-82, Rollo.)
The trial court would have been justified in finding that there was
The trial court, in arriving at its conclusions, took the various facts
presented by the prosecution, tied them up together like parts of a jigsaw puzzle, and came up with a complete picture of circumstantial
evident premeditation of murder if the story is proved that Lam Po

Chun insured herself for the amounts of US $498,750.00 and US
$249,375.00 naming accused-appellant as the beneficiary.
evidence depicting not only the commission of the crime itself but also
There is, however, no evidence that the victim secured an insurance
the motive behind it.
policy for a big amount in US dollars and indicated accused-appellant
Our review of the record, however, discloses that certain key

elements, without which the picture of the crime would be faulty and
unsound, are not based on reliable evidence.They appear to be mere
surmises and assumptions rather than hard facts or well-grounded
conclusions.
A key element in the web of circumstantial evidence is motive which
the prosecution tried to establish. Accused-appellant and Lam Po
Chun were engaged to be married. They had toured China and
Macao together. They were living together in one apartment. They
were registered with the Hongkong Marriage Registry in May
as the beneficiary. The prosecution presented Exhibit X, a mere xerox

copy of a document captioned Proposal for Life Insurance as proof of
the alleged insurance. It is not a certified copy, nor was the original
first identified.
The authenticity of the document has thus not been duly
established. Exhibit X was secured in Hongkong when Lam Chi
Keung, the brother of the victim, learned that his sister was murdered
in Manila. It is not shown how and from whom the information about
any alleged insurance having been secured came. There is no
signature indicating that the victim herself applied for the
insurance. There is no marking in Exhibit X of any entry which

purports to be the victims signature. There is a signature of Apple Lam
insurance was issued to Lam Po Chun with accused-appellant as the
which is most unusual for an insurance application because the
beneficiary, the motive capitalized upon by the trial court
victims name is Lam Po Chun. To be sure nobody insures himself or
vanishes. Thus, the picture changes to one of the alleged perpetrator
herself under a nickname. The entries in the form are in block letters
killing his fiancee under cold-blooded circumstances for nothing.
uniformly written by one hand. Below the printed name Lam Po Chun
are Chinese characters which presumably are the Chinese translation
of her name. Nobody was presented to identify the author of the block
handwriting. Neither the prosecution nor the trial court made any
comparisons, such as the signature of Lam Po Chun on her passport
(Exh. C), with her purported signature or any other entry in the form.
There are other suspicious circumstances about the insurance angle.

Lam Po Chun was working for the National Insurance Company. Why
then should she insure her life with the New Zealand Insurance
Company? Lams monthly salary was only HK $5,000.00. The
premiums for the insurance were HK $5,400.00 or US $702.00 per
month. Why should Lam insure herself with the monthly premiums
It needs not much emphasis to say that an application form does not
exceeding her monthly salary? And why should any insurance
prove that insurance was secured. Anybody can get an application
company approve insurance, the premiums of which the supposed
form for insurance, fill it up at home before filing it with the insurance
insured obviously can not afford to pay, in the absence of any showing
company. In fact, the very first sentence of the form states that it
that somebody else is paying for said premiums. It is not even
merely forms the basis of a contract between you and NZI Life. There
indicated whether or not there are rules in Hongkong allowing a big
was no contract yet.
amount of insurance to be secured where the beneficiary is not a
There is evidence in the record that the family of Lam Po Chun did not
spouse, a parent, a sibling, a child, or other close relative.
like her relationship with accused-appellant. After all the trouble that
Accused-appellant points out an apparent lapse of the trial court
her brother went through to gather evidence to pin down accused-
related to the matter of insurance. At page 33 of the decision, the trial
appellant, the fact that all he could come up with is an unsigned
court stated:
insurance application form shows there was no insurance money

forthcoming for accused-appellant if Lam Po Chun died. There is no
proof that the insurance company approved the proposal, no proof
that any premium payments were made, and no proof from the record
of exhibits as to the date it was accomplished. It appearing that no
Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant
in Hongkong and told Yip and Lam Po Chun should be married and
there must be an insurance for her life . . .
(p. 33, RTC Decision; p. 66, Rollo.)

The source of the above finding is stated by the court as tsn hearing
always placing it within the narrow 45-minute period between 9:15
Sept. 22, 1992. But accused-appellant Yip Wai Ming did not testify on
and 10 A.M. of July 11,1993, the time when Cariza Destresa, the
September 22, 1992. The entire 112 pages of the testimony on that
occupant of the adjoining room, heard banging sounds coming from
date came from SPO2 Yanquiling. The next hearing was on
the room of accused-appellant, and the time accused-appellant left
September 29, 1993. All the 100 pages of the testimony on that date
with his Filipino friends.
came from Yanquiling.The next hearing on October 13, 1993 resulted

in 105 pages of testimony, also from Yanquiling. This Court is at a
complete loss as to the reason of the trial court sourcing its statement
to accused-appellants alleged testimony.
The prosecution alleges that at 10 A.M., Lam Po Chun was already

dead. However, Gwen delos Santos who never saw the couple before
was categorical in declaring that she met both of them at the lobby
before the group left for the tour (tsn, Feb. 14, 1994, p. 64; p.
Lam Po Chun must have been unbelievably trusting or stupid to follow
20, RTC Decision; p. 150, Rollo), but Lam Po Chun asked to be
the alleged advice of Andy Kwong. It is usually the man who insures
excused because of a headache. In fact, delos Santos was able to
himself with the wife or future wife as beneficiary instead of the other
identify Lam Po Chun from pictures shown during the trial. She could
way around. Why should Lam Po Chun, with her relatively small
not have done this unless she really saw and met the victim at the
salary which is not even enough to pay for the monthly premiums,
hotel lobby at around 10 A.M. of July 11,1993.
insure herself for such a big amount. This is another reason why
doubts arise as to the truth of the insurance angle.
The prosecution introduced an expert in the person of Dr. Manuel

Lagonera to establish the probable time of death. Dr. Lagonera,
Another key factor which we believe was not satisfactorily established
medico-legal officer of the PNP Western Police District, after
is the time of death. This element is material because from 10 A.M. of
extensive questioning on his qualifications as an expert witness, what
July 11, 1993 up to the time the body was discovered late that
he discovered as the cause of death (strangulation), the contents of
evening, accused-appellant was in the company of Gwen delos
the deceaseds stomach, injuries sustained, and the condition of the
Santos, her sister Monique, and their mother, touring Metro Manila
cadaver, was asked to establish the time of death, to wit:
and going from place to place. This much is established.
Q. If we use thirty six (36) hours to forty eight (48) hours, will you
To go around this problem of accused-appellant being away from the
agree with me that it is possible that the victim was killed in the
scene of the crime during the above mentioned hours, the prosecution
morning of July 10, 1993?
introduced testimonial evidence as to the probable time of death,

A. I cannot, I have no basis whether the victim was killed in the
morning or in the afternoon.
(tsn, Dec. 14, 1993, p. 31.)
Dr. Lagoneras testimony on the number of assailants was similar. He
had no basis for an answer, thusly:
ATTY. PASCUA:
Q. Would you be able to determine also based on your findings your
autopsy whether the assailants, the number of the assailants?
WITNESS:
A. I have no basis, Sir.
ATTY. PASCUA:
Q. You have no basis. And would it also have been possible, that
A. It is possible.
ATTY. PASCUA:
Q. Based also on your autopsy report, were there signs that the victim
put a struggle?
WITNESS:
A. There were no injuries in the hand or forearms or upper arms of the
victim. So, there were no sign of struggle on the part of the victim.
ATTY. PASCUA:
Q. And your basis in saying that there was no struggle on the part of
the victim was that there were no apparent or seen injuries in the
hands of the victim?
WITNESS:
there were more than one assailants?
A. Yes, sir.
WITNESS:
ATTY. PASCUA:
A. It is possible also.
Q. But you did not examine the fingernails?
ATTY. PASCUA:
WITNESS:
Q. It is possible also, who simultaneously inflicted the wounds of the
A. No, I did not examine, Sir.
victim?
WITNESS:
ATTY. PASCUA:

Q. Were there also injuries at the back portion of the head of the
Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn,
victim?
Dec. 14, 1993, p.108). It is undisputed that at around 8:30 A.M. of July
WITNESS:
A. No injuries at the back, all in front.
ATTY. PASCUA:
Q. All in front, meaning in terms of probability and based on your
professional opinion, the attack would have come from a frontal attack
or the attacker would have come from behind to inflict the frontal
injuries of the victim?
WITNESS:
A. It can be the attack coming from behind in the front or both, sir.
ATTY. PASCUA:
11,1993 accused-appellant and Lam Po Chun took breakfast together

at the hotel restaurant. She could not have been killed on July
10,1993. The autopsy conducted by Dr. Lagonera and the testimony
of accused-appellant coincided insofar as the food taken at breakfast
is concerned. The couple ate eggs, bacon, and toasted bread. But the
doctor was insistent that the death occurred the previous day.
Where a medico-legal expert of the police department could not, with
any measure of preciseness, fix the time of death, the police
investigator was bold and daring enough to establish it. Surprisingly,
the trial court accepted this kind of evidence. SPO2 Alejandro
Yanquiling testified that he arrived at the Park Hotel at about 11:25
oclock on the evening of July 11, 1993 to conduct the investigation of
the crime. At the time, the victim showed signs of rigor
mortis, stiffening of the muscle joints, with liquid and blood oozing
Q. But in your professional opinion or in your experience, based on

the injuries sustained including the location of the injuries on the body
from the nose and mouth. On the basis of his observations, he

declared that the victim had been dead for 10 to 12 hours.
of the victim, would it be more probable that the attack came from in
front of the victim?
The trial court stated that if the victim had been dead from 10 to 12
hours at 11:35 oclock in the evening, it is safe to conclude that she
WITNESS:
A. Yes, it is possible, Sir.
was killed between 9 and 10 oclock on the morning of July 11,

1993. The mathematics of the trial court is faulty. Twelve hours before
11:35 P.M. would be 11:35 A.M.. Ten hours earlier would even be later
(tsn, Dec. 14, 1993, pp. 60-63.)
-- 1:35 P.M.. Since accused-appellant was unquestionably with Gwen

delos Santos and her group touring and shopping in megamalls

between 10 A.M. and 11:35 P.M., the assailant or assailants must
the exclusion of all others, as the guilty person (U.S. vs. Villos, 6 Phil.
have been other people who were able to gain entry into the hotel
510 [1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis
room at that time.
consistent with innocence must be excluded if guilt beyond
The trial court stated that there was no sign of any forcible entry into
the room, no broken locks, windows, etc. The answer is
simple. Somebody could have knocked on the door and Lam Po Chun
could have opened it thinking they were hotel staff. Unfortunately,
Detective Yanquiling was so sure of himself that after pinpointing
accused-appellant as the culprit, he did not follow any other leads. In
the course of his interviews with witnesses, his purpose was simply to
reasonable doubt is based on circumstantial evidence (U.S. vs.

Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan Chian, 17 Phil. 209
[1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the evidence must
be consistent with the hypothesis that the accused is guilty, and at the
same time inconsistent with the hypothesis that he is innocent, and
with every other rational hypothesis except that of guilt (People vs.
Andia, 2 SCRA 423 [1961]).
nail down one suspect. His investigation was angled towards pinning
The tests as to the sufficiency of the circumstantial evidence to prove
down Yip Wai Ming. In fact, Gwen delos Santos testified that
guilt beyond reasonable doubt have not been met in the case at bar.
Yanquiling talked to her over the telephone almost daily urging her to
change her testimony.
The chain of circumstances is not unbroken. The most vital

circumstantial evidence in this case is that which proves that accused-
Officer Yanquiling testified on cross-examination that he did not apply
appellant killed the victim so he could gain from the insurance
any mode of scientific investigation. If a medico-legal expert of the
proceeds on the life of the victim. Another vital circumstance is the
same police department who conducted an autopsy had no basis for
time of death precisely between 9:15 and 10 A.M. Both were not
giving the probable time of death, the police officer who merely looked
satisfactorily established by the prosecution. Where the weakest link
at the body and saw the blood oozing out of the victims nose and
in the chain of evidence is at the same time the most vital
mouth must have simply guessed such time, plucking it out of thin
circumstance, there can be no other alternative but to acquit the
air. The trial court accepted the erroneous timing, conveniently placing
accused (People vs. Magborang, 9 SCRA 108 [1963]).
it where a finding of guilt would follow as a consequence.
Since the sentence of conviction is based on the crime having been
Before a conviction can be had upon circumstantial evidence, the
committed within a short time frame, accused-appellant cannot be
circumstances should constitute an unbroken chain which leads to but
convicted on the strength of circumstantial evidence if doubts are
one fair and reasonable conclusion, which points to the accused, to
entertained as to where he was at that particular time and reasonable

conclusions can be had that other culprits could have entered the
On July 16 and July 19, 1993 Lam Po Chun was already dead. If
room after accused-appellant left with the delos Santos family. Other
Peter Humphrey was still in Australia on July 11, 1993, how could he
people could have killed the victim.
occupy with his girlfriend the next door room, Room 211, on that date
The trial court also relied heavily on the testimony of Cariza Destresa,
a 19-year old cultural dancer occupying with her Australian boyfriend
Peter Humphrey, the adjoining Room 211. Destresa testified that while
she was in Room 211 at about 9:15 oclock on the morning of July
11,1993, she heard banging sounds in Room 210, as if somebody
was being thrown, and there was stomping on the floor. The banging
sounds lasted about thirty (30) minutes, an improbably long time to kill
a woman. Destresa stated that she placed her ear near the wall and
heard the cry of a woman having difficulty in breathing.
at the Park Hotel. If Destresa cannot remember the date her

Australian boyfriend arrived, how could the trial court rely on her
memory as to the 30-minute interval from 9:15 A.M. to 9:45 A.M. of
July 11, 1993 when the alleged murder took place. Asked what time
on July 13, 1993 she gave her sworn statement to the police,
Destresa answered, I am not sure, may be it was in the early morning
between 2 or 3 oclock of that day, Sir. Destresa was asked how she
could be certain of July 13, 1993 as the date of her sworn
statement. She answered that this was the day her boyfriend left for
Australia (tsn, Aug. 31, 1993, p. 29). In her testimony given on the
The witness heard the banging sounds between 9:15 and 9:45 A.M. of
same day, Destresa states that she stayed in Room 211 for 3
July 11, 1993, not before or after. The unreliability of Destresas
months. She later changed her mind and said she stayed there only
memory as to dates and time is shown by the fact that when asked as
when Peter Humphrey was in the Philippines. According to the
to the date of her Australian boyfriends arrival in the Philippines, she
witness, Peter left on May 29, 1993; arrived in June and July; left in
stated, July 29, 1993. Pressed by the prosecuting attorney if she was
June; arrived in July; left on July 13, 1993. Destresa was confused
sure of said date, she changed this to July 16,1993. Pressed further:
and evasive not only as to dates, but also as to her employment,
Q. Are you sure that he arrived in the Philippines on July 16,1993?

A. I cant exactly remember the date of the arrival of my boyfriend here
in the Philippines because his coming was sudden, Sir.
(tsn, Sept. 30, 1993, p.10.)
stating at the start of her testimony that she was jobless, but later
declaring that she was a dancer with the Rampage group and
performed in Dubai.
Destresa testified at one point that she heard an argument between a
man and a woman in a dialect she could not understand. This was
supposed to be on the evening of July 11,1993. At that time, the victim
had long been dead. Destresa gave various contradictory statements

in her August 30, 1993; August 31,1993; and September 1, 1993
This Court notes that accused-appellant did not file any complaint or
testimony. To our mind, the trial court gravely erred in relying on her
charges against the police officers who allegedly tortured him. But he
testimony.
was a foreign national, a tourist charged with a serious crime, finding
Accused-appellant was arrested on July 13, 1993, two days after the
killing. There was no warrant of arrest. Officer Yanquiling testified that
there was no warrant and he arrested the accused-appellant based on
series of circumstantial evidence. He had no personal knowledge of
Yip Wai Ming having committed the crime. Accused-appellant stated
that five police officers at the police station beat him up. They asked
him to undress, forced him to lie down on a bench, sat on his
stomach, placed a handkerchief over his face, and poured water and
beer over his face. When he could no longer bear the pain, he
himself in strange surroundings. In Hongkong, there would have been

family members and friends who could have given him moral
support. He would have known that he was being questioned in his
own country, being investigated under the laws of that country. The
degree of intimidation needed to coerce a person to confess to the
commission of a crime he did not commit would be much less if he is
in a strange land. Accused-appellant states that his lawyers told him
not to file any charges against the policemen. He followed their
advice, obviously not wanting to get into more trouble.
admitted the crime charged, participated in a re-enactment, and
This Court has carefully gone over the record of this case. We simply
signed an extrajudicial statement. All the while, he was not informed
cannot state that the circumstantial evidence is in its entirety credible
of his right to remain silent nor did he have counsel of his choice to
and unbroken and that the finding of guilt excludes any other
assist him in confessing the crime.
possibility that the accused-appellant may be innocent.
The custodial interrogation of accused-appellant was violative of
Most of the circumstantial evidence in this case came from the
Section 12, Article III of the Constitution. The Constitution provides
investigation conducted by Officer Alejandro Yanquiling or from the
that (3) Any confession or admission obtained in violation of this
prodding by him of various witnesses. The desire of a police officer to
section or Section 17 hereof shall be inadmissible against
solve a high profile crime which could mean a promotion or additional
him. Section 17, Article III provides: No person shall be compelled to
medals and commendations is admirable. However, an investigator
be a witness against himself. Any confession, including a re-
must pursue various leads and hypotheses instead of singlemindedly
enactment without admonition of the right to silence and to counsel,
pursuing one suspect and limiting his investigation to that one
and without counsel chosen by the accused is inadmissible in
possibility, excluding various other probabilities. The killing of a tourist
evidence (People vs. Duero, 104 SCRA 379 [1981]).
is a blot on the peace and order situation in the Philippines and must

be solved. Still, concentrating on pinning down an alien companion of
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the
the victim and not pursuing the possibilities that other persons could
Court of First Instance of Rizal, and RODOLFO C.
have killed the victim for her money and valuables does not speak
DIMAYUGA, respondents.
well of our crime detection system. It is not enough to solve a

crime. The truth is more important and justice must be rendered.
WHEREFORE, the decision appealed from is
PARAS, J.:
hereby REVERSED and SET ASIDE. Accused-appellant Yip Wai Ming
Challenged before Us in this petition for review on certiorari are the
is acquitted of the charge of murder on grounds of reasonable doubt
Orders of the respondent Judge dated March 19, 1980 and June 10,
and his immediate release from custody is ordered unless he is being
1980 granting the prayer in the petition in Sp. Proc. No. 9210 and
held on other legal grounds.
denying petitioner's Motion for Reconsideration, respectively.
SO ORDERED.
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.
G. Right to Change Beneficiary (Sec.11)
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset

Hearing. Also on the same date, petitioner filed its Comment and/or
G.R. No. L-54216 July 19, 1989

THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,
vs.
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
without the consent of the beneficiary because he has a vested
Urgent Motion, thus allowing the private respondent to adduce
interest in the policy (Gercio v. Sun Life Ins. Co. of Canada, 48 Phil.
evidence, the consequence of which was the issuance of the
53; Go v. Redfern and the International Assurance Co., Ltd., 72 Phil.
questioned Order granting the petition.
71).
Petitioner promptly filed a Motion for Reconsideration but the same
In this regard, it is worth noting that the Beneficiary Designation
was denied in an Order June 10, 1980. Hence, this petition raising the
Indorsement in the policy which forms part of Policy Number 0794461
following issues for resolution:
in the name of Rodolfo Cailles Dimayuga states that the designation
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
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
Of equal importance is the well-settled rule that the contract between
other exception, thus, abrogating the contention of the private
the parties is the law binding on both of them and for so many times,
respondent that said designation can be amended if the Court finds a
this court has consistently issued pronouncements upholding the
just, reasonable ground to do so.
validity and effectivity of contracts. Where there is nothing in the
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, readingThe 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
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:
can the insured's creditors seize the policy or any right thereunder.
... it is settled that the parties may establish such stipulations, clauses,
The insured may not even add another beneficiary because by doing
terms, and conditions as they may want to include; and as long as
so, he diminishes the amount which the beneficiary may recover and
such agreements are not contrary to law, good morals, good customs,
this he cannot do without the beneficiary's consent.
public policy or public order, they shall have the force of law between
Therefore, the parent-insured cannot exercise rights and/or privileges
them.
pertaining to the insurance contract, for otherwise, the vested rights of
Undeniably, the contract in the case at bar, contains the indispensable
the irrevocable beneficiaries would be rendered inconsequential.
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
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-
contingency when the change in the designation of beneficiaries could
appellee,
be validly effected means that it was never within the contemplation of
vs.
the parties. The lower court, in gratuitously providing for such
CARPONIA T. EBRADO and PASCUALA VDA. DE
contingency, made a new contract for them, a proceeding which we
EBRADO, defendants-appellants.
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.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife
named as beneficiary in the life insurance policy of a legally married
man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by
The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for
P5,882.00 with a, rider for Accidental Death for the same amount
Buenaventura C. Ebrado designated T. Ebrado as the revocable
beneficiary in his policy. He to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t
when he was hit by a failing branch of a tree. As the policy was in
force, The Insular Life Assurance Co., Ltd. liable to pay the coverage
in the total amount of P11,745.73, representing the face value of the
H. Applicability of Art. 739, N.C.C.
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
G.R. No. L-44059 October 28, 1977
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
Policy No. 009929 whole life plan, dated September 1, 1968 for the
the Policy as the designated beneficiary therein, although she admits
sum of P5,882.00 with the rider for accidental death benefit as
that she and the insured Buenaventura C. Ebrado were merely living
evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant
as husband and wife without the benefit of marriage.
Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime
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.
of Buenaventura Ebrado, he was living with his common-wife,

Carponia Ebrado, with whom she had 2 children although he was not
legally separated from his legal wife; 4) that Buenaventura in accident
on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit
In doubt as to whom the insurance proceeds shall be paid, the insurer,
of the police report of his death Exhibit 5; 5) that complainant
The Insular Life Assurance Co., Ltd. commenced an action for
Carponia Ebrado filed claim with the Insular Life Assurance Co. which
Interpleader before the Court of First Instance of Rizal on April 29,
was contested by Pascuala Ebrado who also filed claim for the
1970.
proceeds of said policy 6) that in view ofthe adverse claims the
After the issues have been joined, a pre-trial conference was held on
July 8, 1972, after which, a pre-trial order was entered reading as
follows: +.wph!1
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
During the pre-trial conference, the parties manifested to the court.
Ebrado and the insured made reservation to change the beneficiary
that there is no possibility of amicable settlement. Hence, the Court
but although the insured made the option to change the beneficiary,
proceeded to have the parties submit their evidence for the purpose of
same was never changed up to the time of his death and the wife did
the pre-trial and make admissions for the purpose of pretrial. During
not have any opportunity to write the company that there was
this conference, parties Carponia T. Ebrado and Pascuala Ebrado
reservation to change the designation of the parties agreed that a
agreed and stipulated: 1) that the deceased Buenaventura Ebrado
decision be rendered based on and stipulation of facts as to who
was married to Pascuala Ebrado with whom she has six
among the two claimants is entitled to the policy.
(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
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
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.
beneficiary of the insured Buenaventura Cristor Ebrado and directing
From this judgment, Carponia T. Ebrado appealed to the Court of
the payment of the insurance proceeds to the estate of the deceased
Appeals, but on July 11, 1976, the Appellate Court certified the case
insured. The trial court held: +.wph!1
to Us as involving only questions of law.
It is patent from the last paragraph of Art. 739 of the Civil Code that a
We affirm the judgment of the lower court.
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).
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 shag be applied exclusively to the
proper interest of the person in whose name it is made" 1 cannot be
validly seized upon to hold that the mm includes the beneficiary. The
It is, however, essential that such adultery or concubinage exists at
word "interest" highly suggests that the provision refers only to the
the time defendant Carponia T. Ebrado was made beneficiary in the
"insured" and not to the beneficiary, since a contract of insurance is
policy in question for the disqualification and incapacity to exist and
personal in character. 2 Otherwise, the prohibitory laws against illicit
that it is only necessary that such fact be established by
relationships especially on property and descent will be rendered
preponderance of evidence in the trial. Since it is agreed in their
nugatory, as the same could easily be circumvented by modes of
stipulation above-quoted that the deceased insured and defendant
insurance. Rather, the general rules of civil law should be applied to
Carponia T. Ebrado were living together as husband and wife without
resolve this void in the Insurance Law. Article 2011 of the New Civil
being legally married and that the marriage of the insured with the
Code states: "The contract of insurance is governed by special
other defendant Pascuala Vda. de Ebrado was valid and still existing
laws. Matters not expressly provided for in such special laws shall be
at the time the insurance in question was purchased there is no
regulated by this Code." When not otherwise specifically provided for
question that defendant Carponia T. Ebrado is disqualified from
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
insurance. As a consequence, the proscription in Article 739 of the
2012 of the same Code, "any person who is forbidden from receiving
new Civil Code should equally operate in life insurance contracts. The
any donation under Article 739 cannot be named beneficiary of a fife
mandate of Article 2012 cannot be laid aside: any person who cannot
insurance policy by the person who cannot make a donation to
receive a donation cannot be named as beneficiary in the life
him. 4 Common-law spouses are, definitely, barred from receiving
insurance policy of the person who cannot make the donation.5 Under
donations from each other. Article 739 of the new Civil Code
American law, a policy of life insurance is considered as a testament
provides: +.wph!1
and in construing it, the courts will, so far as possible treat it as a will
The following donations shall be void:

1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
and determine the effect of a clause designating the beneficiary by

rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the
institution of a barrier between common law spouses in record to
Those made between persons found guilty of the same criminal
Property relations since such hip ultimately encroaches upon the
offense, in consideration thereof;
nuptial and filial rights of the legitimate family There is every reason to
3. Those made to a public officer or his wife, descendants or

ascendants by reason of his office.
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
In the case referred to in No. 1, the action for declaration of nullity
out, a beneficiary in a fife insurance policy is no different from a
may be brought by the spouse of the donor or donee; and the guilt of
donee. Both are recipients of pure beneficence. So long as manage
the donee may be proved by preponderance of evidence in the same
remains the threshold of family laws, reason and morality dictate that
action.
the impediments imposed upon married couple should likewise be
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
imposed upon extra-marital relationship. If legitimate relationship is

circumscribed by these legal disabilities, with more reason should an
illicit relationship be restricted by these disabilities. Thus,
in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
said: +.wph!1

If the policy of the law is, in the language of the opinion of the then
what is right would be nullified if such irregular relationship instead of
Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit
being visited with disabilities would be attended with benefits.
donations in favor of the other consort and his descendants because
Certainly a legal norm should not be susceptible to such a reproach. If
of and undue and improper pressure and influence upon the donor, a
there is every any occasion where the principle of statutory
prejudice deeply rooted in our ancient law;" por-que no se enganen
construction that what is within the spirit of the law is as much a part
desponjandose el uno al otro por amor que han de consuno'
of it as what is written, this is it. Otherwise the basic purpose
(According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the
discernible in such codal provision would not be attained. Whatever
rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk,
omission may be apparent in an interpretation purely literal of the
24, Titl. 1, De donat, inter virum et uxorem); then there is very reason
language used must be remedied by an adherence to its avowed
to apply the same prohibitive policy to persons living together as
objective.
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
4. We do not think that a conviction for adultery or concubinage is

exacted before the disabilities mentioned in Article 739 may
effectuate. More specifically, with record to the disability on "persons
who were guilty of adultery or concubinage at the time of the
donation," Article 739 itself provides: +.wph!1
condition 6f those who incurred guilt should turn out to be better.' So
In the case referred to in No. 1, the action for declaration of nullity
long as marriage remains the cornerstone of our family law, reason
may be brought by the spouse of the donor or donee; and the guilty of
and morality alike demand that the disabilities attached to marriage
the donee may be proved by preponderance of evidence in the same
should likewise attach to concubinage.
action.
It is hardly necessary to add that even in the absence of the above
The underscored clause neatly conveys that no criminal conviction for
pronouncement, any other conclusion cannot stand the test of
the offense is a condition precedent. In fact, it cannot even be from
scrutiny. It would be to indict the frame of the Civil Code for a failure to
the aforequoted provision that a prosecution is needed. On the
apply a laudable rule to a situation which in its essentials cannot be
contrary, the law plainly states that the guilt of the party may be
distinguished. Moreover, if it is at all to be differentiated the policy of
proved "in the same acting for declaration of nullity of donation. And, it
the law which embodies a deeply rooted notion of what is just and
would be sufficient if evidence preponderates upon the guilt of the

consort for the offense indicated. The quantum of proof in criminal
SO ORDERED.
cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship
between the insured and the beneficiary has been conveniently
supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein
that the deceased insured Buenaventura C. Ebrado was married to
Pascuala Ebrado with whom she has six legitimate children; that
during his lifetime, the deceased insured was living with his commonlaw wife, Carponia Ebrado, with whom he has two children. These
stipulations are nothing less thanjudicial admissions which, as a
Re: Art. 1523, N.C.C; (Sec. 14)

G.R. No. 85141 November 28, 1989
consequence, no longer require proof and cannot be

contradicted. 8 A fortiori, on the basis of these admissions, a
judgment may be validly rendered without going through the rigors of
a trial for the sole purpose of proving the illicit liaison between the
insured and the beneficiary. In fact, in that pretrial, the parties even
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
Balgos & Perez Law Offices for petitioner.
agreed "that a decision be rendered based on this agreement and

stipulation of facts as to who among the two claimants is entitled to
Lapuz Law office for private respondent.
the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby
REGALADO, J.:
affirmed. Carponia T. Ebrado is hereby declared disqualified to be the

beneficiary of the late Buenaventura C. Ebrado in his life insurance
This is a review of the decision of the Court of Appeals, promulgated
policy. As a consequence, the proceeds of the policy are hereby held
on July 19,1988, the dispositive part of which reads:
payable to the estate of the deceased insured. Costs against

Carponia T. Ebrado.
WHEREFORE, the judgment appealed from is affirmed insofar as it

orders defendant Filipino Merchants Insurance Company to pay the

plaintiff the sum of P51,568.62 with interest at legal rate from the date
59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The
of filing of the complaint, and is modified with respect to the third party
fishmeal in 666 new gunny bags were unloaded from the ship on
complaint in that (1) third party defendant E. Razon, Inc. is ordered to
December 11, 1976 at Manila unto the arrastre contractor E. Razon,
reimburse third party plaintiff the sum of P25,471.80 with legal interest
Inc. and defendant's surveyor ascertained and certified that in such
from the date of payment until the date of reimbursement, and (2) the
discharge 105 bags were in bad order condition as jointly surveyed by
third-party complaint against third party defendant Compagnie
the ship's agent and the arrastre contractor. The condition of the bad
Maritime Des Chargeurs Reunis is dismissed. 1
order was reflected in the turn over survey report of Bad Order
The facts as found by the trial court and adopted by the Court of
Appeals are as follows:
cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3)

pages which are also Exhibits 4, 5 and 6- Razon. The cargo was also
surveyed by the arrastre contractor before delivery of the cargo to the
This is an action brought by the consignee of the shipment of fishmeal
consignee and the condition of the cargo on such delivery was
loaded on board the vessel SS Bougainville and unloaded at the Port
reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and
of Manila on or about December 11, 1976 and seeks to recover from
14869 covering a total of 227 bags in bad order condition.
the defendant insurance company the amount of P51,568.62
Defendant's surveyor has conducted a final and detailed survey of the
representing damages to said shipment which has been insured by
cargo in the warehouse for which he prepared a survey report Exhibit
the defendant insurance company under Policy No. M-2678. The
F with the findings on the extent of shortage or loss on the bad order
defendant brought a third party complaint against third party
bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based
defendants Compagnie Maritime Des Chargeurs Reunis and/or E.
on said computation the plaintiff made a formal claim against the
Razon, Inc. seeking judgment against the third (sic) defendants in
defendant Filipino Merchants Insurance Company for P51,568.62
case Judgment is rendered against the third party plaintiff. It appears
(Exhibit C) the computation of which claim is contained therein. A
from the evidence presented that in December 1976, plaintiff insured
formal claim statement was also presented by the plaintiff against the
said shipment with defendant insurance company under said cargo
vessel dated December 21, 1976, Exhibit B, but the defendant Filipino
Policy No. M-2678 for the sum of P267,653.59 for the goods
Merchants Insurance Company refused to pay the claim.
described as 600 metric tons of fishmeal in new gunny bags of 90
Consequently, the plaintiff brought an action against said defendant
kilos each from Bangkok, Thailand to Manila against all risks under
as adverted to above and defendant presented a third party complaint
warehouse to warehouse terms. Actually, what was imported was
against the vessel and the arrastre contractor. 2

The court below, after trial on the merits, rendered judgment in favor
cargo, notwithstanding the clear absence of proof of some fortuitous
of private respondent, the decretal portion whereof reads:
event, casualty, or accidental cause to which the loss is attributable,
WHEREFORE, on the main complaint, judgment is hereby rendered

in favor of the plaintiff and against the defendant Filipino Merchant's
(sic) Insurance Co., ordering the defendants to pay the plaintiff the
following amount:
The sum of P51,568.62 with interest at legal rate from the date of the
filing of the complaint;
On the third party complaint, the third party defendant Compagnie
Maritime Des Chargeurs Reunis and third party defendant E. Razon,
Inc. are ordered to pay to the third party plaintiff jointly and severally
reimbursement of the amounts paid by the third party plaintiff with
legal interest from the date of such payment until the date of such
reimbursement.
Without pronouncement as to costs. 3
thereby contradicting the very precedents cited by it in its decision as

well as a prior decision of the same Division of the said court (then
composed of Justices Cacdac, Castro-Bartolome, and Pronove);
2. The Court of Appeals erred in not holding that the private
respondent had no insurable interest in the subject cargo, hence, the
marine insurance policy taken out by private respondent is null and
void;
3. The Court of Appeals erred in not holding that the private
respondent was guilty of fraud in not disclosing the fact, it being
bound out of utmost good faith to do so, that it had no insurable
interest in the subject cargo, which bars its recovery on the policy. 4
On the first assignment of error, petitioner contends that an "all risks"
marine policy has a technical meaning in insurance in that before a
claim can be compensable it is essential that there must be "some
On appeal, the respondent court affirmed the decision of the lower
fortuity, " "casualty" or "accidental cause" to which the alleged loss is
court insofar as the award on the complaint is concerned and modified
attributable and the failure of herein private respondent, upon whom
the same with regard to the adjudication of the third-party complaint. A
lay the burden, to adduce evidence showing that the alleged loss to
motion for reconsideration of the aforesaid decision was denied,
the cargo in question was due to a fortuitous event precludes his right
hence this petition with the following assignment of errors:
to recover from the insurance policy. We find said contention
1. The Court of Appeals erred in its interpretation and application of

the "all risks" clause of the marine insurance policy when it held the
petitioner liable to the private respondent for the partial loss of the
untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:

5. This insurance is against all risks of loss or damage to the subject-
cause neither insured against nor creating liability in the ship; it is
matter insured but shall in no case be deemed to extend to cover loss,
written against all losses, that is, attributable to external causes. 9
damage, or expense proximately caused by delay or inherent vice or

nature of the subject-matter insured. Claims recoverable hereunder
shall be payable irrespective of percentage. 5
The term "all risks" cannot be given a strained technical meaning, the
language of the clause under the Institute Cargo Clauses being
unequivocal and clear, to the effect that it extends to all
An "all risks policy" should be read literally as meaning all risks
damages/losses suffered by the insured cargo except (a) loss or
whatsoever and covering all losses by an accidental cause of any
damage or expense proximately caused by delay, and (b) loss or
kind. The terms "accident" and "accidental", as used in insurance
damage or expense proximately caused by the inherent vice or nature
contracts, have not acquired any technical meaning. They are
of the subject matter insured.
construed by the courts in their ordinary and common acceptance.

Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is
unexpected, unusual and unforeseen. An accident is an event that
takes place without one's foresight or expectation; an event that
proceeds from an unknown cause, or is an unusual effect of a known
cause and, therefore, not expected. 6
Generally, the burden of proof is upon the insured to show that a loss
arose from a covered peril, but under an "all risks" policy the burden is
not on the insured to prove the precise cause of loss or damage for
which it seeks compensation. The insured under an "all risks
insurance policy" has the initial burden of proving that the cargo was
in good condition when the policy attached and that the cargo was
damaged when unloaded from the vessel; thereafter, the burden then
The very nature of the term "all risks" must be given a broad and
shifts to the insurer to show the exception to the coverage. 10 As we
comprehensive meaning as covering any loss other than a willful and
held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co.,
fraudulent act of the insured. 7 This is pursuant to the very purpose of
Ltd. 11 the basic rule is that the insurance company has the burden of
an "all risks" insurance to give protection to the insured in those cases
proving that the loss is caused by the risk excepted and for want of
where difficulties of logical explanation or some mystery surround the
such proof, the company is liable.
loss or damage to property. 8 An "all asks" policy has been evolved to

grant greater protection than that afforded by the "perils clause," in
order to assure that no loss can happen through the incidence of a
Coverage under an "all risks" provision of a marine insurance policy

creates a special type of insurance which extends coverage to risks
not usually contemplated and avoids putting upon the insured the
burden of establishing that the loss was due to the peril falling within

the policy's coverage; the insurer can avoid coverage upon
much less any evidence that the bags of cargo had burst as the result
demonstrating that a specific provision expressly excludes the loss
of the weakness of the bags themselves. Had there been such a
from coverage. 12 A marine insurance policy providing that the
showing that spillage would have been a certainty, there may have
insurance was to be "against all risks" must be construed as creating
been good reason to plead that there was no risk covered by the
a special insurance and extending to other risks than are usually
policy (See Berk vs. Style [1956] cited in Marine Insurance
contemplated, and covers all losses except such as arise from the
Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to
fraud of the insured. 13 The burden of the insured, therefore, is to
show that there was damage occasioned by some accidental cause of
prove merely that the goods he transported have been lost, destroyed
any kind, and there is no necessity to point to any particular cause. 14
or deteriorated. Thereafter, the burden is shifted to the insurer to

prove that the loss was due to excepted perils. To impose on the
insured the burden of proving the precise cause of the loss or damage
would be inconsistent with the broad protective purpose of "all risks"
insurance.
In the present case, there being no showing that the loss was caused
by any of the excepted perils, the insurer is liable under the policy. As
aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed
... it is believed that in the absence of any showing that the
losses/damages were caused by an excepted peril, i.e. delay or the
inherent vice or nature of the subject matter insured, and there is no
such showing, the lower court did not err in holding that the loss was
covered by the policy.
Contracts of insurance are contracts of indemnity upon the terms and

conditions specified in the policy. The agreement has the force of law
between the parties. The terms of the policy constitute the measure of
the insurer's liability. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular
sense. 15
Anent the issue of insurable interest, we uphold the ruling of the
respondent court that private respondent, as consignee of the goods
in transit under an invoice containing the terms under "C & F Manila,"
has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in
property as every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured. In principle,
There is no evidence presented to show that the condition of the
anyone has an insurable interest in property who derives a benefit
gunny bags in which the fishmeal was packed was such that they
from its existence or would suffer loss from its destruction whether he
could not hold their contents in the course of the necessary transit,
has or has not any title in, or lien upon or possession of the property

y. 16 Insurable interest in property may consist in (a) an existing
that time, the foreign buyers assumed the risks of loss of the goods
interest; (b) an inchoate interest founded on an existing interest; or (c)
and paid the insurance premium covering them. 20
an expectancy, coupled with an existing interest in that out of which

the expectancy arises. 17
C & F contracts are shipment contracts. The term means that the
price fixed includes in a lump sum the cost of the goods and freight to
Herein private respondent, as vendee/consignee of the goods in
the named destination. 21 It simply means that the seller must pay the
transit has such existing interest therein as may be the subject of a
costs and freight necessary to bring the goods to the named
valid contract of insurance. His interest over the goods is based on
destination but the risk of loss or damage to the goods is transferred
the perfected contract of sale. 18 The perfected contract of sale
from the seller to the buyer when the goods pass the ship's rail in the
between him and the shipper of the goods operates to vest in him an
port of shipment. 22
equitable title even before delivery or before be performed the

conditions of the sale. 19 The contract of shipment, whether under
F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the
determination of whether the vendee has an insurable interest or not
in the goods in transit. The perfected contract of sale even without
delivery vests in the vendee an equitable title, an existing interest over
the goods sufficient to be the subject of insurance.
Moreover, the issue of lack of insurable interest was not among the
defenses averred in petitioners answer. It was neither an issue agreed
upon by the parties at the pre-trial conference nor was it raised during
the trial in the court below. It is a settled rule that an issue which has
not been raised in the court a quo cannot be raised for the first time
on appeal as it would be offensive to the basic rules of fair play, justice
and due process. 23 This is but a permuted restatement of the long
Further, Article 1523 of the Civil Code provides that where, in
settled rule that when a party deliberately adopts a certain theory, and
pursuance of a contract of sale, the seller is authorized or required to
the case is tried and decided upon that theory in the court below, he
send the goods to the buyer, delivery of the goods to a carrier,
will not be permitted to change his theory on appeal because, to
whether named by the buyer or not, for, the purpose of transmission
permit him to do so, would be unfair to the adverse party. 24
to the buyer is deemed to be a delivery of the goods to the buyer, the

exceptions to said rule not obtaining in the present case. The Court
has heretofore ruled that the delivery of the goods on board the
carrying vessels partake of the nature of actual delivery since, from
If despite the fundamental doctrines just stated, we nevertheless

decided to indite a disquisition on the issue of insurable interest raised
by petitioner, it was to put at rest all doubts on the matter under the
facts in this case and also to dispose of petitioner's third assignment
of error which consequently needs no further discussion.

WHEREFORE, the instant petition is DENIED and the assailed
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees,
decision of the respondent Court of Appeals is AFFIRMED in toto.
entered into a lease contract with private respondent CKS
SO ORDERED.
Development Corporation (hereinafter CKS), as lessor, on 5 October

1988.
2. One of the stipulations of the one (1) year lease contract states:
18. x x x. 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
J. When insurable interest in property must exist:
insurance thereof without the consent of the LESSOR then the policy
is deemed assigned and transferred to the LESSOR for its own
benefit; x x x[1]
[G.R. No. 124520. August 18, 1997]
3. Notwithstanding the above stipulation in the lease contract, the Cha
Spouses NILO CHA and STELLA UY CHA, and UNITED
spouses insured against loss by fire their merchandise inside the
INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and
leased premises for Five Hundred Thousand (P500,000.00) with the
CKS DEVELOPMENT CORPORATION, respondents.
United Insurance Co., Inc. (hereinafter United) without the written

consent of private respondents CKS.
DECISION
4. On the day that the lease contract was to expire, fire broke out
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:
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 Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint
CONTRACT OF ADHESION AND THEREFORE THE
against the Cha spouses and United.
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
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
payP50,000.00 as exemplary damages, P20,000.00 as attorneys fees
and costs of suit.
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
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328
NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE
rendered a decision** dated 11 January 1996, affirming the trial court
INSURANCE LAW
decision, deleting however the awards for exemplary damages and

attorneys 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:
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 HONORABLE COURT OF APPEALS ERRED IN FAILING TO
The core issue to be resolved in this case is whether or not the
DECLARE THAT THE STIPULATION IN THE CONTRACT OF LEASE
aforequoted paragraph 18 of the lease contract entered into between
TRANSFERRING THE PROCEEDS OF THE INSURANCE TO
CKS and the Cha spouses is valid insofar as it provides that any fire
RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO
insurance policy obtained by the lessee (Cha spouses) over their
LAW, MORALS AND PUBLIC POLICY
merchandise inside the leased premises is deemed assigned or
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO
DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A
transferred to the lessor (CKS) if said policy is obtained without the

prior written of the latter.

It is, of course, basic in the law on contracts that the stipulations
under the provisions of Section 17 of the Insurance Code which
contained in a contract cannot be contrary to law, morals, good
provide.
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
Section 17. The measure of an insurable interest in property is the

extent to which the insured might be damnified by loss of injury
thereof."
enforceable except for the benefit of some person having an insurable
Therefore, respondent CKS cannot, under the Insurance Code a
interest in the property insured.
special law be validly a beneficiary of the fire insurance policy taken
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:
SECTION 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
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 UyCha (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 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.
proof of such interest, and every policy executed by way of gaming or
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV
wagering, is void.
No. 39328 is SET ASIDE and a new decision is hereby entered,
In the present case, it cannot be denied that CKS has no insurable

interest in the goods and merchandise inside the leased premises
awarding the proceeds of the fire insurance policy to petitioners Nilo

Cha and Stella Uy-Cha.

SO ORDERED.

Sec. 1 To 20 of Insurance Code Full Text Cases

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Title I TO III (Sections 1 25), P.D.

Assailed in this petition for review on certiorari is the decision of the

insurance coverage was extended under the same terms and

Court of Appeals in CA-G.R. No. 43023[1] which affirmed, with slight

conditions embodied in the original policies while in the process of

modification, the decision of the Regional Trial Court of Cebu, Branch

making arrangements for the transhipment of the cargo from Durban

to Manila, covering the period October 4-December 19, 1989.

Private respondent TKC Marketing Corp. was the owner/consignee of

However, on December 11, 1989, the cargo was sold in Durban,

some 3,189.171metric tons of soya bean meal which was loaded on

South Africa, for US$154.40 per metric ton or a total of

board the ship MV Al Kaziemah on or about September 8, 1989 for

P10,304,231.75 due to its perishable nature which could no longer

the discharge thereof. On January 5, 1990, private respondent

forthwith reduced its claim to US$448,806.09 (or its peso equivalent

Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP

of P9,879,928.89 at the exchange rate of P22.0138 per $1.00)

97800306 amounting to P1,195,005.45, both dated September 1989.

representing private respondent's loss after the proceeds of the sale

While the vessel was docked in Durban, South Africa on September

were deducted from the original claim of $916,886.66

it because of a lawsuit on a question of ownership and possession. As

a result, private respondent notified petitioner on October 4, 1989 of

authorities on a question of ownership was an excepted risk under the

Title I TO III (Sections 1 25), P.D. 1460 [INSURANCE]

words, arrest, restraint or detainment within the meaning of Clause 12

complaint for damages praying that aside from itsclaim, it be

reimbursed the amount of P128,770.88 as legal expenses and the

Hence, arrests by civil authorities, such as what happened in the

interest it paid for the loan it obtained to finance the shipment

instant case, is an excepted risk under Clause 12 of the Institute

totalling P942,269.30. In addition, private respondent asked for moral

damages amounting to P200,000.00, exemplary damages amounting

Clause 12 of the Institute Cargo Clause and the consequent adoption

to P200,000.00 and attorney's fees equivalent to 30% of what will be

or institution of the Institute War Clauses (Cargo), the arrest and

awarded by the court.

seizure by judicial processes which were excluded under the former

The lower court decided in favor of private respondent and required

policy became one of the covered risks.

petitioner to pay, aside from the insurance claim, consequential and

liquidated damages amounting toP1,024,233.88, exemplary damages

goods in the port of destination is a loss compensable, not only under

amounting to P100,000.00, reimbursement in the amount equivalent

to 10% of whatever is recovered as attorney's fees as well as the

delivery Clause (TNPD) of the insurance policies, as read in relation

costs of the suit. On private respondent's motion for reconsideration,

to Section 130 of the Insurance Code and as held in Williams v. Cole.

On appeal, the Court of Appeals affirmed the decision of the lower

due to the perishable nature of the goods, it had to be promptly sold to

to private respondent, the same became automatically covered under

minimize loss. Accordingly, the sale of the goods being reasonable

subsection 1.1 of Section 1 of the Institute War Clauses. The arrests,

and justified, it should not operate to discharge petitioner from its

restraints or detainments contemplated in the former clause were

those effected by political or executive acts. Losses occasioned by riot

Hence this petition, claiming that the Court of Appeals erred:

Title I TO III (Sections 1 25), P.D. 1460 [INSURANCE]

supported private respondent by accommodating the latter's request

subject insurance policies.

for an extension of the insurance coverage, notwithstanding that it

was then under no legal obligation to do so.