THIRD DIVISION

[G.R. No. 112360. July 18, 2000]

RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT

OF APPEALS and TRANSWORLD KNITTING MILLS, INC.,
respondents.

DECISION

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the July 15, 1993 Decision and October 22,1[1]

1993 Resolution of the Court of Appeals in CA-G.R. CV NO. 28779, which

2[2] 3[3]

modified the Ruling of the Regional Trial Court of Pasig, Branch 161, in Civil
4[4]

Case No. 46106.

The antecedent facts that matter are as follows:

On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued
Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc.
(Transworld), initially for One Million (P1,000,000.00) Pesos and eventually
increased to One Million Five Hundred Thousand (P1,500,000.00) Pesos,
covering the period from August 14, 1980 to March 13, 1981.

Pertinent portions of subject policy on the buildings insured, and location thereof,
read:

"‘On stocks of finished and/or unfinished products, raw materials and

supplies of every kind and description, the properties of the Insureds
and/or held by them in trust, on commission or on joint account with others
and/or for which they (sic) responsible in case of loss whilst contained
and/or stored during the currency of this Policy in the premises occupied
by them forming part of the buildings situate (sic) within own Compound at
MAGDALO STREET, BARRIO UGONG, PASIG, METRO MANILA,
PHILIPPINES, BLOCK NO. 601.’

xxx...............xxx...............xxx
1

4
 ‘Said building of four-span lofty one storey in height with mezzanine
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices,
warehouse and caretaker's quarters.

'Bounds in front partly by one-storey concrete building under galvanized

iron roof occupied as canteen and guardhouse, partly by building of two
and partly one storey constructed of concrete below, timber above
undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the aforementioned
Magdalo Street; on its right and left by driveway, thence open spaces, and
at the rear by open spaces.'" 5[5]

The same pieces of property insured with the petitioner were also insured with
New India Assurance Company, Ltd., (New India).

On January 12, 1981, fire broke out in the compound of Transworld, razing the
middle portion of its four-span building and partly gutting the left and right
sections thereof. A two-storey building (behind said four-span building) where fun
and amusement machines and spare parts were stored, was also destroyed by
the fire.

Transworld filed its insurance claims with Rizal Surety & Insurance Company and
New India Assurance Company but to no avail.

On May 26, 1982, private respondent brought against the said insurance
companies an action for collection of sum of money and damages, docketed as
Civil Case No. 46106 before Branch 161 of the then Court of First Instance of
Rizal; praying for judgment ordering Rizal Insurance and New India to pay the
amount of P2,747, 867.00 plus legal interest, P400,000.00 as attorney's fees,
exemplary damages, expenses of litigation of P50,000.00 and costs of suit. 6[6]

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[7]

On January 4, 1990, the trial court rendered its decision; disposing as follows:

"ACCORDINGLY, judgment is hereby rendered as follows:

7
 (1)Dismissing the case as against The New India Assurance Co., Ltd.;

(2) Ordering defendant Rizal Surety And Insurance Company to pay

Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00
representing the actual value of the losses suffered by it; and

(3) Cost against defendant Rizal Surety and Insurance Company.

SO ORDERED." 8[8]

Both the petitioner, Rizal Insurance Company, and private respondent,

Transworld Knitting Mills, Inc., went to the Court of Appeals, which came out with
its decision of July 15, 1993 under attack, the decretal portion of which reads:

"WHEREFORE, and upon all the foregoing, the decision of the court
below is MODIFIED in that defendant New India Assurance Company has
and is hereby required to pay plaintiff-appellant the amount of
P1,818,604.19 while the other Rizal Surety has to pay the plaintiff-
appellant P470,328.67, based on the actual losses sustained by plaintiff
Transworld in the fire, totalling P2,790,376.00 as against the amounts of
fire insurance coverages respectively extended by New India in the
amount of P5,800,000.00 and Rizal Surety and Insurance Company in the
amount of P1,500,000.00.

No costs.

SO ORDERED." 9[9]

On August 20, 1993, from the aforesaid judgment of the Court of Appeals New
India appealed to this Court theorizing inter alia that the private respondent could
not be compensated for the loss of the fun and amusement machines and spare
parts stored at the two-storey building because it (Transworld) had no insurable
interest in said goods or items.

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).

Petitioner Rizal Insurance and private respondent Transworld, interposed a

Motion for Reconsideration before the Court of Appeals, and on October 22,
1993, the Court of Appeals reconsidered its decision of July 15, 1993, as regards
the imposition of interest, ruling thus:

9
 "WHEREFORE, the Decision of July 15, 1993 is amended but only insofar
as the imposition of legal interest is concerned, that, on the assessment
against New India Assurance Company on the amount of P1,818,604.19
and that against Rizal Surety & Insurance Company on the amount of
P470,328.67, from May 26, 1982 when the complaint was filed until
payment is made. The rest of the said decision is retained in all other
respects.

SO ORDERED." 10[10]

Undaunted, petitioner Rizal Surety & Insurance Company found its way to this
Court via the present Petition, contending that:

I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE

ANNEX BUILDING WHERE THE BULK OF THE BURNED PROPERTIES
WERE STORED, WAS INCLUDED IN THE COVERAGE OF THE
INSURANCE POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.

II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED

IN NOT CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL
SURETY), TAKEN IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY
SHOW THAT THE PREMISES OCCUPIED BY TRANSWORLD, WHERE
THE INSURED PROPERTIES WERE LOCATED, SUSTAINED PARTIAL
DAMAGE ONLY.

III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT

TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH AND WITH
MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL ACTION, AND IN
NOT ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL
AND PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS
ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. 2208
PARS. 4 and 11, CIVIL CODE). 11[11]

The Petition is not impressed with merit.

It is petitioner's submission that the fire insurance policy litigated upon protected
only the contents of the main building (four-span), and did not include those
12[12]

stored in the two-storey annex building. On the other hand, the private
respondent theorized that the so called "annex" was not an annex but was
actually an integral part of the four-span building and therefore, the goods and
13[13]

items stored therein were covered by the same fire insurance policy.

10

11

12
Resolution of the issues posited here hinges on the proper interpretation of the
stipulation in subject fire insurance policy regarding its coverage, which reads:

"xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound xxx"

Therefrom, it can be gleaned unerringly that the fire insurance policy in question
did not limit its coverage to what were stored in the four-span building. As opined
by the trial court of origin, two requirements must concur in order that the said fun
and amusement machines and spare parts would be deemed protected by the
fire insurance policy under scrutiny, to wit:

"First, said properties must be contained and/or stored in the areas

occupied by Transworld and second, said areas must form part of the
building described in the policy xxx"14[14]

'Said building of four-span lofty one storey in height with

mezzanine portions is constructed of reinforced concrete
and hollow blocks and/or concrete under galvanized iron roof
and occupied as hosiery mills, garment and lingerie factory,
transistor-stereo assembly plant, offices, ware house and
caretaker's quarter.'

The Court is mindful of the well-entrenched doctrine that factual findings by the
Court of Appeals are conclusive on the parties and not reviewable by this Court,
and the same carry even more weight when the Court of Appeals has affirmed
the findings of fact arrived at by the lower court. 15[15]

In the case under consideration, both the trial court and the Court of Appeals
found that the so called "annex " was not an annex building but an integral and
inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were covered by the
fire insurance in dispute. The letter-report of the Manila Adjusters and Surveyor's
Company, which petitioner itself cited and invoked, describes the "annex"
building as follows:

"Two-storey building constructed of partly timber and partly concrete

hollow blocks under g.i. roof which is adjoining and intercommunicating

13

14

15
 with the repair of the first right span of the lofty storey building and thence
by property fence wall." 16[16]

Verily, the two-storey building involved, a permanent structure which adjoins and
intercommunicates with the "first right span of the lofty storey building", formed
17[17]

part thereof, and meets the requisites for compensability under the fire insurance
policy sued upon.

So also, considering that the two-storey building aforementioned was already

existing when subject fire insurance policy contract was entered into on January
12, 1981, having been constructed sometime in 1978, petitioner should have
18[18]

specifically excluded the said two-storey building from the coverage of the fire
insurance if minded to exclude the same but if did not, and instead, went on to
provide that such fire insurance policy covers the products, raw materials and
supplies stored within the premises of respondent Transworld which was an
integral part of the four-span building occupied by Transworld, knowing fully well
the existence of such building adjoining and intercommunicating with the right
section of the four-span building.

After a careful study, the Court does not find any basis for disturbing what the
lower courts found and arrived at.

Indeed, the stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured
thereby. Article 1377 of the New Civil Code provides:

"Art.1377. The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity"

Conformably, it stands to reason that the doubt should be resolved against the
petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted
the fire insurance policy contract under scrutiny. Citing the aforecited provision of
law in point, the Court in Landicho vs. Government Service Insurance System, 19[19]

ruled:

"This is particularly true as regards insurance policies, in respect of which

it is settled that the 'terms in an insurance policy, which are ambiguous,
equivocal, or uncertain x x x are to be construed strictly and most strongly
against the insurer, and liberally in favor of the insured so as to effect the

16

17

18

19
 dominant purpose of indemnity or payment to the insured, especially
where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is
that the 'insured usually has no voice in the selection or arrangement of
the words employed and that the language of the contract is selected with
great care and deliberation by experts and legal advisers employed by,
and acting exclusively in the interest of, the insurance company.' (44
C.J.S., p. 1174).""
20[20]

Equally relevant is the following disquisition of the Court in Fieldmen's Insurance

Company, Inc. vs. Vda. De Songco, to wit:
21[21]

"'This rigid application of the rule on ambiguities has become necessary in

view of current business practices. The courts cannot ignore that
nowadays monopolies, cartels and concentration of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing
with them cunningly prepared 'agreements' that the weaker party may not
change one whit, his participation in the 'agreement' being reduced to the
alternative to 'take it or leave it' labelled since Raymond Saleilles
'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these
entered into by parties bargaining on an equal footing, such contracts (of
which policies of insurance and international bills of lading are prime
example) obviously call for greater strictness and vigilance on the part of
courts of justice with a view to protecting the weaker party from abuses
and imposition, and prevent their becoming traps for the unwary (New
Civil Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27
February 1942.)'"22[22]

The issue of whether or not Transworld has an insurable interest in the fun and
amusement machines and spare parts, which entitles it to be indemnified for the
loss thereof, had been settled in G.R. No. L-111118, entitled New India
Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New India
from the decision of the Court of Appeals under review, was denied with finality
by this Court on February 2, 1994.

The rule on conclusiveness of judgment, which obtains under the premises,

precludes the relitigation of a particular fact or issue in another action between
the same parties based on a different claim or cause of action. "xxx the judgment
in the prior action operates as estoppel only as to those matters in issue or points
controverted, upon the determination of which the finding or judgment was
rendered. In fine, the previous judgment is conclusive in the second case, only as

20

21

22
those matters actually and directly controverted and determined and not as to
matters merely involved therein."23[23]

Applying the abovecited pronouncement, the Court, in Smith Bell and Company
(Phils.), Inc. vs. Court of Appeals, held that the issue of negligence of the
24[24]

shipping line, which issue had already been passed upon in a case filed by one
of the insurers, is conclusive and can no longer be relitigated in a similar case
filed by another insurer against the same shipping line on the basis of the same
factual circumstances. Ratiocinating further, the Court opined:

"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[25]

The controversy at bar is on all fours with the aforecited case. Considering that
private respondent's insurable interest in, and compensability for the loss of
subject fun and amusement machines and spare parts, had been adjudicated,
settled and sustained by the Court of Appeals in CA-G.R. CV NO. 28779, and by
this Court in G.R. No. L-111118, in a Resolution, dated February 2, 1994, the
same can no longer be relitigated and passed upon in the present case.
Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by the
ruling of the Court of Appeals and of this Court that the private respondent has
an insurable interest in the aforesaid fun and amusement machines and spare
parts; and should be indemnified for the loss of the same.

23

24

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[26]

All things studiedly considered and viewed in proper perspective, the Court is of
the irresistible conclusion, and so finds, that the Court of Appeals erred not in
holding the petitioner, Rizal Surety Insurance Company, liable for the destruction
and loss of the insured buildings and articles of the private respondent.

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated
October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are
AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 75605 January 22, 1993

RAFAEL (REX) VERENDIA, petitioner,

vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE PHILIPPINES, respondents.

G.R. No. 76399 January 22, 1993

FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,

vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.

B.L. Padilla for petitioner.

Sabino Padilla, Jr. for Fidelity & Surety, Co.

MELO, J.:

The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance
Company of the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-18876 effective between
June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive,

26
Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as beneficiary was the Monte de
Piedad & Savings Bank. Verendia also insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May 12, 1981, and The
Development Insurance for P400,000.00 under Policy No. F-48867 expiring on June 30, 198l.

While the three fire insurance policies were in force, the insured property was completely destroyed by fire
on the early morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite
demands, refused payment under its policy, thus prompting Verendia to file a complaint with the then Court
of First Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon, plus attorney's
fees and litigation expenses. The complaint was later amended to include Monte de Piedad as an "unwilling
defendant" (P. 16, Record).

Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of
over-insurance; that Verendia maliciously represented that the building at the time of the fire was leased
under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo
Garcia who was the lessee.

On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In
sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also
violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with
Country Bankers Insurance and Development Insurance.

Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on March 31,
1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court reversed
for the following reasons: (a) there was no misrepresentation concerning the lease for the contract was
signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring
Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown by its
conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399).

Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a
motion for reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for extension of
3 days within which to file a motion for reconsideration. The motion for extension was not filed on April 19,
1986 which was the 15th day after receipt of the decision because said 15th day was a Saturday and of
course, the following day was a Sunday (p. 14., Rollo of G.R. No. 75605). The motion for extension was
granted by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had in the meantime filed its motion
for reconsideration on April 24, 1986 (p. 16, ibid.).

Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that
the motion for extension was filed out of time because the 15th day from receipt of the decision which fell on
a Saturday was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has
personnel receiving pleadings even on Saturdays.

The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for reconsideration was
similarly brushed aside on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605 was
initiated. Subsequently, or more specifically on October 21, 1986, the appellate court denied Fidelity's motion
for reconsideration and account thereof. Fidelity filed on March 31, 1986, the petition for review on certiorari
now docketed as G.R. No. 76399. The two petitions, inter-related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.

Before we can even begin to look into the merits of the main case which is the petition for review on
certiorari, we must first determine whether the decision of the appellate court may still be reviewed, or
whether the same is beyond further judicial scrutiny. Stated otherwise, before anything else, inquiry must be
made into the issue of whether Fidelity could have legally asked for an extension of the 15-day reglementary
period for appealing or for moving for reconsideration.

As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that the pendency of a
motion for extension of time to perfect an appeal does not suspend the running of the period sought to be
extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]). To the same effect were the rulings in Gibbs vs. CFI
of Manila (80 Phil. 160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120
[1967]).

The above cases notwithstanding and because the Rules of Court do not expressly prohibit the filing of a
motion for extension of time to file a motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply divided opinions on whether the period for
appealing which also includes the period for moving to reconsider may be extended. The matter was not
definitely settled until this Court issued its Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA
[1986]), declaring that beginning one month from the promulgation of the resolution on May 30, 1986 —

. . . the rule shall be strictly enforced that no motion for extension of time to file a motion for
new trial or reconsideration shall be filed . . . (at p. 212.)

In the instant case, the motion for extension was filed and granted before June 30, 1986, although, of course,
Verendia's motion to expunge the motion for reconsideration was not finally disposed until July 22, 1986, or
after the dictum in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for extension
came before its formal proscription under Habaluyas, for which reason we now turn our attention to G.R. No.
76399.

Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the contract of lease
submitted by Verendia to support his claim on the fire insurance policy constitutes a false declaration which
would forfeit his benefits under Section 13 of the policy and (b) whether or not, in submitting the subrogation
receipt in evidence, Fidelity had in effect agreed to settle Verendia's claim in the amount stated in said
receipt. 1

Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better
resolved by the appellate court for, in a petition for review on certiorari under Rule 45, the jurisdiction of this
Court is limited to the review of errors of law. The appellate court's findings of fact are, therefore, conclusive
upon this Court except in the following cases: (1) when the conclusion is a finding grounded entirely on
speculation, surmises, or conjectures; (2) when the inference made is manifestly absurd, mistaken, or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the judgment is
premised on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court
of Appeals in making its findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view of
the conflicting findings of the trial court and the appellate court on important issues in these consolidated
cases and it appearing that the appellate court judgment is based on a misapprehension of facts, this Court
shall review the evidence on record.

The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered
into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of
days after the effectivity of the insurance policy. When the rented residential building was razed to the
ground on December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the
premises. However, according to the investigation report prepared by Pat. Eleuterio M. Buenviaje of the
Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on
the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia, whom
he considered as the real lessee, was occupying the building when it was burned (TSN, July 27, 1982, p.10).

Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate
him. Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA)
to the effect that he was not the lessee of Verendia's house and that his signature on the contract of lease
was a complete forgery. Thus, on the strength of these facts, the adjuster submitted a report dated December
4, 1981 recommending the denial of Verendia's claim (Exh. "2").

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract.
According to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been paying the rentals
all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact
was paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions
on these proven facts appear, therefore, to have sufficient bases; Verendia concocted the lease contract to
deflect responsibility for the fire towards an alleged "lessee", inflated the value of the property by the alleged
monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair
market value to be only P40,300.00, insured the same property with two other insurance companies for a
total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert
Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking
Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of the
insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from
the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla
Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion,
an insurance contract should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652
[1980]).

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract
to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be strictly
construed against the insured. Verendia failed to live by the terms of the policy, specifically Section 13
thereof which is expressed in terms that are clear and unambiguous, that all 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, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to
obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim for
benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of
the policy in the absence of proof that Fidelity waived such provision (Pacific Banking Corporation vs. Court
of Appeals, supra). Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the
principle that insurance contracts are uberrimae fidae and demand the most abundant good faith (Velasco
vs. Apostol, 173 SCRA 228 [1989]).

There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity
bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of
P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative of
Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filled
up. More significantly, the same receipt states that Verendia had received the aforesaid amount. However,
that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed the
complaint for the full amount of P385,000.00 stated in the policy. It might be that there had been efforts to
settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had
been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidence
as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting the
will of the Court for that of the parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and
the decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of
the trial court is hereby REINSTATED and UPHELD.

SO ORDERED.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

# Footnotes

1 Fidelity appears to have agreed with the appellate court that it had waived Verendia's
failure to abide by policy condition No. 3 on disclosure of other insurance policies by its
failure to assign it as an error in the petition in G.R. No. 76399. It must have likewise realized
the futility of assigning it as an error because on the first page of the policy the following is
typewritten: "Other insurances allowed, the amounts to be declared in the event of loss or
when required."
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16138             April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16139             April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16140             April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
UNITED INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16141             April 29, 1961.

DIOSDADO C. TY. plaintiff-appellant,

vs.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16142             April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16143             April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,
vs.
FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16144             April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16145             April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

V. B. Gesunundo for plaintiff-appellant.

M. Perez Cardenas for defendant-appellee.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila, Hon. Gregorio S. Narvasa,
presiding, dismissing the actions filed in the above-entitled cases.

The facts found by the trial court, which are not disputed in this appeal, are as follows:

At different times within a period of two months prior to December 24, 1953, the plaintiff
herein Diosdado C. Ty, employed as operator mechanic foreman in the Broadway Cotton
Factory, in Grace Park, Caloocan, Rizal, at a monthly salary of P185.00, insured himself in
18 local insurance companies, among which being the eight above named defendants,
which issued to him personal accident policies, upon payment of the premium of P8.12 for
each policy. Plaintiff's beneficiary was his employer, Broadway Cotton Factory, which paid
the insurance premiums.

On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton
Factory. Fighting his way out of the factory, plaintiff was injured on the left hand by a heavy
object. He was brought to the Manila Central University hospital, and after receiving first aid
there, he went to the National Orthopedic Hospital for treatment of his injuries which were as
follows:

1. Fracture, simple, proximal phalanx index finger, left;

2. Fracture, compound, comminuted, proximal phalanx, middle finger, left and 2nd phalanx,
simple;

3. Fracture, compound, comminute phalanx, 4th finger, left;

 4. Fracture, simple, middle phalanx, middle finger, left;

5. Lacerated wound, sutured, volar aspect, small finger, left;

6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent medical treatment in
the Orthopedic Hospital from December 26, 1953 to February 8, 1954. The above-described
physical injuries have caused temporary total disability of plaintiff's left hand. Plaintiff filed the
corresponding notice of accident and notice of claim with all of the abovenamed defendants
to recover indemnity under Part II of the policy, which is similarly worded in all of the policies,
and which reads pertinently as follows:

INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

If the Insured sustains any Bodily Injury which is effected solely through violent, external,
visible and accidental means, and which shall not prove fatal but shall result, independently
of all other causes and within sixty (60) days from the occurrence thereof, in Total or Partial
Disability of the Insured, the Company shall pay, subject to the exceptions as provided for
hereinafter, the amount set opposite such injury:

PARTIAL DISABILITY

LOSS OF:

xxx     xxx     xxx

Either hand ............................................................................ P650.00

xxx     xxx     xxx

... The loss of a hand shall mean the loss by amputation through the bones of the wrist....

Defendants rejected plaintiff's claim for indemnity for the reason that there being no
severance of amputation of the left hand, the disability suffered by him was not covered by
his policy. Hence, plaintiff sued the defendants in the Municipal Court of this City, and from
the decision of said Court dismissing his complaints, plaintiff appealed to this Court.
(Decision of the Court of First Instance of Manila, pp. 223-226, Records).

In view of its finding, the court absolved the defendants from the complaints. Hence this appeal.

The main contention of appellant in these cases is that in order that he may recover on the
insurance policies issued him for the loss of his left hand, it is not necessary that there should be an
amputation thereof, but that it is sufficient if the injuries prevent him from performing his work or
labor necessary in the pursuance of his occupation or business. Authorities are cited to the effect
that "total disability" in relation to one's occupation means that the condition of the insurance is such
that common prudence requires him to desist from transacting his business or renders him incapable
of working. (46 C.J.S., 970). It is also argued that obscure words or stipulations should be
interpreted against the person who caused the obscurity, and the ones which caused the obscurity in
the cases at bar are the defendant insurance companies.

While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued,
we can not go beyond the clear and express conditions of the insurance policies, all of which define
partial disability as loss of either hand by amputation through the bones of the wrist." There was no
such amputation in the case at bar. All that was found by the trial court, which is not disputed on
appeal, was that the physical injuries "caused temporary total disability of plaintiff's left hand." Note
that the disability of plaintiff's hand was merely temporary, having been caused by fracture of the
index, the middle and the fourth fingers of the left hand.

We might add that the agreement contained in the insurance policies is the law between the parties.
As the terms of the policies are clear, express and specific that only amputation of the left hand
should be considered as a loss thereof, an interpretation that would include the mere fracture or
other temporary disability not covered by the policies would certainly be unwarranted.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the plaintiff-
appellant.

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes and Dizon,
JJ., concur.