D. DOCTRINE OF ESTOPPEL- IN PAIS VS. BY DEED (ART.

1431 CIVIL CODE)

Article 1431 of the Civil Code defines estoppel as follows: 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.

CASES:

DBP VS. CA
UCPB VS. MASAGANA TELEMART
FIELDMENS VS SONGCO

E. AMBIGUITY (ART. 1377 CIVIL CODE AND SEC 17, RULE 130 ROC)
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.
RULE 130 (RULES OF ADMISSIBILITY, DOCUMENTARY EVIDENCE, INTERPRETATION OF
DOCUMENTS) Section 17. Of Two constructions, which preferred. When the terms of an agreement
have been intended in a different sense by the different parties to it, that sense is to prevail against either
party in which he supposed the other understood it, and when different constructions of a provision are
otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor the
provision was made.

1. AS TO AMOUNT TO BE PAID
CASE: DEL ROSARIO VS EQUITABLE
2. AS TO EFFECTIVITY DATE
CASES:
LANDICHO VS. GSIS
ETERNAL GARDENS VS PHILAMLIFE
3. AS TO THE PERIL INSURED AGAINST
CASES:
MALAYAN VS. CA
ALPHA INSURANCE VS. CASTOR
4. AS TO THE AREA INSURED
CASES:
RIZAL SURETY VS. CA
GULF RESORTS VS. PHIL CHARTER INSURANCE
II. WHAT MAY BE INSURED (SEC. 3)
SEC. 3. Any contingent or unknown event, whether past or future, which may damnify a person having an
insurable interest, or create a liability against him, may be insured against, subject to the provisions of this
chapter.
The consent of the spouse is not necessary for the validity of an insurance policy taken out by a married
person on his or her life or that of his or her children.

All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of
the person insured shall automatically vest in the latter upon the death of the original owner, unless
otherwise provided for in the policy.
III. PARTIES TO THE CONTRACT (SEC. 6)- 2012 BAR
SEC. 6. Every corporation, partnership, or association, duly authorized to transact insurance business as
elsewhere provided in this Code, may be an insurer.
A. PUBLIC ENEMY MAY NOT BE INSURED (SEC. 7)- 2013, 2000 BAR
SEC. 7. Anyone except a public enemy may be insured.
CASE: FILIPINAS CIA DE SEGUROS VS CHRISTERN
B. INSURABLE INTEREST OF MORTGAGOR SEPARATE FROM MORTGAGEE (SECS. 8 AND
9)- 2010, 1980 BAR
SEC. 8. Unless the policy otherwise provides, where a mortgagor of property effects insurance in
his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who
does not cease to be a party to the original contract, and any act of his, prior to the loss, which
would otherwise avoid the insurance, will have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it
had been performed by the mortgagor.
SEC. 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee,
and, at the time of his assent, imposes further obligations on the assignee, making a new contract
with him, the acts of the mortgagor cannot affect the rights of said assignee.

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

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and
the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the
decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of
P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans,
then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage
Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11,
1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On
August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement
for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the
savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI
Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being
over the acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The
DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept
the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise,
refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the
Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money with
Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with full
knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the insurance
premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest
for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and (3) that damages
be awarded.

The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the
latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate.
As a result of these admissions, the trial court narrowed down the issues and, without opposition from the parties,
found the case ripe for summary judgment. Consequently, the trial court ordered the parties to submit their respective
position papers and documentary evidence, which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI
Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the
deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting
the premium and the service fee, despite knowledge of his age ineligibility. The dispositive portion of the decision
read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity,
the Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as
amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to
have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other
relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Crossclaim of Defendant DBP is likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmedin
toto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20,
1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. "5Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are true, complete
and correct to the best of my knowledge and belief and form part of my application for insurance. It
is understood and agreed that no insurance coverage shall be effected unless and until this
application is approved and the full premium is paid during my continued good health (Records, p.
40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved
by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These
two conditions, being joined conjunctively, must concur.

Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not
approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited
to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected
contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of
allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to
apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP already
deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his
application for MRI, as well as his health statement. The DBP later submitted both the application form and health
statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10
percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him
and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their
policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved.
The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group
Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded
the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and
deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of
the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit
applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the
agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for
damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992],
citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is
founded upon the supposition that there has been some wrong or omission on his part either in misrepresenting, or in
affirming, or concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v.
Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication
that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code
of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his duties, act with justice
give everyone his due and observe honesty and good faith.
Article 20 provides:

Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for
DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company,
and therefore would have been fully insured by the time he died, is highly speculative. Considering his advanced age,
there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be
noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twentythird day from the date of release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved
(Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of proof, but must be
actually proved with a reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court, 176
SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too
remote to be included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844
[1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is
required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may be
recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the circumstances of each case
(Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to respondent Estate
in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its authority amounted to a deception
to its client, an award of moral damages in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article
2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans
the amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY
said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand
Pesos (P10,000.00) as attorney's fees. With costs against petitioner.
SO ORDERED.
G.R. No. 137172

April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.
MASAGANA TELAMART, INC., respondent.
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 Respondent's
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 court's declaration that three of
the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney's 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:
Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits
"A" to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila] . . . .
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, plaintiffs 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)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioner's stand that Respondent's 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 "AA1"). 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").
Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely
notice of non-renewal was made by Petitioner:
(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from Ultramar Reinsurance
Brokers that plaintiff's reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as
indicated on Exhibit "11". Apparently, the notice of non-renewal (Exhibit "7," Record, p. 320) was sent not
earlier than said date, or within 45 days from the expiry dates of the policies as provided under Policy
Condition No. 26; (2) Defendant insurer unconditionally accepted, and issued an official receipt for, the
premium payment on July 1[3], 1992 which indicates defendant's willingness to assume the risk despite only
a 67.5% reinsurance cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and Valuers to
investigate plaintiff's claim as shown by the letter dated July 17, 1992 (Exhibit "11", Record, p. 254).
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 Respondent's 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 Respondent's 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. Respondent's 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 Petitioner's
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 Petitioner's 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:
SECTION 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.
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:
SECTION 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the
peril insured against, unless there is clear agreement to grant the insured credit extension of the premium
due. No policy issued by an insurance company is valid and binding unless and until the premium thereof
has been paid. (Italic supplied)
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:
SECTION 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, 5 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:
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:
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 does 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.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term
within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or
public policy. The agreement binds the parties. Article 1306 of the Civil Code provides:
ARTICLE 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 SandovalGutierrez, JJ ., concur.
Melo, J., I join the dissents of Justice Vitug and Pardo.
Vitug, J., Please see separate opinion.
Pardo, J., I dissent. See attached.

Separate Opinions
VITUG, J .:
An essential characteristic of an insurance is its being synallagmatic, a highly reciprocal contract where the rights and
obligations of the parties correlate and mutually correspond. The insurer assumes the risk of loss which an insured
might suffer in consideration of premium payments under a risk-distributing device. Such assumption of risk is a
component of a general scheme to distribute actual losses among a group of persons, bearing similar risks, who
make ratable contributions to a fund from which the losses incurred due to exposures to the peril insured against are
assured and compensated.
It is generally recognized that the business of insurance is one imbued with public interest. 1 For the general good and
mutual protection of all the parties, it is aptly subjected to regulation and control by the State by virtue of an exercise
of its police power. 2 The State may regulate in various respects the relations between the insurer and the insured,
including the internal affairs of an insurance company, without being violative of due process. 3
A requirement imposed by way of State regulation upon insurers is the maintenance of an adequate legal reserve in
favor of those claiming under their policies. 4 The law generally mandates that insurance companies should retain an
amount sufficient to guarantee the security of its policyholders in the remote future, as well as the present, and to
cover any contingencies that may arise or may be fairly anticipated. The integrity of this legal reserve is threatened
and undermined if a credit arrangement on the payment of premium were to be sanctioned. Calculations and
estimations of liabilities under the risk insured against are predicated on the basis of the payment of premiums, the
vital element that establishes the juridical relation between the insured and the insurer. By legislative fiat, any
agreement to the contrary notwithstanding, the payment of premium is a condition precedent to, and essential for, the
efficaciousness of the insurance contract, except (a) in case of life or industrial life insurance where a grace period
applies, or (b) in case of a written acknowledgment by the insurer of the receipt of premium, such as by a deposit
receipt, the written acknowledgment being conclusive evidence of the premium payment so far as to make the policy
binding. 5
Section 77 of the Insurance Code provides:
"SECTION 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."
This provision amended Section 72 of the then Insurance Act by deleting the phrase, "unless there is a clear
agreement to grant the insured credit extension of the premium due," and adding at the beginning of the second
sentence the phrase, "[n]otwithstanding any agreement to the contrary." Commenting on the new provision, Dean
Hernando B. Perez states:
"Under the former rule, whenever the insured was granted credit extension of the premium due or given a
period of time to pay the premium on the policy issued, such policy was binding although premiums had not
been paid (Section 72, Insurance Act; 6 Couch 2d. 67). This rule was changed when the present provision
eliminated the portion concerning credit agreement, and added the phrase 'notwithstanding any agreement

to the contrary' which precludes the parties from stipulating that the policy is valid even if premiums are not
paid. Hence, under the present law, the policy is not valid and binding unless and until the premium is paid
(Arce vs. Capital Insurance & Surety Co., Inc., 117 SCRA 63). If the insurer wants to favor the insured by
making the policy binding notwithstanding the non-payment of premium, a mere credit agreement would not
be sufficient. The remedy would be for the insurer to acknowledge in the policy that premiums were paid
although they were not, in which case the policy becomes binding because such acknowledgment is a
conclusive evidence of payment of premium (Section 78). Thus, the Supreme Court took note that under the
present law, Section 77 of the Insurance Code of 1978 has deleted the clause 'unless there is a clear
agreement to grant the insured credit extension of the premium due' (Velasco vs. Apostol, 173 SCRA 228)."6
By weight of authority, estoppel cannot create a contract of insurance, 7 neither can it be successfully invoked to
create a primary liability, 8 nor can it give validity to what the law so proscribes as a matter of public policy. 9 So
essential is the premium payment to the creation of the vinculum juris between the insured and the insurer that it
would be doubtful to have that payment validly excused even for a fortuitous event. 10
The law, however, neither requires for the establishment of the juridical tie, nor measures the strength of such tie by,
any specific amount of premium payment. A part payment of the premium, if accepted by the insurer, can thus perfect
the contract and bring the parties into an obligatory relation. 11 Such a payment puts the contract into full binding
force, not merely pro tanto, thereby entitling and obligating the parties by their agreement. Hence, in case of loss, full
recovery less the unpaid portion of the premium (by the operative act of legal compensation), can be had by the
insured and, correlatively, if no loss occurs the insurer can demand the payment of the unpaid balance of the
premium. 12
In the instant case, no juridical tie appears to have been established under any of the situations hereinabove
discussed.
WHEREFORE, I vote to deny the motion for reconsideration.
Melo, J ., concurs.

PARDO, J ., dissenting:
The majority resolved to grant respondent's motion for reconsideration of the Court's decision promulgated on June
15, 1999. By this somersault, petitioner must now pay respondent's claim for insurance proceeds amounting to
P18,645,000.00, exclusive of interests, plus 25% of the amount due as attorney's fees, P25,000.00 as litigation
expenses, and costs of suit, covering its Pasay City property razed by fire. What an undeserved largess! Indeed, an
unjust enrichment at the expense of petitioner; even the award of attorney's fees is bloated to 25% of the amount
due.
We cannot give our concurrence. We beg to dissent. We find respondent's claim to be fraudulent:
First: Respondent Masagana surreptitiously tried to pay the overdue premiums before giving written notice to
petitioner of the occurrence of the fire that razed the subject property. This failure to give notice of the fire immediately
upon its occurrence blatantly showed the fraudulent character of its claim. The fire totally destroyed the property
on June 13, 1992; the written notice of loss was given only more than a month later, on July 14, 1992, the
day after respondent surreptitiously paid the overdue premiums. Respondent very well knew that the policy was not
renewed on time. Hence, the surreptitious attempt to pay overdue premiums. Such act revealed a reprehensible
disregard of the principle that insurance is a contract uberrima fides, the most abundant good faith.1 Respondent is
required by law and by express terms of the policy to give immediate written notice of loss. This must be complied
with in the utmost good faith.
Another badge of fraud is that respondent deviated from its previous practice of coursing its premium payments
through its brokers. This time, respondent Masagana went directly to petitioner and paid through its cashier with
manager's checks. Naturally, the cashier routinely accepted the premium payment because he had no written notice

of the occurrence of the fire. Such fact was concealed by the insured and not revealed to petitioner at the time of
payment.
Indeed, if as contended by respondent, there was a clear agreement regarding the grant of a credit extension,
respondent would have given immediate written notice of the fire that razed the property. This clearly showed
respondent's attempt to deceive petitioner into believing that the subject property still existed and the risk insured
against had not happened.
Second: The claim for insurance benefits must fall as well because the failure to give timely written notice of the fire
was a material misrepresentation affecting the risk insured against.
Section 1 of the policy provides:
"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 false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf to
obtain any benefit under the policy." 2
In the factual milieu, the purported practice of giving 60 to 90-day credit extension for payment of premiums was a
disputed fact. But it is a given fact that the written notice of loss was not immediately given. It was given only the day
after the attempt to pay the delayed premiums.
At any rate, the purported credit was a mere verbal understanding of the respondent Masagana of an agreement
between the insurance company (petitioner) and the insurance brokers of respondent Masagana. The president of
respondent Masagana admitted that the insurance policy did not contain any proviso pertaining to the grant of
credit within which to pay the premiums. Respondent Masagana merely deduced that a credit agreement existed
based on previous years' practice that they had of delayed payments accepted by the insurer as reflected on the face
of the receipts issued by UCPB evidencing the payment of premiums.
"Q:
A:

You also claim that you have 60 to 90 days credit arrangement with UCPB; is that correct?,
Yes, ma'am.

Q:
I'm showing to you the policy which had previously been marked in evidence as Exhibit "A", "B", "C",
"D", & "E"' for the plaintiff and likewise, marked as exhibits "1", "2", "3", "4", & "5" for the defendant. Could
you show us, Mr. witness where in these policies does it show that you are actually given 60 to 90 days
credit arrangement with UCPB?
A:

Well, it's verbal with your company, and Ansons Insurance Brokerage. It is not written.

Q:

It is not written in the policy?

A:

Yes.

Q:

You merely have verbal agreement with Ansons Insurance Brokerage?

A:
Yes; as shown in our mode of payment; in our vouchers and the receipts issued by the insurance
company." 3
It must be stressed that a verbal understanding of respondent Masagana cannot amend an insurance policy. In
insurance practice, amendments or even corrections to a policy are done by written endorsements or tickets
appended to the policy.
However, the date on the face of the receipts does not refer to the date of actual remittance by respondent Masagana
to UCPB of the premium payments, but merely to the date of remittance to UCPB of the premium payments by the
insurance brokers of respondent Masagana.

"Q: You also identified several receipts; here; official receipts issued by UCPB General Insurance Company,
Inc., which has been previously marked as Exhibits "F", "G", "H", "I", and "J" for the plaintiff; is that correct?
A:

Yes.

Q:
And, you would agree with me that the dates indicated in these particular Official Receipts (O. R.),
merely indicated the dates when UCPB General Insurance Company issued these receipts? Do you admit
that, Mr. Witness?
A:

That was written in the receipts.

Q:
But, you would also agree that this did not necessarily show the dates when you actually forwarded
the checks to your broker, Anson Insurance Agency, for payment to UCPB General Insurance Co. Inc., isn't
it?
A:
The actual support of this would be the cash voucher of the company, Masagana Telamart Inc., the
date when they picked up the check from the company.
Q:

And are these cash voucher with you?

A:

I don't know if it is in the folder or in our folder, now.

Q:
So, you are not certain, whether or not you actually delivered the checks covered by these Official
Receipts to UCPB General Insurance, on the dates indicated?
A:

I would suppose it is few days earlier, when they picked up the payment in our office." 4

Hence, what has been established was the grant of credit to the insurance brokers, not to the assured. The insurance
company recognized the payment to the insurance brokers as payment to itself, though the actual remittance of the
premium payments to the principal might be made later. Once payment of premiums is made to the insurance broker,
the assured would be covered by a valid and binding insurance policy, provided the loss occurred after payment to
the broker has been made.
Assuming arguendo that the 60 to 90 day-credit-term has been agreed between the parties, respondent could not still
invoke estoppel to back up its claim. "Estoppel is unavailing in this case," 5 thus spoke the Supreme Court through the
pen of Justice Hilario G. Davide, Jr., now Chief Justice. Mutatis mutandi, he may well be speaking of this case. He
added that "[E]stoppel can not give validity to an act that is prohibited by law or against public policy." 6 The actual
payment of premiums is a condition precedent to the validity of an insurance contract other than life insurance
policy. 7 Any agreement to the contrary is void as against the law and public policy. Section 77 of the Insurance Code
provides:
"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." [Emphasis supplied]
An incisive reading of the afore-cited provision would show that the emphasis was on the conclusiveness of the
acknowledgment in the policy of the receipt of premium, notwithstanding the absence of actual payment of premium,
because of estoppel. Under the doctrine of 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. "A party may not go back
on his own acts and representations to the prejudice of the other party who relied upon them." 8
This is the only case of estoppel which the law considers a valid exception to the mandatory requirement of prepayment of premium. The law recognized that the contracting parties, in entering a contract of insurance, are free to
enter into stipulations and make personal undertakings so long as they are not contrary to law or public policy.
However, the law is clear in providing that the acknowledgment must be contained in the policy or contract of
insurance. Anything short of it would not fall under the exception so provided in Section 78.

Hence, because of respondent's failure to pay the premiums prior to the occurrence of the fire insured against, no
valid and binding insurance policy was created to cover the loss and destruction of the property. The fire took place
on June 13, 1992, twenty-two (22) days after the expiration of the policy of fire insurance. The tender of payment of
premiums was made only thirty (30) days after the occurrence of the fire, or on July 13, 1992. Respondent Masagana
did not give immediate notice to petitioner of the fire as it occurred as required in the insurance policy. Respondent
Masagana tried to tender payment of the premiums overdue surreptitiously before giving notice of the occurrence of
the fire. More importantly, the parties themselves expressly stipulated that the insurance policy would not be binding
on the insurer unless the premiums thereon had been paid in full. Section 2 of the policy provides:
"2. This policy including any renewal and/or endorsement thereon is not in force until the premium has been
fully paid and duly receipted by the Company in the manner provided therein.
"Any supplementary agreement seeking to amend this condition prepared by agent, broker or company
official, shall be deemed invalid and of no effect.
"No payment in respect of any premium shall be deemed to be payment to the Company unless a printed
form of receipt for the same signed by an Official or duly appointed Agent of the Company shall have been
given to the Insured, except when such printed receipt is not available at the time of payment and the
company or its representative accepts the premium in which case a temporary receipt other than the printed
form may be issued in lieu thereof. "Except only on those specific cases where corresponding rules and
regulations which now we are or may hereafter be in force provide for the payment of the stipulated
premiums in periodic installments at fixed percentages, it is hereby declared, agreed and warranted that this
policy shall be deemed effective valid and binding upon the Company when the premiums thereof have
actually been paid in full and duly acknowledged in a receipt signed by any authorized official or
representative/agent of the Company in such manner as provided herein." 9 [emphasis supplied]
Thus, the insurance policy, including any renewal thereof or any endorsements thereon shall not come in force until
the premiums have been fully paid and duly received by the insurance Company. No payment in respect of any
premiums shall be deemed to be payment to the Insurance Company unless a printed form of receipt for the same
signed by an Official or duly appointed Agent of the Company shall be given to the insured.
The case of Tibay v. Court of Appeals 10 is in point. The issue raised therein was: "May a fire insurance policy be valid,
binding and enforceable upon mere partial payment of premium?" In the said case, Fortune Life and General
Insurance Co., Inc. issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo, on a
two-storey residential building located at 5855 Zobel Street, Makati City, together with all the personal effects therein,
The insurance was for P600,000.00, covering the period from 23 January 1987 to 23 January 1988. On 23 January
1987, of the total premium of P2,983.50, Violeta Tibay only paid P600.00, thus leaving a substantial balance unpaid.
On March 8, 1987, the insured building was completely destroyed by fire. Two days later, or on 10 March 1987,
Violeta Tibay paid the balance of the premium. On the same day, she filed with Fortune a claim for the proceeds of
the fire insurance policy.
In denying the claim of insurance, the Court ruled that "by express agreement of the parties, no vinculum juris or
bond of law was to be established until full payment was effected prior to the occurrence of the risk insured
against. 11 As expressly stipulated in the contract, full payment must be made before the risk occurs for the policy to
be considered effective and in force. "No vinculum juris whereby the insurer bound itself to indemnify the assured
according to law ever resulted from the fractional payment of premium." 12
The majority cited the case of Makati Tuscany Condominium Corp. vs. Court of Appeals 13 to support the contention
that the insurance policies subject of the instant case were valid and effective. However, the factual situation in that
case was different from the case at bar.
In Tuscany, the Court held that the insurance policies were valid and binding because there was partial payment of
the premiums and a clear understanding between the parties that they had intended the insurance policies to be
binding and effective notwithstanding the staggered payment of the premiums. On the basis of equity and fairness,
the Court ruled that there was a perfected contract of insurance upon the partial payment of the premiums,
notwithstanding the provisions of Section 77 to the contrary. The Court 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.

There is no dispute that like in any other contract, the parties to a contract of insurance enjoy the freedom to stipulate
on the terms and conditions that will govern their agreement so long as they are not contrary to law, morals, good
customs, public order or public policy. However, the agreement containing such terms and conditions must be clear
and definite.
In the case at bar, there was no clear and definite agreement between petitioner and respondent on the grant of a
credit extension; neither was there partial payment of premiums for petitioner to invoke the exceptional doctrine
in Tuscany.
Hence, the circumstances in the above cited case are totally different from the case at bar, and consequently, not
applicable herein.
Insurance is an aleatory contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. 14 The consideration is the premium, which must be
paid at the time and in the manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by
its own terms. 15
With regard to the contention that the absence of notice of non-renewal of the policy resulted to the automatic
renewal of the insurance policy, we find the contention untenable. As above discussed, the law provides that only
upon payment of the insurance premium will the insurance policy bind the insurer to the peril insured against and hold
it liable under the policy in case of loss.
Even in the absence of notice of non-renewal, the assured would be bound by the law that a non life insurance policy
takes effect only on the date payment of the premium was made.
Verily, it is elemental law that the payment of premium is a mandatory requisite to make the policy of insurance
effective. If the premium is not paid in the manner prescribed in the policy as intended by the parties, the policy is
void and ineffective. 16
Basically a contract of indemnity, an insurance contract is the law between the parties. 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. 17
IN VIEW WHEREOF, I vote to DENY the respondent's motion for reconsideration, for lack of merit.
G.R. No. L-24833

September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner,

vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents.
Jose S. Suarez for petitioner.
Eligio G. Lagman for respondents.

FERNANDO, J.:
An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a common
carrier insurance policy on the pretext that what was insured, not once but twice, was a private vehicle and not a
common carrier, the policy being issued upon the insistence of its agent who discounted fears of the insured that his
privately owned vehicle might not fall within its terms, the insured moreover being "a man of scant education,"
finishing only the first grade. So it was held in a decision of the lower court thereafter affirmed by respondent Court of
Appeals. Petitioner in seeking the review of the above decision of respondent Court of Appeals cannot be so

sanguine as to entertain the belief that a different outcome could be expected. To be more explicit, we sustain the
Court of Appeals.
The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case. Federico
Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ..., owned a private jeepney
with Plate No. 41-289 for the year 1960. On September 15, 1960, as such private vehicle owner, he was induced by
Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier's Liability
Insurance Policy covering his motor vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's
Insurance Company, Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO4254 ... the duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961. On
September 22, 1961, the defendant company, upon payment of the corresponding premium, renewed the policy by
extending the coverage from October 15, 1961 to October 15, 1962. This time Federico Songco's private jeepney
carried Plate No. J-68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of the renewed policy, the
insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle owner)
collided with a car in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco
(father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita Songco, and a family
friend by the name of Jose Manuel sustained physical injuries of varying degree." 1
It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-old son of
deceased Federico Songco, testifying as witness, declared that when insurance agent Benjamin Sambat was
inducing his father to insure his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an
"owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether our vehicle was an "owner"
type or for passengers it could be insured because their company is not owned by the Government and the
Government has nothing to do with their company. So they could do what they please whenever they believe a
vehicle is insurable' ... In spite of the fact that the present case was filed and tried in the CFI of Pampanga, the
defendant company did not even care to rebut Amor Songco's testimony by calling on the witness-stand agent
Benjamin Sambat, its Pampanga Field Representative." 2
The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of the deceased
Federico Songco as well as the injured passenger Jose Manuel. On the above facts they prevailed, as had been
mentioned, in the lower court and in the respondent Court of Appeals.
1awphl.nt

The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock Insurance
Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond question that where inequitable
conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its favor, in order to forestall fraud
or imposition on the insured." 4
As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of estoppel
undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico Songco
to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of
insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be
permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the
doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the
failure to apply it in this case would result in a gross travesty of justice.
That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner
being adamant in its far-from-reasonable plea that estoppel could not be invoked by the heirs of the insured as a bar
to the alleged breach of warranty and condition in the policy. lt would now rely on the fact that the insured owned a
private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt
without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into
such a contract.

Nor is there any merit to the second alleged error of respondent Court that no legal liability was incurred under the
policy by petitioner. Why liability under the terms of the policy 5 was inescapable was set forth in the decision of
respondent Court of Appeals. Thus: "Since some of the conditions contained in the policy issued by the defendantappellant were impossible to comply with under the existing conditions at the time and 'inconsistent with the known
facts,' the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence, we find no valid
reason to deviate and consequently hold that the decision appealed from should be affirmed. The injured parties, to
wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant
company was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo Songco,
for whose burial expenses the defendant company was also being made liable was the driver of the vehicle in
question. Except for the fact, that they were not fare paying passengers, their status as beneficiaries under the policy
is recognized therein." 6
Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would reveal anew
the weakness of petitioner's contention. Thus: "Moreover, taking into account the well known rule that ambiguities or
obscurities must be strictly interpreted against the party that caused them, the 'memo of warranty' invoked by
appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since its
initial expression, 'the undernoted appliances for the extinction of fire being kept on the premises insured hereby, ... it
is hereby warranted ...,' admits of interpretation as an admission of the existence of such appliances which appellant
cannot now contradict, should the parol evidence rule apply." 7
To the same effect is the following citation from the same leading case: "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 d'adhesion), in contrast to those entered into by parties bargaining on an equal
footing, such contracts (of which policies of insurance and international bills of lading are prime examples) 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)." 8
The last error assigned which would find fault with the decision of respondent Court of Appeals insofar as it affirmed
the lower court award for exemplary damages as well as attorney's fees is, on its face, of no persuasive force at all.
The conclusion that inescapably emerges from the above is the correctness of the decision of respondent Court of
Appeals sought to be reviewed. For, to borrow once again from the language of the Qua Chee Gan opinion: "The
contract of insurance is one of perfect good faith (uberima fides) not for the insured alone,but equally so for the
insurer; in fact, it is more so for the latter, since its dominant bargaining position carries with it stricter responsibility." 9
This is merely to stress that while the morality of the business world is not the morality of institutions of rectitude like
the pulpit and the academe, it cannot descend so low as to be another name for guile or deception. Moreover, should
it happen thus, no court of justice should allow itself to lend its approval and support.
1awphl.nt

We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co., Inc. It did not
succeed in its persistent effort to avoid complying with its obligation in the lower court and the Court of Appeals. Much
less should it find any receptivity from us for its unwarranted and unjustified plea to escape from its liability.
WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against
petitioner Fieldmen's Insurance Co., Inc.
G.R. No. L-16215

June 29, 1963

SIMEON DEL ROSARIO, plaintiff-appellee,

vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
K. V. Faylona for defendant-appellant.
PAREDES, J.:
On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy No.
7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to pay
the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the Policy,
recite:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is effected solely through violent, external, visible and
accidental means, and which shall result, independently of all other causes and within sixty (60) days from
the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set opposite such
injury:

Section 1. Injury sustained other than those specified below unless

excepted hereinafter. . . . . . . .
P1,000.00
Section 2. Injury sustained by the wrecking or disablement of a
railroad passenger car or street railway car in or on which the Insured
is travelling as a farepaying passenger. . . . . . . .
P1,500.00
Section 3. Injury sustained by the burning of a church, theatre, public
library or municipal administration building while the Insured is therein
at the commencement of the fire. . . . . . . .
P2,000.00
Section 4. Injury sustained by the wrecking or disablement of a
regular passenger elevator car in which the Insured is being
conveyed as a passenger (Elevator in mines excluded) P2,500.00

Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . .

....
P3,000.00
xxx

xxx

xxx

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or
Loss of Time, caused to the insured:

. . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a
passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . .
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived
by the company, and to form a part of the provision covered by the policy.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch
"ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off
said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and
beneficiary in the waters of Jolo.
1wph1.t

On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with
defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00,
pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS ONE
THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and demands
against said Company as a result of an accident which occurred on February 26, 1957, insured
under out ACCIDENT Policy No. 7136, causing the death of the Assured.
In view of the foregoing, this policy is hereby surrendered and CANCELLED.
LOSS COMPUTATION
Amount of Insurance

P1,000.00
__________
vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company acknowledging receipt
by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the correct one.
Atty. Francisco claimed
The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2, part 1
of the policy, based on the rule of pari materia as the death of the insured occurred under the circumstances
similar to that provided under the aforecited section.
Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who rendered an
opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the Provisions of the
policy (Exh. F, or 3). Because of the above opinion, defendant insurance company refused to pay more than
P1,000.00. In the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for
P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the balance of P2,000.00 more
was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of
P10,000.00 as attorney's fees, expenses of litigation and costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in the
complaint had already been released, plaintiff having received the full amount due as appearing in policy and as per
opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by plaintiff, and other
pleadings were subsequently file by the parties. On December 28, 1957, the trial court deferred action on the motion
to dismiss until termination of the trial of the case, it appearing that the ground thereof was not indubitable. In the
Answer to the complaint, defendant company practically admitted all the allegations therein, denying only those which
stated that under the policy its liability was P3,000.00.
On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read

xxx

xxx

xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their intention that the
payment of P1,000.00 to the plaintiff and the signing of the loss receipt exhibit "1" would be considered as
releasing the defendant completely from its liability on the policy in question, said intention of the parties
should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil Code).
". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as indemnity
for the death of the insured. The insured died of drowning. Death by drowning is covered by the policy the
pertinent provisions of which reads as follows:
xxx

xxx

xxx

"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily
injury which is effected solely thru violence, external, visible and accidental means" but, Part I of
the Policy is not applicable in case of death by drowning because death by drowning is not one
resulting from "bodily injury which is affected solely thru violent, external, visible and accidental
means" as "Bodily Injury" means a cut, a bruise, or a wound and drowning is death due to
suffocation and not to any cut, bruise or wound."
xxx

xxx

xxx

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart from the
bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is
covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death
for bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning although
the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound
itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not
positively state any definite amount that may be recovered in case of death by drowning, there is an
ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly
against the insurer so as to allow greater indemnity.
xxx

xxx

xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of
P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is
entitled to recover under the policy Exhibit "A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However, since it
is evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot
award plaintiff's claim for attorney's fees and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21,
1958 and hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand
(P2,000.00) Pesos and to pay the costs.
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated
September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature.
All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We
believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken,
for they are supported by the generally accepted principles or rulings on insurance, which enunciate that where there
is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the one
responsible thereof. It should be recalled in this connection, that generally, the insured, has little, if any, participation
in the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation of obscure
stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at
bar, is the insurance company.

. . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous,
equivocal or uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the insured
so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is
involved," (29 Am. Jur. 181) and the reason for this rule is that the "insured usually has no voice in the
selection or arrangement of the words employed and that the language of the contract is selected with great
care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the
insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.
. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that
which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37
So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).
At any event, the policy under consideration, covers death or disability by accidental means, and the appellant
insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured.
In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
G.R. No. L-28866 March 17, 1972
FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children, RAFAEL J.
LANDICHO and MA. LOURDES EUGENIA LANDICHO,plaintiffs-appellees,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-appellant. .
Vedasto J. Hernandez for plaintiffs-appellees.Government Corporate Counsel Leopoldo M. Abellera and Trial
Attorney Arsenio J. Magpale defendant-appellant.

CONCEPCION, C.J.:p
Appeal of the Government Service Insurance System hereinafter referred to as GSIS, for the sake of brevity
from a decision of the Court of First Instance of Manila directing said defendant to pay to the plaintiffs-appellees, Fe
de Joya Landicho and her minor children, Rafael J. and Maria Lourdes Eugenia, both surnamed Landicho, the sum of
P15,800, with interest thereon, at the legal rate, from September 26, 1967, until fully paid, in addition to the sum of
P1,000, as and for attorney's fees, and the costs.
The facts are not in dispute. On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer of the
Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, optional additional life insurance policy No.
OG-136107 in the sum of P7,900. The policy states on its face:
This insurance is granted subject to the terms and conditions hereinafter set forth and in
consideration of the "Information" therefor and of the payment on the day this Policy takes effect of
the monthly premiums stated above, due from and payable by the Insured, and the like payments
on the last day of every month during the lifetime of the Insured until maturity of this Policy or until
prior death of the Insured.
On page 2 of said policy, condition No. 1 provides, in part: .
1. PAYMENT OF PREMIUMS: .

... . Premiums are due and payable at the Office of the System in Manila or at any of its branches.
When any premium or installment thereof remains unpaid after its due date, such due date is the
date of default in payment of premiums. The mere possession of this Policy does not imply that it is
in force unless the premiums due thereon are paid on time or the policy has sufficient cash value to
keep it in force.
Condition No. 18, on page 8 of the policy, is of the following tenor: .
18. ENTIRE CONTRACT IN THIS POLICY: .
This Policy together with the "Information" sheet signed by the Insured, a copy of which is attached
hereto, is issued under the provisions of Commonwealth Act No. 186, as amended, and constitutes
the entire contract.
All statements made by the Insured shall, in the absence of fraud, be deemed representations and
no warranties, and no statement shall void the Policy or be used as a defense to claim hereunder
unless it be contained in written information and a copy of such information be endorsed upon or
attached to the Policy when issued.
Before the issuance of said policy, the insured had filed an application, by filing and signing a printed form of the
GSIS on the basis of which the policy was issued. Paragraph 7 of said application States:
7. I hereby declare that all the above statements and answers as well as those I may make to the
System's Medical Examiner in continuation of this application, to be true and co direct to the best of
my knowledge and belief, and I hereby agree as follows: .
a. That this declaration, with the answers to be given by me to the Medical Officer, shall be made
the basis the policy and form part of the same; .
b. That acceptance of my policy issued on this application will constitute a ratification by me of any
correction or addition to this application made by the System; .
c. That this application serves as a letter of authority to the Collecting Officer of our Office thru the
GSIS to deduct from my salary the monthly premium in the amount of P33.36, beginning the month
of May, 1964, and every month thereafter until notice of its discontinuance shall have beenreceived
from the System; .
d. That the failure to deduct from my salary the month premiums shall not make the policy lapse,
however, the premium account shall be considered as indebtedness which, I bind myself to pay the
System; .
e. That my policy shall be made effective on the first day of the month next following the month the
first premium is paid; provided, that it is not more ninety (90) days before or after the date of the
medical examination,was conducted if required." .
While still under the employment of the Bureau of Public Works, Mr. Landicho met his death, on June 29, 1966, in an
airplane crash in Mindoro. Thereupon, Mrs. Landicho, in her own behalf and that of her co-plaintiffs and minor
children, Rafael J. and Maria Lourdes Eugenia, filed with the GSIS a claim for P15,800, as the double indemnity due
under policy No. OG-136107, because of the untimely death of the insured owing to said accident. The GSIS denied
the claim, upon the ground that the policy had never been in force because, pursuant to subdivision (e) of the abovequoted paragraph 7 of the application, the policy "shall be ... effective on the first day of the month next following the
month the first premium is paid," and no premium had ever been paid on said policy. Upon refusal of the GSIS to

reconsider its stand, this action was filed, September 22, 1967, in the Court of First Instance of Manila, in which the
GSIS reiterated its aforementioned defense. Thereafter submitted by both parties for judgment on the pleadings,
upon the ground thatthe case involve purely questions of law, said court rendered, in due course, its abovementioned
decision, from which the GSIS has taken the present appeal.
The main issue therein is whether or not the insurance policy in question has ever been in force, not a single
premium having been paid thereon. In support of the affirmative, plaintiffs invoke the stipulation in the policy to the
effect that the information contained in the application filed by the insured shall form part of the contract between him
and the GSIS, and, especially, subdivisions (c) and (d) of paragraph 7 of said application stating that the same shall
serve "as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS
to deduct from my salary the monthly premium in the amount of P33.36 beginning the month of May, 1964, and every
month thereafter," and that "failure to deduct from my salary the monthly premiums shallnot make the policy lapse,
however, the premium account shall be considered as indebtedness which, I" the insured "bind myself to pay
the System." 1 The GSIS maintains, however, the negative, relying upon subdivision (e) of the same paragraph No. 7, which
provides that the "policy shall be made effective on the first day of the month next following the month the first premium is paid."
Under this theory, subdivisions (c) and (d) of said paragraph 7 would not apply unless and until the first premium shall have been
actually paid, pursuant to subdivision (e) of the same paragraph.

Although it may not be entirely farfetched, this view is not likely to be in accord with the understanding of many, if not
most, government employees who obtain an optional additional life insurance policy. As a consequence, the actual
receipt by them of their full pay without any deduction for premiums on their optional additional life insurance
policies may not impart to them the warning which, otherwise, it would necessarily convey that said policy is
not, as yet, in force, for they are liable to believe "that failure to deduct" from the salary of the insured "the
monthly premiums shall not" in the language of subdivision (d) "make the policy lapse" and that "the premiums
account shall be considered as indebtedness," to be paid or deducted later, because, after all, the so called
"payment" of premiums is nothing but a "paper" or "accounting" process, whereby funds are merely
transferred, not physically, but constructively, from one office of the government to another. In other words, the
language, of subdivisions (c), (d) and (e) is such as to create an ambiguity that should be resolved against the party
responsible therefor defendant GSIS, as the party who prepared and furnished the application form and in favor
of the party misled thereby, the insured employee.
Indeed, our Civil Code provides:
The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity. 2
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 ... are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the
insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is 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.) 3.
The equitable and ethical considerations justifying the foregoing view are bolstered up by two (2) factors, namely:
(a) The aforementioned subdivision (c) states "that this application serves as a letter of authority to the Collecting
Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium
in the amount of P33.36." No such deduction was made and, consequently, not even the first premium "paid"
because the collecting officer of the Bureau of Public Works was not advised by the GSIS to make it (the deduction)
pursuant to said authority. Surely, this omission of the GSIS should not inure to its benefit. .

(b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in force, he having been
paid by the GSIS the dividends corresponding to said policy. Had the insured had the slightest inkling that the latter
was not, as yet, effective for non-payment of the first premium, he would have, in all probability, caused the same to
be forthwith satisfied.
WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against the defendantappellant, Government Service Insurance System. It is so ordered. .
G.R. No. 166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November
26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the
insurer on the insurance application be considered as approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an
agreement denominated as Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis
would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the
Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by
the Company on its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00. However, a
declaration of good health shall be required for all Lot Purchasers as part of the application. The Company
reserves the right to require further evidence of insurability satisfactory to the Company in respect of the
following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of
his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or
the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser
dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the
Company.3
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of
the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In
relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4containing a list of
insurable balances of its lot buyers for October 1982. One of those included in the list as "new business" was a
certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuangs death.
Attached to the claim were the following documents: (1) Chuangs Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician;
and (5) Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit the following documents
relative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with form attached); (2) Assureds
Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while
still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by
Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim. This
prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May 20, 1986,9 a
portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No
application for Group Insurance was submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of Insurability provision, "a
declaration of good health shall be required for all Lot Purchasers as party of the application." We cite further
the provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if
the application is not approved by the Company." Since no application had been submitted by the
Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after
his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens
being the Assured was a party to the Contract and was therefore aware of these pertinent provisions.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance
coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have
been met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against
Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against
Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing
the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum
of P10,000.00 as attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance which he accomplished before his death,
as testified to by Eternals witness and evidenced by the letter dated December 29, 1982, stating, among others:
"Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further ruled that due to Philamlifes inaction from the
submission of the requirements of the group insurance on December 29, 1982 to Chuangs death on August 2, 1984,
as well as Philamlifes acceptance of the premiums during the same period, Philamlife was deemed to have approved
Chuangs application. The RTC said that since the contract is a group life insurance, once proof of death is submitted,
payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED
and SET ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuangs application was not enclosed in Eternals letter dated
December 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section
26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by
Philamlifes insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore determined by this
Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in
holding that:
I. The application for insurance was not duly submitted to respondent PhilamLife before the death
of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.
The Courts Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first
level courts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject
to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the [CA] went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not
disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy
of the insurance application of Chuang before his death. In Eternals letter dated December 29, 1982, a list of
insurable interests of buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal
added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms &
Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal
alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before
his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must
present evidence showing that Philamlife received a copy of Chuangs insurance application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the
insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the
effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by Philamlife
against its own interest.13 The burden of evidence has shifted to Philamlife, which must prove that the letter did not
contain Chuangs insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuangs insurance application.
To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is stamped as received, the
contents of the letter are correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to inconsistencies is
groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses, because it
has the opportunity to observe firsthand the witnesses demeanor, conduct, and attitude. Findings of the trial court on
such matters are binding and conclusive on the appellate court, unless some facts or circumstances of weight and
substance have been overlooked, misapprehended, or misinterpreted,14 that, if considered, might affect the result of
the case.15
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of
substance and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as
shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of
this is submitted to Philamlife together with the monthly remittances and the second copy is remained or
retained with the marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking for the location and
does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that payment together
with the new clients all the originals I see to it before I sign the transmittal letter the originals are attached
therein.16
In other words, the witness admitted not knowing where the original insurance application was, but believed that the
application was transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes
that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even serve to strengthen
their credibility as these negate any suspicion that the testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecutions evidence as
a whole or reflect on the witnesses honesty. The test is whether the testimonies agree on essential facts
and whether the respective versions corroborate and substantially coincide with each other so as to make a
consistent and coherent whole.18
In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is
whether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by
Philamlife are minor and do not affect the credibility of Eternals witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.
This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the
Company.
An examination of the above provision would show ambiguity between its two sentences. The first sentence appears
to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with
Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same
can become effective.
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 latters interest. Thus, in Malayan Insurance
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.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling,
stating that:
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.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be
construed in favor of the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a partys purchase of
a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same
is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second
sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory
condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on
the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the
insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.
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.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810
isREVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED.
Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of
Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of
extra-judicial demand by Eternal until Philamlifes receipt of the May 29, 1996 RTC Decision on June 17,
1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June
17, 1996 until full payment of this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
G.R. No. 119599 March 20, 1997
MALAYAN INSURANCE CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS and TKC MARKETING CORPORATION, respondents.

ROMERO, J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G. R. No. 43023 1which
affirmed, with slight modification, the decision of the Regional Trial Court of Cebu, Branch 15.

Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean meal
which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for carriage from the port of Rio
del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by petitioner Malayan
Insurance Corporation for which it issued two (2) Marine Cargo policy Nos. M/LP 97800305 amounting to
P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civil authorities
arrested and detained it because of a lawsuit on a question of ownership and possession. As a result, private
respondent notified petitioner on October 4, 1989 of the arrest of the vessel and made a formal claim for the amount
of US$916,886.66, representing the dollar equivalent on the policies, for non-delivery of the cargo. Private
respondent likewise sought the assistance of petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies. Private
respondent, accordingly, advised petitioner that it might tranship the cargo and requested an extension of the

insurance coverage until actual transhipment, which extension was approved upon payment of additional premium.
The insurance coverage was extended under the same terms and conditions embodied in the original policies while
in the process of making arrangements for the transhipment of the cargo from Durban to Manila, covering the period
October 4 - December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton or a total
of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days to Manila and
another twenty days for the discharge thereof. On January 5, 1990, private respondent forthwith reduced its claim to
US$448,806.09 (or its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing
private respondent's loss after the proceeds of the sale were deducted from the original claim of $916,886.66 or
P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an
excepted risk under the marine insurance policies. This prompted private respondent to file a complaint for damages
praying that aside from its claim, it be reimbursed the amount of P128,770.88 as legal expenses and the interest it
paid for the loan it obtained to finance the shipment totalling P942,269.30. In addition, private respondent asked for
moral damages amounting to P200,000.00, exemplary damages amounting to P200,000.00 and attorney's fees
equivalent to 30% of what will be awarded by the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from the insurance claim,
consequential and liquidated damages amounting to P1,024,233.88, exemplary damages amounting to P100,000.00,
reimbursement in the amount equivalent to 10% of whatever is recovered as attorney's fees as well as the costs of
the suit. On private respondent's motion for reconsideration, petitioner was also required to further pay interest at the
rate of 12% per annum on all amounts due and owing to the private respondent by virtue of the lower court decision
counted from the inception of this case until the same is paid.
On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of Clause 12 of
the policies issued to private respondent, the same became automatically covered under subsection 1.1 of Section 1
of the Institute War Clauses. The arrests, restraints or detainments contemplated in the former clause were those
effected by political or executive acts. Losses occasioned by riot or ordinary judicial processes were not covered
therein. In other words, arrest, restraint or detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules out
detention by ordinary legal processes. Hence, arrests by civil authorities, such as what happened in the instant case,
is an excepted risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However, with the deletion
of Clause 12 of the Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses
(Cargo), the arrest and seizure by judicial processes which were excluded under the former policy became one of the
covered risks.
The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss
compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-delivery Clause
(TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance Code and as held inWilliams
v. Cole. 2
Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port from
completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of petitioner continued
until the goods could have been transhipped. But due to the perishable nature of the goods, it had to be promptly sold
to minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should not operate to discharge
petitioner from its contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies.

2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private respondent's claim.
4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.
In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not compensable since
the term "arrest" refers to "political or executive acts" and does not include a loss caused by riot or by ordinary judicial
process as in this case; (b) the deletion of the Free from capture or Seizure Clause would leave the assured covered
solely for the perils specified by the wording of the policy itself; (c) the rationale for the exclusion of an arrest pursuant
to judicial authorities is to eliminate collusion between unscrupulous assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which private respondent may have incurred was in
the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice sale and not by arrest,
detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its honest belief that the arrest
of the vessel was not a compensable risk under the policies issued. In fact, petitioner supported private respondent
by accommodating the latter's request for an extension of the insurance coverage, notwithstanding that it was then
under no legal obligation to do so.
Private respondent, on the other hand, argued that when it appealed its case to the Court of Appeals, petitioner did
not raise as an issue the award of exemplary damages. It cannot now, for the first time, raise the same before this
Court. Likewise, petitioner cannot submit for the first time on appeal its argument that it was wrong for the Court of
Appeals to have ruled the way it did based on facts that would need inquiry into the evidence. Even if inquiry into the
facts were possible, such was not necessary because the coverage as ruled upon by the Court of Appeals is evident
from the very terms of the policies.
It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly interpreted against it
because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be construed
reasonably and in a manner as to make effective the intentions and expectations of the parties. It added that the
policies clearly stipulate that they cover the risks of non-delivery of an entire package and that it was petitioner itself
that invited and granted the extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in relation
to the excluded risks or warranty specifically stated therein.
By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase "perils of
the sea" to encompass the wide and varied range of risks that were covered. 3 The subject policies contain the "Perils"
clause which is a standard form in any marine insurance policy. Said clause reads:

Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and to
take upon them in this voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers,
Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests,
Restraints and Detainments of all Kings, Princess and Peoples, of what Nation, Condition, or
quality soever, Barratry of the Master and Mariners, and of all other Perils, Losses, and
Misfortunes, that have come to hurt, detriment, or damage of the said goods and merchandise or
any part thereof . AND in case of any loss or misfortune it shall be lawful to the ASSURED, their
factors, servants and assigns, to sue, labour, and travel for, in and about the defence, safeguards,
and recovery of the said goods and merchandises, and ship, & c., or any part thereof, without
prejudice to this INSURANCE; to the charges whereof the said COMPANY, will contribute
according to the rate and quantity of the sum herein INSURED. AND it is expressly declared and

agreed that no acts of the Insurer or Insured in recovering, saving, or preserving the Property
insured shall be considered as a Waiver, or Acceptance of Abandonment. And it is agreed by the
said COMPANY, that this writing or Policy of INSURANCE shall be of as much Force and Effect as
the surest Writing or policy of INSURANCE made in LONDON. And so the said MALAYAN
INSURANCE COMPANY., INC., are contented, and do hereby promise and bind themselves, their
Heirs, Executors, Goods and Chattel, to the ASSURED, his or their Executors, Administrators, or
Assigns, for the true Performance of the Premises; confessing themselves paid the Consideration
due unto them for this INSURANCE at and after the rate arranged. (Emphasis supplied)
The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is specifically
referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause which reads, thus:
Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof
or of any attempt thereat; also from the consequences of hostilities and warlike operations, whether
there be a declaration of war or not; but this warranty shall not exclude collision, contact with any
fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless
caused directly (and independently of the nature of the voyage or service which the vessel
concerned or, in the case of a collision, any other vessel involved therein is performing) by a hostile
act by or against a belligerent power and for the purpose of this warranty "power" includes any
authorities maintaining naval, military or air forces in association with power.
Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike
arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form
part of this insurance. (Emphasis supplied)
However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses (Cargo) was
deemed incorporated which, in subsection 1.1 of Section 1, provides:
1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted
free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities
or warlike operations, whether there be a declaration of war or not; but this warranty shall not
exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding,
heavy weather or fire unless caused directly (and independently of the nature on voyage or service
which the vessel concerned or, in the case of a collision any other vessel involved therein is
performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty
"power" includes any authority maintaining naval, military or air forces in association with a power.
Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil
strike arising therefrom, or piracy.
According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War Clauses
(Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to warlike operations if
this Court strictly construes the heading of the said clauses. However, it also claims that the parties intended to
include arrests, etc. even if it were not the result of hostilities or warlike operations. It further claims that on the
strength of jurisprudence on the matter, the term "arrests" would only cover those arising from political or executive
acts, concluding that whether private respondent's claim is anchored on subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial authorities is an excluded risk. 4

This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause, it assumed
the risk of arrest caused solely by executive or political acts of the government of the seizing state and thereby
excludes "arrests" caused by ordinary legal processes, such as in the instant case.
With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court agrees with the
Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemed included
among the covered risks. This interpretation becomes inevitable when subsection 1.1 of Section 1 of the Institute War
Clauses provided that "this insurance covers the risks excluded from the Standard Form of English Marine Policy by
the clause "Warranted free of capture, seizure, arrest, etc. . . ." or the F.C. & S. Clause. Jurisprudentially, "arrests"
caused by ordinary judicial process is also a risk excluded from the Standard Form of English Marine Policy by the
F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the
covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be operative in case of
hostilities or warlike operations on account of its heading "Institute War Clauses." This Court agrees with the Court of
Appeals when it held that ". . . . Although the F.C. & S. Clause may have originally been inserted in marine policies to
protect against risks of war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed.
1975]), its interpretation in recent years to include seizure or detention by civil authorities seems consistent with the
general purposes of the clause, . . . ." 5 In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute War
Clauses included "arrest" even if it were not a result of hostilities or warlike operations. 6 In this regard, since what was also
excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process, logically, such "arrest" would now
become a covered risk under subsection 1.1 of Section 1 of the Institute War Clauses, regardless of whether or not said "arrest" by
civil authorities occurred in a state of war.

Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of subsection 1.1
of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was "originally incorporated in
insurance policies to eliminate the risks of warlike operations". It also averred that the F.C. & S. Clause applies even if
there be no war or warlike operations . . . ." 7 In the same vein, it contended that subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of the F.C. & S. Clause
and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest, etc.
even if were not a result of hostilities or warlike operations. 8

This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of the policy
in order to avoid being liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned by
executive or political acts of government which is interpreted as not referring to those caused by ordinary legal
processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which excludes risks of arrest occasioned
by executive or political acts of the government and naturally, also those caused by ordinary legal processes; and,
thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses which now includes in the coverage
risks of arrest due to executive or political acts of a government but then still excludes "arrests" occasioned by
ordinary legal processes when subsection 1.1 of Section 1 of said Clauses should also have included "arrests"
previously excluded from the coverage of the F.C. & S. Clause.
It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to
render the policy nonsensical, should, by all means, be avoided. 9 Likewise, it must be borne in mind that such contracts are
invariably prepared by the companies and must be accepted by the insured in the form in which they are written. 10 Any construction
of a marine policy rendering it void should be avoided. 11 Such policies will, therefore, be construed strictly against the company in
order to avoid a forfeiture, unless no other result is possible from the language used. 12

If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by
special proviso, exception, or exemption, it should express such limitation in clear and unmistakable
language. 13Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned by ordinary judicial process was expressly

indicated as an exception in the subject policies, there would have been no controversy with respect to the interpretation of the
subject clauses.

Be that as it may, exceptions to the general coverage are construed most strongly against the company. 14 Even an
express exception in a policy is to be construed against the underwriters by whom the policy is framed, and for whose benefit the
exception is introduced. 15

An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into the
contract which is, to insure against risks of loss or damage to the goods. Such interpretation should result from the
natural and reasonable meaning of language in the policy. 16 Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted. 17

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is prepared by the insurer. 18 A 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. 19

In view of the foregoing, this Court sees no need to discuss the other issues presented.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 198174

September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
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.
The facts follow.
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:

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:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSUREDS
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, petitioners denial of respondents 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:
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;
To pay attorneys fees in the sum of P65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon Citys decision. The fallo reads:
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:
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 respondents vehicle is excluded under the insurance
policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
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:
(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:
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
Insureds 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 Insureds service.6
In denying respondents 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 respondents vehicle as a result of it
being stolen by the latters 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:
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.9
Adverse to petitioners 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.
1wphi1

Therefore, petitioner cannot exclude the loss of respondents 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 insureds 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 insureds service, whose clear plan or purpose was to cause damage to the insured
vehicle for purposes of defrauding the insurer, viz.:
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 policys provision detailing the exceptions to the policys 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 policys 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 latters interest. Thus, in Malayan Insurance
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 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:
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.
SO ORDERED.
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 Decision1 and October 22, 1993 Resolution2 of the Court of Appeals3 in CA-G.R. CV NO. 28779, which
modified the Ruling4 of the Regional Trial Court of Pasig, Branch 161, in Civil 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

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
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 ofP50,000.00 and costs of suit.6
Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the fourspan building, which was partly burned, and not the damage caused by the fire on the two-storey annex building.7
On January 4, 1990, the trial court rendered its decision; disposing as follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(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
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
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:
"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

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
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),12 and did not include those 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 fourspan building13 and therefore, the goods and items stored therein were covered by the same fire insurance policy.
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
'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
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 letterreport 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 with the repair of the first right span of the lofty storey building and thence by property fence
wall."16
Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates with the "first
right span of the lofty storey building",17 formed 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 1978,18 petitioner should
have 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 fourspan 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 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 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
Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc. vs. Vda. De
Songco,21 to wit:
"'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
1wphi1

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 those matters actually and directly controverted and determined and not as to matters merely
involved therein."23
Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc. vs. Court of
Appeals,24 held that the issue of negligence of the 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
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.
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
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.
G.R. No. 156167

May 16, 2005

GULF RESORTS, INC., petitioner,

vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

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 decision1 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:

Item

P7,691,000.00 -

on the Clubhouse only

@ .392%;

1,500,000.00 -

on the furniture, etc. contained in the building abovementioned@ .490%;

393,000.00 -

on the two swimming pools, only (against the peril of

earthquake shock only) @ 0.100%

116,600.00

other buildings include as follows:

a) Tilter House

P19,800.00 -

0.551%

b) Power House

P41,000.00 -

0.551%

c) House Shed

P100,000.00 -

P55,000.00 -

0.540%

for furniture, fixtures, lines air-con and operating equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-45680619 (Exh. "H") provided that the policy wording and rates in said policy be copied in the policy to be issued by
defendant; that defendant issued Policy No. 31944 to plaintiff covering the period of March 14, 1990 to
March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the computation of
the premium, defendants Policy No. 31944 (Exh. "I"), which is the policy in question, contained on the righthand upper portion of page 7 thereof, the following:

Rate-Various

Premium

P37,420.60 F/L

2,061.52

Typhoon

1,030.76

EC

393.00

ES

Doc. Stamps

3,068.10

F.S.T.

776.89

Prem. Tax

409.05

TOTAL

45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against
earthquake shock (ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F", "G" and "H"), the
premium against the peril of earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and
"3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E",
"F", "G" and "H") and in Policy No. 31944 issued by defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of the sum included additional
premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy
due to the contrary, that this insurance covers loss or damage to shock to any of the property
insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2D", "3-A", "4-B", "5-A", "6-D" and "7-C");
that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on July 16, 1990 an
earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944
issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged.2
After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No.
31944 for damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the
investigation of the claim to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30, 1990,
respondent, through its adjuster, requested petitioner to submit various documents in support of its claim. On August
7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,4 rendered a preliminary
report5 finding extensive damage caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de
Leon stated that "except for the swimming pools, all affected items have no coverage for earthquake shocks."6 On
August 11, 1990, petitioner filed its formal demand7 for settlement of the damage to all its properties in the Agoo Playa
Resort. On August 23, 1990, respondent denied petitioners claim on the ground that its insurance policy only
afforded earthquake shock coverage to the two swimming pools of the resort.8Petitioner and respondent failed to
arrive at a settlement.9 Thus, on January 24, 1991, petitioner filed a complaint10 with the regional trial court of Pasig
praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest
thereon, as computed under par. 29 of the policy (Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of
defendants refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation;
5.) Costs.11
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.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language
used in an insurance contract or application is such as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the insurance company which prepared the contract. To the mind
of [the] Court, the language used in the policy in litigation is clear and unambiguous hence there is no need
for interpretation or construction but only application of the provisions therein.
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.
Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is
liable only for the damage caused to the two (2) swimming pools and that defendant has made known to

plaintiff its willingness and readiness to settle said liability, there is no basis for the grant of the other
damages prayed for by plaintiff. As to the counterclaims of defendant, the Court does not agree that the
action filed by plaintiff is baseless and highly speculative since such action is a lawful exercise of the
plaintiffs right to come to Court in the honest belief that their Complaint is meritorious. The prayer, therefore,
of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED
EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with
interest at 6% per annum from the date of the filing of the Complaint until defendants obligation to plaintiff is
fully paid.
No pronouncement as to costs.13
Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of Appeals based
on the following assigned errors:14
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR
THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING
ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE
ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER
UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH "I") BY LIMITING ITSELF TO A
CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS
ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE
DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS
OF POLICY.
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:
However, after carefully perusing the documentary evidence of both parties, We are not convinced that the
last two (2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-appellant had with AHAC (AIU) and
upon which the subject insurance contract with Philippine Charter Insurance Corporation is said to have
been based and copied (Exh. "I"), covered an extended earthquake shock insurance on all the insured
properties.
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 toP4,280,000.00.
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.
Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule that the award
thereof is subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not be
disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award
thereof an exception rather than a rule, it is necessary for the court to make findings of facts and law that
would bring the case within the exception and justify the grant of such award (Country Bankers Insurance
Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002).
Therefore, holding that the plaintiff-appellants action is not baseless and highly speculative, We find that the
Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial
Court hereby AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues:16
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS
INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE
PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE
SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR
DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES
OF LITIGATION.
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 letter19 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

ITEM NOS.

AMOUNT

RATES

PREMIUM

393,000.00

0.100%-E/S

393.0022]

xxx

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly
or indirectly of any of the following occurrences, namely:-(a) Earthquake, volcanic eruption or other convulsion of nature. 23
Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils of Explosion,
Aircraft, Vehicle and Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF THE
NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE
ABOVE NAMED x x x AND TO PAY THE PREMIUM.
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
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock
coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each
other.25 All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain
stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily
determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties
to extend earthquake shock coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming pools. 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. Thus, 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 insurer's promise, the insured pays a premium.26 (Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril.27 In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk
attaches.28 In the subject policy, no premium payments were made with regard to earthquake shock coverage, except
on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to
earthquake shock. This is consistent with the history of petitioners previous insurance policies from AHAC-AIU. As
borne out by petitioners witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period
from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming
pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision
here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools
only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26

Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the
procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course subject to your
instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give
written instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to
all properties of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of
extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake
tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions with respect to your
instructions that all properties must be covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit
"G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more
limitation referring to the two swimming pools only, I was contented already that the previous limitation
pertaining to the two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause, Typhoon
Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual
Payment Agreement on Long Term Policies"29 to the insurance policy as proof of the intent of the parties to extend

the coverage for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles of the
riders, clauses, warranties or endorsements to which the policy is subject, as required under Section 50, paragraph 2
of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two
swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan
Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30
TSN, August 11, 1992
pp. 9-12
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.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive
[remained] its coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H
respectively entend the coverage against earthquake shock to all the properties indicated in the respective
schedules attached to said policies, what can you say about that testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I
assure you that this one covers the two swimming pools with respect to earthquake shock
endorsement. Based on it, if we are going to look at the premium there has been no change with
respect to the rates. Everytime (sic) there is a renewal if the intention of the insurer was to include
the earthquake shock, I think there is a substantial increase in the premium. We are not only going
to consider the two (2) swimming pools of the other as stated in the policy. As I see, there is no
increase in the amount of the premium. I must say that the coverage was not broaden (sic) to
include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are going to do some
computation based on the rates you will arrive at the same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
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:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
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.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
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:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
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
A. I based my statement on my findings, because upon my examination of the policy I found out that under
Item 3 it was specific on the wordings that on the two swimming pools only, then enclosed in parenthesis
(against the peril[s] of earthquake shock only), and secondly, when I examined the summary of premium
payment only Item 3 which refers to the swimming pools have a computation for premium payment for
earthquake shock and all the other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that
insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly

against the insurer company which usually prepares it.31 A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his
"adhesion" thereto. Through the years, the courts have held that in these type of contracts, the parties do not bargain
on equal footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus, these
contracts are viewed as traps for the weaker party whom the courts of justice must protect.32Consequently, any
ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.33
The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will
show that they are basically one-sided.34 Thus, we have called on lower courts to remain careful in scrutinizing the
factual circumstances behind each case to determine the efficacy of the claims of contending parties.
In Development Bank of the Philippines v. National Merchandising Corporation, et al.,35 the parties, who were
acute businessmen of experience, were presumed to have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know
the provisions of the policy. From the inception of the policy, petitioner had required the respondent to
copyverbatim the provisions and terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo
Mantohac, a direct participant in securing the insurance policy of petitioner, is reflective of petitioners knowledge,viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36
TSN, September 23, 1991
pp. 20-21
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.
G.R. No. L-2294

May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding
premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000,
covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27,
1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the
respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public auction and,
after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to
pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the
United States declared war against Germany, the respondent Corporation (though organized under and by virtue of
the laws of the Philippines) being controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the
order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering
from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured
merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be
effective because of the outbreak of the war between the United States and Germany on December 10, 1941, and
that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was
under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to
costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with
costs. The case is now before us on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy
when the United States declared war against Germany, relying on English and American cases which held that a
corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected
the theory that nationality of private corporation is determine by the character or citizenship of its controlling
stockholders.
There is no question that majority of the stockholders of the respondent corporation were German subjects. This
being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between
the United States and Germany. The English and American cases relied upon by the Court of Appeals have lost their
force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls
test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International
Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening
passages appear:
Since World War I, the determination of enemy nationality of corporations has been discussion in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations, themselves considered as
enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the
corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after
the First World War.
The United States of America did not adopt the control test during the First World War. Courts refused to
recognized the concept whereby American-registered corporations could be considered as enemies and
thus subject to domestic legislation and administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and other enemy interests were cloaked
by domestic corporation structure. It was not only by legal ownership of shares that a material influence
could be exercised on the management of the corporation but also by long term loans and other factual
situations. For that reason, legislation on enemy property enacted in various countries during World War II
adopted by statutory provisions to the control test and determined, to various degrees, the incidents of
control. Court decisions were rendered on the basis of such newly enacted statutory provisions in
determining enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include
as did other legislations the applications of the control test and again, as in World War I, courts refused to
apply this concept whereby the enemy character of an American or neutral-registered corporation is
determined by the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in
the treatment of foreign-owned property in the United States allowed to large degree the determination of
enemy interest in domestic corporations and thus the application of the control test. Court decisions
sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more recently,
on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory. In
Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by
German interest, the Court: "The property of all foreign interest was placed within the reach of the vesting
power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy
interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was
extended to all property of any foreign country or national so that no innocent appearing device could
become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision.
However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held
that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy
Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it
was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy
may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes
a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a
state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or
trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or
goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or
by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the
subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce
or property of belligerent, alien subjects, or to do anything detrimental too their country's interest. The
purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that
one country should destroy its enemy's property and repay in insurance the value of what has been so
destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the
commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior
thereto may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to
each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term
it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual
rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor
on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the
insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any
indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific
provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy
from December 11, 1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in
question became null and void upon the declaration of war between the United States and Germany on December
10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did
not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the
respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of
fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its
lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of
Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually,
there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the
respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the
following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated
February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of
the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay the
claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of
crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case.
However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid
on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the
petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that
should be returned by the petitioner for the unexpired term of the policy in question, beginning December 11, 1941.
Without costs. So ordered.