Escolar Documentos
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RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to
health of the people and instill health consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
SO ORDERED.
SO ORDERED.
In a decision dated June 12, 2008, the Court denied the petition and
affirmed the CAs decision. We held that petitioners health care agreement
during the pertinent period was in the nature of non-life insurance which
is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares and Philamcare Health Systems, Inc. v. CA. We also ruled
that petitioners contention that it is a health maintenance organization
(HMO) and not an insurance company is irrelevant because contracts
between companies like petitioner and the beneficiaries under their plans
are treated as insurance contracts. Moreover, DST is not a tax on the
business transacted but an excise on the privilege, opportunity or facility
offered at exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for
reconsideration and supplemental motion for reconsideration, asserting
the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of
1997 is imposed only on a company engaged in the business of
fidelity bonds and other insurance policies. Petitioner, as an
HMO, is a service provider, not an insurance company.
(g) The agreements do not fall under the phrase other branch of
insurance mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA 9480 for the
taxable year 2005 and all prior years. Therefore, the questioned
assessments on the DST are now rendered moot and academic.
Oral arguments were held in Baguio City on April 22, 2009. The
parties submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first
time that it availed of a tax amnesty under RA 9480 (also known as the
Tax Amnesty Act of 2007) by fully paying the amount of P5,127,149.08
representing 5% of its net worth as of the year ending December 31,
2005.
HEALTH MAINTENANCE
ORGANIZATIONS ARE NOT
ENGAGED IN THE INSURANCE
BUSINESS
American courts have pointed out that the main difference between
an HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and
Blue Shield of New Jersey is clear on this point:
The basic distinction between medical service corporations and
ordinary health and accident insurers is that the former undertake to
provide prepaid medical services through participating
physicians, thus relieving subscribers of any further financial burden,
while the latter only undertake to indemnify an insured for medical
expenses up to, but not beyond, the schedule of rates contained in the
policy.
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and
in respect to the several bonds, debentures, or certificates of stock and
indebtedness, and other documents, instruments, matters, and things
mentioned and described in this section, or for or in respect to the
vellum, parchment, or paper upon which such instrument, matters, or
things or any of them shall be written or printed by any person or
persons who shall make, sign, or issue the same, on and after January
first, nineteen hundred and five, the several taxes following:
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of
1914) was enacted revising and consolidating the laws relating to internal
revenue. The aforecited pertinent portion of Section 116, Article XI of
Act No. 1189 was completely reproduced as Section 30 (l), Article III of
Act No. 2339. The very detailed and exclusive enumeration of items
subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was
again reproduced as Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on March 10, 1917, the
pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth
Act No. 466 (the NIRC of 1939), which codified all the internal revenue
laws of the Philippines. In an amendment introduced by RA 40 on
October 1, 1946, the DST rate was increased but the provision remained
substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate
was reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs
1457 and 1959, enacted on June 11, 1978 and October 10, 1984
respectively, the DST rate was again increased.
On December 23, 1993, under RA 7660, Section 185 was amended but,
again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by
RA 8424 (or the NIRC of 1997), the subject legal provision was retained
as the present Section 185. In 2004, amendments to the DST provisions
were introduced by RA 9243 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the
Philippines with the formation of Bancom Health Care Corporation in
1974. The same pioneer HMO was later reorganized and renamed
Integrated Health Care Services, Inc. (or Intercare). However, there are
those who claim that Health Maintenance, Inc. is the HMO industry
pioneer, having set foot in the Philippines as early as 1965 and having
been formally incorporated in 1991. Afterwards, HMOs proliferated
quickly and currently, there are 36 registered HMOs with a total
enrollment of more than 2 million.
We can clearly see from these two histories (of the DST on the one
hand and HMOs on the other) that when the law imposing the DST was
first passed, HMOs were yet unknown in the Philippines. However, when
the various amendments to the DST law were enacted, they were already
in existence in the Philippines and the term had in fact already been
defined by RA 7875. If it had been the intent of the legislature to impose
DST on health care agreements, it could have done so in clear and
categorical terms. It had many opportunities to do so. But it did not. The
fact that the NIRC contained no specific provision on the DST liability of
health care agreements of HMOs at a time they were already known as
such, belies any legislative intent to impose it on them. As a matter of
fact, petitioner was assessed its DST liability only on January 27,
2000, after more than a decade in the business as an HMO.
Considering that Section 185 did not change since 1904 (except for
the rate of tax), it would be safe to say that health care agreements were
never, at any time, recognized as insurance contracts or deemed engaged
in the business of insurance within the context of the provision.
THE POWER TO TAX IS NOT
THE POWER TO DESTROY
Petitioner claims that the assessed DST to date which amounts to P376
million is way beyond its net worth of P259 million. Respondent never
disputed these assertions.Given the realities on the ground, imposing the
DST on petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the government
ought to encourage private enterprise. Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a
legitimate business. As aptly held in Roxas, et al. v. CTA, et al.:
The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the hen that lays the
golden egg.
Legitimate enterprises enjoy the constitutional protection not to be taxed
out of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and ultimately
subversive of the nations thrust towards a better economy which will
ultimately benefit the majority of our people.
In support of its argument, petitioner cites the August 29, 2001 minute
resolution of this Court dismissing the appeal in Philippine National
Bank (G.R. No. 148680). Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the
Court should apply the CA ruling there that a health care agreement is not
an insurance contract.
With respect to the same subject matter and the same issues
concerning the same parties, it constitutes res judicata. However, if other
parties or another subject matter (even with the same parties and issues) is
involved, the minute resolution is not binding precedent. Thus, in CIR v.
Baier-Nickel, the Court noted that a previous case, CIR v.
Baier-Nickel involving the same parties and the same issues, was
previously disposed of by the Court thru a minute resolution dated
February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court
ruled that the previous case ha(d) no bearing on the latter
case because the two cases involved different subject matters as they
were concerned with the taxable income of different taxable years.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
LUCAS P. BERSAMIN
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify
that the conclusions in the above resolution had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
REYNATO S. PUNO
Chief Justice
* Per Special Order No. 698 dated September 4, 2009.
Additional member per raffle list of 13 April 2009.
[1] 1987 Constitution.
[2] Now known as Maxicare Healthcare Corp. Rollo, p. 293.
[3] G.R. No. 169737, 12 February 2008, 544 SCRA 580.
[4] 429 Phil. 82 (2002).
[5] Republic Act.
[6] Rollo, pp. 257-258.
[7] Entitled An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable Year 2005 and Prior Years.
[8] Rollo, p. 288.
[9] Id., p. 591.
[10] Id., pp. 592, 613.
[11] This is called the Staff Model, i.e., the HMO employs salaried health care professionals to provide health care services. (Id., pp. 268, 271.)
[12] This is referred to as the Group Practice Model wherein the HMO contracts with a private practice group to provide health services to its members. (Id., pp. 268, 271, 592.) Thus, it is both a service provider and a service contractor. It is a service provider when it directly provides the health care services through its salaried employees. It is a
service contractor when it contracts with third parties for the delivery of health services to its members.
[13] Id., p. 102.
[14] Id., p. 280.
[15] Decision, p. 422.
[16] Rollo, p. 265.
[17] Allied Banking Corporation v. Court of Appeals, G.R. No. 124290, 16 January 1998, 284 SCRA 327, 367, citing Shimonek v. Tillanan, 1 P. 2d., 154.
[18] Inding v. Sandiganbayan, G.R. No. 143047, 14 July 2004, 434 SCRA 388, 403.
[19] Section 4 (o) (3) thereof. Under this law, it is one of the classes of a health care provider.
[20] Presidential Decree.
[21] Our Insurance Code was based on California and New York laws. When a statute has been adopted from some other state or country and said statute has previously been construed by the courts of such state or country, the statute is deemed to have been adopted with the construction given. (Prudential Guarantee and Assurance Inc. v.
Trans-Asia Shipping Lines, Inc., G.R. No. 151890, 20 June 2006, 491 SCRA 411, 439; Constantino v. Asia Life Inc. Co., 87 Phil. 248, 251 [1950]; Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, 59 [1925]; Cerezo v. Atlantic, Gulf & Pacific Co., 33 Phil. 425, 428-429 [1916]).
[22] H. S. de Leon, The Insurance Code of the Philippines Annotated, p. 56 (2002 ed.).
[23] 107 F.2d 239 (D.C. App. 1939). This is a seminal case which had been reiterated in succeeding cases, e.g. Smith v. Reserve Nat'l Ins. Co., 370 So. 2d 186 ( La. Ct. App. 3d Cir. 1979); Transportation Guarantee Co. v. Jellins, 29 Cal.2d 242, 174 P.2d 625 (1946); State v. Anderson, 195 Kan. 649, 408 P.2d 864 (1966); Commissioner of
Banking and Insurance v. Community Health Service, 129 N.J.L. 427, 30 A.2d 44 (1943).
[24] Id., pp. 247-248.
[25] 28 Cal. 2d 790 (1946).
[26] Id., p. 809.
[27] 345 N.J. Super. 410, 785 A.2d 457 (2001);< http://lawlibrary.rutgers.edu/courts/appellate/a1562-00.opn.html> (visited July 14, 2009).
[28] Id., citing Group Health Ins. of N.J. v. Howell, 40 N.J. 436, 451 (1963).
[29] L.R. Russ and S.F. Segalla, 1 Couch on Ins. 1:46 (3rd ed., December 2008).
[30] This involves the determination of a medical condition (such as a disease) by physical examination or by study of its symptoms (Rollo, p. 613, citing Blacks Law Dictionary, p. 484 [8th ed.]).
[31] Rollo, pp. 612-613.
[32] One such decision of the United States Supreme Court is Rush Prudential HMO, Inc. v. Moran (536 U.S. 355 [2002]). In that case, the Court recognized that HMOs provide both insurance and health care services and that Congress has understood the insurance aspects of HMOs since the passage of the HMO Act of 1973. This case is not
applicable here. Firstly, this was not a tax case. Secondly, the Court stated that Congress expressly understood and viewed HMOs as insurers. It is not the same here in the Philippines. As will be discussed below, there is no showing that the Philippine Congress had demonstrated an awareness of HMOs as insurers.
[33] See Executive Order No. 119 (1987) and Administrative Order (AO) No. 34 (1994), as amended by AO No. 36 (1996).
[34] G.R. No. 86738, 13 November 1991, 203 SCRA 504.
[35] 140 Phil. 20 (1969).
[36] Supra note 34, pp. 510-511.
[37] Decision, pp. 420-421.
[38] Commissioner of Internal Revenue v. Solidbank Corporation, G.R. No. 148191, 25 November 2003, 416 SCRA 436, citing Miller v. Illinois Cent. R Co., Ill. So. 559, 28 February 1927.
[39] Paseo Realty & Development Corporation v. Court of Appeals, G.R. No. 119286, 13 October 2004, 440 SCRA 235, 251.
[40] Collector of Int. Rev. v. La Tondea, Inc. and CTA, 115 Phil. 841, 846 (1963).
[41] Gulf Resorts, Inc. v. Philippine Charter Insurance Corporation, G.R. No. 156167, 16 May 2005, 458 SCRA 550, 566, citations omitted.
[42] M. C. L. Campos, Insurance, pp. 17-18 (1983), citing Physicians Defense Co. v. OBrien, 100 Minn. 490, 111 N.W. 397 (1907).
[43] 438 N.W.2d 350. (Mich. Ct. App. 1989).
[44] Id., p. 354.
[45] Rollo, p. 702, citing Phillip, Booth et al., Modern Actuarial Theory and Practice (2005).
[46] Entitled An Act to Provide for the Support of the Insular, Provincial and Municipal Governments, by Internal Taxation.
[47] Executive Order No.
[48] An Act Rationalizing the Provisions of the DST of the NIRC of 1997, as amended, and for other purposes.
[49] Rollo, pp. 589, 591, citing <http://www.rmaf.org.ph/Awardees/Biography/ Biography BengzonAlf.htm>; <http://doktorko.com/_blog/index.php?mod=blog_article&a=80&md=897>;
Section 3. xxx
The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable return on investments, and to expansion and growth. (Emphasis supplied)
[57] 131 Phil. 773 (1968).
[58] Id., pp. 780-781.
[59] Manatad v. Philippine Telegraph and Telephone Corporation, G.R. No. 172363, 7 March 2008, 548 SCRA 64, 80.
[60] Rollo, p. 661.
[61] Id., pp. 260-261.
[62] Id., p. 742.
[63] Philippine Banking Corporation v. CIR, G.R. No. 170574, 30 January 2009.
[64] CA-G.R. SP No. 53301, 18 June 2001.
[65] G.R. No. 148680.
[66] The dismissal was due to the failure of petitioner therein to attach a certified true copy of the assailed decision.
[67] Del Rosario v. Sandiganbayan, G.R. No. 143419, 22 June 2006, 492 SCRA 170, 177.
[68] Complaint of Mr. Aurelio Indencia Arrienda Against SC Justices Puno, Kapunan, Pardo, Ynares-Santiago, et al., A.M. No. 03-11-30-SC, 9 June 2005, 460 SCRA 1, 14, citing Tan v. Nitafan, G.R. No. 76965, 11 March 1994, 231 SCRA 129; Republic v. CA, 381 Phil. 558, 565 (2000), citing Bernarte, et al. v. Court of Appeals, et al., 331
(3) Cases or matters heard by a Division shall be decided or resolved with the concurrence of a majority of the members who actually took part in the deliberation on the issues in the case and voted thereon, and in no case, without the concurrence of at least three of such members. When the required number is not
obtained, the case shall be decided En Banc: Provided, that no doctrine or principle of law laid down by the Court in a decision rendered En Banc or in Division may be modified or reversed except by the Court sitting En Banc. (Emphasis supplied)
[74] That is, fifty centavos (P0.50) on each four pesos (P4.00), or a fractional part thereof, of the premium charged.
THIRD DIVISION
DECISION
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the
assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only those
rights that the assured may have against the wrongdoer who caused the damage.
Before Us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) which
reversed the Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping
Corporation to pay the sum of P280,176.92 plus interest and attorney's fees in favor of respondent
Insurance Company of North America (ICNA).
The Facts
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies
(MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The
insurance was for a transshipment of certain wooden work tools and workbenches purchased for the
consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City,
Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary
Companies on behalf of the title holder: - Loss, if any, payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany
on board M/S Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which stated the consignee
to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore.
On July 18, 1993, the ship arrived and docked at the Manila International Container Port where the
container van was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz
Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport
System. The bill of lading7 issued by Aboitiz contained the notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without any notation
on the condition of the cargo on the Stuffing/Stripping Report.8 On August 1, 1993, the container van
was loaded on board petitioner's vessel, MV Super Concarrier I. The vessel left Manila en route to
Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the
Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending
clearance from the Customs authorities. In the Stripping Report9 dated August 5, 1993, petitioner's
checker noted that the crates were slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science
Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta
Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then
Claims Head of petitioner, received a telephone call from Willig informing him that the cargo
sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse
and checked the condition of the container and other cargoes stuffed in the same container. He found
that the container van and other cargoes stuffed there were completely dry and showed no sign of
wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself
appeared to be completely dry and had no water marks. But he confirmed that the tools which were
stored inside the crate were already corroded. He further explained that the "grounded outside
warehouse" notation in the bill of lading referred only to the container van bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the
cargo.12 The letter stated that the crate was broken at its bottom part such that the contents were
exposed. The work tools and workbenches were found to have been completely soaked in water with
most of the packing cartons already disintegrating. The crate was properly sealed off from the inside
with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The
letter concluded that apparently, the damage was caused by water entering through the broken parts
of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the
Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage.
CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were
discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount of
P276,540.00 for the damaged condition of the following goods:
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on official
weather report from the Philippine Atmospheric, Geophysical and Astronomical Services
Administration, it would appear that heavy rains on July 28 and 29, 1993 caused water damage to the
shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North
Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the
warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation
"grounded outside warehouse." It was only on July 31, 1993 when the shipment was stuffed inside
another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to
consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim
and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received
from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92,
plus interest and attorney's fees.16 ICNA alleged that the damage sustained by the shipment was
exclusively and solely brought about by the fault and negligence of Aboitiz when the shipment was
left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered
that the complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the
cause of action was barred, and the suit was premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the
decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in
the complaint for being baseless and without merit. The complaint is hereby DISMISSED. The
defendant's counterclaims are, likewise, DISMISSED for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against
Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with
address at Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not
present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned
the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the
rights of the consignee must fail because the subrogation receipt had no probative value for being
hearsay evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America
(U.K.) _x0016_Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no
evidence has been adduced which would show that ICNA UK is the same as or the
predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address at
Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA
UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS
Cargo International Limited &/or Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco
B. Francisco, claims that the signature below the name MSAS Cargo International is an endorsement
of the marine policy in favor of Science Teaching Improvement Project. Plaintiff's witness, however,
failed to identify whose signature it was and plaintiff did not present on the witness stand or took (sic)
the deposition of the person who made that signature. Hence, the claim that there was an
endorsement of the marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching
Improvement Project as shown by the Subrogation Form (Exhibit "K") allegedly signed by a
representative of Science Teaching Improvement Project. Such representative, however, was not
presented on the witness stand. Hence, the Subrogation Form is self-serving and has no probative
value.19 (Emphasis supplied)cralawlibrary
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly
licensed to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts,
to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company
duly authorized to do business in the Philippines. This allegation was, however, denied by the
defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined by the court is
whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine law, the condition
is that a foreign insurance company must obtain licenses/authority to do business in the Philippines.
These licenses/authority are obtained from the Securities and Exchange Commission, the Board of
Investments and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign
corporation doing business in the Philippines cannot sue before Philippine courts. Mentholatum Co.,
Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)cralawlibrary
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is
anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the
same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal
claim was not filed within the period required under Article 366 of the Code of Commerce; that ICNA
had no right of subrogation because the subrogation receipt should have been signed by MSAS, the
assured in the open policy, and not Willig, who is merely the representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of
the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A
new judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay
the plaintiff-appellant Insurance Company of North America the sum of P280,176.92 with interest
thereon at the legal rate from the date of the institution of this case until fully paid, and attorney's
fees in the sum of P50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the insurance company
of the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming
that it is an unlicensed foreign corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even
assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such
circumstance will not bar it from claiming reimbursement from the defendant carrier by virtue of
subrogation under the contract of insurance and as recognized by Philippine courts. x x x
x x x
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the
country, as subrogee of the claim of the insured under the subject marine policy, is therefore the real
party in interest to bring this suit and recover the full amount of loss of the subject cargo shipped by it
from Manila to the consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not
overcome by any countervailing evidence. Hence, the trial court erred in dismissing the complaint and
in not finding that based on the evidence on record and relevant provisions of law, Aboitiz is liable for
the loss or damage sustained by the subject cargo.
Issues
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA
HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT
WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF
STIP WAS NOT MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE;
AND, MORE SO, THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE
SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN
AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE
WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS
CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE
SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT
THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR
FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE
SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE
EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR
NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)cralawlibrary
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real
party-in-interest that possesses the right of subrogation to claim reimbursement from petitioner
Aboitiz? (b) Was there a timely filing of the notice of claim as required under Article 366 of the Code
of Commerce? (c) If so, can petitioner be held liable on the claim for damages?
Our Ruling
A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated
from filing a suit in local courts. Only when that foreign corporation is "transacting" or "doing
business" in the country will a license be necessary before it can institute suits.24 It may, however,
bring suits on isolated business transactions, which is not prohibited under Philippine law.25 Thus,
this Court has held that a foreign insurance company may sue in Philippine courts upon the marine
insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine
carrier, even if it has no license to do business in this country. It is the act of engaging in business
without the prescribed license, and not the lack of license per se, which bars a foreign corporation
from access to our courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the
subject marine policy, the present suit was filed by the said company's authorized agent in Manila. It
was the domestic corporation that brought the suit and not the foreign company. Its authority is
expressly provided for in the open policy which includes the ICNA office in the Philippines as one of
the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the
insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the
consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought
against ICNA UK, the company who issued the insurance, or against any of its listed agents
worldwide.27 MSAS accepted said provision when it signed and accepted the policy. The acceptance
operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy
to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer.
The Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary
Companies in behalf of the title holder: - Loss, if any, payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims
on behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of
the risk, may become the owner of the interest insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the
damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment
by the insurer to the assured operates as an equitable assignment of all remedies the assured may
have against the third party who caused the damage. Subrogation is not dependent upon, nor does it
grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to
subrogation equipped it with a cause of action against petitioner in case of a contractual breach or
negligence.30 This right of subrogation, however, has its limitations. First, both the insurer and the
consignee are bound by the contractual stipulations under the bill of lading.31 Second, the insurer
can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts
after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss
from liability, the insurer loses its claim against the latter.32
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right
to enforce the carrier's liability. Circumstances peculiar to this case lead Us to conclude that the
notice requirement was complied with. As held in the case of Philippine American General Insurance
Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement protects the carrier by affording it an
opportunity to make an investigation of the claim while the matter is still fresh and easily investigated.
It is meant to safeguard the carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from
receipt of the cargo if the damage is not apparent from the outside of the package. For damages that
are visible from the outside of the package, the claim must be made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the
carrier for damages or average which may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which give rise to the claim cannot be
ascertained from the outside part of such packages, in which case the claim shall be admitted only at
the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim
shall be admitted against the carrier with regard to the condition in which the goods transported
were delivered. (Emphasis supplied)cralawlibrary
The periods above, as well as the manner of giving notice may be modified in the terms of the bill of
lading, which is the contract between the parties. Notably, neither of the parties in this case
presented the terms for giving notices of claim under the bill of lading issued by petitioner for the
goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the
damage was dated August 15, 1993, that letter, together with the notice of claim, was received by
petitioner only on September 21, 1993. But petitioner admits that even before it received the written
notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone
sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse and to the delivery
site to inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35
the notice was allegedly made by the consignee through telephone. The claim for damages was
denied. This Court ruled that such a notice did not comply with the notice requirement under the law.
There was no evidence presented that the notice was timely given. Neither was there evidence
presented that the notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule
differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be made a
precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of
recovery from a carrier must be given a reasonable and practical construction, adapted to the
circumstances of the case under adjudication, and their application is limited to cases falling fairly
within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the information
that the delivered goods were discovered to have sustained water damage to no less than the Claims
Head of petitioner, Mayo B. Perez. Immediately, Perez was able to investigate the claims himself and
he confirmed that the goods were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a
reasonable and practical, rather than a strict construction.37 We give due consideration to the fact
that the final destination of the damaged cargo was a school institution where authorities are bound
by rules and regulations governing their actions. Understandably, when the goods were delivered, the
necessary clearance had to be made before the package was opened. Upon opening and discovery of
the damaged condition of the goods, a report to this effect had to pass through the proper channels
before it could be finalized and endorsed by the institution to the claims department of the shipping
company.
The call to petitioner was made two days from delivery, a reasonable period considering that the
goods could not have corroded instantly overnight such that it could only have sustained the damage
during transit. Moreover, petitioner was able to immediately inspect the damage while the matter
was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there
was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in
interest to institute the claim for damages against petitioner; and pro hac vice, that a valid notice of
claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in
Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence required by law.38 Extraordinary diligence is that extreme
measure of care and caution which persons of unusual prudence and circumspection use for securing
and preserving their own property rights.39 This standard is intended to grant favor to the shipper
who is at the mercy of the common carrier once the goods have been entrusted to the latter for
shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with the findings
of the CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative
from Trabajo Arrastre, and the crates opened, it was discovered that the workbenches and work tools
suffered damage due to "wettage" although by then they were already physically dry. Appellee carrier
having failed to discharge the burden of proving that it exercised extraordinary diligence in the
vigilance over such goods it contracted for carriage, the presumption of fault or negligence on its part
from the time the goods were unconditionally placed in its possession (July 26, 1993) up to the time
the same were delivered to the consignee (August 11, 1993), therefore stands. The presumption that
the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence.
x x x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26,
1993. On the same day, it was stripped from the container van. Five days later, on July 31, 1993, it
was re-stuffed inside another container van. On August 1, 1993, it was loaded onto another vessel
bound for Cebu. During the period between July 26 to 31, 1993, the shipment was outside a container
van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside
warehouse," suggesting that from July 26 to 31, the goods were kept outside the warehouse. And
since evidence showed that rain fell over Manila during the same period, We can conclude that this
was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show the
possibility that some other party could be responsible for the damage. It must prove that it used "all
reasonable means to ascertain the nature and characteristic of the goods tendered for transport and
that it exercised due care in handling them.42 Extraordinary diligence must include safeguarding the
shipment from damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the crate for
shipment but only to the carrier van, petitioner failed to mention where exactly the goods were
stored during the period in question. It failed to show that the crate was properly stored indoors
during the time when it exercised custody before shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed that it was
rainwater that seeped into the cargo based on official data from the PAGASA that there was, indeed,
rainfall in the Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically noted that the
subject cargo was under the custody of appellee carrier from the time it was delivered by the shipper
on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other
inevitable conclusion can be deduced from the foregoing established facts that damage from
"wettage" suffered by the subject cargo was caused by the negligence of appellee carrier in grounding
the shipment outside causing rainwater to seep into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subject
goods by claiming that the notation "GROUNDED OUTSIDE WHSE." actually refers to the container
and not the contents thereof or the cargoes. And yet it presented no evidence to explain where did
they place or store the subject goods from the time it accepted the same for shipment on July 26,
1993 up to the time the goods were stripped or transferred from the container van to another
container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for
Cebu City on August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to
Cebu City, appellee provided no explanation as to where said cargo was stored from July 26, 1993 to
July 31, 1993. What the records showed is that the subject cargo was stripped from the container van
of the shipper and transferred to the container on August 1, 1993 and finally loaded into the
appellee's vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at
the Manila port did not indicate any such defect or damage, but when the container was stripped
upon arrival in Cebu City port after being discharged from appellee's vessel, it was noted that only
one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit "F").43
(Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily
prove that it exercised the extraordinary diligence required of common carriers.
SO ORDERED.
Endnotes:
1 Rollo, pp. 43-60. Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices
Regalado E. Maambong and Lucenito N. Tagle, concurring. CA-G.R. CV No. 81684, decision dated
March 29, 2005.
2 Id. at 212-218. Penned by Judge Romeo F. Barza. Civil Case No. 94-1590, decision dated November
14, 2003.
5 Id. at 348.
9 Rollo, p. 127.
11 Id.
12 Id. at 375-376.
14 Id. at 377.
15 Id. at 373-374.
18 Id. at 218.
19 Id. at 216-217.
20 The dorsal portion contained the provision stating that all claims shall be submitted to the office of
the Company or to one (1) of the "Agents" or "Representatives," as per list which included "Manila,
Philippines, Insurance Co. of North America, Legaspi Village, Makati CCPO Box 482."
21 Rollo, p. 59.
22 Id. at 52-53.
23 Id. at 20-21.
24 Corporation Code, Sec. 133. Doing business without a license. - No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines, but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws. See also
European Resources and Technologies, Inc. v. Ingenieuburo Birkhahn + Nolte, G.R. No. 159586, July 26,
2004, 435 SCRA 246, 255.
25 Bulakhidas v. Navarro, G.R. No. L-49695, April 7, 1986, 142 SCRA 1, 2-3.
26 Universal Shipping Lines v. Intermediate Appellate Court, G.R. No. 74125, July 31, 1990, 188 SCRA
170, 173.
28 G.R. No. 81026, April 3, 1990, 184 SCRA 54; see also Philippine American General Insurance Co., Inc.
v. Court of Appeals, G.R. No. 116940, June 11, 1997, 273 SCRA 262, 274.
30 Federal Express Corporation v. American Home Assurance Company, G.R. No. 150094, August 18,
2004, 437 SCRA 50, 56.
31 Id. at 56-57.
32 Manila Mahogany Manufacturing Corporation v. Court of Appeals, G.R. No. L-52756, October 12,
1987, 154 SCRA 650, 656.
39 Republic v. Lorenzo Shipping Corporation, G.R. No. 153563, February 7, 2005, 450 SCRA 550, 556,
citing Black's Law Dictionary, 5th ed. 1979, 411.
40 Id.
41 Rollo, p. 58.
FIRST DIVISION
DECISION
QUISUMBING, J.:
This petition for review assails the Decision[1] dated July 30, 2002 of the
Court of Appeals in CA-G.R. SP No. 60144, affirming the Decision[2] dated
May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277.
Both decisions held that there was no violation of the Insurance Code and the
respondents do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance
and Surety Corporation (Pioneer). Subsequently, White Gold was issued a
Certificate of Entry and Acceptance.[3] Pioneer also issued receipts evidencing
payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection
of sum of money to recover the latters unpaid balance. White Gold on the other
hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 186[4] and 187[5] of the Insurance Code,
while Pioneer violated Sections 299,[6] 300[7] and 301[8] in relation to Sections
302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was
no need for Steamship Mutual to secure a license because it was not engaged
in the insurance business. It explained that Steamship Mutual was a Protection
and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another
license as insurance agent and/or a broker for Steamship Mutual because
Steamship Mutual was not engaged in the insurance business. Moreover,
Pioneer was already licensed, hence, a separate license solely as
agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner.
In its decision, the appellate court distinguished between P & I
Clubs vis--vis conventional insurance. The appellate court also held that
Pioneer merely acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed
by the appellate court,
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I
Club, engaged in the insurance business in the Philippines? (2) Does Pioneer
need a license as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual
admits it does not have a license to do business in the Philippines although
Pioneer is its resident agent. This relationship is reflected in the certifications
issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the
insurance business. To buttress its assertion, it cites the definition of a P & I
Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals[10] as an association
composed of shipowners in general who band together for the specific purpose
of providing insurance cover on a mutual basis against liabilities incidental to
shipowning that the members incur in favor of third parties. It stresses that as a
P & I Club, Steamship Mutuals primary purpose is to solicit and provide
protection and indemnity coverage and for this purpose, it has engaged the
services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is
not engaged in the insurance business in the Philippines. It is merely an
association of vessel owners who have come together to provide mutual
protection against liabilities incidental to shipowning.[11] Respondents
aver Hyopsung is inapplicable in this case because the issue in Hyopsung was
the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes doing an
insurance business or transacting an insurance business. These are:
...
The same provision also provides, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no
separate or direct consideration is received therefor, shall not preclude the
existence of an insurance business.[12]
The test to determine if a contract is an insurance contract or not, depends
on the nature of the promise, the act required to be performed, and the exact
nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by
what it is called.[13]
Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.[14]
In particular, a marine insurance undertakes to indemnify the assured
against marine losses, such as the losses incident to a marine
adventure.[15] Section 99[16] of the Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where
the members are both the insurer and insured. In it, the members all contribute,
by a system of premiums or assessments, to the creation of a fund from which
all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest.[17] Additionally, mutual insurance
associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.[18]
A P & I Club is a form of insurance against third party liability, where the
third party is anyone other than the P & I Club and the members. [19] By
definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country
albeit without the requisite certificate of authority mandated by Section
187[20] of the Insurance Code. It maintains a resident agent in the Philippines
to solicit insurance and to collect payments in its behalf. We note that
Steamship Mutual even renewed its P & I Club cover until it was cancelled due
to non-payment of the calls. Thus, to continue doing business here, Steamship
Mutual or through its agent Pioneer, must secure a license from the Insurance
Commission.
Since a contract of insurance involves public interest, regulation by the
State is necessary. Thus, no insurer or insurance company is allowed to
engage in the insurance business without a license or a certificate of authority
from the Insurance Commission.[21]
Does Pioneer, as agent/broker of Steamship Mutual, need a special
license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration[22] issued by the Insurance Commission. It has been
licensed to do or transact insurance business by virtue of the certificate of
authority[23] issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.[24]
Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual. Section 299
of the Insurance Code clearly states:
SEC. 299 . . .
[1] Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate
Justices Candido V. Rivera, and Sergio L. Pestao concurring.
[2] CA Rollo, pp. 43-51.
[3] Id. at 103.
[4] SEC. 186. No person, partnership, or association of persons shall transact any insurance
business in the Philippines except as agent of a person or corporation authorized to do
the business of insurance in the Philippines, unless possessed of the capital and
assets required of an insurance corporation doing the same kind of business in the
Philippines and invested in the same manner; nor unless the Commissioner shall have
granted to him or them a certificate to the effect that he or they have complied with all
the provisions of law which an insurance corporation doing business in the Philippines
is required to observe.
Every person, partnership, or association receiving any such certificate of authority shall be
subject to the insurance laws of the Philippines and to the jurisdiction and supervision
of the Commissioner in the same manner as if an insurance corporation authorized by
the laws of the Philippines to engage in the business of insurance specified in the
certificate.
[5] SEC. 187. No Insurance Company shall transact any insurance business in the Philippines
until after it shall have obtained a certificate of authority for that purpose from the
Commissioner upon application therefor and payment by the company concerned of
the fees hereinafter prescribed.
...
[6] SEC. 299. No insurance company doing business in the Philippines, nor any agent thereof,
shall pay any commission or other compensation to any person for services in
obtaining insurance, unless such person shall have first procured from the
Commissioner a license to act as an insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining
insurance, any commission or other compensation from any insurance company doing
business in the Philippines or any agent thereof, without first procuring a license so to
act from the Commissioner, . . .
[7] SEC. 300. Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application for a
policy or contract of insurance to or from such company or offers or assumes to act in
the negotiating of such insurance shall be an insurance agent within the intent of this
section and shall thereby become liable to all the duties, requirements, liabilities and
penalties to which an insurance agent is subject.
[8] SEC. 301. Any person who for any compensation, commission or other thing of value acts or
aids in any manner in soliciting, negotiating or procuring the making of any insurance
contract or in placing risk or taking out insurance, on behalf of an insured other than
himself, shall be an insurance broker within the intent of this Code, and shall thereby
become liable to all the duties, requirements, liabilities and penalties to which an
insurance broker is subject.
[9] Rollo, pp. 144-145.
[10] No. L-77369, 31 August 1988, 165 SCRA 258, 260.
[11] Rollo, p. 176.
[12] THE INSURANCE CODE OF THE PHILIPPINES, Section 2(2).
[13] 43 AM JUR. 2d Insurance Sec. 4 (1982).
[14] RUFUS B. RODRIGUEZ, THE INSURANCE CODE OF THE PHILIPPINES
ANNOTATED 4 (4th ed., 1999), citing BUIST M. ANDERSON, VANCE ON
INSURANCE 83 (3rd ed., 1951).
[15] EDUARDO F. HERNANDEZ AND ANTERO A. PEASALES, PHILIPPINE ADMIRALTY
AND MARITIME LAW 612 (1st ed., 1987).
[16] SEC. 99. Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities, choses in action, evidences of debt,
valuable papers, bottomry, and respondentia interests and all other kinds of property
and interests therein, in respect to, appertaining to or in connection with any and all
risks or perils of navigation, transit or transportation, or while being assembled,
packed, crated, baled, compressed or similarly prepared for shipment or while
awaiting shipment, or during any delays, storage, trasshipment, or reshipment incident
thereto, including war risks, marine builders risks, and all personal property floater
risks.
(b) Person or property in connection with or appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss of or damage arising out of or in
connection with the construction, repair, operation, maintenance or use of the subject
matter of such insurance (but not including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to any person arising out of the
ownership, maintenance, or use of automobiles).
(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or
otherwise.
(d) Bridges, tunnels and other instrumentalities of transportation and communication
(excluding buildings, their furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to navigation and
transportation, including dry docks and marine railways, dams and appurtenant
facilities for the control of waterways.
(2) Marine protection and indemnity insurance, meaning insurance against, or against legal
liability of the insured for loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any vessel, craft or
instrumentality in use in ocean or inland waterways, including liability of the insured for
personal injury, illness or death or for loss of or damage to the property of another
person.
[17] Supra, note 13 at Sec. 65.
[18] HOWARD BENNETT, THE LAW OF MARINE INSURANCE 236 (1996).
[19] Supra, note 15 at 733.
[20] Supra, note 5.
[21] Supra, note 12 at Sec. 187.
[22] CA Rollo, p. 154.
[23] Id. at 153.
[24] Id. at 112. Certification issued by the Insurance Commission which certified that Pioneer is
not a registered broker for any foreign corporation.
FIRST DIVISION
x-----------------------x
DECISION
SERENO, CJ:
These Petitions for Review on Certiorari under Rule 45 of the Rules of Court originate from a Complaint for 1
Declaration of Nullity of Individual Insurance Contract (Civil Case No. 09-599 ). The Complaint was instituted by
2
Paramount Life and General Insurance Corporation (Paramount) against Cherry T. Castro and Glenn Anthony T.
Castro (Castro’s) and filed before the Regional Trial Court, Makati City, Branch 61 (RTC), on 2 July 2009.
The Petition docketed as G.R. No. 195728 assails the Court of Appeals (CA) Decision dated 4 October 2010 and
3 4
Resolution dated 21 February 2011 in CA-G.R. SP No. 113972. The CA remanded the case to the RTC for the
5
admission of the Castro's Third-Party Complaint against the Philippine Postal Savings Bank, Incorporated (PPS
BI).6
On the other hand, the Petition docketed as G.R. No. 211329 assails the Resolution of the RTC in Civil Case No.
7 8
09-599 dated 11 February 2014. The trial court ordered that the Motion to Dismiss filed by the defendants (the
Castro’s) be deemed expunged from the records, as they had previously been declared to be in default.
Nonetheless, due to the protracted nature of the proceedings, the RTC allowed the plaintiff no more than two
settings for the presentation of evidence. 9
These Petitions have been consolidated as they involve the same parties, arise from an identical set of facts, and
raise interrelated issues. The Court resolves to dispose of these cases jointly.
10
In 2004, the PPSBI applied for and obtained insurance from Paramount, which accordingly issued Group Master
11
Policy No. G-086 effective 1 September 2004. Under Section 20, Article IV of the said policy, "all death benefits
12
Meanwhile, Virgilio J. Castro (Virgilio) - Cherry's husband and Glenn's father - obtained a housing loan from the
PPSBI in the amount of Pl .5 million. PPSBI required Virgilio to apply for a mortgage redemption insurance (MRI)
14
from Paramount to cover the loan. In his application for the said insurance policy, Virgilio named Cherry and
15
Glenn as beneficiaries. Paramount issued Certificate No. 041913 effective 12 March 2008 in his favor, subject to
16
On 26 February 2009, Virgilio died of septic shock. Consequently, a claim was filed for death benefits under the
18
individual insurance coverage issued under the group policy. Paramount however denied the claim, on the
19
ground of the failure of Virgilio to disclose material information, or material concealment or misrepresentation. It20
said that when Virgilio submitted his insurance application on 12 March 2008, he made some material
misrepresentations by answering "no" to questions on whether he had any adverse health history and whether he
had sought medical advice or consultation concerning it. Paramount learned that in 2005, Virgilio had sought
consultation in a private hospital after complaining of a dull pain in his lumbosacral area. Because of the alleged
21
material concealment or misrepresentation, it declared Virgilio's individual insurance certificate (No. 041913)
rescinded, null, and absolutely void from the very beginning. 22
On 2 July 2009, Paramount filed a Complaint with the RTC docketed as Civil Case No. 09-599. It prayed that
23
Application and Insurance Certificate No. 041913 covering the individual insurance of Virgilio be declared null and
void by reason of material concealment and misrepresentation. It also prayed for attorney's fees and exemplary
damages. 24
In their Answer with Counterclaim, the Castro’s argued that Virgilio had not made any material
25
misrepresentation. They contended that he had submitted the necessary evidence of insurability to the satisfaction
of
Paramount. They further argued that by approving Virgilio's application, Paramount was estopped from raising the
supposed misrepresentations. The Castro’s made a counterclaim for actual and exemplary damages, as well
26
as attorney's fees, for the alleged breach of contract by Paramount arising from its refusal to honor its obligation as
insurer of the Pl.5 million loan. 27
On 29 October 2009, the Castros filed a motion to include the PPSBI as an indispensible party-defendant. The
28
RTC thereafter denied the motion, reasoning that Paramount's Complaint could be fully resolved without the
PPSBI's participation. 29
Consequently, the Castro’s filed a Motion for Leave to File a Third Party-Complaint and to Admit Attached
Third-Party Complaint. They argued that due to the death of Virgilio, and by virtue of Group Policy No. G-086
30
in· relation to Certificate No. 041913, PPSBI stepped into the shoes of Cherry and Glen under the principle of
"indemnity, subrogation, or any other reliefs" found in Section 22, Rule 6 of the Rules of Court. This motion was
31
likewise denied, on the ground that "what the defendants herein want is the introduction of a controversy that is
entirely foreign and distinct from the main cause." The Castro’s Motion for Reconsideration was again denied in a
32
On 13 May 2010, the Castro’s assailed the RTC Resolutions through a Petition for Certiorari filed with the
CA. They likewise subsequently filed a Motion for Leave of Court to File and to Admit Attached Supplemental
34
In its Decision dated 4 October 2010, the CA partially granted the Petition by allowing a third-party complaint to be
36
filed against the PPSBI. It ruled that the Castro’s were freed from the obligation to pay the bank by virtue of
subrogation, as the latter would collect the loan amount pursuant to the MRI issued by Paramount in Virgilio's
favor. Paramount moved for reconsideration, but the CA denied the motion through a Resolution dated 21
37 38
February 2011.
On 11 April 2011, Paramount filed a Petition for Review under Rule 45, arguing that the case could be fully
appreciated and resolved without involving the PPSBI as a third-party defendant in Civil Case No. 09-599. 39
Meanwhile, on 7 January 2014, the Castro’s filed a Motion to Dismiss the Complaint on the ground of failure to
40
prosecute for an unreasonable length of time without justifiable cause and to present evidence ex parte pursuant
to a court order. In a Resolution dated 11 February 2014, the RTC denied the motion. Owing to its previous Order
41
dated 26 May 2010, which declared the Castro’s as in default for failure to attend the pretrial, the RTC treated the
Motion to Dismiss as a mere scrap of paper and expunged it from the records.
The Castro’s come straight to this Court via a Petition for Review under Rule 45, assailing the RTC Resolution
42
THE ISSUES
1. Whether the CA erred in remanding the case to the R TC for the admission of the Third-Party Complaint against
PPSBI
2. Whether the RTC erred in denying the Motion to Dismiss filed by the Castro’s
The Castro’s sought to implead the PPSBI as a third-party defendant in the nullification case instituted by
Paramount. They theorized that by virtue of the death of Virgilio and the mandate of the group insurance policy in
relation to his individual insurance policy, the PPSBI stepped into the shoes of Cherry and Glenn. According to the
Castro’s, upon Virgilio's death, the obligation to pay the third-party defendant (PPSBI) passed on to Paramount by
virtue of the Mortgage Redemption Insurance, and not to them as Virgilio's heirs.
43
In Great Pacific Life Assurance Corp. v. Court of Appeals, we defined mortgage redemption insurance as a
44
device for the protection of both the mortgagee and the mortgagor:
On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will
be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the
obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of
death, the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness. 45
In this case, the PPSBI, as the mortgagee-bank, required Virgilio to obtain an MRI from Paramount to cover his
housing loan. The issuance of the MRI, as evidenced by the Individual Insurance Certificate in Virgilio's favor, was
derived from the group insurance policy issued by Paramount in favor of the PPSBI. Paramount undertook to pay
the PPSBI "the benefits in accordance with the Insurance Schedule, upon receipt and approval of due proof that
the member has incurred a loss for which benefits are payable." 46
Paramount, in opposing the PPSBI's inclusion as a third-party defendant, reasons that it is only seeking the
nullification of Virgilio's individual insurance certificate, and not the group insurance policy forged between it and
the PPSBI. It concludes that the nullification action it filed has nothing to do with the PPSBI.
We disagree.
Should Paramount succeed in having the individual insurance certificate nullified, the PPSBI shall then proceed
against the Castro’s. This would contradict the provisions of the group insurance policy that ensure the direct
payment by the insurer to the bank:
Notwithstanding the provision on Section 22 "No Assignment" of Article IV Benefit Provisions, and in accordance
with provisions of Section 6 "Amendment of this Policy" under Article II General Provisions of the Group Policy, it is
hereby agreed that all death benefits shall be payable to the Creditor, Philippine Postal Savings Bank as its
interest may appeal. (Emphasis supplied.)
47
In allowing the inclusion of the PPSBI as a third-party defendant, the Court recognizes the inseparable interest of
the bank (as policyholder of the group policy) in the validity of the individual insurance certificates issued by
Paramount. The PPSBI need not institute a separate case, considering that its cause of action is intimately related
to that of Paramount as against the Castro’s. The soundness of admitting a third-party complaint hinges on causal
connection between the claim of the plaintiff in his complaint and a claim for contribution, indemnity or other relief
of the defendant against the third-party defendant. In this case, the Castro’s stand to incur a bad debt to the
48
PPSBI - the exact event that is insured against by Group Master Policy No. G-086 - in the event that Paramount
succeeds in nullifying Virgilio's Individual Insurance Certificate.
Paramount further argues that the propriety of a third-party complaint rests on whether the possible third-party
defendant (in this case PPSBI) can raise the same defenses that the third-party plaintiffs (the Castro’s) have
against the plaintiff. However, the Rules do not limit the third-party defendant's options to such a condition. Thus:
Section 13. Answer to third (fourth, etc.)-party complaint. – A third (fourth, etc.)-party defendant may allege in his
answer his defenses, counterclaims or cross-claims, including such defenses that the third (fourth, etc.)-party
plaintiff may have against the original plaintiffs claim. In proper cases, he may also assert a counterclaim against
the original plaintiff in respect of the latter's claim against the third-party plaintiff.
49
As seen above, the same defenses the third-party plaintiff has against the original plaintiff are just some of the
allegations a third-party defendant may raise in its answer. Section 13 even gives the third-party defendant the
prerogative to raise a counterclaim against the original plaintiff in respect of the latter's original claim against the
defendant/third-party plaintiff.
In Firestone Tire & Rubber Co. of the Phil. v. Tempongko, We ruled that a defendant is permitted to bring in a
50
third-party defendant to litigate a separate cause of action in respect of the plaintiffs claim against a third party in
the original and principal case. The objective is to avoid circuitry of action and unnecessary proliferation of
lawsuits, as well as to expeditiously dispose of the entire subject matter arising from one particular set of facts, in
one litigation.
The CA correctly ruled that to admit the Castro’s Third-Party Complaint, in which they can assert against the
PPSBI an independent claim they would otherwise assert in another action, would prevent multiplicity of
suits. Considering also that the original case from which these. Present Petitions arose has not yet been resolved,
51
the Court deems it proper to have all the parties air all their possible grievances in the original case still pending
with the RTC.
Finally, the Court resolves the legal issues allegedly ignored by the CA, to wit: 1) whether legal grounds exist for
the inhibition of Judge Ruiz (the presiding judge); and 2) whether the defendants were properly declared
The first issue is unmeritorious. Counsel for the Castro’s postulates that since six rulings of the judge are being
assailed for grave abuse of discretion, the judge should inhibit himself. According to counsel, no judge shall sit in
52
any case if the latter's ruling is subject to review. The Court reminds counsel that the rule contemplates a scenario
in which judges are tasked to review their own decisions on appeal, not when their decisions are being appealed to
another tribunal.
With regard to the second issue, counsel apparently confuses a declaration of default under Section 3 of Rule 9
53
with the effect of failure to appear under Section 5 of Rule 18. Failure to file a responsive pleading within the
54
reglementary period is the sole ground for an order of default under Rule 9. On the other hand, under Rule 18,
55
failure of the defendant to appear at the pre-trial conference results in the plaintiff being allowed to present
evidence ex parte. The difference is that a declaration of default under Rule 9 allows the Court to proceed to
render judgment granting the claimant such relief as his pleading may warrant; while the effect of default under
Rule 18 allows the plaintiff to present evidence ex parte and for the Court to render judgment on the basis thereof.
The lower com1 may have declared defendants therein as in default; however, it did not issue an order of default,
rather, it ordered the plaintiff to present evidence ex parte in accordance with the Rules. In any case, the Castro’s
could have availed themselves of appropriate legal remedies when the CA failed to resolve the issue, but they did
not. They cannot now resurrect the issue through a Comment before this Court.
As regards G.R. No. 211329, this Court finds that outright denial of the Petition is warranted, pursuant to our ruling
in Rayos v. City of Manila. In that case, We ruled that an order denying a motion to dismiss is interlocutory and,
56
hence, not appealable. That ruling was based on Section 1 (b), Rule 41 of the Rules of Court, as amended,
57
which provides:
SECTION 1. Subject of appeal. - An appeal may be taken from a judgment or final order that completely disposes
of the case, or of a particular matter therein when declared by these Rules to be appealable.
xxxx
xxxx
In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an
appropriate special civil action under Rule 65.
In the present case, the RTC's denial of the Motion to Dismiss was an interlocutory order, as it did not finally
dispose of the case. On the contrary; the denial paved way for the case to proceed until final adjudication by the
trial court.
Upon denial of their Motion to Dismiss, the Castro’s were not left without any recourse. In such a situation, the
aggrieved party's remedy is to file a special civil action for certiorari under Rule 65 of the Rules of Court. However,
the aggrieved parties herein resorted to filing a Petition for Review under Rule 45 before this Court. Even if the
present Petition is treated as one for certiorari under Rule 65, it must still be dismissed for violation of the principle
of hierarchy of courts. This well-settled principle dictates that petitioners should have filed the Petition for Certiorari
with the CA, and not directly with this Court.
WHEREFORE, premises considered, the Petitions in G.R. Nos. 195728 and 211329 are DENIED.
SO ORDERED.
WE CONCUR:
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.
Footnotes
1
Rollo (G.R. No. 195728), pp. 35-44.
2
In the Complaint, the case was denominated as "Civil Case No. 09-598," but was later referred to as "Civil Case
No. 09-599" in subsequent pleadings of the parties and issuances of the trial and the appellate courts.
3
Rollo (G.R. No. 195728), pp. 12-34.
4
Id. at 113-126; Penned by Associate Justice Juan Q. Enriquez, Jr., and concurred in by Associate Justices
Ramon M. Bato, Jr. and Fiorito S. Macalino.
5
Id. at 128-129.
6
Id. at 125.
7
Rollo (G.R. No. 211329), pp. 3-24
8
Id. at 52-53; Penned by Assisting Judge Maria Amifaith S. Fider-Reyes.
9
Id. at 53.
10
Id. at 117; Pursuant to the Court's Resolution dated 23 April 2014.
11
Rollo (G.R. No. 195728), p. 15.
12
Id. at 45-55.
13
Id. at 51.
14
Id. at 62-63.
15
Id. at 63.
16
Id. at 56.
17
Id. at 56-57.
18
Id. at 58.
19
Id. at 59.
20
Id. at. 60.
21
Id. at 59-60.
22
Id. at 60.
23
Id. at 35-42.
24
Id. at 41.
25
Id. at 61-73.
26
Id. at 65.
27
Id. at 67-69.
28
Id. at 77-80.
29
Id. at 85-86.
30
Id. at 87-97.
31
Id. at 95.
32
Id. at I 05.
33
Id. at I I I .
34
Id. at 152.
35
Id. at 152-172.
36
Id. at 113-126.
37
Id. at 125.
38
Id. at. 128-129.
39
Id. at 12-29.
40
Rollo (G.R. No. 211329), pp. 54-61.
41
Id. at 52-53.
42
Id. at 3-24.
43
Id.
44
375 Phil. 142 (1999).
45
Id. at 148.
46
Rollo (G.R. No. 195728), p. 45.
47
Group Policy, Article IV, Section 20. See id. at 5 ! .
48
Asian Construction and Development Corp. v. CA, 498 Phil. 36 (2005).
49
Rule 6, Section 13, Revised Rules of Court.
50
137 Phil. 239 (1969).
51
Rollo (G.R. No. 195728), p. 125.
52
Id. at 146.
53
Section 3. Default; declaration ~f - If the defending party fails to answer within the time allowed therefor, the court
shall, upon motion of the claiming party with notice to the defending party, and proof of such failure, declare the
defending party in default. Thereupon, the court shall proceed to render judgment granting the claimant such relief
1âwphi1
as his pleading may warrant, unless the court in its discretion requires the claimant to submit evidence. Such
reception of evidence may be delegated to the clerk of court.
xxxx
Section 5. Effect of failure to appear. -The failure of the plaintiff to appear when so required pursuant to the next
54
preceding section shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless
other-wise ordered by the court. A similar failure on the part of the defendant shall be cause to allow the plaintiff to
present his evidence ex parte and the court to render judgment on the basis thereof.
55
Valentina Rosario v. Alonzo, 118 Phil. 404 (1963).
56
G.R. No. 196063, 14 December 2011, 662 SCRA 684.
57
Fil-Estate Golf and Development, Inc. v. Navarro, 553 Phil. 48 (2007), citing Lu Ym v. Nabua, 492 Phil. 397
(2005).
FIRST DIVISION
DECISION
PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court
seeks to set aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:
2. One of the stipulations of the one (1) year lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or store or space
in the leased premises without first obtaining the written consent and
approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and
transferred to the LESSOR for its own benefit; x x x [1]
4. On the day that the lease contract was to expire, fire broke out inside the
leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses
(without its consent), it wrote the insurer (United) a demand letter asking
that the proceeds of the insurance contract (between the Cha spouses and
United) be paid directly to CKS, based on its lease contract with Cha
spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the
Cha spouses and United.
decision, deleting however the awards for exemplary damages and attorneys
fees. A motion for reconsideration by United was denied on 29 March 1996.
II
III
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING
PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A
STIPULATION WHICH IS VOID FOR BEING WITHOUT
CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON
THE WILL OF THE RESPONDENT CORPORATION. [2]
[1]
Rollo, p. 50.
*
Penned by Judge Roberto M. Lagman.
**
Penned by Justice Conchita Carpio-Morales, with Justices Fidel P. Purisima and Fermin A.
Matin, Jr., concurring.
[2]
Rollo, p. 18.
[3]
Article 1409(i), Civil Code.
[4]
Section 19, Insurance Code.
THIRD DIVISION
DECISION
PURISIMA, J.:
xxx...............xxx...............xxx
The same pieces of property insured with the petitioner were also
insured with New India Assurance Company, Ltd., (New India).
Petitioner Rizal Insurance countered that its fire insurance policy sued
upon covered only the contents of the four-span building, which was
partly burned, and not the damage caused by the fire on the two-storey
annex building.[7]
SO ORDERED."[8]
SO ORDERED."[9]
On February 2, 1994, the Court denied the appeal with finality in G.R.
No. L-111118 (New India Assurance Company Ltd. vs. Court of
Appeals).
SO ORDERED."[10]
Undaunted, petitioner Rizal Surety & Insurance Company found its way
to this Court via the present Petition, contending that:
After a careful study, the Court does not find any basis for disturbing
what the lower courts found and arrived at.
"In the case at bar, the issue of which vessel ('Don Carlos' or
'Yotai Maru') had been negligent, or so negligent as to have
proximately caused the collision between them, was an issue
that was actually, directly and expressly raised, controverted and
litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that
issue in his Decision and held the 'Don Carlos' to have been
negligent rather than the 'Yotai Maru' and, as already noted, that
Decision was affirmed by this Court in G.R. No. L-48839 in a
Resolution dated 6 December 1987. The Reyes Decision thus
became final and executory approximately two (2) years before
the Sison Decision, which is assailed in the case at bar, was
promulgated. Applying the rule of conclusiveness of judgment,
the question of which vessel had been negligent in the collision
between the two (2) vessels, had long been settled by this Court
and could no longer be relitigated in C.A.-G.R. No. 61206-R.
Private respondent Go Thong was certainly bound by the ruling
or judgment of Reyes, L.B., J. and that of this Court. The Court of
Appeals fell into clear and reversible error when it disregarded
the Decision of this Court affirming the Reyes Decision."[25]
So also, the Court of Appeals correctly adjudged petitioner liable for the
amount of P470,328.67, it being the total loss and damage suffered by
Transworld for which petitioner Rizal Insurance is liable.[26]
SO ORDERED.
[1]
Annex "A"; Rollo, pp. 27-49.
[2]
Annex "B"; Rollo, pp. 51- 52.
[3]
Special Tenth Division; composed of Associate Justices: Cezar D. Francisco (Ponente), Gloria C.
Paras (Chairman), and Ricardo P. Galvez (Member)
[4]
Penned by Judge Efren D. Villanueva.
[5]
Decision, Annex "A"; Rollo, pp. 28-29.
[6]
Rollo, p. 59.
[7]
Rollo, p. 62.
[8]
Decision, Rollo, pp. 78-79.
[9]
Decision, Rollo, p. 49.
[10]
Resolution, Rollo, p. 52.
[11]
Petition, Rollo, pp. 12-13.
[12]
Answer, Rollo, p. 62.
[13]
Rollo, p. 76.
[14]
Rollo, p. 77.
[15]
Borromeo vs. Court of Appeals, G.R. No. 75908, October 22, 1999; citing: Meneses vs. Court of
Appeals, 246 SCRA 162, p.171; Coca Cola Bottlers Phil., Inc vs. Court of Appeals, 229 SCRA 533;
and Binalay vs. Manalo, 195 SCRA 374.
[16]
Petitioner, Rollo, p. 17.
[17]
Rollo, p. 17.
[18]
Decision, Rollo, p. 69.
[19]
44 SCRA 7.
[20]
Ibid., pp. 12-13, citing: Calanoc vs. Court of Appeals, 98 Phil. 79, 84. See, also, H.E. Heacock Co.
vs. Macondray, 42, Phil. 205; Rivero vs. Robe, 54 Phil. 982; Asturias Sugar Central vs. The Pure Cane
Molasses Co., 57 Phil. 519; Gonzales vs. La Previsora Filipina, 74 Phil. 165; Del Rosario vs. The
Equitable Insurance, 620 O.G. 5400, 5403-04.
[21]
25 SCRA 70.
[22]
Ibid., p. 75.
[23]
Smith Bell and Company (Phils.), Inc. vs. Court of Appeals, 197 SCRA 201, p. 209; citing: Tingson
vs. Court of Appeals, 49 SCRA 429.
[24]
Smith Bell and Company (Phils.), Inc. vs. Court of Appeals, supra.
[25]
Ibid., pp. 210-211.
[26]
Rollo, p. 43.
SECOND DIVISION
JOSE MARQUES and MAXILITE TECHNOLOGIES, INC., Petitioners, v. FAR EAST BANK AND TRUST
COMPANY, FAR EAST BANK INSURANCE BROKERS, INC., and MAKATI INSURANCE COMPANY,
Respondents.
FAR EAST BANK AND TRUST COMPANY and MAKATI INSURANCE COMPANY, Petitioners, v. JOSE
MARQUES and MAXILITE TECHNOLOGIES, INC., Respondents.
DECISION
CARPIO, J.:
The Case
These consolidated petitions for reviewcralaw1cralaw assail the 31 May 2005 Decision
cralaw2cralaw and the 26 January 2006 Resolutioncralaw3cralaw of the Court of Appeals-Cebu
City in CA-G.R. CV No. 62105. The Court of Appeals affirmed with modifications the 4 September 1998
Decisioncralaw4cralaw of the Regional Trial Court of Cebu City, Branch 58, in Civil Case No.
CEB-18979.
The Facts
Maxilite Technologies, Inc. (Maxilite) is a domestic corporation engaged in the importation and
trading of equipment for energy-efficiency systems. Jose N. Marques (Marques) is the President and
controlling stockholder of Maxilite.
Far East Bank and Trust Co. (FEBTC)cralaw5cralaw is a local bank which handled the financing and
related requirements of Marques and Maxilite. Marques and Maxilite maintained accounts with
FEBTC. Accordingly, FEBTC financed Maxilite's capital and operational requirements through loans
secured with properties of Marques under the latter's name. Among Maxilite's and Marques'
transactions with FEBTC were: chanrob1esvirtwallawlibrary
a. A straight loan in the name of Jose N. Marques for Maxilite at the original principal amount of P 1
million. This is secured by real estate mortgage. From said original principal amount, the bank
increased it by P 300, 000.00 about 26 October 1994 to enable the wiping out of Maxilite's Trust
Receipts Account and simplify the remaining accounts into straight loan accounts.
b. A straight loan in the name of Maxilite Technologies, Inc. for a principal amount of P 2 million. This
is secured with a Real Estate Mortgage of Marques' residential property.
c. Master Card transactions covering two (2) Master Card Accounts of Marques, and
d. Local credit card transactions covering one credit card account of Marques.cralaw6cralawredlaw
Far East Bank Insurance Brokers, Inc. (FEBIBI) is a local insurance brokerage corporation while Makati
Insurance Company cralaw7cralaw is a local insurance company. Both companies are subsidiaries of
FEBTC.cralaw8cralawredlaw
On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction with FEBTC, in the
sum of US$80, 765.00, for the shipment of various high-technology equipment from the United States,
cralaw9cralaw with the merchandise serving as collateral. The foregoing importation was covered by
a trust receipt document signed by Marques on behalf of Maxilite, which pertinently reads:
chanrob1esvirtwallawlibrary
The undersigned (Marques) further agree(s) to keep said merchandise insured against fire to its full
value, payable to the said bank, at the cost and expense of the undersigned, who hereby further
agree(s) to pay all charges for storage on said merchandise or any or other expenses incurred
thereon.
x x xcralaw10cralawredlaw
Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated the procurement and
processing from Makati Insurance Company of four separate and independent fire insurance policies
over the trust receipted merchandise: (1) Policy No. BR-F-1016333, issued on 15 September 1993,
covering the period 12 August 1993 to 12 November 1993 in the amount of P 1, 000,
000.00;cralaw11cralaw (2) Policy No. BR-F-1016888, issued on 15 September 1993 covering the
period 8 September 1993 to 8 December 1993 in the amount of P 605, 494.28;cralaw12cralaw (3)
Policy No. BR-F-1016930, issued on 18 October 1993, covering the period 14 October 1993 to 12
January 1994 in the amount of P 527, 723.66;cralaw13cralaw and (4) Policy No. BR-F-1018392, issued
on 14 December 1993, covering the period 1 December 1993 to 1 March 1994 in the amount of P 725,
000.00.cralaw14cralaw Maxilite paid the premiums for these policies through debit arrangement.
FEBTC would debit Maxilite's account for the premium payments, as reflected in statements of
accounts sent by FEBTC to Maxilite.
On 19 August 1994, Insurance Policy No. 1024439, covering the period 24 June 1994 to 24 June 1995,
was released to cover the trust receipted merchandise. The policy relevantly provides:
chanrob1esvirtwallawlibrary
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or
Company official, shall be deemed invalid and of no effect.cralaw15cralawredlaw
Finding that Maxilite failed to pay the insurance premium in the sum of P 8, 265.60 for Insurance
Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995, FEBIBI sent written reminders
to FEBTC, dated 19 October 1994, cralaw16cralaw 24 January 1995, cralaw17cralaw and 6 March
1995, to debit Maxilite's account.cralaw18cralawredlaw
On 24 and 26 October 1994, Maxilite fully settled its trust receipt account.
On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J. Cuenco Avenue, Cebu
City, where Maxilite's office and warehouse were located. As a result, Maxilite suffered losses
amounting to at least P 2.1 million, which Maxilite claimed against the fire insurance policy with
Makati Insurance Company. Makati Insurance Company denied the fire loss claim on the ground of
non-payment of premium. FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim.
Maxilite and Marques sued FEBTC, FEBIBI, and Makati Insurance Company. Maxilite prayed for (1)
actual damages totaling P 2.3 million representing full insurance coverage and "business opportunity
losses, " (2) moral damages, and (3) exemplary damages. cralaw19cralaw On the other hand, Marques
sought payment of actual, moral and exemplary damages, attorney's fees, and litigation expenses.
Maxilite and Marques also sought the issuance of a preliminary injunction or a temporary restraining
to enjoin FEBTC from (1) imposing penalties on their obligations; (2) foreclosing the real estate
mortage securing their straight loan accounts; and (3) initiating actions to collect their obligations.
FEBTC, FEBIBI, and Makati Insurance Company countered that Maxilite and Marques have no cause of
action against them and essentially denied the allegations in the complaint.
In ruling in favor of Maxilite and Marques, the Regional Trial Court of Cebu City, Branch 58, explained:
chanrob1esvirtwallawlibrary
Considering the interest of the defendant FEBTC in the property insured, hence, its concern that the
insurance policy therefor has to be effected and enforceable, and considering that the payment of the
premium thereof was the procedure adopted by debiting the plaintiffs' account, the Court is of the
view that the non-payment of the premium of the insurance policy in question was due to the fault or
negligence of the defendant FEBTC. What could have happened to the interest of the defendant
FEBTC in the insurance policy in question had the fire occurred prior to the full settlement and
payment of plaintiff's Maxilite trust receipt account? Would defendant FEBTC have tossed the blame
on the non-payment of premium to the plaintiffs?
Although there were reminders by defendant FEBIBI of the non-payment of the premium, the same
were made by said defendant through the defendant FEBTC and not to the plaintiffs directly. Despite
said reminders, the first of which was made on October 19, 1994 when plaintiff Maxilite has sufficient
fund in its trust receipt account, defendant FEBTC did not heed the same and more so did it not care
to pay the premium after the plaintiff Maxilite fully and finally settled its trust receipt account with
defendant FEBTC as the latter has already lost its interest in the insurance policy in question by virtue
of said full payment. But despite the non-payment of the insurance premium, the defendant Makati
Insurance did not cancel the policy in question nor informed plaintiffs of its cancellation if the
insurance premium should not be paid. Just as defendant FEBIBI failed to notify directly the plaintiffs
of the said non-payment. Considering the relationship of the three (3) defendants herein, as
undeniably sister companies, the non-payment of the premium of the insurance policy in question
should be imputable to their fault or negligence. Under the factual milieu in the case at bar, the Court
finds it just and equitable to hold said defendants liable to pay all the consequent damages suffered
by the plaintiffs and their liability is solidary (Art. 2194, Civil Code).cralaw20cralawredlaw
WHEREFORE, premises considered, judgment is hereby rendered ordering the defendants to pay
jointly and severally to the plaintiff Maxilite the sum of Two Million One Hundred Thousand Pesos ( P
2, 100, 000.00), Philippine Currency, representing the full coverage of Insurance Policy No.
1024439 (Exh. 'A'), as actual damages, plus interest of 12% per annum from filing of Complaint on July
11, 1996 until fully paid, to the plaintiff Marque[s] the sum of P 400, 000.00 as moral damages, to
both plaintiffs the sum of P 500, 000.00 as exemplary damages, the sum of P 50, 000.00 as
attorney's fees, the sum of P 23, 082.50, representing the filing fees, as litigation expenses, and to
pay the costs.
SO ORDERED.cralaw21cralawredlaw
The Court of Appeals affirmed the trial court's decision, with modifications, on the following grounds:
chanrob1esvirtwallawlibrary
First, the relations among defendants with each other are closely related and so intertwined. The said
three defendants, FEBTC, FEBIBI and MICI, are sister companies. This was never denied by the
defendants themselves.
Second, the insurance coverage was the business of sister companies FEBIBI and Makati Insurance,
not with FEBTC, which has been the bank of plaintiffs which handled the latter's financing and related
transactions. Stated a bit differently, defendant FEBTC handled the financing and related
requirements of plaintiffs; defendant FEBIBI on the other hand is an insurance brokerage company of
defendant FEBTC, while Makati Insurance is the insurance (arm) company of both defendants FEBIBI
and FEBTC.
Third, defendant FEBTC caused FEBIBI to facilitate the insurance coverage of plaintiffs. FEBIBI then
asked Makati Insurance to issue the subject policy. Makati Insurance delivered the policy to FEBIBI
which it tasked with the collection of premium. FEBIBI in turn delivered the policy to FEBTC from
where it sought the payment of the premiums.
Fourth, it must be noted that the cover note and policy was supposedly issued and made effective on
June 24, 1994, when the trust receipt account was still outstanding and the insured merchandise was
still theoretically owned by the bank. Thus, for all intents and purposes, it was to the best interest and
protection of the bank to see to it that the goods were properly covered by insurance.
Fifth, the payment of premium has never been made an issue when the subject policy was still
separated into three. Or even after the said consolidation into one policy (No. 1024439), still,
payment of the premium has never become an issue.
xxx
For another, if We were to believe defendants' claim that the premium for the subject policy was not
paid, then defendants should have cancelled the policy long before. But even up to the time the fire
gutted plaintiffs' warehouse in March 1995, defendants acknowledged that the subject policy
remained effective. x x x
Furthermore, there was no notice of cancellation or any communication from defendants sent to
plaintiffs that the policy shall be cancelled because of non-payment of premiums. Thus, the more
reasonable and logical conclusion is that the subject policy was still fully in force because plaintiffs are
still paying its premiums and defendants are collecting the same through debit
account.cralaw22cralawredlaw
UPON THE VIEW WE TAKE OF THIS CASE, judgment appealed from is hereby MODIFIED in such that:
chanrob1esvirtwallawlibrary
a. the interest shall be at the rate of six percent (6%) per annum to run from the time of demand on
April 11, 1995, in accordance with Article 1589 of the Civil Code, until the finality of this decision;
chanroblesvirtualawlibrary
d. the writ of preliminary injunction previously issued lifted and set aside.
In all other respects, judgment appealed from is AFFIRMED. Without pronouncement as to costs.
SO ORDERED.cralaw23cralawredlaw
The Issues
In G.R. No. 171379, petitioners assail the Court of Appeals' reduction of (1) the interest rate from 12%
to 6% per annum to be imposed on respondents' liabilities; and (2) the award of moral and exemplary
damages. Petitioners also question the portion of the Court of Appeals' judgment allowing FEBTC to
foreclose the real estate mortgage securing petitioners' loans and disallowing legal compensation for
the parties' mutual obligations.
In G.R. No. 171419, petitioners challenge the Court of Appeals' findings that (1) the premium for the
subject insurance policy has in fact been paid; (2) FEBTC, FEBIBI and Makati Insurance Company are
jointly and severally liable to pay respondents the full coverage of the subject insurance policy despite
(a) their separate juridical personalities; (b) the absence of any fault or negligence on their part; and
(c) respondents' failure to prove the extent of the alleged loss. Petitioners further impugn the award
of damages and attorney's fees.
Essentially, Maxilite and Marques invoke estoppel in claiming against FEBTC, FEBIBI, and Makati
Insurance Company the face value of the insurance policy. In their complaint, Maxilite and Marques
alleged they were led to believe and they in fact believed that the settlement of Maxilite's trust
receipt account included the payment of the insurance premium.cralaw24cralaw Maxilite and
Marques faulted FEBTC "if it failed to transmit the premium payments on subject insurance coverage
contrary to its represented standard operating procedure of solely handling the insurance coverage
and past practice of debiting [Maxilite's] account."cralaw25cralawredlaw
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
Meanwhile, Section 2(a), Rule 131 of the Rules of Court provides: chanrob1esvirtwallawlibrary
(a) Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing is true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be permitted to falsify it.
In estoppel, a party creating an appearance of fact, which is false, is bound by that appearance as
against another person who acted in good faith on it.cralaw26cralaw Estoppel is based on public
policy, fair dealing, good faith and justice.cralaw27cralaw Its purpose is to forbid one to speak against
his own act, representations, or commitments to the injury of one who reasonably relied
thereon.cralaw28cralaw It springs from equity, and is designed to aid the law in the administration of
justice where without its aid injustice might result.cralaw29cralawredlaw
In Santiago Syjuco, Inc. v. Castro, cralaw30cralaw the Court stated that "estoppel may arise from
silence as well as from words." 'Estoppel by silence' arises where a person, who by force of
circumstances is obliged to another to speak, refrains from doing so and thereby induces the other to
believe in the existence of a state of facts in reliance on which he acts to his prejudice.cralaw31cralaw
Silence may support an estoppel whether the failure to speak is intentional or
negligent.cralaw32cralawredlaw
Both trial and appellate courts basically agree that FEBTC is estopped from claiming that the insurance
premium has been unpaid. That FEBTC induced Maxilite and Marques to believe that the insurance
premium has in fact been debited from Maxilite's account is grounded on the the following facts: (1)
FEBTC represented and committed to handle Maxilite's financing and capital requirements, including
the related transactions such as the insurance of the trust receipted merchandise; (2) prior to the
subject Insurance Policy No. 1024439, the premiums for the three separate fire insurance policies had
been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC, not Maxilite nor Marques,
written reminders dated 19 October 1994, 24 January 1995, and 6 March 1995 to debit Maxilite's
account, establishing FEBTC's obligation to automatically debit Maxilite's account for the premium
amount; (4) there was no written demand from FEBTC or Makati Insurance Company for Maxilite or
Marques to pay the insurance premium; (5) the subject insurance policy was released to Maxilite on
19 August 1994; and (6) the subject insurance policy remained uncancelled despite the alleged
non-payment of the premium, making it appear that the insurance policy remained in force and
binding.
Moreover, prior to the full settlement of the trust receipt account on 24 and 26 October 1994, FEBTC
had insurable interest over the merchandise, and thus had greater reason to debit Maxilite's account.
Further, as found by the trial court, and apparently undisputed by FEBTC, FEBIBI and Makati Insurance
Company, Maxilite had sufficient funds at the time the first reminder, dated 19 October 1994, was
sent by FEBIBI to FEBTC to debit Maxilite's account for the payment of the insurance premium. Since
(1) FEBTC committed to debit Maxilite's account corresponding to the insurance premium; (2) FEBTC
had insurable interest over the property prior to the settlement of the trust receipt account; and (3)
Maxilite's bank account had sufficient funds to pay the insurance premium prior to the settlement of
the trust receipt account, FEBTC should have debited Maxilite's account as what it had repeatedly
done, as an established practice, with respect to the previous insurance policies. However, FEBTC
failed to debit and instead disregarded the written reminder from FEBIBI to debit Maxilite's account.
FEBTC's conduct clearly constitutes negligence in handling Maxilite's and Marques' accounts.
Negligence is defined as "the omission to do something which a reasonable man, guided upon those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent man and reasonable man could not do." cralaw33cralawredlaw
As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article 2176 of
the Civil Code which states "whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done." Indisputably, had the insurance premium been
paid, through the automatic debit arrangement with FEBTC, Maxilite's fire loss claim would have been
approved. Hence, Maxilite suffered damage to the extent of the face value of the insurance policy or
the sum of P 2.1 million.
Contrary to Maxilite's and Marques' view, FEBTC is solely liable for the payment of the face value of
the insurance policy and the monetary awards stated in the Court of Appeals' decision. Suffice it to
state that FEBTC, FEBIBI, and Makati Insurance Company are independent and separate juridical
entities, even if FEBIBI and Makati Insurance Company are subsidiaries of FEBTC. Absent any showing
of its illegitimate or illegal functions, a subsidiary's separate existence shall be respected, and the
liability of the parent corporation as well as the subsidiary shall be confined to those arising in their
respective business.cralaw34cralaw Besides, the records are bereft of any evidence warranting the
piercing of corporate veil in order to treat FEBTC, FEBIBI, and Makati Insurance Company as a single
entity. Likewise, there is no evidence showing FEBIBI's and Makati Insurance Company's negligence as
regards the non-payment of the insurance premium.
The Court agrees with the Court of Appeals in reducing the interest rate from 12% to 6% as the
obligation to pay does not arise from a loan or forbearance of money. In Eastern Shipping Lines, Inc. v.
Court of Appeals, cralaw35cralaw the Court laid down the following guidelines for the application of
the proper interest rates: chanrob1esvirtwallawlibrary
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title
XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
chanrob1esvirtwallawlibrary
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.
e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to forbearance of credit. (Emphasis supplied)
With respect to Maxilite's and Marques' invocation of legal compensation, we find the same devoid of
merit. Aside from their bare allegations, there is no clear and convincing evidence that legal
compensation exists in this case. In other words, Maxilite and Marques failed to establish the
essential elements of legal compensation. Therefore, Maxilite's and Marques' claim of legal
compensation must fail.
WHEREFORE , we AFFIRM with MODIFICATION the 31 May 2005 Decision and the 26 January 2006
Resolution of the Court of Appeals-Cebu City in CA-G.R. CV No. 62105. Only Far East Bank and Trust
Company, and not Far East Bank Insurance Brokers, Inc. or Makati Insurance Company, is
ORDERED to PAY the face value of the subject insurance policy and the monetary awards stated
in the Court of Appeals' decision.
SO ORDERED .
ANTONIO T. CARPIO
Associate Justice
WE CONCUR: chanrob1esvirtwallawlibrary
cralaw Endnotes:
cralaw2cralaw Rollo (G.R. No. 171419), pp. 94-113. Penned by Associate Justice Vicente L. Yap, with
Associate Justices Isaias P. Dicdican and Enrico A. Lanzanas concurring.
cralaw5cralaw FEBTC has been merged with Bank of the Philippine Islands (BPI), which is the surviving
corporation.
cralaw8cralaw Rollo (G.R. No. 171419), p. 330; TSN, 9 February 1998, p. 20.
cralaw26cralaw Aquino, Ramon C., The Civil Code of the Philippines, Vol. 2, 1990 Edition, p. 508, citing
Strong v. Gutierrez Repide, 6 Phil. 680, 685.
cralaw28cralaw Id.
cralaw29cralaw Id., citing 28 Am Jur 2nd 28; PNB v. Perez, 183 Phil. 54 (1979); Lazo v. Republic Surety
& Ins. Co., Inc., 142 Phil. 158 (1970).
cralaw30cralaw G.R. No. 70403, 7 July 1989, 175 SCRA 171, 192, citing 31 C.J.S., pp. 490-494.
cralaw31cralaw Id.
cralaw32cralaw Id.
cralaw33cralaw Bank of the Philippine Islands v. Suaez , G.R. No. 167750, 15 March 2010, 615 SCRA
291, 298.
cralaw34cralaw Nisce v. Equitable PCI Bank, Inc. , G.R. No. 167434, 19 February 2007, 516 SCRA 231,
258.
cralaw35cralaw G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95-97.
THIRD DIVISION
VICENTE ONG LIM SING, JR., G.R. No. 168115
Petitioner,
Present:
YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.
x-----------------------------------------------------------------------------------
-x
DECISION
NACHURA, J.:
In upholding JVL and Lims stance, the trial court stressed the
contradictory terms it found in the lease agreement. The pertinent
portions of the Decision dated November 22, 2002 read:
Another instance is when the alleged lessee was required to insure the
thing against loss, damage or destruction.
xxxx
It has also been held that the test of insurable interest in property is
whether the assured has a right, title or interest therein that he will be
benefited by its preservation and continued existence or suffer a direct
pecuniary loss from its destruction or injury by the peril insured
against. If the defendants were to be regarded as only a lessee,
logically the lessor who asserts ownership will be the one directly
benefited or injured and therefore the lessee is not supposed to be the
assured as he has no insurable interest.
There is also an observation from the records that the actual value of
each object of the contract would be the result after computing the
monthly rentals by multiplying the said rentals by the number of
months specified when the rentals ought to be paid.
For the vehicles returned, the plaintiff can only recover the unpaid
balance of the price because of the previous payments made by the
defendants for the reasonable use of the units, specially so, as it
appears, these returned vehicles were sold at auction and that the
plaintiff can apply the proceeds to the balance. However, with respect
to the unreturned units and machineries still in the possession of the
defendants, it is this Courts view and so hold that the defendants are
liable therefore and accordingly are ordered jointly and severally to
pay the price thereof to the plaintiff together with attorneys fee and the
costs of suit in the sum of Php25,000.00.
SO ORDERED.[11]
B. When it ruled that the applicable law on the case is Article 1484 (of
the Civil Code) and not R.A. No. 8556;
SO ORDERED.[17]
Lim filed the instant Petition for Review on Certiorari under Rule 45
contending that:
II
III
VI
VII
VIII
IX
23.1. The LESSOR and the LESSEE agree this instrument constitute
the entire agreement between them, and that no representations have
been made other than as set forth herein. This Agreement shall not be
amended or altered in any manner, unless such amendment be made in
writing and signed by the parties hereto.
Petitioners claim that the real intention of the parties was a contract of
sale of personal property on installment basis is more likely a mere
afterthought in order to defeat the rights of the respondent.
The allegation of petitioner that the rent for the use of each
movable constitutes the value of the vehicle or equipment leased is of no
moment. The law on financial lease does not prohibit such a circumstance
and this alone does not make the transaction between the parties a sale of
personal property on installment. In fact, the value of the lease, usually
constituting the value or amount of the property involved, is a benefit
allowed by law to the lessor for the use of the property by the lessee for
the duration of the lease. It is recognized that the value of these movables
depreciates through wear and tear upon use by the lessee. In Beltran v.
PAIC Finance Corporation,[24] we stated that:
Fifth, petitioner further proffers the view that the real intention of
the parties was to enter into a contract of sale on installment in the same
manner that a previous transaction between the parties over a 1995
Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an
agreement denominated as a lease and eventually became the subject of a
Deed of Absolute Sale.
SO ORDERED.
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ATTESTATION
I attest that the conclusions in the above decision were reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Second Division
CERTIFICATION
LEONARDO A. QUISUMBING
Acting Chief Justice
[1]
Rollo, pp. 72-104.
[2]
Id. at pp. 106-107.
[3]
Lease No. 27:95:20; id. at pp. 121-126.
[4]
Id. at pp. 127-128.
[5]
Id. at pp. 129-144.
[6]
Id. at p. 148.
[7]
Id. at pp. 146-155.
[8]
Id. at pp. 156-171.
[9]
Id. at p. 159.
[10]
Id. at pp. 218-220.
[11]
Id. at p. 222.
[12]
Id. at pp. 223-224.
[13]
Id. at p. 225.
[14]
Id. at p. 87.
[15]
Penned by Associate Justice Celia C. Librea-Leagogo.
[16]
An Act Amending Republic Act No. 5980, as amended, otherwise known as The Financing
Company Act.
.
[17]
Rollo, pp. 101-102.
[18]
Id. at pp. 41-42.
[19]
Cruz v. Fernando, Sr., G.R. No. 145470, December 9, 2005, 477 SCRA 182, 183.
[20]
Barnes v. Padilla, G. R. No. 160753, June 28, 2005, 461 SCRA 539.
[21]
G.R. No. 137672, May 31, 2000, 332 SCRA 789, 790.
[22]
Fabrigas v. San Francisco Del Monte, Inc., G.R. No. 152346, November 25, 2005, 476 SCRA 263.
[23]
Beltran v. PAIC Finance Corporation, G.R. No. 83113, May 19, 1992, 209 SCRA 118.
[24]
Id.
[25]
Id. at pp. 118-119.
[26]
Herrera v. Petrophil Corporation, G.R. No. L-48349, December 29, 1986, 146 SCRA 389.
[27]
Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. No. 147324, May
25, 2004, 429 SCRA 153.
[28]
Rollo, p. 123.
[29]
Id. at pp. 122-123.
[30]
Beltran v. PAIC Finance Corporation, supra, p. 119.
[31]
Article 1372. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon which the
parties intended to agree.
[32]
Inter-Asia Services Corp. (International) v. Court of Appeals, G.R. No. 106427, October 21, 1996,
263 SCRA 417.
FIRST DIVISION
DECISION
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health
care coverage with petitioner Philamcare Health Systems, Inc. In the standard
application form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details).[1]
The application was approved for a period of one year from March 1, 1988 to
March 1, 1989. Accordingly, he was issued Health Care Agreement No.
P010194. Under the agreement, respondents husband was entitled to avail of
hospitalization benefits, whether ordinary or emergency, listed therein. He was also
entitled to avail of out-patient benefits such as annual physical examinations,
preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year
from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month beginning March 9,
1990. While her husband was in the hospital, respondent tried to claim the benefits
under the health care agreement. However, petitioner denied her claim saying that the
Health Care Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the
time of Ernanis confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died on
the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila,
Branch 44, an action for damages against petitioner and its president, Dr. Benito
Reverente, which was docketed as Civil Case No. 90-53795. She asked for
reimbursement of her expenses plus moral damages and attorneys fees. After trial, the
lower court ruled against petitioners, viz:
1. Defendants to pay and reimburse the medical and hospital coverage of the
late Ernani Trinos in the amount of P76,000.00 plus interest, until the
amount is fully paid to plaintiff who paid the same;
SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial court but
deleted all awards for damages and absolved petitioner Reverente.[4] Petitioners
motion for reconsideration was denied.[5]Hence, petitioner brought the instant petition
for review, raising the primary argument that a health care agreement is not an
insurance contract; hence the incontestability clause under the Insurance Code[6]does
not apply.
Petitioner argues that the agreement grants living benefits, such as medical
check-ups and hospitalization which a member may immediately enjoy so long as he
is alive upon effectivity of the agreement until its expiration one-year
thereafter. Petitioner also points out that only medical and hospitalization benefits are
given under the agreement without any indemnification, unlike in an insurance
contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts
which last longer,[7] petitioner argues that the incontestability clause does not apply, as
the same requires an effectivity period of at least two years. Petitioner further argues
that it is not an insurance company, which is governed by the Insurance Commission,
but a Health Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. An insurance
contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.[8]
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest
against him, may be insured against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
(3) of any person under a legal obligation to him for the payment of
money, respecting property or service, of which death or
illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in
him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity.[9] Once the
member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners required
respondents husband to sign an express authorization for any person, organization or
entity that has any record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation, treatment or any other
medical advice or examination.[10] Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers contained herein
and in any addendum annexed to this application are full, complete and true
and bind all parties in interest under the Agreement herein applied for, that
there shall be no contract of health care coverage unless and until an
Agreement is issued on this application and the full Membership Fee
according to the mode of payment applied for is actually paid during the
lifetime and good health of proposed Members; that no information acquired
by any Representative of PhilamCare shall be binding upon PhilamCare
unless set out in writing in the application; that any physician is, by these
presents, expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional capacity
upon any question affecting the eligibility for health care coverage of the
Proposed Members and that the acceptance of any Agreement issued on this
application shall be a ratification of any correction in or addition to this
application as stated in the space for Home Office
Endorsement.[11] (Underscoring ours)
I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the
PhilamCare Health Systems, Inc. any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination. This authorization is in connection with the application for
health care coverage only. A photographic copy of this authorization shall
be as valid as the original.[12] (Underscoring ours)
The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondents husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.[14]Thus,
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract.[16] Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is hospitalized for the
disease or injury covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party
to rescind a contract of insurance. The right to rescind should be exercised previous to
the commencement of an action on the contract.[17] In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:
2. Notice must be based on the occurrence after effective date of the policy
of one or more of the grounds mentioned;
None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in such
a way as to preclude the insurer from non-compliance with his obligation.[19] Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract the insurer.[20] By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture.[21] This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.[22]
Anent the incontestability of the membership of respondents husband, we quote
with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare
Health Systems Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer
lie.[23]
Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously
married to another woman who was still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be made to the party who
incurred the expenses. It is not controverted that respondent paid all the hospital and
medical expenses. She is therefore entitled to reimbursement. The records adequately
prove the expenses incurred by respondent for the deceaseds hospitalization,
medication and the professional fees of the attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed
decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
[1]
Record, p. 28.
[2]
Exhibit 4, Record, p. 156.
[3]
Dated November 16, 1993; penned by Judge Lolita Gal-lang; Rollo, pp. 134-135.
[4]
Dated December 14, 1995, penned by Associate Justice Fidel P. Purisima, concurred in by Associate
Justices Fermin A. Martin, Jr. and Conchita Carpio Morales; Rollo, p. 45.
[5]
Resolution dated July 23, 1996; Rollo, p. 48.
[6]
Section 48 of P.D. No. 1460 otherwise known as the Insurance Code.
[7]
Petition, pp. 13-14; Rollo, pp. 22-23.
[8]
See Vance pp. 1-2 cited in Agbayani, Commercial Laws of the Philippines, vol. 2, 1986 ed. p. 6.
[9]
Cha v. Court of Appeals, 270 SCRA 690, 694 (1997).
[10]
Record, p. 28.
[11]
Ibid.
[12]
Ibid.
[13]
Ibid., p. 13.
[14]
Bryant v. Modern Woodmen of America, 86 Neb 372, 125 NW 621.
[15]
Herrick v. Union Mut. Fire Ins. Co., 48 Me 558; Bryant v. Modern Woodmen of America, supra;
Boutelle v. Westchester Fire Ins. Co., 51 Vt 4 cited in 43 Am Jur 2d 1016.
[16]
Great Pacific Life v. Court of Appeals, 316 SCRA 677 [1999], citing Ng Gan Zee v. Asian Crusader
Life Assurance Corp., 122 SCRA 461 [1983].
[17]
Section 48, Insurance Code.
[18]
Malayan Insurance v. Cruz Arnaldo, 154 SCRA 672 [1987].
[19]
Heirs of Ildefonso Cosculluela, Sr. v. Rico General Insurance Corporation, 179 SCRA 511 [1989].
[20]
Landicho v. GSIS, 44 SCRA 7 [1972]; Western Guaranty Company v. Court of Appeals, 187 SCRA
652 [1990].
[21]
44 C.J.S. pp. 1166-1175; 29 Am. Jur. 180. See also Aetna Insurance Co. v. Rhodes, 170 F2d 111;
Insurance Co. v. Norton, 96 U.S. 234, 24 L ed 689; Pfeiffer v. Missouri State Life Ins. Co., 174 Ark
783, 297 SW 847.
[22]
See Myers v. Kitsap Physicians Service, 78 Wash 2d 286, 474 P2d 109, 66 ALR3d 1196;
Hunt v. Hospital Service Plan, 81 ALR 2d 919 cited in 43 Am Jur 2d 289.
[23]
Record, p. 257.
[24]
Exhibit B, Exhibits D to D-7; Record, pp. 88-97.
THIRD DIVISION
DECISION
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October 27, 2011
Decision1 of the Court of Appeals (CA), which affirmed with modification the September 17, 2009 Decision2 of the
Regional Trial Court, Branch 15, Manila (RTC), and its February 24, 2012 Resolution 3 denying the motion for
reconsideration filed by petitioner Malayan Insurance Company., Inc. (Malayan).
The Facts
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-000073 to
PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo Precision Phils. Bldg., Phase
III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was for Fifteen Million Pesos
(?15,000,000.00) and effective for a period of one (1) year, was procured by PAP Co. for Rizal Commercial
Banking Corporation (RCBC), the mortgagee of the insured machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the
policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-000079, was
issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.
On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and equipment
were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the loss, the
insured machineries and equipment were transferred by PAP Co. to a location different from that indicated in the
policy. Specifically, that the insured machineries were transferred in September 1996 from the Sanyo Building to
the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial,
PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party
duty-bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP
Co. filed the complaint below against Malayan.4
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP) an
indemnity for the loss under the fire insurance policy as well as for attorney’s fees. The dispositive portion of the
RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant is hereby
ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for indemnity for the loss under
the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on October 12,
1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00) as and by way of attorney’s
fees; [and,]
c)
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy
because, although there was a change in the condition of the thing insured as a result of the transfer of the subject
machineries to another location, said insurance company failed to show proof that such transfer resulted in the
increase of the risk insured against. In the absence of proof that the alteration of the thing insured increased the
risk, the contract of fire insurance is not affected per Article 169 of the Insurance Code.
The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC) sufficiently complied
with the notice requirement under the policy considering that it was RCBC which procured the insurance. PAP
acted in good faith in notifying RCBC about the transfer and the latter even conducted an inspection of the
machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court erred in ordering
it to indemnify PAP for the loss of the subject machineries since the latter, without notice and/or consent,
transferred the same to a location different from that indicated in the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but deleted the
attorney’s fees. The decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company must
indemnify PAP Co. Ltd the amount of Fifteen Million Pesos (Ph₱15,000,000.00) for the loss under the fire
insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on October 12, 1997 until
fully paid. However, the Five Hundred Thousand Pesos (Ph₱500,000.00) awarded to PAP Co., Ltd. as attorney’s
fees is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the insured
properties during the efficacy of the insurance policy. Malayan also failed to show that its contractual consent was
needed before carrying out a transfer of the insured properties. Despite its bare claim that the original and the
renewed insurance policies contained provisions on transfer limitations of the insured properties, Malayan never
cited the specific provisions.
The CA further stated that even if there was such a provision on transfer restrictions of the insured properties, still
Malayan could not escape liability because the transfer was made during the subsistence of the original policy, not
the renewal policy. PAP transferred the insured properties from the Sanyo Factory to the Pace Pacific Building
(Pace Factory) sometime in September 1996. Therefore, Malayan was aware or should have been aware of such
transfer when it issued the renewal policy on May 14, 1997. The CA opined that since an insurance policy was a
contract of adhesion, any ambiguity must be resolved against the party that prepared the contract, which, in this
case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the insured properties increased the risk of
the loss. It, thus, could not use such transfer as an excuse for not paying the indemnity to PAP. Although the
insurance proceeds were payable to RCBC, PAP could still sue Malayan to enforce its rights on the policy because
it remained a party to the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for review anchored on the following
GROUNDS
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE
WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING IN THE QUESTIONED
DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE
INSURANCE CONTRACT BECAUSE:
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT
CONCEALMENT, MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY
WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE
INSURED PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM
WHAT WAS INDICATED IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS
AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE REASONS WHY ITS CLAIM
WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT RESPONDENT PAP
CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE
EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED
PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE INSURANCE POLICY.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND
ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED INTEREST AT
THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL
FULLY PAID.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT
HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER ANY
FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE
PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A
LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER RESPONDENT PAP CO.
COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE
WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE
POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE
WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT
AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE
PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO.
DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION THAT
THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE ADOPTED.7
Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed
concealment, misrepresentation and breach of an affirmative warranty under the renewal policy when it transferred
the location of the insured properties without informing it. Such transfer affected the correct estimation of the risk
which should have enabled Malayan to decide whether it was willing to assume such risk and, if so, at what rate of
premium. The transfer also affected Malayan’s ability to control the risk by guarding against the increase of the risk
brought about by the change in conditions, specifically the change in the location of the risk.
Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance Code8 when it did not
inform Malayan of the actual and new location of the insured properties. In fact, before the issuance of the renewal
policy on May 14, 1997, PAP even informed it that there would be no changes in the renewal policy. Malayan also
argues that PAP is guilty of breach of warranty under the renewal policy in violation of Section 74 of the Insurance
Code9 when, contrary to its affirmation in the renewal policy that the insured properties were located at the Sanyo
Factory, these were already transferred to the Pace Factory. Malayan adds that PAP is guilty of misrepresentation
upon a material fact in violation of Section 45 of the Insurance Code10 when it informed Malayan that there would
be no changes in the original policy, and that the original policy would be renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the insured
properties under the insurance policy was with its knowledge and consent. Granting that PAP informed RCBC of
the transfer or change of location of the insured properties, the same is irrelevant and does not bind Malayan
considering that RCBC is a corporation vested with separate and distinct juridical personality. Malayan did not
consent to be the principal of RCBC. RCBC did not also act as Malayan’s representative.
With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in risk as a result
of the unilateral transfer of the insured properties. According to Malayan, the Sanyo Factory was occupied as a
factory of automotive/computer parts by the assured and factory of zinc & aluminum die cast and plastic gear for
copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace Factory was
occupied as factory that repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
PAP’s position
On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or deception on
its part and that its claim is not fraudulent. It insists that it can still sue to protect its rights and interest on the policy
notwithstanding the fact that the proceeds of the same was payable to RCBC, and that it can collect interest at the
rate of 12% per annum on the proceeds of the policy because its claim for indemnity was unduly delayed without
legal justification.
The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured properties
under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?15,000,000.00 fire
insurance policy from Malayan covering its machineries and equipment effective for one (1) year or until May 13,
1997; that the policy expressly stated that the insured properties were located at "Sanyo Precision Phils. Building,
Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was renewed11 on an
"as is" basis for another year or until May 13, 1998; that the subject properties were later transferred to the Pace
Factory also in PEZA; and that on October 12, 1997, during the effectivity of the renewal policy, a fire broke out at
the Pace Factory which totally burned the insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Malayan
9. Under any of the following circumstances the insurance ceases to attach as regards the property affected
unless the insured, before the occurrence of any loss or damage, obtains the sanction of the company signified by
endorsement upon the policy, by or on behalf of the Company:
(c) If property insured be removed to any building or place other than in that which is herein stated to be insured.12
Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any
building or place required the consent of Malayan. Any transfer effected by the insured, without the insurer’s
consent, would free the latter from any liability.
The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of the
insured properties from the Sanyo factory to the Pace factory. The Court has combed the records and found
nothing that would show that Malayan was duly notified of the transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the
entity which made the referral and the named beneficiary in the policy. Malayan and RCBC might have been sister
companies, but such fact did not make one an agent of the other. The fact that RCBC referred PAP to Malayan did
not clothe it with authority to represent and bind the said insurance company. After the referral, PAP dealt directly
with Malayan.
The respondent overlooked the fact that during the November 9, 2006 hearing,13 its counsel stipulated in open
court that it was Malayan’s authorized insurance agent, Rodolfo Talusan, who procured the original policy from
Malayan, not RCBC. This was the reason why Talusan’s testimony was dispensed with.
Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile witness, Alexander Barrera,
Administrative Assistant of Malayan, testified that he was the one who procured Malayan’s renewal policy, not
RCBC, and that RCBC merely referred fire insurance clients to Malayan. He stressed, however, that no written
referral agreement exists between RCBC and Malayan. He also denied that PAP notified Malayan about the
transfer before the renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano),
informed him that the fire insurance would be renewed on an "as is basis."15
Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and Malayan was not
indubitably established. At best, PAP could only come up with the hearsay testimony of its principal witness,
Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as follows:
What I did I instructed my Secretary, because these equipment was bank loan and because of the insurance I told
my secretary to notify.
To notify whom?
Yes, sir.
xxxx
After the RCBC was informed in the manner you stated, what did you do regarding the new location of these
properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is concerned?
After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan Insurance but we
were not able to contact Malayan Insurance so I instructed again my secretary to inform Malayan about the
transfer.
Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?
Dory Ramos.
Yes, sir.
Two, sir.
What happened with the instruction that you gave to your secretary Dory Ramos about the matter of informing the
defendant Malayan Insurance Co of the new location of the insured properties?
She informed me that the notification was already given to Malayan Insurance.
Aside from what she told you how did you know that the information was properly relayed by the said secretary,
Dory Ramos, to Malayan Insurance?
I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.
Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan Insurance Company
about the transfer of the properties insured to the new location, do you know what happened insofar this
information was given to the defendant Malayan Insurance?
I heard that someone from Malayan Insurance came over to our company.
Did you come to know who was that person who came to your place at Pace Pacific?
How did you know that this person from Malayan Insurance came to your place?
Dory Ramos.
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge of the notice
to either Malayan or RCBC. PAP should have presented his secretaries, Dory Ramos and Maricar Jardiniano, at
the witness stand. His testimony alone was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were transferred to
a different location only after the renewal of the fire insurance policy.
COURT
When did you transfer the machineries and equipments before the renewal or after the renewal of the insurance?
COURT
This enfeebles PAP’s position that the subject properties were already transferred to the Pace factory before the
policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured properties to the
Pace Factory was insignificant as it did not increase the risk.
Malayan argues that the change of location of the subject properties from the Sanyo Factory to the Pace Factory
increased the hazard to which the insured properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was occupied as factory of
automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic gear for copy machine
by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under Pace Pacific Mfg. Corporation this
was occupied as factory that repacks silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
Hence, there was an increase in the hazard as indicated by the increase in rate.18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous
environment and negatively affected the fire rating stated in the renewal policy. The increase in tariff rate from
0.449% to 0.657% put the subject properties at a greater risk of loss. Such increase in risk would necessarily entail
an increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance of the
issue, PAP failed to refute Malayan’s argument on the increased risk.
Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy carried with it
the same stipulations and limitations. The terms and conditions in the renewal policy provided, among others, that
the location of the risk insured against is at the Sanyo factory in PEZA. The subject insured properties, however,
were totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location
stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk.
Consequently, it must suffer the consequences of the fire. Thus, the Court agrees with the report of Cunningham
Toplis Philippines, Inc., an international loss adjuster which investigated the fire incident at the Pace Factory,
which opined that "[g]iven that the location of risk covered under the policy is not the location affected, the policy
will, therefore, not respond to this loss/claim."19
It can also be said that with the transfer of the location of the subject properties, without notice and without
Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment, misrepresentation and a
breach of a material warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in
case of an alteration in the use or condition of the thing insured. Section 168 of the Insurance Code provides, as
follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an
insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are
present, to wit:
In the case at bench, all these circumstances are present. It was clearly established that the renewal policy
stipulated that the insured properties were located at the Sanyo factory; that PAP removed the properties without
the consent of Malayan; and that the alteration of the location increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and SET ASIDE.
Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the loss of the insured machineries
and equipment suffered by PAP Co., Ltd.
SO ORDERED.
WE CONCUR:
Chief Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.
Footnotes
*
Designated additional member in lieu of Associate Justice Roberto A. Abad, per Raffle dated July 2, 2012.
1 Rollo, pp. 114-128. Penned by Associate Justice Normandie B. Pizarro and concurred in by Amelita B. Tolentino
and Associate Justice Rodel V. Zalameda.
2 Id. at 725-730.
3 Id. at 130-131.
4 Id. at 115-116.
5 Id. at 730.
6 Id. at 127.
7 Id. at 50-54.
8 Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of
insurance.
9 Section 74. The violation of a material warranty, or other material provision of a policy, on the part of either party
thereto, entitles the other to rescind.
10Section 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the representation becomes false. x x x
11 Rollo, p. 373.
17 Id. at 484.
19 Id. at 231.
20 Rodriguez, The Insurance Code of the Philippines Annotated, Fifth Edition, p. 289.
THIRD DIVISION
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S. SIBYA, JESUS MANUEL S. SIBYA III,
JAIME LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision2 dated November 18, 2013 and Resolution3 dated February 13, 2014
of the Court of Appeals (CA) in CA-G.R. CV. No. 93269. In both instances, the CA affirmed the
Decision4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil
Case No. 01-1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy
S. Sibya (Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of
P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages,
and P100,000.00 as attorney's fees and costs of suit. Insofar as the charges for violation of Sections
241 and 242 of Presidential Decree No. 612, or the Insurance Code of the Philippines, however, the
CA modified the decision of the RTC and absolved Sun Life therein.
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his
Application for Insurance, he indicated that he had sought advice for kidney problems.5 Atty. Jesus Jr.
indicated the following in his application:
chanRoblesvirtualLawlibrary
"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at
National Kidney Institute, discharged after 3 days, no recurrence as
claimed."6ChanRoblesVirtualawlibrary
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No.
031097335. The policy indicated the respondents as beneficiaries and entitles them to a death benefit
of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty.
Jesus Jr. is still living on the endowment date.7
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma.
Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated in his insurance
policy.8
In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details
on Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously, Sun Life
tendered a check representing the refund of the premiums paid by Atty. Jesus Jr.9
The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun
Life, however, refused to heed the respondents' requests and instead filed a Complaint for Rescission
before the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.10
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his
previous medical treatment at the National Kidney Transplant Institute in May and August of 1994.
According to Sun Life, the undisclosed fact suggested that the insured was in "renal failure" and at a
high risk medical condition. Consequently, had it known such fact, it would not have issued the
insurance policy in favor of Atty. Jesus Jr.11
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in
his application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the
insurance application and even authorized Sun Life to inquire further into his medical history for
verification purposes. According to them, the complaint is just a ploy to avoid the payment of
insurance claims.12
The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when
he applied for life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of
ascertaining the facts allegedly concealed by the applicant.16
Ruling of the CA
On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the RTC decision in
ordering Sun Life to pay death benefits and damages in favor of the respondents. The CA, however,
modified the RTC decision by absolving Sun Life from the charges of violation of Sections 241 and 242
of the Insurance Code.18
The CA ruled that the evidence on records show that there was no fraudulent intent on the part of
Atty. Jesus Jr. in submitting his insurance application. Instead, it found that Atty. Jesus Jr. admitted in
his application that he had sought medical treatment for kidney ailment.19
Sun Life filed a Motion for Partial Reconsideration20 dated December 11, 2013 but the same was
denied in a Resolution21 dated February 13, 2014.
Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of the
Rules of Court before this Court.
The Issue
Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC
decision finding that there was no concealment or misrepresentation when Atty. Jesus Jr. submitted
his insurance application with Sun Life.
In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within
the two-year contestability period, the insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or misrepresentation. The Court held:
chanRoblesvirtualLawlibrary
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured.
Under the provision, an insurer is given two years - from the effectivity of a life insurance contract
and while the insured is alive - to discover or prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the
two-year period lapses, or when the insured dies within the period, the insurer must make good on
the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This is
not to say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of insurance and the public in
general.23 (Emphasis ours)
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years
from its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three
months from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in
Manila Bankers, the death of the insured within the two-year period will render the right of the
insurer to rescind the policy nugatory. As such, the incontestability period will now set in.
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the
Court agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr.
committed concealment and misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for
kidney ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation
in reference with his medical history. The decision in part states:
chanRoblesvirtualLawlibrary
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought
medical treatment for kidney ailment. When asked to provide details on the said medication, [Atty.
Jesus Jr.] indicated the following information: year ("1987"), medical procedure ("undergone
lithotripsy due to kidney stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus
Benjamin Mendoza") and the hospital ("National Kidney Institute").
It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity to
obtain information on the facts disclosed by [Atty. Jesus Jr.] in his insurance application. x x x
xxxx
Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his
medical history since [Sun Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical record.
With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical
doctor, and his answer "no recurrence" may be construed as an honest opinion. Where matters of
opinion or judgment are called for, answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue.24 (Citations omitted and italics in the original)
Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon
the provider or insurer.25 In the present case, Sun Life failed to clearly and satisfactorily establish its
allegations, and is therefore liable to pay the proceeds of the insurance.
Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower
courts are entitled to great weight and respect on appeal, and in fact accorded finality when
supported by substantial evidence on the record.26
WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and
Resolution dated February 13, 2014 of the Court of Appeals in CA-G.R. CV. No. 93269 are hereby
AFFIRMED.
SO ORDERED.cralawlawlibrary
Endnotes:
2 Penned by Associate Justice Nina G. Antonio-Valenzuela, with Associate Justices Isaias P. Dicdican
and Michael P. Elbinias concurring; id. at 6-18.
3 Id. at 29-30.
4 Rendered by Acting Presiding Judge Rowena De Juan-Quinagoran; id. at 84-88.
5 Id. at 6-7.
6 Id. at 7.
7 Id.
8 Id.
9 Id.
10 Id.
11 Id. at 7-8.
12 Id. at 8.
13 Id. at 84-88.
14 Sec. 241. (1) No insurance company doing business in the Philippines shall refuse, without just
cause, to pay or settle claims arising under coverages provided by its policies, nor shall any such
company engage in unfair claim settlement practices. Any of the following acts by an insurance
company, if committed without just cause and performed with such frequency as to indicate a
general business practice, shall constitute unfair claim settlement practices:
xxxx
(b) failing to acknowledge with reasonable promptness pertinent communications with respect to
claims arising under its policies;
xxxx
(d) not attempting in good faith to effectuate prompt, fair and equitable settlement of claims
submitted in which liability has become reasonably clear; or
(e) compelling policyholders to institute suits to recover amounts due under its policies by offering
without justifiable reason substantially less than the amounts ultimately recovered in suits brought by
them.
xxxx
15 Sec. 242. The proceeds of a life insurance policy shall be paid immediately upon maturity of the
policy, unless such proceeds are made payable in installments or as an annuity, in which case the
installments, or annuities shall be paid as they become due: Provided, however, That in the case of a
policy maturing by the death of the insured, the proceeds thereof shall be paid within sixty days after
presentation of the claim and filing of the proof of the death of the insured. Refusal or failure to pay
the claim within the time prescribed herein will entitle the beneficiary to collect interest on the
proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall
include the discounted value of all premiums paid in advance of their due dates, but are not due and
payable at maturity.
16Rollo, p. 86.
17 Id. at 6-18.
18 Id. at 17.
19 Id. at 14.
20 Id. at 19-28.
21 Id. at 29-30.
23 Id. at 415.
THIRD DIVISION
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S. SIBYA, JESUS MANUEL S. SIBYA III,
JAIME LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision2 dated November 18, 2013 and Resolution3 dated February 13, 2014
of the Court of Appeals (CA) in CA-G.R. CV. No. 93269. In both instances, the CA affirmed the
Decision4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil
Case No. 01-1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy
S. Sibya (Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of
P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages,
and P100,000.00 as attorney's fees and costs of suit. Insofar as the charges for violation of Sections
241 and 242 of Presidential Decree No. 612, or the Insurance Code of the Philippines, however, the
CA modified the decision of the RTC and absolved Sun Life therein.
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his
Application for Insurance, he indicated that he had sought advice for kidney problems.5 Atty. Jesus Jr.
indicated the following in his application:
chanRoblesvirtualLawlibrary
"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at
National Kidney Institute, discharged after 3 days, no recurrence as
claimed."6ChanRoblesVirtualawlibrary
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No.
031097335. The policy indicated the respondents as beneficiaries and entitles them to a death benefit
of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty.
Jesus Jr. is still living on the endowment date.7
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma.
Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated in his insurance
policy.8
In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details
on Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously, Sun Life
tendered a check representing the refund of the premiums paid by Atty. Jesus Jr.9
The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun
Life, however, refused to heed the respondents' requests and instead filed a Complaint for Rescission
before the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.10
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his
previous medical treatment at the National Kidney Transplant Institute in May and August of 1994.
According to Sun Life, the undisclosed fact suggested that the insured was in "renal failure" and at a
high risk medical condition. Consequently, had it known such fact, it would not have issued the
insurance policy in favor of Atty. Jesus Jr.11
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in
his application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the
insurance application and even authorized Sun Life to inquire further into his medical history for
verification purposes. According to them, the complaint is just a ploy to avoid the payment of
insurance claims.12
On March 16, 2009, the RTC issued its Decision13 dismissing the complaint for lack of merit. The RTC
held that Sun Life violated Sections 241, paragraph 1(b), (d), and (e)14 and 24215 of the Insurance
Code when it refused to pay the rightful claim of the respondents. Moreover, the RTC ordered Sun
Life to pay the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral damages,
P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees and costs of suit.
The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when
he applied for life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of
ascertaining the facts allegedly concealed by the applicant.16
Ruling of the CA
On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the RTC decision in
ordering Sun Life to pay death benefits and damages in favor of the respondents. The CA, however,
modified the RTC decision by absolving Sun Life from the charges of violation of Sections 241 and 242
of the Insurance Code.18
The CA ruled that the evidence on records show that there was no fraudulent intent on the part of
Atty. Jesus Jr. in submitting his insurance application. Instead, it found that Atty. Jesus Jr. admitted in
his application that he had sought medical treatment for kidney ailment.19
Sun Life filed a Motion for Partial Reconsideration20 dated December 11, 2013 but the same was
denied in a Resolution21 dated February 13, 2014.
Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of the
Rules of Court before this Court.
The Issue
Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC
decision finding that there was no concealment or misrepresentation when Atty. Jesus Jr. submitted
his insurance application with Sun Life.
In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within
the two-year contestability period, the insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or misrepresentation. The Court held:
chanRoblesvirtualLawlibrary
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured.
Under the provision, an insurer is given two years - from the effectivity of a life insurance contract
and while the insured is alive - to discover or prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the
two-year period lapses, or when the insured dies within the period, the insurer must make good on
the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This is
not to say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of insurance and the public in
general.23 (Emphasis ours)
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years
from its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three
months from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in
Manila Bankers, the death of the insured within the two-year period will render the right of the
insurer to rescind the policy nugatory. As such, the incontestability period will now set in.
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the
Court agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr.
committed concealment and misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for
kidney ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation
in reference with his medical history. The decision in part states:
chanRoblesvirtualLawlibrary
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought
medical treatment for kidney ailment. When asked to provide details on the said medication, [Atty.
Jesus Jr.] indicated the following information: year ("1987"), medical procedure ("undergone
lithotripsy due to kidney stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus
Benjamin Mendoza") and the hospital ("National Kidney Institute").
It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity to
obtain information on the facts disclosed by [Atty. Jesus Jr.] in his insurance application. x x x
xxxx
Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his
medical history since [Sun Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical record.
With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical
doctor, and his answer "no recurrence" may be construed as an honest opinion. Where matters of
opinion or judgment are called for, answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue.24 (Citations omitted and italics in the original)
Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon
the provider or insurer.25 In the present case, Sun Life failed to clearly and satisfactorily establish its
allegations, and is therefore liable to pay the proceeds of the insurance.
Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower
courts are entitled to great weight and respect on appeal, and in fact accorded finality when
supported by substantial evidence on the record.26
WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and
Resolution dated February 13, 2014 of the Court of Appeals in CA-G.R. CV. No. 93269 are hereby
AFFIRMED.
SO ORDERED.cralawlawlibrary
Endnotes:
2 Penned by Associate Justice Nina G. Antonio-Valenzuela, with Associate Justices Isaias P. Dicdican
and Michael P. Elbinias concurring; id. at 6-18.
3 Id. at 29-30.
5 Id. at 6-7.
6 Id. at 7.
7 Id.
8 Id.
9 Id.
10 Id.
11 Id. at 7-8.
12 Id. at 8.
13 Id. at 84-88.
14 Sec. 241. (1) No insurance company doing business in the Philippines shall refuse, without just
cause, to pay or settle claims arising under coverages provided by its policies, nor shall any such
company engage in unfair claim settlement practices. Any of the following acts by an insurance
company, if committed without just cause and performed with such frequency as to indicate a
general business practice, shall constitute unfair claim settlement practices:
xxxx
(b) failing to acknowledge with reasonable promptness pertinent communications with respect to
claims arising under its policies;
xxxx
(d) not attempting in good faith to effectuate prompt, fair and equitable settlement of claims
submitted in which liability has become reasonably clear; or
(e) compelling policyholders to institute suits to recover amounts due under its policies by offering
without justifiable reason substantially less than the amounts ultimately recovered in suits brought by
them.
xxxx
15 Sec. 242. The proceeds of a life insurance policy shall be paid immediately upon maturity of the
policy, unless such proceeds are made payable in installments or as an annuity, in which case the
installments, or annuities shall be paid as they become due: Provided, however, That in the case of a
policy maturing by the death of the insured, the proceeds thereof shall be paid within sixty days after
presentation of the claim and filing of the proof of the death of the insured. Refusal or failure to pay
the claim within the time prescribed herein will entitle the beneficiary to collect interest on the
proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall
include the discounted value of all premiums paid in advance of their due dates, but are not due and
payable at maturity.
16Rollo, p. 86.
17 Id. at 6-18.
18 Id. at 17.
19 Id. at 14.
20 Id. at 19-28.
21 Id. at 29-30.
23 Id. at 415.
FIRST DIVISION
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the
Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its Resolution dated April
22, 1992, denying reconsideration thereof.
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner. He was
issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in case of accidental death. The
designated beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation and its findings
prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose material facts
relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the
total premiums paid in the amount of P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he answered the following
questions:
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation with a certain
Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough and flu complications.
The other questions were answered in the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and confined
at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the
deceased was subjected to urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani, filed an
action for specific performance against petitioner with the Regional Trial Court, Branch 191, Valenzuela, Metro
Manila. Petitioner filed its answer with counterclaim and a list of exhibits consisting of medical records furnished by
the Lung Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary Judgment"
where they manifested that they "have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of several documents as
well as allegations regarding the health of the insured. Private respondents failed to oppose said request or reply
thereto, thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private respondents. The
dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant, condemning the
latter to pay the former the amount of One Hundred Thousand Pesos (P100,000.00) the face value of insured's
Insurance Policy No. 3903766, and the Accidental Death Benefit in the amount of One Hundred Thousand Pesos
(P100,000.00) and further sum of P5,000.00 in the concept of reasonable attorney's fees and costs of suit.
In ruling for private respondents, the trial court concluded that the facts concealed by the insured were made in
good faith and under a belief that they need not be disclosed. Moreover, it held that the health history of the
insured was immaterial since the insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate court ruled
that petitioner cannot avoid its obligation by claiming concealment because the cause of death was unrelated to
the facts concealed by the insured. It also sustained the finding of the trial court that matters relating to the health
history of the insured were irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy. Moreover, the appellate court agreed with the trial court that the policy was
"non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
The rule that factual findings of the lower court and the appellate court are binding on this Court is not absolute and
admits of exceptions, such as when the judgment is based on a misappreciation of the facts (Geronimo v. Court of
Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts concealed or misrepresented were
irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the
other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has no means of ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is called concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts
upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed
contract or in making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to
his health.
The information which the insured failed to disclose were material and relevant to the approval and issuance of the
insurance policy. The matters concealed would have definitely affected petitioner's action on his application, either
by approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination of the insured by petitioner in order for it to reasonably
assess the risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the information withheld
does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which
ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized
for two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that
such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of the
facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine American Life Insurance Company,
7 SCRA 316 (1963), that " . . . the waiver of a medical examination [in a non-medical insurance contract] renders
even more material the information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where there is concealment, ineffective (See Vda. de Canilang v.
Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that
the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his
non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in
making inquiries (Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year
contestability period as recognized in Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET
ASIDE.
SO ORDERED.
SECOND DIVISION
DECISION
The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or provide
insurance coverage only to legitimate and bona fide clients, by requiring them to thoroughly investigate those they
insure within two years from effectivity of the policy and while the insured is still alive. If they do not, they will be
obligated to honor claims on the policies they issue, regardless of fraud, concealment or misrepresentation. The
law assumes that they will do just that and not sit on their laurels, indiscriminately soliciting and accepting
insurance business from any Tom, Dick and Harry.
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Decision2 of the Court of Appeals'
(CA) in CA-G.R. CV No. 62286 and its November 9, 2006 Resolution3 denying the petitioner’s Motion for
Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance
Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of ₱100,000.00, in Sotero’s favor on
August 30, 1993, after the requisite medical examination and payment of the insurance premium.6
On April 10, 1996,7 when the insurance policy had been in force for more than two years and seven months,
Sotero died. Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner conducted an
investigation into the claim,8 and came out with the following findings:
1. Sotero did not personally apply for insurance coverage, as she was illiterate;
3. Sotero did not have the financial capability to pay the insurance premiums on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for insurance;9 and
5. Respondent was the one who filed the insurance application, and x x x designated herself as the beneficiary.10
For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums paid on
the policy.11
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was docketed as
Civil Case No. 97-867 and assigned to Branch 134 of the Makati Regional Trial Court. The main thesis of the
Complaint was that the policy was obtained by fraud, concealment and/or misrepresentation under the Insurance
Code,12 which thus renders it voidable under Article 139013 of the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of action was barred by prescription
pursuant to Section 48 of the Insurance Code, which provides as follows:
Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such
right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime
of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation
of the insured or his agent.
During the proceedings on the Motion to Dismiss, petitioner’s investigator testified in court, stating among others
that the insurance underwriter who solicited the insurance is a cousin of respondent’s husband, Dindo Aban,15 and
that it was the respondent who paid the annual premiums on the policy.16
On December 9, 1997, the trial court issued an Order17 granting respondent’s Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby granted. Civil Case No. 97-867 is
hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero, and not respondent, was the one who procured the
insurance; thus, Sotero could legally take out insurance on her own life and validly designate – as she did –
respondent as the beneficiary. It held further that under Section 48, petitioner had only two years from the
effectivity of the policy to question the same; since the policy had been in force for more than two years, petitioner
is now barred from contesting the same or seeking a rescission or annulment thereof.
Petitioner moved for reconsideration, but in another Order19 dated October 20, 1998, the trial court stood its
ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner questioned the
dismissal of Civil Case No. 97-867, arguing that the trial court erred in applying Section 48 and declaring that
prescription has set in. It contended that since it was respondent – and not Sotero – who obtained the insurance,
the policy issued was rendered void ab initio for want of insurable interest.
On September 28, 2005, the CA issued the assailed Decision, which contained the following decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.
SO ORDERED.20
The CA thus sustained the trial court. Applying Section 48 to petitioner’s case, the CA held that petitioner may no
longer prove that the subject policy was void ab initio or rescindible by reason of fraudulent concealment or
misrepresentation after the lapse of more than two years from its issuance. It ratiocinated that petitioner was
equipped with ample means to determine, within the first two years of the policy, whether fraud, concealment or
misrepresentation was present when the insurance coverage was obtained. If it failed to do so within the statutory
two-year period, then the insured must be protected and allowed to claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its November 9, 2006 Resolution.22 Hence,
the present Petition.
Issues
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL
COURT DISMISSING THE COMPLAINT ON THE GROUND OF PRESCRIPTION IN
CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.
II
III
Petitioner’s Arguments
In praying that the CA Decision be reversed and that the case be remanded to the trial court for the conduct of
further proceedings, petitioner argues in its Petition and Reply24 that Section 48 cannot apply to a case where the
beneficiary under the insurance contract posed as the insured and obtained the policy under fraudulent
circumstances. It adds that respondent, who was merely Sotero’s niece, had no insurable interest in the life of her
aunt.
Relying on the results of the investigation that it conducted after the claim for the insurance proceeds was filed,
petitioner insists that respondent’s claim was spurious, as it appeared that Sotero did not actually apply for
insurance coverage, was unlettered, sickly, and had no visible source of income to pay for the insurance
premiums; and that respondent was an impostor, posing as Sotero and fraudulently obtaining insurance in the
latter’s name without her knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to rights and
obligations; as such, the action for the declaration of its nullity or inexistence does not prescribe.25
Respondent’s Arguments
Respondent, on the other hand, essentially argues in her Comment26 that the CA is correct in applying Section 48.
She adds that petitioner’s new allegation in its Petition that the policy is void ab initio merits no attention, having
failed to raise the same below, as it had claimed originally that the policy was merely voidable.
On the issue of insurable interest, respondent echoes the CA’s pronouncement that since it was Sotero who
obtained the insurance, insurable interest was present. Under Section 10 of the Insurance Code, Sotero had
insurable interest in her own life, and could validly designate anyone as her beneficiary. Respondent submits that
the CA’s findings of fact leading to such conclusion should be respected.
Our Ruling
The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained the insurance
for herself, designating respondent as her beneficiary. Both courts are in accord in this respect, and the Court is
loath to disturb this. While petitioner insists that its independent investigation on the claim reveals that it was
respondent, posing as Sotero, who obtained the insurance, this claim is no longer feasible in the wake of the
courts’ finding that it was Sotero who obtained the insurance for herself. This finding of fact binds the Court.
With the above crucial finding of fact – that it was Sotero who obtained the insurance for herself – petitioner’s case
is severely weakened, if not totally disproved. Allegations of fraud, which are predicated on respondent’s alleged
posing as Sotero and forgery of her signature in the insurance application, are at once belied by the trial and
appellate courts’ finding that Sotero herself took out the insurance for herself. "Fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract."27 In the absence of proof of such
fraudulent intent, no right to rescind arises.
Moreover, the results and conclusions arrived at during the investigation conducted unilaterally by petitioner after
the claim was filed may simply be dismissed as self-serving and may not form the basis of a cause of action given
the existence and application of Section 48, as will be discussed at length below.
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the
provision, an insurer is given two years – from the effectivity of a life insurance contract and while the insured is
alive – to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment
or misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies within
the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment,
or misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly
and indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers
enough time to inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on the other
hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely uncovered – thus
deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are
absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds
occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer be
set up after the two-year period expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are given the
assurance that any dishonest scheme to obtain life insurance would be exposed, and attempts at unduly denying a
claim would be struck down. Life insurance policies that pass the statutory two-year period are essentially treated
as legitimate and beyond question, and the individuals who wield them are made secure by the thought that they
will be paid promptly upon claim. In this manner, Section 48 contributes to the stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on life
insurance, only to later on deny a claim on the policy on specious claims of fraudulent concealment and
misrepresentation, such as what obtains in the instant case. Thus, instead of conducting at the first instance an
investigation into the circumstances surrounding the issuance of Insurance Policy No. 747411 which would have
timely exposed the supposed flaws and irregularities attending it as it now professes, petitioner appears to have
turned a blind eye and opted instead to continue collecting the premiums on the policy. For nearly three years,
petitioner collected the premiums and devoted the same to its own profit. It cannot now deny the claim when it is
called to account. Section 48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate court’s pronouncement that –
the "incontestability clause" is a provision in law that after a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of
its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by
reason of fraudulent concealment or misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the
contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of only two (2)
years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long as the
insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured dies
in order to defeat the right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability
to recover under the policy when the insured dies. The provision also makes clear when the two-year period
should commence in case the policy should lapse and is reinstated, that is, from the date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will no
longer lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or
concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in
force for at least two years during the insured’s lifetime. The phrase "during the lifetime" found in Section 48 simply
means that the policy is no longer considered in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years."
As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10, 1996, and the
claim was denied on April 16, 1997. The insurance policy was thus in force for a period of 3 years, 7 months, and
24 days. Considering that the insured died after the two-year period, the plaintiff-appellant is, therefore, barred
from proving that the policy is void ab initio by reason of the insured’s fraudulent concealment or misrepresentation
or want of insurable interest on the part of the beneficiary, herein defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the factual findings of the trial court are
not based on substantial evidence or that its conclusions are contrary to applicable law and jurisprudence. The
plaintiff-appellant failed to discharge that burden.28
Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin of
respondent’s husband, and thus insinuates that both connived to commit insurance fraud. If this were truly the
case, then petitioner would have discovered the scheme earlier if it had in earnest conducted an investigation into
the circumstances surrounding the Sotero policy. But because it did not and it investigated the Sotero account only
after a claim was filed thereon more than two years later, naturally it was unable to detect the scheme. For its
negligence and inaction, the Court cannot sympathize with its plight. Instead, its case precisely provides the strong
argument for requiring insurers to diligently conduct investigations on each policy they issue within the two-year
period mandated under Section 48, and not after claims for insurance proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and the
insurance policies they issue, then they should cease doing business. If they could not properly screen their
agents or salesmen before taking them in to market their products, or if they do not thoroughly investigate the
insurance contracts they enter into with their clients, then they have only themselves to blame. Otherwise said,
insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected and invest the
same through the years, generating profits and returns therefrom for their own benefit, and thereafter conveniently
deny insurance claims by questioning the authority or integrity of their own agents or the insurance policies they
issued to their premium-paying clients. This is exactly one of the schemes which Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping that the
inevitable may be put off for years – or even decades – by the pendency of these unnecessary court cases. In the
meantime, they benefit from collecting the interest and/or returns on both the premiums previously paid by the
insured and the insurance proceeds which should otherwise go to their beneficiaries. The business of insurance is
a highly regulated commercial activity in the country,29 and is imbued with public interest.30 "An insurance contract
is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in
order to safeguard the former’s interest."31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November 9, 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 62286 are AFFIRMED.
SO ORDERED.
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.
Footnotes
2CA rollo, pp. 38-47; penned by Associate Justice Amelita G. Tolentino and concurred in by Associate Justices
Danilo B. Pine and Vicente S.E. Veloso.
3Id. at 59-60; penned by Associate Justice Amelita G. Tolentino and concurred in by Associate Justices Regalado
E. Maambong and Vicente S.E. Veloso.
4 Id. at 48-56.
5 Rollo, p. 6.
7 Records, p. 23.
8 Rollo, p. 7.
9 Id. at 7, 16.
10 Records, p. 2.
11 Id.
13Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to
the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification.
18 Id. at 56.
19 Id. at 116-119.
20 CA rollo, p. 46.
21 Id. at 48-56.
22 Id. at 59-60.
23 Rollo, p. 9.
24 Id. at 69-75.
Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
27 Great Pacific Life Assurance Corporation v. Court of Appeals, 375 Phil. 142, 152 (1999).
Tongko v. The Manufacturers Life Insurance Company (Phils.), Inc., G.R. No. 167622, June 29, 2010, 622
29
30Republic v. Del Monte Motors, Inc., 535 Phil. 53, 60 (2006); White Gold Marine Services, Inc. v. Pioneer
Insurance & Surety Corporation, 502 Phil. 692, 700 (2005).
Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company, G.R. No. 166245,
31
Synopsis/Syllabi
SECOND DIVISION
DECISION
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the
Decision[1] dated May 17, 1993, of the Court of Appeals and its Resolution[2] dated
January 4, 1994 in CA-G.R. CV No. 18341.The appellate court affirmed in toto the
judgment of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance
claim filed by private respondent against Great Pacific Life Assurance Co. The
dispositive portion of the trial courts decision reads:
The insured private respondent did not cede to the mortgagee all his rights or
interests in the insurance, the policy stating that: In the event of the debtors death
before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount
to pay the outstanding indebtedness shall first be paid to the creditor and the balance
of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by
the debtor.[10] When DBP submitted the insurance claim against petitioner, the latter
denied payment thereof, interposing the defense of concealment committed by the
insured. Thereafter, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of private
respondent.[11] In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co.[12] we held:
Insured, being the person with whom the contract was made, is primarily the
proper person to bring suit thereon. * * * Subject to some exceptions,
insured may thus sue, although the policy is taken wholly or in part for the
benefit of another person named or unnamed, and although it is expressly
made payable to another as his interest may appear or otherwise. * *
* Although a policy issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the mortgagor may sue thereon
in his own name, especially where the mortgagees interest is less than the
full amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person
may recover it whatever the insured might have recovered,[14] the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner
interposed as its defense to annul the insurance contract. Petitioner contends that Dr.
Leuterio failed to disclose that he had hypertension, which might have caused his
death. Concealment exists where the assured had knowledge of a fact material to the
risk, and honesty, good faith, and fair dealing requires that he should communicate it
to the assured, but he designedly and intentionally withholds the same.[15]
Petitioner merely relied on the testimony of the attending physician, Dr.
Hernando Mejia, as supported by the information given by the widow of the
decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death of
Dr. Leuterio was a duly documented hospital record, and that the widows declaration
that her husband had possible hypertension several years ago should not be considered
as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did
not conduct an autopsy on the body of the decedent. As the attending physician, Dr.
Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital
confinement.[16] Dr. Leuterios death certificate stated that hypertension was only the
possible cause of death. The private respondents statement, as to the medical history
of her husband, was due to her unreliable recollection of events. Hence, the statement
of the physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the
appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance application that he
was in good health and that he had not consulted a doctor or any of the
enumerated ailments, including hypertension; when he died the attending
physician had certified in the death certificate that the former died of
cerebral hemorrhage, probably secondary to hypertension. From this report,
the appellant insurance company refused to pay the insurance
claim. Appellant alleged that the insured had concealed the fact that he had
hypertension.
xxx
The fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract.[18] Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer.[19] In the case at bar, the
petitioner failed to clearly and satisfactorily establish its defense, and is therefore
liable to pay the proceeds of the insurance.
And that brings us to the last point in the review of the case at bar. Petitioner
claims that there was no evidence as to the amount of Dr. Leuterios outstanding
indebtedness to DBP at the time of the mortgagors death. Hence, for private
respondents failure to establish the same, the action for specific performance should
be dismissed. Petitioners claim is without merit. A life insurance policy is a valued
policy.[20] Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy.[21] The mortgagor paid the premium according to
the coverage of his insurance, which states that:
The policy states that upon receipt of due proof of the Debtors death during
the terms of this insurance, a death benefit in the amount of P86,200.00 shall
be paid.
In the event of the debtors death before his indebtedness with the creditor
shall have been fully paid, an amount to pay the outstanding indebtedness
shall first be paid to the Creditor and the balance of the Sum Assured, if
there is any shall then be paid to the beneficiary/ies designated by the
debtor.[22] (Emphasis omitted)
However, we noted that the Court of Appeals decision was promulgated on May
17, 1993. In private respondents memorandum, she states that DBP foreclosed in
1995 their residential lot, in satisfaction of mortgagors outstanding loan. Considering
this supervening event, the insurance proceeds shall inure to the benefit of the heirs of
the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly
enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence,
it cannot collect the insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Dr. Leuterios heirs represented by his
widow, herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of
the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION
that the petitioner is ORDERED to pay the insurance proceeds amounting to
Eighty-six thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr.
Wilfredo Leuterio (deceased), upon presentation of proof of prior settlement of
mortgagors indebtedness to Development Bank of the Philippines. Costs against
petitioner.
SO ORDERED.
Mendoza, Buena, and De Leon Jr., JJ., concur.
Bellosillo, (Chairman), J., on official leave.
[1]
Rollo, pp. 36-42.
[2]
Id. at 44.
[3]
Id. at 36.
[4]
Id. at 37.
[5]
Civil Case 10788.
[6]
Rollo, pp. 18-19.
[7]
Serrano vs. Court of Appeals, 130 SCRA 327, 335 (1984).
[8]
Ibid.
[9]
43 Am Jur 2d, Insurance Section 766; citing Hill vs. International Indem. Co. 116 Kan 109, 225 P
1056, 38 ALR 362.
[10]
Rollo, p. 12.
[11]
Id. at 180.
[12]
55 Phil. 386 (1930), citing Corpus Juris, volume 26 pages 483 et seq.
[13]
Id. at 391, citing Corpus Juris, volume 26 pages 483 at seq.
[14]
Section 181, Philippine Insurance Code.
[15]
Argente vs. West Coast Life Insurance Co., 51 Phil. 725, 731 (1928). Section 26, Philippine
Insurance Code.- A neglect to communicate that which a party knows and ought to communicate is
called a concealment.
[16]
Rollo, p. 40.
[17]
Id. at 39-40.
[18]
Ng Gan Zee vs. Asian Crusader Life Assurance Corp, 122 SCRA 461, 466 (1983)
[19]
Ibid.
[20]
Third Edition, Lohel A. Martirez, Philippine Insurance Code Annotated, p. 380, citing
Belvin vs. Connecticut Mutual Life Ins., 23 Comm. 244.
[21]
Section 183. Philippine Insurance Code.
[22]
Rollo, p. 12.
THIRD DIVISION
x
---------------------------------------------------------------------------------------
x
DECISION
ABAD, J.:
Issues Presented
One. Lourdes points out that, seeing the unfilled spaces in Manuels
pension plan application relating to his medical history, Philam Plans
should have returned it to him for completion. Since Philam Plans chose
to approve the application just as it was, it cannot cry concealment on
Manuels part. Further, Lourdes adds that Philam Plans never queried
Manuel directly regarding the state of his health. Consequently, it could
not blame him for not mentioning it.[19]
xxxx
(c) I have never been treated for heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or
any other physical impairment in the last five years.
Lourdes insists that Manuel had concealed nothing since Perla, the
soliciting agent, knew that Manuel had a pacemaker implanted on his
chest in the 70s or about 20 years before he signed up for the pension
plan.[23] But by its tenor, the responsibility for preparing the application
belonged to Manuel. Nothing in it implies that someone else may provide
the information that Philam Plans needed. Manuel cannot sign the
application and disown the responsibility for having it filled up. If he
furnished Perla the needed information and delegated to her the filling up
of the application, then she acted on his instruction, not on Philam Plans
instruction.
Lourdes could not seek comfort from her claim that Perla had
assured Manuel that the state of his health would not hinder the approval
of his application and that what is written on his application made no
difference to the insurance company. But, indubitably, Manuel was made
aware when he signed the pension plan application that, in granting the
same, Philam Plans and Philam Life were acting on the truth of the
representations contained in that application. Thus:
xxxx
Three. In a final attempt to defend her claim for benefits under Manuels
pension plan, Lourdes points out that any defect or insufficiency in the
information provided by his pension plan application should be deemed
waived after the same has been approved, the policy has been issued, and
the premiums have been collected. [34]
The Court cannot agree. The comprehensive pension plan that Philam
Plans issued contains a one-year incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we
can no longer contest for health reasons any claim for insurance under
this Agreement, except for the reason that installment has not been
paid (lapsed), or that you are not insurable at the time you bought this
pension program by reason of age. If this Agreement lapses but is
reinstated afterwards, the one (1) year contestability period shall start
again on the date of approval of your request for reinstatement.[35]
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
WE CONCUR:
ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
[1]
Rollo, pp. 285, 326.
[2]
Id. at 285.
[3]
Records, p. 225 (dorsal side).
[4]
Rollo, pp. 285, 324.
[5]
TSN, May 6, 2003, p. 879.
[6]
Id. at 894; records, p. 226.
[7]
Id. at 888-895.
[8]
Records, pp. 9-13.
[9]
Id. at 174-177.
[10]
Rollo, p. 286.
[11]
Records, pp. 227-232.
[12]
Rollo, p. 110.
[13]
Id. at 111-112.
[14]
Records, p. 246.
[15]
Rollo, pp. 93-96.
[16]
Records, pp. 363-399.
[17]
Penned by Associate Justice Monina Arevalo-Zearosa with Associate Justices Conrado M. Vasquez,
Jr. and Edgardo F. Sundiam concurring; rollo, pp. 38-55.
[18]
Id. at 51.
[19]
Id. at 292, 294, 296-297.
[20]
Supra note 3.
[21]
Mims & Mims Annual, 116th Ed., pp. 86-87.
[22]
Websters New World College Dictionary, Third Edition.
[23]
Rollo, pp. 285, 297-299.
[24]
Id.
[25]
Supra note 21, p. 968.
[26]
Section 30 of the Insurance Code; see: Sunace International Management Services, Inc. v. National
Labor Relations Commission, 515 Phil. 779, 787 (2006); New Life Enterprises v. Court of Appeals,
G.R. No. 94071, March 31, 1992, 207 SCRA 669, 675.
[27]
Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind
a contract of insurance.
[28]
Rollo, pp. 308-311.
[29]
Records, p. 171.
[30]
Supra note 3.
[31]
Supra note 26.
[32]
Id. at 676-677.
[33]
TSN, October 28, 2002, p. 463.
[34]
Rollo, pp. 294, 296-297.
[35]
Records, p. 173.
[36]
Rollo, p. 286.
G.R. No. 183272, October 15, 2014 - SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. SANDRA
TAN KIT AND THE ESTATE OF THE DECEASED NORBERTO TAN KIT, Respondents.
PHILIPPINE SUPREME COURT DECISIONS
SECOND DIVISION
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. SANDRA TAN KIT AND THE ESTATE OF THE
DECEASED NORBERTO TAN KIT, Respondents.
DECISION
The Court of Appeals’ (CA) imposition of 12% interest on the P13,080.93 premium refund is the only
matter in question in this case.
This Petition for Review on Certiorari1 assails the October 17, 2007 Decision2 of CA in CA-G.R. CV No.
86923, which, among others, imposed a 12% per annum rate of interest reckoned from the time of
death of the insured until fully paid, on the premium to be reimbursed by petitioner Sun Life of
Canada (Philippines), Inc. (petitioner) to respondents Sandra Tan Kit (respondent Tan Kit) and the
Estate of the Deceased Norberto Tan Kit (respondent estate). Likewise assailed in this Petition is the
CA’s June 12, 2008 Resolution3 denying petitioner’s Motion for Reconsideration of the said Decision.
Factual Antecedents
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose
application for a life insurance policy,4 with face value of P300,000.00, was granted by petitioner on
October 28, 1999. On February 19, 2001, or within the two-year contestability period,5 Norberto died
of disseminated gastric carcinoma.6 Consequently, respondent Tan Kit filed a claim under the subject
policy.
In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kit’s claim on account of
Norberto’s failure to fully and faithfully disclose in his insurance application certain material and
relevant information about his health and smoking history. Specifically, Norberto answered “No” to
the question inquiring whether he had smoked cigarettes or cigars within the last 12 months prior to
filling out said application.8 However, the medical report of Dr. Anna Chua (Dr. Chua), one of the
several physicians that Norberto consulted for his illness, reveals that he was a smoker and had only
stopped smoking in August 1999. According to petitioner, its underwriters would not have approved
Norberto’s application for life insurance had they been given the correct information. Believing that
the policy is null and void, petitioner opined that its liability is limited to the refund of all the
premiums paid. Accordingly, it enclosed in the said letter a check for P13,080.93 representing the
premium refund.
In a letter9 dated September 13, 2001, respondent Tan Kit refused to accept the check and insisted
on the payment of the insurance proceeds.
On October 4, 2002, petitioner filed a Complaint10 for Rescission of Insurance Contract before the
Regional Trial Court (RTC) of Makati City.
In its November 30, 2005 Decision,11 the RTC noted that petitioner’s physician, Dr. Charity Salvador
(Dr. Salvador), conducted medical examination on Norberto. Moreover, petitioner’s agent, Irma Joy E.
Javelosa (Javelosa), answered “NO” to the question “Are you aware of anything about the life to be
insured’s lifestyle, hazardous sports, habits, medical history, or any risk factor that would have an
adverse effect on insurability?” in her Agent’s Report. Javelosa also already knew Norberto two years
prior to the approval of the latter’s application for insurance. The RTC concluded that petitioner,
through the above-mentioned circumstances, had already cleared Norberto of any misrepresentation
that he may have committed. The RTC also opined that the affidavit of Dr. Chua, presented as part of
petitioner’s evidence and which confirmed the fact that the insured was a smoker and only stopped
smoking a year ago [1999], is hearsay since Dr. Chua did not testify in court. Further, since Norberto
had a subsisting insurance policy with petitioner during his application for insurance subject of this
case, it was incumbent upon petitioner to ascertain the health condition of Norberto considering the
additional burden that it was assuming. Lastly, petitioner did not comply with the requirements for
rescission of insurance contract as held in Philamcare Health Systems, Inc. v. Court of Appeals.12 Thus,
the dispositive portion of the RTC Decision:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of the
[respondents and] against the [petitioner], hence it hereby orders the [petitioner] to pay the
[respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE HUNDRED THOUSAND
(P300,000.00), representing the face value of the insurance policy with interest at six percent (6%) per
annum from October 4, 2002 until fully paid.
Cost de oficio.
SO ORDERED.13
Petitioner moved for reconsideration,14 but was denied in an Order15 dated February 15, 2006.
On appeal, the CA reversed and set aside the RTC’s ruling in its Decision16 dated October 17, 2007.
From the records, the CA found that prior to his death, Norberto had consulted two physicians, Dr.
Chua on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom he
confided that he had stopped smoking only in 1999. At the time therefore that he applied for
insurance policy on October 28, 1999, there is no truth to his claim that he did not smoke cigarettes
within 12 months prior to the said application. The CA thus held that Norberto is guilty of
concealment which misled petitioner in forming its estimates of the risks of the insurance policy. This
gave petitioner the right to rescind the insurance contract which it properly exercised in this case.
In addition, the CA held that the content of Norberto’s medical records are deemed admitted by
respondents since they failed to deny the same despite having received from petitioner a Request for
Admission pursuant to Rule 26 of the Rules of Court.17 And since an admission is in the nature of
evidence the legal effects of which form part of the records, the CA discredited the RTC’s ruling that
the subject medical records and the affidavits executed by Norberto’s physicians attesting to the truth
of the same were hearsay.
SO ORDERED.18chanrobleslaw
The parties filed their separate motions for reconsideration.19 While respondents questioned the
factual and legal bases of the CA Decision, petitioner, on the other hand, assailed the imposition of
interest on the premium ordered refunded to respondents.
However, the appellate court denied the motions in its June 12, 2008
Resolution,20viz:chanRoblesvirtualLawlibrary
WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by the
[petitioner] and the [respondents] are hereby DENIED.
SO ORDERED.21
Only petitioner appealed to this Court through the present Petition for Review on Certiorari.
Issue
The sole issue in this case is whether petitioner is liable to pay interest on the premium to be
refunded to respondents.
Petitioner argues that no interest should have been imposed on the premium to be refunded because
the CA Decision does not provide any legal or factual basis therefor; that petitioner directly and timely
tendered to respondents an amount representing the premium refund but they rejected it since they
opted to pursue their claim for the proceeds of the insurance policy; that respondents should bear
the consequence of their unsound decision of rejecting the refund tendered to them; and, that
petitioner is not guilty of delay or of invalid or unjust rescission as to make it liable for interest. Hence,
following the ruling in Tio Khe Chio v. Court of Appeals,22 no interest can be assessed against
petitioner.
Respondents, on the other hand, contend that the reimbursement of premium is clearly a money
obligation or one that arises from forbearance of money, hence, the imposition of 12% interest per
annum is just, proper and supported by jurisprudence. While they admit that they refused the tender
of payment of the premium refund, they aver that they only did so because they did not want to
abandon their claim for the proceeds of the insurance policy. In any case, what petitioner should have
done under the circumstances was to consign the amount of payment in court during the pendency of
the case.
Our Ruling
Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of
payment of interest. There, the Court pointed to Sections 243 and 244 of the Insurance Code which
explicitly provide for payment of interest when there is unjustified refusal or withholding of payment
of the claim by the insurer, 23 and to Article 220924 of the New Civil Code which likewise provides for
payment of interest when the debtor is in delay.
The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of interest
on the insurance proceeds in which the claim therefor was either unreasonably denied or withheld or
the insurer incurred delay in the payment thereof. In this case, what is involved is an order for
petitioner to refund to respondents the insurance premium paid by Norberto as a consequence of the
rescission of the insurance contract on account of the latter’s concealment of material information in
his insurance application. Moreover, petitioner did not unreasonably deny or withhold the insurance
proceeds as it was satisfactorily established that Norberto was guilty of concealment.
“Monetary interest refers to the compensation set by the parties for the use or forbearance of
money.”25 No such interest shall be due unless it has been expressly stipulated in writing.26 “On the
other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or
by the courts.”27 The interest mentioned in Articles 2209 and 221228 of the Civil Code applies to
compensatory interest.29cralawlawlibrary
Clearly and contrary to respondents’ assertion, the interest imposed by the CA is not monetary
interest because aside from the fact that there is no use or forbearance of money involved in this case,
the subject interest was not one which was agreed upon by the parties in writing. This being the case
and judging from the tenor of the CA, to wit:chanRoblesvirtualLawlibrary
there can be no other conclusion than that the interest imposed by the appellate court is in the
nature of compensatory interest.
As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation.31cralawlawlibrary
In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was
rescinding the policy due to concealment, petitioner tendered the refund of premium by attaching to
the said notice a check representing the amount of refund. However, respondents refused to accept
the same since they were seeking for the release of the proceeds of the policy. Because of this discord,
petitioner filed for judicial rescission of the contract. Petitioner, after receiving an adverse judgment
from the RTC, appealed to the CA. And as may be recalled, the appellate court found Norberto guilty
of concealment and thus upheld the rescission of the insurance contract and consequently decreed
the obligation of petitioner to return to respondents the premium paid by Norberto. Moreover, we
find that petitioner did not incur delay or unjustifiably deny the claim.
Based on the foregoing, we find that petitioner properly complied with its obligation under the law
and contract. Hence, it should not be made liable to pay compensatory interest.
Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse the
premium paid within 15 days from date of finality of this Decision. If petitioner fails to pay within the
said period, then the amount shall be deemed equivalent to a forbearance of credit.32 In such a case,
the rate of interest shall be 6% per annum.33cralawlawlibrary
WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 86923
is MODIFIED in that petitioner Sun Life of Canada (Philippines), Inc. is ordered to reimburse to
respondents Sandra Tan Kit and the Estate of the Deceased Norberto Tan Kit the sum of P13,080.93
representing the premium paid by the insured within fifteen (15) days from date of finality of this
Decision. If the amount is not reimbursed within said period, the same shall earn interest of 6% per
annum until fully paid.
SO ORDERED.cralawred
Carpio, (Chairperson), Peralta,* Del Castillo, Reyes,** and Leonen, JJ., concur.
Endnotes:
2 CA rollo, pp. 99-113; penned by Associate Justice Josefina Guevara-Salonga and concurred in by
Associate Justices Vicente Q. Roxas and Ramon R. Garcia.
3 Id. at 158-159.
Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of
this chapter, such right must be exercised previous to the commencement of an action on the
contract.
After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.
7 Id. at 8.
8 Id. at 6.
9 Id. at 10.
10 Id. at 1-5.
12 429 Phil. 82, 93 (2002); It was held therein that the cancellation of health care agreements as in
insurance policies requires the concurrence of the following conditions:chanRoblesvirtualLawlibrary
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request
of insured, to furnish facts on which cancellation is based.”
13 Records, p. 243.
14 Id. at 255-266.
15 Id. at 288-289.
SECTION 1. Request for Admission. – At any time after issues have been joined, a party may file and
serve upon any other party a written request for the admission by the latter of the genuineness of any
material and relevant document described in and exhibited with the request or of the truth of any
material and relevant matter of fact set forth in the request. Copies of the documents shall be
delivered with the request unless copies have already been furnished.
Sec. 2. Implied admission. – Each of the matters of which an admission is requested shall be deemed
admitted unless, within a period designated in the request, which shall not be less than fifteen (15)
days after service thereof, or within such further time as the court may allow on motion, the party to
whom the request is directed files and serves upon the party requesting the admission a sworn
statement either denying specifically the matters of which an admission is requested or setting forth
in detail the reasons why he cannot truthfully either admit or deny those matters.
xxxx
20 Id. at 158-159.
21 Id. at 159.
SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy
other than life insurance policy, shall be paid within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the insured
and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after
such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety
days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein
will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at
the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is
based on the ground that the claim is fraudulent.
SEC. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative
case, the insurance company shall be adjudged to pay damages which shall consist of attorney’s fees
and other expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in section two
hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully
satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections
shall be considered prima facie evidence of unreasonable delay in payment. (Emphases supplied)
24 Article 2209. If the obligation consists in the payment of a sum of money and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum. (Emphasis supplied)
25Asia Trust Development Bank v. Tuble, G.R. No. 183987, July 25, 2012, 677 SCRA 519, 536.
28 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded although the
obligation may be silent upon this point.
32Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439, 458.
33 Id.
FIRST DIVISION
DECISION
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health
care coverage with petitioner Philamcare Health Systems, Inc. In the standard
application form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details).[1]
The application was approved for a period of one year from March 1, 1988 to
March 1, 1989. Accordingly, he was issued Health Care Agreement No.
P010194. Under the agreement, respondents husband was entitled to avail of
hospitalization benefits, whether ordinary or emergency, listed therein. He was also
entitled to avail of out-patient benefits such as annual physical examinations,
preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year
from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month beginning March 9,
1990. While her husband was in the hospital, respondent tried to claim the benefits
under the health care agreement. However, petitioner denied her claim saying that the
Health Care Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the
time of Ernanis confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died on
the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila,
Branch 44, an action for damages against petitioner and its president, Dr. Benito
Reverente, which was docketed as Civil Case No. 90-53795. She asked for
reimbursement of her expenses plus moral damages and attorneys fees. After trial, the
lower court ruled against petitioners, viz:
1. Defendants to pay and reimburse the medical and hospital coverage of the
late Ernani Trinos in the amount of P76,000.00 plus interest, until the
amount is fully paid to plaintiff who paid the same;
SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial court but
deleted all awards for damages and absolved petitioner Reverente.[4] Petitioners
motion for reconsideration was denied.[5]Hence, petitioner brought the instant petition
for review, raising the primary argument that a health care agreement is not an
insurance contract; hence the incontestability clause under the Insurance Code[6]does
not apply.
Petitioner argues that the agreement grants living benefits, such as medical
check-ups and hospitalization which a member may immediately enjoy so long as he
is alive upon effectivity of the agreement until its expiration one-year
thereafter. Petitioner also points out that only medical and hospitalization benefits are
given under the agreement without any indemnification, unlike in an insurance
contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts
which last longer,[7] petitioner argues that the incontestability clause does not apply, as
the same requires an effectivity period of at least two years. Petitioner further argues
that it is not an insurance company, which is governed by the Insurance Commission,
but a Health Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. An insurance
contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.[8]
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest
against him, may be insured against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
(3) of any person under a legal obligation to him for the payment of
money, respecting property or service, of which death or
illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in
him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity.[9] Once the
member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners required
respondents husband to sign an express authorization for any person, organization or
entity that has any record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation, treatment or any other
medical advice or examination.[10] Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers contained herein
and in any addendum annexed to this application are full, complete and true
and bind all parties in interest under the Agreement herein applied for, that
there shall be no contract of health care coverage unless and until an
Agreement is issued on this application and the full Membership Fee
according to the mode of payment applied for is actually paid during the
lifetime and good health of proposed Members; that no information acquired
by any Representative of PhilamCare shall be binding upon PhilamCare
unless set out in writing in the application; that any physician is, by these
presents, expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional capacity
upon any question affecting the eligibility for health care coverage of the
Proposed Members and that the acceptance of any Agreement issued on this
application shall be a ratification of any correction in or addition to this
application as stated in the space for Home Office
Endorsement.[11] (Underscoring ours)
I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the
PhilamCare Health Systems, Inc. any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination. This authorization is in connection with the application for
health care coverage only. A photographic copy of this authorization shall
be as valid as the original.[12] (Underscoring ours)
Petitioner cannot rely on the stipulation regarding Invalidation of agreement
which reads:
The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondents husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.[14]Thus,
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract.[16] Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is hospitalized for the
disease or injury covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party
to rescind a contract of insurance. The right to rescind should be exercised previous to
the commencement of an action on the contract.[17] In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy
of one or more of the grounds mentioned;
None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in such
a way as to preclude the insurer from non-compliance with his obligation.[19] Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract the insurer.[20] By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture.[21] This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.[22]
Anent the incontestability of the membership of respondents husband, we quote
with approval the following findings of the trial court:
Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously
married to another woman who was still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be made to the party who
incurred the expenses. It is not controverted that respondent paid all the hospital and
medical expenses. She is therefore entitled to reimbursement. The records adequately
prove the expenses incurred by respondent for the deceaseds hospitalization,
medication and the professional fees of the attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed
decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
[1]
Record, p. 28.
[2]
Exhibit 4, Record, p. 156.
[3]
Dated November 16, 1993; penned by Judge Lolita Gal-lang; Rollo, pp. 134-135.
[4]
Dated December 14, 1995, penned by Associate Justice Fidel P. Purisima, concurred in by Associate
Justices Fermin A. Martin, Jr. and Conchita Carpio Morales; Rollo, p. 45.
[5]
Resolution dated July 23, 1996; Rollo, p. 48.
[6]
Section 48 of P.D. No. 1460 otherwise known as the Insurance Code.
[7]
Petition, pp. 13-14; Rollo, pp. 22-23.
[8]
See Vance pp. 1-2 cited in Agbayani, Commercial Laws of the Philippines, vol. 2, 1986 ed. p. 6.
[9]
Cha v. Court of Appeals, 270 SCRA 690, 694 (1997).
[10]
Record, p. 28.
[11]
Ibid.
[12]
Ibid.
[13]
Ibid., p. 13.
[14]
Bryant v. Modern Woodmen of America, 86 Neb 372, 125 NW 621.
[15]
Herrick v. Union Mut. Fire Ins. Co., 48 Me 558; Bryant v. Modern Woodmen of America, supra;
Boutelle v. Westchester Fire Ins. Co., 51 Vt 4 cited in 43 Am Jur 2d 1016.
[16]
Great Pacific Life v. Court of Appeals, 316 SCRA 677 [1999], citing Ng Gan Zee v. Asian Crusader
Life Assurance Corp., 122 SCRA 461 [1983].
[17]
Section 48, Insurance Code.
[18]
Malayan Insurance v. Cruz Arnaldo, 154 SCRA 672 [1987].
[19]
Heirs of Ildefonso Cosculluela, Sr. v. Rico General Insurance Corporation, 179 SCRA 511 [1989].
[20]
Landicho v. GSIS, 44 SCRA 7 [1972]; Western Guaranty Company v. Court of Appeals, 187 SCRA
652 [1990].
[21]
44 C.J.S. pp. 1166-1175; 29 Am. Jur. 180. See also Aetna Insurance Co. v. Rhodes, 170 F2d 111;
Insurance Co. v. Norton, 96 U.S. 234, 24 L ed 689; Pfeiffer v. Missouri State Life Ins. Co., 174 Ark
783, 297 SW 847.
[22]
See Myers v. Kitsap Physicians Service, 78 Wash 2d 286, 474 P2d 109, 66 ALR3d 1196;
Hunt v. Hospital Service Plan, 81 ALR 2d 919 cited in 43 Am Jur 2d 289.
[23]
Record, p. 257.
[24]
Exhibit B, Exhibits D to D-7; Record, pp. 88-97.
DECISION
The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date that the insurer
approved· the application for reinstatement. However, in light of the ambiguity in the insurance documents to this
case, this Court adopts the interpretation favorable to the insured in determining the date when the reinstatement
was approved.
Assailed in this Petition for Review on Certiorari are the June 24, 2010 Decision2 of the Court of Appeals (CA),
1
which dismissed the Petition in CA-GR. CV No. 81730, and its December 13, 2010 Resolution3 which denied the
petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion for partial reconsideration. 4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter’s
Diamond Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire wherein he did not
declare any illness or adverse medical condition. Insular Life thereafter issued him Policy Number A000015683
with a face value of P1 million. This took effect on June 22, 1997. 5
On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium covering the period from June 22,
1999 to June 23, 2000. 6
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except
for the change in his occupation of being self-employed to being the Municipal Mayor of Binuangan, Misamis
Oriental, all the other information submitted by Felipe in his application for reinstatement was virtually identical to
those mentioned in his original policy.7
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if
he agreed to certain conditions such as payment of additional premium and the cancellation of the riders pertaining
to
premium waiver and accidental death benefits. Felipe agreed to these conditions and on December 27, 1999 paid
8
On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:
This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on
the understanding that the following changes are made on the policy effective June 22, 1999:
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally
attached to and forming parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually, P14,843.00
semi-annually and P7,557.00 quarterly, Philippine currency. 10
On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22,
2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual premium covering the period
from June 22, 2001 to June 21, 2002. 11
On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of death:
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s beneficiaries or
respondents) filed with Insular Life a claim for benefit under the reinstated policy. This claim was denied. Instead,
Insular Life advised Felipe’s beneficiaries that it had decided to rescind the reinstated policy on the grounds of
concealment and misrepresentation by Felipe.
Hence, respondents instituted a complaint for specific performance with damages. Respondents prayed that the
reinstated life insurance policy be declared valid, enforceable and binding on Insular Life; and that the latter be
ordered to pay unto Felipe’s beneficiaries the proceeds of this policy, among others. 13
In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus,
Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his application for
reinstatement of his insurance policy; and that it would not have reinstated the insurance policy had Felipe
disclosed the material information on his adverse health condition. It contended that when Felipe died, the policy
was still
contestable.14
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found for Felipe’s beneficiaries, thus:
15
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence,
judgment is hereby rendered in their favor and against defendants, ordering the latter to pay jointly and severally
the
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it is fully paid
representing the face value of Plan Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N.
Khu[,] Sr; the sum of P20,000.00 as moral damages; P30,000.00 as attorney’s fees; P10,000.00 as litigation
expenses.
SO ORDERED. 16
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the insurance
policy was reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance Corporation v. Court of
Appeals that any ambiguity in a contract of insurance should be resolved strictly against the insurer upon the
17
principle that an insurance contract is a contract of adhesion. The RTC also held that the reinstated insurance
18
policy had already become incontestable by the time of Felipe’s death on September 22, 2001 since more than
two years had already lapsed from the date of the policy’s reinstatement on June 22, 1999. The RTC noted that
since it was Insular Life itself that supplied all the pertinent forms relative to the reinstated policy, then it is barred
from taking advantage of any ambiguity/obscurity perceived therein particularly as regards the date when the
reinstated insurance policy became effective.
On June 24, 2010, the CA issued the assailed Decision which contained the following decretal portion:
19
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED with the
MODIFICATION that the award of moral damages, attorney’s fees and litigation expenses [is] DELETED.
SO ORDERED. 20
The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the date the insured
died. It declared that contrary to Insular Life’s contention, there in fact exists a genuine ambiguity or obscurity in
the language of the two documents prepared by Insular Life itself, viz., Felipe’s Letter of Acceptance and Insular
Life’s Endorsement; that given the obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insured’s right to recover should be adopted; and that in keeping with
this principle, the insurance policy in dispute must be deemed reinstated as of June 22, 1999. 21
Insular Life moved for partial reconsideration but this was denied by the CA in its Resolution of December 13,
22
Issue
The fundamental issue to be resolved in this case is whether Felipe’s reinstated life insurance policy is already
incontestable at the time of his death.
Petitioner’s Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should not be allowed
to recover on the reinstated insurance policy because the two-year contestability period had not yet lapsed
inasmuch as the insurance policy was reinstated only on December 27, 1999, whereas Felipe died on September
22, 2001; that the CA overlooked the fact that Felipe paid the additional extra premium only on December 27,
24
1999, hence, it is only upon this date that the reinstated policy had become effective; that the CA erred in declaring
that resort to the principles of statutory construction is still necessary to resolve that question given that the
Application for Reinstatement, the Letter of Acceptance and the Endorsement in and by themselves already
embodied unequivocal provisions stipulating that the two-year contestability clause should be reckoned from the
date of approval of the reinstatement; and that Felipe’s misrepresentation and concealment of material facts in
25
regard to his health or adverse medical condition gave it (Insular Life) the right to rescind the contract of insurance
and consequently, the right to deny the claim of Felipe’s beneficiaries for death benefits under the disputed policy. 26
Respondents’ Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of Acceptance and in the
Endorsement is unclear whether it refers to the subject of the sentence, i.e., the "reinstatement of this policy" or to
the subsequent phrase "changes are made on the policy;" that granting that there was any obscurity or ambiguity
in the insurance policy, the same should be laid at the door of Insular Life as it was this insurance company that
prepared the necessary documents that make up the same; and that given the CA’s finding which effectively
27
affirmed the RTC’s finding on this particular issue, it stands to reason that the insurance policy had indeed become
incontestable upon the date of Felipe’s death. 28
Our Ruling
Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter,
such right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime
of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation
of the insured or his agent.
The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance Corporation v. Aban, 29
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers
enough time to inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on the other
hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely uncovered – thus
deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are
absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds
occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer be
set up after the two-year period expires as ordained under the law.
xxxx
The Court therefore agrees fully with the appellate court’s pronouncement that-
xxxx
‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long as the
insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured dies
in order to defeat the right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability
to recover under the policy when the insured dies. The provision also makes clear when the two-year period
should commence in case the policy should lapse and is reinstated, that is, from the date of the last reinstatement’.
In Lalican v. The Insular Life Assurance Company, Limited, which coincidentally also involves the herein
30
petitioner, it was there held that the reinstatement of the insured’s policy is to be reckoned from the date when the
application was processed and approved by the insurer. There, we stressed that:
To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. x x
x
xxxx
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of
Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit
the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992
could only be considered reinstated after the Application for Reinstatement had been processed and approved by
Insular Life during Eulogio’s lifetime and good health.
31
Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date when the same
was approved by the insurer.
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it
approved the reinstatement only on December 27, 1999. On the other hand, respondents contend that it was on
June
The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the Endorsement.
The Letter of Acceptance wherein Felipe affixed his signature was actually drafted and prepared by Insular Life.
32
LETTER OF ACCEPTANCE
Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided I/we
agree to the following condition/s indicated with a check mark:
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per thousand of
insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard rates;
the SAR at P____ annually per thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the
policy.
After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse James R.
Toyhorada, issued an Endorsement dated January 7, 2000. For emphasis, the Endorsement is again quoted as
33
follows:
ENDORSEMENT
PN-A000015683
This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved
by the Company on the understanding that the following changes are made on the policy effective
June 22, 1999:
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD)
rider originally attached to and forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00
annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly, Philippine Currency.
Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy be
considered as reinstated on June 22, 1999. This finding must be upheld not only because it accords with the
evidence, but also because this is favorable to the insured who was not responsible for causing the ambiguity or
obscurity in the insurance contract. 34
The Court discerns a genuine ambiguity or obscurity in the language of the two documents.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional x x x
premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It is true that the phrase as used in
this
particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court notes that the
reinstatement was conditioned upon the payment of additional premium not only prospectively, that is, to cover the
remainder of the annual period of coverage, but also retroactively, that is for the period starting June 22, 1999.
Hence, by paying the amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier
paid on September 7, 1999, Khu had paid for the insurance coverage starting June 22, 1999. At the very least, this
circumstance has engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether
the phrase "effective June 22, 1999" refers to the subject of the sentence, namely "the reinstatement of this policy,"
or to the subsequent phrase "changes are made on the policy."
The court below is correct. Given the obscurity of the language, the construction favorable to the insured will be
adopted by the courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability has
lapsed.35
In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company, we ruled in
36
favor of the insured and in favor of the effectivity of the insurance contract in the midst of ambiguity in
the insurance contract provisions. We held that:
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in
favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus,
in MalayanInsurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against
the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to
preclude the insurer from noncompliance with its obligations.
xxxx
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at
best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing
technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed
on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order
to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon
insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a
valid, binding, and effective insurance contract.37
Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated on June 22,
1999 vis-a-vis Felipe’s death on September 22, 2001. As such, the subject insurance policy has already become
1âwphi 1
Finally, we agree with the CA that there is neither basis nor justification for the RTC’s award of moral damages,
attorney’s fees and litigation expenses; hence this award must be deleted.
WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December 13, 2010 Resolution
of the Court of Appeals in CA-GR. CV No. 81730 are AFFIRMED.
SO ORDERED.
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
I attest that the conclusions in the above Decision had· been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.
Footnotes
1
Rollo, pp. 28-29.
2
Id. at 70-82; penned by Associ.ate Justice Romuio V Borja and concurred in by Associate Justices Edgardo T.
Lloren and Ramon Paul L. Hernando.
3
Id. at 83-84.
4
Id. at 442-461.
5
Id. at 71.
6
Id.
7
Id.
8
Id. at unpaginated before p. 72.
9
Id. at 72.
10
Records, p. 80.
11
Rollo, p. 72.
12
Id. at 72-73.
13
Id. at 70 and 73.
14
Id. at unpaginated before p. 74.
15
Id. at 277-297; penned by Judge Downey C. Valdevilla.
16
Id. at 296-297.
17
336 Phil. 977 (1997).
18
Id. at 989.
19
Rollo, p. 70-82.
20
Id. at 81-82.
21
Id. at 80-81.
22
Id. at 442-461.
23
Id. at 83-84.
24
Id. at 583.
25
Id. at 581-582.
26
Id. at 592.
27
Id. at 611.
28
Id. at 607.
29
G.R. No. 175666, July 29, 2013, 702 SCRA 417, 427-429.
30
613 Phil. 518 (2009).
31
Id. at 535-537.
32
Records, p. 85, dorsal side.
33
Id. at 80.
CIVIL CODE OF THE PHILIPPINES, Art. 1377. The interpretation of obscure words or stipulations in a contract
34
35
Rollo, pp. 80-81.
36
574 Phil. 161 (2008).
37
Id. at 172-174.
THIRD DIVISION
- versus - Present:
YNARES-SANTIAGO, J.,
EVA VERNA DE GUZMAN Chairperson,
MARAMAG, ODESSA DE GUZMAN CARPIO,*
MARAMAG, KARL BRIAN DE CORONA,**
GUZMAN MARAMAG, TRISHA NACHURA, and
ANGELIE MARAMAG, THE INSULAR PERALTA, JJ.
LIFE ASSURANCE COMPANY, LTD.,
and GREAT PACIFIC LIFE Promulgated:
ASSURANCE CORPORATION,
Respondents. June 5, 2009
x-----------------------------------------------------------------------------------
-x
DECISION
NACHURA, J.:
The case stems from a petition[3] filed against respondents with the
Regional Trial Court, Branch 29, for revocation and/or reduction of
insurance proceeds for being void and/or inofficious, with prayer for a
temporary restraining order (TRO) and a writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife
and children of Loreto Maramag (Loreto), while respondents were
Loretos illegitimate family; (2) Eva de Guzman Maramag (Eva) was a
concubine of Loreto and a suspect in the killing of the latter, thus, she is
disqualified to receive any proceeds from his insurance policies from
Insular Life Assurance Company, Ltd. (Insular)[4] and Great Pacific Life
Assurance Corporation (Grepalife);[5] (3) the illegitimate children of
LoretoOdessa, Karl Brian, and Trisha Angeliewere entitled only to
one-half of the legitime of the legitimate children, thus, the proceeds
released to Odessa and those to be released to Karl Brian and Trisha
Angelie were inofficious and should be reduced; and (4) petitioners could
not be deprived of their legitimes, which should be satisfied first.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were
not known to petitioners, summons by publication was resorted to. Still,
the illegitimate family of Loreto failed to file their answer. Hence, the
trial court, upon motion of petitioners, declared them in default in its
Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved
that the issues raised in their respective answers be resolved first. The
trial court ordered petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and
Grepalife was purely legal whether the complaint itself was proper or not
and that the designation of a beneficiary is an act of liberality or a
donation and, therefore, subject to the provisions of Articles 752 [8] and
772[9] of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds
belong exclusively to the designated beneficiaries in the policies, not to
the estate or to the heirs of the insured. Grepalife also reiterated that it
had disqualified Eva as a beneficiary when it ascertained that Loreto was
legally married to Vicenta Pangilinan Maramag.
Art. 2011 of the Civil Code provides that the contract of insurance is
governed by the (sic) special laws. Matters not expressly provided for
in such special laws shall be regulated by this Code.The principal law
on insurance is the Insurance Code, as amended. Only in case of
deficiency in the Insurance Code that the Civil Code may be resorted
to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)
Neither could the plaintiffs invoked (sic) the law on donations or the
rules on testamentary succession in order to defeat the right of herein
defendants to collect the insurance indemnity. The beneficiary in a
contract of insurance is not the donee spoken in the law of
donation. The rules on testamentary succession cannot apply here, for
the insurance indemnity does not partake of a donation. As such, the
insurance indemnity cannot be considered as an advance of the
inheritance which can be subject to collation (Del Val v. Del Val, 29
Phil. 534). In the case of Southern Luzon Employees Association v.
Juanita Golpeo, et al., the Honorable Supreme Court made the
following pronouncements[:]
SO ORDERED.[14]
Petitioners appealed the June 16, 2005 Resolution to the CA, but it
dismissed the appeal for lack of jurisdiction, holding that the decision of
the trial court dismissing the complaint for failure to state a cause of
action involved a pure question of law. The appellate court also noted that
petitioners did not file within the reglementary period a motion for
reconsideration of the trial courts Resolution, dated September 21, 2004,
dismissing the complaint as against Odessa, Karl Brian, and Trisha
Angelie; thus, the said Resolution had already attained finality.
In essence, petitioners posit that their petition before the trial court
should not have been dismissed for failure to state a cause of action
because the finding that Eva was either disqualified as a beneficiary by
the insurance companies or that her designation was revoked by Loreto,
hypothetically admitted as true, was raised only in the answers and
motions for reconsideration of both Insular and Grepalife. They argue
that for a motion to dismiss to prosper on that ground, only the allegations
in the complaint should be considered. They further contend that, even
assuming Insular disqualified Eva as a beneficiary, her share should not
have been distributed to her children with Loreto but, instead, awarded to
them, being the legitimate heirs of the insured deceased, in accordance
with law and jurisprudence.
The grant of the motion to dismiss was based on the trial courts finding
that the petition failed to state a cause of action, as provided in Rule 16,
Section 1(g), of the Rules of Court, which reads
SECTION 1. Grounds. Within the time for but before filing the answer
to the complaint or pleading asserting a claim, a motion to dismiss may
be made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
In this case, it is clear from the petition filed before the trial court
that, although petitioners are the legitimate heirs of Loreto, they were not
named as beneficiaries in the insurance policies issued by Insular and
Grepalife. The basis of petitioners claim is that Eva, being a concubine of
Loreto and a suspect in his murder, is disqualified from being designated
as beneficiary of the insurance policies, and that Evas children with
Loreto, being illegitimate children, are entitled to a lesser share of the
proceeds of the policies.They also argued that pursuant to Section 12 of
the Insurance Code,[19] Evas share in the proceeds should be forfeited in
their favor, the former having brought about the death of Loreto. Thus,
they prayed that the share of Eva and portions of the shares of Loretos
illegitimate children should be awarded to them, being the legitimate
heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not
entitled to a favorable judgment in light of Article 2011 of the Civil Code
which expressly provides that insurance contracts shall be governed by
special laws, i.e., the Insurance Code. Section 53 of the Insurance Code
states
Pursuant thereto, it is obvious that the only persons entitled to claim the
insurance proceeds are either the insured, if still alive; or the beneficiary,
if the insured is already deceased, upon the maturation of the
policy.[20] The exception to this rule is a situation where the insurance
contract was intended to benefit third persons who are not parties to the
same in the form of favorable stipulations or indemnity. In such a case,
third parties may directly sue and claim from the insurer.[21]
In this regard, the assailed June 16, 2005 Resolution of the trial
court should be upheld. In the same light, the Decision of the CA dated
January 8, 2008 should be sustained. Indeed, the appellate court had no
jurisdiction to take cognizance of the appeal; the issue of failure to state a
cause of action is a question of law and not of fact, there being no
findings of fact in the first place.[25]
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ATTESTATION
I attest that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
*
Additional member in lieu of Associate Justice Conchita Carpio Morales per Special Order No. 646
dated May 15, 2009.
**
Additional member in lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 631
dated April 29, 2009.
[1]
Rollo, pp. 11-36.
[2]
Penned by Associate Justice Marina L. Buzon, with Associate Justices Rosmari D. Carandang and
Mariflor P. Punzalan Castillo, concurring; id. at 37-52.
[3]
Rollo, pp. 59-64.
[4]
Two Life Insurance plans with Policy Nos. A001544070, for the sum of P1,500,000.00; and
1643029, for the sum of P500,000.00.
[5]
Two Pension Plans with Policy Nos. PTLIG 1000326-0000, with a maturity value of P1,000,000.00;
and PTLIG 1000344-0000, with a maturity value of P500,000.00; and a Memorial Plan with Policy No.
M0109-159064-0000 with plan value of P50,000.00.
[6]
Cited in the January 8, 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
85948; rollo, pp. 40-41.
[7]
Id. at 40.
[8]
ART. 752. The provisions of Article 750 notwithstanding, no person may give or receive, by way of
donation, more than he may give or receive by will.
ART. 750. The donation may comprehend all the present property of the donor, or part thereof,
provided he reserves, in full ownership or in usufruct, sufficient means for the support of himself, and
of all relatives who, at the time of the acceptance of the donation, are by law entitled to be supported by
the donor. Without such reservation, the donation shall be reduced on petition of any person affected.
[9]
ART. 772. Only those who at the time of the donors death have a right to the legitime and their heirs
and successors in interest may ask for the reduction of inofficious donations.
Those referred to in the preceding paragraph cannot renounce their right during the lifetime of
the donor, either by express declaration, or by consenting to the donation.
The donees, devisees and legatees, who are not entitled to the legitime and the creditors of the
deceased can neither ask for the reduction nor avail themselves thereof.
[10]
Rollo, pp. 42-43.
[11]
Id. at 43-45.
[12]
Id. at 65-72.
[13]
Id. at 73-80.
[14]
Id. at 46-47.
[15]
Id. at 20-21.
[16]
RULES ON CIVIL PROCEDURE, Rule 2, Sec. 2.
[17]
Bank of America NT&SA v. Court of Appeals, G.R. No. 120135, March 31, 2003, 400 SCRA 156,
167.
[18]
Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporation, G.R. No. 172242, August 14,
2007, 530 SCRA 170; China Road and Bridge Corporation v. Court of Appeals, G.R. No. 137898,
December 15, 2000, 348 SCRA 401, 409, 412; Dabuco v. Court of Appeals, 379 Phil. 939
(2000); Peltan Dev., Inc. v. CA, 336 Phil. 824 (1997); City of Cebu v. Court of Appeals, G.R. No.
109173, July 5, 1996, 258 SCRA 175, 182-184; United States of America v. Reyes, G.R. No. 79253,
March 1, 1993, 219 SCRA 192; Santiago v. Pioneer Savings & Loan Bank, No. L-77502, January 15,
1988, 157 SCRA 100; Marcopper Mining Corporation v. Garcia, No. L-55935, July 30, 1986, 143
SCRA 178, 187-189; Tan v. Director of Forestry, No. L-24548, October 27, 1983, 125 SCRA 302,
315.
[19]
SECTION 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the
insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance
if not otherwise disqualified.
[20]
Southern Luzon Employees Ass. v. Golpeo, et al., 96 Phil. 83, 86 (1954), citing Del Val v. Del Val,
29 Phil. 534, 540-541 (1915).
[21]
Coquila v. Fieldmens Insurance Co., Inc., No. L-23276, November 29, 1968, 26 SCRA 178,
181; Guingon v. Del Monte, No. L-22042, August 17, 1967, 20 SCRA 1043.
[22]
Southern Luzon Employees Ass. v. Golpeo, et al., supra note 20, at 87-88.
[23]
Vda. de Consuegra v. Government Service Insurance System, No. L-28093, January 30, 1971, 37
SCRA 315.
[24]
The Insular Life Assurance Company, Ltd. v. Ebrado, No. L-44059, October 28, 1977, 80 SCRA
181.
[25]
China Road and Bridge Corporation v. Court of Appeals, supra note 18, at 409-410.
SECOND DIVISION
DECISION
QUISUMBING, J.:
On appeal, the Court of Appeals affirmed the trial courts ruling and
subsequently denied the motion for reconsideration.
Simply put, did the Court of Appeals err in holding petitioner and
its co-defendants jointly and severally liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims
that it was only a life insurance company and was not engaged in the
business of collecting investment money. It contends that the investment
scheme offered to respondents by Valle, Apetrior and Alcantara was
outside the scope of their authority as agents of Filipinas Life such that, it
cannot be held liable to the respondents.[11]
SO ORDERED.
LEONARDO A. QUISUMBING
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
[1]
Rollo, pp. 43-55. Penned by Associate Justice Renato C. Dacudao, with Associate Justices Eugenio S.
Labitoria and Danilo B. Pine concurring.
[2]
Id. at 56.
[3]
Id. at 57-63. Penned by Judge Clemente M. Soriano.
[4]
Records, p. 246.
[5]
TSN, October 7, 1983, pp. 9-10.
[6]
Records, p. 248.
[7]
Id. at 247.
[8]
Supra note 5.
[9]
Records, pp. 253-264.
[10]
Rollo, p. 108.
[11]
Id. at 109.
[12]
CIVIL CODE, Art. 1868.
[13]
Lopez, et al. v. Hon. Alvendia, et al., 120 Phil. 1424, 1431-1432 (1964).
[14]
BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July 3, 1992, 211 SCRA 112, 118.
[15]
CIVIL CODE, Art. 1911.
[16]
Id., Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.
[17]
Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 151319, November 22, 2004, 443
SCRA 377, 394.
[18]
Prudential Bank v. Court of Appeals, G.R. No. 108957, June 14, 1993, 223 SCRA 350, 357.
THIRD DIVISION
Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.
ROMERO, J.:
On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal
Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally
cancelled the same since company records revealed that petitioner-insured failed to pay
his premiums.
On August 3, 1985, respondent insurance company offered to reinstate same policy it had
previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon
a finding that the cancellation was erroneous and that the premiums were paid in full by
petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance
company's branch manager.
These, in brief, are the material facts that gave rise to the action for damages due to
breach of contract instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to
payment of damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by
respondent insurance company, in an effort to rectify such error, obliterate whatever
liability for damages it may have to bear, thus absolving it therefrom?
From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola,
a lawyer from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred
to as Prudential), a personal accident insurance policy covering the one-year period
between noon of November 28, 1984 and noon of November 28, 1985. Under the terms1
This Statement of Account must not be considered a receipt. Official Receipt will be
issued to you upon payment of this account.
If payment is made to our representative, demand for a Provisional Receipt and if our
Official Receipts is (sic) not received by you within 7 days please notify us.
Note: This collector's provisional receipt will be confirmed by our official receipt. If our
official receipt is not received by you within 7 days, please notify us. 4
On June 29, 1985, respondent insurance company, through its Baguio City manager,
Teofilo M. Malapit, sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of
premium effective as of inception dated." The same endorsement also credited "a return
5
premium of P1,609.65 plus documentary stamps and premium tax" to the account of the
insured.
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent
of respondent insurance company, and demanded the issuance of an official receipt. Ang
told petitioner-insured that the cancellation of the policy was a mistake but he would
personally see to its rectification. However, petitioner-insured failed to receive any official
receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter
demanding that he be insured under the same terms and conditions as those contained in
Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current
commercial rate of increase on the payment he had made under provisional receipt No.
9300 be returned within five days. Areola also warned that should his demands be
6
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company,
through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July
25, 1985 stating that the company was verifying whether the payment had in fact been
issued therefor. Ampil emphasized that the official receipt should have been issued seven
days from the issuance of the provisional receipt but because no official receipt had been
issued in Areola's name, there was reason to believe that no payment had been made.
Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing
"to hold you cover (sic) under the terms of the referenced policy until such time that this
matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of
P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on
December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December
17, 1985 or one year from the date when payment was received." Apologizing again for
the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the
proposal by signing on the space provided for in the letter. 9
1985 had filed a complaint for breach of contract with damages before the lower court.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured,
ordering respondent insurance company to pay the former the following:
2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and
In its decision, the court below declared that respondent insurance company acted in bad
faith in unilaterally cancelling subject insurance policy, having done so only after seven
months from the time that it had taken force and effect and despite the fact of full payment
of premiums and other charges on the issued insurance policy. Cancellation from the date
of the policy's inception, explained the lower court, meant that the protection sought by
petitioner-insured from the risks insured against was never extended by respondent
insurance company. Had the insured met an accident at the time, the insurance company
would certainly have disclaimed any liability because technically, the petitioner could not
have been considered insured. Consequently, the trial court held that there was breach of
contract on the part of respondent insurance company, entitling petitioner-insured to an
award of the damages prayed for.
This ruling was challenged on appeal by respondent insurance company, denying bad
faith on its part in unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the decision of
the trial court, convinced that the latter had erred in finding respondent insurance
company in bad faith for the cancellation of petitioner-insured's policy. According to the
Court of Appeals, respondent insurance company was not motivated by negligence,
malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance
policy was based on what the existing records showed, i.e., absence of an official receipt
issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of
Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof
of which must be established convincingly. On the contrary, it further observed, the
following acts indicate that respondent insurance company did not act precipitately or
willfully to inflict a wrong on petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had
indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had
been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to
extend its effective period to December 17, 1985; and (d) respondent insurance
company's apologies for the "inconvenience" caused upon petitioner-insured. The
appellate court added that respondent insurance company even relieved Malapit, its
Baguio City manager, of his job by forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the Court of
Appeals denied. Hence, this petition for review on certiorari anchored on these
arguments:
II
Respondent Court of Appeals committed serious and reversible error and abused its
discretion in ruling that the defenses of good faith and honest mistake can co-exist with
the admitted fraudulent acts and evident bad faith.
III
Respondent Court of Appeals committed a reversible error in not finding that even without
considering the fraudulent acts of its own officer in misappropriating the premium payment,
the act itself in cancelling the insurance policy was done with bad faith and/or gross
negligence and wanton attitude amounting to bad faith, because among others, it was
Mr. Malapit — the person who committed the fraud — who sent and signed the notice of
cancellation.
IV
Respondent Court of Appeals has decided a question of substance contrary to law and
applicable decision of the Supreme Court when it refused to award damages in favor of
herein Petitioner-Appellants.
Respondent insurance company, on the other hand, argues that where reinstatement, the
equitable relief sought by petitioner-insured was granted at an opportune moment, i.e.
prior to the filing of the complaint, petitioner-insured is left without a cause of action on
which to predicate his claim for damages. Reinstatement, it further explained, effectively
restored petitioner-insured to all his rights under the policy. Hence, whatever cause of
action there might have been against it, no longer exists and the consequent award of
damages ordered by the lower court in unsustainable.
represented its interest and acted in its behalf. His act of receiving the premiums collected
is well within the province of his authority. Thus, his receipt of said premiums is receipt by
private respondent insurance company who, by provision of law, particularly under Article
1910 of the Civil Code, is bound by the acts of its agent.
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense for private
respondent insurance company; no exoneration from liability could result therefrom. The
fact that private respondent insurance company was itself defrauded due to the anomalies
that took place in its Baguio branch office, such as the non-accrual of said premiums to its
account, does not free the same from its obligation to petitioner Areola. As held
in Prudential Bank v. Court of Appeals citing the ruling in McIntosh v. Dakota Trust Co.:
13 14
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside
the scope of their authority. A bank holding out its officers and agent as worthy of
confidence will not be permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general
scope of his authority even though, in the particular case, the agent is secretly abusing his
authority and attempting to perpetrate a fraud upon his principal or some other person, for
his own ultimate benefit.
Under the circumstances of instant case, the relationship as creditor and debtor between
the parties arose from a common cause: i.e., by reason of their agreement to enter into a
contract of insurance under whose terms, respondent insurance company promised to
extend protection to petitioner-insured against the risk insured for a consideration in the
form of premiums to be paid by the latter. Under the law governing reciprocal obligations,
particularly the second paragraph of Article 1191, the injured party, petitioner-insured in
16
this case, is given a choice between fulfillment or rescission of the obligation in case one
of the obligors, such as respondent insurance company, fails to comply with what is
incumbent upon him. However, said article entitles the injured party to payment of
damages, regardless of whether he demands fulfillment or rescission of the obligation.
Untenable then is reinstatement insurance company's argument, namely, that
reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a
rightful claim for payment of damages. Such a claim finds no support in our laws on
obligations and contracts.
WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision
of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The
decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30,
1987 is hereby REINSTATED subject to the following modifications: (a) that nominal
damages amounting to P30,000.00 be awarded petitioner in lieu of the damages
adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded
therein, respondent insurance company is ORDERED to pay the legal rate of interest
computed from date of filing of complaint until final payment thereof.
SO ORDERED.
Feliciano, Melo and Vitug, JJ., concur.
#Footnotes
1 Exh. "A."
2 Exh. "B."
3 Exh. "C."
4 Exh. "2."
5 Exh. "D."
6 Exh. "F."
7 Exh. "E."
8 Exh. "G."
9 Exh. "H."
12 Rollo, p. 35.
15 Tolentino, Arturo, Civil Code of the Philippines Commentaries and Jurisprudence, Vol.
IV, p. 175.
16 Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.
17 Article 2221 (Civil Code) — Nominal damages are adjudicated in order that a right of
the plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized and not for the purpose of indemnifying the plaintiff for any loss suffered by
him.
SECOND DIVISION
AFP GENERAL INSURANCE G.R. No. 151133
CORPORATION,
Petitioner, Present:
DECISION
QUISUMBING, J.:
The private respondents are the complainants in a case for illegal dismissal,
docketed as NLRC NCR Case No. 02-00672-90, filed against Radon
Security & Allied Services Agency and/or Raquel Aquias and Ever
Emporium, Inc. In his Decision dated August 20, 1996, the Labor Arbiter
ruled that the private respondents were illegally dismissed and ordered
Radon Security to pay them separation pay, backwages, and other
monetary claims.
Radon Security duly moved for reconsideration, but this was denied by
the NLRC in its Resolution dated June 22, 1998.
Radon Security then filed a Petition for Certiorari docketed as G.R. No.
134891 with this Court, but we dismissed this petition in our Resolution
of August 31, 1998.
When the Decision dated April 6, 1998 of the NLRC became final and
executory, private respondents filed an Urgent Motion for Execution. As
a result, the NLRC Research and Information Unit submitted a
Computation of the Monetary Awards in accordance with the NLRC
decision. Radon Security opposed said computation in its Motion for
Recomputation.
Both Ever Emporium, Inc. and Radon Security moved to quash the writ
of execution.
On March 30, 1999, the Labor Arbiter denied both motions, and Radon
Security appealed to the NLRC.
On April 14, 1999, AFPGIC entered the fray by filing before the Labor
Arbiter an Omnibus Motion to Quash Notice/Writ of Garnishment and to
Discharge AFPGICs Appeal Bond on the ground that said bond has been
cancelled and thus non-existent in view of the failure of Radon Security
to pay the yearly premiums.[7]
On April 30, 1999, the Labor Arbiter denied AFPGICs Omnibus Motion
for lack of merit.[8] The Labor Arbiter pointed out that the question of
non-payment of premiums is a dispute between the party who posted the
bond and the insurer; to allow the bond to be cancelled because of the
non-payment of premiums would result in a factual and legal absurdity
wherein a surety will be rendered nugatory by the simple expedient of
non-payment of premiums.
The petitioner then appealed the Labor Arbiters order to the NLRC. The
appeals of Radon Security and AFPGIC were jointly heard as NLRC
NCR CA-011705-96.
On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96
in this wise:
WHEREFORE, premises considered, the appeals under
consideration are hereby DISMISSED for lack of merit.
SO ORDERED.[9]
AFPGIC then moved for reconsideration, but the NLRC denied the
motion in its Resolution[12] dated February 29, 2000.
SO ORDERED.[13]
Hence, the instant case anchored on the lone assignment of error that:
THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING
THE PUBLIC RESPONDENT NLRC ALTHOUGH THE LATTER
GRAVELY ABUSED ITS DISCRETION WHEN IT ARBITRARILY
IGNORED THE FACT THAT SUBJECT APPEAL BOND WAS
ALREADY CANCELLED FOR NON-PAYMENT OF PREMIUM
AND THUS IT COULD NOT BE SUBJECT OF EXECUTION OR
GARNISHMENT.[15]
The petitioner contends that under Section 64[16] of the Insurance Code,
which is deemed written into every insurance contract or contract of
surety, an insurer may cancel a policy upon non-payment of the
premium. Said cancellation is binding upon the beneficiary as the right of
a beneficiary is subordinate to that of the insured. Petitioner points out
that in South Sea Surety & Insurance Co., Inc. v. CA,[17] this Court held
that payment of premium is a condition precedent to and essential for the
efficaciousness of a contract of insurance.[18] Hence, following UCPB
General Ins. Co., Inc. v. Masagana Telamart, Inc.,[19] no insurance policy,
other than life, issued originally or on renewal is valid and binding until
actual payment of the premium.[20] The petitioner also points to Malayan
Insurance Co., Inc. v. Cruz Arnaldo,[21] which reiterated that an insurer
may cancel an insurance policy for non-payment of premium.[22] Hence,
according to petitioner, the Court of Appeals committed a reversible error
in not holding that under Section 77[23] of the Insurance Code, the surety
bond between it and Radon Security was not valid and binding for
non-payment of premiums, even as against a third person who was
intended to benefit therefrom.
The controversy before the Court involves more than just the mere
application of the provisions of the Insurance Code to the factual
circumstances. This instant case, after all, traces its roots to a labor
controversy involving illegally dismissed workers. It thus entails the
application of labor laws and regulations. Recall that the heart of the
dispute is not an ordinary contract of property or life insurance, but an
appeal bond required by both substantive and adjective law in appeals in
labor disputes, specifically Article 223[24] of the Labor Code, as amended
by Republic Act No. 6715,[25] and Rule VI, Section 6[26] of the Revised
NLRC Rules of Procedure. Said provisions mandate that in labor cases
where the judgment appealed from involves a monetary award, the appeal
may be perfected only upon the posting of a cash or surety bond issued by
a reputable bonding company accredited by the NLRC.[27] The perfection
of an appeal by an employer only upon the posting of a cash or surety
bond clearly and categorically shows the intent of the lawmakers to make
the posting of a cash or surety bond by the employer to be the exclusive
means by which an employers appeal may be perfected. [28] Additionally,
the filing of a cash or surety bond is a jurisdictional requirement in an
appeal involving a money judgment to the NLRC.[29] In addition, Rule VI,
Section 6 of the Revised NLRC Rules of Procedure is a contemporaneous
construction of Article 223 by the NLRC. As an interpretation of a law by
the implementing administrative agency, it is accorded great respect by
this Court.[30] Note that Rule VI, Section 6 categorically states that the
cash or surety bond posted in appeals involving monetary awards in labor
disputes shall be in effect until final disposition of the case. This could
only be construed to mean that the surety bond shall remain valid and in
force until finality and execution of judgment, with the resultant
discharge of the surety company only thereafter, if we are to give teeth to
the labor protection clause of the Constitution. To construe the provision
any other way would open the floodgates to unscrupulous and heartless
employers who would simply forego paying premiums on their surety
bond in order to evade payment of the monetary judgment. The Court
cannot be a party to any such iniquity.
The Labor Arbiter directed the NLRC Sheriff to garnish the surety
bond issued by the petitioner. The latter, as surety, is mandated to comply
with the writ of garnishment, for as earlier pointed out, the bond remains
enforceable and under the jurisdiction of the NLRC until it is
discharged. In turn, the petitioner may proceed to collect the amount it
paid on the bond, plus the premiums due and demandable, plus any
interest owing from Radon Security. This is pursuant to the principle of
subrogation enunciated in Article 2067[35] of the Civil Code which we
apply to the suretyship agreement between AFPGIC and Radon Security,
in accordance with Section 178[36] of the Insurance Code.Finding no
reversible error committed by the Court of Appeals in CA-G.R. SP No.
58763, we sustain the challenged decision.
SO ORDERED.
LEONARDO A. QUISUMBING
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
[1]
CA rollo, pp. 133-138. Penned by Associate Justice Wenceslao I. Agnir, Jr., with Associate Justices
Salvador J. Valdez, Jr. and Juan Q. Enriquez, Jr. concurring.
[2]
Id. at 16-21.
[3]
Id. at 14-15.
[4]
Id. at 161-162.
[5]
Rollo, pp. 63-65.
[6]
Id. at 66.
[7]
CA rollo, p. 30.
[8]
Id. at 14-15.
[9]
Id. at 20.
[10]
Rollo, pp. 58-59.
[11]
Id. at 59.
[12]
Id. at 61-62.
[13]
CA rollo, pp. 137-138.
[14]
Id. at 161-162.
[15]
Rollo, p. 24.
[16]
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 omissions 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.
[17]
314 Phil. 761 (1995).
[18]
Id. at 767.
[19]
367 Phil. 539 (1999).
[20]
Id. at 544.
[21]
No. L-67835, October 12, 1987, 154 SCRA 672.
[22]
Id. at 679.
[23]
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.
[24]
ART. 223. Appeal. . . .
xxxx
In case of a judgment involving a monetary award, an appeal by the employer may be perfected only
upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited
by the Commission in the amount equivalent to the monetary award in the judgment appealed
from.
In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee,
insofar as the reinstatement aspect is concerned, shall immediately be executory, even pending
appeal. The employee shall either be admitted back to work under the same terms and conditions
prevailing prior to his dismissal or separation or, at the option of the employer, merely reinstated in
the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement
provided herein.
xxxx
[25]
AN ACT TO EXTEND PROTECTION TO LABOR, STRENGTHEN THE CONSTITUTIONAL
RIGHTS OF WORKERS TO SELF-ORGANIZATION, COLLECTIVE BARGAINING AND
PEACEFUL CONCERTED ACTIVITIES, FOSTER INDUSTRIAL PEACE AND HARMONY,
PROMOTE THE PREFERENTIAL USE OF VOLUNTARY MODES OF SETTLING LABOR
DISPUTES, AND REORGANIZE THE NATIONAL LABOR RELATIONS COMMISSION,
AMENDING FOR THESE PURPOSES CERTAIN PROVISIONS OF PRESIDENTIAL
DECREE NO. 442, AS AMENDED, OTHERWISE KNOWN AS THE LABOR CODE OF THE
PHILIPPINES, APPROPRIATING FUNDS THEREFOR, AND FOR OTHER PURPOSES,
effective on March 2, 1989.
[26]
Section. 6. Bond. In case the decision of the Labor Arbiter, the Regional Director or his duly
authorized Hearing Officer involves a monetary award, an appeal by the employer shall be
perfected only upon the posting of a cash or surety bond, which shall be in effect until final
disposition of the case, issued by a reputable bonding company duly accredited by the Commission
or the Supreme Court in an amount equivalent to the monetary award, exclusive of moral and
exemplary damages and attorneys fees.
The employer, his counsel, as well as the bonding company, shall submit a joint declaration under
oath attesting that the surety bond posted is genuine.
The Commission may, in justifiable cases and upon Motion of the Appellant, reduce the amount of the
bond. The filing of the motion to reduce bond shall not stop the running of the period to perfect
appeal.
[27]
Navarro v. NLRC, 383 Phil. 765, 773 (2000).
[28]
Catubay v. National Labor Relations Commission, 386 Phil. 648, 658 (2000).
[29]
Blancaflor v. NLRC, G.R. No. 101013, February 2, 1993, 218 SCRA 366, 370-371.
[30]
Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414, 423 (1918).
[31]
Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or
bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid
and binding unless and until the premium therefor has been paid, except where the obligee has
accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether
or not the premium has been paid by the obligor to the surety; Provided, That if the contract of
suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only a
reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus
the cost of stamps or other taxes imposed for the issuance of the contract or bond; Provide,
however, That if the non-acceptance of the bond be due to the fault of the surety, no such service
fee, stamps or taxes shall be collected.
In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due
until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of
competent jurisdiction, as the case may be.
[32]
Cordero v. The Court of First Instance of Laguna, 67 Phil. 358, 362 (1939); F. Moreno,
PHILIPPINE LAW DICTIONARY 993 (3rd ed., 1988).
[33]
Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall
be limited to the amount of the bond. It is determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the obligee. (as amended by
Pres. Decree No. 1855.)
[34]
Sesbreo v. Court of Appeals, G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.
[35]
Art. 2067. The guarantor who pays is subrogated by virtue thereof to all the rights which the
creditor had against the debtor.
If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what
he has really paid.
[36]
Sec. 178. Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory
character whenever necessary in interpreting the provisions of a contract of suretyship.
SECOND DIVISION
Promulgated:
COUNTRY BANKERS July 11, 2012
INSURANCE CORPORATION,
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
-x
DECISION
CARPIO, J.:
The Case
xxx
The next witness, Annie Pabustan (Pabustan), testified that her company
provided about 25 workers to assemble and pack Christmas lights for
UMC from 28 March 1996 to 3 July 1996. The third witness,
Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez,
stated that UMC opened letters of credit with MBTC for the year 1995
only. The fourth witness presented was Ernesto Luna (Luna), the delivery
checker of Straight Commercial Cargo Forwarders. Luna affirmed the
delivery of UMCs goods to its warehouse on 13 August 1995, 6
September 1995, 8 September 1995, 24 October 1995, 27 October 1995,
9 November 1995, and 19 December 1995. Lastly, CRMs adjuster
Dominador Victorio testified that he inspected UMCs warehouse and
prepared preliminary reports in this connection.
Cabrera and Lazaro testified that they were hired by Central Surety to
investigate UMCs claim. On 19 November 1996, they concluded that
arson was committed based from their interview with barangay officials
and the pictures showing that blackened surfaces were present at different
parts of the warehouse. On cross-examination, Lazaro admitted that they
did not conduct a forensic investigation of the warehouse, nor did they
file a case for arson.
SO ORDERED.[11]
The RTC found no dispute as to UMCs fire insurance contract with CBIC.
Thus, the RTC ruled for UMCs entitlement to the insurance proceeds, as
follows:
SO ORDERED.[13]
The CA ruled that UMCs claim under the Insurance Policy is void. The
CA found that the fire was intentional in origin, considering the array of
evidence submitted by CBIC, particularly the pictures taken and the
reports of Cabrera and Lazaro, as opposed to UMCs failure to explain the
details of the alleged fire accident. In addition, it found that UMCs claim
was overvalued through fraudulent transactions. The CA ruled:
We have meticulously gone over the entirety of the evidence submitted
by the parties and have come up with a conclusion that the claim of the
plaintiff-appellee was indeed overvalued by transactions which were
fraudulently concocted so that the full coverage of the insurance policy
will have to be fully awarded to the plaintiff-appellee.
1994- P608,986.00
1995- P827,670.00
1996- P20,000,000.00 (more or less) which were
purchased for a period of one month.
Third, We shall also direct our attention to the alleged true and
complete purchases of the plaintiff-appellee as well as the value of all
stock-in-trade it had at the time that the fire occurred. Thus:
Exhibit Source Amount (pesos) Dates Covered
TOTAL 44,315,024.31
Fourth, We turn to the allegation of fraud by the defendant-appellant
by thoroughly looking through the pieces of evidence that it adduced
during the trial. The latter alleged that fraud is present in the case at bar
as shown by the discrepancy of the alleged purchases from that of the
reported purchases made by plaintiff-appellee. It had also averred that
fraud is present when upon verification of the address of Fuze
Industries, its office is nowhere to be found. Also, the
defendant-appellant expressed grave doubts as to the purchases of the
plaintiff-appellee sometime in 1996 when such purchases escalated to
a high 19.5 Million Pesos without any contract to back it up.[14]
The Issues
UMC seeks a reversal and raises the following issues for resolution:
I.
WHETHER THE COURT OF APPEALS MADE A RULING
INCO[N]SISTENT WITH LAW, APPLICABLE JURISPRUDENCE
AND EVIDENCE AS TO THE EXISTENCE OF ARSON AND
FRAUD IN THE ABSENCE OF MATERIALLY CONVINCING
EVIDENCE.
II.
WHETHER THE COURT OF APPEALS MADE A RULING
INCONSISTENT WITH LAW, APPLICABLE JURISPRUDENCE
AND EVIDENCE WHEN IT FOUND THAT PETITIONER
BREACHED ITS WARRANTY.[16]
At the outset, CBIC assails this petition as defective since what UMC
ultimately wants this Court to review are questions of fact. However,
UMC argues that where the findings of the CA are in conflict with those
of the trial court, a review of the facts may be made. On this procedural
issue, we find UMCs claim meritorious.
A petition for review under Rule 45 of the Rules of Court specifically
provides that only questions of law may be raised. The findings of fact of
the CA are final and conclusive and this Court will not review them on
appeal,[17] subject to exceptions as when the findings of the appellate
court conflict with the findings of the trial court.[18] Clearly, the present
case falls under the exception. Since UMC properly raised the conflicting
findings of the lower courts, it is proper for this Court to resolve such
contradiction.
UMC contends that because it had already established a prima facie case
against CBIC which failed to prove its defense, UMC is entitled to claim
the full coverage under the Insurance Policy. On the other hand, CBIC
contends that because arson and fraud attended the claim, UMC is not
entitled to recover under Condition No. 15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish
his claim or defense by the amount of evidence required by law, [19] which
is preponderance of evidence in civil cases.[20] The party, whether plaintiff
or defendant, who asserts the affirmative of the issue has the burden of
proof to obtain a favorable judgment.[21] Particularly, in insurance cases,
once an insured makes out a prima facie case in its favor, the burden of
evidence shifts to the insurer to controvert the insureds prima
facie case.[22] In the present case, UMC established a prima facie case
against CBIC. CBIC does not dispute that UMCs stocks in trade were
insured against fire under the Insurance Policy and that the warehouse,
where UMCs stocks in trade were stored, was gutted by fire on 3 July
1996, within the duration of the fire insurance. However, since CBIC
alleged an excepted risk, then the burden of evidence shifted to CBIC to
prove such exception.
In the present case, CBICs evidence did not prove that the fire was
intentionally caused by the insured. First, the findings of CBICs
witnesses, Cabrera and Lazaro, were based on an investigation conducted
more than four months after the fire. The testimonies of Cabrera and
Lazaro, as to the boxes doused with kerosene as told to them
by barangayofficials, are hearsay because the barangay officials were not
presented in court. Cabrera and Lazaro even admitted that they did not
conduct a forensic investigation of the warehouse nor did they file a case
for arson.[28] Second, the Sworn Statement of Formal Claim submitted by
UMC, through CRM, states that the cause of the fire was faulty electrical
wiring/accidental in nature. CBIC is bound by this evidence because in
its Answer, it admitted that it designated CRM to evaluate UMCs
loss. Third, the Certification by the Bureau of Fire Protection states that
the fire was accidental in origin. This Certification enjoys the
presumption of regularity, which CBIC failed to rebut.
other. Thus, on the allegation of fraud, we affirm the findings of the Court
of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits
under the policy shall be forfeited, if the claim be in any respect
fraudulent, or if any false declaration be made or used in support thereof,
to wit:
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,[32] the Court held
that where a fire insurance policy provides that if the claim be in any
respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or
anyone acting on his behalf to obtain any benefit under this Policy, and
the evidence is conclusive that the proof of claim which the insured
submitted was false and fraudulent both as to the kind, quality and
amount of the goods and their value destroyed by the fire, such a proof of
claim is a bar against the insured from recovering on the policy even for
the amount of his actual loss.
Q: These purchases were made for the entire year of 1995 and
1994 respectively, am I correct?
A: Yes sir, for the year 1994 and 1995.[40] (Emphasis supplied)
On UMCs allegation that it did not breach any warranty, it may be argued
that the discrepancies do not, by themselves, amount to a breach of
warranty. However, the Insurance Code provides that a policy may
declare that a violation of specified provisions thereof shall avoid
it.[49] Thus, in fire insurance policies, which contain provisions such as
Condition No. 15 of the Insurance Policy, a fraudulent discrepancy
between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the
insurer.[50]
Considering that all the circumstances point to the inevitable conclusion
that UMC padded its claim and was guilty of fraud, UMC violated
Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever
benefits it may be entitled under the Insurance Policy, including its
insurance claim.
SO ORDERED.
ANTONIO T. CARPIO
Senior Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,
The Judiciary Act of 1948, as amended)
[1]
Under Rule 45 of the 1997 Rules of Civil Procedure.
[2]
Rollo, pp. 37-62. Penned by Associate Justice Edwin D. Sorongon with Associate Justices Rosalinda
Asuncion-Vicente and Romeo F. Barza, concurring.
[3]
Id. at 65-66.
[4]
Id. at 207-210. Penned by Judge Antonio I. De Castro.
[5]
Id. at 14.
[6]
Id. at 83.
[7]
Id. at 74-80.
[8]
Id. at 92.
[9]
Id. at 123-128.
[10]
Id. at 130-132.
[11]
Id. at 210.
[12]
Id. at 209.
[13]
Id. at 61-62.
[14]
Id. at 54-56.
[15]
Id. at 344-355.
[16]
Id. at 16-17.
[17]
Microsoft Corp. v. Maxicorp. Inc., 481 Phil. 550 (2004) citing Amigo v. Teves, 96 Phil. 252 (1954).
[18]
Id. citing Ramos, et al. v. Pepsi-Cola Bottling Co. of the Phils., et al., 125 Phil. 701 (1967).
[19]
Rules of Court, Rule 131, Sec.1.
[20]
Rules of Court, Rule 133, Sec.1.
[21]
DBP Pool of Accredited Insurance Companies v. Radio Mindanao Network, Inc., 516 Phil.
110 (2006).
[22]
Id. citing Jison v. Court of Appeals, 350 Phil. 138 (1998).
[23]
Id.
[24]
Id.; Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose
Cooperative, Inc., 425 Phil. 511 (2002).
[25]
Gonzales, Jr. v. People, G.R. No. 159950, 12 February 2007, 515 SCRA 480.
[26]
People v. De Leon, G.R. No. 180762, 4 March 2009, 580 SCRA 617.
[27]
People v. Oliva, 395 Phil. 265 (2000).
[28]
Rollo, p. 171.
[29]
98 Phil. 85 (1955).
[30]
Id.
[31]
Id. at 98-99.
[32]
51 Phil. 231 (1927).
[33]
Rollo, p. 60.
[34]
Governed by Rule 130 of the Rules of Court. Section 44, Rule 130 of the Rules of Court states:
Sec. 44. Entries in official records. Entries in official records made in the performance
of his duty by a public officer of the Philippines, or by a person in the performance
of a duty specially enjoined by law, are prima facie evidence of the facts therein
stated.
[35]
Rollo, p. 189.
[36]
121 Phil. 1275 (1965).
[37]
Id.
[38]
G.R. No. 75605, 22 January 1993, 217 SCRA 417.
[39]
Rollo, p. 186.
[40]
Id.
[41]
Id. at 191.
[42]
Tan It v. Sun Insurance Office, 51 Phil. 212 (1927), citing Yu Cua v. South British Insurance Co., 41
Phil. 134 (1920); Go Lu v. Yorkshire Insurance Co., 43 Phil. 633 (1922); Tuason v. North China
Insurance Co., 47 Phil. 14 (1924).
[43]
41 Phil. 134 (1920).
[44]
43 Phil. 633 (1922).
[45]
47 Phil. 14 (1924).
[46]
Sharruf & Co. v. Baloise Fire Insurance, Co., 64 Phil. 258 (1937).
[47]
Id.
[48]
Rollo, p. 385.
[49]
The Insurance Code, Sec. 75.
[50]
Yu Cua v. South British Insurance Co., supra note 43.
[51]
Pacific Banking Corporation v. Court of Appeals, 250 Phil. 1 (1988).
[52]
Id.
[53]
Id.
G.R. No. 190702, February 27, 2017 - JAIME T. GAISANO, Petitioner, v. DEVELOPMENT INSURANCE
AND SURETY CORPORATION, Respondent.
PHILIPPINE SUPREME COURT DECISIONS
THIRD DIVISION
DECISION
JARDELEZA, J.:
This is a petition for review on certiorari1 seeking to nullify the Court of Appeals' (CA) September 11,
2009 Decision2 and November 24, 2009 Resolution3 in CA-G.R. CV No. 81225. The CA reversed the
September 24, 2003 Decision4 of the Regional Trial Court (RTC) in Civil Case No. 97-85464. The RTC
granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the comprehensive commercial
vehicle policy issued by Development Insurance and Surety Corporation (respondent),
viz.:ChanRoblesVirtualawlibrary
IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the defendant-appellant
ordered to pay the plaintiff-appellee the sum of P55,620.60 with interest at 6 percent per annum
from the date of the denial of the claim on October 9, 1996 until payment.
SO ORDERED.5chanroblesvirtuallawlibrary
I
The facts are undisputed. Petitioner was the registered owner of a 1992 Mitsubishi Montero with
plate number GTJ-777 (vehicle), while respondent is a domestic corporation engaged in the insurance
business.6 On September 27, 1996, respondent issued a comprehensive commercial vehicle policy7 to
petitioner in the amount of P1,500,000.00 over the vehicle for a period of one year commencing on
September 27, 1996 up to September 27, 1997.8 Respondent also issued two other commercial
vehicle policies to petitioner covering two other motor vehicles for the same period.9
To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company, Noah's
Ark Merchandising (Noah's Ark).10 Noah's Ark immediately processed the payments and issued a Far
East Bank check dated September 27, 1996 payable to Trans-Pacific on the same day.11 The check
bearing the amount of P140,893.50 represents payment for the three insurance policies, with
P55,620.60 for the premium and other charges over the vehicle.12 However, nobody from
Trans-Pacific picked up the check that day (September 27) because its president and general manager,
Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark that its
messenger would get the check the next day, September 28.13
In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing
manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle was stolen in the
vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine
National Police Traffic Management Command at Camp Crame in Quezon City.14 Despite search and
retrieval efforts, the vehicle was not recovered.15
Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an
official receipt numbered 124713 dated September 28, 1996, acknowledging the receipt of
P55,620.60 for the premium and other charges over the vehicle.16 The check issued to Trans--Pacific
for P140,893.50 was deposited with Metrobank for encashment on October 1, 1996.17
On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner
reported the loss and filed a claim with respondent for the insurance proceeds of P1,500,000.00.18
After investigation, respondent denied petitioner's claim on the ground that there was no insurance
contract.19 Petitioner, through counsel, sent a final demand on July 7, 1997.20 Respondent, however,
refused to pay the insurance proceeds or return the premium paid on the vehicle.
On October 9, 1997, petitioner filed a complaint for collection of sum of money and damages21 with
the RTC where it sought to collect the insurance proceeds from respondent. In its Answer,22
respondent asserted that the non-payment of the premium rendered the policy ineffective. The
premium was received by the respondent only on October 2, 1996, and there was no known loss
covered by the policy to which the payment could be applied.23
In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner. It considered the
premium paid as of September 27, even if the check was received only on September 28 because (1)
respondent's agent, Trans-Pacific, acknowledged payment of the premium on that date, September
27, and (2) the check that petitioner issued was honored by respondent in acknowledgment of the
authority of the agent to receive it.25 Instead of returning the premium, respondent sent a checklist
of requirements to petitioner and assigned an underwriter to investigate the claim.26 The RTC ruled
that it would be unjust and inequitable not to allow a recovery on the policy while allowing
respondent to retain the premium paid.27 Thus, petitioner was awarded an indemnity of
P1,500,000.00 and attorney's fees of P50,000.00.28
After respondent's motion for reconsideration was denied,29 it filed a Notice of Appeal.30 Records
were forwarded to the CA.31
The CA granted respondent's appeal.32 The CA upheld respondent's position that an insurance
contract becomes valid and binding only after the premium is paid pursuant to Section 77 of the
Insurance Code (Presidential Decree No. 612, as amended by Republic Act No. 10607).33 It found that
the premium was not yet paid at the time of the loss on September 27, but only a day after or on
September 28, 1996, when the check was picked up by Trans-Pacific.34 It also found that none of the
exceptions to Section 77 obtains in this case.35 Nevertheless, the CA ordered respondent to return
the premium it received in the amount of P55,620.60, with interest at the rate of 6% per annum from
the date of the denial of the claim on October 9, 1996 until payment.36
Hence petitioner filed this petition. He argues that there was a valid and binding insurance contract
between him and respondent.37 He submits that it comes within the exceptions to the rule in Section
77 of the Insurance Code that no contract of insurance becomes binding unless and until the premium
thereof has been paid. The prohibitive tenor of Section 77 does not apply because the parties
stipulated for the payment of premiums.38 The parties intended the contract of insurance to be
immediately effective upon issuance, despite non-payment of the premium, because respondent
trusted petitioner.39 He adds that respondent waived its right to a pre-payment in full of the terms of
the policy, and is in estoppel.40
Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the
return of the premiums paid, then he should be able to recover the full amount of P140,893.50, and
not merely P55,620.60.41 The insurance policy covered three vehicles yet respondent's intention was
merely to disregard the contract for only the lost vehicle.42 According to petitioner, the principle of
mutuality of contracts is violated, at his expense, if respondent is allowed to be excused from
performance on the insurance contract only for one vehicle, but not as to the two others, just
because no loss is suffered as to the two. To allow this "would be to place exclusively in the hands of
one of the contracting parties the right to decide whether the contract should stand or not x x x."43
For failure of respondent to tile its comment to the petition, we declared respondent to have waived
its right to file a comment in our June 15, 2011 Resolution.44
The lone issue here is whether there is a binding insurance contract between petitioner and
respondent.
II
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.45 Just like any other contract, it
requires a cause or consideration. The consideration is the premium, which must be paid at the time
and in the way and manner specified in the policy.46 If not so paid, the policy will lapse and be
forfeited by its own terms.47
The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding.48 Section 77 of the Insurance Code, applicable at the time of
the issuance of the policy, provides:ChanRoblesVirtualawlibrary
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in an
insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a
member of a group exposed to a particular peril, who contributes premiums under the risk of
receiving nothing in return in case the contingency does not happen; on the other, there is the insurer,
who undertakes to pay the entire sum agreed upon in case the contingency happens. This
risk-distributing mechanism operates under a system where, by prompt payment of the premiums,
the insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its
contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the
insurance business:ChanRoblesVirtualawlibrary
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of
insurance is primarily a risk-distributing device, a mechanism by which all members of a group
exposed to a particular risk contribute premiums to an insurer. From these contributory funds are
paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a
risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire
sum agreed upon, and the insured, that of parting with the amount required as premium. without
receiving anything therefor in case the contingency does not happen. To ensure payment tor these
losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those
claiming under their policies. It should be understood that the integrity of this fund cannot be secured
and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus
between the applicant and the insurer despite an express agreement to the contrary. For what could
prevent the insurance applicant from deliberately or willfully holding back full premium payment and
wait for the risk insured against to transpire and then conveniently pass on the balance of the
premium to be deducted from the proceeds of the insurance? x x x
xxx
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business
because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to
the public, hence, the imperative need for its prompt payment and full satisfaction. It must be
emphasized here that all actuarial calculations and various tabulations of probabilities of losses under
the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon
this bedrock insurance firms are enabled to other the assurance of security to the public at favorable
rates. x x x50 (Citations omitted.)
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time
of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was
informed that the check was ready for pick-up on September 27, 1996, the notice of the availability of
the check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could not
be considered in delay in accepting the check because when it informed petitioner that it will only be
able to pick-up the check the next day, petitioner did not protest to this, but instead allowed
Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the
insurance policy effective.
There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is
paid. In UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc.,51 we
said:ChanRoblesVirtualawlibrary
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting
an agreement to extend the period to pay the premium. But are there exceptions to Section 77?
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which
provides:ChanRoblesVirtualawlibrary
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time of loss. We said therein,
thus:ChanRoblesVirtualawlibrary
We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that the petitioners and private respondent intended subject insurance policies
to be binding and effective notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years, the
insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the
insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting and accepting the premiums, although paid
on installments, and later deny liability on the lame excuse that the premiums were not prepaid in
full.
Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of
Appeals in its Resolution denying the motion for reconsideration of its
decision:ChanRoblesVirtualawlibrary
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to
the validity of the contract, We are not prepared to rule that the request to make installment
payments duly approved by the insurer would prevent the entire contract of insurance from going
into effect despite payment and acceptance of the initial premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment
so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77
merely precludes the parties from stipulating that the policy is valid even if premiums are not paid,
but docs not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon,' The Insurance Code, p. 175).
So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very
least, both parties should be deemed in estoppel to question the arrangement they have voluntarily
accepted.
By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has
provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the
payment of the premium. This simply means that if the insurer has granted the insured a credit term
for the payment of the premium and loss occurs before the expiration of the term, recovery on the
policy should be allowed even though the premium is paid after the loss but within the credit term.
xxx
Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the
payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge
under said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.52 (Citations omitted.)
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77
itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3)
where the parties agreed that premium payment shall be in installments and partial payment has
been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;53
(4) where the insurer granted the insured a credit term for the payment of the premium, and loss
occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and (5)
where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the
payment of premiums.
The insurance policy in question does not fall under the first to third exceptions laid out in UCPB
General Insurance Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does not
contain an acknowledgment of the receipt of premium but merely a statement of account on its
face;54 and (3) no payment of an installment was made at the time of loss on September 27.
Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended
the contract of insurance to be immediately effective upon issuance, despite non-payment of the
premium. This waiver to a pre-payment in full of the premium places respondent in estoppel.
The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the
insurers have consistently granted the insured a credit extension or term for the payment of the
premium. Here, however, petitioner failed to establish the fact of a grant by respondent of a credit
term in his favor, or that the grant has been consistent. While there was mention of a credit
agreement between Trans--Pacific and respondent, such arrangement was not proven and was
internal between agent and principal.55 Under the principle of relativity of contracts, contracts bind
the parties who entered into it. It cannot favor or prejudice a third person, even if he is aware of the
contract and has acted with knowledge.56
We cannot sustain petitioner's claim that the parties agreed that the insurance contract is
immediately effective upon issuance despite non- payment of the premiums. Even if there is a waiver
of pre-payment of premiums, that in itself does not become an exception to Section 77, unless the
insured clearly gave a credit term or extension. This is the clear import of the fourth exception in the
UCPB General Insurance Co., Inc. To rule otherwise would render nugatory the requirement in Section
77 that "[n]otwithstanding 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, x x
x." Moreover, the policy itself states:ChanRoblesVirtualawlibrary
WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be the basis
of this Contract and deemed incorporated herein, has applied to the company for the insurance
hereinafter contained, subject to the payment of the Premium as consideration for such insurance.57
(Emphasis supplied.)
The policy states that the insured's application for the insurance is subject to the payment of the
premium. There is no waiver of pre-payment, in full or in installment, of the premiums under the
policy. Consequently, respondent cannot be placed in estoppel.
Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy
became effective for lack of premium payment.
The consequence of this declaration is that petitioner is entitled to a return of the premium paid for
the vehicle in the amount of P55,620.60 under the principle of unjust enrichment. There is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good
conscience.58 Petitioner cannot claim the full amount of P140,893.50, which includes the payment of
premiums for the two other vehicles. These two policies are not affected by our ruling on the policy
subject of this case because they were issued as separate and independent contracts of insurance.59
We, however, find that the award shall earn legal interest of 6% from the time of extrajudicial
demand on July 7, 1997.60
WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated September 11, 2009 and
the Resolution dated November 24, 2009 are AFFIRMED with the MODIFICATION that respondent
should return the amount of P55,620.60 with the legal interest computed at the rate of 6% per
annum reckoned from July 7, 1997 until finality of this judgment. Thereafter, the total amount shall
earn interest at the rate of 6% per annum from the finality of this judgment until its full satisfaction.
SO ORDERED.chanroblesvirtuallawlibrary
Endnotes:
*** Designated as Fifth Member of the Third Division per Special Order No. 2417 dated January 4,
2017.
2Id. at 37-44; penned by Associate Justice Mario L. Guariña III, and concurred in by Associate Justices
Mariflor P. Punzalan Castillo and Jane Aurora C. Lantion.
3Id. at 36.
6 CA rollo, p. 32.
8Id. at 38.
9 CA rollo, p. 32.
10Rollo, p. 52.
15Id. at 54.
16Id. at 53.
17Id. at 39.
18Id. at 15.
19Id. at 39-40.
20Id. at 59.
22Id. at 14-19.
23Rollo, p. 40.
24Supra note 4.
26Id. at 35-36.
27Id. at 36.
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff and
against the defendant. Defendant is hereby ordered to pay plaintiff the
following:chanRoblesvirtualLawlibrary
a) P1,500,000.00 as indemnification for the loss of the subject vehicle under the insurance
policy;chanrobleslaw
SO ORDERED.
29 CA rollo, p. 37.
30Id. at 13-14.
31Id. at 3; 15.
32Supra note 2.
33Rollo, p. 41.
34Id. at 42-43.
35Id. at 41-42.
36Id. at 43.
37Id. at 18.
38Id. at 20.
39Id. at 21.
40Id. at 22.
41Id. at 31.
42Id.
43Id. at 32.
44Id. at 83-84.
47Id.
48American Home Assurance Company v. Chua, G.R. No. 130421, June 28, 1999, 309 SCRA 250, 259.
50Id. at 140-141.
52Id. at 316-318.
54Rollo, p. 46.
55Id. at 42.
56 See Borromeo v. Court of Appeals. G.R. No. 169846, March 28, 2008, 550 SCRA 269, 282.
58 See Flores v. Lindo, Jr., G.R. No. 183984, April 13, 2011, 648 SCRA 772, 782-783.
60Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439, 453-459.
SECOND DIVISION
JOSE MARQUES and MAXILITE TECHNOLOGIES, INC., Petitioners, v. FAR EAST BANK AND TRUST
COMPANY, FAR EAST BANK INSURANCE BROKERS, INC., and MAKATI INSURANCE COMPANY,
Respondents.
FAR EAST BANK AND TRUST COMPANY and MAKATI INSURANCE COMPANY, Petitioners, v. JOSE
MARQUES and MAXILITE TECHNOLOGIES, INC., Respondents.
DECISION
CARPIO, J.:
The Case
These consolidated petitions for reviewcralaw1cralaw assail the 31 May 2005 Decision
cralaw2cralaw and the 26 January 2006 Resolutioncralaw3cralaw of the Court of Appeals-Cebu
City in CA-G.R. CV No. 62105. The Court of Appeals affirmed with modifications the 4 September 1998
Decisioncralaw4cralaw of the Regional Trial Court of Cebu City, Branch 58, in Civil Case No.
CEB-18979.
The Facts
Maxilite Technologies, Inc. (Maxilite) is a domestic corporation engaged in the importation and
trading of equipment for energy-efficiency systems. Jose N. Marques (Marques) is the President and
controlling stockholder of Maxilite.
Far East Bank and Trust Co. (FEBTC)cralaw5cralaw is a local bank which handled the financing and
related requirements of Marques and Maxilite. Marques and Maxilite maintained accounts with
FEBTC. Accordingly, FEBTC financed Maxilite's capital and operational requirements through loans
secured with properties of Marques under the latter's name. Among Maxilite's and Marques'
transactions with FEBTC were: chanrob1esvirtwallawlibrary
a. A straight loan in the name of Jose N. Marques for Maxilite at the original principal amount of P 1
million. This is secured by real estate mortgage. From said original principal amount, the bank
increased it by P 300, 000.00 about 26 October 1994 to enable the wiping out of Maxilite's Trust
Receipts Account and simplify the remaining accounts into straight loan accounts.
b. A straight loan in the name of Maxilite Technologies, Inc. for a principal amount of P 2 million. This
is secured with a Real Estate Mortgage of Marques' residential property.
c. Master Card transactions covering two (2) Master Card Accounts of Marques, and
d. Local credit card transactions covering one credit card account of Marques.cralaw6cralawredlaw
Far East Bank Insurance Brokers, Inc. (FEBIBI) is a local insurance brokerage corporation while Makati
Insurance Company cralaw7cralaw is a local insurance company. Both companies are subsidiaries of
FEBTC.cralaw8cralawredlaw
On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction with FEBTC, in the
sum of US$80, 765.00, for the shipment of various high-technology equipment from the United States,
cralaw9cralaw with the merchandise serving as collateral. The foregoing importation was covered by
a trust receipt document signed by Marques on behalf of Maxilite, which pertinently reads:
chanrob1esvirtwallawlibrary
The undersigned (Marques) further agree(s) to keep said merchandise insured against fire to its full
value, payable to the said bank, at the cost and expense of the undersigned, who hereby further
agree(s) to pay all charges for storage on said merchandise or any or other expenses incurred
thereon.
x x xcralaw10cralawredlaw
Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated the procurement and
processing from Makati Insurance Company of four separate and independent fire insurance policies
over the trust receipted merchandise: (1) Policy No. BR-F-1016333, issued on 15 September 1993,
covering the period 12 August 1993 to 12 November 1993 in the amount of P 1, 000,
000.00;cralaw11cralaw (2) Policy No. BR-F-1016888, issued on 15 September 1993 covering the
period 8 September 1993 to 8 December 1993 in the amount of P 605, 494.28;cralaw12cralaw (3)
Policy No. BR-F-1016930, issued on 18 October 1993, covering the period 14 October 1993 to 12
January 1994 in the amount of P 527, 723.66;cralaw13cralaw and (4) Policy No. BR-F-1018392, issued
on 14 December 1993, covering the period 1 December 1993 to 1 March 1994 in the amount of P 725,
000.00.cralaw14cralaw Maxilite paid the premiums for these policies through debit arrangement.
FEBTC would debit Maxilite's account for the premium payments, as reflected in statements of
accounts sent by FEBTC to Maxilite.
On 19 August 1994, Insurance Policy No. 1024439, covering the period 24 June 1994 to 24 June 1995,
was released to cover the trust receipted merchandise. The policy relevantly provides:
chanrob1esvirtwallawlibrary
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or
Company official, shall be deemed invalid and of no effect.cralaw15cralawredlaw
Finding that Maxilite failed to pay the insurance premium in the sum of P 8, 265.60 for Insurance
Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995, FEBIBI sent written reminders
to FEBTC, dated 19 October 1994, cralaw16cralaw 24 January 1995, cralaw17cralaw and 6 March
1995, to debit Maxilite's account.cralaw18cralawredlaw
On 24 and 26 October 1994, Maxilite fully settled its trust receipt account.
On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J. Cuenco Avenue, Cebu
City, where Maxilite's office and warehouse were located. As a result, Maxilite suffered losses
amounting to at least P 2.1 million, which Maxilite claimed against the fire insurance policy with
Makati Insurance Company. Makati Insurance Company denied the fire loss claim on the ground of
non-payment of premium. FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim.
Maxilite and Marques sued FEBTC, FEBIBI, and Makati Insurance Company. Maxilite prayed for (1)
actual damages totaling P 2.3 million representing full insurance coverage and "business opportunity
losses, " (2) moral damages, and (3) exemplary damages. cralaw19cralaw On the other hand, Marques
sought payment of actual, moral and exemplary damages, attorney's fees, and litigation expenses.
Maxilite and Marques also sought the issuance of a preliminary injunction or a temporary restraining
to enjoin FEBTC from (1) imposing penalties on their obligations; (2) foreclosing the real estate
mortage securing their straight loan accounts; and (3) initiating actions to collect their obligations.
FEBTC, FEBIBI, and Makati Insurance Company countered that Maxilite and Marques have no cause of
action against them and essentially denied the allegations in the complaint.
In ruling in favor of Maxilite and Marques, the Regional Trial Court of Cebu City, Branch 58, explained:
chanrob1esvirtwallawlibrary
Considering the interest of the defendant FEBTC in the property insured, hence, its concern that the
insurance policy therefor has to be effected and enforceable, and considering that the payment of the
premium thereof was the procedure adopted by debiting the plaintiffs' account, the Court is of the
view that the non-payment of the premium of the insurance policy in question was due to the fault or
negligence of the defendant FEBTC. What could have happened to the interest of the defendant
FEBTC in the insurance policy in question had the fire occurred prior to the full settlement and
payment of plaintiff's Maxilite trust receipt account? Would defendant FEBTC have tossed the blame
on the non-payment of premium to the plaintiffs?
Although there were reminders by defendant FEBIBI of the non-payment of the premium, the same
were made by said defendant through the defendant FEBTC and not to the plaintiffs directly. Despite
said reminders, the first of which was made on October 19, 1994 when plaintiff Maxilite has sufficient
fund in its trust receipt account, defendant FEBTC did not heed the same and more so did it not care
to pay the premium after the plaintiff Maxilite fully and finally settled its trust receipt account with
defendant FEBTC as the latter has already lost its interest in the insurance policy in question by virtue
of said full payment. But despite the non-payment of the insurance premium, the defendant Makati
Insurance did not cancel the policy in question nor informed plaintiffs of its cancellation if the
insurance premium should not be paid. Just as defendant FEBIBI failed to notify directly the plaintiffs
of the said non-payment. Considering the relationship of the three (3) defendants herein, as
undeniably sister companies, the non-payment of the premium of the insurance policy in question
should be imputable to their fault or negligence. Under the factual milieu in the case at bar, the Court
finds it just and equitable to hold said defendants liable to pay all the consequent damages suffered
by the plaintiffs and their liability is solidary (Art. 2194, Civil Code).cralaw20cralawredlaw
WHEREFORE, premises considered, judgment is hereby rendered ordering the defendants to pay
jointly and severally to the plaintiff Maxilite the sum of Two Million One Hundred Thousand Pesos ( P
2, 100, 000.00), Philippine Currency, representing the full coverage of Insurance Policy No.
1024439 (Exh. 'A'), as actual damages, plus interest of 12% per annum from filing of Complaint on July
11, 1996 until fully paid, to the plaintiff Marque[s] the sum of P 400, 000.00 as moral damages, to
both plaintiffs the sum of P 500, 000.00 as exemplary damages, the sum of P 50, 000.00 as
attorney's fees, the sum of P 23, 082.50, representing the filing fees, as litigation expenses, and to
pay the costs.
SO ORDERED.cralaw21cralawredlaw
The Court of Appeals affirmed the trial court's decision, with modifications, on the following grounds:
chanrob1esvirtwallawlibrary
First, the relations among defendants with each other are closely related and so intertwined. The said
three defendants, FEBTC, FEBIBI and MICI, are sister companies. This was never denied by the
defendants themselves.
Second, the insurance coverage was the business of sister companies FEBIBI and Makati Insurance,
not with FEBTC, which has been the bank of plaintiffs which handled the latter's financing and related
transactions. Stated a bit differently, defendant FEBTC handled the financing and related
requirements of plaintiffs; defendant FEBIBI on the other hand is an insurance brokerage company of
defendant FEBTC, while Makati Insurance is the insurance (arm) company of both defendants FEBIBI
and FEBTC.
Third, defendant FEBTC caused FEBIBI to facilitate the insurance coverage of plaintiffs. FEBIBI then
asked Makati Insurance to issue the subject policy. Makati Insurance delivered the policy to FEBIBI
which it tasked with the collection of premium. FEBIBI in turn delivered the policy to FEBTC from
where it sought the payment of the premiums.
Fourth, it must be noted that the cover note and policy was supposedly issued and made effective on
June 24, 1994, when the trust receipt account was still outstanding and the insured merchandise was
still theoretically owned by the bank. Thus, for all intents and purposes, it was to the best interest and
protection of the bank to see to it that the goods were properly covered by insurance.
Fifth, the payment of premium has never been made an issue when the subject policy was still
separated into three. Or even after the said consolidation into one policy (No. 1024439), still,
payment of the premium has never become an issue.
xxx
For another, if We were to believe defendants' claim that the premium for the subject policy was not
paid, then defendants should have cancelled the policy long before. But even up to the time the fire
gutted plaintiffs' warehouse in March 1995, defendants acknowledged that the subject policy
remained effective. x x x
Furthermore, there was no notice of cancellation or any communication from defendants sent to
plaintiffs that the policy shall be cancelled because of non-payment of premiums. Thus, the more
reasonable and logical conclusion is that the subject policy was still fully in force because plaintiffs are
still paying its premiums and defendants are collecting the same through debit
account.cralaw22cralawredlaw
UPON THE VIEW WE TAKE OF THIS CASE, judgment appealed from is hereby MODIFIED in such that:
chanrob1esvirtwallawlibrary
a. the interest shall be at the rate of six percent (6%) per annum to run from the time of demand on
April 11, 1995, in accordance with Article 1589 of the Civil Code, until the finality of this decision;
chanroblesvirtualawlibrary
d. the writ of preliminary injunction previously issued lifted and set aside.
In all other respects, judgment appealed from is AFFIRMED. Without pronouncement as to costs.
SO ORDERED.cralaw23cralawredlaw
The Issues
In G.R. No. 171379, petitioners assail the Court of Appeals' reduction of (1) the interest rate from 12%
to 6% per annum to be imposed on respondents' liabilities; and (2) the award of moral and exemplary
damages. Petitioners also question the portion of the Court of Appeals' judgment allowing FEBTC to
foreclose the real estate mortgage securing petitioners' loans and disallowing legal compensation for
the parties' mutual obligations.
In G.R. No. 171419, petitioners challenge the Court of Appeals' findings that (1) the premium for the
subject insurance policy has in fact been paid; (2) FEBTC, FEBIBI and Makati Insurance Company are
jointly and severally liable to pay respondents the full coverage of the subject insurance policy despite
(a) their separate juridical personalities; (b) the absence of any fault or negligence on their part; and
(c) respondents' failure to prove the extent of the alleged loss. Petitioners further impugn the award
of damages and attorney's fees.
The petition in G.R. No. 171319 lacks merit, whereas the petition in G.R. No. 171419 is partially
meritorious.
Essentially, Maxilite and Marques invoke estoppel in claiming against FEBTC, FEBIBI, and Makati
Insurance Company the face value of the insurance policy. In their complaint, Maxilite and Marques
alleged they were led to believe and they in fact believed that the settlement of Maxilite's trust
receipt account included the payment of the insurance premium.cralaw24cralaw Maxilite and
Marques faulted FEBTC "if it failed to transmit the premium payments on subject insurance coverage
contrary to its represented standard operating procedure of solely handling the insurance coverage
and past practice of debiting [Maxilite's] account."cralaw25cralawredlaw
Meanwhile, Section 2(a), Rule 131 of the Rules of Court provides: chanrob1esvirtwallawlibrary
(a) Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing is true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be permitted to falsify it.
In estoppel, a party creating an appearance of fact, which is false, is bound by that appearance as
against another person who acted in good faith on it.cralaw26cralaw Estoppel is based on public
policy, fair dealing, good faith and justice.cralaw27cralaw Its purpose is to forbid one to speak against
his own act, representations, or commitments to the injury of one who reasonably relied
thereon.cralaw28cralaw It springs from equity, and is designed to aid the law in the administration of
justice where without its aid injustice might result.cralaw29cralawredlaw
In Santiago Syjuco, Inc. v. Castro, cralaw30cralaw the Court stated that "estoppel may arise from
silence as well as from words." 'Estoppel by silence' arises where a person, who by force of
circumstances is obliged to another to speak, refrains from doing so and thereby induces the other to
believe in the existence of a state of facts in reliance on which he acts to his prejudice.cralaw31cralaw
Silence may support an estoppel whether the failure to speak is intentional or
negligent.cralaw32cralawredlaw
Both trial and appellate courts basically agree that FEBTC is estopped from claiming that the insurance
premium has been unpaid. That FEBTC induced Maxilite and Marques to believe that the insurance
premium has in fact been debited from Maxilite's account is grounded on the the following facts: (1)
FEBTC represented and committed to handle Maxilite's financing and capital requirements, including
the related transactions such as the insurance of the trust receipted merchandise; (2) prior to the
subject Insurance Policy No. 1024439, the premiums for the three separate fire insurance policies had
been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC, not Maxilite nor Marques,
written reminders dated 19 October 1994, 24 January 1995, and 6 March 1995 to debit Maxilite's
account, establishing FEBTC's obligation to automatically debit Maxilite's account for the premium
amount; (4) there was no written demand from FEBTC or Makati Insurance Company for Maxilite or
Marques to pay the insurance premium; (5) the subject insurance policy was released to Maxilite on
19 August 1994; and (6) the subject insurance policy remained uncancelled despite the alleged
non-payment of the premium, making it appear that the insurance policy remained in force and
binding.
Moreover, prior to the full settlement of the trust receipt account on 24 and 26 October 1994, FEBTC
had insurable interest over the merchandise, and thus had greater reason to debit Maxilite's account.
Further, as found by the trial court, and apparently undisputed by FEBTC, FEBIBI and Makati Insurance
Company, Maxilite had sufficient funds at the time the first reminder, dated 19 October 1994, was
sent by FEBIBI to FEBTC to debit Maxilite's account for the payment of the insurance premium. Since
(1) FEBTC committed to debit Maxilite's account corresponding to the insurance premium; (2) FEBTC
had insurable interest over the property prior to the settlement of the trust receipt account; and (3)
Maxilite's bank account had sufficient funds to pay the insurance premium prior to the settlement of
the trust receipt account, FEBTC should have debited Maxilite's account as what it had repeatedly
done, as an established practice, with respect to the previous insurance policies. However, FEBTC
failed to debit and instead disregarded the written reminder from FEBIBI to debit Maxilite's account.
FEBTC's conduct clearly constitutes negligence in handling Maxilite's and Marques' accounts.
Negligence is defined as "the omission to do something which a reasonable man, guided upon those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent man and reasonable man could not do." cralaw33cralawredlaw
As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article 2176 of
the Civil Code which states "whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done." Indisputably, had the insurance premium been
paid, through the automatic debit arrangement with FEBTC, Maxilite's fire loss claim would have been
approved. Hence, Maxilite suffered damage to the extent of the face value of the insurance policy or
the sum of P 2.1 million.
Contrary to Maxilite's and Marques' view, FEBTC is solely liable for the payment of the face value of
the insurance policy and the monetary awards stated in the Court of Appeals' decision. Suffice it to
state that FEBTC, FEBIBI, and Makati Insurance Company are independent and separate juridical
entities, even if FEBIBI and Makati Insurance Company are subsidiaries of FEBTC. Absent any showing
of its illegitimate or illegal functions, a subsidiary's separate existence shall be respected, and the
liability of the parent corporation as well as the subsidiary shall be confined to those arising in their
respective business.cralaw34cralaw Besides, the records are bereft of any evidence warranting the
piercing of corporate veil in order to treat FEBTC, FEBIBI, and Makati Insurance Company as a single
entity. Likewise, there is no evidence showing FEBIBI's and Makati Insurance Company's negligence as
regards the non-payment of the insurance premium.
The Court agrees with the Court of Appeals in reducing the interest rate from 12% to 6% as the
obligation to pay does not arise from a loan or forbearance of money. In Eastern Shipping Lines, Inc. v.
Court of Appeals, cralaw35cralaw the Court laid down the following guidelines for the application of
the proper interest rates: chanrob1esvirtwallawlibrary
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title
XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
chanrob1esvirtwallawlibrary
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.
e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to forbearance of credit. (Emphasis supplied)
With respect to Maxilite's and Marques' invocation of legal compensation, we find the same devoid of
merit. Aside from their bare allegations, there is no clear and convincing evidence that legal
compensation exists in this case. In other words, Maxilite and Marques failed to establish the
essential elements of legal compensation. Therefore, Maxilite's and Marques' claim of legal
compensation must fail.
WHEREFORE , we AFFIRM with MODIFICATION the 31 May 2005 Decision and the 26 January 2006
Resolution of the Court of Appeals-Cebu City in CA-G.R. CV No. 62105. Only Far East Bank and Trust
Company, and not Far East Bank Insurance Brokers, Inc. or Makati Insurance Company, is
ORDERED to PAY the face value of the subject insurance policy and the monetary awards stated
in the Court of Appeals' decision.
SO ORDERED .
ANTONIO T. CARPIO
Associate Justice
WE CONCUR: chanrob1esvirtwallawlibrary
cralaw Endnotes:
cralaw2cralaw Rollo (G.R. No. 171419), pp. 94-113. Penned by Associate Justice Vicente L. Yap, with
Associate Justices Isaias P. Dicdican and Enrico A. Lanzanas concurring.
cralaw5cralaw FEBTC has been merged with Bank of the Philippine Islands (BPI), which is the surviving
corporation.
cralaw8cralaw Rollo (G.R. No. 171419), p. 330; TSN, 9 February 1998, p. 20.
cralaw26cralaw Aquino, Ramon C., The Civil Code of the Philippines, Vol. 2, 1990 Edition, p. 508, citing
Strong v. Gutierrez Repide, 6 Phil. 680, 685.
cralaw28cralaw Id.
cralaw29cralaw Id., citing 28 Am Jur 2nd 28; PNB v. Perez, 183 Phil. 54 (1979); Lazo v. Republic Surety
& Ins. Co., Inc., 142 Phil. 158 (1970).
cralaw30cralaw G.R. No. 70403, 7 July 1989, 175 SCRA 171, 192, citing 31 C.J.S., pp. 490-494.
cralaw31cralaw Id.
cralaw32cralaw Id.
cralaw33cralaw Bank of the Philippine Islands v. Suaez , G.R. No. 167750, 15 March 2010, 615 SCRA
291, 298.
cralaw34cralaw Nisce v. Equitable PCI Bank, Inc. , G.R. No. 167434, 19 February 2007, 516 SCRA 231,
258.
cralaw35cralaw G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95-97.
SECOND DIVISION
DECISION
PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of the Revised
Rules of Court by petitioner GULF RESORTS, INC., against respondent
PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the
appellate court decision[1] which dismissed its two appeals and affirmed the
judgment of the trial court.
For review are the warring interpretations of petitioner and respondent on
the scope of the insurance companys liability for earthquake damage to
petitioners properties. Petitioner avers that, pursuant to its earthquake shock
endorsement rider, Insurance Policy No. 31944 covers all damages to the
properties within its resort caused by earthquake. Respondent contends that
the rider limits its liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate
court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and
had its properties in said resort insured originally with the American Home
Assurance Company (AHAC-AIU). In the first four insurance policies
issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88
(Exhs. C, D, E and F; also Exhs. 1, 2, 3 and 4 respectively), the risk of loss
from earthquake shock was extended only to plaintiffs two swimming pools,
thus, earthquake shock endt. (Item 5 only) (Exhs. C-1; D-1, and E and two
(2) swimming pools only (Exhs. C-1; D-1, E and F-1). Item 5 in those
policies referred to the two (2) swimming pools only (Exhs. 1-B, 2-B, 3-B
and F-2); that subsequently AHAC(AIU) issued in plaintiffs favor Policy No.
206-4182383-0 covering the period March 14, 1988 to March 14, 1989
(Exhs. G also G-1) and in said policy the earthquake endorsement clause as
indicated in Exhibits C-1, D-1, Exhibits E and F-1 was deleted and the entry
under Endorsements/Warranties at the time of issue read that plaintiff
renewed its policy with AHAC (AIU) for the period of March 14, 1989 to
March 14, 1990 under Policy No. 206-4568061-9 (Exh. H) which carried
the entry under Endorsement/Warranties at Time of Issue, which read
Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the amount
of P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as premium thereof,
computed as follows:
Rate-Various
Respondent filed its Answer with Special and Affirmative Defenses with
Compulsory Counterclaims.[12]
On February 21, 1994, the lower court after trial ruled in favor of the
respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium
of P393.00 against the peril of earthquake shock, the same premium it paid
against earthquake shock only on the two swimming pools in all the policies
issued by AHAC(AIU) (Exhibits C, D, E, F and G). From this fact the Court
must consequently agree with the position of defendant that the endorsement
rider (Exhibit 7-C) means that only the two swimming pools were insured
against earthquake shock.
From the above observations the Court finds that only the two (2) swimming
pools had earthquake shock coverage and were heavily damaged by the
earthquake which struck on July 16, 1990. Defendant having admitted that
the damage to the swimming pools was appraised by defendants adjuster
at P386,000.00, defendant must, by virtue of the contract of insurance, pay
plaintiff said amount.
On the other hand, respondent filed a partial appeal, assailing the lower
courts failure to award it attorneys fees and damages on its compulsory
counterclaim.
After review, the appellate court affirmed the decision of the trial court and
ruled, thus:
xxx
We also find that the Court a quo was correct in not granting the
plaintiff-appellants prayer for the imposition of interest 24% on the
insurance claim and 6% on loss of income allegedly amounting
to P4,280,000.00. Since the defendant-appellant has expressed its
willingness to pay the damage caused on the two (2) swimming pools, as the
Court a quo and this Court correctly found it to be liable only, it then cannot
be said that it was in default and therefore liable for interest.
Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all of
the properties insured and not only the swimming pools. It used the words any
property insured by this policy, and it should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock
endorsement is confirmed in the body of the insurance policy itself, which
states that it is [s]ubject to: Other Insurance Clause, Typhoon
Endorsement, Earthquake Shock Endt., Extended Coverage Endt., FEA
Warranty & Annual Payment Agreement On Long Term Policies.[17]
Third, that the qualification referring to the two swimming pools had
already been deleted in the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an
inadvertent omission when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given
precedence over the wording of the insurance policy, because the rider is the
more deliberate expression of the agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be
resolved in favor of petitioner and against respondent. It was respondent which
caused the ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock
endorsement should be interpreted as a caveat on the standard fire insurance
policy, such as to remove the two swimming pools from the coverage for the
risk of fire. It should not be used to limit the respondents liability for earthquake
shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional
premium was not paid under the extended coverage. The premium for the
earthquake shock coverage was already included in the premium paid for the
policy.
Tenth, the parties contemporaneous and subsequent acts show that they
intended to extend earthquake shock coverage to all insured properties. When
it secured an insurance policy from respondent, petitioner told respondent that
it wanted an exact replica of its latest insurance policy from American Home
Assurance Company (AHAC-AIU), which covered all the resorts properties for
earthquake shock damage and respondent agreed. After the July 16, 1990
earthquake, respondent assured petitioner that it was covered for earthquake
shock. Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc.,
likewise requested petitioner to submit the necessary documents for its
building claims and other repair costs. Thus, under the doctrine of equitable
estoppel, it cannot deny that the insurance policy it issued to petitioner covered
all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review
by certiorari under Rule 45 of the Revised Rules of Court as its remedy, and
there is no need for calibration of the evidence in order to establish the facts
upon which this petition is based.
On the other hand, respondent made the following counter arguments: [18]
First, none of the previous policies issued by AHAC-AIU from 1983 to
1990 explicitly extended coverage against earthquake shock to petitioners
insured properties other than on the two swimming pools. Petitioner admitted
that from 1984 to 1988, only the two swimming pools were insured against
earthquake shock. From 1988 until 1990, the provisions in its policy were
practically identical to its earlier policies, and there was no increase in the
premium paid. AHAC-AIU, in a letter[19] by its representative Manuel C. Quijano,
categorically stated that its previous policy, from which respondents policy was
copied, covered only earthquake shock for the two swimming pools.
Second, petitioners payment of additional premium in the amount
of P393.00 shows that the policy only covered earthquake shock damage on
the two swimming pools. The amount was the same amount paid by petitioner
for earthquake shock coverage on the two swimming pools from 1990-1991.
No additional premium was paid to warrant coverage of the other properties in
the resort.
Third, the deletion of the phrase pertaining to the limitation of the
earthquake shock endorsement to the two swimming pools in the policy
schedule did not expand the earthquake shock coverage to all of petitioners
properties. As per its agreement with petitioner, respondent copied its policy
from the AHAC-AIU policy provided by petitioner. Although the first five policies
contained the said qualification in their riders title, in the last two policies, this
qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III,
stated that such deletion was a mere inadvertence. This inadvertence did not
make the policy incomplete, nor did it broaden the scope of the endorsement
whose descriptive title was merely enumerated. Any ambiguity in the policy
can be easily resolved by looking at the other provisions, specially the
enumeration of the items insured, where only the two swimming pools were
noted as covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984
through 1988, the phrase Item 5 P393,000.00 on the two swimming pools only
(against the peril of earthquake shock only) meant that only the swimming
pools were insured for earthquake damage. The same phrase is used in toto in
the policies from 1989 to 1990, the only difference being the designation of the
two swimming pools as Item 3.
Fifth, in order for the earthquake shock endorsement to be effective,
premiums must be paid for all the properties covered. In all of its seven
insurance policies, petitioner only paid P393.00 as premium for coverage of
the swimming pools against earthquake shock. No other premium was paid for
earthquake shock coverage on the other properties. In addition, the use of the
qualifier ANY instead of ALL to describe the property covered was done
deliberately to enable the parties to specify the properties included for
earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its
properties must be included in the earthquake shock coverage. Petitioners
own evidence shows that it only required respondent to follow the exact
provisions of its previous policy from AHAC-AIU. Respondent complied with
this requirement. Respondents only deviation from the agreement was when it
modified the provisions regarding the replacement cost endorsement. With
regard to the issue under litigation, the riders of the old policy and the policy in
issue are identical.
Seventh, respondent did not do any act or give any assurance to
petitioner as would estop it from maintaining that only the two swimming pools
were covered for earthquake shock. The adjusters letter notifying petitioner to
present certain documents for its building claims and repair costs was given to
petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the
phrase Item 5 Only after the descriptive name or title of the Earthquake Shock
Endorsement. However, the words of the policy reflect the parties clear
intention to limit earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its
conditions. It did not object to any deficiency nor did it institute any action to
reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorneys fees
and litigation expenses. Since respondent was willing and able to pay for the
damage caused on the two swimming pools, it cannot be considered to be in
default, and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the
resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools
were specified as included, viz:
ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril
of earthquake shock only) [20]
Second, under the breakdown for premium payments,[21] it was stated that:
PREMIUM RECAPITULATION
xxx
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum
of P. . . . . . . . . . . . . . . . . additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this Policy to the
contrary, that this insurance covers loss or damage (including loss or
damage by fire) to any of the property insured by this Policy occasioned by
or through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except in
so far as they may be hereby expressly varied) and that any reference therein
to loss or damage by fire should be deemed to apply also to loss or damage
occasioned by or through or in consequence of Earthquake. [24]
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have
been previously marked by counsel for defendant as Exhibit[s] 1-6
inclusive. Did you have occasion to review of (sic) these six (6) policies
issued by your company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time,
sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C
to H respectively carries an earthquake shock endorsement[?] My
question to you is, on the basis on (sic) the wordings indicated in
Exhibits C to H respectively what was the extent of the coverage
[against] the peril of earthquake shock as provided for in each of the six
(6) policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and
H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake
shock as provided for in each of the six (6) policies extend to the two (2)
swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration Earthquake
Shock Endorsement, in the Clauses and Warranties: Item 5 only
(Earthquake Shock Endorsement), sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand
alone basis. For swimming pools we do cover earthquake shock. For
building we covered it for full earthquake coverage which includes
earthquake shock
COURT:
As far as earthquake shock endorsement you do not have a specific
coverage for other things other than swimming pool? You are covering
building? They are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering
building or another we can issue earthquake shock solely but that the
moment I see this, the thing that comes to my mind is either insuring a
swimming pool, foundations, they are normally affected by earthquake
but not by fire, sir.
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire
insurance?
WITNESS:
No, we dont, sir.
Q. That is why the phrase earthquake shock to the two (2) swimming pools
only was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H
which you have pointed to during your direct-examination, the phrase
Item no. 5 only meaning to (sic) the two (2) swimming pools was deleted
from the policies issued by AIU, is it not?
xxx
ATTY. ANDRES:
As an insurance executive will you not attach any significance to the
deletion of the qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is
inadvertent. Being a company underwriter, we do not cover. . it was
inadvertent because of the previous policies that we have issued with no
specific attachments, premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioners contention that respondents
contemporaneous and subsequent acts to the issuance of the insurance policy
falsely gave the petitioner assurance that the coverage of the earthquake
shock endorsement included all its properties in the resort. Respondent only
insured the properties as intended by the petitioner. Petitioners own witness
testified to this agreement, viz:
Q. Just to be clear about this particular answer of yours Mr. Witness, what
exactly did you tell Atty. Omlas (sic) to copy from Exhibit H for purposes
of procuring the policy from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same
provisions as this American Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit H of course?
A. Yes, sir, to Exhibit H.
Q. So, all the provisions here will be the same except that of the premium
rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates
that they will be charging will be limited to this one. I (sic) can even be
lesser.
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of
the provisions and scope of coverage of Exhibits I and H sometime in
the third week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the
policy wordings as well as scope of coverage of Exhibits I and H
respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured
already that the policy wordings and rates were copied from the
insurance policy I sent them but it was only when this case erupted that
we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice
any discrepancy at any time between those indicated in Exhibit I and
those indicated in Exhibit H respectively?
A. With regard to the wordings I did not notice any difference because it was
exactly the same P393,000.00 on the two (2) swimming pools only
against the peril of earthquake shock which I understood before that this
provision will have to be placed here because this particular provision
under the peril of earthquake shock only is requested because this is an
insurance policy and therefore cannot be insured against fire, so this has
to be placed.
The verbal assurances allegedly given by respondents representative Atty.
Umlas were not proved. Atty. Umlas categorically denied having given such
assurances.
Finally, petitioner puts much stress on the letter of respondents
independent claims adjuster, Bayne Adjusters and Surveyors, Inc. But as
testified to by the representative of Bayne Adjusters and Surveyors, Inc.,
respondent never meant to lead petitioner to believe that the endorsement for
earthquake shock covered properties other than the two swimming pools, viz:
Q. Do you recall the circumstances that led to your discussion regarding the
extent of coverage of the policy issued by Philippine Charter Insurance
Corporation?
A. I remember that when I returned to the office after the inspection, I got a
photocopy of the insurance coverage policy and it was indicated under
Item 3 specifically that the coverage is only for earthquake shock. Then,
I remember I had a talk with Atty. Umlas (sic), and I relayed to him what I
had found out in the policy and he confirmed to me indeed only Item 3
which were the two swimming pools have coverage for earthquake
shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating
that except for the swimming pools all affected items have no coverage
for earthquake shock?
xxx
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for
those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under
Philippine Charter Insurance Corporation as long as it will follow the
same or exact provisions of the previous insurance policy we had with
American Home Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you
wanted in the American Home Insurance policy are to be incorporated in
the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance
Corporation I specifically told him that the policy and wordings shall be
copied from the AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied
AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is
true that there was variance in some terms, specifically in the replacement cost
endorsement, but the principal provisions of the policy remained essentially
similar to AHAC-AIUs policy. Consequently, we cannot apply the "fine print" or
"contract of adhesion" rule in this case as the parties intent to limit the
coverage of the policy to the two swimming pools only is not ambiguous. [37]
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed.
The petition for certiorari is dismissed. No costs.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
[1]
The decision was penned by Justice Jose L. Sabio, Jr., of the 10 th Division of the Court of
Appeals.
[2]
Rollo, pp. 10-12.
[3]
Original Records, p. 50.
[4]
Vice-President for the Fire, Engineering and Allied Claims Division.
[5]
Original Records, pp. 44-48.
[6]
Original Records, p. 47.
[7]
Id., p. 49.
[8]
Id., p. 50.
[9]
Id., pp. 50-54.
[10]
Id., pp. 1-7.
[11]
Id., pp. 6-7.
[12]
Original Records, pp. 28-42.
[13]
Original Records, pp. 400-401.
[14]
CA Rollo, p. 42.
[15]
CA Rollo, pp. 184-186.
[16]
Rollo, p. 402.
[17]
Rollo, pp. 408-409.
[18]
Rollo, pp. 348-395.
[19]
Exhibit 9.
[20]
Original Records, p. 17.
[21]
Original Records, p. 17.
[22]
Original Records, p. 68.
[23]
Rollo, p. 70.
[24]
Original Records, p. 71.
[25]
Ruiz v. Sheriff of Manila, 34 SCRA 83 (1970); National Union Fire Insurance Company of
Pittsburg v. Stolt-Nielsen Philippines, Inc., 184 SCRA 682 (1990).
[26]
See Vance, pp. 1-2, cited in Agbayani, Commercial Laws of the Philippines, vol. 2, (1986), p.
6; Philamcare Health Systems, Inc. v. Court of Appeals, 379 SCRA 356 (2002).
[27]
43 Am. Jur. 2d 878.
[28]
De Leon, Hector S., The Insurance Code of the Philippines (1992), p. 194.
[29]
Exhibits I and I-2.
[30]
The underwriter for Phil-American Insurance Corporation (formerly AIU) who reviewed the
Agoo Playa Resort insurance policies.
[31]
Western Guaranty Corporation v. Court of Appeals, 187 SCRA 652 (1990); Verendia v.
Court of Appeals, 217 SCRA 417 (1993).
[32]
Philippine National Bank v. Court of Appeals, 196 SCRA 536 (1991).
[33]
Verendia v. Court of Appeals, 217 SCRA 417 (1993); New Life Enterprises v. Court of
Appeals, 207 SCRA 669 (1992); Sun Insurance Office, Ltd. v. Court of Appeals, 211
SCRA 554 (1992).
[34]
Pan American World Airways, Inc. v. Rapadas, 209 SCRA 67 (1992); BPI Credit
Corporation v. Court of Appeals, 204 SCRA 601 (1991); Serra v. Court of Appeals,
229 SCRA 60 (1994).
[35]
40 SCRA 624 (1971).
[36]
Testimony of the vice president for corporate affairs and corporate secretary of petitioner,
TSN, September 23, 1991.
[37]
Sweet Lines, Inc. v. Teves, 83 SCRA 361 (1978); Tan v. Court of Appeals, 174 SCRA 403
(1989).
EN BANC
RESOLUTION
DAVIDE, JR., C.J.:
In our decision of 15 June 1999 in this case, we reversed and set aside the
assailed decision[1] of the Court of Appeals, which affirmed with modification the
judgment of the trial court (a) allowing Respondent to consign the sum
of P225,753.95 as full payment of the premiums for the renewal of the five insurance
policies on Respondents properties; (b) declaring the replacement-renewal policies
effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering
Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties
covered by the renewal-replacement policies.The modification consisted in the (1)
deletion of the trial courts declaration that three of the policies were in force from
August 1991 to August 1992; and (2) reduction of the award of the attorneys fees
from 25% to 10% of the total amount due the Respondent.
The material operative facts upon which the appealed judgment was based are
summarized by the Court of Appeals in its assailed decision as follows:
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M.
of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiff's
properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City
were razed by fire. On July 13, 1992, plaintiff tendered, and defendant
accepted, five (5) Equitable Bank Manager's Checks in the total amount of
P225,753.45 as renewal premium payments for which Official Receipt
Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by
defendant. On July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. On the same day,
defendant returned the five (5) manager's checks stating in its letter (Exhibit
"R"/"8", Record, p. 192) that it was rejecting Masagana's claim on the
following grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal
earlier; and
c) The properties covered by the said policies were burned in a fire that took place
last June 13, 1992, or before tender of premium payment."
(Record, p. 5)
The Court of Appeals disagreed with Petitioners stand that Respondents tender of
payment of the premiums on 13 July 1992 did not result in the renewal of the policies,
having been made beyond the effective date of renewal as provided under Policy
Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in
advance of the end of the policy period mails or delivers to the assured at the
address shown in the policy notice of its intention not to renew the policy or
to condition its renewal upon reduction of limits or elimination of coverages,
the assured shall be entitled to renew the policy upon payment of the
premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that
Respondent, which had procured insurance coverage from Petitioner for a number of
years, had been granted a 60 to 90-day credit term for the renewal of the
policies. Such a practice had existed up to the time the claims were filed. Thus:
Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991
was issued on May 7, 1990 but premium was paid more than 90 days later
on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire
Insurance Policy No. 34660 for Insurance Risk Coverage from May 22,
1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium
was collected by UCPB only on July 13, 1990 or more than 60 days later
under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies:
Fire Insurance Policy No. 34657 covering risks from May 22, 1990 to May
22, 1991 was issued on May 7, 1990 but premium therefor was paid only on
July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance
Policy No. 34661 covering risks from May 22, 1990 to May 22, 1991 was
issued on May 3, 1990 but premium was paid only on July 19, 1990 under
O.R. No. 46582 (Exhs. "X' and "X-1"). Fire Insurance Policy No. 34688 for
insurance coverage from May 22, 1990 to May 22, 1991 was issued on May
7, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46585
(Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance
risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but
premium therefor was collected only on July 25, 1990[sic] under O.R. No.
40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408
covering risks from January 12, 1989 to January 12, 1990 was issued to
Intratrade Phils. (Masagana's sister company) dated December 10, 1988 but
premium therefor was paid only on February 15, 1989 under O.R. No.
38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was
issued on May 22, 1989 but premium was paid only on July 25, 1989 under
O.R. No. 40800 for insurance coverage from May 22, 1989 to May 22, 1990
(Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on
May 22, 1989 but premium was paid only on July 17, 1989 under O.R. No.
40682 for insurance risk coverage from May 22, 1989 to May 22, 1990
(Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was
issued on June 15, 1989 but premium was paid only on February 13, 1990
under O.R. No. 39233 for insurance coverage from May 22, 1989 to May 22,
1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued
on November 22, 1988 but premium therefor was collected only on March
15, 1989 under O.R. NO. 38573 for insurance risks coverage from
December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").
In our decision of 15 June 1999, we defined the main issue to be whether the fire
insurance policies issued by petitioner to the respondent covering the period
from May 22, 1991 to May 22, 1992 had been extended or renewed by an implied
credit arrangement though actual payment of premium was tendered on a later date
and after the occurrence of the (fire) risk insured against. We resolved this issue in the
negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela
v. Court of Appeals[2]; South Sea Surety and Insurance Co., Inc. v. Court of Appeals[3];
and Tibay v. Court of Appeals.[4] Accordingly, we reversed and set aside the decision
of the Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the adverse
verdict. It alleges in the motion that we had made in the decision our own findings of
facts, which are not in accord with those of the trial court and the Court of
Appeals. The courts below correctly found that no notice of non-renewal was made
within 45 days before 22 May 1992, or before the expiration date of the fire insurance
policies. Thus, the policies in question were renewed by operation of law and were
effective and valid on 30 June 1992 when the fire occurred, since the premiums were
paid within the 60- to 90-day credit term.
Respondent likewise disagrees with our ruling that parties may neither agree
expressly or impliedly on the extension of credit or time to pay the premium nor
consider a policy binding before actual payment. It urges the Court to take judicial
notice of the fact that despite the express provision of Section 77 of the Insurance
Code, extension of credit terms in premium payment has been the prevalent practice
in the insurance industry. Most insurance companies, including Petitioner, extend
credit terms because Section 77 of the Insurance Code is not a prohibitive injunction
but is merely designed for the protection of the parties to an insurance contract. The
Code itself, in Section 78, authorizes the validity of a policy notwithstanding
non-payment of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner.
Despite its awareness of Section 77 Petitioner persuaded and induced Respondent to
believe that payment of premium on the 60- to 90-day credit term was perfectly
alright; in fact it accepted payments within 60 to 90 days after the due dates. By
extending credit and habitually accepting payments 60 to 90 days from the effective
dates of the policies, it has implicitly agreed to modify the tenor of the insurance
policy and in effect waived the provision therein that it would pay only for the loss or
damage in case the same occurred after payment of the premium.
Petitioner filed an opposition to the Respondents motion for reconsideration. It
argues that both the trial court and the Court of Appeals overlooked the fact that on 6
April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal
and sent by personal delivery a copy thereof to Respondents broker, Zuellig. Both
courts likewise ignored the fact that Respondent was fully aware of the notice of
non-renewal. A reading of Section 66 of the Insurance Code readily shows that in
order for an insured to be entitled to a renewal of a non-life policy, payment of the
premium due on the effective date of renewal should first be made. Respondents
argument that Section 77 is not a prohibitive provision finds no authoritative support.
Upon a meticulous review of the records and reevaluation of the issues raised in
the motion for reconsideration and the pleadings filed thereafter by the parties, we
resolved to grant the motion for reconsideration. The following facts, as found by the
trial court and the Court of Appeals, are indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and these
policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within which
to pay the premiums on the renewed policies.
3. There was no valid notice of non-renewal of the policies in question, as there is
no proof at all that the notice sent by ordinary mail was received by Respondent,
and the copy thereof allegedly sent to Zuellig was ever transmitted to
Respondent.
4. The premiums for the policies in question in the aggregate amount
of P225,753.95 were paid by Respondent within the 60- to 90-day credit term
and were duly accepted and received by Petitioners cashier.
The instant case has to rise or fall on the core issue of whether Section 77 of the
Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioners
advantage despite its practice of granting a 60- to 90-day credit term for the payment
of premiums.
Section 77 of the Insurance Code of 1978 provides:
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code)
promulgated on 18 December 1974. In turn, this Section has its source in Section 72
of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540,
approved on 21 June 1963, which read:
It can be seen at once that Section 77 does not restate the portion of Section 72
expressly permitting an agreement to extend the period to pay the premium. But are
there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or
industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
We hold that the subject policies are valid even if the premiums were paid
on installments. The records clearly show that the petitioners and private
respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in
1984. In those three years, the insurer accepted all the installment
payments. Such acceptance of payments speaks loudly of the insurers
intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on installments, and
later deny liability on the lame excuse that the premiums were not prepaid in
full.
Not only that. In Tuscany, we also quoted with approval the following
pronouncement of the Court of Appeals in its Resolution denying the motion for
reconsideration of its decision:
ART. 1306. The contracting parties may establish such stipulations clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the
policy would not be permitted against Petitioner, which had consistently granted a 60-
to 90-day credit term for the payment of premiums despite its full awareness of
Section 77. Estoppel bars it from taking refuge under said Section, since Respondent
relied in good faith on such practice. Estoppel then is the fifth exception to Section
77.
WHEREFORE, the Decision in this case of 15 June 1999
is RECONSIDERED and SET ASIDE, and a new one is hereby
entered DENYING the instant petition for failure of Petitioner to sufficiently show
that a reversible error was committed by the Court of Appeals in its challenged
decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.
Bellosillo, Kapunan, Mendoza, Panganiban, Buena, Gonzaga-Reyes,
Ynares-Santiago, De Leon, Jr., and Sandoval-Gutierrez, JJ., concur.
Vitug, J., Please see separate opinion.
Melo, J., I join the dissents of Justices Vitug and Pardo.
Pardo, J., I dissent. See attached.
Puno and Quisumbing, JJ., I join the dissent of J. Pardo.
[1]
Rollo, 38.
[2]
191 SCRA 1 [1990].
[3]
244 SCRA 744 [1995].
[4]
257 SCRA 126 [1996] (erroneously stated in the decision as 275 SCRA, 126).
[5]
215 SCRA 463 [1992].
G.R. No. 190702, February 27, 2017 - JAIME T. GAISANO, Petitioner, v. DEVELOPMENT
INSURANCE AND SURETY CORPORATION, Respondent.
PHILIPPINE SUPREME COURT DECISIONS
THIRD DIVISION
DECISION
JARDELEZA, J.:
This is a petition for review on certiorari1 seeking to nullify the Court of Appeals' (CA) September 11,
2009 Decision2 and November 24, 2009 Resolution3 in CA-G.R. CV No. 81225. The CA reversed the
September 24, 2003 Decision4 of the Regional Trial Court (RTC) in Civil Case No. 97-85464. The RTC
granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the comprehensive commercial
vehicle policy issued by Development Insurance and Surety Corporation (respondent),
viz.:ChanRoblesVirtualawlibrary
IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the defendant-appellant
ordered to pay the plaintiff-appellee the sum of P55,620.60 with interest at 6 percent per annum
from the date of the denial of the claim on October 9, 1996 until payment.
SO ORDERED.5chanroblesvirtuallawlibrary
I
The facts are undisputed. Petitioner was the registered owner of a 1992 Mitsubishi Montero with
plate number GTJ-777 (vehicle), while respondent is a domestic corporation engaged in the insurance
business.6 On September 27, 1996, respondent issued a comprehensive commercial vehicle policy7 to
petitioner in the amount of P1,500,000.00 over the vehicle for a period of one year commencing on
September 27, 1996 up to September 27, 1997.8 Respondent also issued two other commercial
vehicle policies to petitioner covering two other motor vehicles for the same period.9
To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company, Noah's
Ark Merchandising (Noah's Ark).10 Noah's Ark immediately processed the payments and issued a Far
East Bank check dated September 27, 1996 payable to Trans-Pacific on the same day.11 The check
bearing the amount of P140,893.50 represents payment for the three insurance policies, with
P55,620.60 for the premium and other charges over the vehicle.12 However, nobody from
Trans-Pacific picked up the check that day (September 27) because its president and general manager,
Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark that its
messenger would get the check the next day, September 28.13
In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing
manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle was stolen in the
vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine
National Police Traffic Management Command at Camp Crame in Quezon City.14 Despite search and
retrieval efforts, the vehicle was not recovered.15
Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an
official receipt numbered 124713 dated September 28, 1996, acknowledging the receipt of
P55,620.60 for the premium and other charges over the vehicle.16 The check issued to Trans--Pacific
for P140,893.50 was deposited with Metrobank for encashment on October 1, 1996.17
On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner
reported the loss and filed a claim with respondent for the insurance proceeds of P1,500,000.00.18
After investigation, respondent denied petitioner's claim on the ground that there was no insurance
contract.19 Petitioner, through counsel, sent a final demand on July 7, 1997.20 Respondent, however,
refused to pay the insurance proceeds or return the premium paid on the vehicle.
On October 9, 1997, petitioner filed a complaint for collection of sum of money and damages21 with
the RTC where it sought to collect the insurance proceeds from respondent. In its Answer,22
respondent asserted that the non-payment of the premium rendered the policy ineffective. The
premium was received by the respondent only on October 2, 1996, and there was no known loss
covered by the policy to which the payment could be applied.23
In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner. It considered the
premium paid as of September 27, even if the check was received only on September 28 because (1)
respondent's agent, Trans-Pacific, acknowledged payment of the premium on that date, September
27, and (2) the check that petitioner issued was honored by respondent in acknowledgment of the
authority of the agent to receive it.25 Instead of returning the premium, respondent sent a checklist
of requirements to petitioner and assigned an underwriter to investigate the claim.26 The RTC ruled
that it would be unjust and inequitable not to allow a recovery on the policy while allowing
respondent to retain the premium paid.27 Thus, petitioner was awarded an indemnity of
P1,500,000.00 and attorney's fees of P50,000.00.28
After respondent's motion for reconsideration was denied,29 it filed a Notice of Appeal.30 Records
were forwarded to the CA.31
The CA granted respondent's appeal.32 The CA upheld respondent's position that an insurance
contract becomes valid and binding only after the premium is paid pursuant to Section 77 of the
Insurance Code (Presidential Decree No. 612, as amended by Republic Act No. 10607).33 It found that
the premium was not yet paid at the time of the loss on September 27, but only a day after or on
September 28, 1996, when the check was picked up by Trans-Pacific.34 It also found that none of the
exceptions to Section 77 obtains in this case.35 Nevertheless, the CA ordered respondent to return
the premium it received in the amount of P55,620.60, with interest at the rate of 6% per annum from
the date of the denial of the claim on October 9, 1996 until payment.36
Hence petitioner filed this petition. He argues that there was a valid and binding insurance contract
between him and respondent.37 He submits that it comes within the exceptions to the rule in Section
77 of the Insurance Code that no contract of insurance becomes binding unless and until the premium
thereof has been paid. The prohibitive tenor of Section 77 does not apply because the parties
stipulated for the payment of premiums.38 The parties intended the contract of insurance to be
immediately effective upon issuance, despite non-payment of the premium, because respondent
trusted petitioner.39 He adds that respondent waived its right to a pre-payment in full of the terms of
the policy, and is in estoppel.40
Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the
return of the premiums paid, then he should be able to recover the full amount of P140,893.50, and
not merely P55,620.60.41 The insurance policy covered three vehicles yet respondent's intention was
merely to disregard the contract for only the lost vehicle.42 According to petitioner, the principle of
mutuality of contracts is violated, at his expense, if respondent is allowed to be excused from
performance on the insurance contract only for one vehicle, but not as to the two others, just
because no loss is suffered as to the two. To allow this "would be to place exclusively in the hands of
one of the contracting parties the right to decide whether the contract should stand or not x x x."43
For failure of respondent to tile its comment to the petition, we declared respondent to have waived
its right to file a comment in our June 15, 2011 Resolution.44
The lone issue here is whether there is a binding insurance contract between petitioner and
respondent.
II
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.45 Just like any other contract, it
requires a cause or consideration. The consideration is the premium, which must be paid at the time
and in the way and manner specified in the policy.46 If not so paid, the policy will lapse and be
forfeited by its own terms.47
The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding.48 Section 77 of the Insurance Code, applicable at the time of
the issuance of the policy, provides:ChanRoblesVirtualawlibrary
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in an
insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a
member of a group exposed to a particular peril, who contributes premiums under the risk of
receiving nothing in return in case the contingency does not happen; on the other, there is the insurer,
who undertakes to pay the entire sum agreed upon in case the contingency happens. This
risk-distributing mechanism operates under a system where, by prompt payment of the premiums,
the insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its
contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the
insurance business:ChanRoblesVirtualawlibrary
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of
insurance is primarily a risk-distributing device, a mechanism by which all members of a group
exposed to a particular risk contribute premiums to an insurer. From these contributory funds are
paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a
risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire
sum agreed upon, and the insured, that of parting with the amount required as premium. without
receiving anything therefor in case the contingency does not happen. To ensure payment tor these
losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those
claiming under their policies. It should be understood that the integrity of this fund cannot be secured
and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus
between the applicant and the insurer despite an express agreement to the contrary. For what could
prevent the insurance applicant from deliberately or willfully holding back full premium payment and
wait for the risk insured against to transpire and then conveniently pass on the balance of the
premium to be deducted from the proceeds of the insurance? x x x
xxx
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business
because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to
the public, hence, the imperative need for its prompt payment and full satisfaction. It must be
emphasized here that all actuarial calculations and various tabulations of probabilities of losses under
the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon
this bedrock insurance firms are enabled to other the assurance of security to the public at favorable
rates. x x x50 (Citations omitted.)
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time
of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was
informed that the check was ready for pick-up on September 27, 1996, the notice of the availability of
the check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could not
be considered in delay in accepting the check because when it informed petitioner that it will only be
able to pick-up the check the next day, petitioner did not protest to this, but instead allowed
Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the
insurance policy effective.
There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is
paid. In UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc.,51 we
said:ChanRoblesVirtualawlibrary
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting
an agreement to extend the period to pay the premium. But are there exceptions to Section 77?
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.
xxx
Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the
payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge
under said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.52 (Citations omitted.)
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77
itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3)
where the parties agreed that premium payment shall be in installments and partial payment has
been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;53
(4) where the insurer granted the insured a credit term for the payment of the premium, and loss
occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and (5)
where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the
payment of premiums.
The insurance policy in question does not fall under the first to third exceptions laid out in UCPB
General Insurance Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does not
contain an acknowledgment of the receipt of premium but merely a statement of account on its
face;54 and (3) no payment of an installment was made at the time of loss on September 27.
Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended
the contract of insurance to be immediately effective upon issuance, despite non-payment of the
premium. This waiver to a pre-payment in full of the premium places respondent in estoppel.
The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the
insurers have consistently granted the insured a credit extension or term for the payment of the
premium. Here, however, petitioner failed to establish the fact of a grant by respondent of a credit
term in his favor, or that the grant has been consistent. While there was mention of a credit
agreement between Trans--Pacific and respondent, such arrangement was not proven and was
internal between agent and principal.55 Under the principle of relativity of contracts, contracts bind
the parties who entered into it. It cannot favor or prejudice a third person, even if he is aware of the
contract and has acted with knowledge.56
We cannot sustain petitioner's claim that the parties agreed that the insurance contract is
immediately effective upon issuance despite non- payment of the premiums. Even if there is a waiver
of pre-payment of premiums, that in itself does not become an exception to Section 77, unless the
insured clearly gave a credit term or extension. This is the clear import of the fourth exception in the
UCPB General Insurance Co., Inc. To rule otherwise would render nugatory the requirement in Section
77 that "[n]otwithstanding 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, x x
x." Moreover, the policy itself states:ChanRoblesVirtualawlibrary
WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be the basis
of this Contract and deemed incorporated herein, has applied to the company for the insurance
hereinafter contained, subject to the payment of the Premium as consideration for such insurance.57
(Emphasis supplied.)
The policy states that the insured's application for the insurance is subject to the payment of the
premium. There is no waiver of pre-payment, in full or in installment, of the premiums under the
policy. Consequently, respondent cannot be placed in estoppel.
Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy
became effective for lack of premium payment.
The consequence of this declaration is that petitioner is entitled to a return of the premium paid for
the vehicle in the amount of P55,620.60 under the principle of unjust enrichment. There is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good
conscience.58 Petitioner cannot claim the full amount of P140,893.50, which includes the payment of
premiums for the two other vehicles. These two policies are not affected by our ruling on the policy
subject of this case because they were issued as separate and independent contracts of insurance.59
We, however, find that the award shall earn legal interest of 6% from the time of extrajudicial
demand on July 7, 1997.60
WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated September 11, 2009 and
the Resolution dated November 24, 2009 are AFFIRMED with the MODIFICATION that respondent
should return the amount of P55,620.60 with the legal interest computed at the rate of 6% per
annum reckoned from July 7, 1997 until finality of this judgment. Thereafter, the total amount shall
earn interest at the rate of 6% per annum from the finality of this judgment until its full satisfaction.
SO ORDERED.chanroblesvirtuallawlibrary
Endnotes:
*** Designated as Fifth Member of the Third Division per Special Order No. 2417 dated January 4,
2017.
2Id. at 37-44; penned by Associate Justice Mario L. Guariña III, and concurred in by Associate Justices
Mariflor P. Punzalan Castillo and Jane Aurora C. Lantion.
3Id. at 36.
6 CA rollo, p. 32.
8Id. at 38.
9 CA rollo, p. 32.
10Rollo, p. 52.
15Id. at 54.
16Id. at 53.
17Id. at 39.
18Id. at 15.
19Id. at 39-40.
20Id. at 59.
22Id. at 14-19.
23Rollo, p. 40.
24Supra note 4.
26Id. at 35-36.
27Id. at 36.
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff and
against the defendant. Defendant is hereby ordered to pay plaintiff the
following:chanRoblesvirtualLawlibrary
a) P1,500,000.00 as indemnification for the loss of the subject vehicle under the insurance
policy;chanrobleslaw
SO ORDERED.
29 CA rollo, p. 37.
30Id. at 13-14.
31Id. at 3; 15.
32Supra note 2.
33Rollo, p. 41.
34Id. at 42-43.
35Id. at 41-42.
36Id. at 43.
37Id. at 18.
38Id. at 20.
39Id. at 21.
40Id. at 22.
41Id. at 31.
42Id.
43Id. at 32.
44Id. at 83-84.
46Philippine Phoenix Surety & Insurance Company v. Woodworks, Inc., G.R. No. L-25317, August 6,
1979, 92 SCRA 419, 422.
47Id.
48American Home Assurance Company v. Chua, G.R. No. 130421, June 28, 1999, 309 SCRA 250, 259.
50Id. at 140-141.
52Id. at 316-318.
54Rollo, p. 46.
55Id. at 42.
56 See Borromeo v. Court of Appeals. G.R. No. 169846, March 28, 2008, 550 SCRA 269, 282.
58 See Flores v. Lindo, Jr., G.R. No. 183984, April 13, 2011, 648 SCRA 772, 782-783.
G.R. No. 198174, September 02, 2013 - ALPHA INSURANCE AND SURETY CO., Petitioner, v. ARSENIA
SONIA CASTOR, Respondent.
PHILIPPINE SUPREME COURT DECISIONS
THIRD DIVISION
ALPHA INSURANCE AND SURETY CO., Petitioner, v. ARSENIA SONIA CASTOR, Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in
CA-G.R. CV No. 93027.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract
of insurance obligates the petitioner to pay the respondent the amount of Six Hundred Thirty
Thousand Pesos (P630,000.00) in case of loss or damage to said vehicle during the period covered,
which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza
(Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza
no longer returned the motor vehicle to respondent and despite diligent efforts to locate the same,
said efforts proved futile. Resultantly, respondent promptly reported the incident to the police and
concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds
in the total sum of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among
others, thus:chanrobles virtua1aw 1ibrary
Upon verification of the documents submitted, particularly the Police Report and your Affidavit,
which states that the culprit, who stole the Insure[d] unit, is employed with you. We would like to
invite you on the provision of the Policy under Exceptions to Section-III, which we quote:
(4) Any malicious damage caused by the Insured, any member of his family or by “A PERSON IN THE
INSURED’S SERVICE.”
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that
the exception refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial
of respondent’s insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before
the Regional Trial Court (RTC) of Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this
wise:chanrobles virtua1aw 1ibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant ordering the latter as follows:
To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the time of
demand up to the time the amount is fully settled;
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The
fallo reads:chanrobles virtua1aw 1ibrary
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated
December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No.
Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a
Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance of its
petition:chanrobles virtua1aw 1ibrary
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY
ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST
THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE
THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT
THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY
WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST
THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE
ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under
the insurance policy.
Significant portions of Section III of the Insurance Policy states:chanrobles virtua1aw 1ibrary
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to
the Schedule Vehicle and its accessories and spare parts whilst thereon:chanrobles virtua1aw 1ibrary
(a)
by accidental collision or overturning, or collision or overturning consequent upon mechanical
breakdown or consequent upon wear and tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road,
rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:chanrobles virtua1aw 1ibrary
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of
each and every loss for each and every vehicle insured by this Policy, such amount being equal to one
percent (1.00%) of the Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a
minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or
breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the
Insured’s service.6
In denying respondent’s claim, petitioner takes exception by arguing that the word “damage,” under
paragraph 4 of “Exceptions to Section III,” means loss due to injury or harm to person, property or
reputation, and should be construed to cover malicious “loss” as in “theft.” Thus, it asserts that the
loss of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the
policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated
by the driver of the insured is not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the theft. Thus:chanrobles virtua1aw
1ibrary
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance
policy subject of this case. This is evident from the very provision of Section III – “Loss or Damage.”
The insurance company, subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is
committed by the driver of the insured, there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, “(A)n insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the contract which is to
insure against risks of loss or damage to the goods. Such interpretation should result from the natural
and reasonable meaning of language in the policy. Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted.” The defendant would argue
that if the person employed by the insured would commit the theft and the insurer would be held
liable, then this would result to an absurd situation where the insurer would also be held liable if the
insured would commit the theft. This argument is certainly flawed. Of course, if the theft would be
committed by the insured himself, the same would be an exception to the coverage since in that case
there would be fraud on the part of the insured or breach of material warranty under Section 69 of
the Insurance Code.7
Moreover, 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.8
Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the
excluded classes therein are to be given their meaning as understood in common speech.9cralaw
virtualaw library
Adverse to petitioner’s claim, the words “loss” and “damage” mean different things in common
ordinary usage. The word “loss” refers to the act or fact of losing, or failure to keep possession, while
the word “damage” means deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy
under paragraph 4 of “Exceptions to Section III,” since the same refers only to “malicious damage,” or
more specifically, “injury” to the motor vehicle caused by a person under the insured’s service.
Paragraph 4 clearly does not contemplate “loss of property,” as what happened in the instant case.
Further, the CA aptly ruled that “malicious damage,” as provided for in the subject policy as one of
the exceptions from coverage, is the damage that is the direct result from the deliberate or willful act
of the insured, members of his family, and any person in the insured’s service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of defrauding the insurer,
viz.:chanrobles virtua1aw 1ibrary
This interpretation by the Court is bolstered by the observation that the subject policy appears to
clearly delineate between the terms “loss” and “damage” by using both terms throughout the said
policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term “loss” within the term “damage”
then logic dictates that it should have used the term “damage” alone in the entire policy or otherwise
included a clear definition of the said term as part of the provisions of the said insurance contract.
Which is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to
the policy’s coverage in Section III thereof, which is one of the crucial parts in the insurance contract,
the insurer, after liberally using the words “loss” and “damage” in the entire policy, suddenly went
specific by using the word “damage” only in the policy’s exception regarding “malicious damage.”
Now, the defendant-appellant would like this Court to believe that it really intended the word
“damage” in the term “malicious damage” to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have used. In
the case of property insurance policies, the evident intention of the contracting parties, i.e., the
insurer and the assured, determine the import of the various terms and provisions embodied in the
policy. However, when the terms of the insurance policy are ambiguous, equivocal or uncertain, such
that the parties themselves disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled –
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s
interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:chanrobles
virtua1aw 1ibrary
Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in favor
of the insured and strictly against the insurer. 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
obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the
above ruling, stating that:chanrobles virtua1aw 1ibrary
When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to avoid forfeiture.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of
Appeals are hereby AFFIRMED.chanroblesvirtualawlibrary
SO ORDERED.
Endnotes:
1 Penned by Associate Justice Romeo F. Barza, with Associate Justices Rosalinda Asuncion-Vicente and
Edwin D. Sorongon, concurring; rollo, pp. 16-32.cralawnad
2Id. at 33-35.cralawnad
3Id. at 41.cralawnad
5Id. at 9.cralawnad
8New Life Enterprises v. Court of Appeals, G.R. No. 94071, March 31, 1992, 207 SCRA 669,
676.cralawnad
9Fortune Insurance and Surety Co., Inc. v. Court of Appeals, 314 Phil. 184, 196 (1995).cralawnad
12Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company, supra,
at 13. (Citation omitted)
RESOLUTION
PEREZ, J.:
This Petition for Review on Certiorari assails the 14 January 2010 Decision of the Court
1
of Appeals and its 16 March 2010 Resolution in CAG. R. CV No. 89665 affirming the 22
2
February 2005 Order of the Regional Trial Court (RTC) of Quezon City, Branch 80 which
3
dismissed the case for· specific performance and damages on demurrer to evidence.
In his Complaint for Specific Performance and Damages against respondents MGM
Motors, Inc. (MGM Motors) and Ayala General Insurance Corporation (Ayala Insurance),
petitioner Frederick Felipe claimed. that he purchased on installment basis a Nissan
Terrano Wagon through MGM Motors' authorized representative Jane Sarmiento
(Sarmiento). Petitioner allegedly gave a P200,000.00 downpayment and P5,000.00
reservation fee to Sarmiento. He further issued seven (7) Allied Bank checks, each
bearing the amount of P24,165.00 payable to MGM Motors. On 14 May 1997, MGM
Motors delivered the subject vehicle to petitioner. He then insured the vehicle with Ayala
Insurance under Policy No. PC970000440001-00-000 and paid a premium of P40,220.67.
On 15 November 1997, the subject vehicle, while parked along Adriatico Street in Manila,
was reportedly lost. He tried to claim from Ayala Insurance but the latter refused to pay its
liability causing damages to petitioner. On the other hand, MGM Motors refused to
produce, despite repeated demands, the document of sale by installment covering the
vehicle. Petitioner allegedly paid additional P200,000.00 on 7 May 1998 as partial
payment for the vehicle. The refusal of MGM Motors to produce the document and its
renouncement of the existence of the installment sale; and the subsequent unlawful
insistence on a cash transaction agreement, had caused damages to petitioner. 4
In its Answer, MGM Motors denied receiving the down payment of P200,000.00 and
P5,000.00 reservation fee paid through Sarmiento. The following is its version of the
controversy:
MGM Motors offered Petitioner a discount of P220,000.00 if the latter would pay in cash.
MGM Motors averred that the vehicle was delivered to petitioner on 14 May 1997 but the
latter failed to pay in cash, thus MGM Motors did not give the registration papers to
petitioner. MGM Motors sent two letters to petitioner demanding the payment for the said
vehicle but the latter refused or failed to pay. MGM Motors stated that petitioner was able.
to fraudulently register the vehicle with the Land Transportation Office in his name and
insure the same with Ayala Insurance. During a negotiation, the parties agreed that
petitioner's obligation amounted to Pl,020,000.00. In an effort to settle petitioner's
obligation, his mother Purificacion issued a postdated check for Pl,020,000.00 as full
payment for the subject vehicle but, upon maturity, the check bounced. Consequently,
MGM Motors filed a case for violation of Batas Pambansa Bilang 22 (BP 22) against
petitioner's mother. In order to settle the civil aspect of the BP 22 case, petitioner paid
P200,00.00 to MGM Motors. MGM Motors counterclaimed for damages. 5
Ayala Insurance, for its part, contended that petitioner had no valid cause of action against
it. Ayala Insurance. asserted that petitioner had no insurable interest because he is not
the owner of the vehicle that he had insured with it. Ayala Insurance also counterclaimed
for damages. 6
Trial proceeded with petitioner and his father Alberto Felipe (Alberto) testifying on the
behalf of the former. Petitioner's testimony was however stricken off the record because
he failed to return, despite numerous opportunities, to the witness stand for
cross-examination. Only two pieces of evidence were admitted by the trial court: (1) the
Official Receipt dated 7 May 1998 issued by MGM Motors wherein it acknowledged
receipt of P200,000.00 from petitioner; and (2) the testimony of his father Alberto that he
was present when petitioner paid P200,000.00 to MGM Motors.
MGM Motors and Ayala Insurance filed their respective Motions to Dismiss on demurrer to
evidence.
On 22 February 2005, the RTC dismissed the case. The trial court reasoned that the
evidence admitted by the trial court do not prove the material allegations of petitioner's
complaint, as well as the alleged liability of Ayala Insurance.
Petitioner filed a motion for reconsideration from said Order but it was denied by the trial
court on 23 May 2005. 7
On 6 June 2007, the trial court awarded P25,000.00 in attorney's fees to MGM Motors. 8
Petitioner elevated the matter to the Court of Appeals. On 14 January 2010, the appellate
court gave weight to the factual findings of the trial court and found no reason to reverse
its ruling. Petitioner filed a motion for reconsideration but it was likewise denied by the
9
Court of Appeals.
In the instant petition for review on certiorari, petitioner raises a lone argument, to wit:
Petitioner insists that the two pieces of evidence admitted by the trial court are sufficient to
substantiate the material allegations of the complaint. Petitioner stresses that Alberto's
testimony established that the purchase of the subject vehicle was on installment basis
from MGM Motors; that Petitioner paid additional 1!200,000.00; and that MGM Motors
failed and refused to deliver the promised documents. of sale on installment despite
payments having been made. The fact of sale on installment, according to petitioner, was
further proved by the receipt issued by MGM Motors. Petitioner highlights the fact that the
vehicle was actually delivered to him, thus .ownership was transferred to him upon
delivery thereof. Proceeding from the same line of argument, petitioner states that with
respect to Ayala Insurance, he is already the owner of the subject vehicle when the
insurance on it was taken and when the subject vehicle was lost. Assuming arguendo that
title to the subject vehicle remained with MGM Motors, petitioner addsthat his insurable
interest on the vehicle consisted of the substantial amount that he had paid on the
purchase price of the vehicle.
MGM Motors cites the Municipal Trial Court's (MTC) finding in the criminal complaint for
BP 22 against petitioner's mother that the agreement for the purchase of the subject
vehicle was on cash basis and not installment MGM Motors echoes the trial court's ruling
that petitioner failed to substantiate the material allegations in his complaint.
On its part, Ayala Insurance puts up the argument that the only evidence submitted by
petitioner against it was the receipt of the P200,000.00 that he paid to MGM Motors. The 1âwphi1
evidence does not constitute proof of the insurable interest. Moreover, Ayala Insurance
asserts that petitioner also failed to establish the following proof: (1) premium payment; (2)
that the insurable interest existed at the time of the loss; (3) deed of sale; (4) proximate
cause of the loss is one of the perils insured against; (5) existence of the original
insurance policy. Ayala Insurance maintains that Petitioner failed to establish his case by
preponderance of evidence.
The basic issue is whether the trial court correctly granted the demurrer to evidence and
subsequently dismissed the complaint.
We agree:
A demurrer to evidence is a motion to dismiss on the ground of insufficiency of evidence
and is presented after the plaintiff rests his case. It is an objection by one of the parties in
an action, to the effect that the evidence which his adversary produced is insufficient in
point of law, whether true or not, to make out a case or sustain the issue. 11
Section 1. Demurrer to evidence.-After the plaintiff has completed the presentation of his
evidence, the defendant may move for dismissal on the ground that upon the facts and the
law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right
to present evidence. If the motion is granted but on appeal the order of dismissal is
reversed he shall be deemed to have waived the right to present evidence.
A review of the dismissal of the complaint naturally entails a Calibration of the evidence to
determine whether the material allegations of the complaint were sufficiently backed by
evidence. We have repeatedly stressed that the remedy of appeal by certiorari under Rule
45 of the Rules of Court contemplates only questions of law, not of fact.
A question of law exists when there is doubt or controversy as to what the law is on a
certain state of facts. There is a question of fact when doubt arises as to the truth or falsity
of the statement of facts. The resolution of a question of fact necessarily involves a
calibration of the evidence, the credibility of the witnesses, the existence and the
relevance of surrounding circumstances, and the probability of specific situations. It is for
this reason that this Court defers to the factual findings of a trial judge, who has had the
distinct advantage of directly observing the witnesses on the stand and determining from
their demeanor whether they· were speaking or distorting the truth. 13
The questions on whether the sale was on cash or installment basis and whether
petitioner had insurable interest on the subject car are evidently questions of fact which
are beyond the purview of the instant petition.
In any event, a perusal of the records show that the trial court correctly dismissed
petitioner's complaint on demurrer to evidence.
Well-established is the rule that the burden of proof lies on the party who makes the
allegations. There is no dispute that the only pieces of evidence admitted in court are the
14
testimony of Alberto and the receipt showing MGM Motors receiving P200,000.00 from
petitioner as partial payment of the subject car. The allegation that the purchase of the
vehicle was on an installment basis was not supported by any evidence. The receipt of a
partial payment does not suffice to prove that the purchase was made on an installment
basis. Petitioner did not present any document to prove said allegation while MGM Motors
produced a sales invoice wherein it was stated that the mode of payment is "COD" or
cash on delivery.
In the same vein, petitioner failed to substantiate his allegation against Ayala Insurance.
Petitioner has the burden of proof to show that a loss occurred and said loss was covered
by his insurance policy. Considering that the trial court only admitted two pieces of
evidence in petitioner's favor and none of those tend to prove loss of the subject car and
coverage thereof under the insurance policy, petitioner is not entitled to the reliefs he had
prayed for.
BASED ON THE FOREGOING, the Petition is DENIED. The 14 January 2010 Decision of
the Court of Appeals and its 16 March 2010 Resolution in CA-G.R. CV No.
89665are AFFIRMED.
SO ORDERED.
WE CONCUR:
TERESITA J. LEONARDO-DE
LUCAS P. BERSAMIN
CASTRO
Associate Justice
Associate Justice
FRANCIS H. JARDELEZA *
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Resolution had been reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.
Footnotes
*
Acting Member per Special Order No. 2188 dated 16 September 2015.
1
Rollo, pp. 32-38; Penned by Associate Justice Arcangelita M. Romilla-Lontok with
Associate Justices Andres B. Reyes, Jr. and Priscilla J. Baltazar-Padilla, concurring.
2
id. at 39 .
3
Id. at 99-101; Issued by Judge Agustin S. Dizon.
4
Id. at 49-54; See Complaint.
5
Id. at 56-66; See Answer of MGM Motors.
6
Id. at 69-70; See Answer of Ayala Insurance.
7
Records, p. 356-357.
8
Rollo, p. 73-76; Presided by Pairing Judge Ma. Theresa Dela Torre-Yadao.
9
Id. at 37.
10
Rollo, pp. 16-17.
11
Celina v. Heirs of Alejo Santiago, 479 Phil. 617, 623 (2004).
12
Uy v. Chua, 616 Phil. 768, 784 (2009).
13
Abadv. Guimba, 503 Phil. 321, 328-329 (2005).
14
Heirs of Pedro Pasag v. Spouses Parocha, 550 Phil. 571, 583 (2007).
FIRST DIVISION
PANGANIBAN, C.J.
(Chairperson)
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
INSURANCE COMPANY OF
NORTH AMERICA, Promulgated:
Respondent. June 8, 2006
x--------------------------------------------------
-x
DECISION
AUSTRIA-MARTINEZ, J.:
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the
Insured which are outstanding at the date of loss for a period in
excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.
xxxx
SO ORDERED.[10]
The CA held that the sales invoices are proofs of sale, being
detailed statements of the nature, quantity and cost of the thing sold; that
loss of the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under Article
1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time the
loss under the principle of res perit domino; that petitioners obligation to
IMC and LSPI is not the delivery of the lost goods but the payment of its
unpaid account and as such the obligation to pay is not extinguished, even
if the fire is considered a fortuitous event; that by subrogation, the insurer
has the right to go against petitioner; that, being a fire insurance with
book debt endorsements, what was insured was the vendors interest as a
creditor.[11]
Anent the first error, petitioner contends that the insurance in the present
case cannot be deemed to be over credit since an insurance on credit
belies not only the nature of fire insurance but the express terms of the
policies; that it was not credit that was insured since respondent paid on
the occasion of the loss of the insured goods to fire and not because of the
non-payment by petitioner of any obligation; that, even if the insurance is
deemed as one over credit, there was no loss as the accounts were not yet
due since no prior demands were made by IMC and LSPI against
petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire
insurance policies.[15]
As to the second error, petitioner avers that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed the risk of loss when they
secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be
maintained thereon by IMC and LSPI since all risk had transferred to
petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured nor
was its consent or approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent in the obligation to
pay, limiting its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready-
made clothing materials was transferred upon delivery to petitioner, IMC
and LSPI have insurable interest over said goods as creditors who stand
to suffer direct pecuniary loss from its destruction by fire; that petitioner
is liable for loss of the ready-made clothing materials since it failed to
overcome the presumption of liability under Article 1265 [16] of the Civil
Code; that the fire was caused through petitioners negligence in failing to
provide stringent measures of caution, care and maintenance on its
property because electric wires do not usually short circuit unless there
are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of
gross and evident bad faith in refusing to pay respondents valid claim and
should be liable to respondent for contracted lawyers fees, litigation
expenses and cost of suit.[17]
Indeed, when the terms of the agreement are clear and explicit that
they do not justify an attempt to read into it any alleged intention of the
parties, the terms are to be understood literally just as they appear on the
face of the contract.[25] Thus, what were insured against were the accounts
of IMC and LSPI with petitioner which remained unpaid 45 days after the
loss through fire, and not the loss or destruction of the goods delivered.
The present case clearly falls under paragraph (1), Article 1504 of
the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the
sellers risk until the ownership therein is transferred to the buyer, but
when the ownership therein is transferred to the buyer the goods are at
the buyers risk whether actual delivery has been made or not, except
that:
(1) Where delivery of the goods has been made to the buyer or
to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under the
contract, the goods are at the buyers risk from the time of such
delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the
buyer will pay its debt, the risk of loss is borne by the
buyer.[27] Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods. They
have an insurable interest until full payment of the value of the delivered
goods. Unlike the civil law concept of res perit domino, where ownership
is the basis for consideration of who bears the risk of loss, in property
insurance, ones interest is not determined by concept of title, but whether
insured has substantial economic interest in the property.[28]
The next question is: Is petitioner liable for the unpaid accounts?
No pronouncement as to costs.
SO ORDERED.
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
(On Leave)
CONSUELO YNARES-SANTIAGO ROMEO J. CALLEJO, SR.
Associate Justice Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
ARTEMIO V. PANGANIBAN
Chief Justice
On Leave.
[1]
Penned by Associate Justice Portia Alio-Hormachuelos and concurred in by Associate Justices
Angelina Sandoval-Gutierrez (now Associate Justice of this Court) and Elvi John S.
Asuncion.
[2]
Records, pp. 146, 190.
[3]
Id. at pp. 149 and 200; Exhibits A-3-a and E-2-a Levi Strauss.
[4]
Id., Exhibits A-3 and E-2 Levi Strauss.
[5]
Id. at 1.
[6]
Id. at 63.
[7]
Id. at 93.
[8]
Id. at 540.
[9]
CA rollo, p. 18.
[10]
Id. at 101-102.
[11]
Id. at 98-100.
[12]
Id. at 105.
[13]
Id. at 135.
[14]
Rollo, p. 36.
[15]
Id. at 28 (Petition), 132 (Memorandum).
[16]
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the
loss was due to his fault, unless there is proof to the contrary, and without prejudice to the
provisions of Article 1165. This presumption does not apply in case of earthquake, flood,
storm, or other natural calamity.
[17]
Rollo, pp. 105 (Comment), 153 (Memorandum).
[18]
Spouses Hanopol v. Shoemart, Incorporated, 439 Phil. 266, 277 (2002); St. Michaels Institute v.
Santos, 422 Phil. 723, 737 (2001).
[19]
Go v. Court of Appeals, G.R. No. 158922, May 28, 2004, 430 SCRA 358, 364; Spouses Hanopol v.
Shoemart, Incorporated, supra.
[20]
Custodio v. Corrado, G.R. No. 146082, July 30, 2004, 435 SCRA 500, 511; Spouses Hanopol v.
Shoemart, Incorporated, supra.
[21]
The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004,
428 SCRA 79, 86; Aguirre v. Court of Appeals, G.R. No. 122249, January 29, 2004, 421
SCRA 310, 319.
[22]
De Mesa v. Court of Appeals, 375 Phil. 432, 443 (1999).
[23]
Records, pp. 146, 190.
[24]
Id.
[25]
First Fil-Sin Lending Corporation v. Padillo, G.R. No. 160533, January 12, 2005, 448 SCRA 71,
76; Azarraga v. Rodriguez, 9 Phil. 637 (1908).
[26]
Records, at the back of pp. 151-173; Exhibits C to C-22.
[27]
See Lawyers Cooperative Publishing Co. v. Tabora, 121 Phil. 737, 741 (1965).
[28]
Aetna Ins. Co. v. King, 265 So 2d 716, cited in 43 Am Jur 2d 943.
[29]
43 Am Jur 2d 943.
[30]
Id.
[31]
43 Am Jur 2d 962.
[32]
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which, though foreseen
were inevitable.
[33]
CA Decision, p. 11; CA rollo, p. 100.
[34]
Lawyers Cooperative Publishing v. Tabora, supra note 27, at 741.
[35]
Jurado, Comments and Jurisprudence on Obligations and Contracts (1993), pp. 289-290. See
also Republic of the Philippines v. Grijaldo, 122 Phil. 1060, 1066 (1965); De Leon v. Soriano,
87 Phil. 193, 196 (1950).
[36]
Bunge Corp. and Universal Comm. Agencies v. Elena Camenforte & Company, 91 Phil. 861, 865
(1952). See also Republic of the Philippines v. Grijaldo, supra; De Leon v. Soriano, supra.
[37]
Ramirez v. Court of Appeals, 98 Phil. 225, 228 (1956).
[38]
Records, pp. 151-173.
[39]
Id. at 182.
[40]
Id. at 183.
[41]
Delsan Transport Lines, Inc. v. Court of Appeals, 420 Phil. 824, 834 (2001); Philippine American
General Insurance Company, Inc. v. Court of Appeals, 339 Phil. 455, 466 (1997).
[42]
Records, p. 201.
SECOND DIVISION
- versus -
Respondent.
x--------------------------------------------------x
DECISION
CARPIO, J.:
The Case
The Facts
Flor Bola Mangoba, in his own answer to the complaint, also pointed
his finger at the driver of the Mitsubishi Lancer as the one who caused
the vehicular accident on the time, date and place in question.
On 12 July 2000, the MeTC rendered its decision in favor of Standard, the
dispositive portion of which reads:
In an Order8 dated 2 May 2002, the RTC dismissed Mangoba and RCJs
appeal for filing their pleading beyond the reglementary period. The
appellate court, however, in a Decision9 in CA-G.R. SP No. 77598 dated 23
April 2004, granted RCJs petition and remanded the case to the RTC for
further proceedings.
In its Decision dated 27 May 2008, the RTC affirmed with modification
the MeTCs Decision dated 12 July 2000. The RTC deleted the award for
exemplary damages.
RCJ failed to convince the RTC that it observed the diligence of a good
father of a family to prevent damages sustained by the Mitsubishi Lancer.
The RTC ruled that the testimony of Conrado Magno, RCJs Operations
Manager, who declared that all applicants for employment in RCJ were
required to submit clearances from the barangay, the courts and the National
Bureau of Investigation, is insufficient to show that RCJ exercised due
diligence in the selection and supervision of its drivers. The allegation of the
conduct of seminars and training for RCJs drivers is not proof that RCJ
examined Mangobas qualifications, experience and driving history.
Moreover, the testimony of Noel Oalog, the bus conductor, confirmed that
the bus was travelling at a speed of 60 to 75 kilometers per hour, which was
beyond the maximum allowable speed of 50 kilometers per hour for a bus
on an open country road. The RTC, however, deleted the award of
exemplary damages because it found no evidence that Mangoba acted with
gross negligence.
3. Cost of suit.
SO ORDERED.11
SO ORDERED.12
The appellate court denied RCJs Motion for Reconsideration13 for lack of
merit.14
The Issues
The petition has no merit. We see no reason to overturn the findings of the
lower courts. We affirm the ruling of the appellate court.
RCJs Liability
RCJ argues that its defense of extraordinary diligence in the selection and
supervision of its employees is a mere alternative defense. RCJs initial claim
was that Standards complaint failed to state a cause of action against RCJ.
Standard may hold RCJ liable for two reasons, both of which rely upon facts
uncontroverted by RCJ. One, RCJ is the registered owner of the bus driven
by Mangoba. Two, RCJ is Mangobas employer.
Standards allegation in its amended complaint that RCJ is the registered
owner of the passenger bus with plate number NYG 363 was sufficient to
state a cause of action against RCJ. The registered owner of a vehicle should
be primarily responsible to the public for injuries caused while the vehicle is
in use.16 The main aim of motor vehicle registration is to identify the owner
so that if any accident happens, or that any damage or injury is caused by
the vehicle on the public highways, responsibility therefor can be fixed on a
definite individual, the registered owner.17
Moreover, in its efforts to extricate itself from liability, RCJ proffered the
defense of the exercise of the diligence of a good father of a family.
The MeTC characterized RCJs defense against negligence in this manner:
Mangoba, per testimony of his conductor, was ten meters away from the
Mitsubishi Lancer before the collision and was driving 60 to 75 kilometers
per hour when the speed limit was 50 kilometers per hour.22 The
presumption under Article 218523 of the Civil Code was thus proven
true: Mangoba, as driver of the bus which collided with the Mitsubishi
Lancer, was negligent since he violated a traffic regulation at the time of the
mishap. We see no reason to depart from the findings of the MeTC, RTC
and appellate court that Mangoba was negligent. The appellate court stated:
To be sure, had not the passenger bus been speeding while traversing
the downward sloping road, it would not have hit and bumped the
Mitsubishi Lancer in front of it, causing the latter vehicle to move
forward and hit and bump, in turn, the Toyota Corolla. Had the bus
been moving at a reasonable speed, it could have avoided hitting and
bumping the Mitsubishi Lancer upon spotting the same, taking into
account that the distance between the two vehicles was ten (10) meters.
As fittingly opined by the MeTC, the driver of the passenger bus, being
the rear vehicle, had full control of the situation as he was in a position
to observe the vehicle in front of him. Had he observed the diligence
required under the circumstances, the accident would not have
occurred.24
Subrogation
In the present case, it cannot be denied that the Mitsubishi Lancer sustained
damages. Moreover, it cannot also be denied that Standard
paid Rodelene Valentino P162,151.22 for the repair of the Mitsubishi
Lancer pursuant to a Release of Claim and Subrogation Receipt. Neither
RCJ nor Mangoba cross-examined Standards claims evaluator when he
testified on his duties, the insurance contract between Rodelene Valentino
and Standard, Standards payment of insurance proceeds, and RCJ
and Mangobas refusal to pay despite demands. After being lackadaisical
during trial, RCJ cannot escape liability now. Standards right of subrogation
accrues simply upon its payment of the insurance claim.25
Art. 2207. If the plaintiffs property has been insured and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
Associate Justice
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
* Designated Acting Member per Special Order No. 1006 dated 10 June 2011.
** Designated Acting Member per Special Order No. 1062 dated 16 August 2011.
2 Rollo, pp. 41-62. Penned by Associate Justice Mariflor P. Punzalan Castillo, with Associate Justices
Juan Q. Enriquez and Elihu A. Ybaez, concurring.
3 Id. at 77-79. Penned by Associate Justice Mariflor P. Punzalan Castillo, with Associate Justices Juan
Q. Enriquez and Elihu A. Ybaez, concurring.
6 Id. at 43-46.
7 Id. at 108.
8 Id. at 109.
9 Id. at 110-119. Penned by Associate Justice Bienvenido L. Reyes, with Associate Justices Ruben T.
Reyes (retired Supreme Court Justice) and Jose C. Mendoza (now Supreme Court Justice) concurring.
11 Id. at 131.
12 Id. at 61-62.
13 Id. at 63-75.
14 Id. at 77-79.
15 Id. at 17-18.
16See FEB Leasing and Finance Corporation (now BPI Leasing Corporation) v.
Spouses Baylon, G.R. No. 181398, 29 June 2011; Guillang v. Bedania, G.R. No. 162987, 21
May 2009, 588 SCRA 73; Villanueva v. Domingo, 481 Phil. 837
(2004); MYC-Agro-Industrial Corp. v. Camerino, 217 Phil. 11 (1984); Erezo v. Jepte, 102 Phil.
103 (1957).
18 Rollo, p. 103.
19 The pertinent portions of Article 2180 read: The obligation imposed by Article 2176 is demandable
not only for ones own acts or omissions, but also for those of persons for whom one is responsible.
x x x Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any business
or industry. x x x The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to prevent damage.
20 Article 2176 states: Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre- existing
contractual relation between the parties, is called a quasi-delict and is governed by the provisions of
this Chapter.
21 Metro Manila Transit Corp. v. Court of Appeals, G.R. No. 104408, 21 June 1993, 223 SCRA 521,
539. Citations omitted.
23 Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was violating any traffic regulation.
25 See Delsan Transport Lines, Inc. v. Court of Appeals, 420 Phil. 824 (2001).
26 Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corporation, G.R. Nos. 180880-81, 25
September 2009, 601 SCRA 96, 141.
G.R. No. 184565, November 20, 2013 - MANOLITO DE LEON AND LOURDES E. DE LEON, Petitioners, v.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
PHILIPPINE SUPREME COURT DECISIONS
SECOND DIVISION
MANOLITO DE LEON AND LOURDES E. DE LEON, Petitioners, v. BANK OF THE PHILIPPINE ISLANDS,
Respondent.
DECISION
“[I]n the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty
or the burden of evidence shifts to defendant to controvert plaintiff’s prima facie case, otherwise, a
verdict must be returned in favor of plaintiff.”1
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the November 16,
2007 Decision3 and the September 19, 2008 Resolution4 of the Court of Appeals (CA) in CA-G.R. SP
No. 91217.
Factual Antecedents
On June 13, 1995, petitioner-spouses Manolito and Lourdes de Leon executed a Promissory Note5
binding themselves to pay Nissan Gallery Ortigas the amount of P458,784.00 in 36 monthly
installments of P12,744.00, with a late payment charge of five percent (5%) per month.6 To secure
the obligation under the Promissory Note, petitioner-spouses constituted a Chattel Mortgage7 over a
1995 Nissan Sentra 1300 4-Door LEC with Motor No. GA-13-549457B and Serial No. BBAB-13B69336.8
On the same day, Nissan Gallery Ortigas, with notice to petitioner-spouses, executed a Deed of
Assignment9 of its rights and interests under the Promissory Note with Chattel Mortgage in favor of
Citytrust Banking Corporation (Citytrust).10
On October 4, 1996, Citytrust was merged with and absorbed by respondent Bank of the Philippine
Islands (BPI).11
Petitioner-spouses, however, failed to pay their monthly amortizations from August 10, 1997 to June
10, 1998.12 Thus, respondent BPI, thru counsel, sent them a demand letter13 dated October 16,
1998.
On November 19, 1998, respondent BPI filed before the Metropolitan Trial Court (MeTC) of Manila a
Complaint14 for Replevin and Damages, docketed as Civil Case No. 161617 and raffled to Branch 6,
against petitioner-spouses.15 The summons, however, remained unserved, prompting the MeTC to
dismiss the case without prejudice.16 Respondent BPI moved for reconsideration on the ground that
it was still verifying the exact address of petitioner-spouses.17 On March 21, 2002, the MeTC set aside
the dismissal of the case.18 On April 24, 2002, summons was served on petitioner-spouses.19
Petitioner-spouses, in their Answer,20 averred that the case should be dismissed for failure of
respondent BPI to prosecute the case pursuant to Section 321 of Rule 17 of the Rules of Court;22 that
their obligation was extinguished because the mortgaged vehicle was stolen while the insurance
policy was still in force;23 that they informed Citytrust of the theft of the mortgaged vehicle through
its employee, Meldy Endaya (Endaya);24 and that respondent BPI should have collected the insurance
proceeds and applied the same to the remaining obligation.25
On November 11, 2003, respondent BPI presented its evidence ex parte.26 It offered as evidence the
testimony of its Account Consultant, Lilie Coria Ultu (Ultu), who testified on the veracity of the
Promissory Note with Chattel Mortgage, the Deed of Assignment, the demand letter dated October
16, 1998, and the Statement of Account27 of petitioner-spouses.28
For their part, petitioner-spouses offered as evidence the Alarm Sheet issued by the Philippine
National Police on December 3, 1997, the Sinumpaang Salaysay executed by Reynaldo Llanos (Llanos),
the Subpoena for Llanos, the letter of Citytrust dated July 30, 1996, the letters of respondent BPI
dated January 6, 1998 and June 25, 1998, and the testimonies of Ultu and petitioner
Manolito.29ChanRoblesVirtualawlibrary
On November 17, 2004, the MeTC rendered a Decision30 in favor of respondent BPI and declared
petitioner-spouses liable to pay their remaining obligation for failure to notify Citytrust or respondent
BPI of the alleged theft of the mortgaged vehicle and to submit proof thereof.31 The MeTC
considered the testimony of petitioner Manolito dubious and self-serving.32 Pertinent portions of the
Decision read:chanRoblesvirtualLawlibrary
[Petitioner Manolito] declared on the witness stand that he sent to [Citytrust], through “fax,” the
papers necessary to formalize his report on the loss of [the] subject motor vehicle, which included the
Alarm Sheet (Exhibit “1”) and the Sinumpaang Salaysay of one Reynaldo Llanos y Largo (TSN dated
August 3, 2004, pp. 17-19).
However, [his claim that] such documents were indeed received by [Citytrust] only remains
self-serving and gratuitous. No facsimile report has been presented that such documents were indeed
transmitted to Citytrust. No formal letter was made to formalize the report on the loss. For an
individual such as [petitioner Manolito], who rather appeared sharp and intelligent enough to know
better, an apparent laxity has been displayed on his part. Heedless of the consequences, [petitioner
Manolito] simply satisfied himself with making a telephone call, if indeed one was made, to [a rank
and file employee] of Citytrust or [respondent BPI] x x x and did not exercise x x x due diligence to
verify any feedback or action on the part of the banking institution.
Worse, [petitioners] x x x failed to prove that they indeed submitted proof of the loss or theft of the
motor vehicle. [Petitioner-spouses] merely [presented] an Alarm Sheet and the Sinumpaang Salaysay
of one Reynaldo Llanos y Largo. But a formal police report on the matter is evidently missing. It
behooved [petitioner-spouses] to establish the alleged theft of the motor vehicle by submitting a
police action on the matter, but this, they did not do.
Haplessly, therefore, the required notice and proof of such loss have not been satisfied.33
(i) Ordering [petitioner-spouses] to jointly and severally pay the sum of P130,018.08 plus 5% interest
per month as late payment charges from date of default on August 10, 1997, until fully paid;
(ii) Ordering [petitioner-spouses] to jointly and severally pay attorney’s fees fixed in the reasonable
sum of P10,000.00; and
(iii) Ordering [petitioner-spouses] to jointly and severally pay the costs of suit.
SO ORDERED.34
On appeal,35 the RTC, Branch 34, reversed the MeTC Decision. Unlike the
MeTC, the RTC gave credence to the testimony of petitioner Manolito that he informed Citytrust of
the theft of the mortgaged vehicle by sending through fax all the necessary documents.36 According
to the RTC, since there was sufficient notice of the theft, respondent BPI should have collected the
proceeds of the insurance policy and applied the same to the remaining obligation of
petitioner-spouses.37 The fallo of the RTC Order38 dated July 18, 2005
reads:chanRoblesvirtualLawlibrary
WHEREFORE, premised from the above considerations and findings, the decision appealed from is
hereby reversed and set aside.
The Complaint and the counterclaim are hereby DISMISSED for lack of merit.
SO ORDERED.39
Aggrieved, respondent BPI elevated the case to the CA via a Petition for Review under Rule 42 of the
Rules of Court.
On November 16, 2007, the CA reversed and set aside the RTC Order and reinstated the MeTC
Decision, thus:chanRoblesvirtualLawlibrary
WHEREFORE, the instant petition for review is GRANTED. The Order issued by the Regional Trial Court
of Manila (Branch 34), dated July 18, 2005, in Civil Case No. 05-111630, is REVERSED and SET ASIDE
and the Decision of the Metropolitan Trial Court of Manila (Branch 6) is REINSTATED. No
pronouncement as to costs.
SO ORDERED.40
Petitioner-spouses moved for reconsideration, which the CA partly granted in its September 19, 2008
Resolution,41 the dispositive portion of which reads:chanRoblesvirtualLawlibrary
WHEREFORE, the foregoing premises considered, our decision of 16 November 2007 is deemed
amended only to the extent herein discussed and the dispositive portion of said decision should now
read as follows:chanRoblesvirtualLawlibrary
“WHEREFORE, the instant petition for review is GRANTED. The Order issued by the Regional Trial
Court of
Manila (Branch 34), dated July 18, 2005, in Civil Case No. 05-111630, is REVERSED and SET ASIDE and
the Decision of the Metropolitan Trial Court of Manila (Branch 6) is REINSTATED with the [lone]
modification that the therein ordered payment of 5% interest per month as late payment charges, is
reduced to 1% interest per month from date of default on August 10, 1997 until fully paid.
No pronouncement as to costs.”
IT IS SO ORDERED.42
Issue
THE REVERSAL BY THE [CA] OF THE DECISION OF THE [RTC] OF MANILA (BRANCH 34) THAT THE
PETITIONERS HAVE SATISFIED THE REQUIRED NOTICE OF LOSS TO [CITYTRUST] IS CONTRARY TO LAW
AND THE DECISIONS OF THIS HONORABLE COURT.43
Ultimately, the issue boils down to the credibility of petitioner Manolito’s testimony.
Petitioner-spouses’ Arguments
Petitioner-spouses contend that the CA erred in not giving weight and credence to the testimony of
petitioner Manolito.44 They claim that his credibility was never an issue before the MeTC45 and that
his testimony, that he sent notice and proof of loss to Citytrust through fax, need not be supported by
the facsimile report since it was not controverted by respondent BPI.46 Hence, they insist that his
testimony together with the documents presented is sufficient to prove that Citytrust received notice
and proof of loss of the mortgaged vehicle.47 Having done their part, they should be absolved from
paying their remaining obligation.48 Respondent BPI, on the other hand, should bear the loss for
failing to collect the proceeds of the insurance.49
Respondent BPI counter-argues that the burden of proving the existence of an alleged fact rests on
the party asserting it.50 In this case, the burden of proving that the mortgaged vehicle was stolen and
that Citytrust received notice and proof of loss of the mortgaged vehicle rests on
petitioner-spouses.51 Unfortunately, they failed to present clear and convincing evidence to prove
these allegations.52 In any case, even if they were able to prove by clear and convincing evidence that
notice and proof of loss of the mortgaged vehicle was indeed faxed to Citytrust, this would not
absolve them from liability because the original documents were not delivered to Citytrust or
respondent BPI.53 Without the original documents, Citytrust or respondent BPI would not be able to
file an insurance claim.54chanroblesvirtualawlibrary
Our Ruling
The party who alleges a fact has the burden of proving it.
Section 1, Rule 131 of the Rules of Court defines “burden of proof” as “the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence
required by law.” In civil cases, the burden of proof rests upon the plaintiff, who is required to
establish his case by a preponderance of evidence.55 Once the plaintiff has established his case, the
burden of evidence shifts to the defendant, who, in turn, has the burden to establish his defense.56
In this case, respondent BPI, as plaintiff, had to prove that petitioner-spouses failed to pay their
obligations under the Promissory Note. Petitioner-spouses, on the other hand, had to prove their
defense that the obligation was extinguished by the loss of the mortgaged vehicle, which was insured.
However, as aptly pointed out by the MeTC, the mere loss of the mortgaged vehicle does not
automatically relieve petitioner-spouses of their obligation57 as paragraph 7 of the Promissory Note
with Chattel Mortgage provides that:chanRoblesvirtualLawlibrary
7. The said MORTGAGOR covenants and agrees to procure and maintain through the MORTGAGEE, a
comprehensive insurance from a duly accredited and responsible insurance company approved by the
MORTGAGEE, over the personalty hereinabove mortgaged to be insured against loss or damage by
accident, theft, and fire for a period of one (1) year from date hereof and every year thereafter until
the mortgage DEBTS are fully paid with an insurance company or companies acceptable to the
MORTGAGEE in an amount not less than the outstanding balance of the mortgage DEBTS; that he/it
will make all loss, if any, under such policy or policies payable to the MORTGAGEE forthwith. x x x
xxx
MORTGAGOR shall immediately notify MORTGAGEE in case of los[s], damage or accident suffered by
herein personalty mortgaged and submit proof of such los[s], damages or accident. Said los[s],
damage or accident for any reason including fortuitous event shall not suspend, abate, or extinguish
[petitioner spouses’] obligation under the promissory note or sums due under this contract x x x
In case of loss or damage, the MORTGAGOR hereby irrevocabl[y] appoints the MORTGAGEE as his/its
attorney-in-fact with full power and authority to file, follow-up, prosecute, compromise or settle
insurance claims; to sign, execute and deliver the corresponding papers, receipts and documents to
the insurance company as may be necessary to prove the claim and to collect from the latter the
insurance proceeds to the extent of its interest. Said proceeds shall be applied by the MORTGAGEE as
payment of MORTGAGOR’s outstanding obligation under the Promissory Note and such other sums
and charges as may be due hereunder or in other instruments of indebtedness due and owing by the
MORTGAGOR to the MORTGAGEE and the excess, if any, shall thereafter be remitted to the
MORTGAGOR. MORTGAGEE however shall be liable in the event there is a deficiency.
x x x58
Based on the foregoing, the mortgagor must notify and submit proof of loss to the mortgagee.
Otherwise, the mortgagee would not be able to claim the proceeds of the insurance and apply the
same to the remaining obligation.
This brings us to the question of whether petitioner-spouses sent notice and proof of loss to Citytrust
or respondent BPI.
Testimonial evidence must also be credible, reasonable, and in accord with human experience.
Testimonial evidence, to be believed, must come not only from the mouth of a credible witness, but
must also “be credible, reasonable, and in accord with human experience.”59 A credible witness must,
therefore, be able to narrate a convincing and logical story.
In this case, petitioner Manolito’s testimony that he sent notice and proof of loss of the mortgaged
vehicle to Citytrust through fax lacks credibility especially since he failed to present the facsimile
report evidencing the transmittal.60 His failure to keep the facsimile report or to ask for a written
acknowledgement from Citytrust of its receipt of the transmittal gives us reason to doubt the
truthfulness of his testimony. His testimony on the alleged theft is likewise suspect. To begin with, no
police report was presented.61 Also, the insurance policy was renewed even after the mortgaged
vehicle was allegedly stolen.62 And despite repeated demands from respondent BPI,
petitioner-spouses made no effort to communicate with the bank in order to clarify the matter. The
absence of any overt act on the part of petitioner-spouses to protect their interest from the time the
mortgaged vehicle was stolen up to the time they received the summons defies reason and logic.
Their inaction is obviously contrary to human experience. In addition, we cannot help but notice that
although the mortgaged vehicle was stolen in November 1997, petitioner-spouses defaulted on their
monthly amortizations as early as August 10, 1997. All these taken together cast doubt on the truth
and credibility of his testimony.
Thus, we are in full accord with the findings of the MeTC and the CA that petitioner Manolito’s
testimony lacks credence as it is dubious and self-serving.63 Failing to prove their defense,
petitioner-spouses are liable to pay their remaining obligation.
WHEREFORE, the Petition is hereby DENIED. The assailed November 16, 2007 Decision and the
September 19, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 91217 are hereby
AFFIRMED.
SO ORDERED.
Endnotes:
3 Id. at 39-46; penned by Associate Justice Aurora Santiago-Lagman and concurred in by Associate
Justices Bienvenido L. Reyes (now a Member of this Court) and Apolinario D. Bruselas, Jr.
4 Id. at 48-51; penned by Associate Justice Apolinario D. Bruselas, Jr. and concurred in by Associate
Justices Juan Q. Enriquez, Jr. and Japar B. Dimaampao.
5 CA rollo, p. 84.
6 Id.
7 Id. at 85-88.
8 Id. at 85.
9 Id. at 86.
10 Id.
11Rollo, p. 40.
12 Id. at 57.
13 CA rollo, p. 90.
14 Id. at 75-83.
15Rollo, pp. 52.
16 Id. at 53.
17 Id.
18 Id.
19 Id.
21 Section 3. Dismissal due to fault of plaintiff. – If, for no justifiable cause, the plaintiff fails to appear
on the date of the presentation of his evidence in chief on the complaint, or to prosecute his action
for an unreasonable length of time, or to comply with these Rules or any order of the court, the
complaint may be dismissed upon motion of the defendant or upon the court’s own motion, without
prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate
action. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise
declared by the court.
23 Id. at 94-98.
24 Id. at 96.
25 Id. at 96-98.
26 Rollo, p. 55.
27 CA rollo, p. 91.
28Rollo, p. 55.
29 Id. at 55-56.
31 Id. at 58-59.
32 Id.
33 Id. at 58.
34 Id. at 60.
37 Id. at 67-68.
39 Id. at 68.
40 Id. at 46.
41 Id. at 48-51.
42 Id. at 50-51.
43 Id. at 22.
44 Id. at 124-128.
45 Id. at 132.
46 Id. at 131-134.
47 Id. at 124-125
48 Id. at 125.
49 Id.
50 Id. at 143.
51 Id. at 143-144.
52 Id. at 144.
53 Id.
54 Id.
58 CA rollo, p. 87.
60Rollo, p. 58.
61 Id.
62 Id. at 59.