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CASES IN INSURANCE LAW (Prof. A. E.

Tayag)
I. TITLES I TO III
A. INTERPRETATION OF INSURANCE CONTRACTS
1. Malayan Insurance Corp. v. CA
SECOND DIVISION
[G.R. No. 119599. March 20, 1997]
MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS and TKC MARKETING
CORPORATION, respondents.
DECISION
ROMERO, J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G.R. No. 43023[1] which
affirmed, with slight modification, the decision of the Regional Trial Court of Cebu, Branch 15.
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean
meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for carriage from the port of
Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by petitioner Malayan
Insurance Corporation for which it issued two (2) Marine Cargo Policy Nos. M/LP 97800305 amounting
to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civil authorities
arrested and detained it because of a lawsuit on a question of ownership and possession. As a result, private respondent
notified petitioner on October 4, 1989 of the arrest of the vessel and made a formal claim for the amount of
US$916,886.66, representing the dollar equivalent on the policies, for non-delivery of the cargo. Private respondent
likewise sought the assistance of petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies. Private
respondent, accordingly, advised petitioner that it might tranship the cargo and requested an extension of the insurance
coverage until actual transhipment, which extension was approved upon payment of additional premium. The insurance
coverage was extended under the same terms and conditions embodied in the original policies while in the process of
making arrangements for the transhipment of the cargo from Durban to Manila, covering the period October 4December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton or a
total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days to Manila and
another twenty days for the discharge thereof. On January 5, 1990, private respondent forthwith reduced its claim to
US$448,806.09 (or its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing
private respondent's loss after the proceeds of the sale were deducted from the original claim of $916,886.66
or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an
excepted risk under the marine insurance policies. This prompted private respondent to file a complaint for damages
praying that aside from its claim, it be reimbursed the amount of P128,770.88 as legal expenses and the interest it paid
for the loan it obtained to finance the shipment totallingP942,269.30. In addition, private respondent asked for moral
damages amounting to P200,000.00, exemplary damages amounting toP200,000.00 and attorney's fees equivalent to
30% of what will be awarded by the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from the insurance
claim, consequential and liquidated damages amounting to P1,024,233.88, exemplary damages amounting
to P100,000.00, reimbursement in the amount equivalent to 10% of whatever is recovered as attorney's fees as well as
the costs of the suit. On private respondent's motion for reconsideration, petitioner was also required to further pay

interest at the rate of 12% per annum on all amounts due and owing to the private respondent by virtue of the lower
court decision counted from the inception of this case until the same is paid.
On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of Clause 12
of the policies issued to private respondent, the same became automatically covered under subsection 1.1 of Section 1
of the Institute War Clauses. The arrests, restraints or detainments contemplated in the former clause were those
effected by political or executive acts. Losses occasioned by riot or ordinary judicial processes were not covered therein.
In other words, arrest, restraint or detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules out detention
by ordinary legal processes. Hence, arrests by civil authorities, such as what happened in the instant case, is an excepted
risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However, with the deletion of Clause 12 of the
Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses (Cargo), the arrest and
seizure by judicial processes which were excluded under the former policy became one of the covered risks.
The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss
compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-delivery Clause
(TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance Code and as held in Williams v.
Cole.[2]
Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port from
completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of petitioner continued
until the goods could have been transhipped. But due to the perishable nature of the goods, it had to be promptly sold
to minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should not operate to discharge
petitioner from its contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies.
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private respondent's claim.
4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.
In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not compensable since
the term "arrest" refers to "political or executive acts" and does not include a loss caused by riot or by ordinary judicial
process as in this case; (b) the deletion of the Free from Capture or Seizure Clause would leave the assured covered
solely for the perils specified by the wording of the policy itself; (c) the rationale for the exclusion of an arrest pursuant
to judicial authorities is to eliminate collusion between unscrupulous assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which private respondent may have incurred was
in the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice sale and not by arrest,
detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its honest belief that the
arrest of the vessel was not a compensable risk under the policies issued. In fact, petitioner supported private
respondent by accommodating the latter's request for an extension of the insurance coverage, notwithstanding that it
was then under no legal obligation to do so.
Private respondent, on the other hand, argued that when it appealed its case to the Court of Appeals, petitioner did
not raise as an issue the award of exemplary damages. It cannot now, for the first time, raise the same before this Court.
Likewise, petitioner cannot submit for the first time on appeal its argument that it was wrong for the Court of Appeals to
have ruled the way it did based on facts that would need inquiry into the evidence. Even if inquiry into the facts were
possible, such was not necessary because the coverage as ruled upon by the Court of Appeals is evident from the very
terms of the policies.

It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly interpreted against it
because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be construed reasonably
and in a manner as to make effective the intentions and expectations of the parties. It added that the policies clearly
stipulate that they cover the risks of non-delivery of an entire package and that it was petitioner itself that invited and
granted the extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in
relation to the excluded risks or warranty specifically stated therein.
By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase "perils of
the sea" to encompass the wide and varied range of risks that were covered.[3] The subject policies contain the "Perils"
clause which is a standard form in any marine insurance policy. Said clause reads:
"Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and to take upon them in this
voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of Mart and Counter
Mart, Suprisals, Takings of the Sea, Arrests, Restraints and Detainments of all Kings, Princess and Peoples, of what
Nation, condition, or quality soever, Barratry of the Master and Mariners, and of all other Perils, Losses, and
Misfortunes, that have come to hurt, detriment, or damage of the said goods and merchandise or any part thereof . AND
in case of any loss or misfortune it shall be lawful to the ASSURED, their factors, servants and assigns, to sue, labour, and
travel for, in and about the defence, safeguards, and recovery of the said goods and merchandises, and ship, & c., or any
part thereof, without prejudice to this INSURANCE; to the charges whereof the said COMPANY, will contribute according
to the rate and quantity of the sum herein INSURED. AND it is expressly declared and agreed that no acts of the Insurer
or Insured in recovering, saving, or preserving the Property insured shall be considered as a Waiver, or Acceptance of
Abandonment. And it is agreed by the said COMPANY, that this writing or Policy of INSURANCE shall be of as much Force
and Effect as the surest Writing or Policy of INSURANCE made in LONDON. And so the said MALAYAN INSURANCE
COMPANY, INC., are contented, and do hereby promise and bind themselves, their Heirs, Executors, Goods and Chattel,
to the ASSURED, his or their Executors, Administrators, or Assigns, for the true Performance of the Premises; confessing
themselves paid the Consideration due unto them for this INSURANCE at and after the rate arranged." (Underscoring
supplied)
The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is
specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause which reads,
thus:
"Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt
thereat; also from the consequences of hostilities and warlike operations, whether there be a declaration of war or not;
but this warranty shall not exclude collision, contact with any fixed or floating object (other than a mine or torpedo),
stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which
the vessel concerned or, in the case of a collision, any other vessel involved therein is performing) by a hostile act by or
against a belligerent power and for the purpose of this warranty 'power' includes any authorities maintaining naval,
military or air forces in association with power.
Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike arising therefrom or
piracy.
Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this insurance."
(Underscoring supplied)
However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses (Cargo) was
deemed incorporated which, in subsection 1.1 of Section 1, provides:
"1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted free of capture, seizure,
arrest, restraint or detainment, and the consequences thereof of hostilities or warlike operations, whether there be a
declaration of war or not; but this warranty shall not exclude collision, contact with any fixed or floating object (other

than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature on
voyage or service which the vessel concerned or, in the case of a collision any other vessel involved therein is
performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty 'power' includes any
authority maintaining naval, military or air forces in association with a power. Further warranted free from the
consequences of civil war, revolution, rebellion, insurrection, or civil strike arising therefrom, or piracy."
According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War Clauses
(Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to warlike operations if
this Court strictly construes the heading of the said Clauses. However, it also claims that the parties intended to include
arrests, etc. even if it were not the result of hostilities or warlike operations. It further claims that on the strength of
jurisprudence on the matter, the term "arrests" would only cover those arising from political or executive acts,
concluding that whether private respondent's claim is anchored on subsection 1.1 of Section 1 of the Institute War
Clauses (Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial authorities is an excluded risk.[4]
This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause, it
assumed the risk of arrest caused solely by executive or political acts of the government of the seizing state and thereby
excludes "arrests" caused by ordinary legal processes, such as in the instant case.
With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court agrees with
the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemed included
among the covered risks. This interpretation becomes inevitable when subsection 1.1 of Section 1 of the Institute War
Clauses provided that "this insurance covers the risks excluded from the Standard Form of English Marine Policy by the
clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the F.C. & S. Clause. Jurisprudentially, "arrests" caused
by ordinary judicial process is also a risk excluded from the Standard Form of English Marine Policy by the F.C. & S.
Clause.
Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the
covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be operative in case of
hostilities or warlike operations on account of its heading "Institute War Clauses." This Court agrees with the Court of
Appeals when it held that ". . . Although the F.C. & S. Clause may have originally been inserted in marine policies to
protect against risks of war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed.
1975]), its interpretation in recent years to include seizure or detention by civil authorities seems consistent with the
general purposes of the clause, x x x"[5] In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute
War Clauses included "arrest" even if it were not a result of hostilities or warlike operations.[6] In this regard, since what
was also excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process, logically, such
"arrest" would now become a covered risk under subsection 1.1 of Section 1 of the Institute War Clauses, regardless of
whether or not said "arrest" by civil authorities occurred in a state of war.
Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of subsection 1.1
of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was "originally incorporated in
insurance policies to eliminate the risks of warlike operations". It also averred that the F.C. & S. Clause applies even if
there be no war or warlike operations x x x"[7] In the same vein, it contended that subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of
the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo)
was to include "arrest, etc. even if it were not a result of hostilities or warlike operations."[8]
This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of the
policy in order to avoid being liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned by
executive or political acts of government which is interpreted as not referring to those caused by ordinary legal
processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which excludes risks of arrest occasioned by
executive or political acts of the government and naturally, also those caused by ordinary legal processes; and,
thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses which now includes in the coverage risks
of arrest due to executive or political acts of a government but then still excludes "arrests" occasioned by ordinary legal

processes when subsection 1.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from
the coverage of the F.C. & S. Clause.
It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or
to render the policy nonsensical, should, by all means, be avoided.[9] Likewise, it must be borne in mind that such
contracts are invariably prepared by the companies and must be accepted by the insured in the form in which they are
written.[10] Any construction of a marine policy rendering it void should be avoided.[11] Such policies will, therefore, be
construed strictly against the company in order to avoid a forfeiture, unless no other result is possible from the language
used.[12]
If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by
special proviso, exception, or exemption, it should express such limitation in clear and unmistakable
language.[13] Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of
Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned by ordinary judicial
process was expressly indicated as an exception in the subject policies, there would have been no controversy with
respect to the interpretation of the subject clauses.
Be that as it may, exceptions to the general coverage are construed most strongly against the company. [14] Even an
express exception in a policy is to be construed against the underwriters by whom the policy is framed, and for whose
benefit the exception is introduced.[15]
An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into the
contract which is, to insure against risks of loss or damage to the goods. Such interpretation should result from the
natural and reasonable meaning of language in the policy.[16] Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted.[17]
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer.[18] A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in
other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.[19]
In view of the foregoing, this Court sees no need to discuss the other issues presented.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Regalado, (Chairman), Puno, Mendoza, and Torres, Jr., JJ., concur.
[1]

Penned by Justice Godardo A. Jacinto and concurred in by Justices Ricardo J. Francisco and Hector L. Hofilena.
16 Me. 207.
[3]
R. Keeton & A. Widiss, Insurance Law, 467 (1988).
[4]
Petition, pp. 13-14, Rollo.
[5]
Blaine Richards & Co. v. Marine Indem., Ins., Co., 653 F. 2nd 1051 (1980).
[6]
Petition, p. 13, Rollo.
[7]
p. 13, supra.
[8]
Supra.
[9]
Importers' & Exporters' Ins. Co. v. Jones, 1924, 266 S.W. 286, 166 Ark. 370.
[10]
General Accident, Fire & Life Ass. Corp. v. Louisville Home Telephone Co., 1917, 193 S.W. 1031.
[11]
The J.L. Luckenbach, C.C. A.N.Y. (1933), 65 F. 2d 570.
[12]
Wheeler v. Aetna Ins. Co., D.C.N.Y. (1933), F. Supp. 820.
[13]
Rosen Reichardt Brokerage Co. v. London Assur. Corp. (1924), 264 S.W. 433.
[14]
Quinlinan v. Northwestern Fire & Marine Ins. Co., D.C.N.Y. (1929), 31 F. 2d 149.
[15]
Dole v. New England Mut. Marine Ins. Co. (1863) 88 Mass. 373.
[16]
Cherokee Brick Co. v. Ocean Accident & Guaranty Corp., Limited, (1918), 94 S.E. 1032, Ga. App. 702.
[17]
Rosen-Reichardt Brokerage Co. v. London Assur. Corporation, (1924), 264 S.W. 433.
[18]
Vol. II, G. Couch, Cyclopedia of Insurance Law, pp. 524-525, (1963).
[2]

[19]

Fortune Insurance and Surety Co., Inc. v. Court of Appeals, 244 SCRA 308 (1995).

2. Del Rosario v. Equitable Ins. & Casualty Co.


EN BANC
G.R. No. L-16215
June 29, 1963
SIMEON DEL ROSARIO, plaintiff-appellee,
vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
K. V. Faylona for defendant-appellant.
PAREDES, J.:
On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy No. 7136
on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to pay the sum of
P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the Policy, recite:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is effected solely through violent, external, visible and accidental
means, and which shall result, independently of all other causes and within sixty (60) days from the occurrence
thereof, in the Death of the Insured, the Company shall pay the amount set opposite such injury:
Section 1. Injury sustained other than those specified below
unless excepted hereinafter. . . . . . . .

P1,000.00

Section 2. Injury sustained by the wrecking or disablement of


a railroad passenger car or street railway car in or on which
the Insured is travelling as a farepaying passenger. . . . . . . .
P1,500.00
Section 3. Injury sustained by the burning of a church,
theatre, public library or municipal administration building
while the Insured is therein at the commencement of the
fire. . . . . . . .

P2,000.00

Section 4. Injury sustained by the wrecking or disablement of


a regular passenger elevator car in which the Insured is
being conveyed as a passenger (Elevator in mines excluded)
P2,500.00
Section 5. Injury sustained by a stroke of lightning or by a
cyclone. . . . . . . .
xxx

xxx

P3,000.00

xxx

Part VI. Exceptions


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

. . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a
passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . .
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived by
the company, and to form a part of the provision covered by the policy.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch
"ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off said
launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and
beneficiary in the waters of Jolo. 1wph1.t
On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with
defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00,
pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS ONE THOUSAND
(P1,000.00) Philippine Currency, being settlement in full for all claims and demands against said
Company as a result of an accident which occurred on February 26, 1957, insured under out ACCIDENT
Policy No. 7136, causing the death of the Assured.
In view of the foregoing, this policy is hereby surrendered and CANCELLED.
LOSS COMPUTATION
Amount of Insurance

P1,000.00
__________
vvvvv

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

to the complaint, defendant company practically admitted all the allegations therein, denying only those which stated
that under the policy its liability was P3,000.00.
On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read
xxx

xxx

xxx

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

xxx

xxx

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

xxx

xxx

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

xxx

xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of P1,000.00
to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is entitled to
recover under the policy Exhibit "A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However, since it is
evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot award
plaintiff's claim for attorney's fees and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21, 1958 and
hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos
and to pay the costs.
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated
September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature.

All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We
believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken, for
they are supported by the generally accepted principles or rulings on insurance, which enunciate that where there is an
ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the one responsible
thereof. It should be recalled in this connection, that generally, the insured, has little, if any, participation in the
preparation of the policy, together with the drafting of its terms and Conditions. The interpretation of obscure
stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at
bar, is the insurance company.
. . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal or
uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect
the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved," (29
Am. Jur. 181) and the reason for this rule is that the "insured usually has no voice in the selection or
arrangement of the words employed and that the language of the contract is selected with great care and
deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance
company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.
. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which
allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67
LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).
At any event, the policy under consideration, covers death or disability by accidental means, and the appellant insurance
company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured.
In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon and Regala, JJ., concur.
Makalintal, J., reserves his vote.

3. Fortune Ins. & Surety Co. v. CA


FIRST DIVISION
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the
Money, Security, and Payroll Robbery policy it issued to the private respondent or whether recovery thereunder is
precluded under the general exceptions clause thereof. Both the trial court and the Court of Appeals held that there
should be recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent
Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc.
(hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum
was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its

Pasay City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146
thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance policy was issued, the
duplicate original of which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring cash in the sum of
P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to
its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while the armored car was traveling
along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by
Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC
Management Systems with the plaintiff by virtue of an Agreement executed on August
7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the
plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a
duplicate original copy of which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities, the driver Magalong
and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo
Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the
Fiscal of Pasay City. A copy of the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with
the said crime before Branch 112 of the Regional Trial Court of Pasay City. A copy of the
said information is hereto attached as Exhibit "E." The case is still being tried as of this
date;
7. Demands were made by the plaintiff upon the defendant to pay the amount of the
loss of P725,000.00, but the latter refused to pay as the loss is excluded from the
coverage of the insurance policy, attached hereto as Exhibit "A," specifically under page
1 thereof, "General Exceptions" Section (b), which is marked as Exhibit "A-1," and which
reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction
with others. . . .
8. The plaintiff opposes the contention of the defendant and contends that Atiga and
Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at
the time of the robbery. 1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof reads as
follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and
(a) orders defendant to pay plaintiff the net amount of P540,000.00 as
liability under Policy No. 0207 (as mitigated by the P40,000.00 special
clause deduction and by the recovered sum of P145,000.00), with
interest thereon at the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for
attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga,
their services as armored car driver and as security guard having been merely offered by PRC
Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and
salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields
the power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such in a context which does not impress the
Court as translating into plaintiff's power to control the conduct of any assigned driver or security guard,
beyond perhaps entitling plaintiff to request are replacement for such driver guard. The finding is
accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of
defendant's liability under the policy, particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the
"authorized representatives" of plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati
Head Office. Quite plainly it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash
being transferred along a specified money route, and hence plaintiff's then designated "messenger"
adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No. 32946. In its
decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor
authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against
the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office,
Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the parties themselves have used. If
such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals,
195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple.
No other interpretation is necessary. The word "employee" must be taken to mean in the ordinary
sense.
The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and
therefore its definition as to employer-employee relationships insofar as the application/enforcement of
said Code is concerned must necessarily be inapplicable to an insurance contract which defendantappellant itself had formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it
has no power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C)
except only to ask for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of
Appeals erred in holding it liable under the insurance policy because the loss falls within the general exceptions clause
considering that driver Magalong and security guard Atiga were Producers' authorized representatives or employees in
the transfer of the money and payroll from its branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch to
another, they effectively and necessarily became its authorized representatives in the care and custody of the money.
Assuming that they could not be considered authorized representatives, they were, nevertheless, employees of
Producers. It asserts that the existence of an employer-employee relationship "is determined by law and being such, it
cannot be the subject of agreement." Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers with
PRC Management System for Magalong and with Unicorn Security Services for Atiga which state that Producers is not
their employer and that it is absolved from any liability as an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection
and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power
to dismiss; and (4) the presence and absence of a power to control the putative employee's conduct. Of the four, the
right-of-control test has been held to be the decisive factor. 6 It asserts that the power of control over Magalong and
Atiga was vested in and exercised by Producers. Fortune further insists that PRC Management System and Unicorn
Security Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by such persons are
performing activities which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed by
him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in International
Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is equivalent to a finding that there is
an employer-employee relationship between the owner of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees since it had nothing to do with
their selection and engagement, the payment of their wages, their dismissal, and the control of their conduct. Producers
argued that the rule in International Timber Corp. is not applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a social legislation whose provisions may set aside contracts
entered into by parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of
Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since
Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it
is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with
Unicorn Security Services which provides that the guards of the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a
form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the
scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance,
public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions
applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the
general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always in accordance with the
general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the
moral hazard is so great that insurers have found it necessary to fill up their policies with countless restrictions, many
designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured
against." 10 Persons frequently excluded under such provisions are those in the insured's service and employment. 11 The
purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to
the property. 12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood in
common speech. 13 The terms "service" and "employment" are generally associated with the idea of selection, control,
and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, 15 or
it should be construed liberally in favor of the insured and strictly against the insurer. 16 Limitations of liability should be
regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then that if
the terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be
enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is settled that the
terms of the policy constitute the measure of the insurer's liability. 20 In the absence of statutory prohibition to the
contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or
authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy which, for
easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any
officer, employee, partner, director, trustee or authorized representative of the Insured
whether acting alone or in conjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized
representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and
coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to
Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who
qualifies as such as generally and universally understood, or jurisprudentially established in the light of the four
standards in the determination of the employer-employee relationship, 21 or as statutorily declared even in a limited
sense as in the case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.
Producers, however, insists that by the express terms thereof, it is not the employer of Magalong.
Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services that the
drivers and the security guards each shall supply to Producers are not the latter's employees, it may, in fact, be
that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is, in the light of the
criteria provided for in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly limited to the insurance policy, the
contracts with PRC Management Systems and Unicorn Security Services, the complaint for violation of P.D. No.
532, and the information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as to
whether the contracts between Producers and PRC Management Systems and Unicorn Security Services are
"labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management
Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga
were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers
entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible
for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the
needed security for the money, the vehicle, and his two other companions. In short, for these particular tasks, the three
acted as agents of Producers. A "representative" is defined as one who represents or stands in the place of another; one
who represents others or another in a special capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 32946
dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are
REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Bellosillo and Kapunan, JJ., concur.
Padilla, J., took no part.
Quiason, J., is on leave.
Footnotes
1 Rollo, 46-47 (emphases supplied).
2 Id., 8.
3 Rollo, 10-11.
4 Annex "A" of Petition; Id., 45-53. Per Austria-Martinez, A., J., with Marigomen, A. and Reyes, R., JJ., concurring.
5 Rollo, 51-52.
6 Citing in the Petition, Broadway Motors, Inc. vs. NLRC, 156 SCRA 522 [1987], and in the Memorandum, Vallum Security Services vs. NLRC, 224
SCRA 781 [1993].
7 169 SCRA 341 [1989].
8 114 SCRA 832 [1982].
9 MARIA CLARA M. CAMPOS, Insurance, 1983 ed., 199.
10 WILLIAM B. VANCE, Handbook on the Law of Insurance, 3rd ed. by Buist M. Andersen [1951], 1014.
11 Bowling vs. Hamblen County Motor Co., 66 S.W. 2d 229, 16 Tenn. App. 52.
12 Barret vs. Commercial Standard Ins. Co., Tex. Civ. App., 145 S.W. 2d 315.
13 Ledvinka vs. Home Ins. Co. of New York, 115 A. 596, 139 Md. 434, 19 A.L.R. 167.
14 Id.; Gulf Finance & Securities Co. vs. National Fire Ins. Co., 7 La. App. 8.
15 CAMPOS, op. cit., 22.
16 Verendia vs. Court of Appeals, 217 SCRA 417 [1993].
17 CAMPOS, op. cit., 13.
18 43 Am Jur 2d Insurance 271 [1982].
19 Stokes vs. Malayan Insurance, 127 SCRA 766 [1984].
20 Paramount Insurance Corp. vs. Japzon, 211 SCRA 879 [1992].
21 See Broadway Motors, Inc. vs. NLRC, supra note 6; Canlubang Security Agency Corp. vs. NLRC, 216 SCRA 280 [1992]; Vallum Security Services vs.
NLRC, supra note 6; and Villuga vs. NLRC, 225 SCRA 537 [1993].
22 See International Timber Corp. vs. NLRC, supra note 7; Baguio vs. NLRC, 202 SCRA 465 [1965].
23 Black's Law Dictionary, Fifth ed., 1170.

4. Verendia v. CA
THIRD DIVISION
G.R. No. 75605 January 22, 1993
RAFAEL (REX) VERENDIA, petitioner,
vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE PHILIPPINES, respondents.
G.R. No. 76399 January 22, 1993
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,
vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.
B.L. Padilla for petitioner.
Sabino Padilla, Jr. for Fidelity & Surety, Co.
MELO, J.:

The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance Company of
the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-18876 effective between June 23, 1980 and June 23,
1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the
amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia also insured the
same building with two other companies, namely, The Country Bankers Insurance for P56,000.00 under Policy No. PDB80-1913 expiring on May 12, 1981, and The Development Insurance for P400,000.00 under Policy No. F-48867 expiring
on June 30, 198l.
While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the early
morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite demands, refused payment
under its policy, thus prompting Verendia to file a complaint with the then Court of First Instance of Quezon City,
praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The complaint
was later amended to include Monte de Piedad as an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of over-insurance;
that Verendia maliciously represented that the building at the time of the fire was leased under a contract executed on
June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining
the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also violated by Verendia in that
the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and Development
Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on March 31, 1986, (CA-G.R.
No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court reversed for the following reasons:
(a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the name of
Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other contracts
of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim of Verendia (pp. 3233, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a motion for
reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3 days within which
to file a motion for reconsideration. The motion for extension was not filed on April 19, 1986 which was the 15th day
after receipt of the decision because said 15th day was a Saturday and of course, the following day was a Sunday (p.
14., Rollo of G.R. No. 75605). The motion for extension was granted by the appellate court on April 30, 1986 (p.
15. ibid.), but Fidelity had in the meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that the motion
for extension was filed out of time because the 15th day from receipt of the decision which fell on a Saturday was
ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has personnel receiving
pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for reconsideration was similarly
brushed aside on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605 was initiated. Subsequently,
or more specifically on October 21, 1986, the appellate court denied Fidelity's motion for reconsideration and account
thereof. Fidelity filed on March 31, 1986, the petition for review on certiorari now docketed as G.R. No. 76399. The two
petitions, inter-related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is the petition for review oncertiorari, we must
first determine whether the decision of the appellate court may still be reviewed, or whether the same is beyond further
judicial scrutiny. Stated otherwise, before anything else, inquiry must be made into the issue of whether Fidelity could
have legally asked for an extension of the 15-day reglementary period for appealing or for moving for reconsideration.

As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that the pendency of a motion for
extension of time to perfect an appeal does not suspend the running of the period sought to be extended (Garcia vs.
Buenaventura 74 Phil. 611 [1944]). To the same effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160
[1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King(20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not expressly prohibit the filing of a motion for
extension of time to file a motion for reconsideration in regard to a final order or judgment, magistrates, including those
in the Court of Appeals, held sharply divided opinions on whether the period for appealing which also includes the
period for moving to reconsider may be extended. The matter was not definitely settled until this Court issued its
Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]), declaring that beginning one month from the
promulgation of the resolution on May 30, 1986
. . . the rule shall be strictly enforced that no motion for extension of time to file a motion for new trial or
reconsideration shall be filed . . . (at p. 212.)
In the instant case, the motion for extension was filed and granted before June 30, 1986, although, of course, Verendia's
motion to expunge the motion for reconsideration was not finally disposed until July 22, 1986, or after the dictum
in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for extension came before its formal
proscription under Habaluyas, for which reason we now turn our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the contract of lease submitted by
Verendia to support his claim on the fire insurance policy constitutes a false declaration which would forfeit his benefits
under Section 13 of the policy and (b) whether or not, in submitting the subrogation receipt in evidence, Fidelity had in
effect agreed to settle Verendia's claim in the amount stated in said receipt. 1
Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better resolved by the
appellate court for, in a petition for review on certiorari under Rule 45, the jurisdiction of this Court is limited to the
review of errors of law. The appellate court's findings of fact are, therefore, conclusive upon this Court except in the
following cases: (1) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (2)
when the inference made is manifestly absurd, mistaken, or impossible; (3) when there is grave abuse of discretion in
the appreciation of facts; (4) when the judgment is premised on a misapprehension of facts; (5) when the findings of fact
are conflicting; and (6) when the Court of Appeals in making its findings went beyond the issues of the case and the
same are contrary to the admissions of both appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433
[1991]). In view of the conflicting findings of the trial court and the appellate court on important issues in these
consolidated cases and it appearing that the appellate court judgment is based on a misapprehension of facts, this Court
shall review the evidence on record.
The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between
him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days after the effectivity
of the insurance policy. When the rented residential building was razed to the ground on December 28, 1980, it appears
that Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation report
prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have "no occupant" and that
Mr. Roberto Garcia was "renting on the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia, whom he
considered as the real lessee, was occupying the building when it was burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate him. Robert
Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the effect that he was
not the lessee of Verendia's house and that his signature on the contract of lease was a complete forgery. Thus, on the
strength of these facts, the adjuster submitted a report dated December 4, 1981 recommending the denial of Verendia's
claim (Exh. "2").

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According to
Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been paying the rentals all the while. Verendia,
however, failed to explain why Marcelo had to sign his cousin's name when he in fact was paying for the rent and why
he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to
have sufficient bases; Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged
"lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor
of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with two other
insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by the
disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking Corporation vs.
Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of the insurer's liability and
compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Oriental Assurance
Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185
SCRA 741 [1991]). As it is also a contract of adhesion, an insurance contract should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares it (Western Guaranty Corporation vs. Court of
Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to support
his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be strictly construed against the
insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms that
are clear and unambiguous, that all benefits under the policy shall be forfeited "If the claim be in any respect fraudulent,
or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are used by the
Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false
declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein
by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking
Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false lease contract, Verendia, reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and demand the most abundant good faith
(Velasco vs. Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity bound itself
to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77. While the said
receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete
as the blank spaces for a witness and his address are not filled up. More significantly, the same receipt states that
Verendia had received the aforesaid amount. However, that Verendia had not received the amount stated therein, is
proven by the fact that Verendia himself filed the complaint for the full amount of P385,000.00 stated in the policy. It
might be that there had been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not
prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation
receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but would be
substituting the will of the Court for that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and the decision of
the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of the trial court is hereby
REINSTATED and UPHELD.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
# Footnotes
1 Fidelity appears to have agreed with the appellate court that it had waived Verendia's failure to abide by policy condition No. 3 on disclosure of
other insurance policies by its failure to assign it as an error in the petition in G.R. No. 76399. It must have likewise realized the futility of assigning

it as an error because on the first page of the policy the following is typewritten: "Other insurances allowed, the amounts to be declared in the
event of loss or when required."

5. New Life Enterprises v. CA


SECOND DIVISION
G.R. No. 94071 March 31, 1992
NEW LIFE ENTERPRISES and JULIAN SY, petitioners,
vs.
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and
WESTERN GUARANTY CORPORATION, respondents.
REGALADO, J.:
This appeal by certiorari seeks the nullification of the decision 1 of respondent Court of Appeals in CA-G.R. CV No. 13866
which reversed the decision of the Regional Trial Court, Branch LVII at Lucena City, jointly deciding Civil Cases Nos. 6-84,
7-84 and 8-84 thereof and consequently ordered the dismissal of the aforesaid actions filed by herein petitioners.
The undisputed background of this case as found by the court a quo and adopted by respondent court, being sustained
by the evidence on record, we hereby reproduce the same with approval. 2
The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business partnership
in the City of Lucena. Under the business name of New Life Enterprises, the partnership engaged in the
sale of construction materials at its place of business, a two storey building situated at Iyam,
Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life Enterpriseswith
Western Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable Insurance
Corporation.
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the amount
of P350,000.00. This policy was renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy No. 69135 inthe
amount of P300,000.00 (Renewed under Renewal Certificate No. 41997) An additional
insurancewas issued by the same company on November 12, 1981 under Fire Insurance Policy No.
71547 in the amount of P700,000.00.
On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in the
amount of P200,000.00.
Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00
o'clockin the morning of October 19, 1982, the stocks in the trade inside said building were insured
against fire in the total amount of P1,550,000.00. According to the certification issued by the
Headquarters,Philippine Constabulary /Integrated National Police, Camp Crame, the cause of fire was
electrical innature. According to the plaintiffs, the building and the stocks inside were burned.
After the fire,Julian Sy went to the agent of Reliance Insurance whom he asked to accompany him to the
office ofthe company so that he can file his claim. He averred that in support of his claim, he
submitted thefire clearance, the insurance policies and inventory of stocks. He further testified that the
three insurance companies are sister companies, and as a matter of fact when he was followingup hisclaim with Equitable Insurance, the Claims Manager told him to go first to Reliance
Insurance and ifsaid company agrees to pay, they would also pay. The same treatment was given him
by the otherinsurance companies. Ultimately, the three insurance companies denied plaintiffs' claim for
payment.

In its letter of denial dated March 9, 1983, (Exhibit "C" No. 884) Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told the plaintiff that his
claim "is denied for breach ofpolicy conditions." Reliance Insurance purveyed the same message in its
letter dated November 23, 1982 and signed by Executive Vice-President Mary Dee Co (Exhibit "C" No. 784) which said that "plaintiff's claim is denied for breach of policy conditions."
The letter of denial received by the plaintifffrom Equitable Insurance Corporation (Exhibit "C" No. 6-84)
was of the same tenor, as said letter dated February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find that certain policy conditions were violated, therefore, we regret,
we have to deny your claim, as it is hereby denied in its entirety."
In relation to the case against Reliance Surety and Insurance Company, a certain Atty. Serafin
D.Dator, acting in behalf of the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 784) toExecutive Vice-President Mary Dee Co asking that he be informed as to the specific policy
conditions allegedly violated by the plaintiff. In her reply-letter dated March 30, 1983, Executive VicePresidentMary Dee Co informed Atty. Dator that Julian Sy violated Policy Condition No.
"3" which requires theinsured to give notice of any insurance or insurances already effected covering
the stocks in trade. 3
Because of the denial of their claims for payment by the three (3) insurance companies, petitioner filed separate
civil actions against the former before the Regional Trial Court of Lucena City, which cases were consolidated for trial,
and thereafter the court below rendered its decision on December 19, l986 with the following disposition:
WHEREFORE, judgment in the above-entitled cases is rendered in the following manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the plaintiff New Life Enterprises and against the
defendant Equitable Insurance Corporation ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insuredhas been unreasonably denied, pursuant to Sec. 24
4 of the Insurance Code, defendant is furtherordered to pay the plaintiff attorney's fees in the amount
of Twenty Thousand (P20,000.00) Pesos. Allsums of money to be paid by virtue
hereof shall bear interest at 12% per annum (pursuant to Sec.244 of the Insurance Code) from
February 14, 1983, (91st day from November 16, 1982, whenSworn Statement of Fire Claim
was received from the insured) until they are fully paid;
2. In Civil Case No. 7-84, judgment is rendered for the plaintiff Julian Sy and against
the defendantReliance Surety and Insurance Co., Inc., ordering the latter to pay the former the sum
ofP1,000,000.00 (P300,000.00 under Policy No. 69135 and P700,000.00 under Policy No. 71547)
andconsidering that payment of the claim of the insured has been unreasonably denied, pursuant to
Sec.244 of the Insurance Code, defendant is further ordered to pay the plaintiff the amount of
P100,000.00 as attorney's fees.
All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec.
244 of the Insurance Code) from February 14, 1983, (91st day from November 16,
1982 whenSworn Statement of Fire Claim was received from the insured) until they are fully paid;
3. In Civil Case No. 8-84, judgment is rendered for
the plaintiff New Life Enterprises and against thedefendant Western Guaranty Corporation ordering
the latter to pay the sum of P350,000.00 to theConsolidated Bank and Trust Corporation,
Lucena Branch, Lucena City, as stipulated on the face ofPolicy No. 37201, and considering that payment
of the aforementioned sum of money has been
unreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant is further ordered topay
the plaintiff attorney's fees in the amount of P35,000.00.

All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec.
244 of the Insurance Code) from February 5, 1982, (91st day from 1st week of November 1983when
insured filed formal claim for full indemnity according to adjuster Vetremar Dela Merced) until they are
fully paid. 4
As aforestated, respondent Court of Appeals reversed said judgment of the trial court, hence this petition the
cruxwherein is whether or not Conditions Nos. 3 and 27 of the insurance contracts were violated by petitionersthereby
resulting in their forfeiture of all the benefits thereunder.
Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause," is uniformlycontained
in all the aforestated insurance contracts of herein petitioners, as follows:
3. The insured shall give notice to the Company of any insurance or insurances already effected, orwhich
may subsequently be effected, covering any of the property or properties
consisting of stocksin trade, goods in process and/or inventories only hereby insured, and unless
such notice be givenand the particulars of such insurance or insurances be stated therein or endorsed
on this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrenceof any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total insurance or insurances in
force at the time of loss ordamage not more than P200,000.00. 5
Petitioners admit that the respective insurance policies issued by private respondents did not state or endorse thereon
the other insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of which
compensation is claimed by petitioners. 6 The policy issued by respondent Western Guaranty Corporation(Western) did
not declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable Insurance
Corporation (Equitable) as co-insurers on the same stocks, while Reliance's Policies covering the same stocksdid not
likewise declare Western and Equitable as such co-insurers. It is further admitted by petitioners that Equitable'spolicy
stated "nil" in the space thereon requiring indication of any co-insurance although there were three (3) policies
subsisting on the same stocks in trade at the time of the loss, namely, that of Western in the amount of P350,000.00
andtwo (2) policies of Reliance in the total amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance effected or subsequently arranged by petitioners were
neither stated nor endorsed in the policies of the three (3) private respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the aforequoted Policy Condition No. 3.
Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon Alvarez (for
Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the additional
insurance coverage and that they were not informed about the requirement that such other or additional insurance
should be stated in the policy, as they have not even read policies. 8 These contentions cannot pass judicial muster.
The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any
other insurance and its particulars which he may have effected on the same subject matter. Theknowledge of such
insurance by the insurer's agents, even assuming the acquisition thereof by the former, is notthe "notice" that
would estop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is,
knowledge of the agent is knowledge of the principal, aside from being
of dubious applicabilityhere has likewise been roundly refuted by respondent court whose factual findings we find
acceptable.
Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez regarding the coinsurance on the property, he contradicted himself by inexplicably claiming that he had not read the termsof the
policies; that Yap Dam Chuan could not likewise have obtained such knowledge for the same reason, asidefrom the fact
that the insurance with Western was obtained before those of Reliance and Equitable; and that theconclusion of
the trial court that Reliance and Equitable are "sister companies" is an unfounded conjecture drawnfrom the mere fact

that Yap Kam Chuan was an agent for both companies which also had the same insuranceclaims adjuster. Availment of
the services of the same agents and adjusters by different companies is a commonpractice in the insurance business and
such facts do not warrant the speculative conclusion of the trial court.
Furthermore, when the words and language of documents are clear and plain or readily understandable by an ordinary
reader thereof, there is absolutely no room for interpretation or construction anymore. 9 Courts are not allowed to make
contracts for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal,
or uncertain. 10 The parties must abide by the terms of the contract because such terms constitute the
measureof the insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery
from the insurer.11
While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally
infavor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the parties themselves have used. Ifsuch terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. 12 Moreover,
obligations arising from contracts have the force of law between the contracting parties and should becomplied with in
good faith. 13
Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and
prudence that would be exacted in relation to other contracts. The conformity of the insured to the terms of the
policy is implied from his failure to express any disagreement with what is provided for. 14 It may be true that
themajority rule, as cited by petitioners, is that injured persons may accept policies without reading them, and that this
is not negligence per se. 15 But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the
insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since
1965 16 and the contract concerns indemnity in case ofloss in his money-making trade of which important
consideration he could not have been unaware as it was pre-in case of loss in his money-making trade of which
important consideration he could not have been unaware as it was precisely the reason for his procuring the same.
We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap: 17
...
And considering the terms of the policy which required the insured to declare other insurances,the state
ment in question must be deemed to be a statement (warranty) binding on both insurer and insured,
that there were no other insurance on the property. . . .
The annotation then, must be deemed to be a warranty that the property was not insured by any other
policy. Violation thereof entitled the insurer to rescind (Sec. 69, Insurance Act). Suchmisrepresentation
is fatal in the light of our views in Santa Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil.
329. The materiality of non-disclosure of other insurance policies is not open to doubt.
xxx xxx xxx
The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus
avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the
situation in which a fire would be profitable to the insured. According to Justice Story: "The insured has
no right to complain, for he assents to comply with all the stipulations on
his side, in order toentitle himself to the benefit of the contract, which, upon reason or principle, he
has no right to askthe court to dispense with the performance of his own part of the agreement, and yet
to bind theother party to obligations, which, but for those stipulations, would not have been entered
into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., 18 we held:

It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the
Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a
falsedeclaration; a clear misrepresentation and a vital one because where the insured had been asked to
reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many
co-insurances, it could have hesitated or plainly desisted from entering into such contract.
Hence, theinsured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In
fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself
when the facts alleged in the policy under clauses "Co-Insurances Declared" and
"OtherInsurance Clause" are materially different from the actual number of co-insurances taken over
thesubject property. Consequently, "the whole foundation of the contract fails, the
risk does not attachand the policy never becomes a contract between the
parties." Representations of facts are the foundation of the contract and if the foundation does not
exist, the superstructure does not arise.Falsehood in such representations is not shown to vary
or add to the contract, or to terminate a contract which has once been made, but to
show that no contract has ever existed (Tolentino,Commercial Laws of the Philippines, p.
991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no force and effect from the very
beginning, as if it had never been entered into, and which cannot be validated either by time or by
ratification (Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
As the insurance policy against fire expressly required that notice should be given by
the insured ofother insurance upon the same property, the total absence of such notice nullifies the
policy.
To further warrant and justify the forfeiture of the benefits under the insurance contracts involved, we need
merelyto turn to Policy Condition No. 15 thereof, which reads in part:
15. . . . if any false declaration be made or used in support thereof, . . . all benefits under this Policy shall
be forfeited . . . . 19
Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint for recovery
was filed in court by petitioners only on January 31, 1984, or after more than one (1) year had
elapsedfrom petitioners' receipt of the insurers' letter of denial on November 29, 1982. Policy Condition No. 27 of their
insurance contract with Reliance provides:
27. Action or suit clause. If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or any court of competent jurisdiction of notice of such
rejection,or in case of arbitration taking place as provided herein, within twelve (12) months after due
notice ofthe award made by the arbitrator or arbitrators or umpire, then the claim shall for all purposes
be deemed to have been abandoned and shall not thereafter be recoverable hereunder. 20
On this point, the trial court ruled:
. . . However, because of the peculiar circumstances of this case, we hesitate
in concluding thatplaintiff's right to ventilate his claim in court has been barred by reason of the time co
nstraintprovided in the insurance contract. It is evident that after the plaintiff had received
the letter of denial,he still found it necessary to be informed of the specific causes or reasons for
the denial of his claim,reason for which his lawyer, Atty. Dator deemed it wise to send a
letter of inquiry to the defendantwhich was answered by defendant's Executive VicePresident in a letter dated March 30, 1983, . . . .Assuming, gratuitously, that the letter of Executive VicePresident Mary Dee Co dated March 30, 1983, was received by plaintiff on the same date, the period
of limitation should start to run only fromsaid date in the spirit of fair play and equity. . . . 21

We have perforce to reject this theory of the court below for being contrary to what we have heretofore declared:
It is important to note the principle laid down by this Court in the case of Ang vs. Fulton Fire Insurance
Co. (2 SCRA 945 [1961]) to wit:
The condition contained in an insurance policy that claims must be presented within
one year
after rejection is not merely a procedural requirement but an important matter
essential to a prompt settlement of claims against insurance companies as it
demandsthat insurance suits be brought by the insured while the evidence as to the
origin andcause of destruction have not yet disappeared.
In enunciating the above-cited principle, this Court had definitely settled the rationale for the
necessity of bringing suits against the Insurer within one year from the rejection of the claim. The
contention of the respondents that the one-year prescriptive period does
not start to run until thepetition for reconsideration had been resolved by the insurer, runs counter to t
he declared purpose for requiring that an action or suit be filed in the Insurance
Commission or in a court of competent jurisdiction from the denial of the claim. To uphold respondents'
contention would contradict anddefeat the very principle which this Court had laid down. Moreover,
it can easily be used by insured persons as a scheme or device to waste time
until any evidence which may be considered againstthem is destroyed.
xxx xxx xxx
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the
samecannot be taken to mean the rejection of a petition for reconsideration as insisted by respondents.
Such was clearly not the meaning contemplated by this Court. The insurance policy in said
caseprovides that the insured should file his claim first, with the carrier and then with the insurer.
The"final rejection" being referred to in said case is the rejection by the insurance company. 22
Furthermore, assuming arguendo that petitioners felt the legitimate need to be clarified as to the policy condition
violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory letter dated March 30,
1983, up to the time the complaint was filed in court on January 31, 1984. The one-year prescriptive periodwas yet
to expire on November 29, 1983, or about eight (8) months from the receipt of the clarificatory letter, butpetitioners let
the period lapse without bringing their action in court. We accordingly find no "peculiarcircumstances" sufficient to
relax the enforcement of the one-year prescriptive period and we, therefore, hold thatpetitioners' claim was definitely
filed out of time.
WHEREFORE, finding no cogent reason to disturb the judgment
of respondent Court of Appeals, the same ishereby AFFIRMED.
SO ORDERED.
Melencio-Hererra and Nocon, JJ., concur.
Paras, J., took no part.
Padilla, J., took no part.
Footnotes
1 Justice Serafin V.C. Guingona, ponente, with Justices Gloria C. Paras and Bonifacio A. Cacdac, Jr., concurring Rollo, 51.
2 Per Judge Hoover S. Abling.
3 Rollo, 34-36.
4 Ibid., 32-33.
5 Exhibits "20-c", "18-b", "14-b"; Folder of Exhibit, 20, 29, 31.

6 Memorandum for Petitioners, 13.


7 Rollo, 35.
8 Memorandum for the Petitioners, 13.
9 Marina Port Services, Inc. vs. Iniego, et al., 181 SCRA 304 (1990).
10 Pan Malayan Insurance Corporation vs. Court of Appeals, et al., 184 SCRA 54 (1990).
11 Perla Compania de Seguros, Inc. vs. Court of Appeals, et al., 185 SCRA 741 (1990).
12 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., 195 SCRA 193 (1991).
13 Article 1159, Civil Code.
14 Ang Giok Chip, etc. vs. Springfield Fire & Marine Insurance Company, 56 SCRA 375 (1931).
15 Vance on Insurance, 1951 ed., 257; Memorandum for the Petitioners, 22.
16 TSN, February 11, 1986, 28.
17 61 SCRA 426 (1974), citing General Insurance & Surety Corporation vs. Ng Hua, 106 Phil. 1117, 1119-1120 (1960).
18 168 SCRA 1 (1988).
19 Exhibits "20-d", "18-e, "14-e"; Folder of Exhibits, 21, 30, 33.
20 Exhibit "14-f"; Folder of Exhibits, 33.
21 Rollo, 49.
22 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., supra, Fn. 12.

6. National Power Corp. v. CA


SECOND DIVISION
G.R. No. L-43706 November 14, 1986
NATIONAL POWER CORPORATION, petitioner,
vs.
COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., respondents.
Conrado Q. Crucillo for petitioner.
Gregorio D. David for private respondent.
PARAS, J.:
This is a petition for review on certiorari seeking to set aside: (a) the judgment of respondent Court of Appeals dated
March 25, 1976 in CA-G.R. No. 50112-R, entitled National Power Corporation, Plaintiff-Appellee vs. The Philippine
American Insurance Company, Inc. Defendant-Appellant, which reversed the decision of the Court of First Instance of
Manila in Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric, Inc., et al." and (b)
respondent's Court's resolution dated April 19, 1976 denying petitioner National Power Corporation's Motion for
Reconsideration (Petition, p. 13, Rollo).
The undisputed facts of this case are as follows:
The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc. (FFEI) on December 26,
1962 for the erection of the Angat Balintawak 115-KW-3-Phase transmission lines for the Angat Hydroelectric Project.
FEEI agreed to complete the work within 120 days from the signing of the contract, otherwise it would pay NPC P200.00
per calendar day as liquidated damages, while NPC agreed to pay the sum of P97,829.00 as consideration. On the other
hand, Philippine American General Insurance Co., Inc. (Philamgen) issued a surety bond in the amount of P30,672.00 for
the faithful performance of the undertaking by FEEI, as required.
The condition of the bond reads:
The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. under this bond will
expire One (1) year from final Completion and Acceptance and said bond will be cancelled 30 days after
its expiration, unless surety is notified of any existing obligation thereunder. (Exhibit 1-a)
in correlation with the provisions of the construction contract between Petitioner and Far Eastern Electric, Inc.
particularly the following provisions of the Specifications. to wit:

1. Par. 1B-2l Release of Bond


1B-21 Release of Bond
The Contractor's performance bond will be released by the National Power Corporation at the expiration
of one (1) year from the completion and final acceptance of the work, pursuant to the provisions of Act
No. 3959, and subject to the General Conditions of this contract. (Page 49, Printed Record on Appeal);
and
2. GP-19 of Specifications, which reads:
(a) Should the Contractor fail to complete the construction of the work as herein specified and agreed
upon, or if the work is abandoned, ... the Corporation shall have the power to take over the work by
giving notice in writing to that effect to the Contractor and his sureties of its intention to take over the
construction work.
(b) ... It is expressly agreed that in the event the corporation takes over the work from the Contractor,
the latter and his bondsmen shall continue to be liable under this contract for any expense in the
completion of the work in excess of the contract price and the bond filed by the Contractor shall be
answerable for the same and for any and all damages that the Corporation may suffer as a result
thereof. (pp. 76-78, Printed Record on Appeal)
FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI and Philamgen wrote NPC requesting
the assistance of the latter to complete the project due to unavailability of the equipment of FEEI. The work was
abandoned on June 26, 1963, leaving the construction unfinished. On July 19, 1963, in a joint letter, Philamgen and FEEI
informed NPC that FEEI was giving up the construction due to financial difficulties. On the same date, NPC wrote
Philamgen informing it of the withdrawal of FEEI from the work and formally holding both FEEI and Philamgen liable for
the cost of the work to be completed as of July 20, 1962 plus damages.
The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC notified Philamgen that FEEI had an
outstanding obligation in the amount of P75,019.85, exclusive of interest and damages, and demanded the remittance
of the amount of the surety bond the answer for the cost of completion of the work. In reply, Philamgen requested for a
detailed statement of account, but after receipt of the same, Philamgen did not pay as demanded but contended
instead that its liability under the bond has expired on September 20, 1964 and claimed that no notice of any obligation
of the surety was made within 30 days after its expiration. (Record on Appeal, pp. 191-194; Rollo, pp. 62-64).
NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89 spent to complete the work abandoned;
P144,000.00 as liquidated damages and P20,000.00 as attorney's fees. Only Philamgen answered while FEEI was
declared in default.
The trial court rendered judgment in favor of NPC, the dispositive portion of which reads:
WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to pay the plaintiff the sum of
P75,019.86 plus interest at the legal rate from September 21, 1967 until fully paid. Out of said amount,
both defendants, Far Eastern Electric, Inc., and the Philippine American Insurance Company, Inc., are
ordered to pay, jointly and severally, the amount of P30,672.00 covered by Surety Bond No. 26268,
dated December 26, 1962, plus interest at the legal rate from September 21, 1967 until fully paid,
Both defendants are also ordered to pay plaintiff the sum of P3,000.00 as attorney's fees and costs.
On appeal by Philamgen, the Court of Appeals reversed the lower court's decision and dismissed the complaint.
Hence this petition.

Respondent Philamgen filed its comment on the petition on August 6, 1978 (Rollo, p. 62) in compliance with the
resolution dated June 16, 1976 of the First Division of this Court (Rollo, p. 52) while petitioner NPC filed its Reply to the
comment of respondent (Rollo, p. 76) as required in the resolution of this Court of August 16, 1976, (Rollo, p. 70). In the
resolution of September 20, 1976, the petition for certiorari was given due course (Rollo, p. 85). Petitioner's brief was
filed on November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief within the required period and this case
was submitted for decision without respondent's brief in the resolution of this Court of February 25. 1977) Rollo, p. 103).
In its brief, petitioner raised the following assignment of errors:
I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD HAVE GIVEN NOTICE
TO PRIVATE RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION WITHIN 30 DAYS FROM
EXPIRATION OF THE BOND TO HOLD SAID SURETY LIABLE THEREUNDER, DESPITE PETITIONER'S TAKING
OVER OF THE WORK ABANDONED BY THE CONTRACTOR BEFORE ITS COMPLETION.
II
ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL NOTIFY PRIVATE RESPONDENT PHILAMGEN OF
ANY EXISTING OBLIGATION UNDER THE BOND DESPITE THE TAKE-OVER OF WORK BY PETITIONER,
RESPONDENT COURT OF APPEALS NONETHELESS ERRED IN HOLDING THAT PETITIONER'S LETTER DATED
JULY 19, 1963 (EXH. E) TO PRIVATE RESPONDENT WAS NOT SUFFICIENT COMPLIANCE WITH THE
CONDITION OF THE BOND.
III
RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT PHILAMGEN FROM ITS
LIABILITY UNDER THE BOND.
The decisive issue in this case is the correct interpretation and/or application of the condition of the bond relative to its
expiration, in correlation with the provisions of the construction contract, the faithful performance of which, said bond
was issued to secure.
The bone of contention in this case is the compliance with the notice requirement as a condition in order to hold the
surety liable under the bond.
Petitioner claims that it has already complied with such requirement by virtue of its notice dated July 19, 1963 of
abandonment of work by FEEI and of its takeover to finish the construction, at the same time formally holding both FEEI
and Philamgen liable for the uncompleted work and damages. It further argued that the notice required in the bond
within 30 days after its expiration of any existing obligation, is applicable only in case the contractor itself had completed
the contract and not when the contractor failed to complete the work, from which arises the continued liability of the
surety under its bond as expressly provided for in the contract. Petitioner's contention was sustained by the trial court.
On the other hand, private respondent insists that petitioner's notice dated July 19, 1983 is not sufficient despite
previous events that it had knowledge of FEEI's failure to comply with the contract and claims that it cannot be held
liable under the bond without notice within thirty days from the expiration of the bond, that there is a subsisting
obligation. Private respondent's contention is sustained by the Court of Appeals.
The petition is impressed with merit.
As correctly assessed by the trial court, the evidence on record shows that as early as May 30, 1963, Philamgen was duly
informed of the failure of its principal to comply with its undertaking. In fact, said notice of failure was also signed by its
Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was abandoning the construction job, the

latter forthwith informed Philamgen of the fact on the same date. Moreover, on August 1, 1963, the fact that Philamgen
was seasonably notified, was even bolstered by its request from NPC for information of the percentage completed by
the bond principal prior to the relinquishment of the job to the latter and the reason for said relinquishment. (Record on
Appeal, pp. 193-195). The 30-day notice adverted to in the surety bond applies to the completion of the work by the
contractor. This completion by the contractor never materialized.
The surety bond must be read in its entirety and together with the contract between NPC and the contractors. The
provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and
then made to control.
Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly
against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its
beneficiary. (Serrano v. Court of Appeals, 130 SCRA 327, July 16, 1984).
In the case at bar, it cannot be denied that the breach of contract in this case, that is, the abandonment of the
unfinished work of the transmission line of the petitioner by the contractor Far Eastern Electric, Inc. was within the
effective date of the contract and the surety bond. Such abandonment gave rise to the continuing liability of the bond as
provided for in the contract which is deemed incorporated in the surety bond executed for its completion. To rule
therefore that private respondent was not properly notified would be gross error.
PREMISES CONSIDERED, the decision dated March 25, 1976 and the resolution dated April 19, 1976 of the Court of
Appeals are hereby SET ASIDE, and a new one is hereby rendered reinstating the decision of the Court of First Instance
of Manila in Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric, Inc., et al."
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

B. AS A CONSENSUAL CONTRACT
7. Great Pacific Life Assur. Co. v. CA
FIRST DIVISION
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No.
L-31878, p. 58), because the petitioners in both cases seek similar relief, through these petitions for certiorari by way of
appeal, from the amended decision of respondent Court of Appeals which affirmed in toto the decision of the Court of
First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe Assurance Company and

Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with
interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance
Company (hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the amount of P50,000.00 on
the life of his one-year old daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting
(Exhibit I-M). Mondragon finally type-wrote the data on the application form which was signed by private respondent
Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life. Upon the payment of the
insurance premuim, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for
the approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from Pacific Life
disapproving the insurance application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can consider the same under the
Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to
the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to
private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending
the approval of the 20-year endowment insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, private respondent sought the payment of the proceeds of the insurance, but having
failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which
rendered the adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary
contract of the life insurance in question; and (2) whether private respondent Ngo Hing concealed the state of health
and physical condition of Helen Go, which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These
conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the insurance
application, ON or PRIOR to the date of medical examination ... said insurance shan be in force and in
effect from the date of such medical examination, for such period as is covered by the deposit
...,PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard
rates under its rule for the amount of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of insurance and/or
the kind of policy requested in the application but issue, or offers to issue a policy for a different plan
and/or amount ..., the insurance shall not be in force and in effect until the applicant shall have accepted
the policy as issued or offered by the Company and shall have paid the full premium thereof. If the
applicant does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company declines to
approve the application the insurance applied for shall not have been in force at any time and the sum
paid be returned to the applicant upon the surrender of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be merely a
provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company

shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant
accepts the policy offered; otherwise, the deposit shall be reftmded; and (3) that if the applicant is not ble according to
the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any
time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the
insurance premium and had accepted the application subject for processing by the insurance company; and that the
latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard
rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit
receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright.
As held by this Court, where an agreement is made between the applicant and the agent, no liability shall attach until
the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip"
or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life
disapproved the insurance application in question on the ground that it is not offering the twenty-year endowment
insurance policy to children less than seven years of age. What it offered instead is another plan known as the Juvenile
Triple Action, which private respondent failed to accept. In the absence of a meeting of the minds between petitioner
Pacific Life and private respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in
favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance contract duly perfected between thenl
Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other contracts, must
be assented to by both parties either in person or by their agents ... The contract, to be binding from the date of the
application, must have been a completed contract, one that leaves nothing to be dione, nothing to be completed,
nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the
minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner Mondragon to communicate to
him the rejection of the insurance application would not have any adverse effect on the allegedly perfected temporary
contract (Respondent's Brief, pp. 13-14). In this first place, there was no contract perfected between the parties who
had no meeting of their minds. Private respondet, being an authorized insurance agent of Pacific Life at Cebu branch
office, is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the
recommendation of Mondragon for the acceptance and approval of the application in question along with his proposal
that the insurance company starts to offer the 20-year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the proposal and recommendation. Secondly, having an
insurable interest on the life of his one-year old daughter, aside from being an insurance agent and an offense associate
of petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on the processing of
such application and could not pretend ignorance of the Company's rejection of the 20-year endowment life insurance
application.
At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice
Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the amended decision of the
respondent court which completely reversed the original decision, the following:

Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply
thereto of appellant Mondragon reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly communicated to Ngo; Hing, father of
the minor applicant. I am not quite conninced that this was so. Ngo Hing, as father of the applicant
herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement
of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing
was "our associate" and that it was the latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable that the progress in the processing of
the application was not brought home to his knowledge. He must have been duly apprised of the
rejection of the application for a 20-year endowment plan otherwise Mondragon would not have
asserted that it was Ngo Hing himself who insisted on the application as originally filed, thereby implictly
declining the offer to consider the application under the Juvenile Triple Action Plan. Besides, the
associate of Mondragon that he was, Ngo Hing should only be presumed to know what kind of policies
are available in the company for minors below 7 years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the company into going into the business of issuing
endowment policies for minors just as other insurance companies allegedly do. Until such a definite
policy is however, adopted by the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by then issued at all. (Amended
Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private respondent had
deliberately concealed the state of health and piysical condition of his daughter Helen Go. Wher private regpondeit
supplied the required essential data for the insurance application form, he was fully aware that his one-year old
daughter is typically a mongoloid child. Such a congenital physical defect could never be ensconced nor disguished.
Nonetheless, private respondent, in apparent bad faith, withheld the fact materal to the risk to be assumed by the
insurance compary. As an insurance agent of Pacific Life, he ought to know, as he surely must have known. his duty and
responsibility to such a material fact. Had he diamond said significant fact in the insurance application fom Pacific Life
would have verified the same and would have had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect candor or
openness and honesty; the absence of any concealment or demotion, however slight [Black's Law Dictionary, 2nd
Edition], not for the alone but equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd Ought to communicate (Section 25, Act No.
2427). Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of insurance
(Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life Insurance
Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance
of the conditions provided in the binding receipt, and concealment, as legally defined, having been comraitted by herein
private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered absolving
petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil liabilities as found by
respondent Court and ordering the aforesaid insurance company to reimburse the amount of P1,077.75, without
interest, to private respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.
Fernandez, J., took no part.

C. AS A CONTRACT OF INDEMNITY

8. Mayer Steel Pipe Corp. v. CA


SECOND DIVISION
[G.R. No. 124050. June 19, 1997]
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs. COURT OF
APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE
CORPORATION, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of Appeals dated
December 14, 1995[1]and its Resolution dated February 22, 1996[2] in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe
Corporation and Hongkong Government Supplies Department v. South Sea Surety Insurance Co., Inc. and The Charter
Insurance Corporation.[3]
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe
Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October, 1983, Mayer
shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC1020, MSPC-1017 and MSPC-1022.[4]
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents South
Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and fittings covered by
Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of US$212,772.09 were insured with respondent South
Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with
respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector
to examine whether the pipes and fittings are manufactured in accordance with the specifications in the
contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded
in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof was
damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent
Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the balance of
HK$299,345.30 representing the cost of repair of the damaged pipes. Private respondents refused to pay because the
insurance surveyor's report allegedly showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For
their defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners
because the damage to the goods is due to factory defects which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing
defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents are "all risks"
policies which insure against all causes of conceivable loss or damage. The only exceptions are those excluded in the
policy, or those sustained due to fraud or intentional misconduct on the part of the insured. The dispositive portion of
the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to pay the plaintiffs
the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with legal rate of interest as of the
filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.

SO ORDERED.[5]
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it was
covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer. However, it set aside the
decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action is barred
under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years
from the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that
"the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within
one year after delivery of the goods or the date when the goods should have been delivered." Respondent court ruled
that this provision applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. vs.
Alejandro.[6]
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had already prescribed on
the mistaken application of the Carriage of Goods by Sea Act and the doctrine of Filipino Merchants Co.,
Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the complaint.[7]
The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of Goods by
Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all
liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when
they should have been delivered. Under this provision, only the carrier's liability is extinguished if no suit is brought
within one year. But the liability of the insurer is not extinguished because the insurer's liability is based not on the
contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by
Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer
on the other hand. It defines the obligations of the carrier under the contract of carriage. It does not, however, affect
the relationship between the shipper and the insurer. The latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro[8] and the other cases[9] cited therein does not
support respondent court's view that the insurer's liability prescribes after one year if no action for indemnity is filed
against the carrier or the insurer. In that case, the shipper filed a complaint against the insurer for recovery of a sum of
money as indemnity for the loss and damage sustained by the insured goods. The insurer, in turn, filed a third-party
complaint against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party
complaint on January 9, 1978, more than one year after delivery of the goods on December 17, 1977. The court held
that the Insurer was already barred from filing a claim against the carrier because under the Carriage of Goods by Sea
Act, the suit against the carrier must be filed within one year after delivery of the goods or the date when the goods
should have been delivered. The court said that "the coverage of the Act includes the insurer of the goods."[10]
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer which filed a
claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper
which filed a claim against the insurer.The basis of the shipper's claim is the "all risks" insurance policies issued by
private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the
consignee or the insurer.When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act
applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier beyond
the one-year period provided in the law. But it does not mean that the shipper may no longer file a claim against the
insurer because the basis of the insurer's liability is the insurance contract. An insurance contract is a contract whereby
one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may
suffer from a specified peril.[11] An "all risks" insurance policy covers all kinds of loss other than those due to willful and
fraudulent act of the insured.[12] Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they

bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in
ten years, in accordance with Article 1144 of the New Civil Code.[13]
IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated December 14,
1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision of the Regional Trial Court is
hereby REINSTATED. No costs.
SO ORDERED.
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.
[1]

Annex "A" of the Petition, Rollo, pp. 15-30.


Annex "B" of the Petition, Rollo, pp. 31-32.
[3]
Penned by Justice Minerva P. Gonzaga-Reyes with the concurrence of Justices Buenaventura J. Guerrero and Romeo A. Brawner.
[4]
The pipes and fittings covered by Invoice Nos. MSPC-1014 and MSPC-1017 were loaded on August 24, 1983; those covered by Invoice No. MSPC1015 were loaded on August 31, 1983; those covered by Invoice Nos. MSPC-1020 and MSPC-1022 were loaded on October 10, 1983; and
those covered by Invoice No. MSPC-1025 were loaded on October 21, 1983.
[5]
Rollo, pp. 20-21.
[6]
145 SCRA 42 (1986).
[7]
Petition, Rollo, p. 10.
[8]
145 SCRA 42 (1986).
[9]
See Chua Kuy v. Everett Steamship Corporation (93 Phil 207 and Aetna Insurance Co. v. Luzon Stevedoring Corporation (62 SCRA 11).
[10]
At p. 47.
[11]
43 American Jurisprudence 2d 74-75.
[12]
Filipino Merchants Insurance Co., Inc. v. Court of Appeals, 179 SCRA 638 (1989).
[13]
Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
[2]

9. Paramount Ins. Corp. v. Japzon


THIRD DIVISION
G.R. No. L-68037 July 29, 1992
PARAMOUNT INSURANCE CORPORATION, petitioner,
vs.
HON. MAXIMO M. JAPZON, Presiding Judge, Br. 36, RTC, Manila; City Sheriff and Deputy Sheriffs Nestor Macabilin &
Teodoro Episcope, public respondents, JOSE LARA and ARSENIO PAED, private respondents.
ROMERO, J.:
Assailed in this petition for certiorari and prohibition with preliminary injunction is the decision 1 of the Regional Trial
Court of Manila, Branch 36 dated August 30, 1983 in Civil Case No. 82-4416 entitled "Jose Lara and Arsenio Paed v. Willy
Garcia, Emilio Macasieb, Domingo Natividad, Willy Manuel, and Paramount Insurance Co. Inc." ordering petitioner to
pay private respondents an aggregate sum of P175,000.00 as insurer of a motor vehicle owned by Domingo Natividad
despite the absence of jurisdiction over its persons.
It appears that on May 27, 1978, Jose Lara contracted the services of a passenger jeepney with Plate No. PUJ K5-826,
owned and operated by Willy Garcia (Garcia for brevity), to transport his family, relatives and friends from Manila to
Pangasinan. The said jeepney was then driven by Emilio Macasieb (Macasieb for brevity).
On the very same date, within the vicinity of Barangay Parsolingan in Gerona, Tarlac, a Ford truck F-600 with Plate No.
WL-628, then driven by Willy Manuel (Manuel for brevity) while cruising the National Highway on its way to Manila,
overtook an unidentified motor vehicle and in the process hit and sideswept the said passenger jeepney then driven by
Macasieb. As a consequence of such mishap, the two (2) passengers of the jeepney, namely: Jose Lara (Lara for brevity)
and Arsenio Paed (Paed for brevity) sustained physical injuries of varying degrees. Specifically, Lara suffered serious

physical injuries resulting in the amputation of his right arm while Paed suffered serious physical injuries which
incapacitated him to work for more than two (2) weeks. Aside from bodily injuries suffered by its passengers, both
vehicles suffered minor damages at their respective points of impact. The insurer of said truck is herein petitioner
Paramount Surety and Insurance Co. Inc. 2
After the said accident, Natividad filed a notice of claim with Paramount and the latter lost no time in dispatching and/or
contracting an independent adjuster handling casualty and marine claims, the EM Salvatierra Adjustment Office.
Thereafter, the adjustment of Natividad's claims were transferred to Speedway Adjustment and Appraisal Corporation
which investigated the facts surrounding the incident and recommended petitioner to pay Natividad under its policy,
using the "no fault" clause under the Insurance Code as its basis of liability.
A check in the amount of Eight Hundred Pesos (P800.00) covered by Check No. EBC-10036191F was paid to Paed's wife,
Priscilla Paed. It was covered by Voucher No. 32358. 3
In addition to said amount, another check in the amount of Five Thousand Pesos (P5,000.00) covered by EBC Check No.
3082 was paid by Paramount to Central Luzon Doctor's Hospital covering the expense for medical treatment and
hospitalization of the victims, Lara and Paed. It was covered by Voucher No. 32196. 4
On or about June 5, 1978, Lara and Paed filed a criminal case against Manuel for Reckless Imprudence resulting in
Damage to Property docketed as Criminal Case No. 2227 before the Municipal Trial Court of Gerona, Tarlac. 5
During the pendency of said criminal case, Lara filed a manifestation reserving the right to file a separate civil action
against the operators of the two (2) vehicles, namely: Natividad and Garcia as well as the two (2) drivers, Manuel and
Macasieb. 6
Accordingly, Lara and Paed filed on September 17, 1978 a civil case for damages docketed as Civil Case No. 82-4416
against Garcia, Macasieb, Manuel, Natividad, and impleaded Paramount, the latter as insurer of the Ford truck. 7
A certain Atty. Segundo Gloria filed a notice of appearance dated November 16, 1978 where he informed the court that
he was appearing for and in behalf of the defendants Natividad, Manuel and Paramount. 8 Subsequently, on December
14, 1978, he filed an answer with crossclaim and counterclaim. 9
During the trial of Criminal Case No. 2227 for Reckless Imprudence resulting in Damage to Property, accused Manuel
pleaded guilty to the crime charged on September 18, 1979, and was accordingly, sentenced to imprisonment of six
months of arresto mayor maximum under Article 365 of the Revised Penal Code. 10
In the interim period, a fire gutted the City Hall of Manila on November 19, 1981 and the records of the case were
burned to ashes. Subsequently, on January 25, 1982, plaintiffs (herein private respondents Lara and Paed) filed a
petition for reconstitution of the judicial records of the case 11 which was approved without any opposition in the order
of the court dated November 4, 1982. 12
On February 17, 1983, the court reiterated its order before the reconstitution of the judicial records declaring
defendants Natividad, Manuel and Paramount in default in view of their continued failure to appear during the trial of
the case and allowed the plaintiffs (Lara and Paed) to make a formal offer of exhibits and considered the case submitted
for decision. 13
After protracted proceedings which lasted for almost five years, the Regional Trial Court of Manila, rendered a decision
dated August 30, 1983, the decretal portion of which states:
WHEREFORE, finding the evidence presented by plaintiff sufficient to prove the allegations of the
complaint, judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering
the latter to pay jointly and severally plaintiff Jose Lara, the amount of P15,000.00 for medical and

hospitalization expenses; the sum of P80,000.00 as moral and exemplary damages; the sum of
P50,000.00 as compensatory damages; to pay jointly and severally plaintiff Arsenio Paed the sum of
P20,000.00 as moral and actual damages and to pay the sum of P10,000.00 by way of attorney's fees
and the costs of suit. 14
A copy of the said decision was served on the petitioner's counsel, Atty. Segundo Gloria, on October 5, 1981. 15No appeal
from the judgment having been filed within the reglementary period or up to October 20, 1983, the same became final
and executory. So, on March 2, 1984, Lara and Paed, now private respondents, filed an ex-parte motion for execution of
the said judgment and the trial court granted the same on July 10, 1984. 16
It was only on March 3, 1984 that Paramount, now petitioner, filed a motion to set aside the Decision raising the issue
that the court has not validly acquired jurisdiction over its person. 17
Hence, the present recourse.
After deliberating on the petition, the Court issued a temporary restraining order on July 30, 1984 as prayed for and
enjoined the respondents from enforcing the Decision dated August 30, 1983 and the Writ of Execution dated July 10,
1984, both rendered and issued in Civil Case No. 82-4416. 18
The pivotal issue to be resolved in this case is whether or not the court validly acquired jurisdiction over petitioner
despite the appearance of Atty. Segundo M. Gloria who allegedly was not retained or authorized to file an answer for
it. 19
Petitioner now claims that the Decision of the trial court dated August 30, 1983, should be set aside since the court has
not validly acquired jurisdiction over its person, not having been validly served with summons and a copy of the
complaint nor did it actively participate in the said proceedings. It alleged that Atty. Segundo Gloria was not its retained
counsel at that time nor was he authorized by petitioner to act for and in its behalf; and that private respondents' claims
for moral, exemplary and compensatory damages as well as attorney's fees are not recoverable from petitioner. 20
The petition is devoid of merit.
Jurisdiction is the power with which courts are invested for administering justice, that is, for hearing and deciding
cases. 21 In order for the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over
the subject matter and the parties. 22
Jurisdiction over the person of the defendant in civil cases is acquired either by his voluntary appearance in court and his
submission to its authority or by service of summons. The service of summons is intended to give notice to the
defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on
guard as to the demands of the plaintiff or the petitioner. 23
Consequently, petitioner's contentions that it was not properly served with summons and that Atty. Segundo Gloria was
not authorized to appear for and in its behalf are untenable.
In the case at bar, although petitioner questioned the propriety of the service of summons, it however failed to
substantiate its allegation that it was not properly served with summons. Hence, the disputable presumption that official
duty has been regularly performed prevails. 24
The records of the case, however, showed that all the pleadings, including the answer with crossclaim and counterclaim
filed by Atty. Segundo Gloria stated that he represented the defendants Natividad, Manuel and Paramount. In fact, he
even filed a notice of appearance informing the court that he is representing the said defendants. 25
It is worth noting that this is not the first time petitioner raised the issue of warrant of jurisdiction over its person as well
as warrant of authority of a lawyer to appear for and in its behalf. In the case docketed as G.R. No. 68066 entitled

"Paramount Insurance Corp. v. Luna," this Court had the opportunity to rule that "the mere filling of the answer with
crossclaim raised a presumption of authority to appear for petitioner Paramount Insurance Corporation . . . in
accordance with Section 21, Rule 138 of the Rules of Court. Such presumption is rebuttable, but only by clear and
positive proof.
In the absence of such clear and positive proof, the presumption of authority . . . should prevail over the petitioner's
self-serving denial of such authority.
It strains credulity that a counsel who has no personal interest in the case would fight for and defend a case with
persistence and vigor if he has not been authorized or employed by the party concerned. 26
To the mind of the Court, the instant petition is filed merely to derail its execution. It took Paramount almost six years to
question the jurisdiction of the lower court. Moreover, as earlier adverted to, the controverted Decision of August 30,
1983, became final and executory on October 20, 1983. In any event, it is axiomatic that there is no justification in law
and in fact for the reopening of a case which has long become final and which in fact was already executed on July 18,
1984. Time and again, this Court has said that the doctrine of finality of judgment is grounded on fundamental
considerations of public policy and sound practice and at the risk of occasional error, the judgments of courts must
become final at some definite date fixed by law. 27
However, there is merit in petitioner's contention that its liability is limited only to P50,000.00 as expressed in Insurance
Policy No. CV-3466 issued on February 23, 1978. 28 The said insurance policy clearly and categorically placed the
petitioners liability for all damages arising out of death or bodily injury sustained by one person as a result of any one
accident at P50,000.00. Said amount complied with the minimum fixed by law then prevailing, Section 377 of
Presidential Decree No. 6123 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that
the liability of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use of
their vehicles shall not be less than P12,000.00. Since the petitioner's liability under the insurance contract is neither less
than P12,000.00 nor contrary to law, morals, good customs, public order or public policy, said stipulation must be
upheld as effective and binding between the parties. Therefore, the terms of the contract constitute the measure of the
insurer's liability. 29
WHEREFORE, the petition is DISMISSED and the temporary restraining order of July 30, 1984 is LIFTED. The decision of
the Regional Trial Court of Manila, Branch 36, dated August 30, 1983, is hereby AFFIRMED with the MODIFICATION that
petitioner be held liable to pay respondents Jose Lara and Arsenio Paed the amount of P50,000.00 each which is the
limit of its liability under the insurance policy minus the amounts of P5,000.00 and P800.00 which it paid for the
hospitalization and medical expenses, respectively, of respondents.
Costs against petitioner.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.
Footnotes
1 Penned by Judge Alfredo C. Florendo; Rollo, Annex "C," p. 14.
2 Rollo, p. 44.
3 Rollo, Annex "A," p. 12.
4 Rollo, Annex "B," p, 13.
5 Id., p. 57.
6 Rollo, p. 45.
7 Id.
8 Original Records, p. 11.
9 Rollo; Annex "E," p. 23.
10 Id., pp. 58-60.
11 Original Records, p. 145.

12 Rollo, p. 14.
13 Id., Annex "BB," p. 124.
14 Id., Annex "C," p. 14.
15 Original Records, p. 167.
16 Id., pp. 168-169.
17 Id., pp. 170-175.
18 Id., p. 176.
19 Rollo, p. 144.
20 Rollo, pp. 148-153.
21 Velunta v. Philippine Constabulary, G.R. No. 71855, January 20, 1988, 157 SCRA 147.
22 Republic Planters Bank v. Hon. Conrado Molina, G.R. No. 54287, September 28, 1988, 166 SCRA 39.
23 Paramount Insurance Corp. v. Luna, G.R. No. 61404, March 16, l987, 148 SCRA 564.
24 Section 5(m) of Rule 131 of the Rules of Court.
25 Annex "C" of Original Records, p. 11.
26 Fortunato Mercado, et al. v. Hon. Alberto Q. Ubay, et al., L-35830, July 2, 1990, 187 SCRA 719.
27 Alvendia v. Intermediate Appellate Court, G.R. No. 72138, January 22, 1990, 181 SCRA 252.
28 Rollo, Annex "C," p. 157.
29 Perla Compania de Seguros v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741.

D. RIGHT TO SUBROGATION
10. Phil. American Gen. Ins. Co. v. CA
FIRST DIVISION
[G.R. No. 116940. June 11, 1997]
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. COURT OF APPEALS and FELMAN
SHIPPING LINES, respondents.
DECISION
BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the
extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the
rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and operated by
respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu Cityfor consignee Coca-Cola Bottlers Philippines, Inc., Cebu.[1] The shipment
was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine
Open Policy No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same day. At around
eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down
her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with MV
Asilda. Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which
paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any
liability for the loss.Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and
damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were due to the
vessels unseaworthiness as she was put to sea in an unstable condition. It further alleged
that the vessel was improperly manned and that its officers were grossly negligent in failing to take appropriate
measures to proceed to a nearby port or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of
subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all
its rights, interests and ownership overMV Asilda together with her freight and appurtenances for the purpose of
limiting and extinguishing its liability under Art. 587 of the Code of Commerce.[2]
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set
aside the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition
for certiorari with this Court but it was subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN.[3] It ruled that MV Asilda was
seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the
shipowners surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be
attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the
contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should
apply.
The lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could not recover from
FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessels
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken
payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an
action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent
appellate court rendered judgment finding MV Asilda unseaworthy for being top- heavy as 2,500 cases of Coca-Cola
softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary Coast
Guard certification indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with
respect to the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assureds
implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to
the rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of abandonmenthad
absolved the shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV Asilda was seaworthy when it left the port of
Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should apply; and, (c) whether
PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against FELMAN, the
shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the
chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them,
the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2
cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and about
500 cases of Coca-Cola bottles on deck.[4] The ship captain stated that around four oclock in the morning of 7 July 1983
he was awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time he noticed that
the weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the
vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He then
ordered his crew to shift the cargo from starboard to portside until the vessel was balanced. At about seven oclock in
the morning, the master of the vessel stopped the engine because the vessel was listing dangerously to portside. He
ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the
engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next
move, some of the cargo on deck were thrown overboard and seawater entered the engine room and cargo holds of the
vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, MV
Asilda capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the
vessels collision with a partially submerged log.[5]
The Elite Adjusters, Inc., submitted a report regarding the sinking of MV Asilda. The report, which was adopted by
the Court of Appeals, reads -

We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the
vessel that eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while the
vessel may not have been overloaded, yet the distribution or stowage of the cargo on board was done in such a manner
that the vessel was in top-heavy condition at the time of her departure and which condition rendered her unstable and
unseaworthy for that particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel x x x x and it was
not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we believe strongly that had her
cargo been confined to those that could have been accommodated under deck, her stability would not have been
affected and the vessel would not have been in any danger of capsizing, even given the prevailing weather conditions at
that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy
for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessels metacentric
height as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are
precisely designed to be able to navigate safely even during heavy weather and frequently we hear of ships safely and
successfully weathering encounters with typhoons and although they may sustain some amount of damage, the sinking
of ship during heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable
and unseaworthy x x x x
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V Asilda was her condition of
unseaworthiness arising from her having been top-heavy when she departed from the Port of Zamboanga. Her having
capsized and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence
(underscoring supplied).[6]
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the
sinking of MV Asildawas its being top-heavy. Contrary to the ship captains allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after MV Asilda sank, an estimated
2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ships hatches
were properly secured, the empty Coca-Cola cases recovered could have come only from the vessels deck cargo. It is
settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo
will not interfere with the proper management of the ship. However, in this case it was established that MV Asilda was
not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease
of the vessels metacentric height[7] thus making it unstable. The strong winds and waves encountered by the vessel are
but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy
condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.[8] Simply put, the ship
agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can be
limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are
exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the
loss or injury was due to the fault of the shipowner and the captain.[9]The international rule is to the effect that the right
of abandonment of vessels, as a legal limitation of a shipowners liability, does not apply to cases where the injury or
average was occasioned by the shipowners own fault.[10] It must be stressed at this point that Art. 587 speaks only of
situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be
blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common
carrier.[11]
It was already established at the outset that the sinking of MV Asilda was due to its unseaworthiness even at the
time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on
deck. Closer supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN

was equally negligent. It cannot therefore escape liability through the expedient of filing a notice of abandonment of the
vessel by virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their business and for reasons of
public policy, are bound toobserve extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to allthe circumstances of each case x x x x" In the event of loss of goods,
common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this
presumption.
In relation to the question of subrogation, respondent appellate court found MV Asilda unseaworthy with reference
to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not
entitled to the payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there
was in effect a voluntary payment and no right of subrogation accrued in its favor. In other words, when PHILAMGEN
paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the
vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the
policy.[12] Thus Sec. 113 of the Insurance Code provides that (i)n every marine insurance upon a ship or freight, or
freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy. Under Sec. 114, a ship is seaworthy when reasonably fit to perform the service, and to
encounter the ordinary perils of the voyage, contemplated by the parties to the policy. Thus it becomes the obligation of
the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may have no
control over the vessel but he has full control in the selection of the common carrier that will transport his goods. He
also has full discretion in the choice of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out
by FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a warranty
of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language.[13] And where the
policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question
of seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured.[14]
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed
with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads (t)he liberties as
per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading
and/or Charter Party and/or Contract of Affreightment as between the Assured and the Company shall not prejudice the
insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted.[15]
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states (t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x"[16]
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the
warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company.[17] The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that
cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN
has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this
case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action against FELMAN
is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said that payment by the assurer to the assured
operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third
party whose negligence or wrongfulact caused the loss. The right of subrogation is not dependent upon, nor does
it grow out of any privity of contract or upon payment by theinsurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the
mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience
ought to pay.[19] Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former
the right to bring an action as subrogee against FELMAN.Having failed to rebut the presumption of fault, the liability of
FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner
PHILIPPINE
AMERICANGENERAL
INSURANCE
CO.,
INC.,
Seven
Hundred
Fifty-five
Thousand
Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date
of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.[20]
SO ORDERED.
Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.
Padilla, (Chairman), J., on leave.
[1]

Bill of Lading No. CCBPI-1 dated 7 July 1983, Exh. B, Plaintiffs Formal Offer of Exhibits.
Art. 587 states: The ship agent shall also be civilly liable for the indemnities in favor of third parties which may arise from the conduct of the
captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all
her equipments and the freight it may have earned during the voyage.
[3]
Civil Case No. 5812; Decision penned by Judge Salvador S. Abad Santos, RTC-Br. 65, Makati; Records, pp. 239-241.
[4]
Exhs. A-6 to A-17, Plaintiffs Formal Offer of Exhibits.
[5]
Ibid.
[6]
Exh. M, Plaintiffs Formal Offer of Exhibits.
[7]
Metacentric height refers to the distance of the metacenter above the center of gravity of a floating body. See Websters Third New International
Dictionary, 1986 Ed., p. 1419.
[8]
See Note 2.
[9]
Chua Yek Hong v. Intermediate Appellate Court, G.R. No. 74811, 30 September 1988, 166 SCRA 189.
[10]
Manila Steamship Co., Inc. v. Insa Abdulhanan and Lim Hong To, 100 Phil. 38, 39 (1956).
[11]
Heirs of Amparo de los Santos v. Court of Appeals, G.R. No. 51165, 21 June 1990, 186 SCRA 658.
[12]
Vance, Handbook on the Law of Insurance, 3rd Ed., 1930, pp. 920-921.
[13]
New Orleans Ry. Co. v. Union Marine Ins. Co., 286 F. 32, cited in Vance, op. cit., p. 920.
[14]
Clinchfield Fuel Co. v. Aetna Ins. Co., 114 S. E. 543, 548.
[15]
Exh. C-1, Plaintiffs Formal Offer of Exhibits.
[16]
Ibid.
[17]
See Note 15.
[18]
G.R. No. 81026, 3 April 1990, 184 SCRA 54, citing Compania Maritima v. Insurance Company of North America, No. L-18965, 30 October 1964, 12
SCRA 213; Firemans Fund Insurance Company v. Jamila and Company, Inc., No. L-27427, 7 April 1976, 70 SCRA 323.
[19]
Boney, Insurance Commissioner v. Central Mutual Ins. Co. of Chicago, 197 S.E. 122.
[20]
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.
Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable
certainty. (See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 94712, 12 July 1994, 234 SCRA 78, 95).
[2]

11. Firemans Fund Ins. Co. v. Jamila


SECOND DIVISION
G.R. No. L-27427 April 7, 1976
FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER COMPANY OF THE PHILIPPINES, plaintiffsappellants,
vs.
JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC., defendants-appellees.
Conrado R. Ayuyao for plaintiffs-appellees.

Ponciano U. Pitargue for defendant-appellee First quezon City Insurance Co., Inc.
Fernando B. Zamora for defendant-appellee Jamila & Company, Inc.
AQUINO, J.:
Fireman's Fund and Insurance Company (Fireman's Fund for short) and Firestone Tire and Rubber Company of the
Philippines appealed from the order dated October 18, 1966 of the Court of First Instance of Manila, dismissing their
complaint against Jamila & Co., Inc. (hereinafter called Jamila) for the recovery of the sum of P11,925.00 plus interest,
damages and attorney's fees (Civil Case No. 65658).
The gist of the complaint is that Jamila or the Veterans Philippine Scouts Security Agency contracted to supply security
guards to Firestone; that Jamila assumed responsibility for the acts of its security guards; that First Quezon City
Insurance Co., Inc. executed a bond in the sum of P20,000.00 to guarantee Jamila's obligations under that contract; that
on May 18, 1963 properties of Firestone valued at P11,925.00 were lost allegedly due to the acts of its employees who
connived with Jamila's security guard; that Fireman's Fund, as insurer, paid to Firestone the amount of the loss; that
Fireman's Fund was subrogated to Firestone's right to get reimbursement from Jamila, and that Jamila and its surety,
First Quezon City Insurance Co., Inc., failed to pay the amount of the loss in spite of repeated demands.
Upon defendants' motions, the lower court in its order of July 22, 1966 dismissed the complaint as to Jamila on the
ground that there was no allegation that it had consented to the subrogation and, therefore, Fireman's Fund had no
cause of action against it.
In the same order the lower court dismissed the complaint as to First Quezon City Insurance Co., Inc. on the ground
of res judicata. It appears that the same action was previously filed in Civil Case No. 56311 which was dismiss because of
the failure of the same plaintiffs and their counsel to appear at the pre trial.
Firestone and Fireman's Fund moved for the reconsideration of the order of dismissal. The lower court on September 3,
1966 set aside its order of dismissal. It sustained plaintiffs' contention that there was no res judicataas to First Quezon
City Insurance Co., Inc. because Civil Case No. 56311 was dismissed without prejudice. Later, First Quezon City Insurance
Co., Inc. filed its answer to the complaint.
However, due to inadvertence, the lower court did not state in its order of September 3, 1966 why it set aside its prior
order dismissing the complaint with respect to Jamila.
What is now to be recounted shows the lack of due care on the part of the lower court and the opposing lawyers in their
management of the case. Such lack of due care has given the case a farcical ambiance and might partially explain the
long delay in its adjudication.
Jamila, upon noticing that the order of September 3, 1966 had obliterated its victory without any reason therefor, filed a
motion for reconsideration. It had originally moved for the dismissal of the complaint on the ground of lack of cause of
action. Its contention was based on two grounds, to wit: (1) that the complaint did not allege that Firestone, pursuant to
the contractual stipulation quoted in the complaint, had investigated the loss and that Jamila was represented in the
investigation and (2) that Jamila did not consent to the subrogation of Fireman's Fund to Firestone's right to get
reimbursement from Jamila and its surety. The lower court in its order of dismissal had sustained the second ground.
Jamila in its motion for the reconsideration of the order of September 3, 1966 invoked the first ground which had never
been passed upon by the lower court. Firestone and Fireman's Fund in their opposition joined battle, in a manner of
speaking, on that first ground.
But the lower court in its order of October 18, 1966, granting Jamila's motion for reconsideration, completely ignored
that first ground. It reverted to the second ground which was relied upon in its order of September 3, 1966. The lower
court reiterated its order of July 22, 1966 that Fireman's Fund had no cause of action against Jamila because Jamila did
not consent to the subrogation. The court did not mention Firestone, the co-plaintiff of Fireman's Fund.

At this juncture, it may be noted that motions for reconsideration become interminable when the court's orders follow a
seesaw pattern. That phenomenon took place in this case.
Firestone and Fireman's Fund filed a motion for the reconsideration of the lower court's order of October 18, 1966 on
the ground that Fireman's Fund Insurance Company was suing on the basis of legal subrogation whereas the lower court
erroneously predicated its dismissal order on the theory that there was no conventionalsubrogation because the
debtor's consent was lacking.
The plaintiffs cited article 2207 of the Civil Code which provides that "if the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract".
The lower court denied plaintiffs' motion. They filed a second motion for reconsideration. In that motion they sensibly
called the lower court's attention to the fact that the issue of subrogation was of no moment because Firestone, the
subrogor, is a party-plaintiff and could sue directly Jamila in its own right. Without resolving that contention, the lower
court denied plaintiffs' second motion for reconsideration.
In this appeal Firestone and Fireman's Fund contend that the trial court's dismissal of their complaint is contrary to the
aforementioned article 2207 which provides for legal subrogation.
Jamila, in reply, stubbornly argues that legal subrogation under article 2207 requires the debtor's consent; that legal
subrogation takes place in the cases mentioned in article 1302 of the Civil Code and the instant case is not among the
three cases enumerated in that article, and that there could be no subrogation in this case because according to the
plaintiffs the contract between. Jamila and Firestone was entered into on June 1, 1965 but the loss complained of
occurred on May 18, 1963.
With respect to the factual point raised by Jamila, it should be stated that plaintiffs' counsel gratuitously alleged in their
brief that Firestone and Jamila entered into a "contract of guard services" on June 1, 1965. That allegation, which was
uncalled for because it is not found in the complaint, created confusion which heretofore did not exist. No copy of the
contract was annexed to the complaint.
That confusing statement was an obvious error since it was expressly alleged in the complaint that the loss occurred on
May 18, 1963. The fact that such an error was committed is another instance substantiating our previous observation
that plaintiffs' counsel had not exercised due care in the presentation of his case.
The issue is whether the complaint of Firestone and Fireman's Fund states a cause of action against Jamila.
We hold that Firestone is really a nominal, party in this case. It had already been indemnified for the loss which it had
sustained. Obviously, it joined as a party-plaintiff in order to help Fireman's Fund to recover the amount of the loss from
Jamila and First Quezon City Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund its cause of action
against Jamila for breach of contract. Sufficient ultimate facts are alleged in the complaint to sustain that cause of
action.
On the other hand, Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As the insurer,
Fireman's Fund is entitled to go after the person or entity that violated its contractual commitment to answer for the
loss insured against (Cf. Philippine Air Lines, Inc. vs. Heald Lumber Co., 101 Phil. 1032; Rizal Surety & Insurance Co. vs.
Manila Railroad Company, L-24043, April 25, 1968, 23 SCRA 205).
The trial court erred in applying to this case the rules on novation. The plaintiffs in alleging in their complaint that
Fireman's Fund "became a party in interest in this case by virtue of a subrogation right given in its favor by" Firestone,
were not relying on the novation by change of creditors as contemplated in articles 1291 and 1300 to 1303 of the Civil
Code but rather on article 2207.

Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation has been referred to as the
doctrine of substitution. It "is an arm of equity that may guide or even force one to pay a debt for which an obligation
was incurred but which was in whole or in part paid by another" (83 C.J.S. 576, 678, note 16, citing Fireman's Fund
Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d 55).
"Subrogation is founded on principles of justice and equity, and its operation is governed by principles of equity. It rests
on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete,
essential, and perfect justice between all the parties without regard to form"(83 C.J.S. 579- 80)
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs Moses, 287 U.S. 530, 77 L. ed. 477). Upon
payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have
against the third person whose. negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine
Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U. S. 294, 75 L. ed. 1037).
The right of subrogation is of the highest equity. The loss in the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of the insurer (44 Am. Jur. 2d 746, note 16, citing Newcomb vs.
Cincinnati Ins. Co., 22 Ohio St. 382).
"Although many policies including policies in the standard form, now provide for subrogation, and thus determine the
rights of the insurer in this respect, the equitable right of subrogation as the legal effect of payment inures to the insurer
without any formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated
otherwise, when the insurance company pays for the loss, such payment operates as an equitable assignment to the
insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not
dependent upon, nor does it grow out of, any privity of contract, or upon written assignment of claim, and payment to
the insured makes the insurer an assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N. C.
456,142 SE 2d 18).
Whether the plaintiffs would be able to prove their cause of action against Jamila is another question.
Finding the trial court's order of dismissal to be legally untenable, the same is set aside with costs against defendantappellee Jamila & Co., Inc.
SO ORDERED.
Barredo, Antonio, Concepcion, Jr. and Martin, JJ., concur.
Fernando, J., is on leave.
Martin, J., was designated to take part in this case.

E. WHO MAY BE INSURED


12. Filipinas Compania de Seguros v. Christern Huenefeld & Co.
EN BANC
G.R. No. L-2294
May 25, 1951
FILIPINAS COMPAIA DE SEGUROS, petitioner,
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
PARAS, C.J.:

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

The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as
did other legislations the applications of the control test and again, as in World War I, courts refused to apply
this concept whereby the enemy character of an American or neutral-registered corporation is determined by
the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the
treatment of foreign-owned property in the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such
administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8,
1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee
Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court:
"The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property
Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under
those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country
or national so that no innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision.
However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that
China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of
civilized countries not only because it was incorporated under the laws of an enemy country but because it was
controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy
may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a
public enemy.
Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a
state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading
with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary
submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all
contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy,
upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one
country cannot be permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to
cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should
destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should in
such manner increase the resources of the enemy, or render it aid, and the commencement of war determines,
for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All
individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion,
and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it
is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of
the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on
October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured
goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity
under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the
Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11,
1941, should be returned by the petitioner.

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

80 Phil., 604.

F. MERE PROPOSAL FOR INSURANCE


13. People v. Yip Wai Ming
THIRD DIVISION
[G.R. No. 120959. November 14, 1996]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. YIP WAI MING, accused-appellant.
DECISION
MELO, J.:
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals, came to Manila on vacation
on July 10, 1993. The two were engaged to be married. Hardly a day had passed when Lam Po Chun was brutally beaten
up and strangled to death in their hotel room. On the day of the killing, July 11, 1993, Yip Wai Ming, was touring Metro
Manila with Filipino welcomers while Lam Po Chun was left in the hotel room allegedly because she had a headache and
was not feeling well enough to do the sights.
For the slaying, an Information was lodged against Yip Wai Ming on July 19, 1991, which averred:
That on or about July 11, 1993, in the City of Manila, Philippines, the said accused did then and there wilfully,
unlawfully and feloniously with intent to kill with treachery and evident premeditation, did then and there
attack, assault and use personal violence upon one Lam Po Chun by then and there mauling and strangling the

latter, thereby inflicting upon her mortal and fatal wounds which were the direct and immediate cause of her
death thereafter.
On May 15, 1995, Branch 44 of the Regional Trial Court of the National Capital Judicial Region stationed
in Manila and presided over by the Honorable Lolita O. Gal-lang rendered a decision in essence finding that Yip Wai Ming
killed his fiancee before he left for the Metro Manila tour. Disposed thus the trial court:
WHEREFORE, in view of the foregoing established evidence, judgment is hereby rendered convicting the
accused Yip Wai Ming beyond reasonable doubt of the crime of Murder as charged in the information and
as defined in Article 248, paragraph 5 of the Revised Penal Code, and in accordance therewith the aggravating
circumstance of evident premeditation which attended the commission of the offense, the said accused Yip
Wai Ming is hereby sentenced to suffer the penalty of Reclusion Perpetua with all the accessory penalties
provided for by law.
Accused is likewise ordered to pay the heirs of the deceased Lam Po Chun of Hongkong the death indemnity
for damages at Fifty Thousand (P50,000.00) Pesos; Moral and compensatory damages of Fifty Thousand
(P50,000.00) Pesos each or a total of One Hundred Thousand Pesos (P100,000.00); plus costs of suit.
The accused being detained, he is credited with the full extent of the period under which he was under
detention, in accordance with the rules governing convicted prisoners.
SO ORDERED.
(p. 69, Rollo.)
There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the killing is
circumstantial. The key issue in the instant appeal is, therefore, whether or not the circumstantial evidence linking
accused-appellant to the killing is sufficient to sustain a judgment of conviction beyond reasonable doubt.
The evidence upon which the prosecution convinced the trial court of accused-appellants guilt beyond reasonable
doubt is summarized in the Solicitor-Generals brief as follows:
On or about 7 oclock in the evening of July 10, 1993, appellant and his fiancee Lam Po Chun who are both
Hongkong nationals, checked in at Park Hotel located at No. 1032-34 Belen St., Paco, Manila. They were
billeted at Room 210. Angel Gonzaga, the roomboy on duty, assisted the couple in going up to their room
located at the second floor of the hotel (p. 14, tsn, October 13, 1993, p. 66, tsn, September 1, 1993). When
they reached Room 210, appellant got the key from Angel Gonzaga and informed the latter that they do not
need any room service, particularly the bringing of foods and other orders to their room (pp. 67-69,
tsn, September 1, 1993).
After staying for about an hour inside Room 210, the couple went down to the lobby of the hotel. Appellant
asked the front desk receptionist on duty to call a certain Gwen delos Santos and to instruct her to pick them
up the following day, July 11, 1993, a Sunday at 10 oclock in the morning (pp. 21-25, tsn, September 8,1993).
At about past 8 oclock in the same evening of July 10, 1993, Cariza Destreza, occupant of Room 211 which is
adjacent to Room 210, heard a noise which sounds like a heated argument between a man and a woman
coming from the room occupied by appellant and Lam Po Chun. The heated discussions lasted for thirty (30)
minutes and thereafter subsided.
In the following morning, that is, July 11, 1993, at around 9:15, the same Cariza Destresa again heard a banging
which sounds like somebody was thrown and stomped on the floor inside Room 210. Cariza, who became
curious, went near the wall dividing her room and Room 210. She heard a cry of a woman as if she cannot
breathe (pp. 23-24, tsn, August 30, 1993).
At about 10 oclock a.m., Gwen delos Santos, together with two lady companions, arrived at the lobby of the
Park Hotel. The receptionist informed appellant by telephone of her arrival. In response, appellant came down
without his fiancee Lam Po Chun. After a while he together with Gwen delos Santos and the latters
companions, left the hotel. Before leaving, he gave instruction to the front desk receptionist not to disturb his

fiancee at Room 210. He also ordered not to accept any telephone calls, no room cleaning and no room service
(pp. 37-43, tsn, October 18, 1993).
When appellant left, the front desk receptionist, Enriqueta Patria, noticed him to be in a hurry, perspiring and
looking very scared (p. 32, tsn, September 22, 1993).
During the whole morning of July 11, 1993, after appellant left the hotel until his return at 11 oclock in the
evening, he did not call his fiancee Lam Po Chun to verify her physical condition (p. 44 tsn, October 18, 1993, p.
18, tsn, November 23, 1993).
When appellant arrived at 11 oclock p.m. on that day, he asked the receptionist for the key of his room. Then
together with Fortunato Villa, the roomboy, proceeded to Room 210. When the lock was opened and the door
was pushed, Lam Po Chun was found dead lying face down on the bed covered with a blanket. Appellant
removed the blanket and pretended to exclaim My God, she is dead but did not even embrace his
fiancee.Instead, appellant asked the room boy to go down the hotel to inform the front desk, the security
guard and other hotel employees to call the police (pp. 8-27, tsn, October 18, 1993).
When the police arrived, they conducted an examination of the condition of the doors and windows of the
room as well as the body of the victim and the other surroundings. They found no signs of forcible entry and
they observed that no one can enter from the outside except the one who has the key. The police also saw the
victim wrapped in a colored blanket lying face down. When they removed the blanket and tried to change the
position of her body, the latter was already in state of rigor mortis, which indicates that the victim has been
dead for ten (10) to twelve (12) hours. The police calculated that Lam Po Chun must have died between 9 to 10
in the morning of July 11, 1993 (pp. 2-29), tsn, September 22, 1993).
Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an autopsy of the body of the victim. His
examination (Exh. V) revealed that the cause of death was asphyxia by strangulation. Dr. Lagonera explained
that asphyxia is caused by lack of oxygen entering the body when the entrance of air going to the respiratory
system is blocked (pp. 6-19, tsn, December 14, 1993).
Prior to the death of the victim, her brother, Lam Chi Keung, learned that her life was insured with the
Insurance Company of New Zealand inCauseway Bay, Hongkong, with appellant as the beneficiary. The
premium paid for the insurance was more than the monthly salary of the deceased as an insurance
underwriter in Hongkong (Exh. X).
It was on the bases of the foregoing facts that appellant was charged before the Regional Trial Court
in Manila for the crime of murder committed against the person of Lam Po Chun.
(pp. 3-7, Appellees Brief, ff. p. 176, Rollo.)
In his brief, accused-appellant offers explanatory facts and argues that the findings of fact of the trial court are
based mainly on the prosecution evidence displaying bias against accused-appellant. He contends that the court made
unwarranted and unfounded conclusions on the basis of self-contradictory and conflicting evidence.
Accused-appellant, at the time of the commission of the crime, was a customer relations officer of Well Motors
Company in Kowloon, Hongkong. He met Lam Po Chun at a party in 1991. Both were sportsminded and after a short
courtship, the two began to have a relationship, living together in the same apartment. The two
toured China and Macao together in 1992. In April, 1993 the two decided to get married. In May 1993, they registered
with the Hongkong Marriage Registry. The wedding was set for August 29,1993.
An office-mate of accused-appellant named Tessie Amay Ticar encouraged him and Lam Po Chun to tour
the Philippines in celebration of their engagement. After finishing the travel arrangements, the two were given by Ticar
the names (Toots, Monique, and Gwen) of her cousins in Manila and their telephone number. Photos of their Manila
contacts were shown to them. In addition to his Citibank credit card, accused-appellant brought P24,000.00 secured at a
Hongkong money exchange and HK$4,000.00. Lam Po Chun had HK$3,000.00.

The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board Cathay Pacific Flight CX 903. They arrived at
Park Hotel around 7 P.M. From their hotel room, accused-appellant called their contact, Gwen delos Santos, by
telephone informing her of their arrival. The two ate outside at McDonalds restaurant
Accused-appellant woke up the following morning - Sunday, July 11, 1993 - at around 8 oclock. After the usual
amenities, including a shower, the two had breakfast in the hotel restaurant, then they went back to their room. At
around 10 oclock that same morning, accused-appellant received a phone call from the hotel staff telling him that their
visitors had arrived.
He then went to the lobby ahead of Lam Po Chun, introduced himself to the delos Santos sisters, Gwen and
Monique, and their mother.A few minutes later, Lam Po Chun joined them. Two bottles of perfume were given to the
sisters as arrival gifts.
Gwen delos Santos invited the couple to tour the city but Lam Po Chun decided to stay behind as it was very hot
and she had a headache. She excused herself and went up to her room, followed later by accused-appellant to get
another bottle of perfume.
Accused-appellant claims that before leaving, he instructed the clerk at the front desk to give Lam Po Chun some
medicine for headache and, as much as possible, not to disturb her.
Accused-appellant, Gwen, Monique, and the sisters mother took a taxicab to Landmark Department Store where
they window shopped.Accused-appellant states that from a telephone booth in the store, he called Lam Po Chun but no
one answered his call. From Landmark where they had lunch, the four went to Shoemart Department Store in Makati.
Accused-appellant bought a Giordano T-shirt at Landmark and chocolates at Shoemart. Gwen delos Santos brought the
group to the house of her aunt, Edna Bayona, at Roces, Quezon City. From Roces St., Gwen delos Santos brought the
group to her home in Balut, Tondo. Using the delos Santos telephone, accused-appellant called his office in Hongkong.
The PLDT receipt showed that the call was made at 6:44 P.M. on July 11, 1993. Accused-appellant claims that,
afterwards, he called up Lam Po Chun at their hotel room but the phone just kept on ringing with nobody answering
it. The group had dinner at the delos Santos house in Tondo. After dinner, Gwen delos Santos brother and sister-in-law
arrived. They insisted in bringing their guest to a restaurant near Manila Bay for coffee, but it was full so they proceeded
to Tia Maria, a Mexican restaurant in Makati.
Finally, the delos Santos family brought Andy Yip back to the Park Hotel, arriving there at around 10:30 PM. Before
the delos Santos group left, there was an agreement that the following morning accused-appellant and Lam Po Chun
would join them in another city tour.
After accused-appellants knocks at the door of their room remained unanswered, he went back to the hotel front
desk and asked the hotel staff to open the door for him. The room was dark. Accused-appellant put on the light switch.
He wanted to give the roomboy who accompanied him a P20 or P30 tip but his smallest bill was P100. He went to a side
table to get some smaller change. It was then when he noticed the disordered room, a glass case and wallet on the floor,
and Lam Po Chun lying face down on one of the beds.
Accused-appellant tried to wake Lam Po Chun up by calling her name but when she did not respond, he lifted up
her face, moving her body sidewards. He saw blood. Shocked, he shouted at the roomboy to call a doctor.
Several people rushed to Room 210. A foreigner looked at Lam Po Chun and said she was dead. The foreigner
placed his arms around accused-appellant who was slumped on the floor and motioned for him to leave the room.
Accused-appellant refused, but he was made to move out and to go to the lobby, at which place, dazed and crying, he
called up Gwen delos Santos to inform her of what happened. Gwen could not believe what she heard, but she assured
accused-appellant that they were going to the hotel. Policemen then arrived.
In the instant appeal, accused-appellant, through his new counsel, former Justice Ramon C. Fernandez, assigns the
following alleged errors:
I
THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED-APPELLANT WAS ARRESTED WITHOUT
WARRANT, WAS TORTURED AND WAS NOT INFORMED THAT HE HAD THE RIGHT TO REMAIN SILENT AND BE
ASSISTED BY INDEPENDENT AND COMPETENT COUNSEL DURING CUSTODIAL INVESTIGATION.

II
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT HAD THE VICTIM APPLE INSURED AND
LATER KILLED HER FOR THE INSURANCE PROCEEDS.
III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT COMMITTED A CRIME OF MURDER
AGGRAVATED BY EVIDENT PREMEDITATION.
IV
THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE TESTIMONY OF OFFICER ALEJANDRO YANQUILING, JR.
V
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF CARISA DESTREZA WHO INCURRED SERIOUS
CONTRADICTIONS ON MATERIAL POINTS.
VI
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES OF THE OTHER PROSECUTION WITNESSES THAT
CONTRADICTED EACH OTHER ON MATERIAL POINTS.
VII
THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES OF THE WITNESSES OF THE ACCUSED ARE
INCREDIBLE.
VIII
THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION HAS ESTABLISHED THE GUILT OF THE ACCUSEDAPPELLANT BY PROOF BEYOND REASONABLE DOUBT.
IX
THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING THE ACCUSED-APPELLANT OF THE CRIME
CHARGED IN THE INFORMATION.
(pp. 80-82, Rollo.)
The trial court, in arriving at its conclusions, took the various facts presented by the prosecution, tied them up
together like parts of a jig-saw puzzle, and came up with a complete picture of circumstantial evidence depicting not
only the commission of the crime itself but also the motive behind it.
Our review of the record, however, discloses that certain key elements, without which the picture of the crime
would be faulty and unsound, are not based on reliable evidence. They appear to be mere surmises and assumptions
rather than hard facts or well-grounded conclusions.
A key element in the web of circumstantial evidence is motive which the prosecution tried to establish. Accusedappellant and Lam Po Chun were engaged to be married. They had toured China and Macao together. They were living
together in one apartment. They were registered with the Hongkong Marriage Registry in May 1993. Marriage date was
set for August 29, 1993. This date was only a month and a half away from the date of death of Lam Po Chun. In the
absence of direct evidence indubitably showing that accused-appellant was the perpetrator of the killing, motive
becomes important. The theory developed by the prosecution was not only of a cold-blooded crime but a well-planned
one, including its timing up to the half hour. It is not the kind of crime that a man would commit against his wife-to-be
unless a strong motive for it existed.
The trial court would have been justified in finding that there was evident premeditation of murder if the story is
proved that Lam Po Chun insured herself for the amounts of US $498,750.00 and US $249,375.00 naming accusedappellant as the beneficiary.

There is, however, no evidence that the victim secured an insurance policy for a big amount in US dollars and
indicated accused-appellant as the beneficiary. The prosecution presented Exhibit X, a mere xerox copy of a document
captioned Proposal for Life Insurance as proof of the alleged insurance. It is not a certified copy, nor was the original first
identified.
The authenticity of the document has thus not been duly established. Exhibit X was secured in Hongkong when Lam
Chi Keung, the brother of the victim, learned that his sister was murdered in Manila. It is not shown how and from
whom the information about any alleged insurance having been secured came. There is no signature indicating that the
victim herself applied for the insurance. There is no marking in Exhibit X of any entry which purports to be the victims
signature. There is a signature of Apple Lam which is most unusual for an insurance application because the victims
name is Lam Po Chun. To be sure nobody insures himself or herself under a nickname. The entries in the form are in
block letters uniformly written by one hand. Below the printed name Lam Po Chun are Chinese characters which
presumably are the Chinese translation of her name. Nobody was presented to identify the author of the block
handwriting. Neither the prosecution nor the trial court made any comparisons, such as the signature of Lam Po Chun
on her passport (Exh. C), with her purported signature or any other entry in the form.
It needs not much emphasis to say that an application form does not prove that insurance was secured. Anybody
can get an application form for insurance, fill it up at home before filing it with the insurance company. In fact, the very
first sentence of the form states that it merely forms the basis of a contract between you and NZI Life. There was no
contract yet.
There is evidence in the record that the family of Lam Po Chun did not like her relationship with accused-appellant.
After all the trouble that her brother went through to gather evidence to pin down accused-appellant, the fact that all
he could come up with is an unsigned insurance application form shows there was no insurance money forthcoming for
accused-appellant if Lam Po Chun died. There is no proof that the insurance company approved the proposal, no proof
that any premium payments were made, and no proof from the record of exhibits as to the date it was accomplished. It
appearing that no insurance was issued to Lam Po Chun with accused-appellant as the beneficiary, the motive
capitalized upon by the trial court vanishes. Thus, the picture changes to one of the alleged perpetrator killing his
fiancee under cold-blooded circumstances for nothing.
There are other suspicious circumstances about the insurance angle. Lam Po Chun was working for the National
Insurance Company. Why then should she insure her life with the New Zealand Insurance Company? Lams monthly
salary was only HK $5,000.00. The premiums for the insurance were HK $5,400.00 or US $702.00 per month. Why should
Lam insure herself with the monthly premiums exceeding her monthly salary? And why should any insurance company
approve insurance, the premiums of which the supposed insured obviously can not afford to pay, in the absence of any
showing that somebody else is paying for said premiums. It is not even indicated whether or not there are rules in
Hongkong allowing a big amount of insurance to be secured where the beneficiary is not a spouse, a parent, a sibling, a
child, or other close relative.
Accused-appellant points out an apparent lapse of the trial court related to the matter of insurance. At page 33 of
the decision, the trial court stated:
Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant in Hongkong and told Yip and Lam Po
Chun should be married and there must be an insurance for her life . . .
(p. 33, RTC Decision; p. 66, Rollo.)
The source of the above finding is stated by the court as tsn hearing Sept. 22, 1992. But accused-appellant Yip Wai
Ming did not testify on September 22, 1992. The entire 112 pages of the testimony on that date came from SPO2
Yanquiling. The next hearing was on September 29, 1993. All the 100 pages of the testimony on that date came from
Yanquiling. The next hearing on October 13, 1993 resulted in 105 pages of testimony, also from Yanquiling. This Court is
at a complete loss as to the reason of the trial court sourcing its statement to accused-appellants alleged testimony.
Lam Po Chun must have been unbelievably trusting or stupid to follow the alleged advice of Andy Kwong. It is
usually the man who insures himself with the wife or future wife as beneficiary instead of the other way around. Why
should Lam Po Chun, with her relatively small salary which is not even enough to pay for the monthly premiums, insure
herself for such a big amount. This is another reason why doubts arise as to the truth of the insurance angle.

Another key factor which we believe was not satisfactorily established is the time of death. This element is material
because from 10 A.M. of July 11, 1993 up to the time the body was discovered late that evening, accused-appellant was
in the company of Gwen delos Santos, her sister Monique, and their mother, touring Metro Manila and going from place
to place. This much is established.
To go around this problem of accused-appellant being away from the scene of the crime during the above
mentioned hours, the prosecution introduced testimonial evidence as to the probable time of death, always placing it
within the narrow 45-minute period between 9:15 and 10 A.M. of July 11,1993, the time when Cariza Destresa, the
occupant of the adjoining room, heard banging sounds coming from the room of accused-appellant, and the time
accused-appellant left with his Filipino friends.
The prosecution alleges that at 10 A.M., Lam Po Chun was already dead. However, Gwen delos Santos who never
saw the couple before was categorical in declaring that she met both of them at the lobby before the group left for the
tour (tsn, Feb. 14, 1994, p. 64; p. 20,RTC Decision; p. 150, Rollo), but Lam Po Chun asked to be excused because of a
headache. In fact, delos Santos was able to identify Lam Po Chun from pictures shown during the trial. She could not
have done this unless she really saw and met the victim at the hotel lobby at around 10 A.M. of July 11,1993.
The prosecution introduced an expert in the person of Dr. Manuel Lagonera to establish the probable time of
death. Dr. Lagonera, medico-legal officer of the PNP Western Police District, after extensive questioning on his
qualifications as an expert witness, what he discovered as the cause of death (strangulation), the contents of the
deceaseds stomach, injuries sustained, and the condition of the cadaver, was asked to establish the time of death, to
wit:
Q. If we use thirty six (36) hours to forty eight (48) hours, will you agree with me that it is possible that the
victim was killed in the morning of July 10, 1993?
A. I cannot, I have no basis whether the victim was killed in the morning or in the afternoon.
(tsn, Dec. 14, 1993, p. 31.)
Dr. Lagoneras testimony on the number of assailants was similar. He had no basis for an answer, thusly:
ATTY. PASCUA:
Q. Would you be able to determine also based on your findings your autopsy whether the assailants, the
number of the assailants?
WITNESS:
A. I have no basis, Sir.
ATTY. PASCUA:
Q. You have no basis. And would it also have been possible, that there were more than one assailants?
WITNESS:
A. It is possible also.
ATTY. PASCUA:
Q. It is possible also, who simultaneously inflicted the wounds of the victim?
WITNESS:
A. It is possible.
ATTY. PASCUA:
Q. Based also on your autopsy report, were there signs that the victim put a struggle?
WITNESS:

A. There were no injuries in the hand or forearms or upper arms of the victim. So, there were no sign of
struggle on the part of the victim.
ATTY. PASCUA:
Q. And your basis in saying that there was no struggle on the part of the victim was that there were no
apparent or seen injuries in the hands of the victim?
WITNESS:
A. Yes, sir.
ATTY. PASCUA:
Q. But you did not examine the fingernails?
WITNESS:
A. No, I did not examine, Sir.
ATTY. PASCUA:
Q. Were there also injuries at the back portion of the head of the victim?
WITNESS:
A. No injuries at the back, all in front.
ATTY. PASCUA:
Q. All in front, meaning in terms of probability and based on your professional opinion, the attack would have
come from a frontal attack or the attacker would have come from behind to inflict the frontal injuries of
the victim?
WITNESS:
A. It can be the attack coming from behind in the front or both, sir.
ATTY. PASCUA:
Q. But in your professional opinion or in your experience, based on the injuries sustained including the location
of the injuries on the body of the victim, would it be more probable that the attack came from in front of
the victim?
WITNESS:
A. Yes, it is possible, Sir.
(tsn, Dec. 14, 1993, pp. 60-63.)
Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn, Dec. 14, 1993, p.108). It is undisputed that at
around 8:30 A.M. of July 11,1993 accused-appellant and Lam Po Chun took breakfast together at the hotel restaurant.
She could not have been killed on July 10,1993. The autopsy conducted by Dr. Lagonera and the testimony of accusedappellant coincided insofar as the food taken at breakfast is concerned. The couple ate eggs, bacon, and toasted
bread. But the doctor was insistent that the death occurred the previous day.
Where a medico-legal expert of the police department could not, with any measure of preciseness, fix the time of
death, the police investigator was bold and daring enough to establish it. Surprisingly, the trial court accepted this kind
of evidence. SPO2 Alejandro Yanquiling testified that he arrived at the Park Hotel at about 11:25 oclock on the evening
of July 11, 1993 to conduct the investigation of the crime. At the time, the victim showed signs of rigor mortis, stiffening
of the muscle joints, with liquid and blood oozing from the nose and mouth. On the basis of his observations, he
declared that the victim had been dead for 10 to 12 hours.

The trial court stated that if the victim had been dead from 10 to 12 hours at 11:35 oclock in the evening, it is safe
to conclude that she was killed between 9 and 10 oclock on the morning of July 11, 1993. The mathematics of the trial
court is faulty. Twelve hours before 11:35 P.M. would be 11:35 A.M.. Ten hours earlier would even be later -- 1:35 P.M..
Since accused-appellant was unquestionably with Gwen delos Santos and her group touring and shopping in megamalls
between 10 A.M. and 11:35 P.M., the assailant or assailants must have been other people who were able to gain entry
into the hotel room at that time.
The trial court stated that there was no sign of any forcible entry into the room, no broken locks, windows, etc. The
answer is simple.Somebody could have knocked on the door and Lam Po Chun could have opened it thinking they were
hotel staff. Unfortunately, Detective Yanquiling was so sure of himself that after pinpointing accused-appellant as the
culprit, he did not follow any other leads. In the course of his interviews with witnesses, his purpose was simply to nail
down one suspect. His investigation was angled towards pinning down Yip Wai Ming. In fact, Gwen delos Santos testified
that Yanquiling talked to her over the telephone almost daily urging her to change her testimony.
Officer Yanquiling testified on cross-examination that he did not apply any mode of scientific investigation. If a
medico-legal expert of the same police department who conducted an autopsy had no basis for giving the probable time
of death, the police officer who merely looked at the body and saw the blood oozing out of the victims nose and mouth
must have simply guessed such time, plucking it out of thin air. The trial court accepted the erroneous timing,
conveniently placing it where a finding of guilt would follow as a consequence.
Before a conviction can be had upon circumstantial evidence, the circumstances should constitute an unbroken
chain which leads to but one fair and reasonable conclusion, which points to the accused, to the exclusion of all others,
as the guilty person (U.S. vs. Villos, 6 Phil. 510 [1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis
consistent with innocence must be excluded if guilt beyond reasonable doubt is based on circumstantial evidence
(U.S. vs. Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan Chian, 17 Phil. 209 [1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the
evidence must be consistent with the hypothesis that the accused is guilty, and at the same time inconsistent with the
hypothesis that he is innocent, and with every other rational hypothesis except that of guilt (People vs.
Andia, 2 SCRA423 [1961]).
The tests as to the sufficiency of the circumstantial evidence to prove guilt beyond reasonable doubt have not been
met in the case at bar.
The chain of circumstances is not unbroken. The most vital circumstantial evidence in this case is that which proves
that accused-appellant killed the victim so he could gain from the insurance proceeds on the life of the victim. Another
vital circumstance is the time of death precisely between 9:15 and 10 A.M. Both were not satisfactorily established by
the prosecution. Where the weakest link in the chain of evidence is at the same time the most vital circumstance, there
can be no other alternative but to acquit the accused (People vs. Magborang, 9 SCRA 108 [1963]).
Since the sentence of conviction is based on the crime having been committed within a short time frame, accusedappellant cannot be convicted on the strength of circumstantial evidence if doubts are entertained as to where he was
at that particular time and reasonable conclusions can be had that other culprits could have entered the room after
accused-appellant left with the delos Santos family. Other people could have killed the victim.
The trial court also relied heavily on the testimony of Cariza Destresa, a 19-year old cultural dancer occupying with
her Australian boyfriend Peter Humphrey, the adjoining Room 211. Destresa testified that while she was in Room 211 at
about 9:15 oclock on the morning of July 11,1993, she heard banging sounds in Room 210, as if somebody was being
thrown, and there was stomping on the floor. The banging sounds lasted about thirty (30) minutes, an improbably long
time to kill a woman. Destresa stated that she placed her ear near the wall and heard the cry of a woman having
difficulty in breathing.
The witness heard the banging sounds between 9:15 and 9:45 A.M. of July 11, 1993, not before or after. The
unreliability of Destresas memory as to dates and time is shown by the fact that when asked as to the date of her
Australian boyfriends arrival in the Philippines, she stated, July 29, 1993. Pressed by the prosecuting attorney if she was
sure of said date, she changed this to July 16,1993. Pressed further:
Q. Are you sure that he arrived in the Philippines on July 16,1993?

A. I cant exactly remember the date of the arrival of my boyfriend here in the Philippines because his coming
was sudden, Sir.
(tsn, Sept. 30, 1993, p.10.)
On July 16 and July 19, 1993 Lam Po Chun was already dead. If Peter Humphrey was still in Australia on July 11,
1993, how could he occupy with his girlfriend the next door room, Room 211, on that date at the Park Hotel. If Destresa
cannot remember the date her Australian boyfriend arrived, how could the trial court rely on her memory as to the 30minute interval from 9:15 A.M. to 9:45 A.M. of July 11, 1993 when the alleged murder took place. Asked what time on
July 13, 1993 she gave her sworn statement to the police, Destresa answered, I am not sure, may be it was in the early
morning between 2 or 3 oclock of that day, Sir. Destresa was asked how she could be certain of July 13, 1993 as the date
of her sworn statement. She answered that this was the day her boyfriend left for Australia (tsn, Aug. 31, 1993, p. 29). In
her testimony given on the same day, Destresa states that she stayed in Room 211 for 3 months. She later changed her
mind and said she stayed there only when Peter Humphrey was in the Philippines. According to the witness, Peter left
on May 29, 1993; arrived in June and July; left in June; arrived in July; left on July 13, 1993. Destresa was confused and
evasive not only as to dates, but also as to her employment, stating at the start of her testimony that she was jobless,
but later declaring that she was a dancer with the Rampage group and performed in Dubai.
Destresa testified at one point that she heard an argument between a man and a woman in a dialect she could not
understand. This was supposed to be on the evening of July 11,1993. At that time, the victim had long been dead.
Destresa gave various contradictory statements in her August 30, 1993; August 31,1993; and September 1, 1993
testimony. To our mind, the trial court gravely erred in relying on her testimony.
Accused-appellant was arrested on July 13, 1993, two days after the killing. There was no warrant of arrest. Officer
Yanquiling testified that there was no warrant and he arrested the accused-appellant based on series of circumstantial
evidence. He had no personal knowledge of Yip Wai Ming having committed the crime. Accused-appellant stated that
five police officers at the police station beat him up.They asked him to undress, forced him to lie down on a bench, sat
on his stomach, placed a handkerchief over his face, and poured water and beer over his face. When he could no longer
bear the pain, he admitted the crime charged, participated in a re-enactment, and signed an extrajudicial statement. All
the while, he was not informed of his right to remain silent nor did he have counsel of his choice to assist him in
confessing the crime.
The custodial interrogation of accused-appellant was violative of Section 12, Article III of the Constitution. The
Constitution provides that (3) Any confession or admission obtained in violation of this section or Section 17 hereof shall
be inadmissible against him. Section 17, Article III provides: No person shall be compelled to be a witness against
himself. Any confession, including a re-enactment without admonition of the right to silence and to counsel, and without
counsel chosen by the accused is inadmissible in evidence (People vs. Duero,104 SCRA 379 [1981]).
This Court notes that accused-appellant did not file any complaint or charges against the police officers who
allegedly tortured him. But he was a foreign national, a tourist charged with a serious crime, finding himself in strange
surroundings. In Hongkong, there would have been family members and friends who could have given him moral
support. He would have known that he was being questioned in his own country, being investigated under the laws of
that country. The degree of intimidation needed to coerce a person to confess to the commission of a crime he did not
commit would be much less if he is in a strange land. Accused-appellant states that his lawyers told him not to file any
charges against the policemen. He followed their advice, obviously not wanting to get into more trouble.
This Court has carefully gone over the record of this case. We simply cannot state that the circumstantial evidence
is in its entirety credible and unbroken and that the finding of guilt excludes any other possibility that the accusedappellant may be innocent.
Most of the circumstantial evidence in this case came from the investigation conducted by Officer Alejandro
Yanquiling or from the prodding by him of various witnesses. The desire of a police officer to solve a high profile crime
which could mean a promotion or additional medals and commendations is admirable. However, an investigator must
pursue various leads and hypotheses instead of singlemindedly pursuing one suspect and limiting his investigation to
that one possibility, excluding various other probabilities. The killing of a tourist is a blot on the peace and order
situation in the Philippines and must be solved. Still, concentrating on pinning down an alien companion of the victim

and not pursuing the possibilities that other persons could have killed the victim for her money and valuables does not
speak well of our crime detection system. It is not enough to solve a crime. The truth is more important and justice must
be rendered.
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accused-appellant Yip Wai Ming is
acquitted of the charge of murder on grounds of reasonable doubt and his immediate release from custody is ordered
unless he is being held on other legal grounds.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., Francisco, and Panganiban, JJ., concur.

G. RIGHT TO CHANGE BENEFICIARY; EFFECTS OF DESIGNATION OF IRREVOCABLE BENEFICIARY


14. Phil. American Life Ins. Co. v. Pineda
SECOND DIVISION
G.R. No. L-54216 July 19, 1989
THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,
vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of First Instance of Rizal, and RODOLFO C.
DIMAYUGA, respondents.

PARAS, J.:
Challenged before Us in this petition for review on certiorari are the Orders of the respondent Judge dated March 19,
1980 and June 10, 1980 granting the prayer in the petition in Sp. Proc. No. 9210 and denying petitioner's Motion for
Reconsideration, respectively.
The undisputed facts are as follows:
On January 15, 1968, private respondent procured an ordinary life insurance policy from the petitioner company and
designated his wife and children as irrevocable beneficiaries of said policy.
Under date February 22, 1980 private respondent filed a petition which was docketed as Civil Case No. 9210 of the then
Court of First Instance of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable to
revocable.
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the same date, petitioner filed its
Comment and/or Opposition to Petition.
When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio G. Pineda, presiding Judge
of the then Court of First Instance of Rizal, Pasig Branch XXI, denied petitioner's Urgent Motion, thus allowing the private
respondent to adduce evidence, the consequence of which was the issuance of the questioned Order granting the
petition.
Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order June 10, 1980. Hence, this
petition raising the following issues for resolution:
I
WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES COULD BE CHANGED OR
AMENDED WITHOUT THE CONSENT OF ALL THE IRREVOCABLE BENEFICIARIES.

II
WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF WHOM IS ALREADY DECEASED
WHILE THE OTHERS ARE ALL MINORS, COULD VALIDLY GIVE CONSENT TO THE CHANGE OR
AMENDMENT IN THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES.
We are of the opinion that his Honor, the respondent Judge, was in error in issuing the questioned Orders.
Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No. 2427 as
amended, the policy having been procured in 1968. Under the said law, the beneficiary designated in a life insurance
contract cannot be changed without the consent of the beneficiary because he has a vested interest in the policy (Gercio
v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v. Redfern and the International Assurance Co., Ltd., 72 Phil. 71).
In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which forms part of Policy
Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the designation of the beneficiaries is irrevocable
(Annex "A" of Petition in Sp. Proc. No. 9210, Annex "C" of the Petition for Review on Certiorari), to wit:
It is hereby understood and agreed that, notwithstanding the provisions of this policy to the contrary,
inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this Policy has been
made without reserving the right to change said beneficiary/ beneficiaries, such designation may not be
surrendered to the Company, released or assigned; and no right or privilege under the Policy may be
exercised, or agreement made with the Company to any change in or amendment to the Policy, without
the consent of the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)
Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.
Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then applicable, it is
only with the consent of all the beneficiaries that any change or amendment in the policy concerning the irrevocable
beneficiaries may be legally and validly effected. Both the law and the policy do not provide for any other exception,
thus, abrogating the contention of the private respondent that said designation can be amended if the Court finds a just,
reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-wife predeceased
the insured) cannot be considered an effective ratification to the change of the beneficiaries from irrevocable to
revocable. Indubitable is the fact that all the six (6) children named as beneficiaries were minors at the time,** for which
reason, they could not validly give their consent. Neither could they act through their father insured since their interests
are quite divergent from one another. In point is an excerpt from the Notes and Cases on Insurance Law by Campos and
Campos, 1960, readingThe insured ... can do nothing to divest the beneficiary of his rights without his consent. He cannot
assign his policy, nor even take its cash surrender value without the consent of the beneficiary. Neither
can the insured's creditors seize the policy or any right thereunder. The insured may not even add
another beneficiary because by doing so, he diminishes the amount which the beneficiary may recover
and this he cannot do without the beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance contract, for
otherwise, the vested rights of the irrevocable beneficiaries would be rendered inconsequential.
Of equal importance is the well-settled rule that the contract between the parties is the law binding on both of them
and for so many times, this court has consistently issued pronouncements upholding the validity and effectivity of
contracts. Where there is nothing in the contract which is contrary to law, good morals, good customs, public policy or
public order the validity of the contract must be sustained. Likewise, contracts which are the private laws of the
contracting parties should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave

no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter in what form
they may be, whenever the essential requisites for their validity are present (Phoenix Assurance Co., Ltd. vs. United
States Lines, 22 SCRA 675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)
In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court ruled that:
... it is settled that the parties may establish such stipulations, clauses, terms, and conditions as they
may want to include; and as long as such agreements are not contrary to law, good morals, good
customs, public policy or public order, they shall have the force of law between them.
Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and does not in any way
violate the law, morals, customs, orders, etc. leaving no reason for Us to deny sanction thereto.
Finally, the fact that the contract of insurance does not contain a contingency when the change in the designation of
beneficiaries could be validly effected means that it was never within the contemplation of the parties. The lower court,
in gratuitously providing for such contingency, made a new contract for them, a proceeding which we cannot tolerate.
Ergo, We cannot help but conclude that the lower court acted in excess of its authority when it issued the Order dated
March 19, 1980 amending the designation of the beneficiaries from "irrevocable" to "revocable" over the
disapprobation of the petitioner insurance company.
WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby nullified and set aside.
SO ORDERED.
Melencio-Herrera (Chairperson), Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.
Footnotes
** Annex "C", Petition, p. 18, Rollo.

H. APPLICABILITY OF ART. 739, N.C.C.


15. Insular Life Assur. Co. v. Ebrado
FIRST DIVISION
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
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.
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: +.wph!1
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 pre-trial 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 common-wife, 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 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.
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: +.wph!1
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 above-quoted 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: +.wph!1
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: +.wph!1
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: +.wph!1
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.
SO ORDERED.
Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero, JJ., concur.1wph1.t
Footnotes
1 Sec. 53 of PD 612 provides: "The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the policy."
2 See Vance, at 99.
3 Musigi v. West Coast Life Insurance Co., 61 Phil. 867(1935).
4 See Tolentino, Civil Code, Vol. II, 1972, ed., at 525-26.
5 See Padilla, Civil Code Anno., Vol. VI, 1974 ed., at 501.
6 44 Am Jur. 2d 639
7 38 SCRA 287-88 (1971).
8 PVTA v. Delos Angeles, 61 SCRA 489 (1974).

I. ALL-RISK POLICY; RE: ART. 1523, N.C.C.


16. Filipino Merchants Ins. Co. v. CA
SECOND DIVISION
G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,
vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
Balgos & Perez Law Offices for petitioner.
Lapuz Law office for private respondent.
REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino Merchants
Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate from the date of
filing of the complaint, and is modified with respect to the third party complaint in that (1) third party
defendant E. Razon, Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal
interest from the date of payment until the date of reimbursement, and (2) the third-party complaint
against third party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed. 1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SS
Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover
from the defendant insurance company the amount of P51,568.62 representing damages to said

shipment which has been insured by the defendant insurance company under Policy No. M-2678. The
defendant brought a third party complaint against third party defendants Compagnie Maritime Des
Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case
Judgment is rendered against the third party plaintiff. It appears from the evidence presented that in
December 1976, plaintiff insured said shipment with defendant insurance company under said cargo
Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to
warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton
CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December 11, 1976 at
Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified
that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and
the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of
Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also
Exhibits 4, 5 and 6- Razon. The cargo was also surveyed by the arrastre contractor before delivery of the
cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad
Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in bad order condition.
Defendant's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which
he prepared a survey report Exhibit F with the findings on the extent of shortage or loss on the bad
order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation the
plaintiff made a formal claim against the defendant Filipino Merchants Insurance Company for
P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal claim statement
was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the
defendant Filipino Merchants Insurance Company refused to pay the claim. Consequently, the plaintiff
brought an action against said defendant as adverted to above and defendant presented a third party
complaint against the vessel and the arrastre contractor. 2
The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal portion
whereof reads:
WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against
the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay the plaintiff the
following amount:
The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;
On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and
third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally
reimbursement of the amounts paid by the third party plaintiff with legal interest from the date of such
payment until the date of such reimbursement.
Without pronouncement as to costs. 3
On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is
concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for
reconsideration of the aforesaid decision was denied, hence this petition with the following assignment of errors:
1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the marine
insurance policy when it held the petitioner liable to the private respondent for the partial loss of the
cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental
cause to which the loss is attributable, thereby contradicting the very precedents cited by it in its
decision as well as a prior decision of the same Division of the said court (then composed of Justices
Cacdac, Castro-Bartolome, and Pronove);

2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in the
subject cargo, hence, the marine insurance policy taken out by private respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not
disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable interest in
the subject cargo, which bars its recovery on the policy. 4
On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical meaning in
insurance in that before a claim can be compensable it is essential that there must be "some fortuity, " "casualty" or
"accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay
the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event
precludes his right to recover from the insurance policy. We find said contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case
be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or
nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of
percentage. 5
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause
of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical
meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken
to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual
and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds
from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. 6
The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other
than a willful and fraudulent act of the insured. 7 This is pursuant to the very purpose of an "all risks" insurance to give
protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or
damage to property. 8 An "all asks" policy has been evolved to grant greater protection than that afforded by the "perils
clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating
liability in the ship; it is written against all losses, that is, attributable to external causes. 9
The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo
Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo
except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately
caused by the inherent vice or nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks"
policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation.
The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition
when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then
shifts to the insurer to show the exception to the coverage. 10 As we held in Paris-Manila Perfumery Co. vs. Phoenix
Assurance Co., Ltd. 11 the basic rule is that the insurance company has the burden of proving that the loss is caused by
the risk excepted and for want of such proof, the company is liable.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends
coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss
was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a
specific provision expressly excludes the loss from coverage. 12 A marine insurance policy providing that the insurance
was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are
usually contemplated, and covers all losses except such as arise from the fraud of the insured. 13 The burden of the

insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the
insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective
purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable
under the policy. As aptly stated by the respondent Court of Appeals, upon due consideration of the authorities and
jurisprudence it discussed
... it is believed that in the absence of any showing that the losses/damages were caused by an excepted
peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such
showing, the lower court did not err in holding that the loss was covered by the policy.
There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was
packed was such that they could not hold their contents in the course of the necessary transit, much less
any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had
there been such a showing that spillage would have been a certainty, there may have been good reason
to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance
Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there was damage
occasioned by some accidental cause of any kind, and there is no necessity to point to any particular
cause. 14
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement
has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such
terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. 15
Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as
consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in
said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence
or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the
property y. 16 Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an
existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. 17
Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the
subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. 18 The
perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even
before delivery or before be performed the conditions of the sale. 19 The contract of shipment, whether under F.O.B.,
C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not
in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an
existing interest over the goods sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the
purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule
not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying
vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the
goods and paid the insurance premium covering them. 20

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the
goods and freight to the named destination. 21 It simply means that the seller must pay the costs and freight necessary
to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to
the buyer when the goods pass the ship's rail in the port of shipment. 22
Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer. It was
neither an issue agreed upon by the parties at the pre-trial conference nor was it raised during the trial in the court
below. It is a settled rule that an issue which has not been raised in the court a quo cannot be raised for the first time on
appeal as it would be offensive to the basic rules of fair play, justice and due process. 23 This is but a permuted
restatement of the long settled rule that when a party deliberately adopts a certain theory, and the case is tried and
decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit
him to do so, would be unfair to the adverse party. 24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue of
insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case and also
to dispose of petitioner's third assignment of error which consequently needs no further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED
in toto.
SO ORDERED.
Paras, Padilla and Sarmiento, JJ., concur.
Melencio-Herrera (Chairperson), J., is on leave.
Footnotes
1 Rollo, 41; Justice Gonzaga-Reyes, ponente, with Justices Serafin E. Camilon and Pedro A. Ramirez concurring.
2 Rollo, 26-28.
3 Ibid., 8-29.
4 Ibid., 10-11.
5 Original Record, Civil Case No. (112091) R-81-750, 26.
6 29A Am. Jur., 308-309.
7 Phoenix Ins. Co. vs. Branch (Fla. App) 234 So 2d 396.
8 Morrison Grain Co. vs. Utica Mut. Ins. Co. (.1 980, CA S Fla.) 632 F. 2d 424
9 Gilmore and Black, The Law of Admiralty, 68,169.
10 See Footnote 8, ante.
11 49 Phil. 753 (1926).
12 Walker vs. Traveller's Indemnity Co., (La. App.) 289 So. 2nd 864,869.
13 Goix vs. Knox, 1 Johns. Cas. 337, cited in Words and Phrases, Permanent Ed., Vol. 3, (1953 ed.) 310.
14 Rollo, 32.
15 Pacific Banking Corp. vs. Court of Appeals, G.R. No. 41014, Nov. 28,1988.
16 43 Am. Jur. 2d, 507-508.
17 Sec. 14, Insurance Code.
18 Original Record, Folder of Exhibits, Exh. C-2, 6.
19 43 Am. Jur. 2d, 522; Vance on Insurance, 164-168.
20 Rattan Arts & Decorations, Inc. vs. Collector of Internal Revenue, et al., 13 SCRA 626 (1965).
21 Business Law Principles and Cases by Harold Luck, Charles M. Hewitt, John D. Donnel, and A. James Barns, Second Uniform Commercial Code
Edition, 751-752.
22 Guide to INCO Terms, 1980 Ed., 48-50.
23 De Los Santos vs. Court of Appeals, et al., 140 SCRA 44 (1985); Dulos Realty & Development Corp. vs. Court of Appeals, et al., 157 SCRA 425
(1988); Ramos, et al. vs. Intermediate Appellate Court, et. al. G.R. No. 78282, July 5,1989.
24 Molina vs. Somes, 24 Phil. 49 (1913); Agoncillo, et al. vs. Javier, 38 Phil, 424 (1918).

J. INSURABLE INTEREST IN PROPERTY


17. Cha v. CA

FIRST DIVISION
[G.R. No. 124520. August 18, 1997]
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and CKS
DEVELOPMENT CORPORATION, respondents.
DECISION
PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent
Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS
Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall
or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the
LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and
transferred to the LESSOR for its own benefit; x x x[1]
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their
merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc.
(hereinafter United) without the written consent of private respondents CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer
(United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be
paid directly to CKS, based on its lease contract with Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision* ordering therein defendant United to
pay CKS the amount ofP335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as
attorneys fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision** dated 11 January 1996,
affirming the trial court decision, deleting however the awards for exemplary damages and attorneys fees. A motion for
reconsideration by United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF
LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING
CONTRARY TO LAW, MORALS AND PUBLIC POLICY
II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A
CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE
WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF
A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON
THE WILL OF THE RESPONDENT CORPORATION.[2]
The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract
entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by
the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the
lessor (CKS) if said policy is obtained without the prior written of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy.[3]
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes
effect and at the time the loss occurs.[4] The basis of such requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of
insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has
or has not any interest in the property insured, or that the policy shall be received as proof of such interest,
and every policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the
leased premises under the provisions of Section 17 of the Insurance Code which provide.
Section 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire
insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise
remains with the insured, the Cha spouses.The automatic assignment of the policy to CKS under the provision of the
lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance
policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United)
cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in
the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire insurance
policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve
in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is
hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.
Bellosillo, Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.
[1]

Rollo, p. 50.
Penned by Judge Roberto M. Lagman.
**
Penned by Justice Conchita Carpio-Morales, with Justices Fidel P. Purisima and Fermin A. Matin, Jr., concurring.
[2]
Rollo, p. 18.
[3]
Article 1409(i), Civil Code.
[4]
Section 19, Insurance Code.
*