G.R. No.

115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is whether the
petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the
private respondent or whether recovery thereunder is precluded under the general
exceptions clause thereof. Both the trial court and the Court of Appeals held that there
should be recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila,
by private respondent Producers Bank of the Philippines (hereinafter Producers) against
petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for
recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle while it was in transit to
transfer the money from its Pasay City Branch to its head office in Makati. The case was
docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the
following stipulation of facts:
1. The plaintiff was insured by the defendants and an
insurance policy was issued, the duplicate original of which
is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of
transferring cash in the sum of P725,000.00 under the
custody of its teller, Maribeth Alampay, from its Pasay
Branch to its Head Office at 8737 Paseo de Roxas, Makati,
Metro Manila on June 29, 1987, was robbed of the said
cash. The robbery took place while the armored car was
traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong
Y de Vera, escorted by Security Guard Saturnino Atiga Y
Rosete. Driver Magalong was assigned by PRC
Management Systems with the plaintiff by virtue of an
Agreement executed on August 7, 1983, a duplicate
original copy of which is hereto attached as Exhibit "B";

1 | INSURANCE

4. The Security Guard Atiga was assigned by Unicorn

Security Services, Inc. with the plaintiff by virtue of a
contract of Security Service executed on October 25, 1982,
a duplicate original copy of which is hereto attached as
Exhibit "C";
5. After an investigation conducted by the Pasay police
authorities, the driver Magalong and guard Atiga were
charged, together with Edelmer Bantigue Y Eulalio,
Reynaldo Aquino and John Doe, with violation of P.D. 532
(Anti-Highway Robbery Law) before the Fiscal of Pasay City.
A copy of the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information
charging the aforesaid persons with the said crime before
Branch 112 of the Regional Trial Court of Pasay City. A copy
of the said information is hereto attached as Exhibit "E."
The case is still being tried as of this date;
7. Demands were made by the plaintiff upon the defendant
to pay the amount of the loss of P725,000.00, but the latter
refused to pay as the loss is excluded from the coverage of
the insurance policy, attached hereto as Exhibit "A,"
specifically under page 1 thereof, "General Exceptions"
Section (b), which is marked as Exhibit "A-1," and which
reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report
of
xxx xxx xxx
(b) any loss caused by any dishonest,
fraudulent or criminal act of the insured or
any
officer, employee,
partner,
director, trustee
or
authorized
representative of the Insured whether
acting alone or in conjunction with others. .
..

8. The plaintiff opposes the contention of the defendant

and contends that Atiga and Magalong are not its "officer,
employee, . . . trustee or authorized representative . . . at
the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive
portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net
amount of P540,000.00 as liability under
Policy No. 0207 (as mitigated by the
P40,000.00 special clause deduction and
by the recovered sum of P145,000.00),
with interest thereon at the legal rate, until
fully paid;
(b) orders defendant to pay plaintiff the
sum of P30,000.00 as and for attorney's
fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED.

The trial court ruled that Magalong and Atiga were not employees or representatives of
Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to plaintiff. The
wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them.
Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such in a context
which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver guard.

2 | INSURANCE

The finding is accordingly compelled that neither Magalong nor Atiga were
plaintiff's "employees" in avoidance of defendant's liability under the
policy, particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's
Pasay Branch to its Makati Head Office. Quite plainly it was teller
Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R.
CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed
decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga
were neither employees nor authorized representatives of Producers and ratiocinated as
follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises
vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of
Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular
sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd.
vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation
is plain, ordinary and simple. No other interpretation is necessary. The word
"employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employeremployee relationships insofar as the application/enforcement of said Code
is concerned must necessarily be inapplicable to an insurance contract
which defendant-appellant itself had formulated. Had it intended to apply
the Labor Code in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of

plaintiff-appellee bank because it has no power to hire or to dismiss said
driver and security guard under the contracts (Exhs. 8 and C) except only
to ask for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial
court and the Court of Appeals erred in holding it liable under the insurance policy because
the loss falls within the general exceptions clause considering that driver Magalong and
security guard Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to its head office in
Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its
funds from one branch to another, they effectively and necessarily became its authorized
representatives in the care and custody of the money. Assuming that they could not be
considered authorized representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is determined by law and
being such, it cannot be the subject of agreement." Thus, if there was in reality an
employer-employee relationship between Producers, on the one hand, and Magalong and
Atiga, on the other, the provisions in the contracts of Producers with PRC Management
System for Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards:
(1) the manner of selection and engagement of the putative employee; (2) the mode of
payment of wages; (3) the presence or absence of a power to dismiss; and (4) the
presence and absence of a power to control the putative employee's conduct. Of the four,
the right-of-control test has been held to be the decisive factor. 6 It asserts that the power
of control over Magalong and Atiga was vested in and exercised by Producers. Fortune
further insists that PRC Management System and Unicorn Security Services are but "laboronly" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only" contracting
where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.

3 | INSURANCE

Fortune thus contends that Magalong and Atiga were employees of Producers, following
the ruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a
"labor-only" contractor is equivalent to a finding that there is an employer-employee
relationship between the owner of the project and the employees of the "labor-only"
contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees
since it had nothing to do with their selection and engagement, the payment of their
wages, their dismissal, and the control of their conduct. Producers argued that the rule
in International Timber Corp. is not applicable to all cases but only when it becomes
necessary to prevent any violation or circumvention of the Labor Code, a social legislation
whose provisions may set aside contracts entered into by parties in order to give
protection to the working man.
Producers further asseverates that what should be applied is the rule in American
President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which
assigned Magalong as the driver of Producers' armored car and was responsible for his
faithful discharge of his duties and responsibilities, and since Producers paid the monthly
compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong,
it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the
provision of its contract with Unicorn Security Services which provides that the guards of
the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery
insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code
provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and health

insurance as written by non-life insurance companies, and

substantially similar kinds of insurance. (emphases supplied)

other

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code
contains no other provisions applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the general provisions applicable to
all types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always
in accordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity
to defraud the insurer the moral hazard is so great that insurers have found it
necessary to fill up their policies with countless restrictions, many designed to reduce this
hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured
against." 10 Persons frequently excluded under such provisions are those in the insured's
service and employment. 11 The purpose of the exception is to guard against liability
should the theft be committed by one having unrestricted access to the property. 12 In such
cases, the terms specifying the excluded classes are to be given their meaning as
understood in common speech. 13 The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be
resolved against the insurer, 15 or it should be construed liberally in favor of the insured
and strictly against the insurer. 16 Limitations of liability should be regarded with extreme
jealousy
and
must
be
construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes
without saying then that if the terms of the contract are clear and unambiguous, there is
no room for construction and such terms cannot be enlarged or diminished by judicial
construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified
therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's
liability. 20 In the absence of statutory prohibition to the contrary, insurance companies
have the same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga
qualify as employees or authorized representatives of Producers under paragraph (b) of
the general exceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of

4 | INSURANCE

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with
others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and
exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal
acts of persons granted or having unrestricted access to Producers' money or payroll.
When it used then the term "employee," it must have had in mind any person who qualifies
as such as generally and universally understood, or jurisprudentially established in the
light of the four standards in the determination of the employer-employee
relationship, 21 or as statutorily declared even in a limited sense as in the case of Article
106 of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the
employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the
employer of Magalong. Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security Services that the drivers and the
security guards each shall supply to Producers are not the latter's employees, it
may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts.
Whether they are is, in the light of the criteria provided for in Article 106 of the
Labor Code, a question of fact. Since the parties opted to submit the case for
judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn
Security Services, the complaint for violation of P.D. No. 532, and the information
therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as to
whether the contracts between Producers and PRC Management Systems and
Unicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, we are satisfied that Magalong and Atiga were, in respect of the
transfer of Producer's money from its Pasay City branch to its head office in Makati, its

"authorized representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer
the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide
the needed security for the money, the vehicle, and his two other companions. In short, for
these particular tasks, the three acted as agents of Producers. A "representative" is defined
as one who represents or stands in the place of another; one who represents others or
another in a special capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions
clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals
in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional
Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in
Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-32986

November 11, 1930

FRANCISCO JARQUE, plaintiff-appellee,

vs.
SMITH, BELL & CO., LTD., ET AL., defendants.
UNION FIRE INSURANCE CO., appellant.
OSTRAND, J.:
The plaintiff was the owner of the motorboat Pandan and held a marine insurance policy
for the sum of P45,000 on the boat, the policy being issued by the National Union Fire
Insurance Company and according to the provisions of a "rider" attached to the policy, the
insurance was against the "absolute total loss of the vessel only." On October 31, 1928, the
ship ran into very heavy sea off the Islands of Ticlin, and it became necessary to jettison a
portion of the cargo. As a result of the jettison, the National Union Fire Insurance Company
was assessed in the sum of P2,610.86 as its contribution to the general average. The
insurance company, insisting that its obligation did not extend beyond the insurance of the
"absolute total loss of the vessel only, and to pay proportionate salvage of the declared
value," refused to contribute to the settlement of the general average. The present action
was thereupon instituted, and after trial the court below rendered judgment in favor of the
plaintiff and ordered the defendant National Union Fire Insurance Company to pay the
plaintiff the sum of P2,610.86 as its part of the indemnity for the general average brought

5 | INSURANCE

about by the jettison of cargo. The insurance company appealed to this court and assigns
as errors (1) "that the lower court erred in disregarding the typewritten clause endorsed
upon the policy, Exhibit A, expressly limiting insurer's liability thereunder of the total loss
of the wooden vessel Pandan and to proportionate salvage charges," and (2) "that the
lower court erred in concluding that defendant and appellant, National Union Fire Insurance
Company is liable to contribute to the general average resulting from the jettison of a part
of said vessel's cargo."
I. As to the first assignment of error, little need be said. The insurance contract, Exhibit A,
is printed in the English common form of marine policies. One of the clauses of the
document originally read as follows:
Touching the Adventures and Perils which the said National Union Fire Insurance
Company is content to bear, and to take upon them in this Voyage; they are of the
Seas, Men-of-War, Fire, Pirates, Rovers, Thieves, Jettison, Letters of Mart and
Countermart, Surprisals, and Takings at Sea. Arrest, Restraint and Detainments, of
all Kings Princes and People of what Nation, Condition or Quality so ever; Barratry
of the Master and Marines, and of all other Perils, Losses and Misfortunes, that
have or shall come to the Hurt, Detriment, or Damage of the said Vessel or any
part thereof; and in case of any Loss or Misfortunes, it shall be lawful for the
Assured, his or their Factors, Servants, or assigns, to sue, labour and travel for, in
and about the Defense. Safeguard, and recovery of the said Vessel or any Charges
whereof the said Company, will contribute, according to the rate and quantity of
the sum herein assured shall be of as much force and Virtue as the surest Writing
or Policy of Insurance made in LONDON.
Attached to the policy over and above the said clause is a "rider" containing typewritten
provisions, among which appears in capitalized type the following clause:
AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL ONLY, AND TO PAY
PROPORTIONATE SALVAGE CHARGES OF TEH DECLARED VALUE.
At the bottom of the same rider following the type written provisions therein set forth are
the following words: "Attaching to and forming part of the National Union Fire Insurance
Co., Hull Policy No. 1055."
It is a well settled rule that in case repugnance exists between written and printed portions
of a policy, the written portion prevails, and there can be no question that as far as any
inconsistency exists, the above-mentioned typed "rider" prevails over the printed clause it
covers. Section 291 of the Code of Civil Procedure provides that "when an instrument
consists partly of written words and partly of a printed form and the two are inconsistent,
the former controls the latter." (See also Joyce on Insurance, 2d ed., sec. 224, page 600;
Arnould on Marine Insurance, 9th ed., sec. 73; Marine Equipment Corporation vs.

Automobile Insurance Co., 24 Fed. (2d), 600; and Marine Insurance Company vs.
McLahanan, 290 Fed., 685, 688.)
II. In the absence of positive legislation to the contrary, the liability of the defendant
insurance company on its policy would, perhaps, be limited to "absolute loss of the vessel
only, and to pay proportionate salvage of the declared value." But the policy was executed
in this jurisdiction and "warranted to trade within the waters of the Philippine Archipelago
only." Here the liability for contribution in general average is not based on the express
terms of the policy, but rest upon the theory that from the relation of the parties and for
their benefit, a quasi contract is implied by law. Article 859 of the Code of Commerce is still
in force and reads as follows:
ART. 859. The underwriters of the vessel, of the freight, and of the cargo shall be
obliged to pay for the indemnity of the gross average in so far as is required of
each one of these objects respectively.
The article is mandatory in its terms, and the insurers, whether for the vessel or for the
freight or for the cargo, are bound to contribute to the indemnity of the general average.
And there is nothing unfair in that provisions; it simply places the insurer on the same
footing as other persons who have an interest in the vessel, or the cargo therein at the
time of the occurrence of the general average and who are compelled to contribute (art.
812, Code of Commerce).
In the present case it is not disputed that the ship was in grave peril and that the jettison
of part of the cargo was necessary. If the cargo was in peril to the extent of call for general
average, the ship must also have been in great danger, possibly sufficient to cause its
absolute loss. The jettison was therefore as much to the benefit of the underwriter as to
the owner of the cargo. The latter was compelled to contribute to the indemnity; why
should not the insurer be required to do likewise? If no jettison had take place and if the
ship by reason thereof had foundered, the underwriter's loss would have been many times
as large as the contribution now demanded. lawphil.net
The appealed judgment is affirmed with the cost against the appellant. So ordered.

G.R. No. L-109937 March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by
CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE
POOL, respondents.

6 | INSURANCE

QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its
resolution denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law,
applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP),
Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by
DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption
Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987
and released on August 11, 1987. From the proceeds of the loan, DBP deducted the
amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the "MRI Application for Insurance" and the "Health
Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was
credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool
was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP
that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60
years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's
MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased
had paid, but Candida Dans refused to accept the same, demanding payment of the face
value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept
an ex gratia settlement of P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a
complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance
pool for "Collection of Sum of Money with Damages." Respondent Estate alleged that Dans
became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the
time of application, required him to apply for MRI, and later collected the insurance
premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00,

which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the
deceased be declared fully paid; and (3) that damages be awarded.

Hence, this recourse.

II

The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a
cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits
submitted by respondent Estate. As a result of these admissions, the trial court narrowed
down the issues and, without opposition from the parties, found the case ripe for summary
judgment. Consequently, the trial court ordered the parties to submit their respective
position papers and documentary evidence, which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and
against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court
found no privity of contract between it and the deceased. The trial court declared DBP in
estoppel for having led Dans into applying for MRI and actually collecting the premium and
the service fee, despite knowledge of his age ineligibility. The dispositive portion of the
decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance
of justice and equity, the Court finds judgment for the plaintiff and against
Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal
rate of interest as amortization payment paid under protest;

When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP
MRI Pool" (Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained
herein are true, complete and correct to the best of my knowledge and
belief and form part of my application for insurance. It is understood and
agreed that no insurance coverage shall be effected unless and until this
application is approved and the full premium is paid during my continued
good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the
application shall be approved by the insurance pool; and (2) when the full premium is paid
during the continued good health of the applicant. These two conditions, being joined
conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The
pool, however, did not approve the application of Dans. There is also no showing that it
accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that
it was payment for Dan's premium. There was, as a result, no perfected contract of
insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.

2. To consider the mortgage loan of P300,000.00 including all interest

accumulated or otherwise to have been settled, satisfied or set-off by
virtue of the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and
other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby
dismissed. The Cross-claim of Defendant DBP is likewise dismissed (Rollo,
p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the
appellate court affirmedin toto the decision of the trial court. The DBP's motion for
reconsideration was denied in a resolution dated April 20, 1993.

7 | INSURANCE

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure
MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other
form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI
coverage. When Dan's loan was released on August 11, 1987, DBP already deducted from
the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign
his application for MRI, as well as his health statement. The DBP later submitted both the
application form and health statement to the DBP MRI Pool at the DBP Main Building,
Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by
it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second
as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said
insurance, thereby leading him and his family to believe that they had already fulfilled all
the requirements for the MRI and that the issuance of their policy was forthcoming.

Apparently, DBP had full knowledge that Dan's application was never going to be
approved. The maximum age for MRI acceptance is 60 years as clearly and specifically
provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by
all the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not
personally liable to the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient notice of his
powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60
years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI
coverage because of his advanced age, DBP exceeded the scope of its authority when it
accepted Dan's application for MRI by collecting the insurance premium, and deducting its
agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the
third person is aware of the limits of the agent's powers. There is no showing that Dans
knew of the limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred
by the principal on the agent and he (third person) has been deceived by the nondisclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino,
Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing
Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts
without authority is founded upon the supposition that there has been some wrong or
omission on his part either in misrepresenting, or in affirming, or concealing the authority
under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale,
46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it
the implication that a deception was perpetrated on the unsuspecting client, the provisions
of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of
his duties, act with justice give everyone his due and observe honesty and
good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same.

8 | INSURANCE

Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the
latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To
assume that were it not for DBP's concealment of the limits of its authority, Dans would
have secured an MRI from another insurance company, and therefore would have been
fully insured by the time he died, is highly speculative. Considering his advanced age,
there is no absolute certainty that Dans could obtain an insurance coverage from another
company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth
day after applying for the MRI, and on the twenty-third day from the date of release of his
loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him
as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be
recoverable, must not only be capable of proof, but must be actually proved with a
reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court,
176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]).
Speculative damages are too remote to be included in an accurate estimate of damages
(Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No
proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code of
Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of
the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the
circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP
had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and
that DBP's non-disclosure of the limits of its authority amounted to a deception to its client,
an award of moral damages in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code
of the Philippines, Article 2208 [11]).
WHEREFORE,
the
decision
of
the
Court
of
Appeals
in
CA
G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent
Estate of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the
filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty
Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos
(P10,000.00) as attorney's fees. With costs against petitioner.

SO ORDERED.

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court
dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases
seek similar relief, through these petitions for certiorari by way of appeal, from the
amended decision of respondent Court of Appeals which affirmed in toto the decision of
the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great
Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from
the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with
the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a
twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu
D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding
form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the
application form which was signed by private respondent Ngo Hing. The latter paid the
annual premuim the sum of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life.
Upon the payment of the insurance premuim, the binding deposit receipt (Exhibit E) was
issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the
bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then on April 30, 1957, Mondragon received a letter
from Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that
the said life insurance application for 20-year endowment plan is not available for minors
below seven years old, but Pacific Life can consider the same under the Juvenile Triple

9 | INSURANCE

Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated
by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly recommending the approval of the 20year endowment insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of bronchopneumonia. Thereupon, private respondent sought the payment of
the proceeds of the insurance, but having failed in his effort, he filed the action for the
recovery of the same before the Court of First Instance of Cebu, which rendered the
adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether private
respondent Ngo Hing concealed the state of health and physical condition of Helen Go,
which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered
a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ...
and the insurance application, ON or PRIOR to the date of medical
examination ... said insurance shan be in force and in effect from the date
of such medical examination, for such period as is covered by the
deposit ...,PROVIDED the company shall be satisfied that on said date the
applicant was insurable on standard rates under its rule for the amount of
insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the
amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan and/or
amount ..., the insurance shall not be in force and in effect until the
applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant
does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above,
and the Company declines to approve the application the insurance
applied for shall not have been in force at any time and the sum paid be

returned to the applicant upon the surrender of this receipt. (Emphasis

Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall not
be binding until the applicant accepts the policy offered; otherwise, the deposit shall be
reftmded; and (3) that if the applicant is not ble according to the standard rates, and the
company disapproves the application, the insurance applied for shall not be in force at any
time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question
is merely an acknowledgment, on behalf of the company, that the latter's branch office
had received from the applicant the insurance premium and had accepted the application
subject for processing by the insurance company; and that the latter will either approve or
reject the same on the basis of whether or not the applicant is "insurable on standard
rates." Since petitioner Pacific Life disapproved the insurance application of respondent
Ngo Hing, the binding deposit receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional
and does not insure outright. As held by this Court, where an agreement is made between
the applicant and the agent, no liability shall attach until the principal approves the risk
and a receipt is given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the application. Thus, in
life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun
Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit
3-M), Pacific Life disapproved the insurance application in question on the ground that it is
not offering the twenty-year endowment insurance policy to children less than seven years
of age. What it offered instead is another plan known as the Juvenile Triple Action, which
private respondent failed to accept. In the absence of a meeting of the minds between
petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life
insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected between thenl
Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific
Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or by
their agents ... The contract, to be binding from the date of the application, must have

10 | I N S U R A N C E

been a completed contract, one that leaves nothing to be dione, nothing to be completed,
nothing to be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not
have any adverse effect on the allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract perfected between the parties
who had no meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said company does not
offer the life insurance applied for. When he filed the insurance application in dispute,
private respondent was, therefore, only taking the chance that Pacific Life will approve the
recommendation of Mondragon for the acceptance and approval of the application in
question along with his proposal that the insurance company starts to offer the 20-year
endowment insurance plan for children less than seven years. Nonetheless, the record
discloses that Pacific Life had rejected the proposal and recommendation. Secondly, having
an insurable interest on the life of his one-year old daughter, aside from being an
insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo
Hing must have known and followed the progress on the processing of such application
and could not pretend ignorance of the Company's rejection of the 20-year endowment life
insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
dissenting opinion to the amended decision of the respondent court which completely
reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of
rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not quite
conninced that this was so. Ngo Hing, as father of the applicant herself,
was precisely the "underwriter who wrote this case" (Exhibit H-1). The
unchallenged statement of appellant Mondragon in his letter of May 6,
1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our
associate" and that it was the latter who "insisted that the plan be placed
on the 20-year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the application was
not brought home to his knowledge. He must have been duly apprised of
the rejection of the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing himself who
insisted on the application as originally filed, thereby implictly declining the
offer to consider the application under the Juvenile Triple Action Plan.

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

G.R. No. L-23276

November 29, 1968

MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO.,

INC., plaintiffs-appellees,
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.
CONCEPCION, C.J.:

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that
private respondent had deliberately concealed the state of health and piysical condition of
his daughter Helen Go. Wher private regpondeit supplied the required essential data for
the insurance application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could never be ensconced
nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact
materal to the risk to be assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known. his duty and responsibility to
such a material fact. Had he diamond said significant fact in the insurance application fom
Pacific Life would have verified the same and would have had no choice but to disapprove
the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but
equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu
Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the
parties with the noncompliance of the conditions provided in the binding receipt, and
concealment, as legally defined, having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is
hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life
Assurance Company from their civil liabilities as found by respondent Court and ordering
the aforesaid insurance company to reimburse the amount of P1,077.75, without interest,
to private respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.

11 | I N S U R A N C E

This is an appeal from a decision of the Court of First Instance of Manila, certified to us by
the Court of Appeals, only questions of law being involved therein. Indeed, the pertinent
facts have been stipulated and/or, admitted by the parties at the hearing of the case in the
trial court, to dispense with the presentation of evidence therein.
It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc.
hereinafter referred to as the Company issued, in favor of the Manila Yellow Taxicab Co.,
Inc. hereinafter referred to as the Insured a common carrier accident insurance policy,
covering the period from December 1, 1961 to December 1, 1962. It was stipulated in said
policy that:
The Company will, subject to the Limits of Liability and under the Terms of this
Policy, indemnify the Insured in the event of accident caused by or arising out of
the use of Motor Vehicle against all sums which the Insured will become legally
liable to pay in respect of: Death or bodily injury to any fare-paying
passengerincluding the Driver, Conductor and/or Inspector who is riding in the
Motor Vehicle insured at the time of accident or injury. 1
While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by
Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in consequence of
which Carlito died. The Insured filed therefor a claim for P5,000.00 to which the Company
replied with an offer to pay P2,000.00, by way of compromise. The Insured rejected the
same and made a counter-offer for P4,000.00, but the Company did not accept it. Hence,
on September 18, 1962, the Insured and Carlito's parents, namely, Melecio Coquia and
Maria Espanueva hereinafter referred to as the Coquias filed a complaint against the
Company to collect the proceeds of the aforementioned policy. In its answer, the Company
admitted the existence thereof, but pleaded lack of cause of action on the part of the
plaintiffs.
After appropriate proceedings, the trial court rendered a decision sentencing the Company
to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the
Company, which contends that plaintiffs have no cause of action because: 1) the Coquias

have no contractual relation with the Company; and 2) the Insured has not complied with
the provisions of the policy concerning arbitration.
As regards the first defense, it should be noted that, although, in general, only parties to a
contract may bring an action based thereon, this rule is subject to exceptions, one of which
is found in the second paragraph of Article 1311 of the Civil Code of the Philippines,
reading:
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.2
This is but the restatement of a well-known principle concerning contracts pour autrui, the
enforcement of which may be demanded by a third party for whose benefit it was made,
although not a party to the contract, before the stipulation in his favor has been revoked
by the contracting parties. Does the policy in question belong to such class of
contracts pour autrui?
In this connection, said policy provides, inter alia:
Section I Liability to Passengers. 1. The Company will, subject to the Limits of
Liability and under the Terms of this Policy, indemnify the Insured in the event of
accident caused by or arising out of the use of Motor Vehicle against all sums
which the Insured will become legally liable to pay in respect of: Death or bodily
injury to any fare-paying passenger including the Driver ... who is riding in the
Motor Vehicle insured at the time of accident or injury.
Section II Liability to the Public
xxx

xxx

xxx

3. In terms of and subject to the limitations of and for the purposes of this Section,
the Company will indemnify any authorized Driver who is driving the Motor
Vehicle....
Conditions
xxx

xxx

xxx

7. In the event of death of any person entitled to indemnity under this Policy, the
Company will, in respect of the liability incurred by such person, indemnify his

12 | I N S U R A N C E

personal representatives in terms of and subject to the limitations of this Policy,

provided, that such representatives shall, as though they were the Insured,
observe, fulfill and be subject to the Terms of this Policy insofar as they can apply.
8. The Company may, at its option, make indemnity payable directly to the
claimants or heirs of claimants, with or without securing the consent of or prior
notification to the Insured, it being the true intention of this Policy to protect, to the
extent herein specified and subject always to the Terms Of this Policy, the liabilities
of the Insured towards the passengers of the Motor Vehicle and the Public.
Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is
driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the
Company shall, likewise, "indemnify his personal representatives." In fact, the Company
"may, at its option, make indemnity payable directly to theclaimants or heirs of
claimants ... it being the true intention of this Policy to protect ... the liabilities of the
Insuredtowards the passengers of the Motor Vehicle and the Public" in other words, third
parties.
Thus, the policy under consideration is typical of contracts pour autrui, this character being
made more manifest by the fact that the deceased driver paid fifty percent (50%) of the
corresponding premiums, which were deducted from his weekly commissions. Under these
conditions, it is clear that the Coquias who, admittedly, are the sole heirs of the
deceased have a direct cause of action against the Company, 3 and, since they could
have maintained this action by themselves, without the assistance of the Insured, it goes
without saying that they could and did properly join the latter in filing the complaint
herein.4
The second defense set up by the Company is based upon Section 17 of the policy reading:
If any difference or dispute shall arise with respect to the amount of the Company's
liability under this Policy, the same shall be referred to the decision of a single
arbitrator to be agreed upon by both parties or failing such agreement of a single
arbitrator, to the decision of two arbitrators, one to be appointed in writing by each
of the parties within one calendar month after having been required in writing so to
do by either of the parties and in case of disagreement between the arbitrators, to
the decision of an umpire who shall have been appointed in writing by the
arbitrators before entering on the reference and the costs of and incident to the
reference shall be dealt with in the Award. And it is hereby expressly stipulated and
declared that it shall be a condition precedent to any right of action or suit upon
this Policy that the award by such arbitrator, arbitrators or umpire of the amount of
the Company's liability hereunder if disputed shall be first obtained.

The record shows, however, that none of the parties to the contract invoked this section, or
made any reference to arbitration, during the negotiations preceding the institution of the
present case. In fact, counsel for both parties stipulated, in the trial court, that none of
them had, at any time during said negotiations, even suggested the settlement of the
issue between them by arbitration, as provided in said section. Their aforementioned acts
or omissions had the effect of a waiver of their respective right to demand an arbitration.
Thus, in Kahnweiler vs. Phenix Ins. Co. of Brooklyn, 5 it was held:
Another well-settled rule for interpretation of all contracts is that the court will lean
to that interpretation of a contract which will make it reasonable and just. Bish.
Cont. Sec. 400. Applying these rules to the tenth clause of this policy, its proper
interpretation seems quite clear. When there is a difference between the company
and the insured as to the amount of the loss the policy declares: "The same shall
then be submitted to competent and impartial arbitrators, one to be selected by
each party ...". It will be observed that the obligation to procure or demand an
arbitration is not, by this clause, in terms imposed on either party. It is not said that
either the company or the insured shall take the initiative in setting the arbitration
on foot. The company has no more right to say the insured must do it than the
insured has to say the company must do it. The contract in this respect is neither
unilateral nor self-executing. To procure a reference to arbitrators, the joint and
concurrent action of both parties to the contract is indispensable. The right it gives
and the obligation it creates to refer the differences between the parties to
arbitrators are mutual. One party to the contract cannot bring about an arbitration.
Each party is entitled to demand a reference, but neither can compel it, and
neither has the right to insist that the other shall first demand it, and shall forfeit
any right by not doing so. If the company demands it, and the insured refuses to
arbitrate, his right of action is suspended until he consents to an arbitration; and if
the insured demands an arbitration, and the company refuses to accede to the
demand, the insured may maintain a suit on the policy, notwithstanding the
language of the twelfth section of the policy, and, where neither party demands an
arbitration, both parties thereby waive it.6
To the same effect was the decision of the Supreme Court of Minnesota in Independent
School Dist. No. 35, St. Louis County vs. A. Hedenberg & Co., Inc. 7 from which we quote:
This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937,
decided in 1893, this court held that the parties to a construction contract, having
proceeded throughout the entire course of their dealings with each other in entire
disregard of the provision of the contract regarding the mode of determining by
arbitration the value of the extras, thereby waived such provision.
xxx

xxx

xxx

13 | I N S U R A N C E

The test for determining whether there has been a waiver in a particular case is
stated by the author of an exhaustive annotation in 117 A.L.R. p. 304, as follows:
"Any conduct of the parties inconsistent with the notion that they treated the
arbitration provision as in effect, or any conduct which might be reasonably
construed as showing that they did not intend to avail themselves of such
provision, may amount to a waiver thereof and estop the party charged with such
conduct from claiming its benefits".
xxx

xxx

xxx

The decisive facts here are that both parties from the inception of their dispute
proceeded in entire disregard of the provisions of the contract relating to
arbitration and that neither at any stage of such dispute, either before or after
commencement of the action, demanded arbitration, either by oral or written
demand, pleading, or otherwise. Their conduct was as effective a rejection of the
right to arbitrate as if, in the best Coolidge tradition, they had said, "We do not
choose to arbitrate". As arbitration under the express provisions of article 40 was
"at the choice of either party," and was chosen by neither, a waiver by both of the
right to arbitration followed as a matter of law.
WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with
costs against the herein defendant-appellant, Fieldmen's Insurance Co., Inc. It is so
ordered.

G.R. No. L-15862

July 31, 1961

PAULO ANG and SALLY C. ANG, plaintiffs-appellees,

vs.
FULTON FIRE INSURANCE CO., ET AL., defendants.
FULTON FIRE INSURANCE CO., defendant-appellant.
LABRADOR, J.:
The present action was instituted by the spouses Paulo Ang and Sally C. Ang against the
Fulton Fire Insurance Company and the Paramount Surety and Insurance Company, Inc. to
recover from them the face value of a fire insurance policy issued in plaintiffs' favor
covering a store owned and operated by them in Laoag, Ilocos Norte. From a judgment of
the court ordering the defendant Fulton Fire Insurance Co. to pay the plaintiffs the sum of
P10,000.00, with interest, and an additional sum of P2,000.00 as attorney's fees, and
costs, the defendants have appealed directly to this Court.

On September 9, 1953, defendant Fulton Fire Insurance Company issued a policy No. F4730340, in favor of P. & S Department Store (Sally C. Ang) over stocks of general
merchandise, consisting principally of dry goods, contained in a building occupied by the
plaintiffs at Laoag, Ilocos Norte. The premium is P500.00 annually. The insurance was
issued for one year, but the same was renewed for another year on September 31, 1954.
On December 17, 1954, the store containing the goods insured was destroyed by fire. On
December 30, following, plaintiffs executed the first claim form. The claim together with all
the necessary papers relating thereto, were forwarded to he Manila Adjustment Company,
the defendants' adjusters and received by the latter on Jane 8, 1955. On January 12, 1955,
the Manila Adjustment Company accepted receipt of the claim and requested the
submission of the books of accounts of the insured for the year 1953-1954 and a clearance
from the Philippine Constabulary and the police. On April 6, 1956, the Fulton Fire Insurance
Company wrote the plaintiffs that their claim was denied. This denial of the claim was
received by the plaintiffs on April 19, 1956. On January 13, 1955, plaintiff Paulo Ang and
ten others were charged for arson in Criminal Case No. 1429 in the Justice of the Peace
Court of Laoag, Ilocos Norte. The case was remanded for trial to the Court of First Instance
of Ilocos Norte and there docketed as Criminal Case No. 2017. The said court in a decision
dated December 9, 1957, acquitted plaintiff Paulo Ang of the crime of arson.
The present action was instituted on May 5, 1958. The action was originally instituted
against both the Fulton Fire Insurance Company and the Paramount Surety and Insurance
Company, Inc., but on June 16, 1958, upon motion of the Paramount Surety, the latter was
dropped from the complaint.
On May 26, 1958, the defendant Fulton Fire Insurance Company filed an answer to the
complaint, admitting the existence of the contract of insurance, its renewal and the loss by
fire of the department store and the merchandise contained therein, but denying that the
loss by the fire was accidental, alleging that it was occasioned by the willful act of the
plaintiff Paulo Ang himself. It claims that under paragraph 13 of the policy, if the loss or
damage is occasioned by the willful act of the insured, or if the claim is made and rejected
but no action is commenced within 12 months after such rejection, all benefits under the
policy would be forfeited, and that since the claim of the plaintiffs was denied and plaintiffs
received notice of denial on April 18, 1956, and they brought the action only on May 5,
1958, all the benefits under the policy have been forfeited.
On February 12, 1959, plaintiffs filed a reply to the above answer of the Fulton Fire
Insurance, alleging that on May 11, 1956, plaintiffs had instituted Civil Case No. 2949 in
the Court of First Instance of Manila, to assert the claim; that this case was dismissed
without prejudice on September 3, 1957 and that deducting the period within which said
action was pending, the present action was still within the 12 month period from April 12,
1956. The court below held that the bringing of the action in the Court of First Instance of
Manila on May 11, 1956, tolled the running of the 12 month period within which the action
must be filed. Said the court on this point:

14 | I N S U R A N C E

True, indeed, plaintiffs committed a procedural mistake in first suing the agent
instead of its principal, the herein defendant, as correctly pointed out by counsel
for the defendant, for 'Un agente residente de una compania de seguros extranjera
que comercia en las Islas Filipinos no es responsable como mandante ni como
mandatario, en virtud de contratas de seguro expendidos a nombre de la
compania', (Macias & Co. vs. Warner, Barnes & Co., 43 Phil. 161). But the mistake
being merely procedural, and the defendant not having been misled by the error,
'There is nothing sacred about process or pleadings, their forms or contents. Their
sole purpose is to facilitate the application of justice to the rival claims of
contending parties. They were created not to hinder and delay, but to facilitate and
promote the administration of justice (Alonso vs. Villamor, 16 Phil 578.)
The complaint, Exh. 'C', was dismissed by the Court without prejudice (Exh. 'H-1')
on September 3, 1957, and motion for reconsideration dated September 21, 1957.
The instant complaint was filed on May 8, 1958. The Rules of Court (See 132
thereof) is applicable in the computation of time. Now, as correctly pointed out by
the plaintiffs' counsel, by simple mathematical computation, the present action
was filed leas thin nine (9) months after the notice of rejection received by
plaintiffs on April 19, 1956, because the filing of the original complaint stopped the
running of the period." (Decision, pp. 42-43, R.O.A.)
In view of the reasons thus above quoted, the court rendered decision in favor of the
plaintiffs.
On the appeal before this Court, defendant-appellant argues that the court below erred in
holding that the filing of the previous suit tolled or suspended the running of the
prescriptive period.
The clause subject of the issue is paragraph 13 of the policy, which reads as follows:
13. If the claim be in any respect fraudulent, or if any false declaration is made or
used in support thereof, or if any fraudulent means or devices are used by the
Insured or any one acting on his behalf to obtain any benefit under this Policy, or, if
the loss or damage be occasioned by the willful act or with connivance of the
Insured, or, if the claim be made and rejected and an action or suit be not
commenced within twelve months after such rejection or (in case of arbitration
place in pursuance of the 18th condition of this Policy) within twelve months after
the arbitrator or arbitrators or umpire shall have made their award, all benefits
under this Policy shall be forfeited. (Emphasis supplied). (Decision. p. 10, R.O.A.).
The appellant cites in support of its contention the cases of E. Macias & Co. vs. Warner,
Barnes & Co., Ltd., 43 Phil 155; E. Macias & Co. vs. China Fire Insurance Co., 46 Phil. 345
and Castillo etc. vs. Metropolitan Insurance Co., 47 O.G. (September, 1951).

In answer to appellant's contention, counsel for appellees contend that the action of the
plaintiffs against the defendant had not yet prescribed at the time of the bringing of the
action, because the period of prescription was interrupted by the filing of the first action
against the Paramount Surety & Insurance Co., in accordance with Article 1155 of the Civil
Code. Counsel further argues that the basis of prescription of an action is the
abandonment by a person of his right of action or claim, so that any act of said person
tending to show his intention not to abandon his right of action or claim, as the filing of the
previous action in the case at bar, interrupts the period of prescription. Furthermore,
counsel argues, the dismissal of the previous action is without prejudice, which means that
plaintiffs have the right to file another complaint against the principal.
The basic error committed by the trial court is its view that the filing of the action against
the agent of the defendant company was "merely a procedural mistake of no significance
or consequence, which may be overlooked." The condition contained in the insurance
policy that claims must be presented within one year after rejection is not merely a
procedural requirement. The condition is an important matter, essential to a prompt
settlement of claims against insurance companies, as it demands that insurance suits be
brought by the insured while the evidence as to the origin and cause of destruction have
not yet disappeared. It is in the nature of a condition precedent to the liability of the
insurer, or in other terms, a resolutory cause, the purpose of which is to terminate all
liabilities in case the action is not filed by the insured within the period stipulated.
The bringing of the action against the Paramount Surety & Insurance Company, the agent
of the defendant Company cannot have any legal effect except that of notifying the agent
of the claim. Beyond such notification, the filing of the action can serve no other purpose.
There is no law giving any effect to such action upon the principal. Besides, there is no
condition in the policy that the action must be filed against the agent, and this Court can
not by interpretation, extend the clear scope of the agreement beyond what is agreed
upon by the parties.
The case of E. Macias & Co. vs. China Fire Insurance Co. has settled the issue presented by
the appellees in the case at bar definitely against their claim. In that case, We declared
that the contractual station in an insurance policy prevails over the statutory limitation, as
well as over the exceptions to the statutory limitations that the contract necessarily
supersedes the statute (of limitations) and the limitation is in all phases governed by the
former. (E. Macias & Co. vs. China Fire Insurance & Co., 46 Phil. pp. 345-353). As stated in
said case and in accordance with the decision of the Supreme Court of the United States in
Riddlesbarger vs. Hartford Fire Insurance Co. (7 Wall., 386), the rights of the parties flow
from the contract of insurance, hence they are not bound by the statute of limitations nor
by exemptions thereto. In the words of our own law, their contract is the law between the
parties, and their agreement that an action on a claim denied by the insurer must be
brought within one year from the denial, governs, not the rules on the prescription of
actions.

15 | I N S U R A N C E

The judgment appealed from is hereby set aside and the case dismissed, with costs
against the plaintiffs-appellees.

G.R. No. L-15184

May 31, 1963

SAURA IMPORT & EXPORT CO., INC., plaintiff-appellant,

vs.
PHILIPPINE INTERNATIONAL SURETY CO., INC., and PHILIPPINE NATIONAL
BANK, defendants-appellees.
PAREDES, J.:
Instant case was certified by the Court of Appeals to Us, it appearing that the issues
involved are purely of law.
On December 26, 1952, the Saura Import & Export Co Inc., mortgaged to the Phil. National
Bank, a parcel of land covered by T.C.T. No. 40445 of the Registry of Deeds of Davao,
issued in its name, to secure the payment of promissory note of P27,000.00 (Exhs. P, B-2).
On April 30, 1953, the mortgage was amended to guarantee an increased amount,
bringing the total mortgaged debt to P37,000.00 (Exhs. P-2, B-3). The provisions of the
mortgaged contact, pertinent to the resolution of the present case, provide as follows
2. . . . he shall insure the mortgaged property at all times against fire and
earthquake for an amount and with such company satisfactory to the Mortgagee,
indorsing to the latter the corresponding policies; he shall keep the mortgaged
property in good condition, making repairs and protecting walls that may be
necessary; . . .
xxx

xxx

xxx

Erected on the land mortgaged, was a building of strong materials owned by the
mortgagor Saura Import & Export Co., Inc., which had always been covered by insurance,
many years prior to the mortgage contract. Pursuant to the requirement, Saura insured the
building and its contents with the Philippine International Surety, an insurance firm
acceptable to mortgagee Bank, for P29,000.00 against fire for the period of one year from
October 2, 1954. As required therefor, the insurance policy was endorsed to the mortgagee
PNB, in a Memo which states
Loss if any, payable to the Philippine National Bank as their interest may appear,
subject to the terms, conditions and warranties of this policy (Exh. A).

The policy was delivered to the mortgagee Bank by Saura. On October 15, 1954, barely
thirteen (13) days after the issuance of the fire insurance policy (October 2, 1954), the
insurer cancelled the same, effective as of the date of issue (Exh. A-2). Notice of the
cancellation was given to appellee bank in writing, sent by Registered Mail and personally
addressed to Fortunato Domingo, Branch Manager of the appellee Bank's Davao Branch,
and was received by the Bank on November 8, 1954. On April 6, 1955, the building and its
contents, worth P40,685.69 were burned. On April 11, 1955, Saura filed a claim with the
Insurer and mortgagee Bank. Upon the presentation of notice of loss with the PNB, Saura
learned for the first time that the policy had previously been cancelled on October 2, 1954,
by the insurer, when Saura's folder in the Bank's filed was opened and the notice of
cancellation (original and duplicate) sent by the Insurer to the Bank, was found. Upon
refusal of the Insurer Philippine International Surety to pay the amount of the insurance,
Civil Case No. 26847 was filed with the Manila CFI against the Insurer, and the PNB was
later included as party defendant, after it had refused to prosecute the case jointly with
Saura Import & Export Co., Inc.
At the trial, it was established that neither the Insurer nor the mortgagee Bank informed
the plaintiff Saura of the cancellation of the policy. On April 30, 1957, the court a
quo rendered the following judgment
. . . IN VIEW WHEREOF, complaint dismissed; costs against the plaintiff; but as
there is no proof on the counterclaim of the Philippines International Surety, the
same is also dismissed.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts. 1wph1.t
A motion to reconsider the above judgment, seasonably presented on May 14, 1957, was
subsequently denied. The decision rendered and the resolution denying the motion for
reconsideration constitute the subject of the instant appeal by plaintiff Saura on the three
alleged errors, which converge on the correctness of the ruling, wholly dismissing the
complaint absolving both the insurance company and the bank from liability.
In the determination of liabilities of the parties herein, let us look into the general
principles of insurance, in matters of cancellations of policy by the insurer. Fire insurance
policies and other contracts of insurance upon property, in addition to the common
provision for cancellation of the policy upon request of the insured, generally provide for
cancellation by the insurer by notice to the insured for a prescribed period, which is usually
5 days, and the return of the unearned portion of the premium paid by the insured, such
provision for cancellation upon notice being authorized by statutes in some jurisdiction,
either specifically or as a provision of an adopted standard form of policy. The purpose of
provisions or stipulations for notice to the insured, is to prevent the cancellation of the

16 | I N S U R A N C E

policy, without allowing the insured ample opportunity to negotiate for other insurance in
its stead. The form and sufficiency of a notice of cancellation is determined by policy
provisions. In order to form the basis for the cancellation of a policy, notice to the insured n
not be in any particular form, in the absence of a statute or policy provision prescribing
such form, and it is sufficient, so long as it positively and unequivocally indicates to the
insured, that it is the intention of the company that the policy shall cease to be binding.
Where the policy contains no provisions that a certain number of days notice shall be
given, a reasonable notice and opportunity to obtain other insurance must be given. Actual
personal notice to the insured is essential to a cancellation under a provision for
cancellation by notice. The actual receipt by the insured of a notice of cancellation is
universally recognized as a condition precedent to a cancellation of the policy by the
insurer, and consequently a letter containing notice of cancellation which is mailed by the
insurer but not received by the insured, is ineffective as cancellation (29 Am. Jur. pp. 732741).
The policy in question (Exh. A), does not provide for the notice, its form or period. The
Insurance Law, Act No. 2427, does not likewise provide for such notice. This being the
case, it devolves upon the Court to apply the generally accepted principles of insurance,
regarding cancellation of the insurance policy by the insurer. From what has been
heretofore stated, actual notice of cancellation in a clear and unequivocal manner,
preferably in writing, in view of the importance of an insurance contract, should be given
by the insurer to the insured, so that the latter might be given an opportunity to obtain
other insurance for his own protection. The notice should be personal to the insured and
not to and/or through any unauthorized person by the policy. In the case at bar, the
defendant insurance company, must have realized the paramount importance of sending a
notice of cancellation, when it sent the notice of cancellation of the policy to the defendant
bank (as mortgagee), but not to the insured with which it (insurance company) had direct
dealing. It was the primary duty of the defendant-appellee insurance company to notify the
insured, but it did not. It should be stated that the house and its contents were burned on
April 6, 1955, at the time when the policy was enforced (October 2, 1954 to October 2,
1955); and that under the facts, as found by the trial court, to which We are bound, it is
evident that both the insurance company and the appellee bank failed, wittingly or
unwittingly, to notify the insured appellant Saura of the cancellation made.
Of course, the defendant insurance company contends that it gave notice to the
defendant-appellee bank as mortgagee of the property, and that was already a substantial
compliance with its duty to notify the insured of the cancellation of the policy. But notice to
the bank, as far appellant herein is concerned, is not effective notice.
If a mortgage or lien exists against the property insured, and the policy contains a
clause stating that loss, if any, shall be payable to such mortgagee or the holder of
such lien as interest may appear, notice of cancellation to the mortgagee or
lienholder alone is ineffective as a cancellation of the policy to the owner of the

property. (Connecticut Ins. Co. v. Caumisar, 218 Ky. 378, 391 SW 776, cited in 29
Am. Jur. p. 743).
Upon authority of the above case, therefore, the liability of the insurance company
becomes a fact.

MALAYAN
INSURANCE
CO.,
INC.
(MICO), petitioner,
vs.
GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER,
and CORONACION PINCA, respondents.
CRUZ, J.:

It may be argued that in the appeal brief of appellant, no error has been assigned against
the insurance company and no prayer is found therein asking that it be made liable. It
must be noted, however, that the case was dismissed the lower court and the main object
of the appeal is to secure a reversal of the said judgment. This Court is clothed with ample
authority to review matters, even if they are not assigned as errors in the appeal, if it finds
that their consideration is necessary in arriving at a just decision of the case. Thus it was
held:
While an assignment of error which is required by law or rule of court has been
held essential to appellate review, only those assigned will be considered, there
are a number of cases which appear to accord to the appellate court a broad
discretionary power to waive the lack of proper assignment of errors and consider
errors not assigned. And an unassigned error closely related to an error properly
assigned, or upon which the determination of the question raised by the error
properly assigned is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as error. (Hernandez v. Andal, 78 Phil. 198199).

When a person's house is razed, the fire usually burns down the efforts of a lifetime and
forecloses hope for the suddenly somber future. The vanished abode becomes a charred
and painful memory. Where once stood a home, there is now, in the sighing wisps of
smoke, only a gray desolation. The dying embers leave ashes in the heart.
For peace of mind and as a hedge against possible loss, many people now secure fire
insurance. This is an aleatory contract. By such insurance, the insured in effect wagers that
his house will be burned, with the insurer assuring him against the loss, for a fee. If the
house does burn, the insured, while losing his house, wins the wagers. The prize is the
recompense to be given by the insurer to make good the loss the insured has sustained.
It would be a pity then if, having lost his house, the insured were also to lose the payment
he expects to recover for such loss. Sometimes it is his fault that he cannot collect, as
where there is a defect imputable to him in the insurance contract. Conversely, the reason
may be an unjust refusal of the insurer to acknowledge a just obligation, as has happened
many times.

Although assigned errors apparently appear to be directed against the appellee bank
alone, they in essence, seek a reversal of the decision on dismissal, entered by the lower
court, which in the main has for its purpose the finding of liability on the policy. In the
course of our examination of the records of the case, the decision and the errors assigned,
We found that liability attached principally the insurance company, for its failure to give
notice of the cancellation of the policy to herein appellant itself.

In the instant case the private respondent has been sustained by the Insurance
Commission in her claim for compensation for her burned property. The petitioner is now
before us to dispute the decision, 1 on the ground that there was no valid insurance
contract at the time of the loss.

Because of the conclusions reached, We find it unnecessary to discuss the errors assigned
against appellee bank.

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent,
Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of
P14,000.00 effective July 22, 1981, until July 22, 1982. 2

WHEREFORE, the decision appealed from is hereby reversed, and another is entered,
condemning the defendant-appellee Philippine International Surety Co., Inc., to pay Saura
Import & Export Co., Inc., appellant herein, the sum of P29,000.00, the amount involved in
Policy No. 429, subject-matter of the instant case. Without costs.

The chronology of the relevant antecedent facts is as follows:

On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium
and sent the corresponding notice to Pinca. 3
On December 24, 1981, payment of the premium for Pinca was received by
DomingoAdora, agent of MICO. 4

G.R. No. L-67835 October 12, 1987

17 | I N S U R A N C E

On January 15, 1982, Adora remitted this payment to MICO,together with other
payments. 5

On January 18, 1982, Pinca's property was completely burned.

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that
her policy had been cancelled earlier. But Adora refused to accept it. 7
In due time, Pinca made the requisite demands for payment, which MICO rejected. She
then went to the Insurance Commission. It is because she was ultimately sustained by the
public respondent that the petitioner has come to us for relief.
From the procedural viewpoint alone, the petition must be rejected. It is stillborn.
The records show that notice of the decision of the public respondent dated April 5, 1982,
was received by MICO on April 10, 1982. 8 On April 25, 1982, it filed a motion for
reconsideration, which was denied on June 4, 1982. 9 Notice of this denial was received by
MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated by the Insurance
Commission. 10 The instant petition was filed with this Court on July 2, 1982. 11
The position of the petition is that the petition is governed by Section 416 0f the Insurance
Code giving it thirty days wthin which to appeal by certiorari to this Court. Alternatively, it
also invokes Rule 45 of the Rules of Court. For their part, the public and private
respondents insist that the applicable law is B.P. 129, which they say governs not only
courts of justice but also quasi-judicial bodies like the Insurance Commission. The period
for appeal under this law is also fifteen days, as under Rule 45.
The pivotal date is the date the notice of the denial of the motion for reconsideration was
received by MICO.
MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a
copy of the Order of June 14, 1982, with a signed rubber-stamped notation on the upper
left-hand corner that it was received on June 18, 1982, by its legal department. It does not
indicate from whom. At the bottom, significantly, there is another signature under which
are the ciphers "6-13-82," for which no explanation has been given.
Against this document, the private respodent points in her Annex "1," 13 the authenticated
copy of the same Order with a rubber-stamped notation at the bottom thereof indicating
that it was received for the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-82." The
signature may or may not habe been written by the same person who signed at the
bottom of the petitioner's Annex "B."
Between the two dates, the court chooses to believe June 13,
numbers "6-13-82" appear on both annexes but also because
by the administrative division of the Insurance Commission.
serving; at best, it might only indicate that it was received on

18 | I N S U R A N C E

1982, not only because the

it is the date authenticated
Annex "B" is at worst selfJune 18, 1982, by the legal

department of MICO, after it had been received earlier by some other of its personnel on
June 13, 1982. Whatever the reason for the delay in transmitting it to the legal department
need not detain us here.
Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of
the decision of the Insurance Commission. The petitioner filed its motion for
reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period
began to run again after June 13, 1981, date of its receipt of notice of the denial of the said
motion for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen
days later, there is no question that it is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is
applicable, would end on June 28, 1982, or also four days from July 2, when the petition
was filed.
If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed
on the fifteenth day after MICO received notice of the decision, only one more day would
have remained for it to appeal, to wit, June 14, 1982. That would make the
petition eighteen days late by July 2.
Indeed, even if the applicable law were still R.A. 5434, governing appeals from
administrative bodies, the petition would still be tardy. The law provides for a fixed period
of ten days from notice of the denial of a seasonable motion for reconsideration within
which to appeal from the decision. Accordingly, that ten-day period, counted from June 13,
1982, would have ended on June 23, 1982, making the petition filed on July 2, 1982, nine
dayslate.
Whichever law is applicable, therefore, the petition can and should be dismissed for late
filing.
On the merits, it must also fail. MICO's arguments that there was no payment of premium
and that the policy had been cancelled before the occurence of the loss are not
acceptable. Its contention that the claim was allowed without proof of loss is also
untenable.
The petitioner relies heavily on Section 77 of the Insurance Code providing that:
SEC. 77. An insurer is entitled to payment of the premium as soon as the
thing is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.

The above provision is not applicable because payment of the premium was in fact
eventually made in this case. Notably, the premium invoice issued to Pinca at the time of
the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the amoung
of P930.60 on "12-24-81" by Domingo Adora. 14 This is important because it suggests an
understanding between MICO and the insured that such payment could be made later, as
agent Adora had assured Pinca. In any event, it is not denied that this payment was
actually made by Pinca to Adora, who remitted the same to MICO.
The payment was made on December 24, 1981, and the fire occured on January 18, 1982.
One wonders: suppose the payment had been made and accepted in, say, August 1981,
would the commencement date of the policy have been changed to the date of the
payment, or would the payment have retroacted to July 22, 1981? If MICO accepted the
payment in December 1981 and the insured property had not been burned, would that
policy not have expired just the same on July 22, 1982, pursuant to its original terms, and
not on December 24, 1982?
It would seem from MICO's own theory, that the policy would have become effective only
upon payment, if accepted and so would have been valid only from December 24, 1981m
but only up to July 22, 1981, according to the original terms. In others words, the policy
would have run for only eight months although the premium paid was for one whole year.
It is not disputed that the preium was actually paid by Pinca to Adora on December 24,
1981, who received it on behalf of MICO, to which it was remitted on January 15, 1982.
What is questioned is the validity of Pinca's payment and of Adora's authority to receive it.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not
authorized to receive the premium payment on its behalf. It is clearly provided in Section
306 of the Insurance Code that:
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance
broker a policy or contract of insurance shall be demmed to have
authorized such agent or broker to receive on its behalf payment of any
premium which is due on such policy or contract of insurance at the time of
its issuance or delivery or which becomes due thereon.
And it is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or collect payment is
equivalent to payment to the principal himself; such payment is complete
when the money delivered is into the agent's hands and is a discharge of
the indebtedness owing to the principal. 15

19 | I N S U R A N C E

There is the petitioner's argument, however, that Adora was not authorized to accept the
premium payment because six months had elapsed since the issuance by the policy itself.
It is argued that this prohibition was binding upon Pinca, who made the payment to Adora
at her own riskl as she was bound to first check his authority to receive it. 16
MICO is taking an inconsistent stand. While contending that acceptance of the premium
payment was prohibited by the policy, it at the same time insists that the policy never
came into force because the premium had not been paid. One surely, cannot have his cake
and eat it too.
We do not share MICO's view that there was no existing insurance at the time of the loss
sustained by Pinca because her policy never became effective for non-payment of
premium. Payment was in fact made, rendering the policy operative as of June 22, 1981,
and removing it from the provisions of Article 77, Thereafter, the policy could be cancelled
on any of the supervening grounds enumerated in Article 64 (except "nonpayment of
premium") provided the cancellation was made in accordance therewith and with Article
65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be cancelled by the
insurer except upon prior notice thereof to the insured, and no notice of
cancellation shall be effective unless it is based on the occurrence, after
the effective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured
against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the
hazard insured against;
(e) physical changes in the property insured which result in the property
becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:

SEC. 65. All notices of cancellation mentioned in the preceding section

shall be in writing, mailed or delivered to the named insured at the address
shown in the policy, and shall state (a) which of the grounds set forth in
section sixty-four is relied upon and (b) that, upon written request of the
named insured, the insurer will furnish the facts on which the cancellation
is based.
A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured; 17
(2) The notice must be based on the occurrence, after the effective date of the policy, of
one or more of the grounds mentioned;18
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at
the address shown in the policy; 19
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b)
that upon written request of the insured, the insurer will furnish the facts on which the
cancellation is based. 20
MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of
premium. To support this assertion, it presented one of its employees, who testified that
"the original of the endorsement and credit memo" presumably meaning the alleged
cancellation "were sent the assured by mail through our mailing section" 21 However,
there is no proof that the notice, assuming it complied with the other requisites mentioned
above, was actually mailed to and received by Pinca. All MICO's offers to show that the
cancellation was communicated to the insured is its employee's testimony that the said
cancellation was sent "by mail through our mailing section." without more. The petitioner
then says that its "stand is enervated (sic) by the legal presumption of regularity and due
performance of duty." 22(not realizing perhaps that "enervated" means "debilitated" not
"strengthened").
On the other hand, there is the flat denial of Pinca, who says she never received the
claimed cancellation and who, of course, did not have to prove such denial Considering the
strict language of Section 64 that no insurance policy shall be cancelled except upon prior
notice, it behooved MICO's to make sure that the cancellation was actually sent to and
received by the insured. The presumption cited is unavailing against the positive duty
enjoined by Section 64 upon MICO and the flat denial made by the private respondent that
she had received notice of the claimed cancellation.
It stands to reason that if Pinca had really received the said notice, she would not have
made payment on the original policy on December 24, 1981. Instead, she would have

20 | I N S U R A N C E

asked for a new insurance, effective on that date and until one year later, and so taken
advantage of the extended period. The Court finds that if she did pay on that date, it was
because she honestly believed that the policy issued on June 7, 1981, was still in effect and
she was willing to make her payment retroact to July 22, 1981, its stipulated
commencement date. After all, agent Adora was very accomodating and had earlier told
her "to call him up any time" she was ready with her payment on the policy earlier issued.
She was obviously only reciprocating in kind when she paid her premium for the period
beginning July 22, 1981, and not December 24, 1981.
MICO's suggests that Pinca knew the policy had already been cancelled and that when she
paid the premium on December 24, 1981, her purpose was "to renew it." As this could not
be done by the agent alone under the terms of the original policy, the renewal thereof did
not legally bind MICO. which had not ratified it. To support this argument, MICO's cites the
following exchange:
Q: Now, Madam Witness, on December 25th you made the
alleged payment. Now, my question is that, did it not come
to your mind that after the lapse of six (6) months, your
policy was cancelled?
A: I have thought of that but the agent told me to call him
up at anytime.
Q: So if you thought that your policy was already intended
to revive cancelled policy?
A: Misleading, Your Honor.
Hearing Officer: The testimony of witness is that, she
thought of that.
Q: I will revise the question. Now, Mrs. Witness, you stated
that you thought the policy was cancelled. Now, when you
made the payment of December 24, 1981, your intention
was to revive the policy if it was already cancelled?
A: Yes, to renew it.

23

A close study of the above transcript will show that Pinca meant to renew the policy if it
had really been already cancelled but not if it was stffl effective. It was all conditional. As it
has not been shown that there was a valid cancellation of the policy, there was
consequently no need to renew it but to pay the premium thereon. Payment was thus
legally made on the original transaction and it could be, and was, validly received on

behalf of the insurer by its agent Adora. Adora. incidentally, had not been informed of the
cancellation either and saw no reason not to accept the said payment.
The last point raised by the petitioner should not pose much difficulty. The valuation fixed
in fire insurance policy is conclusive in case of total loss in the absence of fraud, 24 which is
not shown here. Loss and its amount may be determined on the basis of such proof as may
be offered by the insured, which need not be of such persuasiveness as is required in
judicial proceedings. 25 If, as in this case, the insured files notice and preliminary proof of
loss and the insurer fails to specify to the former all the defects thereof and without
unnecessary delay, all objections to notice and proof of loss are deemed waived under
Section 90 of the Insurance Code.
The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the
extent of Pinca's loss should be considered sufficient. Notably,MICO submitted no evidence
to the contrary nor did it even question the extent of the loss in its answer before the
Insurance Commission. It is also worth observing that Pinca's property was not the only
building bumed in the fire that razed the commercial district of Lao-ang, Samar, on January
18, 1982. 27
There is nothing in the Insurance Code that makes the participation of an adjuster in the
assessment of the loss imperative or indespensable, as MICO suggests. Section 325, which
it cites, simply speaks of the licensing and duties of adjusters.

21 | I N S U R A N C E

We see in this cases an obvious design to evade or at least delay the discharge of a just
obligation through efforts bordering on bad faith if not plain duplicity, We note that the
motion for reconsideration was filed on the fifteenth day from notice of the decision of the
Insurance Commission and that there was a feeble attempt to show that the notice of
denial of the said motion was not received on June 13, 1982, to further hinder the
proceedings and justify the filing of the petition with this Court fourteen days after June 18,
1982. We also look askance at the alleged cancellation, of which the insured and MICO's
agent himself had no knowledge, and the curious fact that although Pinca's payment was
remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only
on February 5, 1982, after it presumably had learned of the occurrence of the loss insured
against on January 18, 1982. These circumstances make the motives of the petitioner
highly suspect, to say the least, and cast serious doubts upon its candor and bona fides.
WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April
10, 1981, and its Order of June 4, 1981, are AFFIRMED in full, with costs against the
petitioner. This decision is immediately executory.
SO ORDERED.