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G.R. No.

L-15774
November 29, 1920

upon a policy to be issued upon the application, if the


application is accepted by the company.

PILAR
C.
DE
LIM, plaintiff-appellant, vs. SUN
LIFE
ASSURANCE COMPANY OF CANADA, defendant-appellee.

It is of course a primary rule that a contract of insurance, like


other contracts, must be assented to by both parties either in
person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is
merely an offer or proposal to make a contract. The contract,
to be binding from the date of the application, must have been
a completed contract, one that leaves nothing to be done,
nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met
in agreement. Our view is, that a contract of insurance was not
here consummated by the parties.

MALCOLM, J.:
This is an appeal by plaintiff from an order of the Court of First
Instance of Zamboanga sustaining a demurrer to plaintiff's
complaint upon the ground that it fails to state a cause of
action.
As the demurrer had the effect of admitting the material facts
set forth in the complaint, the facts are those alleged by the
plaintiff. On July 6, 1917, Luis Lim y Garcia of Zamboanga
made application to the Sun Life Assurance Company of
Canada for a policy of insurance on his life in the sum of
P5,000. In his application Lim designated his wife, Pilar C. de
Lim, the plaintiff herein, as the beneficiary. The first premium
of P433 was paid by Lim, and upon such payment the
company issued what was called a "provisional policy." Luis
Lim y Garcia died on August 23, 1917, after the issuance of the
provisional policy but before approval of the application by the
home office of the insurance company. The instant action is
brought by the beneficiary, Pilar C. de Lim, to recover from the
Sun Life Assurance Company of Canada the sum of P5,000, the
amount named in the provisional policy.
The "provisional policy" upon which this action rests reads as
follows:
Received (subject to the following stipulations and
agreements) the sum of four hundred and thirtythree pesos, being the amount of the first year's
premium for a Life Assurance Policy on the life of Mr.
Luis D. Lim y Garcia of Zamboanga for P5,000, for
which an application dated the 6th day of July, 1917,
has been made to the Sun Life Assurance Company
of Canada.
The above-mentioned life is to be assured in
accordance with the terms and conditions contained
or inserted by the Company in the policy which may
be granted by it in this particular case for four
months only from the date of the application,
provided that the Company shall confirm this
agreement by issuing a policy on said application
when the same shall be submitted to the Head Office
in Montreal. Should the Company not issue such a
policy, then this agreement shall be null and void ab
initio, and the Company shall be held not to have
been on the risk at all, but in such case the amount
herein acknowledged shall be returned.
[SEAL.]
(Sgd.) T. B. MACAULAY, President.
(Sgd.) A. F. Peters, Agent.
Our duty in this case is to ascertain the correct meaning of the
document above quoted. A perusal of the same many times by
the writer and by other members of the court leaves a decided
impression of vagueness in the mind. Apparently it is to be a
provisional policy "for four months only from the date of this
application." We use the term "apparently" advisedly, because
immediately following the words fixing the four months period
comes the word "provided" which has the meaning of "if."
Otherwise stated, the policy for four months is expressly made
subjected to the affirmative condition that "the company shall
confirm this agreement by issuing a policy on said application
when the same shall be submitted to the head office in
Montreal." To reenforce the same there follows the negative
condition
Should the company not issue such a policy, then this
agreement shall be null and void ab initio, and the company
shall be held not to have been on the risk." Certainly, language
could hardly be used which would more clearly stipulate that
the agreement should not go into effect until the home office
of the company should confirm it by issuing a policy. As we
read and understand the so-called provisional policy it
amounts to nothing but an acknowledgment on behalf of the
company, that it has received from the person named therein
the sum of money agreed upon as the first year's premium

Appellant relies on Joyce on Insurance. Beginning at page 253,


of Volume I, Joyce states the general rule concerning the
agent's receipt pending approval or issuance of policy. The first
rule which Joyce lays down is this: If the act of acceptance of
the risk by the agent and the giving by him of a receipt, is
within the scope of the agent's authority, and nothing remains
but to issue a policy, then the receipt will bind the company.
This rule does not apply, for while here nothing remained but
to issue the policy, this was made an express condition to the
contract. The second rule laid down by Joyce is this: Where an
agreement is made between the applicant and the agent
whether by signing an application containing such condition, or
otherwise, that no liability shall attach until the principal
approves the risk and a receipt is given buy the agent, such
acceptance is merely conditional, and it subordinated to the
act of the company in approving or rejecting; so in life
insurance a "binding slip" or "binding receipt" does not insure
of itself. This is the rule which we believe applies to the instant
case. The third rule announced by Joyce is this: Where the
acceptance by the agent is within the scope of his authority a
receipt containing a contract for insurance for a specific time
which is not absolute but conditional, upon acceptance or
rejection by the principal, covers the specified period unless
the risk is declined within that period. The case cited by Joyce
to substantiate the last principle is that a Goodfellow vs. Times
& Beacon Assurance Com. (17 U. C. Q. B., 411), not available.
The two cases most nearly in point come from the federal
courts and the Supreme Court of Arkansas.
In the case of Steinle vs. New York Life Insurance Co. ([1897],
81 Fed., 489} the facts were that the amount of the first
premium had been paid to an insurance agent and a receipt
given therefor. The receipt, however, expressly declared that if
the application was accepted by the company, the insurance
shall take effect from the date of the application but that if the
application was not accepted, the money shall be returned.
The trite decision of the circuit court of appeal was, "On the
conceded facts of this case, there was no contract to life
insurance perfected and the judgment of the circuit court must
be affirmed."
In the case of Cooksey vs. Mutual Life Insurance Co. ([1904],
73 Ark., 117) the person applying for the life insurance paid
and amount equal to the first premium, but the application and
the receipt for the money paid, stipulated that the insurance
was to become effective only when the application was
approved and the policy issued. The court held that the
transaction did not amount to an agreement for preliminary or
temporary insurance. It was said:
It is not an unfamiliar custom among life insurance companies
in the operation of the business, upon receipt of an application
for insurance, to enter into a contract with the applicant in the
shape of a so-called "binding receipt" for temporary insurance
pending the consideration of the application, to last until the
policy be issued or the application rejected, and such contracts
are upheld and enforced when the applicant dies before the
issuance of a policy or final rejection of the application. It is
held, too, that such contracts may rest in parol. Counsel for
appellant insists that such a preliminary contract for temporary
insurance was entered into in this instance, but we do not
think so. On the contrary, the clause in the application and the
receipt given by the solicitor, which are to be read together,
stipulate expressly that the insurance shall become effective
only when the "application shall be approved and the policy

duly signed by the secretary at the head office of the company


and issued." It constituted no agreement at all for preliminary
or temporary insurance; Mohrstadt vs. Mutual Life Ins. Co., 115
Fed., 81, 52 C. C. A., 675; Steinle vs. New York Life Ins. Co., 81
Fed., 489, 26 C. C. A., 491." (See further Weinfeld vs. Mutual
Reserve Fund Life Ass'n. [1892], 53 Fed, 208' Mohrstadt vs.
Mutual Life Insurance Co. [1902], 115 Fed., 81; Insurance co.
vs. Young's Administrator [1875], 90 U. S., 85; Chamberlain vs.
Prudential Insurance Company of America [1901], 109 Wis., 4;
Shawnee Mut. Fire Ins. Co. vs. McClure [1913], 39 Okla., 509;
Dorman vs. Connecticut Fire Ins. Co. [1914], 51 contra, Starr
vs. Mutual Life Ins. Co. [1905], 41 Wash., 228.)
We are of the opinion that the trial court committed no error in
sustaining the demurrer and dismissing the case. It is to be
noted, however, that counsel for appellee admits the liability
of the company for the return of the first premium to the
estate of the deceased. It is not to be doubted but that the Sun
Life Assurance Company of Canada will immediately, on the
promulgation of this decision, pay to the estate of the late Luis
Lim y Garcia the of P433.
The order appealed from, in the nature of a final judgment is
affirmed, without special finding as to costs in this instance. So
ordered.

G.R. No. L-15895


November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the
late Joaquin Ma. Herrer, plaintiff-appellant, vs. SUN LIFE
ASSURANCE COMPANY OF CANADA, defendant-appellee.
MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of
the estate of the late Joaquin Ma. Herrer to recover from the
defendant life insurance company the sum of pesos 6,000 paid
by the deceased for a life annuity. The trial court gave
judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917,
Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life
annuity. Two days later he paid the sum of P6,000 to the
manager of the company's Manila office and was given a
receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.

The chief clerk of the Manila office of the Sun Life Assurance
Company of Canada at the time of the trial testified that he
prepared the letter introduced in evidence as Exhibit 3, of date
November 26, 1917, and handed it to the local manager, Mr. E.
E. White, for signature. The witness admitted on crossexamination that after preparing the letter and giving it to he
manager, he new nothing of what became of it. The local
manager, Mr. White, testified to having received the cablegram
accepting the application of Mr. Herrer from the home office on
November 26, 1917. He said that on the same day he signed a
letter notifying Mr. Herrer of this acceptance. The witness
further said that letters, after being signed, were sent to the
chief clerk and placed on the mailing desk for transmission.
The witness could not tell if the letter had every actually been
placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the
defense, attorney Manuel Torres testified to having prepared
the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer
mentioned his application for a life annuity, and that he said
that the only document relating to the transaction in his
possession was the provisional receipt. Rafael Enriquez, the
administrator of the estate, testified that he had gone through
the effects of the deceased and had found no letter of
notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that
the letter of November 26, 1917, notifying Mr. Herrer that his
application had been accepted, was prepared and signed in
the local office of the insurance company, was placed in the
ordinary channels for transmission, but as far as we know, was
never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes
necessary to determine the law which should be applied to the
facts. In order to reach our legal goal, the obvious signposts
along the way must be noticed.
Until quite recently, all of the provisions concerning life
insurance in the Philippines were found in the Code of
Commerce and the Civil Code. In the Code of the Commerce,
there formerly existed Title VIII of Book III and Section III of
Title III of Book III, which dealt with insurance contracts. In the
Civil Code there formerly existed and presumably still exist,
Chapters II and IV, entitled insurance contracts and life
annuities, respectively, of Title XII of Book IV. On the after July
1, 1915, there was, however, in force the Insurance Act. No.
2427. Chapter IV of this Act concerns life and health insurance.
The Act expressly repealed Title VIII of Book II and Section III of
Title III of Book III of the code of Commerce. The law of
insurance is consequently now found in the Insurance Act and
the Civil Code.

PROVISIONAL RECEIPT Pesos 6,000


Recibi la suma de seis mil pesos de Don Joaquin
Herrer de Manila como prima dela Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta
al examen medico y aprobacion de la Oficina
Central de la Compaia.
The application was immediately forwarded to the head office
of the company at Montreal, Canada. On November 26, 1917,
the head office gave notice of acceptance by cable to Manila.
(Whether on the same day the cable was received notice was
sent by the Manila office of Herrer that the application had
been accepted, is a disputed point, which will be discussed
later.) On December 4, 1917, the policy was issued at
Montreal. On December 18, 1917, attorney Aurelio A. Torres
wrote to the Manila office of the company stating that Herrer
desired to withdraw his application. The following day the local
office replied to Mr. Torres, stating that the policy had been
issued, and called attention to the notification of November 26,
1917. This letter was received by Mr. Torres on the morning of
December 21, 1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is
whether Herrer received notice of acceptance of his
application. To resolve this question, we propose to go directly
to the evidence of record.

While, as just noticed, the Insurance Act deals with life


insurance, it is silent as to the methods to be followed in order
that there may be a contract of insurance. On the other hand,
the Civil Code, in article 1802, not only describes a contact of
life annuity markedly similar to the one we are considering, but
in two other articles, gives strong clues as to the proper
disposition of the case. For instance, article 16 of the Civil
Code provides that "In matters which are governed by special
laws, any deficiency of the latter shall be supplied by the
provisions of this Code." On the supposition, therefore, which is
incontestable, that the special law on the subject of insurance
is deficient in enunciating the principles governing acceptance,
the subject-matter of the Civil code, if there be any, would be
controlling. In the Civil Code is found article 1262 providing
that "Consent is shown by the concurrence of offer and
acceptance with respect to the thing and the consideration
which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from
the time it came to his knowledge. The contract, in such case,
is presumed to have been entered into at the place where the
offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive
steps by which we reach a conclusion, then the only duty
remaining is for the court to apply the law as it is found. The
legislature in its wisdom having enacted a new law on
insurance, and expressly repealed the provisions in the Code

of Commerce on the same subject, and having thus left a void


in the commercial law, it would seem logical to make use of
the only pertinent provision of law found in the Civil code,
closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall
bind the person making the offer only from the date it came to
his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its
enforcement avoids uncertainty and tends to security. Not only
this, but in order that the principle may not be taken too
lightly, let it be noticed that it is identical with the principles
announced by a considerable number of respectable courts in
the United States. The courts who take this view have
expressly held that an acceptance of an offer of insurance not
actually or constructively communicated to the proposer does
not make a contract. Only the mailing of acceptance, it has
been said, completes the contract of insurance, as the locus
poenitentiae is ended when the acceptance has passed
beyond the control of the party. (I Joyce, The Law of Insurance,
pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to
be the second paragraph of article 1262 of the Civil Code
providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his
knowledge. The pertinent fact is, that according to the
provisional receipt, three things had to be accomplished by the
insurance company before there was a contract: (1) There had
to be a medical examination of the applicant; (2) there had to
be approval of the application by the head office of the
company; and (3) this approval had in some way to be
communicated by the company to the applicant. The further
admitted facts are that the head office in Montreal did accept
the application, did cable the Manila office to that effect, did
actually issue the policy and did, through its agent in Manila,
actually write the letter of notification and place it in the usual
channels for transmission to the addressee. The fact as to the
letter of notification thus fails to concur with the essential
elements of the general rule pertaining to the mailing and
delivery of mail matter as announced by the American courts,
namely, when a letter or other mail matter is addressed and
mailed with postage prepaid there is a rebuttable presumption
of fact that it was received by the addressee as soon as it
could have been transmitted to him in the ordinary course of
the mails. But if any one of these elemental facts fails to
appear, it is fatal to the presumption. For instance, a letter will
not be presumed to have been received by the addressee
unless it is shown that it was deposited in the post-office,
properly addressed and stamped. (See 22 C.J., 96, and 49 L. R.
A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar
was not perfected because it has not been proved
satisfactorily that the acceptance of the application ever came
to the knowledge of the applicant.
Judgment is reversed, and the plaintiff shall have and recover
from the defendant the sum of P6,000 with legal interest from
November 20, 1918, until paid, without special finding as to
costs in either instance. So ordered.

G.R. No. 112329


January 28, 2000

VIRGINIA A. PEREZ, petitioner, vs. COURT OF APPEALS


and
BF
LIFEMAN
INSURANCE
CORPORATION, respondents.

YNARES-SANTIAGO, J.:
A contract of insurance, like all other contracts, must be
assented to by both parties, either in person or through their
agents and so long as an application for insurance has not
been either accepted or rejected, it is merely a proposal or an
offer to make a contract.

Petitioner Virginia A. Perez assails the decision of respondent


Court of Appeals dated July 9, 1993 in CA-G.R. CV 35529
entitled, "BF Lifeman Insurance Corporations, PlaintiffAppellant versus Virginia A. Perez, Defendant-Appellee," which
declared Insurance Policy 056300 for P50,000.00 issued by
private respondent corporation in favor of the deceased
Primitivo B. Perez, null and void and rescinded, thereby
reversing the decision rendered by the Regional Trial Court of
Manila, Branch XVI.

The facts of the case as summarized by respondent Court of


Appeals are not in dispute.

Primitivo B. Perez had been insured with the BF Lifeman


Insurance Corporation since 1980 for P20,000.00. Sometime in
October 1987, an agent of the insurance corporation, Rodolfo
Lalog, visited Perez in Guinayangan, Quezon and convinced
him to apply for additional insurance coverage of P50,000.00,
to avail of the ongoing promotional discount of P400.00 if the
premium were paid annually.

On October 20, 1987, Primitivo B. Perez accomplished an


application form for the additional insurance coverage
of P50,000.00. On the same day, petitioner Virginia A. Perez,
Primitivos wife, paid P2,075.00 to Lalog. The receipt issued by
Lalog
indicated
the
amount
received
was
a
"deposit."[1] Unfortunately, Lalog lost the application form
accomplished by Perez and so on October 28, 1987, he asked
the latter to fill up another application form. [2] On November 1,
1987, Perez was made to undergo the required medical
examination, which he passed.[3]

Pursuant to the established procedure of the company, Lalog


forwarded the application for additional insurance of Perez,
together with all its supporting papers, to the office of BF
Lifeman Insurance Corporation at Gumaca, Quezon which
office was supposed to forward the papers to the Manila office.

On November 25, 1987, Perez died in an accident. He was


riding in a banca which capsized during a storm. At the time of
his death, his application papers for the additional insurance
of P50,000.00 were still with the Gumaca office. Lalog testified
that when he went to follow up the papers, he found them still
in the Gumaca office and so he personally brought the papers
to the Manila office of BF Lifeman Insurance Corporation. It
was only on November 27, 1987 that said papers were
received in Manila.

Without knowing that Perez died on November 25, 1987, BF


Lifeman Insurance Corporation approved the application and
issued the corresponding policy for the P50,000.00 on
December 2, 1987.[4] Ncm
Petitioner Virginia Perez went to Manila to claim the benefits
under the insurance policies of the deceased. She was
paid P40,000.00 under the first insurance policy for P20,000.00
(double indemnity in case of accident) but the insurance
company refused to pay the claim under the additional policy
coverage of P50,000.00, the proceeds of which amount
to P150,000.00 in view of a triple indemnity rider on the
insurance policy. In its letter of January 29, 1988 to Virginia A.
Perez, the insurance company maintained that the insurance
for P50,000.00 had not been perfected at the time of the death
of Primitivo Perez. Consequently, the insurance company
refunded the amount of P2,075.00 which Virginia Perez had
paid.

On September 21, 1990, private respondent BF Lifeman


Insurance Corporation filed a complaint against Virginia A.
Perez seeking the rescission and declaration of nullity of the
insurance contract in question.

The Court of Appeals, however, reversed the decision of the


trial court saying that the insurance contract for P50,000.00
could not have been perfected since at the time that the policy
was issued, Primitivo was already dead. [6] Citing the provision
in the application form signed by Primitivo which states
that: Ncmmis
"x x x there shall be no contract of insurance unless and
until a policy is issued on this application and that the
policy shall not take effect until the first premium has been
paid and the policy has been delivered to and accepted by
me/us in person while I/we, am/are in good health"
the Court of Appeals held that the contract of insurance had to
be assented to by both parties and so long as the application
for insurance has not been either accepted or rejected, it is
merely an offer or proposal to make a contract.

Petitioners motion for reconsideration having been denied by


respondent court, the instant petition for certiorari was filed on
the ground that there was a consummated contract of
insurance between the deceased and BF Lifeman Insurance
Corporation and that the condition that the policy issued by
the corporation be delivered and received by the applicant in
good health, is potestative, being dependent upon the will of
the insurance company, and is therefore null and void.

Petitioner Virginia A. Perez, on the other hand, averred that the


deceased had fulfilled all his prestations under the contract
and all the elements of a valid contract are present. She then
filed a counterclaim against private respondent for the
collection of P150,000.00 as actual damages, P100,000.00 as
exemplary
damages, P30,000.00
as
attorneys
fees
and P10,000.00 as expenses for litigation.

The petition is bereft of merit.

On October 25, 1991, the trial court rendered a decision in


favor of petitioner, the dispositive portion of which reads as
follows:

Insurance is a contract whereby, for a stipulated consideration,


one party undertakes to compensate the other for loss on a
specified subject by specified perils. [7] A contract, on the other
hand, is a meeting of the minds between two persons whereby
one binds himself, with respect to the other to give something
or to render some service.[8] Under Article 1318 of the Civil
Code, there is no contract unless the following requisites
concur:

WHEREFORE PREMISES CONSIDERED, judgment is hereby


rendered in favor of defendant Virginia A. Perez, ordering
the plaintiff BF Lifeman Insurance Corporation to pay to
her the face value of BF Lifeman Insurance Policy No.
056300, plus double indemnity under the SARDI or in the
total amount of P150,000.00 (any refund made and/or
premium deficiency to be deducted therefrom).

(1).......Consent of the contracting parties;


(2).......Object certain which is the subject matter of the
contract;
(3).......Cause of the obligation which is established.

SO ORDERED.[5]

The trial court, in ruling for petitioner, held that the premium
for the additional insurance of P50,000.00 had been fully paid
and even if the sum of P2,075.00 were to be considered
merely as partial payment, the same does not affect the
validity of the policy. The trial court further stated that the
deceased had fully complied with the requirements of the
insurance company. He paid, signed the application form and
passed the medical examination. He should not be made to
suffer the subsequent delay in the transmittal of his
application form to private respondents head office since these
were no longer within his control.

Consent must be manifested by the meeting of the offer and


the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute.
When
Primitivo
filed
an
application
for
insurance,
paid P2,075.00 and submitted the results of his medical
examination, his application was subject to the acceptance of
private respondent BF Lifeman Insurance Corporation.

The perfection of the contract of insurance between the


deceased and respondent corporation was further conditioned
upon compliance with the following requisites stated in the
application form:

"there shall be no contract of insurance unless and until a


policy is issued on this application and that the said policy
shall not take effect until the premium has been paid and
the policy delivered to and accepted by me/us in person
while I/We, am/are in good health." [9]

The assent of private respondent BF Lifeman Insurance


Corporation therefore was not given when it merely received
the application form and all the requisite supporting papers of
the applicant. Its assent was given when it issues a
corresponding
policy
to
the
applicant.
Under
the
abovementioned provision, it is only when the applicant pays
the premium and receives and accepts the policy while he is in
good health that the contract of insurance is deemed to have
been perfected.

It is not disputed, however, that when Primitivo died on


November 25, 1987, his application papers for additional
insurance coverage were still with the branch office of
respondent corporation in Gumaca and it was only two days
later, or on November 27, 1987, when Lalog personally
delivered the application papers to the head office in Manila.
Consequently, there was absolutely no way the acceptance of
the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at
the time was already dead. In the case of Enriquez vs. Sun Life
Assurance Co. of Canada, [10]recovery on the life insurance of
the deceased was disallowed on the ground that the contract
for annuity was not perfected since it had not been proved
satisfactorily that the acceptance of the application ever
reached the knowledge of the applicant.

Petitioner insists that the condition imposed by respondent


corporation that a policy must have been delivered to and
accepted by the proposed insured in good health is potestative
being dependent upon the will of the corporation and is
therefore null and void.
We do not agree.

A potestative condition depends upon the exclusive will of one


of the parties. For this reason, it is considered void. Article
1182 of the New Civil Code states: When the fulfillment of the
condition depends upon the sole will of the debtor, the
conditional obligation shall be void.

In the case at bar, the following conditions were imposed by


the respondent company for the perfection of the contract of
insurance:
(a).......a policy must have been issued;
(b).......the premiums paid; and
(c).......the policy must have been delivered to
accepted by the applicant while he is in good health.

The condition imposed by the corporation that the policy must


have been delivered to and accepted by the applicant while he
is in good health can hardly be considered as a potestative or
facultative condition. On the contrary, the health of the
applicant at the time of the delivery of the policy is beyond the
control or will of the insurance company. Rather, the condition
is a suspensive one whereby the acquisition of rights depends
upon the happening of an event which constitutes the
condition. In this case, the suspensive condition was the policy
must have been delivered and accepted by the applicant while
he is in good health. There was non-fulfillment of the condition,
however, inasmuch as the applicant was already dead at the
time the policy was issued. Hence, the non-fulfillment of the
condition resulted in the non-perfection of the contract.

As stated above, a contract of insurance, like other contracts,


must be assented to by both parties either in person or by
their agents. So long as an application for insurance has not
been either accepted or rejected, it is merely an offer or
proposal to make a contract. The contract, to be binding from
the date of application, must have been a completed contract,
one that leaves nothing to be done, nothing to be completed,
nothing to be passed upon, or determined, before it shall take
effect. There can be no contract of insurance unless the minds
of the parties have met in agreement. [11]

Prescinding from the foregoing, respondent corporation cannot


be held liable for gross negligence. It should be noted that an
application is a mere offer which requires the overt act of the
insurer for it to ripen into a contract. Delay in acting on the
application does not constitute acceptance even though the
insured has forwarded his first premium with his application.
The corporation may not be penalized for the delay in the
processing of the application papers. Moreover, while it may
have taken some time for the application papers to reach the
main office, in the case at bar, the same was acted upon less
than a week after it was received. The processing of
applications by respondent corporation normally takes two to
three weeks, the longest being a month. [12] In this case,
however, the requisite medical examination was undergone by
the deceased on November 1, 1987; the application papers
were forwarded to the head office on November 27, 1987; and
the policy was issued on December 2, 1987. Under these
circumstances, we hold that the delay could not be deemed
unreasonable so as to constitute gross negligence.

A final note. It has not escaped our notice that the Court of
Appeals declared Insurance Policy 056300 for P50,000.00 null
and void and rescinded. The Court of Appeals corrected this in
its Resolution of the motion for reconsideration filed by
petitioner, thus:
"Anent the appearance of the word rescinded in the
dispositive portion of the decision, to which defendantappellee attaches undue significance and makes capital
of, it is clear that the use of the words and rescinded is, as
it is hereby declared, a superfluity. It is apparent from the
context of the decision that the insurance policy in
question was found null and void, and did not have to be
rescinded."[13]

and

True, rescission presupposes the existence of a valid contract.


A contract which is null and void is no contract at all and hence
could not be the subject of rescission.

was not eligible for MRI coverage, being over the acceptance
age limit of 60 years at the time of application.
WHEREFORE, the decision rendered by the Court of Appeals
in CA-G.R. CV No. 35529 is AFFIRMED insofar as it declared
Insurance Policy No. 056300 for P50,000.00 issued by BF
Lifeman Insurance Corporation of no force and effect and
hence null and void. No costs.

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.

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.

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
modification.

decision

of

the

Court

of

Appeals

with

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

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 Cross-claim of Defendant DBP is
likewise dismissed (Rollo, p. 79)

The DBP appealed to the Court of Appeals. In a decision dated


September 7, 1992, the appellate court affirmedin toto the
decision of the trial court. The DBP's motion for
reconsideration was denied in a resolution dated April 20,
1993.

Hence, this recourse.

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").

II

When Dans applied for MRI, he filled up and personally signed


a "Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the
following declaration:
I hereby declare and agree that all the statements and
answers contained herein are true, complete and correct
to the best of my knowledge and belief and form part of
my application for insurance. It is understood and agreed
that no insurance coverage shall be effected unless and
until this application is approved and the full premium is
paid during my continued good health (Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall


take effect: (1) when the application shall be approved by the
insurance pool; and (2) when the full premium is paid during
the continued good health of the applicant. These two
conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged
with the DBP MRI Pool. The pool, however, did not approve the
application of Dans. There is also no showing that it accepted
the sum of P1,476.00, which DBP credited to its account with
full knowledge that it was payment for Dan's premium. There
was, as a result, no perfected contract of insurance; hence, the
DBP MRI Pool cannot be held liable on a contract that does not
exist.

The liability of DBP is another matter.

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

Under Article 1987 of the Civil Code of the Philippines, "the


agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers."

The DBP is not authorized to accept applications for MRI when


its clients are more than 60 years of age (Exh. "1-Pool").
Knowing all the while that Dans was ineligible for MRI coverage
because of his advanced age, DBP exceeded the scope of its
authority when it accepted Dan's application for MRI by
collecting the insurance premium, and deducting its agent's
commission and service fee.

The liability of an agent who exceeds the scope of his authority


depends upon whether the third person is aware of the limits
of the agent's powers. There is no showing that Dans knew of
the limitation on DBP's authority to solicit applications for MRI.

If the third person dealing with an agent is unaware of the


limits of the authority conferred by the principal on the agent
and he (third person) has been deceived by the 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.

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.

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.

G.R. No. 85296


May 14, 1990

The DBP's liability, however, cannot be for the entire value of


the insurance policy. To assume that were it not for DBP's
concealment of the limits of its authority, Dans would have
secured an MRI from another insurance company, and
therefore would have been fully insured by the time he died, is
highly speculative. Considering his advanced age, there is no
absolute certainty that Dans could obtain an insurance
coverage from another company. It must also be noted that
Dans died almost immediately, i.e., on the nineteenth day
after applying for the MRI, and on the twenty-third day from
the date of release of his loan.

One is entitled to an adequate compensation only for such


pecuniary loss suffered by him as he has duly proved (Civil
Code of the Philippines, Art. 2199). Damages, to be
recoverable, must not only be capable of proof, but must be
actually proved with a reasonable degree of certainty
(Refractories Corporation v. Intermediate Appellate Court, 176
SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34
Phil. 447 [1916]). Speculative damages are too remote to be
included in an accurate estimate of damages (Sun Life
Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).

While Dans is not entitled to compensatory damages, he is


entitled to moral damages. No proof of pecuniary loss is
required in the assessment of said kind of damages (Civil Code
of Philippines, Art. 2216). The same may be recovered in acts
referred to in Article 2219 of the Civil Code.

The assessment of moral damages is left to the discretion of


the court according to the circumstances of each case (Civil
Code of the Philippines, Art. 2216). Considering that DBP had
offered to pay P30,000.00 to respondent Estate in ex
gratia settlement of its claim and that DBP's non-disclosure of
the limits of its authority amounted to a deception to its client,
an award of moral damages in the amount of P50,000.00
would be reasonable.

ZENITH INSURANCE CORPORATION, petitioner, vs. COURT


OF APPEALS and LAWRENCE FERNANDEZ, respondents.

MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals
in CA-G.R. C.V. No. 13498 entitled, "Lawrence L. Fernandez,
plaintiff-appellee v. Zenith Insurance Corp., defendantappellant" which affirmed in toto the decision of the Regional
Trial Court of Cebu, Branch XX in Civil Case No. CEB-1215 and
the denial of petitioner's Motion for Reconsideration.

The antecedent facts are as follows:


On January 25, 1983, private respondent Lawrence Fernandez
insured his car for "own damage" under private car Policy No.
50459 with petitioner Zenith Insurance Corporation. On July 6,
1983, the car figured in an accident and suffered actual
damages in the amount of P3,640.00. After allegedly being
given a run around by Zenith for two (2) months, Fernandez
filed a complaint with the Regional Trial Court of Cebu for sum
of money and damages resulting from the refusal of Zenith to
pay the amount claimed. The complaint was docketed as Civil
Case No. CEB-1215. Aside from actual damages and interests,
Fernandez also prayed for moral damages in the amount of
P10,000.00, exemplary damages of P5,000.00, attorney's fees
of P3,000.00 and litigation expenses of P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it


offered to pay the claim of Fernandez pursuant to the terms
and conditions of the contract which, the private respondent
rejected. After the issues had been joined, the pre-trial was
scheduled on October 17, 1983 but the same was moved to
November 4, 1983 upon petitioner's motion, allegedly to
explore ways to settle the case although at an amount lower
than private respondent's claim. On November 14, 1983, the
trial court terminated the pre-trial. Subsequently, Fernandez
presented his evidence. Petitioner Zenith, however, failed to
present its evidence in view of its failure to appear in court,

without justifiable reason, on the day scheduled for the


purpose. The trial court issued an order on August 23, 1984
submitting the case for decision without Zenith's evidence (pp.
10-11, Rollo). Petitioner filed a petition for certiorari with the
Court of Appeals assailing the order of the trial court
submitting the case for decision without petitioner's evidence.
The petition was docketed as C.A.-G.R. No. 04644. However,
the petition was denied due course on April 29, 1986 (p.
56, Rollo).

On June 4, 1986, a decision was rendered by the trial court in


favor of private respondent Fernandez. The dispositive portion
of the trial court's decision provides:
WHEREFORE, defendant is hereby ordered to pay to the
plaintiff:
1. The amount of P3,640.00 representing the damage incurred
plus interest at the rate of twice the prevailing interest rates;

The Motion for Reconsideration of the decision of the Court of


Appeals dated August 17, 1988 was denied on September 29,
1988, for lack of merit. Hence, the instant petition was filed by
Zenith on October 18, 1988 on the allegation that respondent
Court of Appeals' decision and resolution ran counter to
applicable decisions of this Court and that they were rendered
without or in excess of jurisdiction. The issues raised by
petitioners in this petition are:
a) The legal basis of respondent Court of Appeals in
awarding moral damages, exemplary damages and
attomey's fees in an amount more than that prayed for in
the complaint.
b) The award of actual damages of P3,460.00 instead of
only P1,927.50 which was arrived at after deducting
P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of
insurance.

2. The amount of P20,000.00 by way of moral damages;


3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and

Petitioner contends that while the complaint of private


respondent prayed for P10,000.00 moral damages, the lower
court awarded twice the amount, or P20,000.00 without factual
or legal basis; while private respondent prayed for P5,000.00
exemplary damages, the trial court awarded P20,000.00; and
while private respondent prayed for P3,000.00 attorney's fees,
the trial court awarded P5,000.00.

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the


period to appeal, the trial court, on June 20, 1986, ordered the
execution of the decision pending appeal. The order was
assailed by petitioner in a petition forcertiorari with the Court
of Appeals on October 23, 1986 in C.A. G.R. No. 10420 but
which petition was also dismissed on December 24, 1986 (p.
69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the


trial court. The notice of appeal was granted in the same order
granting private respondent's motion for execution pending
appeal. The appeal to respondent court assigned the following
errors:
I. The lower court erred in denying defendant appellant to
adduce evidence in its behalf.
II. The lower court erred in ordering Zenith Insurance
Corporation to pay the amount of P3,640.00 in its decision.
III. The lower court erred in awarding moral damages,
attorneys fees and exemplary damages, the worst is that, the
court awarded damages more than what are prayed for in the
complaint. (p. 12,Rollo)

On August 17, 1988, the Court of Appeals rendered its decision


affirming in toto the decision of the trial court. It also ruled that
the matter of the trial court's denial of Fernandez's right to
adduce evidence is a closed matter in view of its (CA) ruling in
AC-G.R. 04644 wherein Zenith's petition questioning the trial
court's order submitting the case for decision without Zenith's
evidence, was dismissed.

The propriety of the award of moral damages, exemplary


damages and attorney's fees is the main issue raised herein by
petitioner.

The award of damages in case of unreasonable delay in the


payment of insurance claims is governed by the Philippine
Insurance Code, which provides:
Sec. 244. In case of any litigation for the enforcement of any
policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a
finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to
pay damages which shall consist of attomey's fees and other
expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of
twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following
the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the
claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be
considered prima facie evidence of unreasonable delay in
payment.

It is clear that under the Insurance Code, in case of


unreasonable delay in the payment of the proceeds of an
insurance policy, the damages that may be awarded are: 1)
attorney's fees; 2) other expenses incurred by the insured
person by reason of such unreasonable denial or withholding
of payment; 3) interest at twice the ceiling prescribed by the

Monetary Board of the amount of the claim due the injured;


and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the


rules under the Civil Code of the Philippines shall govern.

"The purpose of moral damages is essentially indemnity or


reparation, not punishment or correction. Moral damages are
emphatically not intended to enrich a complainant at the
expense of a defendant, they are awarded only to enable the
injured party to obtain means, diversions or amusements that
will serve to alleviate the moral suffering he has undergone by
reason of the defendant's culpable action." (J. Cezar S. Sangco,
Philippine Law on Torts and Damages, Revised Edition, p. 539)
(See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No.
64515, June 22, 1984; 129 SCRA 745). While it is true that no
proof of pecuniary loss is necessary in order that moral
damages may be adjudicated, the assessment of which is left
to the discretion of the court according to the circumstances of
each case (Art. 2216, New Civil Code), it is equally true that in
awarding moral damages in case of breach of contract, there
must be a showing that the breach was wanton and
deliberately injurious or the one responsible acted fraudently
or in bad faith (Perez v. Court of Appeals, G.R. No. L-20238,
January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L17022, August 14, 1965; 14 SCRA 887). In the instant case,
there was a finding that private respondent was given a "runaround" for two months, which is the basis for the award of the
damages granted under the Insurance Code for unreasonable
delay in the payment of the claim. However, the act of
petitioner of delaying payment for two months cannot be
considered as so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into consideration also
the fact that the actual damage on the car was only P3,460. In
the pre-trial of the case, it was shown that there was no total
disclaimer by respondent. The reason for petitioner's failure to
indemnify private respondent within the two-month period was
that the parties could not come to an agreement as regards
the amount of the actual damage on the car. The amount of
P10,000.00 prayed for by private respondent as moral
damages is equitable.

On the other hand, exemplary or corrective damages are


imposed by way of example or correction for the public good
(Art. 2229, New Civil Code of the Philippines). In the case
of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22,1987; 151
SCRA 227, exemplary damages were not awarded as the
insurance company had not acted in wanton, oppressive or
malevolent manner. The same is true in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is


justified under the circumstances of this case considering that
there were other petitions filed and defended by private
respondent in connection with this case.

As regards the actual damages incurred by private respondent,


the amount of P3,640.00 had been established before the trial
court and affirmed by the appellate court. Respondent
appellate court correctly ruled that the deductions of P250.00
and P274.00 as deductible franchise and 20% depreciation on
parts, respectively claimed by petitioners as agreed upon in
the contract, had no basis. Respondent court ruled:

Under its second assigned error, defendant-appellant puts


forward two arguments, both of which are entirely without
merit. It is contented that the amount recoverable under the
insurance policy defendant-appellant issued over the car of
plaintiff-appellee is subject to deductible franchise, and . . . .
The policy (Exhibit G, pp. 4-9, Record), does not mntion any
deductible franchise, . . . (p. 13, Rollo)

Therefore, the award of moral damages is reduced to


P10,000.00 and the award of exemplary damages is hereby
deleted. The awards due to private respondent Fernandez are
as follows:
1) P3,640.00 as actual claim plus interest of twice the ceiling
prescribed by the Monetary Board computed from the time of
submission of proof of loss;
2) P10,000.00 as moral damages;
3) P5,000.00 as attorney's fees;
4) P3,000.00 as litigation expenses; and
5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above


stated.

G.R. No. L-44059


October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiffappellee, vs. CARPONIA T. EBRADO and PASCUALA VDA.
DE EBRADO, defendants-appellants.

MARTIN, J.:
This is a novel question in insurance law: Can a common-law
wife named as beneficiary in the life insurance policy of a
legally married man claim the proceeds thereof in case of
death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was


issued by The Life Assurance Co., Ltd., Policy No. 009929 on a
whole-life for P5,882.00 with a, rider for Accidental Death for
the same amount Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her as
his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result


of an t when he was hit by a failing branch of a tree. As the
policy was in force, The Insular Life Assurance Co., Ltd. liable
to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also
in the amount of P5,882.00 and the refund of P18.00 paid for
the premium due November, 1969, minus the unpaid
premiums and interest thereon due for January and February,
1969, in the sum of P36.27.

insured made the option to change the beneficiary, same


was never changed up to the time of his death and the
wife did not have any opportunity to write the company
that there was reservation to change the designation of
the parties agreed that a decision be rendered based on
and stipulation of facts as to who among the two claimants
is entitled to the policy.

Upon motion of the parties, they are given ten (10) days to
file their simultaneous memoranda from the receipt of this
order.
Carponia T. Ebrado filed with the insurer a claim for the
proceeds of the Policy as the designated beneficiary therein,
although she admits that she and the insured Buenaventura C.
Ebrado were merely living as husband and wife without the
benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of


the deceased insured. She asserts that she is the one entitled
to the insurance proceeds, not the common-law wife, Carponia
T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the


insurer, The Insular Life Assurance Co., Ltd. commenced an
action for Interpleader before the Court of First Instance of
Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was


held on July 8, 1972, after which, a pre-trial order was entered
reading as follows:
During the pre-trial conference, the parties manifested to
the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the
parties submit their evidence for the purpose of the pretrial and make admissions for the purpose of pretrial.
During this conference, parties Carponia T. Ebrado and
Pascuala Ebrado agreed and stipulated: 1) that the
deceased Buenaventura Ebrado was married to Pascuala
Ebrado with whom she has six (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen,
all surnamed Ebrado; 2) that during the lifetime of the
deceased, he was insured with Insular Life Assurance Co.
Under Policy No. 009929 whole life plan, dated September
1, 1968 for the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by Exhibits A for
plaintiffs and Exhibit 1 for the defendant Pascuala and
Exhibit 7 for Carponia Ebrado; 3) that during the lifetime
of Buenaventura Ebrado, he was living with his commonwife, Carponia Ebrado, with whom she had 2 children
although he was not legally separated from his legal wife;
4) that Buenaventura in accident on October 21, 1969 as
evidenced by the death Exhibit 3 and affidavit of the police
report of his death Exhibit 5; 5) that complainant Carponia
Ebrado filed claim with the Insular Life Assurance Co.
which was contested by Pascuala Ebrado who also filed
claim for the proceeds of said policy 6) that in view ofthe
adverse claims the insurance company filed this action
against the two herein claimants Carponia and Pascuala
Ebrado; 7) that there is now due from the Insular Life
Assurance Co. as proceeds of the policy P11,745.73; 8)
that the beneficiary designated by the insured in the
policy is Carponia Ebrado and the insured made
reservation to change the beneficiary but although the

SO ORDERED.

On September 25, 1972, the trial court rendered judgment


declaring among others, Carponia T. Ebrado disqualified from
becoming beneficiary of the insured Buenaventura Cristor
Ebrado and directing the payment of the insurance proceeds to
the estate of the deceased insured. The trial court held:
It is patent from the last paragraph of Art. 739 of the Civil
Code that a criminal conviction for adultery or
concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of
those acts be made in a separate independent action
brought for the purpose. The guilt of the donee
(beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to
declare the nullity of the donation).

It is, however, essential that such adultery or concubinage


exists at the time defendant Carponia T. Ebrado was made
beneficiary in the policy in question for the disqualification
and incapacity to exist and that it is only necessary that
such fact be established by preponderance of evidence in
the trial. Since it is agreed in their stipulation abovequoted that the deceased insured and defendant Carponia
T. Ebrado were living together as husband and wife
without being legally married and that the marriage of the
insured with the other defendant Pascuala Vda. de Ebrado
was valid and still existing at the time the insurance in
question was purchased there is no question that
defendant Carponia T. Ebrado is disqualified from
becoming the beneficiary of the policy in question and as
such she is not entitled to the proceeds of the insurance
upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court


of Appeals, but on July 11, 1976, the Appellate Court certified
the case to Us as involving only questions of law.

We affirm the judgment of the lower court.


1. It is quite unfortunate that the Insurance Act (RA 2327, as
amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly
resolutory of the prime question at hand. Section 50 of the
Insurance Act which provides that "(t)he insurance shag be

applied exclusively to the proper interest of the person in


whose name it is made" 1 cannot be validly seized upon to hold
that the mm includes the beneficiary. The word "interest"
highly suggests that the provision refers only to the "insured"
and not to the beneficiary, since a contract of insurance is
personal in character. 2 Otherwise, the prohibitory laws against
illicit relationships especially on property and descent will be
rendered nugatory, as the same could easily be circumvented
by modes of insurance. Rather, the general rules of civil law
should be applied to resolve this void in the Insurance Law.
Article 2011 of the New Civil Code states: "The contract of
insurance is governed by special laws. Matters not expressly
provided for in such special laws shall be regulated by this
Code." When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed by
the general rules of the civil law regulating contracts. 3 And
under Article 2012 of the same Code, "any person who is
forbidden from receiving any donation under Article 739
cannot be named beneficiary of a fife insurance policy by the
person who cannot make a donation to him. 4 Common-law
spouses are, definitely, barred from receiving donations from
each other. Article 739 of the new Civil Code provides:
The following donations shall be void:
1. Those made between persons who were guilty of
adultery or concubinage at the time of donation;
Those made between persons found guilty of the same
criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants
or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration
of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil


donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary
is like a donee, because from the premiums of the policy which
the insured pays out of liberality, the beneficiary will receive
the proceeds or profits of said insurance. As a consequence,
the proscription in Article 739 of the new Civil Code should
equally operate in life insurance contracts. The mandate of
Article 2012 cannot be laid aside: any person who cannot
receive a donation cannot be named as beneficiary in the life
insurance policy of the person who cannot make the
donation.5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will,
so far as possible treat it as a will and determine the effect of a
clause designating the beneficiary by rules under which wins
are interpreted. 6

3. Policy considerations and dictates of morality rightly justify


the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the legitimate
family There is every reason to hold that the bar in donations
between legitimate spouses and those between illegitimate
ones should be enforced in life insurance policies since the
same are based on similar consideration As above pointed out,
a beneficiary in a fife insurance policy is no different from a
donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon married

couple should likewise be imposed upon extra-marital


relationship. If legitimate relationship is circumscribed by these
legal disabilities, with more reason should an illicit relationship
be restricted by these disabilities. Thus, in Matabuena v.
Cervantes, 7 this Court, through Justice Fernando, said:
If the policy of the law is, in the language of the opinion of
the then Justice J.B.L. Reyes of that court (Court of
Appeals), 'to prohibit donations in favor of the other
consort and his descendants because of and undue and
improper pressure and influence upon the donor, a
prejudice deeply rooted in our ancient law;" por-que no se
enganen desponjandose el uno al otro por amor que han
de consuno' (According to) the Partidas (Part IV, Tit. XI,
LAW IV), reiterating the rationale 'No Mutuato amore
invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De
donat, inter virum et uxorem); then there is very reason to
apply the same prohibitive policy to persons living
together as husband and wife without the benefit of
nuptials. For it is not to be doubted that assent to such
irregular connection for thirty years bespeaks greater
influence of one party over the other, so that the danger
that the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32
ad Sabinum, fr. 1), 'it would not be just that such donations
should subsist, lest the condition 6f those who incurred
guilt should turn out to be better.' So long as marriage
remains the cornerstone of our family law, reason and
morality alike demand that the disabilities attached to
marriage should likewise attach to concubinage.

It is hardly necessary to add that even in the absence of


the above pronouncement, any other conclusion cannot
stand the test of scrutiny. It would be to indict the frame of
the Civil Code for a failure to apply a laudable rule to a
situation which in its essentials cannot be distinguished.
Moreover, if it is at all to be differentiated the policy of the
law which embodies a deeply rooted notion of what is just
and what is right would be nullified if such irregular
relationship instead of being visited with disabilities would
be attended with benefits. Certainly a legal norm should
not be susceptible to such a reproach. If there is every any
occasion where the principle of statutory construction that
what is within the spirit of the law is as much a part of it as
what is written, this is it. Otherwise the basic purpose
discernible in such codal provision would not be attained.
Whatever omission may be apparent in an interpretation
purely literal of the language used must be remedied by
an adherence to its avowed objective.

4. We do not think that a conviction for adultery or


concubinage is exacted before the disabilities mentioned in
Article 739 may effectuate. More specifically, with record to
the disability on "persons who were guilty of adultery or
concubinage at the time of the donation," Article 739 itself
provides:
In the case referred to in No. 1, the action for declaration
of nullity may be brought by the spouse of the donor or
donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal


conviction for the offense is a condition precedent. In fact, it
cannot even be from the aforequoted provision that a
prosecution is needed. On the contrary, the law plainly states
that the guilt of the party may be proved "in the same acting

for declaration of nullity of donation. And, it would be sufficient


if evidence preponderates upon the guilt of the consort for the
offense indicated. The quantum of proof in criminal cases is
not demanded.

In the caw before Us, the requisite proof of common-law


relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties
in the pre-trial conference of the case. It case agreed upon and
stipulated therein that the deceased insured Buenaventura C.
Ebrado was married to Pascuala Ebrado with whom she has six
legitimate children; that during his lifetime, the deceased
insured was living with his common-law wife, Carponia Ebrado,
with whom he has two children. These stipulations are nothing
less thanjudicial admissions which, as a consequence, no
longer require proof and cannot be contradicted. 8 A fortiori, on
the basis of these admissions, a judgment may be validly
rendered without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the insured and
the beneficiary. In fact, in that pretrial, the parties even agreed
"that a decision be rendered based on this agreement and
stipulation of facts as to who among the two claimants is
entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is


hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C.
Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of
the deceased insured. Costs against Carponia T. Ebrado.

decision[1] which dismissed its two appeals and affirmed the


judgment of the trial court.

For review are the warring interpretations of petitioner and


respondent on the scope of the insurance companys liability
for earthquake damage to petitioners properties. Petitioner
avers that, pursuant to its earthquake shock endorsement
rider, Insurance Policy No. 31944 covers all damages to the
properties within its resort caused by earthquake. Respondent
contends that the rider limits its liability for loss to the two
swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by


the appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La
Union and had its properties in said resort insured originally
with the American Home Assurance Company (AHAC-AIU). In
the first four insurance policies issued by AHAC-AIU from 198485; 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. 2064568061-9 (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 above-mentioned @ .490%;
393,000.00- on the two swimming pools, only
(against the peril of earthquake shock only) @ 0.100%

G.R. No. 156167


May 16, 2005

116,600.00- other buildings include as follows:


a) Tilter House- P19,800.00- 0.551%
b) Power House- P41,000.00- 0.551%

GULF RESORTS, INC., petitioner, vs. PHILIPPINE


CHARTER INSURANCE CORPORATION, respondent.

c) House Shed- P55,000.00 -0.540%


P100,000.00 for furniture, fixtures, lines air-con and
operating equipment

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

that plaintiff agreed to insure with defendant the properties


covered by AHAC (AIU) Policy No. 206-4568061-9 (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 right-hand upper


portion of page 7 thereof, the following:

respondent failed to arrive at a settlement. [9] Thus, on January


24, 1991, petitioner filed a complaint [10] with the regional trial
court of Pasig praying for the payment of the following:

Rate-Various
Premium - P37,420.60 F/L
2,061.52 Typhoon

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;

1,030.76 EC

2.) The sum of P428,842.00 per month, representing


continuing losses sustained by plaintiff on account of
defendants refusal to pay the claims;

393.00 ES

3.) The sum of P500,000.00, by way of exemplary damages;

Doc. Stamps 3,068.10

4.) The sum of P500,000.00 by way of attorneys fees and


expenses of litigation;

F.S.T. 776.89
5.) Costs.[11]
Prem. Tax 409.05
TOTAL 45,159.92;
Respondent filed its Answer with Special and Affirmative
Defenses with Compulsory Counterclaims.[12]
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-B2; 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, 2-D, 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 VicePresident A.R. de Leon,[4]rendered a preliminary report[5] 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 demand[7] 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. [8] Petitioner and

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]

allegedly amounting toP4,280,000.00. Since the defendantappellant 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 plaintiffappellants action is not baseless and highly speculative, We
find that the Court a quo did not err in granting the same.

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 PLAINTIFFAPPELLANT 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 PLAINTIFFAPPELLANTS RIGHT TO RECOVER UNDER DEFENDANTAPPELLEES 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 PLAINTIFFAPPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH
INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON
PROCEEDS OF POLICY.

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:
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 plaintiffappellant 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.

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.

xxx

Fourth, it is unbelievable for respondent to claim that it only


made an inadvertent omission when it deleted the said
qualification.

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

Fifth, that the earthquake shock endorsement rider should be


given precedence over the wording of the insurance policy,

because the rider is the more deliberate expression of the


agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were
placed on the endorsements/warranties enumerated at the
time of issue.
Seventh, any ambiguity in the earthquake shock
endorsement should be resolved in favor of petitioner and
against respondent. It was respondent which caused the
ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the
earthquake shock endorsement should be interpreted as a
caveat on the standard fire insurance policy, such as to
remove the two swimming pools from the coverage for the risk
of fire. It should not be used to limit the respondents liability
for earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the
additional premium was not paid under the extended
coverage. The premium for the earthquake shock coverage
was already included in the premium paid for the policy.
Tenth, the parties contemporaneous and subsequent acts
show that they intended to extend earthquake shock coverage
to all insured properties. When it secured an insurance policy
from respondent, petitioner told respondent that it wanted an
exact replica of its latest insurance policy from American Home
Assurance Company (AHAC-AIU), which covered all the resorts
properties for earthquake shock damage and respondent
agreed. After the July 16, 1990 earthquake, respondent
assured petitioner that it was covered for earthquake shock.
Respondents insurance adjuster, Bayne Adjusters and
Surveyors, Inc., likewise requested petitioner to submit the
necessary documents for its building claims and other repair
costs. Thus, under the doctrine of equitable estoppel, it cannot
deny that the insurance policy it issued to petitioner covered
all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review
by certiorari under Rule 45 of the Revised Rules of Court as its
remedy, and there is no need for calibration of the evidence in
order to establish the facts upon which this petition is based.

On the other hand, respondent made the following counter


arguments:[18]
First, none of the previous policies issued by AHAC-AIU from
1983 to 1990 explicitly extended coverage against earthquake
shock to petitioners insured properties other than on the two
swimming pools. Petitioner admitted that from 1984 to 1988,
only the two swimming pools were insured against earthquake
shock. From 1988 until 1990, the provisions in its policy were
practically identical to its earlier policies, and there was no
increase in the premium paid. AHAC-AIU, in a letter [19] by its
representative Manuel C. Quijano, categorically stated that its
previous policy, from which respondents policy was copied,
covered only earthquake shock for the two swimming pools.
Second, petitioners payment of additional premium in the
amount of P393.00 shows that the policy only covered
earthquake shock damage on the two swimming pools. The
amount was the same amount paid by petitioner for
earthquake shock coverage on the two swimming pools from
1990-1991. No additional premium was paid to warrant
coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of
the earthquake shock endorsement to the two swimming pools

in the policy schedule did not expand the earthquake shock


coverage to all of petitioners properties. As per its agreement
with petitioner, respondent copied its policy from the AHAC-AIU
policy provided by petitioner. Although the first five policies
contained the said qualification in their riders title, in the last
two policies, this qualification in the title was deleted. AHACAIU, 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
paidP393.00 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.

also to loss or damage occasioned by or through or in


consequence of Earthquake.[24]

First, in the designation of location of risk, only the two


swimming pools were specified as included, viz:

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.

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
xxx
3 393,000.00 0.100%-E/S 393.00[22]

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.

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.

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:


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

CROSS EXAMINATION
November 25, 1991
pp. 12-13

OF

LEOPOLDO

MANTOHAC

TSN,

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
November 25, 1991

OF

LEOPOLDO

MANTOHAC

TSN,

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.

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.

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.

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?

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:

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?

DIRECT EXAMINATION OF JUAN BARANDA III[30]


TSN, August 11, 1992

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?

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?

A. Yes, sir.
xxx
Q. Now, after this policy was delivered to you did you bother to
check the provisions with respect to your instructions that all

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?

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.

A. Yes, sir.

COURT:

ATTY. MEJIA:

They are the same, the premium rates?

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:

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.

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.

CROSS-EXAMINATION OF JUAN BARANDA III

ATTY. MEJIA:

pp. 4-6

Witness referring to Exhibit C-1, your Honor.

ATTY. ANDRES:

WITNESS:

Would you as a matter of practice [insure] swimming pools for


fire insurance?

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

TSN, September 7, 1992

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 directexamination, 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?

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:

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?

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters


and Surveyors, Inc.)

A. Yes, sir, to Exhibit H.

TSN, January 26, 1993

Q. So, all the provisions here will be the same except that of
the premium rates?

pp. 22-26

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

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.

Atty. Mejia:
xxx
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?

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?

A. Yes, sir, about that time.

xxx

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. 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.

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.

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.
[32]
Consequently, 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.

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.

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 copy verbatim the
provisions and terms of its latest insurance policy from AHACAIU. 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 MANTOHAC[36]


TSN, September 23, 1991

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. 206-45680619.

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]

pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you
would want for those facilities in Agoo Playa?

IN VIEW WHEREOF, the judgment of the Court of Appeals is


affirmed. The petition for certiorari is dismissed. No costs.

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