Insurance Full Text Page 2

INSURANCE FULL TEXT
(PAGE 2)
PREMIUM
Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 137172 June 15, 1999
UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.
MASAGANA TELAMART, INC., respondent.
PARDO, J.:
The case is an appeal via certiorari seeking to set aside the decision of the Court of
Appeals, 1 affirming with modification that of the Regional Trial Court, Branch 58, Makati, ordering
petitioner to pay respondent the sum of P18,645,000.00, as the proceeds of the insurance coverage of
respondent's property razed by fire; 25% of the total amount due as attorney's fees and P25,000.00 as
litigation expenses, and costs.
The facts are undisputed and may be related as follows:
On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various
property described therein against fire, for the period from May 22, 1991 to May 22, 1992.
In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of
their terms on May 22, 1992. Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc.
of its intention not to renew the policies.
On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at
the address stated in the policies.
On June 13, 1992, fire razed respondent's property covered by three of the insurance policies
petitioner issued.
On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's
checks in the total amount of P225,753.95, representing premium for the renewal of the policies from
May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under the policies prior to
July 14, 1992.
On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured
property razed by fire.
On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that
it tendered, and at the same time rejected respondent's claim for the reasons (a) that the policies
had expired and were not renewed, and (b) that the fire occurred on June 13, 1992, before
respondent's tender of premium payment.
On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil
complaint against petitioner for recovery of P18,645,000.00, representing the face value of the
policies covering respondent's insured property razed by fire, and for attorney's fees. 2
On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the
complaint. It alleged that the complaint "fails to state a cause of action"; that petitioner was not liable
to respondent for insurance proceeds under the policies because at the time of the loss of
respondent's property due to fire, the policies had long expired and were not renewed. 3
After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered decision,
the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendant, as follows:
(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of
P225,753.95 (refused by the defendant) as full payment of the corresponding
premiums for the replacement-renewal policies for Exhibits A, B, C, D and E;
(2) Declaring plaintiff to have fully complied with its obligation to pay the premium
thereby rendering the replacement-renewal policy of Exhibits A, B, C, D and E
effective and binding for the duration May 22, 1992 until May 22, 1993; and, ordering
defendant to deliver forthwith to plaintiff the said replacement-renewal policies;
(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992
and August 9, 1991 to August 9, 1992, respectively; and
(4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00
representing the latter's claim for indemnity under Exhibits A, B & C and/or its
replacement-renewal policies; (b) 25% of the total amount due as and for attorney's
fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the costs of suit.
All other claims and counterclaims asserted by the parties are denied and/or
dismissed, including plaintiff's claim for interests.
SO ORDERED.
Makati, Metro-Manila, March 10, 1993.
ZOSIMO Z. ANGELES.
Judge. 4
In due time, petitioner appealed to the Court of Appeals. 5
On September 7, 1998, the Court of Appeals promulgated its decision 6 affirming that of the Regional
Trial Court with the modification that item No. 3 of the dispositive portion was deleted, and the award of
attorney's fees was reduced to 10% of the total amount due. 7
The Court of Appeals held that following previous practise, respondent was allowed a sixty (60) to
ninety (90) day credit term for the renewal of its policies, and that the acceptance of the late
premium payment suggested an understanding that payment could be made later.
Hence, this appeal.
By resolution adopted on March 24, 1999, we required respondent to comment on the petition, not to
file a motion to dismiss within ten (10) days from notice. 8 On April 22, 1999, respondent filed its
comment. 9
Respondent submits that the Court of Appeals correctly ruled that no timely notice of non-renewal
was sent. The notice of non-renewal sent to broker Zuellig which claimed that it verbally notified the
insurance agency but not respondent itself did not suffice. Respondent submits further that the Court
of Appeals did not err in finding that there existed a sixty (60) to ninety (90) days credit agreement
between UCPB and Masagana, and that, finally, the Supreme Court could not review factual findings
of the lower court affirmed by the Court of Appeals. 10
We give due course to the appeal.
The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent
covering the period May 22, 1991 to May 22, 1992, had expired on the latter date or had been
extended or renewed by an implied credit arrangement though actual payment of premium was
tendered on a later date after the occurrence of the risk (fire) insured against.
The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued
originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement
to the contrary is void. 11 The parties may not agree expressly or impliedly on the extension of creditor
time to pay the premium and consider the policy binding before actual payment.
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the Court of Appeals, is not
applicable. In that case, payment of the premium was in fact actually made on December 24, 1981, and
the fire occurred on January 18, 1982. Here, the payment of the premium for renewal of the policies was
tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not even
give the insurer a notice of loss within a reasonable time after occurrence of the fire.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals
in CA-G.R. CV No. 42321. In lieu thereof the Court renders judgment dismissing respondent's
complaint and petitioner's counterclaims thereto filed with the Regional Trial Court, Branch 58,
Makati City, in Civil Case No. 92-2023. Without costs. 1âw phi1.nêt
SO ORDERED.
Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 95546 November 6, 1992
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by American
International Underwriters (Phils.), Inc., respondent.
BELLOSILLO, J.:
This case involves a purely legal question: whether payment by installment of the premiums due on
an insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise
known as the Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a
life or an industrial life policy whenever the grace period provision applies.
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented
by American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's
building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total
premium of P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982,
21 June 1982 and 16 November 1982, all of which were accepted by private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-
9210596, which replaced and renewed the previous policy, for a term covering 1 March 1983 to 1
March 1984. The premium in the amount of P466,103.05 was again paid on installments on 13 April
1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were
likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to petitioner
Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this
renewed policy, petitioner made two installment payments, both accepted by private respondent, the
first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for
Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-
9210651. It explained that it discontinued the payment of premiums because the policy did not
contain a credit clause in its favor and the receipts for the installment payments covering the policy
for 1984-85, as well as the two (2) previous policies, stated the following reservations:
2. Acceptance of this payment shall not waive any of the company rights to deny
liability on any claim under the policy arising before such payments or after the
expiration of the credit clause of the policy; and
3. Subject to no loss prior to premium payment. If there be any loss such is not
covered.
Petitioner further claimed that the policy was never binding and valid, and no risk attached to the
policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85,
and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the
premium payments for 1982-85.
After some incidents, petitioner and private respondent moved for summary judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following
findings:
While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the premiums of the
three aforementioned policies (being sought to be refunded) were made during the
lifetime or term of said policies, hence, it could not be said, inspite of the
reservations, that no risk attached under the policies. Consequently, defendant's
counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view

of the reservation in the receipts ordinarily issued by the plaintiff on premium
payments the only plausible conclusion is that plaintiff has no right to demand their
payment after the lapse of the term of said policy on March 1, 1985. Therefore, the
defendant was justified in refusing to pay the same. 1
Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered
a decision 2modifying that of the trial court by ordering herein petitioner to pay the balance of the
premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and
affirming the denial of the counterclaim. The appellate court thus explained —
The obligation to pay premiums when due is ordinarily as indivisible obligation to pay
the entire premium. Here, the parties herein agreed to make the premiums payable
in installments, and there is no pretense that the parties never envisioned to make
the insurance contract binding between them. It was renewed for two succeeding
years, the second and third policies being a renewal/replacement for the previous
one. And the insured never informed the insurer that it was terminating the policy
because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may
not agree to make the insurance contract valid and binding without payment of
premiums, there is nothing in said section which suggests that the parties may not
agree to allow payment of the premiums in installment, or to consider the contract as
valid and binding upon payment of the first premium. Otherwise, we would allow the
insurer to renege on its liability under the contract, had a loss incurred (sic) before
completion of payment of the entire premium, despite its voluntary acceptance of
partial payments, a result eschewed by a basic considerations of fairness and equity.
To our mind, the insurance contract became valid and binding upon payment of the
first premium, and the plaintiff could not have denied liability on the ground that
payment was not made in full, for the reason that it agreed to accept installment
payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for the insurance policies for
1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance
Code, as amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability
for loss for occurring before payment of premiums.
It argues that where the premiums is not actually paid in full, the policy would only be effective if
there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the
Insurance Code. The absence of an express acknowledgment in the policies of such receipt of the
corresponding premium payments, and petitioner's failure to pay said premiums on or before the
effective dates of said policies rendered them invalid. Petitioner thus concludes that there cannot be
a perfected contract of insurance upon mere partial payment of the premiums because under Sec.
77 of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof
has been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks
a refund of all premium payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that petitioner and private respondent intended subject insurance policies to be
binding and effective notwithstanding the staggered payment of the premiums. The initial insurance
contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the
insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the
insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting and accepting the premiums, although
paid on installments, and later deny liability on the lame excuse that the premiums were not
prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and
conclusion of the appellate court contained in its Resolution denying the motion to reconsider its
Decision —
While the import of Section 77 is that prepayment of premiums is strictly required as

a condition to the validity of the contract, We are not prepared to rule that the request
to make installment payments duly approved by the insurer, would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. Section 78 of the Insurance Code in effect allows
waiver by the insurer of the condition of prepayment by making an acknowledgment
in the insurance policy of receipt of premium as conclusive evidence of payment so
far as to make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public
order or public policy (De Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums in installments not so proscribed. At
the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance

Co. 5 is unavailing because the facts therein are substantially different from those in the case at bar.
In Arce, no payment was made by the insured at all despite the grace period given. In the case before Us,
petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of
the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it
refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the third policy
(No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period, however brief or
momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Cruz, Padilla and Griño-Aquino, JJ., concur.
Medialdea, J., is on leave.

BURDEN OF PROVING THE LOSS

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 136914 January 25, 2002
COUNTRY BANKERS INSURANCE CORPORATION, petitioner,

vs.
LIANGA BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE, INC., respondent.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated
December 29, 1998 in CA-G.R. CV Case No. 36902 affirming in toto the Decision3 dated December
26, 1991 of the Regional Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil Case No. L-518
which ordered petitioner Country Bankers Insurance Corporation to fully pay the insurance claim of
respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance
Policy No. F-1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the
amount of Two Hundred Thousand Pesos (P200,000.00), with interest at twelve percent (12%) per
annum from the date of filing of the complaint until fully paid, as well as Fifty Thousand Pesos
(P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five
Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos (P10,000.00) as
attorney’s fees, and the costs of suit.
The facts are undisputed:
The petitioner is a domestic corporation principally engaged in the insurance business wherein it
undertakes, for a consideration, to indemnify another against loss, damage or liability from an
unknown or contingent event including fire while the respondent is a duly registered cooperative
judicially declared insolvent and represented by the elected assignee, Cornelio Jamero.
It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire
insurance. Under Fire Insurance Policy No. F-1397, the petitioner insured the respondent’s stocks-
in-trade against fire loss, damage or liability during the period starting from June 20, 1989 at 4:00
p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred Thousand Pesos (P200,000.00).
On July 1, 1989, at or about 12:40 a.m., the respondent’s building located at Barangay Diatagon,
Lianga, Surigao del Sur was gutted by fire and reduced to ashes, resulting in the total loss of the
respondent’s stocks-in-trade, pieces of furnitures and fixtures, equipments and records.
Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance
Policy No. F-1397, submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated
July 1, 1989; (b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto
Urbiztondo.
The petitioner, however, denied the insurance claim on the ground that, based on the submitted
documents, the building was set on fire by two (2) NPA rebels who wanted to obtain canned goods,
rice and medicines as provisions for their comrades in the forest, and that such loss was an
excepted risk under paragraph No. 6 of the policy conditions of Fire Insurance Policy No. F-1397,
which provides:
This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly, of any of the following occurrences, namely:
xxx xxx xxx
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or
usurped power.
Any loss or damage happening during the existence of abnormal conditions (whether
physical or otherwise) which are occasioned by or through or in consequence, directly or
indirectly, of any of said occurrences shall be deemed to be loss or damage which is not
covered by this insurance, except to the extent that the Insured shall prove that such loss or
damage happened independently of the existence of such abnormal conditions.
Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the
complaint for recovery of "loss, damage or liability" against petitioner. The petitioner answered the
complaint and reiterated the ground it earlier cited to deny the insurance claim, that is, that the loss
was due to NPA rebels, an excepted risk under the fire insurance policy.
In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the
respondent, declaring that:
Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that
the defenses raised by defendant-Country Bankers has utterly crumbled on account of its
inherent weakness, incredibility and unreliability, and after applying those helpful tools like
common sense, logic and the Court’s honest appraisal of the real and actual situation
obtaining in this area, such defenses remains (sic) unimpressive and unconvincing, and
therefore, the defendant-Country Bankers has to be irreversibly adjudged liable, as it should
be, to plaintiff-Insolvent Cooperative, represented in this action by its Assignee, Cornelio
Jamero, and thus, ordering said defendant-Country Bankers to pay the plaintiff-Insolvent
Cooperative, as follows:
1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a
result of the fire under its Fire Insurance Policy No. F-1397 in its full face value
of P200,000.00 with interest of 12% per annum from date of filing of the complaint
until the same is fully paid;
2. To pay as and in the concept of actual or compensatory damages in the total sum
of P50,000.00;
3. To pay as and in the concept of exemplary damages in the total sum

of P50,000.00;
4. To pay in the concept of litigation expenses the sum of P5,000.00;

5. To pay by way of reimbursement the attorney’s fees in the sum of P10,000.00; and
6. To pay the costs of the suit.
For being unsubstantiated with credible and positive evidence, the "counterclaim" is
dismissed.
IT IS SO ORDERED.
Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate court
affirmed the challenged decision of the trial court in its entirety. Petitioner now comes before us via
the instant petition anchored on three (3) assigned errors,4 to wit:
1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE

CREDENCE TO THE SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND THE
SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENT’S
STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED RISK
UNDER THE FIRE INSURANCE POLICY.
2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE

FOR 12% INTEREST PER ANNUM ON THE FACE VALUE OF THE POLICY FROM THE
FILING OF THE COMPLAINT UNTIL FULLY PAID.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER

LIABLE FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION EXPENSES,
ATTORNEYS FEES AND COST OF SUIT.
A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section
1 of Rule 131 of the Revised Rules of Court. Each party must prove his own affirmative allegations
by the amount of evidence required by law which in civil cases, as in this case, is preponderance of
evidence, to obtain a favorable judgment.5
In the instant case, the petitioner does not dispute that the respondent’s stocks-in-trade were insured
against fire loss, damage or liability under Fire Insurance Policy No. F- 1397 and that the respondent
lost its stocks-in-trade in a fire that occurred on July 1, 1989, within the duration of said fire
insurance. The petitioner, however, posits the view that the cause of the loss was an excepted risk
under the terms of the fire insurance policy.
Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss
from such a risk constitutes a defense which the insurer may urge, since it has not assumed that
risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or
limitation in the policy has the burden of proving that the loss comes within the purview of the
exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance,
the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or
for which it is not liable, or from a cause which limits its liability.6 Stated else wise, since the
petitioner in this case is defending on the ground of non-coverage and relying upon an exemption or
exception clause in the fire insurance policy, it has the burden of proving the facts upon which such
excepted risk is based, by a preponderance of evidence.7 But petitioner failed to do so.
The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as
on the Spot Report of Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following
statement therein:
xxx investigation revealed by Jose Lomocso that those armed men wanted to get can goods
and rice for their consumption in the forest PD investigation further disclosed that the
perpetrator are member (sic) of the NPA PD end… x x x
A witness can testify only to those facts which he knows of his personal knowledge, which means
those facts which are derived from his perception.8 Consequently, a witness may not testify as to
what he merely learned from others either because he was told or read or heard the same. Such
testimony is considered hearsay and may not be received as proof of the truth of what he has
learned. Such is the hearsay rule which applies not only to oral testimony or statements but also to
written evidence as well.9
The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay
evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more
importantly, have not been subjected to cross-examination by opposing counsel to test the
perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose
reliability on which the worth of the out-of-court statement depends.10
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence,
for being hearsay, inasmuch as they did not take the witness stand and could not therefore be cross-
examined.
There are exceptions to the hearsay rule, among which are entries in official records.11 To be
admissible in evidence, however, three (3) requisites must concur, to wit:
(a) that the entry was made by a public officer, or by another person specially enjoined by
law to do so;
(b) that it was made by the public officer in the performance of his duties, or by such other
person in the performance of a duty specially enjoined by law; and
(c) that the public officer or other person had sufficient knowledge of the facts by him stated,
which must have been acquired by him personally or through official information.12
The third requisite was not met in this case since no investigation, independent of the statements
gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner
itself pointed out, citing the testimony of Pfc. Arturo Juarbal,13 the latter’s Spot Report "was based on
the personal knowledge of the caretaker Jose Lomocso who witnessed every single incident
surrounding the facts and circumstances of the case." This argument undeniably weakens the
petitioner’s defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose
Lomocso to the effect that NPA rebels allegedly set fire to the respondent’s building is inadmissible
in evidence, for the purpose of proving the truth of the statements contained in the said report, for
being hearsay.
The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo
V. Juarbal since he himself took the witness stand and was available for cross-examination. The
portions of his Spot Report which were of his personal knowledge or which consisted of his
perceptions and conclusions are not hearsay. The rest of the said report relative to the statement of
Jose Lomocso may be considered as independently relevant statements gathered in the course of
Juarbal’s investigation and may be admitted as such but not necessarily to prove the truth thereof.14
The petitioner’s evidence to prove its defense is sadly wanting and thus, gives rise to its liability to
the respondent under Fire Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial
court’s imposition of twelve percent (12%) interest on the insurance claim as well as the monetary
award for actual and exemplary damages, litigation expenses and attorney’s fees for lack of legal
and valid basis.
Concerning the application of the proper interest rates, the following guidelines were set in Eastern
Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co., Inc.:15
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts, is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the context
of the usury law is a "contractual obligation of lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay a loan or debt then due and payable."
Considering the foregoing, the insurance claim in this case is evidently not a forbearance of money,
goods or credit, and thus the interest rate should be as it is hereby fixed at six percent (6%)
computed from the date of filing of the complaint.
We find no justification for the award of actual damages of Fifty Thousand Pesos (P50,000.00). Well-
entrenched is the doctrine that actual, compensatory and consequential damages must be proved,
and cannot be presumed.16That part of the dispositive portion of the Decision of the trial court
ordering the petitioner to pay actual damages of Fifty Thousand Pesos (P50,000.00) has no basis at
all. The justification, if any, for such an award of actual damages does not appear in the body of the
decision of the trial court. Neither is there any testimonial and documentary evidence on the alleged
actual damages of Fifty Thousand Pesos (P50,000.00) to warrant such an award. Thus, the same
must be deleted.
Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00), we likewise
find no legal and valid basis for granting the same. Article 2229 of the New Civil Code provides that
exemplary damages may be imposed by way of example or correction for the public good.
Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a
deterrent against or as a negative incentive to curb socially deleterious actions. They are designed
to permit the courts to mould behavior that has socially deleterious consequences, and its imposition
is required by public policy to suppress the wanton acts of an offender. However, it cannot be
recovered as a matter of right. It is based entirely on the discretion of the court. We find no cogent
and valid reason to award the same in the case at bar.
With respect to the award of litigation expenses and attorney’s fees, Article 2208 of the New Civil
Code17enumerates the instances where such may be awarded and, in all cases, it must be
reasonable, just and equitable if the same were to be granted. Attorney’s fees as part of damages
are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded
every time a party prevails in a suit because of the policy that no premium should be placed on the
right to litigate.18 The award of attorney’s fees is the exception rather than the general rule. As such,
it is necessary for the court to make findings of facts and law that would bring the case within the
exception and justify the grant of such award. We find none in this case to warrant the award by the
trial court of litigation expenses and attorney’s fees in the amounts of Five Thousand Pesos
(P5,000.00) and Ten Thousand Pesos (P10,000.00), respectively, and therefore, the same must
also be deleted.
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal
amount of Two Hundred Thousand Pesos (P200,000.00) shall be six percent (6%) per annum
computed from the date of filing of the Complaint in the trial court. The awards in the amounts of
Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as
exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, and Ten Thousand
Pesos (P10,000.00) as attorney’s fees are hereby DELETED. Costs against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

CONCEAL MENT

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 92492 June 17, 1993
THELMA VDA. DE CANILANG, petitioner,

vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering
from "sinus tachycardia." The doctor prescribed the following fro him: Trazepam, a tranquilizer;
and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and
this time was found to have "acute bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma
Canilang, as his beneficiary. 1 Jaime Canilang was issued ordinary life insurance Policy No. 345163,
with the face value of P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia." 2 Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the
insurer denied on 5 December 1983 upon the ground that the insured had concealed material information
from it.
Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of
the insurance proceeds. During the hearing called by the Insurance Commissioner, petitioner
testified that she was not aware of any serious illness suffered by her late husband 3 and that, as far
as she knew, her husband had died because of a kidney disorder. 4 A deposition given by Dr. Wilfredo
Claudio was presented by petitioner. There Dr. Claudio stated that he was the family physician of the
deceased Jaime Canilang 5 and that he had previously treated him for "sinus tachycardia" and "acute
bronchitis." 6 Great Pacific for its part presented Dr. Esperanza Quismorio, a physician
and a medical underwriter working for Great Pacific. 7 She testified that the deceased's insurance
application had been approved on the basis of his medical declaration. 8 She explained that as a rule,
medical examinations are required only in cases where the applicant has indicated in his application for
insurance coverage that he has previously undergone medical consultation and hospitalization. 9
In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great
Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious that, even if it had been
disclosed, it would not have affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the health condition of the
applicant by the issuance of the policy despite the lack of answers to "some of the
pertinent questions" in the insurance application;
3. there was no intentional concealment on the part of the insured Jaime Canilang as
he had thought that he was merely suffering from a minor ailment and simple
cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not
concealment was intentionally made, was not applicable to Canilang's case as that
law became effective only on 1 June 1985.
On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the
Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's
counterclaim. The Court of Appealed found that the use of the word "intentionally" by the Insurance
Commissioner in defining and resolving the issue agreed upon by the parties at pre-trial before the
Insurance Commissioner was not supported by the evidence; that the issue agreed upon by the
parties had been whether the deceased insured, Jaime Canilang, made a material concealment as
the state of his health at the time of the filing of insurance application, justifying respondent's denial
of the claim. The Court of Appeals also found that the failure of Jaime Canilang to disclose previous
medical consultation and treatment constituted material information which should have been
communicated to Great Pacific to enable the latter to make proper inquiries. The Court of Appeals
finally held that the Ng Gan Zee case which had involvedmisrepresentation was not applicable in
respect of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging
that:
1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not
holding that the issue in the case agreed upon between the parties before the
Insurance Commission is whether or not Jaime Canilang "intentionally" made
material concealment in stating his state of health;
2. . . . at any rate, the non-disclosure of certain facts about his previous health
conditions does not amount to fraud and private respondent is deemed to have
waived inquiry thereto. 11
The medical declaration which was set out in the application for insurance executed by Jaime
Canilang read as follows:
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any
medical or surgical advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a heart condition, high
blood pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other
physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
___________________________________________________________________
_____________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and statements are complete, true
and correct. I herebyagree that if there be any fraud or misrepresentation in the
above statements material to the risk, the INSURANCE COMPANY upon discovery
within two (2) years from the effective date of insurance shall have the right to
declare such insurance null and void. That the liabilities of the Company under the
said Policy/TA/Certificate shall accrue and begin only from the date of
commencement of risk stated in the Policy/TA/Certificate, provided that the first
premium is paid and the Policy/TA/Certificate is delivered to, and accepted by me in
person, when I am in actual good health.
Signed at Manila his 4th day of August, 1992.
Illegible
——————————
Signature of Applicant. 12
We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of
the medical declaration, he failed to disclose in the appropriate space, under the caption
"Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering
from "sinus tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time Great Pacific issued the contract of
insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the
Insurance Code of 1978, which went into effect on 11 June 1978. These provisions read as follows:
Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factorswithin his knowledge which are material to the contract and as
to which he makes no warranty, and which the other has not the means of
ascertaining. (Emphasis supplied)
Under the foregoing provisions, the information concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is to say, information which was "material to
the contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which
reads:
Sec. 31. Materially is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries. (Emphasis supplied)
"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute." 13 The symptoms of this condition include pounding in the chest and sometimes faintness and
weakness of the person affected. The following elaboration was offered by Great Pacific and set out by
the Court of Appeals in its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per
minute. (Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is,
among others, a common reaction to heart disease, including myocardial
infarction, and heart failure per se. (Henry J.L. Marriot, M.D.,Electrocardiography, 6th
ed., [1977], p. 127.) The medication prescribed by Dr. Claudio for treatment of
Canilang's ailment on June 18, 1982, indicates the condition that said physician was
trying to manage. Thus, he prescribed Trazepam, (Philippine Index of Medical
Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety, anti-
convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations
and nervous heart. Such treatment could have been a very material information to
the insurer in determining the action to be take on Canilang's application for life
insurance coverage. 14
We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was
material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines
prescribed by such doctor, in the insurance application, it may be reasonably assumed that Great
Pacific would have made further inquiries and would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher premium for the same coverage. 15 The
materiality of the information withheld by Great Pacific did not depend upon the state of mind of Jaime
Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, except
through proof of external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon the actual or physical events which ensue.
Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to whom
the communication should have been made, in assessing the risk involved in making or omitting to make
further inquiries and in accepting the application for insurance; that "probable and reasonable influence of
the facts" concealed must, of course, be determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v.
Philippine-American Life Insurance Company, 16 this Court held that:
. . . if anything, the waiver of medical examination [in a non-medical insurance

contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed
that he was suffering from minor ailment like a common cold. Section 27 of the Insurance Code of
1978 as it existed from 1974 up to 1985, that is, throughout the time range material for present
purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional, entitles the injured

party to rescind a contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to
read as follows:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the
phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P.
Blg. 874) intended to limit the kinds of concealment which generate a right to rescind on the part of
the injured party to "intentional concealments." This argument is not persuasive. As a simple matter
of grammar, it may be noted that "intentional" and "unintentional" cancel each other out. The net
result therefore of the phrase "whether intentional or unitentional" is precisely to leave unqualified the
term "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly read as referring to
"any concealment" without regard to whether such concealment is intentional or unintentional. The
phrase "whether intentional or unintentional" was in fact superfluous. The deletion of the phrase
"whether intentional or unintentional" could not have had the effect of imposing an affirmative
requirement that a concealment must be intentional if it is to entitle the injured party to rescind a
contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or
unintentional" merely underscored the fact that all throughout (from 1914 to 1985), the statute
did not require proof that concealment must be "intentional" in order to authorize rescission by the
injured party.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the
failure to communicate must have been intentional rather than merely inadvertent. For Jaime
Canilang could not have been unaware that his heart beat would at times rise to high and alarming
levels and that he had consulted a doctor twice in the two (2) months before applying for non-
medical insurance. Indeed, the last medical consultation took place just the day before the insurance
application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of
the discomfort and concern brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment
on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from
the Insurance Code of 1978.
It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant issue was whether or not Jaime Canilang
had intentionally concealed material information from the insurer, was supported by the evidence of
record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of the Pre-trial
Conference dated 15 October 1984, which "readily shows that the word "intentional" does not
appear in the statement or definition of the issue in the said Order and Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of
Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No
pronouncement as to the costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,

vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and
set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068,
and its Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in
case of accidental death. The designated beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to
said letter.
Petitioner claimed that the insured gave false statements in his application when he answered the
following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation
with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for
cough and flu complications. The other questions were answered in the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During
his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial Court,
Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list of
exhibits consisting of medical records furnished by the Lung Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no evidence to refute the documentary evidence
of concealment/misrepresentation by the decedent of his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of several
documents as well as allegations regarding the health of the insured. Private respondents failed to
oppose said request or reply thereto, thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, condemning the latter to pay the former the amount of One Hundred
Thousand Pesos (P100,000.00) the face value of insured's Insurance Policy No.
3903766, and the Accidental Death Benefit in the amount of One Hundred Thousand
Pesos (P100,000.00) and further sum of P5,000.00 in the concept of reasonable
attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the insured
were made in good faith and under a belief that they need not be disclosed. Moreover, it held that
the health history of the insured was immaterial since the insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The
appellate court ruled that petitioner cannot avoid its obligation by claiming concealment because the
cause of death was unrelated to the facts concealed by the insured. It also sustained the finding of
the trial court that matters relating to the health history of the insured were irrelevant since petitioner
waived the medical examination prior to the approval and issuance of the insurance policy.
Moreover, the appellate court agreed with the trial court that the policy was "non-medical" (Rollo, pp.
4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this Court is
not absolute and admits of exceptions, such as when the judgment is based on a misappreciation of
the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment
and misrepresentation, however, the same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to

communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining.
Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is

called concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence
of the facts upon the party to whom communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.
The information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's
action on his application, either by approving it with the corresponding adjustment for a higher
premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination
of the insured by petitioner in order for it to reasonably assess the risk involved in accepting the
application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend on
the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he
was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical
examination [in a non-medical insurance contract] renders even more material the information
required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance Code,
which allows the injured party to rescind a contract of insurance where there is concealment,
ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is
sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries (Henson v. The Philippine American Life Insurance
Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in Section 48 of The Insurance
Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED
and SET ASIDE.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

WAIVER AND ESTOPPEL

SUPREME COURT
Manila
EN BANC
G.R. No. L-47593 December 29, 1943
THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
SERAFIN D. FELICIANO ET AL., respondents.
Manuel Roxas and Araneta, Zaragoza, Araneta and Bautista for petitioner.
Deflfin Joven and Pablo Lorenzo for respondents.
Ramirez and Ortigas as amici curiae.
OZAETA, J.:
In a four-to-three decision promulgated on September 13, 1941, 1 this Court affirmed the judgment of
the Court of Appeals in favor of the respondents and against the petitioner for the sum of P25,000,
representing the value of two insurance policies issued by the petitioner on the life of Evaristo
Feliciano. A motion to reconsider and set aside said decision has been filed by the petitioner, and
both parties have submitted exhaustive and luminous written arguments in support of their
respective contentions.
The facts of the case are set forth in the majority and dissenting opinions heretofore handed down
by this Court, the salient points of which may be briefly restated as follows:
Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary
tuberculosis when he signed his applications for insurance with the petitioner on October 12, 1934.
On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the
respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very serious
ad practically hopeless condition." Nevertheless the question contained in the application — "Have
you ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" —
appears to have been answered , "No" And above the signature of the applicant, following the
answers to the various questions propounded to him, is the following printed statement: 1awphil.net
I declare on behalf of myself and of any person who shall have or claim any interest in any
policy issued hereunder, that each of the above answers is full, complete and true, and that
to the best of my knowledge and belief I am a proper subject for life insurance. (Exhibit K.)
The false answer above referred to, as well as the others, was written by the Company's soliciting
agent Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose
of securing the Company's approval of the application so that the policy to be issued thereon might
be credited to said agent in connection with the inter-provincial contest which the Company was then
holding among its soliciting agents to boost the sales of its policies. Agent David bribed Medical
Examiner Valdez with money which the former borrowed from the applicant's mother by way of
advanced payment on the premium, according to the finding of the Court of Appeals. Said court also
found that before the insured signed the application he, as well as the members of his family, told
the agent and the medical examiner that he had been sick and coughing for some time and that he
had gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that in
spite of such information the agent and the medical examiner told them that the applicant was a fit
subject for insurance.
Each of the policies sued upon contains the following stipulations:
This policy and the application herefor constitute the entire contract between the parties
hereto. . . . Only the President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of the Company to
issue permits, or to modify this or any contract, or to extend the same time for making any
premium payment, and the Company shall not be bound by any promise or representation
heretofore or hereafter given by any person other than the above-named officials, and by
them only in writing and signed conjointly as stated.
The application contains, among others, the following statements:
18. — I [the applicant] hereby declare that all the above statements and answers as well as
all those that I may make to the Company's Medical Examiner in continuation of this
application, to be complete, true and correct to the best of my knowledge and belief, and I
hereby agree as follows:
1. That his declaration, with the answers to be given by me to the Medical Examiner, shall be
the basis of the policy and form part of same.
xxx xxx xxx
3. That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.
4. That the agent taking this application has no authority to make, modify or discharge
contracts, or to waive any of the Company's rights or requirements.
5. My acceptance of any policy issued on this application will constitute a ratification by me of

any corrections in or additions to this application made by the Company in the space
provided "For Home Office Corrections or Additions Only." I agree that photographic copy of
this applications as corrected or added to shall constitute sufficient notice to me of the
changes made. (Emphasis added.)
The petitioner insists that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon.
After a careful re-examination of the facts and the law, we are persuaded that petitioner's contention
is correct. To the reasons adduced in the dissenting opinion heretofore published, we only desire to
add the following considerations:
When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized
the soliciting agent and/or medical examiner of the Company to write the answers for him, he made
them his own agents for that purpose, and he was responsible for their acts in that connection. If
they falsified the answers for him, he could not evade the responsibility for he falsification. He was
not supposed to sign the application in blank. He knew that the answers to the questions therein
contained would be "the basis of the policy," and for that every reason he was required with his
signature to vouch for truth thereof.
Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical examiner of the Company in accepting the
policies in question. Above the signature of the applicant is the printed statement or representation: "
. . . I am a proper subject for life insurance." In another sheet of the same application and above
another signature of the applicant was also printed this statement: "That the said policy shall not take
effect until he first premium has been paid and the policy as been delivered to and accepted by me,
while I am in good health." When the applicant signed the application he was "having difficulty in
breathing, . . . with a very high fever." He had gone three times to the Santol Sanatorium and had X-
ray pictures taken of his lungs. He therefore knew that he was not "a proper subject for life
insurance." When he accepted the policy, he knew that he was not in good health. Nevertheless, he
not only accepted the first policy of P20,000 but then and there applied for and later accepted
another policy of P5,000.
We cannot bring ourselves to believe that the insured did not take the trouble to read the answers
contained in the photostatic copy of the application attached to and made a part of the policy before
he accepted it and paid the premium thereon. He must have notice that the answers to the questions
therein asked concerning his clinical history were false, and yet he accepted the first policy and
applied for another. In any event, he obligated himself to read the policy when he subscribed to this
statement: "My acceptance of any policy issued on this application will constitute a ratification by me
of any corrections in or additions to this application made by the Company . . ." By accepting the
policy he became charged with knowledge of its contents, whether he actually read it or not. He
could not ostrich-like hide his head from it in order to avoid his part of the bargain and at the same
time claim the benefit thereof. He knew, or was chargeable with knowledge, from the very terms of
the two policies sued upon (one of which is printed in English and the other in Spanish) that the
soliciting agent and the medical examiner had no power to bind the Company by any verbal promise
or oral representation. The insured, therefore, had no right to rely — and we cannot believe he relied
in good faith — upon the oral representation. The insured, therefore, had no right to rely — and we
cannot believe he relied in good faith — upon the oral representation of said agent and medical
examiner that he (the applicant) was a fit subject for insurance notwithstanding that he had been and
was still suffering with advanced pulmonary tuberculosis.
From all the facts and circumstances of this case, we are constrained to conclude that the insured
was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in the
fraudulent procurement of the policies in question and that by reason thereof said policies are
void ab initio.
Wheretofore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is
hereby reversed. Let another judgment be entered in favor of the respondents and against the
petitioner for the refund of the premiums amounting to P1,389, with legal interest thereon from the
date of the complaint, and without any finding as to costs.
Moran, Paras and Bocobo, JJ., concur.

OTHER INSURANCE CLAUSES

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-36232 December 19, 1974
PIONEER INSURANCE AND SURETY CORPORATION, petitioner-appellant,

vs.
OLIVA YAP, represented by her attorney-in-fact, CHUA SOON POON respondent-appellee.
Eriberto D. Ignacio for petitioner-appellant.
Paculdo, Miranda, Marquez, Sibal & Associates for respondent-appellee.
FERNANDEZ, J.:p
This is an appeal by certiorari from the decision of the Court of Appeals dated December 16, 1972,
in CA-G.R. No. 36669-R, affirming the judgment of the Court of First Instance of Manila (Branch VI)
in Civil Case No. 54508, which latter court declared plaintiff Oliva Yap, herein respondent, entitled to
recover from defendant Pioneer Insurance & Surety Corporation, herein petitioner, the full amount of
the damage inquired in Policy No. 4219, which is P25,000.00, plus 12% of said sum from the date of
filing of the complaint until full payment, in addition to the sum of P6,000.00 for attorney's fees, and
costs.
Respondent Oliva Yap was the owner of a store in a two-storey building located at No. 856 Juan
Luna Street, Manila, where in 1962 she sold shopping bags and footwear, such as shoes, sandals
and step-ins. Chua Soon Poon Oliva Yap's son-in-law, was in charge of the store.
On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4216 from petitioner Pioneer
Insurance & Surety Corporation with a face value of P25,000.00 covering her stocks, office furniture,
fixtures and fittings of every kind and description. Among the conditions in the policy executed by the
parties are the following:
The Insured shall give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated in, or endorsed on this Policy by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this Policy shall be
forfeited. (emphasis supplied)
It is understood that, except as may be stated on the face of this policy there is no
other insurance on the property hereby covered and no other insurance is allowed
except by the consent of the Company endorsed hereon. Any false declaration or
breach or this condition will render this policy null and void.
At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor of respondent Yap, an
insurance policy for P20,000.00 issued by the Great American Insurance Company covering the
same properties was noted on said policy as co-insurance (Annex "1-E"). Later, on August 29, 1962,
the parties executed Exhibit "1-K", as an endorsement on Policy No. 4219, stating:
It is hereby declared and agreed that the co-insurance existing at present under this
policy is as follows: P20,000.00 — Northwest Ins., and not as originally stated.
(emphasis supplied)
Except as varied by this endorsement, all other terms and conditions remain
unchanged.
Still later, or on September 26, 1962, respondent Oliva Yap took out another fire insurance policy for
P20,000.00 covering the same properties, this time from the Federal Insurance Company, Inc.,
which new policy was, however, procured without notice to and the written consent of petitioner
Pioneer Insurance & Surety Corporation and, therefore, was not noted as a co-insurance in Policy
No. 4219.
At dawn on December 19, 1962, a fire broke out in the building housing respondent Yap's above-
mentioned store, and the said store was burned. Respondent Yap filed an insurance claim, but the
same was denied in petitioner's letter of May 17, 1963 (Exhibit "G"), on the ground of "breach and/or
violation of any and/or all terms and conditions" of Policy No. 4219.
On July 17, 1963, Oliva Yap filed with the Court of First Instance of Manila the present complaint,
asking, among others, for payment of the face value of her fire insurance policy. In its answer,
petitioner alleged that no property belonging to plaintiff Yap and covered by the insurance policy was
destroyed by the fire; that Yap's claim was filed out of time; and that Yap took out an insurance
policy from another insurance company without petitioner's knowledge and/or endorsement, in
violation of the express stipulations in Policy No. 4219, hence, all benefits accruing from the policy
were deemed forfeited.
As already stated at the beginning of this opinion, the trial court decided for plaintiff Oliva Yap; and
its judgment was affirmed in full by the Court of Appeals.
The vital issue in this appeal is whether or not petitioner should be absolved from liability on Fire
Insurance Policy No. 4219 on account of any violation by respondent Yap of the co-insurance clause
therein. In resolving this problem, the Court of Appeals stated in its decision:
5. The plaintiff-appellee has not violated the other insurance clause (Exhibit 1-F) of
the insurance Policy No. 4219 that would justify the defendant-appellant, as insurer,
to avoid its liability thereunder. It appears on the face of said policy that a co-
insurance in the amount of P20,000.00 was secured from the Great American
Insurance and was declared by the plaintiff-appellee and recognized by the
defendant-appellant. This was later on substituted for the same amount and secured
by the Federal Insurance Company. Chua Soon Poon on being cross-examined by
counsel for the defendant-appellant, declared that the Great American Insurance
policy was cancelled because of the difference in the premium and the same was
changed for that of the Federal (t.s.n., hearing of December 1, 1964, pp. 35-36).
Contrary to the assertion of the defendant-appellant, the Great American Insurance
policy was not substituted by the Northwest Insurance policy. As admitted by the
defendant-appellant in its brief (p. 48), the fire insurance policy issued by the Great
American Insurance Company for P20,000.00 (Exhibit 1-E) was cancelled on August
29, 1962. On the other hand, the fire insurance policy issued by the Northwest
Insurance & Surety Company for P20,000.00 (Exhibit 1-K) was taken out on July 23,
1962. How then can the Northwest Insurance policy issued on July 23, 1962, be
considered as having substituted the Great American policy which was cancelled
only on August 29, 1962? The defendant-appellant can be considered to have
waived the formal requirement of indorsing the policy of co-insurance since there
was absolutely no showing that it was not aware of said substitution and preferred to
continue the policy (Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co.,
55 Phil. 386). Even assuming that the defendant-appellant did not indorse the
Federal Insurance policy, there is no question that the same was only a substitution
and did not in any way increase the amount of the declared co-insurance. In other
words, there was no increase in the risk assumed by the defendant-appellant.
We do not agree with the conclusion of the Court of Appeals.
There was a violation by respondent Oliva Yap of the co-insurance clause contained in Policy No.
4219 that resulted in the avoidance of petitioner's liability. The insurance policy for P20,000.00
issued by the Great American Insurance Company covering the same properties of respondent Yap
and duly noted on Policy No. 4219 as c-insurance, ceased, by agreement of the parties (Exhibit "1-
L"), to be recognized by them as a co-insurance policy. The Court of Appeals says that the Great
American Insurance policy was substituted by the Federal Insurance policy for the same amount,
and because it was a mere case of substitution, there was no necessity for its endorsement on
Policy No. 4219. This finding, as well as reasoning, suffers from several flaws. There is no evidence
to establish and prove such a substitution. If anything was substituted for the Great American
Insurance policy, it could only be the Northwest Insurance policy for the same amount of
P20,000.00. The endorsement (Exhibit "1-K") quoted above shows the clear intention of the parties
to recognize on the date the endorsement was made (August 29, 1962), the existence of only one
co-insurance, and that is the Northwest Insurance policy, which according to the stipulation of the
parties during the hearing, was issued on August 20, 1962 (t.s.n., January 12, 1965, pp. 3-4) and
endorsed only on August 20, 1962. The finding of the Court of Appeals that the Great American
Insurance policy was substituted by the Federal Insurance policy is unsubstantiated by the evidence
of record and indeed contrary to said stipulation and admission of respondent, and is grounded
entirely on speculation, surmises or conjectures, hence, not binding on the Supreme Court. 1
The Court of Appeals would consider petitioner to have waived the formal requirement of endorsing
the policy of co-insurance "since there was absolutely no showing that it was not aware of said
substitution and preferred to continue the policy." The fallacy of this argument is that, contrary to
Section 1, Rule 131 of the Revised Rules of Court, which requires each party to prove his own
allegations, it would shift to petitioner, respondent's burden of proving her proposition that petitioner
was aware of the alleged substitution, and with such knowledge preferred to continue the policy.
Respondent Yap cites Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., Ltd. 2 to
justify the assumption but in that case, unlike here, there was knowledge by the insurer of violations of the
contract, to wit: "If, with the knowledge of the existence of other insurances which the defendant deemed
violations of the contract, it has preferred to continue the policy, its action amounts to a waiver of the
annulment of the contract ..." A waiver must be express. If it is to be implied from conduct mainly, said
conduct must be clearly indicative of a clear intent to waive such right. Especially in the case at bar where
petitioner is assumed to have waived a valuable right, nothing less than a clear, positive waiver, made
with full knowledge of the circumstances, must be required.
By the plain terms of the policy, other insurance without the consent of petitioner would ipso
facto avoid the contract. It required no affirmative act of election on the part of the company to make
operative the clause avoiding the contract, wherever the specified conditions should occur. Its
obligations ceased, unless, being informed of the fact, it consented to the additional insurance.
The validity of a clause in a fire insurance policy to the effect that the procurement of additional
insurance without the consent of the insurer renders ipso facto the policy void is well-settled:
In Milwaukee Mechanids' Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W. 2d 521,
522, a substantially identical clause was sustained and enforced, the court saying:
"The rule in this state and practically all of the states is to the effect that a clause in a
policy to the effect that the procurement of additional insurance without the consent
of the insurer renders the policy void is a valid provision. The earlier cases of
Planters Mutual Insurance Co., vs. Green, 72 Ark. 305, 80 S.W. 92, are to the same
effect." And see Vance, Insurance, 2nd Ed., 725. (Reach vs. Arkansas Farmers Mut.
Fire Ins. Co., [Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.)
2. Where a policy contains a clause providing that the policy shall be void if insured
has or shall procure any other insurance on the property, the procurement of
additional insurance without the consent of the insurer avoids the policy." (Planters'
Mut. Ins. Ass'n vs. Green [Supreme Court of Arkansas, March 19, 1904] 80 S.W.
151.)
3. The policy provided that it should be void in case of other insurance "without notice
and consent of this company. ..." It also authorized the company to terminate the
contract at any time, at its option, by giving notice and refunding a ratable proportion
of the premium. Held, that additional insurance, unless consented to, or unless a
waiver was shown, ipso facto avoided the contract, and the fact that the company
had not, after notice of such insurance, cancelled the policy, did not justify the legal
conclusion that it had elected to allow it to continue in force." (Johnson vs. American
Fire Ins., Co., [Supreme Court of Minnesota, Aug. 12, 1889] 43 N.W., 59)
The aforecited principles have been applied in this jurisdiction in General Insurance & Surety
Corporation vs. Ng Hua 3. There, the policy issued by the General Insurance & Surety Corporation in
favor of respondent Ng Hua contained a provision identical with the provisions in Policy No. 4219 quoted
above. 4 This Court, speaking thru Justice Cesar P. Bengson, in reversing the judgment of the Court of
Appeals and absolving the insurer from liability under the policy, held:
... And considering the terms of the policy which required the insured to declare other
insurances, the statement 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.) Such misrepresentation 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.
Furthermore, even if the annotations were overlooked the defendant insurer would
still be free from liability because there is no question that the policy issued by
General Indemnity has not been stated in nor endorsed on Policy No. 471 of
defendant. And as stipulated in the above-quoted provisions of such policy "all
benefit under this policy shall be forfeited. (Emphasis supplied)
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 stipulation on his side, in order to
entitle himself to the benefit of the contract, which, upon reason or principle, he has no right to ask
the court to dispense with the performance of his own part of the agreement, and yet to bind the
other party to obligations, which, but for those stipulation would not have been entered into." 5
In view of the above conclusion, We deem it unnecessary to consider the other defenses interposed
by petitioner.
WHEREFORE, the appealed judgment of the Court of Appeals is reversed and set aside, and the
petitioner absolved from all liability under the policy. Costs against private respondent.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio and Aquino, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-14373 January 30, 1960
GENERAL INSURANCE AND SURETY CORPORATION, petitioner,

vs.
NG HUA, respondent.
Jose P. Bengzon, Guido Advincula and Potenciano Villegas, Jr., petitioner.
Crispin D. Baizas for respondent.
BENGZON, J.:
Suit to recover on a fire insurance policy. The insurer presented several defenses in the Manila court
of first instance. After trial, it was required to pay.
On appeal to the Courts of Appeal, the judgment was affirmed.
This is now a revision on certiorari, upon the insurer's insistence on two of its main defenses:
prescription and breach of warranty.
The principal of facts on which adjudication may rest are these:
On April 15, 1952, the defendant General Insurance and Surety Corporation issued its insurance
Policy No. 471, insuring against fire, for one year, the stock in trade of the Central Pomade Factory
owned by Ng Hua, the court insured. The next day, the Pomade factory building burned, resulting in
destruction by fire of the insured properties. Ng Hua claimed indemnity from the insurer. The policy
covered damages up to P10,000.00; but after some negotiations and upon suggestion of the Manila
Adjustment Company, he reduced the claim of P5,000.00. Nevertheless, the defendant insurer
refused to pay for various reasons, namely (a) action was not filed in time; (b) violation of warranty;
(c) submission of fraudulent claim; and (f) failure to pay the premium.
The aforesaid Policy No. 471 contains this stipulation on the back thereof;.
3. The insured shall give notice to the company of any insurance or insurances already
affected, or which may subsequently be effected, covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or insurances
be stated in or endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under the policy shall be forfeited. (Emphasis
ours.)
The face of the policy bore the annotation: "Co-Insurance Declared — NIL"
It is undenied that Ng Hua had obtained fire insurance on the same goods, for the same period of
time, in the amount of P20,000.00 from General Indemnity Co. However, the Court of Appeals
referring to the annotation and overruling the defense, held that there was no violation of the above
clause, inasmuch as "co-insurance exists when a condition of the policy requires the insured to
bear ratable proportion of the loss when the value of the insured property exceeds the face value of
the policy," hence there is no co-insurance here.
Discussion — Undoubtedly, co-insurance exists under the condition described by the appellate
court. But that is one kind of co-insurance. It is not the only situation where co-insurance exists.
Other insurers of the same property against the same hazard are sometimes referred as co-insurers
and the ensuing combination as co-insurance.1 And considering the terms of the policy which
required the insured to declare other insurances, the statement 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. Remember it runs "Co-Insurance declared"; emphasis on the last word. If "Co-Insurance"
means that the Court of Appeals says, the annotation served no purpose. It would even be contrary
to the policyitself, which in its clause No. 17 made the insured a co-insurer for the excess of the
value of the property over the amount of the policy.
The annotation then, must be deemed to be a warranty that the property was not insured by any
other policy. Violation thereof entitles the insurer to rescind. (Sec. 69. Insurance Act) Such
misrepresentation 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.
Furthermore, even if the annotations were overlooked, the defendant insurer would still be free from
liability because there is no question that the policy issued by General Indemnity had not been
stated in nor endorsed on Policy No. 471 of defendant. And as stipulated in the above-quoted
provisions of such policy "all benefit under this policy shall be forfeited."2
To avoid the dissastrous effect of the misrepresentation or concealment of the other insurance
policy, Ng Hua alleges "actual knowledge" on the part of General insurance of the fact that he had
taken out additional insurance with General Indemnity. He does not say when such knowledge was
acquired or imparted. If General Insurance know before issuing its policy or before the fire, such
knowledge might overcome the insurer's defense.3 However, the Court of Appeals found no
evidence of such knowledge. We have read the pages of the stenographic notes cited by Ng Hua
and we all gather is evidence of the existence of the Insurance General Indemnity Company. As to
knowledge of General Insurance before issuance of its policy or the fire, there was none.
Indeed, this concealment and violation was expressly set up as a special defense in the answer. Yet
plaintiff did not, in avoidance, reply nor assert such knowledge. And it is doubtful whether the
evidence on the point would be admissible under the pleadings. (See Rule 11, sec. 1.)
All the above considerations lead to the conclusion that the defendant insurer successfully
established its defense of warranty breach or concealment of the other insurance and/or violation of
the provision of the policy above-mentioned.
Having reached the conclusion, we deem it unnecessary to discuss the other defenses.
Wherefore, the judgment under review will be revoked, and the defendant insurer (herein petitioner)
acquitted from all the liability under the policy. Costs against respondent. So ordered.
Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion Reyes, J.B.L., Endencia,
and Barrera, JJ., concur.
SUPREME COURT
Manila
EN BANC
G.R. No. L-33131 December 13, 1930
EMILIO GONZALES LA O, plaintiff-appellee,

vs.
THE YEK TONG LIN FIRE AND MARINE INSURANCE CO., LTD., defendant-appellant.
Araneta and Zaragosa for appellant.

Feria and La O for appellee.
VILLAMOR, J.:
This is an action to recover of the defendant the Yek Tong Lin Fire & Marine Insurance Co., Ltd., the
amount of two insurance policies totaling P100,000 upon leaf tobacco belonging to the plaintiff,
which was damaged by the fire that destroyed the building on Soler Street No. 188, where said
tobacco was stored, on January 11, 1928.
The defendant filed a general and specific denial of each and every allegation of the complaint, set
up three special defenses, and prayed to be absolved from the complaint with costs against the
plaintiff.
After the case was tried, the court below rendered judgment as follows:
In this case and in Nos. 334568, and 33480 of this court, which, by agreement
of the interested parties, were jointly tried, the plaintiff demands P290,000 from
the defendant assurance companies, alleging that to be the amount of the
insurance on his leaf tobacco which was damaged by the fire that destroyed the
warehouse at No. 188 Soler Street, Manila, where it was stored, on January 11,
1928, the plaintiff's claim against the herein defendant, the Yek Tong Lin Fire &
Marine Insurance Co. being for P100,000, and against the defendants in the
three other cases mentioned above, for P190,000.
After the plaintiff had presented his evidence, the defendant companies in cases
Nos. 33458, 33868, and 33480, offered to compromise with him by paying
eighty-five per cent of his claim against them. In view of the fact that said
defendants had in their answer raised the question of warranties A and G of the
plaintiff's policies, providing that the building used for the effects insured would
not be occupied by any other lessee, nor would be used for the deposit of other
goods, without the consent of said defendants, and inasmuch as the latter
alleged in their answer that the owner of the burnt building had leased the
warehouse to several persons for the storage of sundry articles, the plaintiff had
to accept the proposed compromise, and in consequence thereof, the three
cases aforesaid were dismissed.
The present case followed the usual course of procedure because the plaintiffs
refused to accept the compromise which, in the same terms as those made by
the defendants in the three cases mentioned, was proposed to him by the
defendant the Yek Tong Lin Fire & Marine Insurance Company, the plaintiff
contending that said defendant did not, nor could, raise the question of
warranties A and G heretofore mentioned for the simple reason that it was the
defendant itself, as owner, who had leased the building which later was
destroyed by fire, to another person after having already ceded a portion of it to
said plaintiff.
The only question to be determined, having been raised in the defendant's

answer — both parties agreeing that the plaintiff insured his leaf tobacco with
the defendant assurance company, and that said goods were damaged by the
fire which destroyed the warehouse where they were stored, on January 11,
1928 — is whether said goods were worth what the plaintiff claims, that is, about
equal to the amount for which they were insured in the four above mentioned
assurance companies, including the defendant in this case.
The plaintiff has conclusively shown by the Official Register Book (Exhibit 1) and
the Official Guide (Exhibit J), furnished by the Bureau of Internal Revenue, and
kept under the supervision thereof in the usual form, in accordance with articles
10, 34 to 38 of the Regulations of the same promulgated under No. 17, by the
Secretary of Finance; the Stock Book for recording the quantity of tobacco,
Exhibit K, kept by the plaintiff and presented as part of the testimony of
witnesses Claveria, Bonete, and Leoncio Jose; the testimony of Estanislao
Lopez, Inspector of Internal Revenue, and the latter's report (Exhibit N),
submitted to the Collector of Internal Revenue in pursuance of article 33 of the
aforementioned Regulations; the tobacco invoices of stock damaged by the fire,
Exhibits L and L-1 to L-20; and by the testimony of Clemente Uson who went
over the plaintiff's books as auditor and public accountant, and also prepared
Exhibits T and U, attached to the record, that the plaintiff had in the warehouse
at No. 188 Soler at the time of the fire, not less, but rather more, than 6,200
bales of leaf tobacco worth over P300,000, which is of course more than the
sum total of all the insurances taken out with the defendant herein and the
defendants in the three aforementioned cases Nos. 33458, 33868, and 33480. lawphi1> net
The reason why the entry showing that 258 bales of tobacco had been removed
from the warehouse, appearing in the Official Register Book, Exhibit I, was not
posted in the Stock Book, Exhibit K, has been satisfactorily explained by the
plaintiff's witnesses, who stated that it was due to the fact that there was no time
to post it in the Stock Book, because the fire took place and the plaintiff told
them not to touch, and to make no further entries in the books. Witness White,
the defendant company's adjuster, who carefully examined then plaintiff's books
not only immediately after the fire, but also during the hearing of this case,
seems not to have found any irregularity therein; at least he said nothing on the
point when he took the witness stand. On the contrary, in his report Exhibit UU
sent to the defendant herein in his capacity as adjuster, appointed by the latter,
and in Exhibits WW and XX, admitted by the Yek Tong Lin Ins. Co., Ltd., he
admitted that the leaf tobacco belonging to the plaintiff in the warehouse when
the fire took place exceeded, in quantity and value, the amount of the insurance.
The defendant did not present evidence to rebut the plaintiff's evidence, but only
presented witness Rowlands, whose testimony or opinion as to the probable
number of bales of tobacco in the warehouse at the date of the fire does not
deserve serious consideration, not only because of the plaintiff's evidence, but
because his opinion or estimate is based solely upon photographs of the place
taken after the fire.
In view of the foregoing, the court hereby sentences the defendant the Yek
Tong Lin Fire and Marine Insurance Company, Ltd., to pay the plaintiff Emilio
Gonzales La O, the amount of one hundred thousand pesos (P100,000), for
which it had accepted the insurance on the leaf tobacco belonging to said
plaintiff, damaged by the fire which destroyed the warehouse at No. 188 Soler
Street, where it was stored, on January 11, 1928, and legal interest upon said
amount from June 27, 1928, when the complaint was filed in this case, plus the
costs.
So ordered.
Manila, P. I., this 24th day of December, 1929.
ANACLETO DIAZ
Judge.
The defendant duly appealed from this judgment, alleging that the trial court erred in making
reference to the settlement arrived at by the plaintiff and other insurance companies, and in
declaring that the only question involved in the case is whether or not the tobacco damaged by the
fire is worth at least P290,000.
There is no merit in these assignments of error. Since the settlement between the plaintiff and the
other defendant companies was reached after the plaintiff had presented his evidence, and as those
three cases were tried jointly with the instant case, there is no valid reason why the trial court should
not refer to it in deciding this case. Furthermore, the court's holding here assigned as error, granting
there were other incidental matters to be decided by the court, does not in itself constitute a
reversible error.
In the third assignment of error, the defendant contends that the plaintiff cannot recover under the
policy as he has failed to prove that the Bank of the Philippine Islands, to whom the policy was made
payable, no longer has any rights and interests in it. It should be noted that the defendant did not in
its answer allege defect of parties plaintiff, and, besides, it does not appear that the plaintiff ceded to
the bank all his rights or interests in the insurance, the note attached to the policies merely stating:
"There shall be paid to the Bank of the Philippine Islands an indemnity for any loss caused by fire,
according to the interest appearing in its favor." And the fact that the plaintiff himself presented in
evidence the policies mortgaged to the Bank of the Philippine Islands gives rise to the presumption
that the debt thus secured has been paid, in accordance with article 1191 of the Civil Code.
Corpus Juris, volume 26, pages 483 et seq., states:
Insured, being the person with whom the contract was made, is primarily the proper person
to bring suit thereon. Subject to some exceptions, insured may thus sue, although the policy
is taken wholly or in part for the benefit of another person named or unnamed, and although
it is expressly made payable to another as his interest may appear or otherwise. Although a
policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made
payable to him, yet the mortgagor may sue thereon in his own name, especially where the
mortgagee's interest is less than the full amount recoverable under the policy, . . . .
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has assigned as collateral
security any judgment he may obtain.
It is also contended that the trial court erred in not declaring that in as much as the plaintiff failed to
notify the defendant corporation in writing, of other insurance policies obtained by him, he has
violated article 3 of the conditions of the policies in question, thereby rendering these policies null
and void. Article 3 of the conditions of the policies in question prescribes:
ART. 3. Any insurance in force upon all or part of the things insured must be declared in
writing by the insured and he should cause the company to insert or mention it in the policy,
and without such requisite said policy will be regarded as null and void, and the assured
deprived of all rights of indemnity in case of loss.
The following clause has been inserted with a typewriter in the policies: "Subject to clauses G and A
and other insurances with a special short period attached to this policy." And attached to said
policies issued by the defendant there is a sheet of "Other insurances" with the amount and the
assurance companies in blank, which, according to the appellee, constitutes a notification that there
were other insurances existing at the time.
In the case of Benedict vs. Ocean Insurance Co. (31 N.Y., 391-393), the construction of the clause,
"privilege for $4,500 additional insurance," was discussed. One of the printed clauses of the policy
reads as follows:
If said assured, or his assigns, shall hereafter make any other insurance upon the same
property, and shall not, with all reasonable diligence, give notice to this corporation, and
have the same indorsed on this instrument, or otherwise acknowledged by them, in writing,
this policy shall cease and be of no further effect.
The Supreme Court of New York held that the words "Privilege for $4,500 additional insurance"
made it unnecessary for the assured to inform the insurer of any other policy up to that amount.
In the case cited the same goods insured by the defendant company were reinsured to the amount
of $4,500 in accordance with the clause "privilege for $4,500 additional insurance;" but in the instant
case it may be said that the tobacco insured in the other companies was different from that insured
with the defendant, since the number of bales of tobacco in the warehouse greatly exceeded that
insured with the defendant and the other companies put together. And according to the doctrine
enunciated in 26 Corpus Juris, 188, "to be insurance of the sort prohibited the prior policy must have
been insurance upon the same subject matter, and upon the same interest therein.
Furthermore, the appellant cannot invoke the violation of article 3 of the conditions of the insurance
policies for the first time on appeal, having failed to do so in its answer; besides, as the appellee
correctly contends in his brief, Guillermo Cu Unjieng, who was then president and majority
shareholder of the appellant company, the Yek Tong Lin Fire & Marine Insurance Co., knew that
there were other insurances, at least from the attempt to raise the insurance premium on the
warehouse and the appellee's tobacco deposited therein to 1 per centum, and it was later reduced
upon petition of the appellant itself and other assurance companies to 0.75 per centum presented to
the association of assurance companies in the year 1927, and notwithstanding this, said appellant
did not rescind the insurance policies in question, but demanded and collected from the appellee the
increased premium.
That the defendant had knowledge of the existence of other policies obtained by the plaintiff from
other insurance companies, is specifically shown by the defendant's answer wherein it alleges, by
way of special defense, the fact that there exist other policies issued by the companies mentioned
therein. If, with the knowledge of existence of other insurances which the defendant deemed
violations of the contract, it has preferred to continue the policy, its action amounts to a waiver of the
annulment of the contract, in accordance with the following doctrine in 19 Cyc., 791, 792:.
FAILURE TO ASSERT FORFEITURE — IN GENERAL. — While the weight of authority is

that a policy conditioned to become void upon a breach of a warranty is void ipso facto upon
such a breach without formal proceedings on the part of the insurer, yet it is true that such
conditions are inserted for the benefit of the insurer and may be waived, and that the insurer
may elect to continue the policy despite the breach. If it does the policy is revived and
restored. Its failure to assert a forfeiture therefore is at least evidence tending to show a
waiver thereof. Many authorities go further, however, and hold that the failure to assert a
forfeiture after knowledge of a ground thereof will amount of itself to waiver. . . .
The fifth and sixth assignments of error refer to the quantity of tobacco in the Soler warehouse at the
time of the fire, which, according to the appellant, did not exceed 4,930 bales. As may be seen,
these assignments of error by the appellant involved purely questions of fact, and it is for this court
to decide whether the findings of the trial court are supported by the evidence. The judgment
appealed from sets forth clearly the evidence presented to the court in order to determine the
quantity of tobacco in the warehouse at the time of the fire. We have studied the evidence aforesaid,
are fully convinced that the court's findings are well supported by the same. Inasmuch as it has not,
in our opinion, been shown that the trial judge overlooked any fact, which, if duly considered would
have change the result of the case, we do not feel justified in altering of modifying his findings.
Finally, the appellant contends that the trial court erred in arriving at the damages that plaintiff may
recover under the policies in question by the cost price of the tobacco damaged by the fire, instead
of computing the same on the market price of the said tobacco at the time of the fire; and in
declaring that the tobacco damaged was worth more than P300,000. This error is not well taken, for
it is clear that the cost price is competent evidence tending to show the value of the article in
question. And it was so held the case of Glaser vs. Home Ins. Co. (47 Misc. Rep., 89; 93 N. Y.
Supp., 524; Abbott's Proof of Facts, 3d ed., p. 847), where it was declared that the cost of the goods
destroyed by fire is some evidence of value, in an action against the insurance company. Exhibits L
to L-20, which are invoices for tobacco purchased by the appellee, and the testimony of the public
accountant Clemente Uson, who went over them and the rest of the appellee's books after the fire,
taken in connection with reports T and Z, adduced as part of his testimony, show that the cost price
of each bale of tobacco belonging to the appellee, damaged by the fire, was P51.8544, which,
multiplied by 6,264, the number of bales, yields a total of over P320,000.
The adjusters of the appellant, White & Page, in ascertaining the market price of the plaintiff's
tobacco deposited in the burnt warehouse, taking the information furnished by the Tabacalera and
by M. Pujalte, S. en C., as a basis, thus conclude their report: "We therefore are obliged to the
conclusion that the value of the tobacco destroyed was not less than P290,000." And, indeed, said
adjusters, in behalf of the appellant, appraised the appellee's tobacco assured and damaged by the
fire at P303,052.32, collecting from the proceeds of the sale of the tobacco saved from the fire
P3,000, the appellants share in proportion to the to the insurance of P100,000 belonging to it, and
P190,000 belonging to the other assurance companies, and considered the appellee himself as his
own assurer in the amount of P13,052.32 which was the difference between the total value of the
tobacco damaged and the total amount of the insurance, P290,000, for which reason the appellee
received P129.21, as his proportionate share of the tobacco saved, as shown by Exhibits UU, WW,
and XX.
Hence the last assignment of error is without merit.
Wherefore, the judgment appealed from is in accordance with law, and must be, as it is hereby,
affirmed, with costs against the appellant. So ordered.
Johnson, Street, Malcolm, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
INCONTESTABILTY CLAUSE

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 186983 February 22, 2012
MA. LOURDES S. FLORENDO, Petitioner,

vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents.
DECISION
ABAD, J.:
This case is about an insured’s alleged concealment in his pension plan application of his true state
of health and its effect on the life insurance portion of that plan in case of death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede.
The plan had a pre-need price ofP997,050.00, payable in 10 years, and had a maturity value
of P2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla the task of
supplying the information needed in the application.2 Respondent Ma. Celeste Abcede, Perla’s
daughter, signed the application as sales counselor.3
Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage
to Florendo.4This was covered by a Group Master Policy that Philippine American Life Insurance
Company (Philam Life) issued to Philam Plans.5 Under the master policy, Philam Life was to
automatically provide life insurance coverage, including accidental death, to all who signed up for
Philam Plans’ comprehensive pension plan.6 If the plan holder died before the maturity of the plan,
his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need
price. Further, the life insurance was to take care of any unpaid premium until the pension plan
matured, entitling the beneficiary to the maturity value of the pension plan.7
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel, with
petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly
premiums.9
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently,
Lourdes filed a claim with Philam Plans for the payment of the benefits under her husband’s
plan.10 Because Manuel died before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.11
On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim. Philam Life found that
Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he
suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment
under the plan13 but Philam Plans rejected it,14prompting her to file the present action against the
pension plan company before the Regional Trial Court (RTC) of Quezon City.15
On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste,
solidarily, to pay Lourdes all the benefits from her husband’s pension plan, namely: P997,050.00, the
proceeds of his term insurance, and P2,890,000.00 lump sum pension benefit upon maturity of his
plan; P100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel
was not guilty of concealing the state of his health from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17 holding that
insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As
such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was
aware or material facts that he knew or ought to know.18
Issues Presented
The issues presented in this case are:
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept
blank and did not answer questions in his pension plan application regarding the ailments he
suffered from;
2. Whether or not the CA erred in holding that Manuel was bound by the failure of
respondents Perla and Ma. Celeste to declare the condition of Manuel’s health in the
pension plan application; and
3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension
plan application and acceptance of his premium payments precluded it from denying
Lourdes’ claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application
relating to his medical history, Philam Plans should have returned it to him for completion. Since
Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuel’s
part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding the state of
his health. Consequently, it could not blame him for not mentioning it.19
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true
state of Manuel’s health. She forgets that since Philam Plans waived medical examination for
Manuel, it had to rely largely on his stating the truth regarding his health in his application. For, after
all, he knew more than anyone that he had been under treatment for heart condition and diabetes for
more than five years preceding his submission of that application. But he kept those crucial facts
from Philam Plans.
Besides, when Manuel signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of his
representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:

xxxx
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal otherwise, please give details in the space
provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his continuing treatments
for heart condition and diabetes, the assumption is that he has never been treated for the said
illnesses in the last five years preceding his application. This is implicit from the phrase "If your
answer to any of the statements above (specifically, the statement: I have never been treated for
heart condition or diabetes) reveal otherwise, please give details in the space provided for." But this
is untrue since he had been on "Coumadin," a treatment for venous thrombosis,21 and insulin, a drug
used in the treatment of diabetes mellitus, at that time.22
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that
Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up
for the pension plan.23 But by its tenor, the responsibility for preparing the application belonged to
Manuel. Nothing in it implies that someone else may provide the information that Philam Plans
needed. Manuel cannot sign the application and disown the responsibility for having it filled up. If he
furnished Perla the needed information and delegated to her the filling up of the application, then she
acted on his instruction, not on Philam Plans’ instruction.
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a
pacemaker implant in the early 70s since this did not fall within the five-year timeframe that the
disclosure contemplated.24 But a pacemaker is an electronic device implanted into the body and
connected to the wall of the heart, designed to provide regular, mild, electric shock that stimulates
the contraction of the heart muscles and restores normalcy to the heartbeat.25 That Manuel still had
his pacemaker when he applied for a pension plan in October 1997 is an admission that he
remained under treatment for irregular heartbeat within five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes
when he submitted his pension plan application. These clearly fell within the five-year period. More,
even if Perla’s knowledge of Manuel’s pacemaker may be applied to Philam Plans under the theory
of imputed knowledge,26 it is not claimed that Perla was aware of his two other afflictions that needed
medical treatments. Pursuant to Section 2727 of the Insurance Code, Manuel’s concealment entitles
Philam Plans to rescind its contract of insurance with him.
Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla
fill in the required details did not make her his agent and bind him to her concealment of his true
state of health. Since there is no evidence of collusion between them, Perla’s fault must be
considered solely her own and cannot prejudice Manuel.28
But Manuel forgot that in signing the pension plan application, he certified that he wrote all the
information stated in it or had someone do it under his direction. Thus:
APPLICATION FOR PENSION PLAN

(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in
accordance with the General Provisions set forth in this application and hereby certify that the date
and other information stated herein are written by me or under my direction. x x x.29 (Emphasis
supplied)
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it
contains since he certified that he authorized her action. Philam Plans had every right to act on the
faith of that certification.
Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his
health would not hinder the approval of his application and that what is written on his application
made no difference to the insurance company. But, indubitably, Manuel was made aware when he
signed the pension plan application that, in granting the same, Philam Plans and Philam Life were
acting on the truth of the representations contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is based on the truth of the foregoing
representations and is subject to the provisions of the Group Life Insurance Policy issued by THE
PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis supplied)
As the Court said in New Life Enterprises v. Court of Appeals:31
It may be true that x x x insured persons may accept policies without reading them, and that this is
not negligence per se. 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 and the contract concerns indemnity 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.32
The same may be said of Manuel, a civil engineer and manager of a construction company.33 He
could be expected to know that one must read every document, especially if it creates rights and
obligations affecting him, before signing the same. Manuel is not unschooled that the Court must
come to his succor. It could reasonably be expected that he would not trifle with something that
would provide additional financial security to him and to his wife in his twilight years.
Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes
points out that any defect or insufficiency in the information provided by his pension plan application
should be deemed waived after the same has been approved, the policy has been issued, and the
premiums have been collected. 34
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-
year incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no longer contest for health
reasons any claim for insurance under this Agreement, except for the reason that installment has not
been paid (lapsed), or that you are not insurable at the time you bought this pension program by
reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability
period shall start again on the date of approval of your request for reinstatement.35
1âw phi 1
The above incontestability clause precludes the insurer from disowning liability under the policy it
issued on the ground of concealment or misrepresentation regarding the health of the insured after a
year of its issuance.
Since Manuel died on the eleventh month following the issuance of his plan,36 the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R.
CV 87085 dated December 18, 2007.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds from their late father's policy.
The facts of the case as found by the Court of Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner dismissing

herein petitioners' complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No. 1082467 in the amount of P
80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P 80,000.00 with respondent company. Said application
was approved and Policy No. 1082467 was issued effective November 6,1973, with
petitioners the beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed
with respondent company their claim for the proceeds of the life insurance policy.
However, in a letter dated September 11, 1975, respondent company denied
petitioners' claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on the policy were
thereupon refunded .
Alleging that respondent company's refusal to pay them the proceeds of the policy
was unjustified and unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's
decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the right to
rescind the policy contract when insured is already dead is not in accordance with
existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be allowed
to avoid the policy on grounds of concealment by the deceased assured, is contrary
to the provisions of the policy contract itself, as well as, of applicable legal provisions
and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled in issuing
the policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind the contract
of insurance as rescission must allegedly be done during the lifetime of the insured within two years
and prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was amended and the second paragraph of Section
48 added to prevent the insurance company from exercising a right to rescind after the death of the
insured.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered
in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."
As noted by the Court of Appeals, to wit:

The policy was issued on November 6,1973 and the insured died on April 26,1975.
The policy was thus in force for a period of only one year and five months.
Considering that the insured died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the policy is void ab initio by
reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums
paid on September 11, 1975, previous to the commencement of this action on
November 27,1975. (Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or misrepresentation by their
late father because Tan Lee Siong did not have to buy insurance. He was only pressured by
insistent salesmen to do so. The petitioners state:
Here then is a case of an assured whose application was submitted because of

repeated visits and solicitations by the insurer's agent. Assured did not knock at the
door of the insurer to buy insurance. He was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger insurance, not just P
80,000.00. If his purpose were to misrepresent and to conceal his ailments in
anticipation of death during the two-year period, he certainly could have gotten a
bigger insurance. He did not.
Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano
Guinto. It was he who accomplished the application, Part II, medical. Philamlife did
not.
Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to denounce the pressure and
practice indulged in by agents in selling insurance. At one time or another most of us
have been subjected to that pressure, that practice. This court took judicial
cognizance of the whirlwind pressure of insurance selling-especially of the agent's
practice of 'supplying the information, preparing and answering the
application,submitting the application to their companies, concluding the transactions
and otherwise smoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at
page 205:
It is of common knowledge that the selling of insurance today is subjected to the

whirlwind pressure of modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit and procure
applications.
These agents are to be found all over the length and breadth of the land. They are
stimulated to more active efforts by contests and by the keen competition offered by
the other rival insurance companies.
They supply all the information, prepare and answer the applications, submit the
applications to their companies, conclude the transactions, and otherwise smooth out
all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure of
insurance salesmanship was not overwhelming as it is now; when the population of
this country was less than one-fourth of what it is now; when the insurance
companies competing with one another could be counted by the fingers. (pp. 140-
142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected to the
whirlwind pressure of insurance salesmanship this Court itself has long denounced,
the assured who dies within the two-year period, should stand charged of fraudulent
concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability clause"
added by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and
paying for a life insurance policy, would be allowed to collect on the policy even if the insured
fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that the medical terms were
explained in a layman's language to the insured. They state that the insurer should have presented
its two medical field examiners as witnesses. Moreover, the petitioners allege that the policy intends
that the medical examination must be conducted before its issuance otherwise the insurer "waives
whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for
insurance were asked, explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. The deceased, by affixing his
signature on the application form, affirmed the correctness of all the entries and
answers appearing therein. It is but to be expected that he, a businessman, would
not have affixed his signature on the application form unless he clearly understood its
significance. For, the presumption is that a person intends the ordinary consequence
of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule
131, Rules of Court].
The evidence for respondent company shows that on September 19,1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of progressive
weight loss and abdominal pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on December 14, 1973 for consolation
and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6)
Because of the concealment made by the deceased of his consultations and
treatments for hypertension, diabetes and liver disorders, respondent company was
thus misled into accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical investigation and
examination (Exhibit 5-A). For as long as no adverse medical history is revealed in
the application form, an applicant for insurance is presumed to be healthy and
physically fit and no further medical investigation or examination is conducted by
respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this
case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts of money are collected from
ignorant persons by companies and associations which adopt high sounding titles
and print the amount of benefits they agree to pay in large black-faced type, following
such undertakings by fine print conditions which destroy the substance of the
promise. All provisions, conditions, or exceptions which in any way tend to work a
forfeiture of the policy should be construed most strongly against those for whose
benefit they are inserted, and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in such
a way as to conceal from the applicant their importance. If a warning in bold red letters or a boxed
warning similar to that required for cigarette advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance Commission to provide as protection
against high pressure insurance salesmanship. We are limited in this petition to ascertaining whether
or not the respondent Court of Appeals committed reversible error. It is the petitioners' burden to
show that the factual findings of the respondent court are not based on substantial evidence or that
its conclusions are contrary to applicable law and jurisprudence. They have failed to discharge that
burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court
of Appeals is AFFIRMED.
SO ORDERED.
Fernan, (C.J., Chairman), Bidin and Cortes, JJ., concur.
Feliciano, took no part.

NOTICE AND PROOF IN FIRE INSURANCE

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 138737 July 12, 2001
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and USIPHIL INCORPORATED, respondents.
KAPUNAN, J.:
Through this petition for review on certiorari Finman General Assurance Corporation (petitioner)
seeks to reverse and set aside the Decision, dated January 14, 1999, of the Court of Appeals (CA)
in CA-G.R. CV No. 46721 directing petitioner to pay the insurance claim of Usiphil Incorporated
(private respondent). The appellate court’s Resolution, dated May 13, 1999, which denied
petitioner’s motion for reconsideration, is likewise sought to be reversed and set aside.
The antecedent facts, as culled from the decision of the trial court and the CA, are as follows:
On September 15, 1981, private respondent obtained a fire insurance policy from petitioner (then
doing business under the name Summa Insurance Corporation) covering certain properties, e.g.,
office, furniture, fixtures, shop machinery and other trade equipment. Under Policy No. F3100 issued
to private respondent, petitioner undertook to indemnify private respondent for any damage to or
loss of said properties arising from fire.
Sometime in 1982, private respondent filed with petitioner an insurance claim amounting to
P987,126.11 for the loss of the insured properties due to fire. Acting thereon, petitioner appointed
Adjuster H.H. Bayne to undertake the valuation and adjustment of the loss. H.H. Bayne then
required private respondent to file a formal claim and submit proof of loss. In compliance therewith,
private respondent submitted its Sworn Statement of Loss and Formal Claim, dated July 22, 1982,
signed by Reynaldo Cayetano, private respondent’s Manager. Respondent likewise submitted Proof
of Loss signed by its Accounting Manager Pedro Palallos and countersigned by H.H. Bayne’s
Adjuster F.C. Medina.
Palallos personally followed-up private respondent’s claim with petitioner’s President Joaquin
Ortega. During their meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to
reconcile the records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated
February 28, 1985, which indicated that the amount due respondent was P842,683.40.
Despite repeated demands by private respondent, petitioner refused to pay the insurance claim.
Thus, private respondent was constrained to file a complaint against petitioner for the unpaid
insurance claim. In its Answer, petitioner maintained that the claim of private respondent could not
be allowed because it failed to comply with Policy Condition No. 13 regarding the submission of
certain documents to prove the loss.
Trial ensued. On July 6, 1994, the trial court rendered judgment in favor of private respondent. The
dispositive portion of the decision reads:
WHEREFORE, in view of the above observations and findings, judgment is hereby rendered
in favor of the plaintiff and against the defendant, ordering the latter:
1. To pay the plaintiff the sum of P842,683.40 and to pay 24% interest per annum
from February 28, 1985 until fully paid (par. 29 of Exh. K);
2. To pay the plaintiff the sum equivalent to 10% of the principal obligation as and for
attorney’s fees, plus P1,500.00 per court appearance of counsel;
3. To pay the plaintiff the amount of P30,000.00 as exemplary damages in addition to

the actual and compensatory damages awarded;
4. Dismissing the claim of P30,000.00 for actual damages under par. 4 of the prayer,
since the actual damages has been awarded under par. 1 of the decision’s
dispositive portion;
5. Dismissing the claim of interest under par. 2 of the prayer, there being no
agreement to such effect;
6. Dismissing the counter-claim for lack of merit;
7. Ordering the defendant to pay the cost of suit.
SO ORDERED.1
On appeal, the CA substantially affirmed the decision of the trial court. The dispositive portion of the
CA decision reads:
WHEREFORE, the appealed decision is hereby AFFIRMED with the modification that
defendant-appellant is ordered to pay plaintiff-appellee the sum of P842,683.40 and to pay
24% interest per annum from 03 May 1985 until fully paid. In all other respects, the appealed
decision is AFFIRMED IN TOTO.
SO ORDERED.2
Petitioner now comes to this Court assailing the decision of the appellate court. Petitioner alleges
that:
Respondent Court of Appeals erred in finding that there is evidence sufficient to justify the
Decision of the lower court;
Respondent Court of Appeals erred in failing to consider the fact that Private Respondent
committed a violation of the Insurance Policy which justifies the denial of the claim by
Petitioner;
Respondent Court of Appeals further erred in finding that Petitioner is liable to pay the
respondent, Usiphil, Inc., an interest of 24% per annum in addition to the principal amount of
P842,683.40.3
Essentially, petitioner argues that the disallowance of private respondent’s claim is justified by its
failure to submit the required documents in accordance with Policy Condition No. 13. Said
requirements were allegedly communicated to private respondent in the two letters of H.H. Bayne to
private respondent. The first letter stated:
To be able to expedite adjustment of this case, please submit to us without delay the
following documents and/or particulars:
For FFF, Machineries/Equipment Claims
1. Your formal claim (which may be accomplished in the enclosed form) accompanied by a
detailed inventory of the documents submitted.
2. Certification from the appropriate government office indicating the date of the occurrence
of the fire, the property involved, its location and possible point of origin.
3. Proof of premium payment.
4. Three color photographs of the debris properly captioned/identified/dated and initiated by

the claimant at the back.
4.1 Close-up (not more than 2 meters away) of the most severely damaged.
4.2 Close-up (not more than 2 meters away) of the least damaged.
4.3. Original view of the debris (may be from farther than 2 meters away); splice two or more
frames if necessary.
Though our adjusters will also take photographs in the manner prescribed above, please do
not rely on his photographs in the preservations of your evidence of loss thru pictures.
5. Copies of purchase invoices.
6. In the absence of No. 5, suppliers’ certificates of sales and delivery.
7. Appraisal report, if any.
8. Where initial estimated loss is exceeding P20,000.00, submit estimate by at least 2

contractors/suppliers.
9. Others (to be specified)
1. Repairs cost of the affected items including quotation or invoices in support thereof;
2. Complete lists of furniture, fixtures & fittings including date and cost of acquisition, and;
3. Statement of salvage on burned items.
Your preferential attention to this request will be fully appreciated.4

While the other letter stated:
Please submit to us without delay the following documents and/or particulars.
For Stock Claim
1. Your formal claim (which may be accomplished in the enclosed), accompanied by a

detailed inventory of the documents submitted.
2. Certification from the appropriate government office showing that the Insured’s property
was involved in the fire as a consequence of which the claim is being filed.
3. Proof of premium payment.
4. Three colored photographs of the debris, property captioned/identified/dated and initiated

by the claimant at the back; in a floor plan, indicate the point from where the picture was
taken and by an arrow where the camera was facing.
4.1. Close-up (not more than 2 meters away) of the most severely damaged.
4.2. Close-up (not more than 2 meters away) of the least damaged.
4.3. Overall view of the debris (may be from farther than 2 meters away); splice two or more
frames if necessary.
Our adjuster will also take photographs.
5. Books of accounts bill, invoices and other vouchers, or certified copies thereof if originals
be lost. This requirement includes, but is not limited to, purchase and sales invoices, delivery
6. Certified copies of income tax returns for the last three years and the accompanying
financial statements.
7. Latest inventory of merchandise filed with a financial institution, the Bureau of Internal
Revenue or any government entity prior to the loss.
8. A detailed inventory of the articles damaged or destroyed, showing the cost price of each,
extent of loss, if any, if the risk sustained partial or water damaged.
9. Certificates of registration.
10. Bank Statements.
11. For losses where the estimated value of stocks claimed which are burned out of sight
and/or which may no longer be subject to actual physical count exceeds P50,000.00, a
CPA’s detailed computations in support of such estimated value.
12. In the absence of purchase invoices/delivery receipts (state reason for absence), submit
suppliers’ certificate of sales and delivery.
13. Others (to be specified).
Statement of salvage of the affected stocks in trade.
Your compliance with this request will enable us to expedite adjustment of the loss in
caption.5
According to petitioner, in complete disregard of the foregoing requirements, private respondent

never submitted any of the documents mentioned therein. Further, petitioner assails the award in
favor of private respondent of an interest rate of 24% per annum. Since there was allegedly no
express finding that petitioner unreasonably denied or withheld the payment of the subject insurance
claim, then the award of 24% per annum is not proper. Petitioner opines that the judgment should
only bear the legal interest rate of 12% per annum for the delay in the payment of the claim.
The petition is bereft of merit.
Well-settled is the rule that factual findings and conclusions of the trial court and the CA are entitled
to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing
that the trial court overlooked certain facts or circumstances which would substantially affect the
disposition of the case.6 There is no cogent reason to deviate from this salutary rule in the present
case.
Both the trial court and the CA concur in holding that private respondent had substantially complied
with Policy Condition No. 13 which reads:
13. The insured shall give immediate written notice to the Company of any loss, protect the
property from further damage, forthwith separate the damaged and undamaged personal
property, put it in the best possible order, furnish a complete inventory of the destroyed,
damaged, and undamaged property, showing in detail quantities, costs, actual cash value
and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS
SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL
RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured,
stating the knowledge and belief of the insured as to the following: the time and origin of the
loss, the interest of the insured and of all others in the property, the actual cash value of
each item thereof and the amount of loss thereto, all encumbrances thereon, all other
contracts of insurance, whether valid or not, covering any of said property, any changes in
the title, use, occupation, location, possession or exposures of said property since the
issuing of this policy by whom and for what purpose any buildings herein described and the
several parts thereof were occupied at the time of loss and whether or not it then stood on
leased ground, and shall furnish a copy of all the descriptions and schedules in all policies,
and if required verified plans and specifications of any building, fixtures, or machinery
destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to
any person designated by the company all that remains of any property herein described,
and submit to examination under oath by any person named by the Company, and subscribe
the same; and, as often as may be reasonably required, shall produce for examination all
books of account, bills, invoices, and other vouchers or certified copies thereof if originals be
lost, at such reasonable time and place as may be designated by the Company or its
representative and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have been
complied with.7
A perusal of the records shows that private respondent, after the occurrence of the fire, immediately
notified petitioner thereof. Thereafter, private respondent submitted the following documents: (1)
Sworn Statement of Loss and Formal Claim (Exhibit C) and; (2) Proof of Loss (Exhibit D). The
submission of these documents, to the Court’s mind, constitutes substantial compliance with the
above provision. Indeed, as regards the submission of documents to prove loss, substantial, not
strict as urged by petitioner, compliance with the requirements will always be deemed sufficient.8
In any case, petitioner itself acknowledged its liability when through its Finance Manager, Rosauro
Maghirang, it signed the document indicating that the amount due private respondent is P842,683.40
(Exhibit E). As correctly held by the appellate court:
Under the aforequoted provision of the insurance policy, the insured was required to submit
to the insurer written notice of the loss; and a complete inventory of the properties damaged
within 60 days after the fire, as well as a signed and sworn statement of Proof of Loss. It is
admitted by all parties that plaintiff-appellee notified the insurer Summa Corporation of the
fire which occurred on 27 May 1982. It is likewise admitted by all parties that plaintiff-
appellee submitted the following documents in support of its claim: (1) Sworn Statement of
Loss (Exhibit C); (2) formal claim dated 22 July 1982; (3) unnotarized sworn statement of
proof of loss (Exhibit D). There was, therefore, sufficient compliance with the requirements in
Section 13 of the policy. But, even assuming that plaintiff-appellee indeed failed to submit
certain required documents as proof of loss per Section 13, such violation was waived by the
insurer Summa when it signed the document marked Exhibit E, a breakdown of the amount
due to plaintiff-appellee as of February 1985 on the insurance claim. By such act, defendant-
appellant acknowledged its liability under the insurance policy.
Antecedent to the execution of Exhibit E, there was a conference between Pallalos,

representing plaintiff-appellee and Ortega representing Summa Insurance. There is no
evidence that in that meeting, Summa Insurance questioned plaintiff-appellee’s submission
of the required documents. What happened was that Ortega summoned Maghirang so that
he could settle with Pallalos regarding the amount due to plaintiff-appellee from insurance
claim. The result is a reconciliation of claim in Exhibit E which shows that as of February
1985, the net due sum is P842,683.49.
Defendant-appellant alleges that Maghirang was without authority to sign Exhibit E, and
therefore without authority to bind defendant-appellant corporation. We do not agree. The
evidence indicate that at a meeting between plaintiff-appellee’s corporate president Pedro
Pallalos and his counterpart in defendant-appellant corporation, Joaquin Ortega, the latter
summoned Rosauro Maghirang to reconcile the claims of plaintiff-appellee. One who clothes
another with apparent authority as his agent and holds him to the public as such, cannot later
be allowed to deny the authority of such person to act as his agent when such third person
entered into the contract in good faith and in an honest belief that he is such agent. Witness
for defendant-appellant Luis Manapat’s testimony that Maghirang was without authority to
bind the defendant-appellant cannot be given credence because, as he himself testified, he
was not yet part of the Summa Corporation at the time the negotiations in question were
going on.9
Anent the payment of 24% interest per annum computed from May 3, 1985 until fully paid, suffice it
to say that the same is authorized by Sections 243 and 244 of the Insurance Code:
Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is
received by the insurer and ascertainment of the loss or damage is made either by
agreement between the insured and the insurer or by arbitration; but if such ascertainment is
not had or made within sixty days after such receipt by the insurer of the proof of loss, then
the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to
pay the loss or damage within the time prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on
the ground that the claim is fraudulent.
Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance,
it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding
as to whether the payment of the claim of the insured has been unreasonably denied or
withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attorney’s fees and other expenses incurred by the insured
person by reason of such unreasonable denial or withholding of payment plus interest of
twice the ceiling prescribed by the Monetary Board of the amount of the claim due the
insured, from the date following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully
satisfied: Provided, That the failure to pay any such claim within the time prescribed in said
sections shall be considered prima facie evidence of reasonable delay in payment.
Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and
244.10 Further, Section 29 of the policy itself provides for the payment of such interest:
29. Settlement of claim clause. The amount of any loss or damage for which the company
may be liable, under this policy shall be paid within thirty days after proof of loss is received
by the company and ascertainment of the loss or damage is made either in an agreement
between the insured and the company or by arbitration; but if such ascertainment is not had
or made within sixty days after such receipt by the company of the proof of loss, then the
loss or damage shall be paid within ninety days after such receipt.Refusal or failure to pay
the loss or damage within the time prescribed herein will entitle the assured to collect interest
on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the
grounds (sic) that the claim is fraudulent.11
The policy itself obliges petitioner to pay the insurance claim within thirty days after proof of loss and
ascertainment of the loss made in an agreement between private respondent and petitioner. In this
case, as found by the CA, petitioner and private respondent signed the agreement (Exhibit E)
indicating that the amount due private respondent was P842,683.40 on April 2, 1985. Petitioner thus
had until May 2, 1985 to pay private respondent’s insurance.12 For its failure to do so, the CA and the
trial court rightfully directed petitioner to pay, inter alia, 24% interest per annum in accordance with
the above quoted provisions. 1âw phi 1.nêt
WHEREFORE, the instant petition is hereby DENIED for lack of merit. The Decision, dated January
14, 1999, of the Court of Appeals in CA-G.R. CV No. 46721 and its Resolution, dated May 13, 1999,
are AFFIRMED IN TOTO.
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo, Ynares-Santiago, JJ., concur.

NOTICE OF SETTLEMENT

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 78860 May 28, 1990
PERLA COMPANIA DE SEGUROS, INC., petitioner,

vs.
HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents.
Yabut, Arandia & Associates for petitioner.
Dolorfino and Dominguez Law Offices for private respondent.
FERNAN, C.J.:
This is a petition for review on certiorari of the decision of the Court of Appeals 1 affirming in toto the
decision of the Regional Trial Court of Cavite, Branch XVI, 2 the dispositive portion of which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant

Perla Compania de Seguros, Inc. to pay plaintiff Milagros Cayas the sum of
P50,000.00 under its maximum liability as provided for in the insurance policy; and
the sum of P5,000.00 as reasonable attorney's fee with costs against said defendant.
SO ORDERED. 3
Private respondent Milagros Cayas was the registered owner of a Mazda bus with serial No. TA3H4
P-000445 and plate No. PUB-4G-593. 4 Said passenger vehicle was insured with Perla Compania de
Seguros, Inc. (PCSI) under policy No. LTO/60CC04241 issued on February 3, 1978. 5
On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its
passengers. One of them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the
Court of First Instance of Cavite, Branch6 docketed as Civil Case No. NC-794; while three others,
namely: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin, agreed to a settlement of P4,000.00
each with Milagros Cayas.
At the pre-trial of Civil Case No. NC-794, Milagros Cayas failed to appear and hence, she was
declared as in default. After trial, the court rendered a decision 7 in favor of Perea with its dispositive
portion reading thus:
WHEREFORE, under our present imperatives, judgment is hereby rendered in favor

of the plaintiffs and against the defendant Milagros Cayas who is hereby ordered to
compensate the plaintiff' Edgar Perea with damages in the sum of Ten Thousand
(Pl0,000.00) Pesos for the medical predicament he found himself as damaging
consequences of defendant Milagros Cayas complete lack of diligence of a good
father of a family' when she secured the driving services of one Oscar Figueroa on
December, 17, 1978; the sum of Ten Thousand (P10,000.00) Pesos for exemplary
damages; the sum of Five Thousand (P5,000.00) Pesos for moral damages; the sum
of Seven Thousand (P7,000.00) Pesos for Attorney's fees, under the imperatives of
the monetary power of the peso today;
With costs against the defendant.
SO ORDERED.
When the decision in Civil Case No. NC-794 was about to be executed against her, Milagros Cayas
filed a complaint against PCSI in the Office of the Insurance Commissioner praying that PCSI be
ordered to pay P40,000.00 for all the claims against her arising from the vehicular accident plus legal
and other expenses. 8Realizing her procedural mistake, she later withdrew said complaint. 9
Consequently, on November 11, 1981, Milagros Cayas filed a complaint for a sum of money and
damages against PCSI in the Court of First Instance of Cavite (Civil Case No. N-4161). She alleged
therein that to satisfy the judgment in Civil Case No. NC-794, her house and lot were levied upon
and sold at public auction for P38,200; 10that to avoid numerous suits and the "detention" of the insured
vehicle, she paid P4,000 to each of the following injured passengers: Rosario del Carmen, Ricardo
Magsarili and Charlie Antolin; that she could not have suffered said financial setback had the counsel for
PCSI, who also represented her, appeared at the trial of Civil Case No. NC-794 and attended to the
claims of the three other victims; that she sought reimbursement of said amounts from the defendant,
which notwithstanding the fact that her claim was within its contractual liability under the insurance policy,
refused to make such re-imbursement; that she suffered moral damages as a consequence of such
refusal, and that she was constrained to secure the services of counsel to protect her rights. She prayed
that judgment be rendered directing PCSI to pay her P50,000 for compensation of the injured victims,
such sum as the court might approximate as damages, and P6,000 as attorney's fees.
In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its dismissal
without prejudice. 11 Alleging that she had not received a copy of the answer to the complaint, and that
"out of sportsmanship", she did not file a motion to hold PCSI in default, Milagros Cayas moved for the
reconsideration of the dismissal order. Said motion for reconsideration was acted upon favorably by the
court in its order of March 31, 1982.
About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file
an answer. The motion was granted and plaintiff was allowed to adduce evidence ex-parte. On July
13, 1982, the court rendered judgment by default ordering PCSI to pay Milagros Cayas P50,000 as
compensation for the injured passengers, P5,000 as moral damages and P5,000 as attorney's fees.
Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued. In due
course, the court promulgated a decision in Civil Case No. N-4161, the dispositive portion of which
was quoted earlier, finding that:
In disavowing its obligation to plaintiff under the insurance policy, defendant

advanced the proposition that before it can be made to pay, the liability must first be
determined in an appropriate court action. And so plaintiffs liability was determined in
that case filed against her by Perea in the Naic CFI. Still, despite this determination
of liability, defendant sought escape from its obligation by positing the theory that
plaintiff Milagros Cayas lost the Naic case due to her negligence because of which,
efforts exerted by defendant's lawyers in protecting Cayas' rights proved futile and
rendered nugatory. Blame was laid entirely on plaintiff by defendant for losing the
Naic case. Defendant labored under the impression that had Cayas cooperated fully
with defendant's lawyers, the latter could have won the suit and thus relieved of any
obligation to Perea Defendant's posture is stretching the factual circumstances of the
Naic case too far. But even accepting defendant's postulate, it cannot be said, nor
was it shown positively and convincingly, that if the Naic case had proceeded on trial
on the merits, a decision favorable to Milagros Cayas could have been obtained. Nor
was it definitely established that if the pre-trial was undertaken in that case,
defendant's lawyers could have mitigated the claim for damages by Perea against
Cayas. 12
The court, however, held that inasmuch as Milagros Cayas failed to establish that she underwant
moral suffering and mental anguish to justify her prayer for damages, there should be no such
award. But, there being proof that she was compelled to engage the services of counsel to protect
her rights under the insurance policy, the court allowed attorney's fees in the amount of P5,000.
PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987 affirmed in toto the
lower court's decision. Its motion for reconsideration having been denied by said appellate court,
PCSI filed the instant petition charging the Court of Appeals with having erred in affirming in toto the
decision of the lower court.
At the outset, we hold as factual and therefore undeserving of this Court's attention, petitioner's
assertions that private respondent lost Civil Case No. NC-794 because of her negligence and that
there is no proof that the decision in said case has been executed. Said contentions, having been
raised and threshed out in the Court of Appeals and rejected by it, may no longer be addressed to
this Court.
Petitioner's other contentions are primarily concerned with the extent of its liability to private
respondent under the insurance policy. This, we consider to be the only issue in this case.
Petitioner seeks to limit its liability only to the payment made by private respondent to Perea and
only up to the amount of P12,000.00. It altogether denies liability for the payments made by private
respondents to the other three (3) injured passengers Rosario del Carmen, Ricardo Magsarili and
Charlie Antolin in the amount of P4,000.00 each or a total of P12,000.00.
There is merit in petitioner's assertions.
The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to
P50,000.00 per accident. 13 Pertinent provisions of the policy also state:
SECTION I-Liability to the Public
xxx xxx xxx
3. The Limit of Liability stated in Schedule A as applicable (a) to

THIRD PARTY is the limit of the Company's liability for all damages
arising out of death, bodily injury and damage to property combined
so sustained as the result of any one accident; (b) "per person" for
PASSENGER liability is the limit of the Company's liability for all
damages arising out of death or bodily injury sustained by one person
as the result of any one accident: (c) "per accident" for PASSENGER
liability is, subject to the above provisions respecting per person, the
total limit of the Company's liability for all such damages arising out of
death or bodily injury sustained by two or more persons as the result
of any one accident.
Conditions Applicable to All Sections
xxx xxx xxx
5. No admission, offer, promise or payment shall be made by or on

behalf of the insured without the written consent of the Company
which shall be entitled, if it so desires, to take over and conduct in his
(sic) name the defense or settlement of any claim, or to prosecute in
his (sic) name for its own benefit any claim for indemnity or damages
or otherwise, and shall have full discretion in the conduct of any
proceedings in the settlement of any claim, and the insured shall give
all such information and assistance as the Company may require. If
the Company shall make any payment in settlement of any claim, and
such payment includes any amount not covered by this Policy, the
Insured shall repay the Company the amount not so covered.
We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms of the contract constitute
the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's
right of recovery from the insurer.
In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all
damages arising out of death or bodily injury sustained by one person as a result of any one
accident at P12,000.00. Said amount complied with the minimum fixed by the law then prevailing,
Section 377 of Presidential Decree No. 612 (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. In other words, under the law, the minimum liability is P12,000 per passenger. Petitioner's
liability under the insurance contract not being less than P12,000.00, and therefore not contrary to
law, morals, good customs, public order or public policy, said stipulation must be upheld as effective,
valid and binding as between the parties. 15
In like manner, we rule as valid and binding upon private respondent the condition above-quoted
requiring her to secure the written permission of petitioner before effecting any payment in
settlement of any claim against her. There is nothing unreasonable, arbitrary or objectionable in this
stipulation as would warrant its nullification. The same was obviously designed to safeguard the
insurer's interest against collusion between the insured and the claimants.
In her cross-examination before the trial court, Milagros Cayas admitted, thus:
Atty. Yabut:
q With respect to the other injured passengers of your bus wherein you made
payments you did not secure the consent of defendant (herein petitioner)
Perla Compania de Seguros when you made those payments?
a I informed them about that
q But they did not give you the written authority that you were supposed to
pay those claims?
a No, sir . l6
It being specifically required that petitioner's written consent be first secured before any payment in
settlement of any claim could be made, private respondent is precluded from seeking reimbursement
of the payments made to del Carmen, Magsarili and Antolin in view of her failure to comply with the
condition contained in the insurance policy.
Clearly, the fundamental principle that contracts are respected as the law between the contracting
parties finds application in the present case. 17 Thus, it was error on the part of the trial and appellate
courts to have disregarded the stipulations of the parties and to have substituted their own interpretation
of the insurance policy. In Phil. American General Insurance Co., Inc vs. Mutuc, 18 we ruled that 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 what form they may be, whenever the essential requisites
for their validity are present.
Moreover, we stated in Pacific Oxygen & Acetylene Co. vs. Central Bank," 19 that the first and
fundamental duty of the courts is the application of the law according to its express terms, interpretation
being called for only when such literal application is impossible.
We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00,
petitioner was made liable for the amount of P50,000.00, the maximum liability per accident
stipulated in the policy. This is patent error. An insurance indemnity, being merely an assistance or
restitution insofar as can be fairly ascertained, cannot be availed of by any accident victim or
claimant as an instrument of enrichment by reason of an accident. 20
Finally, we find no reason to disturb the award of attorney's fees.
WHEREFORE, the decision of the Court of Appeals is hereby modified in that petitioner shall pay
Milagros Cayas the amount of Twelve Thousand Pesos (P12,000. 00) plus legal interest from the
promulgation of the decision of the lower court until it is fully paid and attorney's fees in the amount
of P5,000.00. No pronouncement as to costs.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes JJ., concur.

EFFECTS OF DELAY OF INSURER/DAMAGES AND INTEREST

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 85296 May 14, 1990
ZENITH INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.
Vicente R. Layawen for petitioner.
Lawrence L. Fernandez & Associates for private respondent.
MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled,
"Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant" which
affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No. CEB-
1215 and the denial of petitioner's Motion for Reconsideration.
The antecedent facts are as follows:
On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage"
under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the
car figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedly
being given a run around by Zenith for two (2) months, Fernandez filed a complaint with the
Regional Trial Court of Cebu for sum of money and damages resulting from the refusal of Zenith to
pay the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside from
actual damages and interests, Fernandez also prayed for moral damages in the amount of
P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses
of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected. After the
issues had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved
to November 4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case although
at an amount lower than private respondent's claim. On November 14, 1983, the trial court
terminated the pre-trial. Subsequently, Fernandez presented his evidence. Petitioner Zenith,
however, failed to present its evidence in view of its failure to appear in court, without justifiable
reason, on the day scheduled for the purpose. The trial court issued an order on August 23, 1984
submitting the case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a
petition for certiorari with the Court of Appeals assailing the order of the trial court submitting the
case for decision without petitioner's evidence. The petition was docketed as C.A.-G.R. No. 04644.
However, the petition was denied due course on April 29, 1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered by the trial court in favor of private respondent
Fernandez. The dispositive portion of the trial court's decision provides:
WHEREFORE, defendant is hereby ordered to pay to the plaintiff:
1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs. (p. 9, Rollo)
Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June
20, 1986, ordered the execution of the decision pending appeal. The order was assailed by
petitioner in a petition for certiorariwith the Court of Appeals on October 23, 1986 in C.A. G.R. No.
10420 but which petition was also dismissed on December 24, 1986 (p. 69, Rollo).
On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was
granted in the same order granting private respondent's motion for execution pending appeal. The
appeal to respondent court assigned the following errors:
I. The lower court erred in denying defendant appellant to adduce evidence in its
behalf.
II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount
of P3,640.00 in its decision.
III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint. (p. 12, Rollo)
On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the
trial court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduce
evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition
questioning the trial court's order submitting the case for decision without Zenith's evidence, was
dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was
denied on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on
October 18, 1988 on the allegation that respondent Court of Appeals' decision and resolution ran
counter to applicable decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:
a) The legal basis of respondent Court of Appeals in awarding moral damages,

exemplary damages and attomey's fees in an amount more than that prayed for in
the complaint.
b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.
Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral
damages, the lower court awarded twice the amount, or P20,000.00 without factual or legal basis;
while private respondent prayed for P5,000.00 exemplary damages, the trial court awarded
P20,000.00; and while private respondent prayed for P3,000.00 attorney's fees, the trial court
awarded P5,000.00.
The propriety of the award of moral damages, exemplary damages and attorney's fees is the main
issue raised herein by petitioner.
The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides:
Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attomey's fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as
the case may be, until the claim is fully satisfied;Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima
facie evidence of unreasonable delay in payment.
It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the
proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other
expenses incurred by the insured person by reason of such unreasonable denial or withholding of
payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim
due the injured; and 4) the amount of the claim.
As regards the award of moral and exemplary damages, the rules under the Civil Code of the
Philippines shall govern.
"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction.
Moral damages are emphatically not intended to enrich a complainant at the expense of a
defendant, they are awarded only to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has undergone by reason of the
defendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, Revised
Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22,
1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary in order that moral
damages may be adjudicated, the assessment of which is left to the discretion of the court according
to the circumstances of each case (Art. 2216, New Civil Code), it is equally true that in awarding
moral damages in case of breach of contract, there must be a showing that the breach was wanton
and deliberately injurious or the one responsible acted fraudently or in bad faith (Perez v. Court of
Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022,
August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private respondent was
given a "run-around" for two months, which is the basis for the award of the damages granted under
the Insurance Code for unreasonable delay in the payment of the claim. However, the act of
petitioner of delaying payment for two months cannot be considered as so wanton or malevolent to
justify an award of P20,000.00 as moral damages, taking into consideration also the fact that the
actual damage on the car was only P3,460. In the pre-trial of the case, it was shown that there was
no total disclaimer by respondent. The reason for petitioner's failure to indemnify private respondent
within the two-month period was that the parties could not come to an agreement as regards the
amount of the actual damage on the car. The amount of P10,000.00 prayed for by private
respondent as moral damages is equitable.
On the other hand, exemplary or corrective damages are imposed by way of example or correction
for the public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-
Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary damages were not awarded as
the insurance company had not acted in wanton, oppressive or malevolent manner. The same is
true in the case at bar.
The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of this
case considering that there were other petitions filed and defended by private respondent in
connection with this case.
As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been
established before the trial court and affirmed by the appellate court. Respondent appellate court
correctly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had no
basis. Respondent court ruled:
Under its second assigned error, defendant-appellant puts forward two arguments,
both of which are entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the car of plaintiff-
appellee is subject to deductible franchise, and . . . .
The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . .
(p. 13, Rollo)
Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary
damages is hereby deleted. The awards due to private respondent Fernandez are as follows:
1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the
Monetary Board computed from the time of submission of proof of loss;
2) P10,000.00 as moral damages;
3) P5,000.00 as attorney's fees;
4) P3,000.00 as litigation expenses; and

5) Costs.
ACCORDINGLY, the appealed decision is MODIFIED as above stated.
SO ORDERED.
Narvasa, Cruz and Griño-Aquino, JJ., concur.
Gancayco, J., is on leave.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 76101-02 September 30, 1991
TIO KHE CHIO, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY
CORPORATION,respondents.
Rodolfo M. Morelos for petitioner.
Ferrer, Mariano, Sangalang & Gatdula for private respondent.
FERNAN, C.J.:p
The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in
actions for damages arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it
should be twelve (12%) per cent pursuant to Articles 243 and 244 of the Insurance Code while
private respondent Eastern Assurance and Surety Corporation (EASCO) claims that it should be six
(6%) per cent under Article 2209 of the Civil Code.
The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand
(1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, U.S.A. Dallas, Texas, U.S.A. The
goods were insured with respondent EASCO and shipped on board the M/V Peskov, a vessel owned
by Far Eastern Shipping Company. When the goods reached Manila on January 28, 1979, they were
found to have been damaged by sea water which rendered the fishmeal useless. Petitioner filed a
claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them
before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed
a counterclaim against the petitioner for the recovery of P18,387.86 representing the unpaid
insurance premiums.
On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to
pay petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums
with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's
fees and the costs. 1
The judgment became final as to EASCO but the shipping company appealed to the Court of
Appeals and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe
Chio vs. Eastern Assurance and Surety Corporation."
The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff
enforcing the writ reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO
moved to quash the writ alleging that the legal interest to be computed should be six (6%) per cent
per annum in accordance with Article 2209 of the Civil Code and not twelve (12%) per cent as
insisted upon by petitioner's counsel. In its order of July 30, 1986, the trial court denied EASCO's
motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which
states:
WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at
12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full
payment of the amount, and the interest that the private respondent is entitled to collect from the
petitioner is hereby reduced to 6% per annum.
No pronouncement as to costs. 2
In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only is it
unjust and unfair but it is also contrary to the correct interpretation of the fixing of interest rates under
Sections 243 and 244 of the Insurance Code. And since petitioner's claims is based on an insurance
contract, then it is the Insurance Code which must govern and not the Civil Code.
We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per annum as
correctly held by the Appellate Court.
Section 243 of the Insurance Code provides:
The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of
loss is received by the insurer and ascertainment of the loss or damage is made
either by agreement between the insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty days after such receipt by the insurer
of the proof of loss, then the loss or damage shall be paid within ninety days after
such receipt. Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
Section 244 of the aforementioned Code also provides:
In case of any litigation for the enforcement of any policy or contract of insurance, it
shall be the duty of the Commissioner or the Court, as the case may be, to make a
finding as to whether the payment of the claim of the insured has been unreasonably
denied or withheld; and in the affirmative case, the insurance company shall be
adjudged to pay damages which shall consist of attorney's fees and other expenses
incurred by the insured person by reason of such undeniable denial or withholding of
payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in
section two hundred forty-two or in section two hundred forty-three, as the case may
be, until the claim is fully satisfied; Provided, That the failure to pay any such claim
within the time prescribed in said sections shall be considered prima facie evidence
of unreasonable delay in payment.
In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or
withholding of payment on petitioner's claim. In fact, respondent court had this to say on EASCO's
refusal to settle the claim of petitioner:
... EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground
which, while not sufficient to free it from liability under its policy, nevertheless is
sufficient to negate any assertion that in refusing to pay, it acted unjustifiably.
xxx xxx xxx
The case posed some genuine issues of interpretation of the terms of the policy as to
which persons may honestly differ. This is the reason the trial court did not say
EASCO's refusal was unjustified. 3
Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They
apply only when the court finds an unreasonable delay or refusal in the payment of the claims.
Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to
Presidential Decree No. 116 (Usury Law) which raised the legal rate of interest from six (6%) to
twelve (12%) per cent apply to the case at bar as by the petitioner. The adjusted rate mentioned in
the circular refers only to loans or forbearances of money, goods or credits and court judgments
thereon but not to court judgments for damages arising from injury to persons and loss of property
which does not involve a loan. 4
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA
158, the Court declared that the legal rate of interest is six (6%) per cent per annum, and not twelve
(12%) per cent, where a judgment award is based on an action for damages for personal injury, not
use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of
Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the Usury Law
(amended by P.D. 116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code.
Clearly, the applicable law is Article 2209 of the Civil Code which reads:
If the obligation consists in the payment of a sum of money and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of interest agreed upon, and in the absence of stipulation, the legal
interest which is six per cent per annum.
And in the light of the fact that the contending parties did not allege the rate of interest stipulated in
the insurance contract, the legal interest was properly pegged by the Appellate Court at six (6%) per
cent.
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

PERIOD OF PRESCRIPTION

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that
there was no suicide. It argued, however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim
was in a happy mood (but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in front of her and pointed
the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He
was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the
policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages;
P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the costs of the
suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The
petitioner then came to this Court to fault the Court of Appeals for approving the payment of the claim and
the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that 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 case, and therefore not expected. 4
An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence
or casualty to the injured without his design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected and
independent and unforeseen occurrence that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision. It is there stated:
Exceptions —
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to

needless peril except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends
that the insured willfully exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless risking
of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device may not actually be intending to commit
suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly assured her that the
gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act
was precisely intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide for
contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the
Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go to
the insurance company to ask them to compensate me for my failure to swim as well
as I thought I could. The insured in the case at bar deliberately put the gun to his
head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is
clear that when he braved the currents below, hedeliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below
were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained precisely against accident.
There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity
agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents
are caused by negligence. There are only four exceptions expressly made in the contract to relieve
the insurer from liability, and none of these exceptions is applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of
the assured. There is no reason to deviate from this rule, especially in view of the circumstances of
this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic
issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident
that the petitioner was acting in good faith then it resisted the private respondent's claim on the
ground that the death of the insured was covered by the exception. The issue was indeed debatable
and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore
that the award of moral and exemplary damages and of attorney's fees is unjust and so must be
disapproved.
In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per
se make the act wrongful and subject the act or to the payment of moral damages.
The law could not have meant to impose a penalty on the right to litigate; such right
is so precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his act in
bringing the action wrongful because in most cases one party will lose; we would be
imposing an unjust condition or limitation on the right to litigate. We hold that the award of
moral damages in the case at bar is not justified by the facts had circumstances as well
as the law.
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of
the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney's fees thereby putting a
premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds
the petitioner liable to the private respondent in the sum of P200,000.00 representing the face value
of the insurance contract, with interest at the legal rate from the date of the filing of the complaint
until the full amount is paid, but MODIFIED with the deletion of all awards for damages, including
attorney's fees, except the costs of the suit.
SO ORDERED.
Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 103883 November 14, 1996
JACQUELINE JIMENEZ VDA. DE GABRIEL, petitioner,

vs.
HON. COURT OF APPEALS and FORTUNE INSURANCE & SURETY COMPANY,
INC., respondents.
VITUG, J.:
The petition for review on certiorari in this case seeks the reversal of the decision 1 of the Court of
Appeals setting aside the judgment of the Regional Trial Court of Manila, Branch 55, which has ordered
private respondent Fortune Insurance & Surety Company, Inc., to pay petitioner Jacqueline Jimenez vda.
de Gabriel, the surviving spouse and beneficiary in an accident (group) insurance of her deceased
husband, the amount of P100,000.00, plus legal interest.
Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation
("ECDC") at its construction project in Iraq. He was covered by a personal accident insurance in the
amount of P100,000.00 under a group policy 2 procured from private respondent by ECDC for its
overseas workers. The insured risk was for "(b)odily injury caused by violent accidental external and
visible means which injury (would) solely and independently of any other cause" 3result in death or
disability.
On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983,
ECDC reported Gabriel's death to private respondent by telephone. 4 Among the documents thereafter
submitted to private respondent were a copy of the death certificate 5 issued by the Ministry of Health of
the Republic of Iraq — which stated
REASON OF DEATH: UNDER EXAMINATION NOW — NOT YET KNOWN 6 —
and an autopsy report 7 of the National Bureau of Investigation ("NBI") to the effect that "(d)ue to
advanced state of postmortem decomposition, cause of death (could) not be
determined." 8 Private respondent referred the insurance claim to Mission Adjustment Service,
Inc.
Following a series of communications between petitioner and private respondent, the latter, on 22
September 1983, ultimately denied the claim of ECDC on the ground of prescription. 9 Petitioner went
to the Regional Trial Court of Manila. In her complaint against ECDC and private respondent, she averred
that her husband died of electrocution while in the performance of his work and prayed for the recovery of
P100,000.00 for insurance indemnification and of various other sums by way of actual, moral, and
exemplary damages, plus attorney's fees and costs of suit.
Private respondent filed its answer, which was not verified, admitting the genuineness and due
execution of the insurance policy; it alleged, however, that since both the death certificate issued by
the Iraqi Ministry of Health and the autopsy report of the NBI failed to disclose the cause of Gabriel's
death, it denied liability under the policy. In addition, private respondent raised the defense of
"prescription," invoking Section 384 10 of the Insurance Code. Later, private respondent filed an
amended answer, still unverified, reiterating its original defenses but, this time, additionally putting up a
counterclaim and a crossclaim.
The trial court dismissed the case against ECDC for the failure of petitioner to take steps to cause
the service of the fourth alias summons on ECDC. The dismissal was without prejudice.
The case proceeded against private respondent alone. On 28 May 1987, the trial court rendered its
decision 11 in favor (partly) of petitioner's claim. In arriving at its conclusion, the trial court held that private
respondent was deemed to have waived the defense, i.e., that the cause of Gabriel's death was not
covered by the policy, when the latter failed to impugn by evidence petitioner's averment on the matter.
With regard to the defense of prescription, the court considered the complaint to have been timely filed or
within one (1) year from private respondent's denial of the claim.
Petitioner and private respondent both appealed to the Court of Appeals. Petitioner contended that
the lower court should have awarded all the claims she had asked for. Private respondent asserted,
on its part, that the lower court erred in ruling (a) that the insurer had waived the defense that
Gabriel's death was not caused by the insured peril ("violent accidental external and visible means")
specified in the policy and (b) that the cause of action had not prescribed.
The Court of Appeals, on 18 September 1991, reversed the decision of the lower court. The
appellate court held that petitioner had failed to substantiate her allegation that her husband's death
was caused by a risk insured against. The appellate court observed that the only evidence
presented by petitioner, in her attempt to show the circumstances that led to the death of the
insured, were her own affidavit and a letter allegedly written by a co-worker of the deceased in Iraq
which, unfortunately for her, were held to be both
hearsay. 12
The motion for reconsideration was denied. 13
Petitioner's recourse to this Court must also fail.
On the issue of "prescription," private respondent correctly invoked Section 384 of the Insurance
Code; viz:
Sec. 384. Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the nature, extent and duration of the
injuries sustained as certified by a duly licensed physician. Notice of claim must be
filed within six months from date of the accident, otherwise, the claim shall be
deemed waived. Action or suit for recovery of damage due to loss or injury must be
brought, in proper cases, with the Commissioner or the Courts within one year from
denial of the claim, otherwise, the claimant's right of action shall prescribe.
The notice of death was given to private respondent, concededly, more than a year after the
death of petitioner's husband. Private respondent, in invoking prescription, was not referring
to the one-year period from the denial of the claim within which to file an action against an
insurer but obviously to the written notice of claim that had to be submitted within six months
from the time of the accident.
Petitioner argues that private respondent must be deemed to have waived its right to controvert the
claim, that is, to show that the cause of death is an excepted peril, by failing to have its answers (to
the Request for Admission sent by petitioner) duly verified. It is true that a matter of which a written
request for admission is made shall be deemed impliedly admitted "unless, within a period
designated in the request, which shall not be less than ten (10) days after service thereof, or within
such further time as the court may allow on motion and notice, the party to whom the request is
directed serves upon the party requesting the admission a sworn statement either denying
specifically the matters of which an admission is requested or setting forth in detail the reasons why
he cannot truthfully either admit or deny those matters;" 14 however, the verification, like in most cases
required by the rules of procedure, is a formal, not jurisdictional, requirement, and mainly intended to
secure an assurance that matters which are alleged are done in good faith or are true and correct and not
of mere speculation. When circumstances warrant, the court may simply order the correction of unverified
pleadings or act on it and waive strict compliance with the rules in order that the ends of justice may
thereby be served. 15 In the case of answers to written requests for admission particularly, the court can
allow the party making the admission, whether made expressly or deemed to have been made impliedly,
"to withdraw or amend it upon such terms as may be just." 16
The appellate court acted neither erroneously nor with grave abuse of discretion when it seconded
the court a quoand ruled:
As to the allegation of the plaintiff-appellant that the matters requested by her to be

admitted by the defendant-appellant under the Request for Admission were already
deemed admitted by the latter for its failure to answer it under oath, has already been
properly laid to rest when the lower court in its Order of May 28, 1987 correctly ruled:
At the outset, it must be stressed that the defendant indeed filed a

written answer to the request for admission, sans verification. The
case of Motor Service Co., Inc. vs. Yellow Taxicab Co., Inc., et al.
may not therefore be controlling, or actually opposite. In said case,
there was an absolute failure on the part of the defendant to answer
the request for admission, and thus the court was justified in
rendering a summary judgment. Here, however, as clearly intimated
elsewhere above, the defendant answered in writing practically every
question posed in the request for admission. The Court believes,
under the peculiar circumstance, that the more controlling
jurisprudence on the mater would be those cited by the defendant in
its memorandum, particularly the case of Quimpo vs. de la Victoria,
46 SCRA 139.
Prescinding from the foregoing, there is absolutely no basis in fact and in law for the
lower court to hold that the appellant insurance company was deemed to have
waived the defense, that the death of plaintiff-appellant's husband was not caused by
violent accidental external and visible means' as contemplated in the insurance
policy. The Death Certificate (Exh. 9) and the Autopsy Report (Exh. 10), more than
controverted the allegation of the plaintiff-appellant as to the cause of death of her
husband.17
The insurance policy expressly provided that to be compensable, the injury or death should be
caused by "violent accidental external and visible means." In attempting to prove the cause of her
husband's death, all that petitioner could submit were a letter sent to her by her husband's co-
worker, stating that Gabriel died when he tried to haul water out of a tank while its submerged motor
was still functioning, 18 and petitioner's sinumpaang
salaysay 19 which merely confirmed the receipt and stated contents of the letter. Said the appellate court
in this regard:
. . . . It must be noted that the only evidence presented by her to prove the
circumstances surrounding her husband's death were her purported affidavit and the
letter allegedly written by the deceased co-worker in Iraq. The said affidavit however
suffers from procedural infirmity as it was not even testified to or identified by the
affiant (plaintiff-appellant) herself. This self-serving affidavit therefore is a mere
hearsay under the rules, . . . .
xxx xxx xxx
In like manner, the letter allegedly written by the deceased's co-worker which was
never identified to in court by the supposed author, suffers from the same defect as
the affidavit of the plaintiff-appellant. 20
Not one of the other documents submitted, to wit, the POEA decision, dated 06 June
1984, 21 the death certificate issued by the Ministry of Health of Iraq and the NBI autopsy
report, 22 could give any probative value to petitioner's claim. The POEA decision did not make
any categorical holding on the specific cause of Gabriel's death. Neither did the death certificate
issued by the health authorities in Iraq nor the NBI autopsy report provide any clue on the cause
of death. All that appeared to be clear was the fact of Gabriel's demise on 22 May 1982 in Iraq.
Evidence, in fine, is utterly wanting to establish that the insured suffered from an accidental death,
the risk covered by the policy. In an accident insurance, the insured's beneficiary has the burden of
proof in demonstrating that the cause of death is due to the covered peril. Once that fact is
established, the burden then shifts to the insurer to show any excepted peril that may have been
stipulated by the parties. An "accident insurance" is not thus to be likened to an ordinary life
insurance where the insured's death, regardless of the cause thereof, would normally be
compensable. The latter is akin in property insurance to an "all risk" coverage where the insured, on
the aspect of burden of proof, has merely to show the condition of the property insured when the
policy attaches and the fact of loss or damage during the period of the policy and where, thereafter,
the burden would be on the insurer to show any "excluded peril." When, however, the insured risk is
specified, like in the case before us, it lies with the claimant of the insurance proceeds to initially
prove that the loss is caused by the covered peril.
While petitioner did fail in substantiating her allegation that the death of her husband was due to an
accident, considering, however, the uncertainty on the real cause of death, private respondent might
find its way clear into still taking a second look on the matter and perhaps help ease the load of
petitioner's loss.
WHEREFORE, the decision appealed from is AFFIRMED. No costs.
SO ORDERED.
Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

RIGHT OF SUBROGATION

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 81026 April 3, 1990
PAN MALAYAN INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.
Regulus E. Cabote & Associates for petitioner.
Benito P. Fabie for private respondents.
CORTES, J.:
Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of the
Court of Appeals which upheld an order of the trial court dismissing for no cause of action
PANMALAY's complaint for damages against private respondents Erlinda Fabie and her driver.
The principal issue presented for resolution before this Court is whether or not the insurer
PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an
insurance claim against private respondents as the parties allegedly responsible for the damage
caused to the insured vehicle.
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against
private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a
Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang
Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness,
recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the
insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed
the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG
against the driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated
demands, defendants, failed and refused to pay the claim of PANMALAY.
Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion
thereto. In compliance therewith, PANMALAY clarified, among others, that the damage caused to
the insured car was settled under the "own damage", coverage of the insurance policy, and that the
driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive
the vehicle. PANMALAY also submitted a copy of the insurance policy and the Release of Claim and
Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.
On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had
no cause of action against them. They argued that payment under the "own damage" clause of the
insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an
order dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19,
1986, the RTC denied PANMALAY's motion for reconsideration.
On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November
27, 1987. Consequently, PANMALAY filed the present petition for review.
After private respondents filed its comment to the petition, and petitioner filed its reply, the Court
considered the issues joined and the case submitted for decision.
Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition.
PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had
indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident
allegedly caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY
contended, therefore, that its cause of action against private respondents was anchored upon Article
2207 of the Civil Code, which reads:
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. . . .
PANMALAY is correct.
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the
insurer to the assured operates as an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or wrongful act caused the loss. The right
of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer
[Compania Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964,
12 SCRA 213; Fireman's Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-27427,
April 7, 1976, 70 SCRA 323].
There are a few recognized exceptions to this rule. For instance, if the assured by his own act
releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of
subrogation is defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312,
29 L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co.,
229 F 2d 705 (1956)]. Similarly, where the insurer pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the assured's claim for loss, the settlement
is binding on both the assured and the insurer, and the latter cannot bring an action against the
carrier on his right of subrogation [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)].
And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby
effecting "voluntary payment", the former has no right of subrogation against the third party liable for
the loss [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, G. R. No. L-22146, September
5, 1967, 21 SCRA 12].
None of the exceptions are availing in the present case.
The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally
subrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not
have any cause of action against private respondents. On the one hand, the trial court held that
payment by PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance
policy was an admission by the insurer that the damage was caused by the assured and/or its
representatives. On the other hand, the Court of Appeals in applying the ejusdem generis rule held
that Section III-1 of the policy, which was the basis for settlement of CANLUBANG's claim, did not
cover damage arising from collision or overturning due to the negligence of third parties as one of
the insurable risks. Both tribunals concluded that PANMALAY could not now invoke Article 2207 and
claim reimbursement from private respondents as alleged wrongdoers or parties responsible for the
damage.
The above conclusion is without merit.
It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy
impliesdamage to the insured car caused by the assured itself, instead of third parties, proceeds
from an incorrect comprehension of the phrase "own damage" as used by the insurer. When
PANMALAY utilized the phrase "own damage" — a phrase which, incidentally, is not found in the
insurance policy — to define the basis for its settlement of CANLUBANG's claim under the policy, it
simply meant that it had assumed to reimburse the costs for repairing the damage to the insured
vehicle [See PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, p. 1;
Record, p. 31]. It is in this sense that the so-called "own damage" coverage under Section III of the
insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party Liability"
coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from
Section IV-2 which refer to "Property Damage" coverage (liabilities arising from damage caused by
the insured vehicle to the properties of third parties).
Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section
III-1 of the policy does not include to the insured vehicle arising from collision or overturning due to
the negligent acts of the third party. Not only does it stem from an erroneous interpretation of the
provisions of the section, but it also violates a fundamental rule on the interpretation of property
insurance contracts.
It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of
property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
assured, determine the import of the various terms and provisions embodied in the policy. It is only
when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, that the courts will intervene. In
such an event, the policy will be construed by the courts liberally in favor of the assured and strictly
against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., G.R., No. L-
27932, October 30, 1972, 47 SCRA 271; National Power Corporation v. Court of Appeals, G.R. No.
L-43706, November 14, 1986, 145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R.
No. L-41014, November 28, 1988, 168 SCRA 1.Also Articles 1370-1378 of the Civil Code].
Section III-1 of the insurance policy which refers to the conditions under which the insurer
PANMALAY is liable to indemnify the assured CANLUBANG against damage to or loss of the
insured vehicle, reads as follows:
SECTION III — LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the Insured against
loss of or damage to the Scheduled Vehicle and its accessories and spare parts
whilst thereon: —
(a) by accidental collision or overturning, or collision or overturning

consequent upon mechanical breakdown or consequent upon wear
and tear;
(b) by fire, external explosion, self ignition or lightning or burglary,

housebreaking or theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading)

incidental to such transit by road, rail, inland, waterway, lift or
elevator.
xxx xxx xxx
[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of

Particulars; Record, p. 34; Emphasis supplied].
PANMALAY contends that the coverage of insured risks under the above section, specifically
Section III-1(a), is comprehensive enough to include damage to the insured vehicle arising from
collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of
the same understanding. Based on a police report wherein the driver of the insured car reported that
after the vehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20],
CANLUBANG filed its claim with PANMALAY for indemnification of the damage caused to its car. It
then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation
Receipt in favor of latter.
Considering that the very parties to the policy were not shown to be in disagreement regarding the
meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the
appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe
meaning contrary to the clear intention and understanding of these parties.
It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by
accidental collision or overturning" found in the first paint of sub-paragraph (a) is untenable. Although
the terms "accident" or "accidental" as used in insurance contracts have not acquired a technical
meaning, the Court has on several occasions defined these terms to mean that which 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" [De la Cruz v. The Capital Insurance
& Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance
Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred
from jurisprudence that these terms, without qualification, exclude events resulting in damage or loss
due to the fault, recklessness or negligence of third parties. The concept "accident" is not necessarily
synonymous with the concept of "no fault". It may be utilized simply to distinguish intentional or
malicious acts from negligent or careless acts of man.
Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the
insured vehicle due to negligent or careless acts of third parties is not listed under the general and
specific exceptions to the coverage of insured risks which are enumerated in detail in the insurance
policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of
Particulars, supra.]
The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the
coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that
insisted upon by respondents herein. By arguing that this section covers losses or damages due not
only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a
more comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping
with the rationale behind the various rules on the interpretation of insurance contracts favoring the
assured or beneficiary so as to effect the dominant purpose of indemnity or payment [SeeCalanoc v.
Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc.,
G.R. No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July
16, 1984, 130 SCRA 327].
Parenthetically, even assuming for the sake of argument that Section III-1(a) of the insurance policy
does not cover damage to the insured vehicle caused by negligent acts of third parties, and that
PANMALAY's settlement of CANLUBANG's claim for damages allegedly arising from a collision due
to private respondents' negligence would amount to unwarranted or "voluntary payment", dismissal
of PANMALAY's complaint against private respondents for no cause of action would still be a grave
error of law.
For even if under the above circumstances PANMALAY could not be deemed subrogated to the
rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of
action against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening
v. Qua Chee Gan, supra., the Court ruled that the insurer who may have no rights of subrogation
due to "voluntary" payment may nevertheless recover from the third party responsible for the
damage to the insured property under Article 1236 of the Civil Code.
In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee
merely prays that it be allowed to institute an action to recover from third parties who allegedly
caused damage to the insured vehicle, the amount which it had paid its assured under the insurance
policy. Having thus shown from the above discussion that PANMALAY has a cause of action against
third parties whose negligence may have caused damage to CANLUBANG's car, the Court holds
that there is no legal obstacle to the filing by PANMALAY of a complaint for damages against private
respondents as the third parties allegedly responsible for the damage. Respondent Court of Appeals
therefore committed reversible error in sustaining the lower court's order which dismissed
PANMALAY's complaint against private respondents for no cause of action. Hence, it is now for the
trial court to determine if in fact the damage caused to the insured vehicle was due to the
"carelessness, recklessness and imprudence" of the driver of private respondent Erlinda Fabie.
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for
damages against private respondents is hereby REINSTATED. Let the case be remanded to the
lower court for trial on the merits.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
MARINE INSURANCE COVERAGE

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-66935 November 11, 1985
ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber
Enterprises and ONG CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY
CORPORATION,respondent.
GUTIERREZ, JR., J.:
This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court
which absolved the respondent insurance company from liability on the grounds that the vessel
carrying the insured cargo was unseaworthy and the loss of said cargo was caused not by the perils
of the sea but by the perils of the ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier,
entered into a contract with the petitioners whereby the former would load and carry on board its
barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North
Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with respondent
Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound,
Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached
its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in
Palawan on its way to Manila. As alleged by the petitioners in their complaint and as found by both
the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it
developed a leak. The appellate court further found that one of the hatches was left open causing
water to enter the barge and because the barge was not provided with the necessary cover or
tarpaulin, the ordinary splash of sea waves brought more water inside the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00
for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the
demand. Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00
under the insurance policy but respondent refused to pay on the ground that its hability depended
upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced Civil Case No.
86599 against Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision
reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer

Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of
P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in

addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
former as down payment for transporting the logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for
lack of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage
Corporation, the latter is ordered to reimburse the former for whatever amount it may
pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed

for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary
damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees
in the sum of P10,000.00 is hereby granted, against both defendants, who are,
moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%)
from March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal.
According to the petitioners, the transportation company is no longer doing business and is without
funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part
of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in
a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer
from liability after finding that there was a breach of implied warranty of seaworthiness on the part of
the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and not
by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.
After the appellate court denied their motion for reconsideration, the petitioners filed this petition with
the following assignments of errors:
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES

OF MARINE CARGO INSURANCE, THERE IS A WARRANTY OF
SEAWORTHINESS BY THE CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS
OF THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND
NOT BY "PERILS OF THE SEA."
III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE

RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS
DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT
WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness
provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to
it that his ship is reasonably fit to make in safety the contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do
with its seaworthiness. They argue that a cargo owner has no control over the structure of the ship,
its cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of other
shippers, and the hiring of a sufficient number of competent officers and seamen. The petitioners'
arguments have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to
appeal the questioned decision. However, the petitioners state that Manila Bay has ceased
operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover their
losses from the insurer.
The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be
the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40
Phil. 40):
The same conclusion must be reached if the question be discussed with reference to
the seaworthiness of the ship. It is universally accepted that in every contract of
insurance upon anything which is the subject of marine insurance, a warranty is
implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in
ordinary marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):
There was no look-out, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was in
effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his goods. Or the cargo
owner may enter into a contract of insurance which specifically provides that the insurer answers not
only for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated
by the private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North
River Ins. Co., Minn—214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the
policy, and not those ordinary perils which every vessel must encounter. "Perils of
the sea" has been said to include only such losses as are of extraordinary nature,
or arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at sea, as distinguished
from the ordinary wear and tear of the voyage, anddistinct from injuries suffered by
the vessel in consequence of her not being seaworthy at the outset of her voyage (as
in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not be
reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec. 384,
pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed.
787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was
caused by the perils of the sea, not by the perils of the ship because as found by the trial court, the
barge was turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm and
waves." Moreover, petitioners also maintain that barratry, against which the cargo was also insured,
existed when the personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and
foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the barge
which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was occasioned by the
perils of the sea characterized by the "storm and waves" which buffeted the vessel, the records show
that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of
the logs was occasioned by force majeure... "was not supported by the evidence. At
the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a
condition which is natural and normal in the open sea. The evidence shows that the
sinking of Mable 10 was due to improper loading of the logs on one side so that the
barge was tilting on one side and for that it did not navigate on even keel; that it was
no longer seaworthy that was why it developed leak; that the personnel of the
tugboat and the barge committed a mistake when it turned loose the barge from the
tugboat east of Cabuli point where it was buffeted by storm and waves, while the
tugboat proceeded to west of Cabuli point where it was protected by the mountain
side from the storm and waves coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier
developed a leak which allowed water to come in and that one of the hatches of said barge was
negligently left open by the person in charge thereof causing more water to come in and that "the
loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of defendant carrier
and/or defendant carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the
perils of the sea. The facts clearly negate the petitioners' claim under the insurance policy. In the
case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate
on the term "perils of the ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary

course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the
adventure. The purpose of the policy is to secure an indemnity against accidents
which may happen, not against events which must happen.
In the present case the entrance of the sea water into the ship's hold through the
defective pipe already described was not due to any accident which happened during
the voyage, but to the failure of the ship's owner properly to repair a defect of the
existence of which he was apprised. The loss was therefore more analogous to that
which directly results from simple unseaworthiness than to that which result from the
perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts the
perils of the sea from his engagement under the bill of lading, while this is the very
perils against which the insurer intends to give protection. As applied to the present
case it results that the owners of the damaged rice must look to the shipowner for
redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of
the vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or
crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to
the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on
Law of Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No honest error of
judgment or mere negligence, unless criminally gross, can be barratry. (See Vance on Law of
Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of
the vessel's crew. There was only simple negligence or lack of skill. Hence, the second assignment
of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00
representing the amount of the salvaged logs should have been awarded to them. However, this
should be deducted from the amounts which have been adjudicated against Manila Bay Lighterage
Corporation by the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of
P8,000.00 representing the value of the salvaged logs which was ordered to be deposited in the
Manila Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and ordered
paid to the petitioners. The liability adjudged against Manila Bay Lighterage Corporation in the
decision of the trial court is accordingly reduced by the same amount.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.
Relova, J., is on leave.

PERILS OF THE SEA vs. PERILS OF THE SHIP

SUPREME COURT
Manila
EN BANC
G.R. No. 13983 September 1, 1919
LA RAZON SOCIAL "GO TIAOCO Y HERMANOS," plaintiff-appellant,

vs.
UNION INSURANCE SOCIETY OF CANTON, LTD., defendant-appellee.
P. E. del Rosario and W. F. Mueller for appellant.

Crossfield and O'Brien for appellee.
STREET, J.:
This is an action on a policy of marine insurance issued by the Union Insurance Society of Canton,
Ltd., upon a cargo of rice belonging to the plaintiffs, Go Tiaoco Brothers, which was transported in
the early days of May, 1915, on the steamship Hondagua from the port of Saigon to Cebu. On
discharging the rice from one of the compartments in the after hold, upon arrival at Cebu, it was
discovered that one thousand four hundred seventy-three sacks and been damages by sea water.
The loss so resulting to the owners of rice, after proper deduction had been made for the portion
saved, was three thousand eight hundred seventy five pesos and twenty-five centavos (P3,875.25).
The trial court found that the inflow of the sea water during the voyage was due to a defect in one of
the drain pipes of the ship and concluded that the loss was not covered by the policy of insurance.
Judgment was accordingly entered in favor of the defendant and the plaintiffs appealed.
The facts with reference to the manner in which the sea water effected entrance into the hold may
be summarized as follows, substantially in accordance with the findings of the trial court:
The drain pipe which served as a discharge from the water closet passed down through the
compartment where the rice in question was stowed and thence out to sea through the wall of the
compartment, which was a part of the wall of the ship. The joint or elbow where the pipe changed its
direction was of cast iron; and in course of time it had become corroded and abraded until a
longitudinal opening had appeared in the pipe about one inch in length. This hole had been in
existence before the voyage was begun, and an attempt had been made to repair it by filling with
cement and bolting over it a strip of iron. The effect of loading the boat was to submerge the vent, or
orifice, of the pipe until it was about 18 inches or 2 feet below the level of the sea. As a consequence
the sea water rose in the pipe. Navigation under these conditions resulted in the washing out of the
cement-filling from the action of the sea water, thus permitting the continued flow of the salt water
into the compartment of rice.
The court found in effect that the opening above described had resulted in course of time from
ordinary wear and tear and not from the straining of the ship in rough weather on that voyage. The
court also found that the repairs that had been made on the pipe were slovenly and defective and
that, by reason of the condition of this pipe, the ship was not properly equipped to receive the rice at
the time the voyage was begun. For this reason the court held that the ship was unseaworthy.
The policy of insurance was signed upon a form long in use among companies engaged in maritime
insurance. It purports to insure the cargo from the following among other risks: "Perils . . . of the
seas, men of war, fire, enemies, pirates, rovers, thieves, jettisons, . . . barratry of the master and
mariners, and of all other perils, losses, and misfortunes that have or shall come to the hurt,
detriment, or damage of the said goods and merchandise or any part thereof."
The question whether the insurer is liable on this policy for the loss caused in the manner above
stated presents two phases which are in a manner involved with each other. One has reference to
the meaning of the expression "perils of the seas and all other perils, losses, and misfortunes," as
used in the policy; the other has reference to the implied warranty, on the part of the insured, as to
the seaworthiness of the ship.
The meaning of the expression "perils . . . of the seas . . . and all other perils, losses, and
misfortunes," used in describing the risks covered by policies of marine insurance, has been the
subject of frequent discussion; and certain propositions relative thereto are now so generally
accepted as to be considered definitely settled.
In the first place it is determined that the words "all other perils, losses, and misfortunes" are to be
interpreted as covering risks which are of like kind (ejusdem generis) with the particular risks which
are enumerated in the preceding part of the same clause of the contract. "According to the ordinary
rules of construction," said Lord Macnaghten in Thames and Mersey Marine Insurance
Co. vs. Hamilton, Fraser & Co. ([1887]), 12 A. C., 484, 501), "these words must be interpreted with
reference to the words which immediately precede them. They were no doubt inserted in order to
prevent disputes founded on nice distinctions. Their office is to cover in terms whatever may be
within the spirit of the cases previously enumerated, and so they have a greater or less effect as a
narrower or broader view is taken of those cases. For example, if the expression 'perils of the seas'
is given its widest sense the general words have little or no effect as applied to that case. If no the
other hand that expression is to receive a limited construction, as apparently it did in
Cullen vs. Butler (5 M. & S., 461), and loss by perils of the seas is to be confined to loss ex marinae
tempestatis discrimine, the general words become most important. But still, ever since the case of
Cullen vs. Butler, when they first became the subject of judicial construction, they have always been
held or assumed to be restricted to cases 'akin to' or resembling' or 'of the same kind as' those
specially mentioned. I see no reason for departing from this settled rule. In marine insurance it is
above all things necessary to abide by settled rules and to avoid anything like novel refinements or a
new departure."
It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events,
results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship,
or from the negligent failure of the ship's owner to provide the vessel with proper equipment to
convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to
what has been aptly called the "peril of the ship." The insurer undertakes to insure against perils of
the sea and similar perils, not against perils of the ship. As was well said by Lord Herschell in
Wilson, Sons & Co. vs. Owners of Cargo per the Xantho ([1887], 12 A. C., 503,509), there must, in
order to make the insurer liable, be "some casualty, something which could not be foreseen as one
of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity
against accidents which may happen, not against events which must happen."
In the present case the entrance of the sea water into the ship's hold through the defective pipe
already described was not due to any accident which happened during the voyage, but to the failure
of the ship's owner properly to repair a defect of the existence of which he was apprised. The loss
was therefore more analogous to that which directly results from simple unseaworthiness than to
that which results from perils of the sea.
The first of the two decisions of the House of Lords from which we have quoted (Thames and
Mersey Marine Insurance Co. vs. Hamilton, Fraser & Co. [1887], 12 A. C., 484) arose upon the
following state of facts: In March, 1884, the Inchmaree was lying at anchor off Diamond Island and
was about to start upon her voyage. To this end it became necessary to fill up her boilers. There was
a donkey-engine with a donkey-pump on board, and the donkey-engine was set to pump up water
from the sea into the boilers. Those in charge of the operation did not take the precaution of making
sure that the valve of the aperture leading into one of the boilers was open. This valve happened to
be closed. The result was that the water being unable to make its way into the boiler was forced
back and split the air-chamber and so disabled the pump. It was held that whether the injury
occurred through negligence or accidentally without negligence, it was not covered by the policy,
since the loss did not fall either under the words "perils of the seas" or under the more general words
"all other perils, losses, and misfortunes." Lord Bramwell, in the course of his opinion quoted with
approbation as definition given by Lopes L.J. in Pandorf vs. Hamilton (16 Q. B. D., 629), which is as
follows: In a sea-worthy ship damage to goods caused by the action of the sea during transit not
attributable to the fault of anybody, is a damage from a peril of the sea.
The second of the decision from the House of Lords from which we have quoted (Wilson, Son &
Co. vs. owners of Cargo per the Xantho [1887], 12 A. C., 503) arose upon the following facts: The
owners of certain cargo embarked the same upon the steamship Xantho. A collision took place in a
fog between this vessel and another ship, Valuta. An action was thereupon instituted by the owners
of the cargo against the owners of the Xantho. It was held that if the collision occurred without fault
on the part of the carrying ship, the owners were not liable for the value of the cargo lost by such
collision.
Still another case was decided in the House of Lords upon the same date as the preceding two,
which is equally instructive as the others upon the question now under consideration. We refer to
Hamilton, Fraser & Co. vs. Pandorf & Co. ([1887], 12 A. C., 518), where it appeared that rice was
shipped under a charter party and bills of lading which expected "dangers and accident of the sea."
During the voyage rats gnawed a hole in a pipe on board the ship, whereby sea water effected an
entrance into the ship's hold and damaged the rice. It appeared that there was no neglect or default
on the part of the shipowners or their servants in the matter of attending to the cargo. It was held that
this loss resulted from an accident or peril of the sea and that the shipowners were not responsible.
Said Bramwell: "No question of negligence exists in this case. The damage was caused by the sea
in the course of navigation with no default in any one. I am, therefore, of opinion that the damage
was caused by peril of the sea within the meaning of the bill of lading." The point which discriminates
this decision from that now before us is that in the present case the negligence of the shipowners
must be accepted as established. Undoubtedly, if in Hamilton, Fraser & Co. vs. Pandorf & Co.
[1887], 12 A. C., 518), it had appeared that this hold had been gnawed by the rats prior to this
voyage and the owners, after having their attention directed to it, had failed to make adequate
repairs, the ship would have been liable.
The three decisions in the House of Lords above referred to contain elaborate discussions
concerning the liability of shipowners and insurers, respectively, for damage happening to cargo in
the course of a sea voyage; and it would be presumptuous for us to undertake to add to what has
been there said by the learned judges of that high court. Suffice it to say that upon the authority of
those cases there is no room to doubt the liability of the shipowner for such a loss as occurred in this
case. By parity of reasoning the insurer is not liable; for, generally speaking, the shipowner excepts
the perils of the sea from his engagement under the bill of lading, while this is the very peril against
which the insurer intends to give protection. As applied to the present case it results that the owners
of the damages rice must look to the shipowner for redress and not to the insurer.
The same conclusion must be reached if the question be discussed with reference to the
seaworthiness of the ship. It is universally accepted that in every contract of insurance upon
anything which is the subject of marine insurance, a warranty is implied that the ship shall be
seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law
(Act No. 2427, sec. 106). It is also well settled that a ship which is seaworthy for the purpose of
insurance upon the ship may yet be unseaworthy for the purpose of insurance upon the cargo (Act
No. 2427, sec. 106). In Steel vs. State Line Steamship Co. ([1877], L. R. 3 A. C., 72), a cargo of
wheat was laden upon a ship which had a port-hole insecurely fastened at the time of the lading.
This port-hole was about one foot above the water line; and in the course of the voyage sea water
entered the compartment where the wheat was stores and damaged the cargo. It was held that the
ship was unseaworthy with reference to the cargo in question. In Gilroy, Sons & Co. vs. Price & Co.
([1893], 18 A. C., 56), a cargo of jute was shipped. During the voyage the vessel encountered
stormy weather, as a consequence of which the cargo shifted its position and broke a pipe leading
down through the hold from the water closet, with result that water entered the vessel and the jute
was damaged. It was found that the cargo was improperly stowed and that the owners of the ship
were chargeable with negligence for failure to protect the pipe by putting a case over it. It was
accordingly held that the ship was unseaworthy.
From what has been said it follows that the trial court committed no error in absolving the defendant
from the complaint. The judgment must therefore be affirmed, and it is so ordered, with costs.
Arellano, C.J., Johnson, Araullo, Malcolm, Avañcena and Moir, JJ., concur.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 84507 March 15, 1990
CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIAL
ENTERPRISES,petitioner,
vs.
HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE COMPANY, INC., BEN
LINES CONTAINER, LTD. AND E. RAZON, INC., respondents.
Lapuz Law Office for petitioner.
De Santos, Balgoz & Perez for respondent Filipino Merchants' Insurance Company, Inc.
Marilyn Cacho-Noe for respondent Ben Lines Container, Ltd.
GANCAYCO, J.:
This is an appeal from a decision of the Court of Appeals dated February 18, 1988 in CA-G.R. CV
No. 09627 which affirmed the decision of the Regional Trial Court (RTC) of Manila which in turn
dismissed the complaint. 1
On November 4, 1976 petitioner imported some lactose crystals from Holland. The importation
involved fifteen (15) metric tons packed in 600 6-ply paper bags with polythelene inner bags, each
bag at 25 kilos net. The goods were loaded at the port at Rotterdam in sea vans on board the vessel
"MS Benalder' as the mother vessel, and thereafter aboard the feeder vessel "Wesser Broker V-25"
of respondent Ben Lines Container, Ltd. (Ben Lines for short). The goods were insured by the
respondent Filipino Merchants' Insurance Co., Inc. (insurance company for short) for the sum of
P98,882.35, the equivalent of US$8,765.00 plus 50% mark-up or US$13,147.50, against all risks
under the terms of the insurance cargo policy. Upon arrival at the port of Manila, the cargo was
discharged into the custody of the arrastre operator respondent E. Razon, Inc. (broker for short),
prior to the delivery to petitioner through his broker. Of the 600 bags delivered to petitioner, 403 were
in bad order. The surveys showed that the bad order bags suffered spillage and loss later valued at
P33,117.63.
Petitioner filed a claim for said loss dated February 16, 1977 against respondent insurance company
in the amount of P33,117.63 as the insured value of the loss.
Respondent insurance company rejected the claim alleging that assuming that spillage took place
while the goods were in transit, petitioner and his agent failed to avert or minimize the loss by failing
to recover spillage from the sea van, thus violating the terms of the insurance policy sued upon; and
that assuming that the spillage did not occur while the cargo was in transit, the said 400 bags were
loaded in bad order, and that in any case, the van did not carry any evidence of spillage.
Hence, petitioner filed the complaint dated August 2, 1977 in the Regional Trial Court of Manila
against respondent insurance company seeking payment of the sum of P33,117.63 as damages
plus attorney's fees and expenses of litigation. In its answer, respondent insurance company denied
all the material allegations of the complaint and raised several special defenses as well as a
compulsory counterclaim. On February 24, 1978, respondent insurance company filed a third-party
complaint against respondents Ben Lines and broker. Respondent broker filed its answer to the
third-party complaint denying liability and arguing, among others, that the petitioner has no valid
cause of action against it. Similarly, Ben Lines filed its answer denying any liability and a special
defense arguing that respondent insurance company was not the proper party in interest and has no
connection whatsoever with Ben Lines Containers, Ltd. and that the third-party complaint has
prescribed under the applicable provisions of the Carriage of Goods by Sea Act.
On November 6, 1979, respondent Ben Lines filed a motion for preliminary hearing on the affirmative
defense of prescription. In an order dated February 28, 1980, the trial court deferred resolution of the
aforesaid motion after trial on the ground that the defense of prescription did not appear to be
indubitable.
After the pre-trial conference and trial on the merits, on March 31, 1986, the court a quo rendered a
judgment dismissing the complaint, the counterclaim and the third-party complaint with costs against
the petitioner.
Hence, the appeal to the Court of Appeals by petitioner which, in due course, as aforestated,
affirmed the judgment of the trial court.
A motion for reconsideration of said judgment was denied by the appellate court in a resolution
dated August 1, 1988.
Petitioner now filed this petition for review on certiorari in this Court predicated on the following
grounds:
RESPONDENT COURT ERRED IN HOLDING THAT THE INSURED SHIPMENT

DID NOT SUSTAIN ANY DAMAGE/LOSS DESPITE ADMISSION THEREOF ON
THE PART OF RESPONDENT INSURANCE COMPANY AND THE FINDING OF
THE LATTER'S SURVEYORS.
II
RESPONDENT COURT ERRED IN HOLDING THAT AN "ALL RISKS" COVERAGE

COVERS ONLY LOSSES OCCASIONED BY OR RESULTING FROM "EXTRA AND
FORTUITOUS EVENTS" DESPITE THE CLEAR AND UNEQUIVOCAL DEFINITION
OF THE TERM MADE AND CONTAINED IN THE POLICY SUED UPON.
III
THE HOLDING OF RESPONDENT COURT THAT AN "ALL RISKS" COVERAGE

COVERS LOSSES OCCASIONED BY AND RESULTING FROM "EXTRA AND
FORTUITOUS EVENTS" CONTRADICTS THE RULING OF THE SAME COURT IN
ANOTHER CASE WHERE THE DEFINITION OF THE TERM "ALL RISKS"/ STATED
IN THE POLICY WAS MADE TO CONTROL HENCE THE NEED FOR REVIEW. 2
The petition is impressed with merit.
The appellate court, in arriving at the conclusion that there was no damage suffered by the cargo at
the time of the devanning thereof, held as follows:
Appellant argued that the cargo in question sustained damages while still in the
possession of the carrying vessel, because as his appointed surveyor reported,
Worldwide Marine Survey Corporation, at the time of devanning at the pier, 403 bags
were already in bad order and condition. Appellant found support to this contention
on the basis of the survey report of Worldwide Marine Survey Corporation of the
Philippines and of the Adjustment Corporation of the Philippines which were
identified by his sole witness, Jose See. It must be pointed out, however, that witness
Jose See was incompetent to identify the two survey reports because he was not
actually present during the actual devanning of the cargo, which fact was admitted by
him, hence, he failed to prove the authenticity of the aforesaid survey reports.
On the other hand, the evidence submitted by the appellee would conclusively
establish the fact that there was no damage suffered by the subject cargo at the time
of the devanning thereof. The cargo, upon discharge from the vessel, was delivered
to the custody of the arrastre operator (E. Razon) under clean tally sheet (Exh. 6-
FMIC). Moreover, the container van containing the cargo was found with both its seal
and lock intact. Article IV, paragraph 4 of the Management Contract (Exh. 5) signed
between the Bureau of Customs and the Arrastre Operator provides:
4. Tally Sheets for Cargo Vans or Containers — The contractor shall

give a clean tally sheet for cargo vans received by it in good order
and condition with locks, and seals intact.
The same cargo was in turn delivered into the possession of the appellant by the
arrastre operator at the pier in good order and condition as shown by the clean gate
passes (Exhs. 2 and 3) and the delivery permit (Exh. 4). The clean gate passes were
issued by appellee arrastre operator covering the shipment in question, with the
conformity of the appellant's representative. The clean gate passes provide in part:
. . . issuance of this Gate Pass constitutes delivery to and receipt by

consignee of the goods as described above, in good order and
condition, unless an accompanying B.O. (Bad Order) Certificate duly
issued and noted on the face of this Gate Pass appears.
These clean gate passes are undoubtedly important and vital pieces of evidence.
They are noted in the dorsal side of another important piece of document which is
the permit to deliver (Exh. 4) issued by the Bureau of Customs to effect delivery of
the cargo to the consignee. The significance and value of these documents is that
they bind the shipping company and the arrastre operator whenever a cargo sustains
damage while in their respective custody. It is worthy of note that there was no turn
over survey executed between the vessel and the arrastre operator, indicating any
damage to the cargo upon discharge from the custody of the vessel. There was no
bad order certificate issued by the appellee arrastre operator, indicating likewise that
there was no damage to the cargo while in its custody.
It is surprising to the point that one could not believe that if indeed there was really
damage affecting the 403 bags out of the 600, with an alleged estimated spillage of
240%, this purportedly big quantity of spillage was never recovered which could have
been easily done considering that the shipment was in a container van which was
found to be sealed and intact. 3
However, in the same decision of the appellate court, the following evidence of the petitioner on this
aspect was summarized as follows:
The 600 bags which the original carrier received in apparent good order condition
and certified to by the vessel's agent to be weighing 15,300 kg. gross, were unloaded
from the transhipment vessel "Wesser Broker" stuffed in one container and turned
over to the arrastre operator, third party defendant-appellee E. Razon, Inc. A
shipboard surveyor, the Worldwide Marine Cargo Surveyor, as well as a
representative of the vessel "Wesser Broker" and a representative of the arrastre
operator attended the devanning of the shipment and the said shipboard surveyor
certified that 403 bags were in bad order condition with estimated spillage as follows:
65 P/bags each of 20%

(Exh. F-1)
Defendant and third-party plaintiff-appellee's protective surveyor determined the

exact spillage from the bad order bags as found by the shipboard surveyor at the
consignee's warehouse by weighing the bad order bags. Said protective surveyor
found after weighing the 403 bags in bad order condition that an aggregate of 5,173
kilos were missing therefrom (Exh. F). 4
The assertion of the appellate court that the authenticity of the survey reports of the Worldwide
Marine Cargo Survey Corporation and the Adjustment Corporation of the Philippines were not
established as Jose See who identified the same was incompetent as he was not actually present
during the actual devanning of the cargo is not well taken.
In the first place it was respondent insurance company which undertook the protective survey
aforestated relating to the goods from the time of discharge up to the time of delivery thereof to the
consignee's warehouse, so that it is bound by the report of its surveyor which is the Adjustment
Corporation of the Philippines. 5 The Worldwide Marine Cargo Survey Corporation of the Philippines
was the vessel's surveyor. The survey report of the said Adjustment Corporation of the Philippines reads
as follows:
During the turn-over of the contents delivery from the cargo sea van by the
representative of the shipping agent to consignee's representative/ Broker (Saint
Rose Forwarders), 403 bags were bursted and/or torn, opened on one end contents
partly spilled. The same were inspected by the vessel's surveyor (Worldwide Marine
& Cargo Survey Corporation), findings as follows:
One (1) Container No. 2987789

Property locked and secured with Seal No. 18880.
FOUND:
197-Paper Bags (6-Ply each with One inner Plastic Lining Machine
Stitched with cotton Twine on Both ends. Containing Lactose Crystal
25 mesh Sep 061-09-03 in good order.
403-Bags, 6-ply torn and/or opened on one end, contents partly

spilled, estimated spillages as follows:

(emphasis supplied) 6
The authenticity of the said survey report need not be established in evidence as it is binding on
respondent insurance company who caused said protective survey.
Secondly, contrary to the findings of the appellate court that petitioner's witness Jose See was not
present at the time of the actual devanning of the cargo, what the record shows is that he was
present when the cargo was unloaded and received in the warehouse of the consignee. He saw 403
bags to be in bad order. Present then was the surveyor, Adjustment Corporation of the Philippines,
who surveyed the cargo by segregating the bad order cargo from the good order and determined the
amount of loss. 7 Thus, said witness was indeed competent to identify the survey report aforestated.
Thirdly, in its letter dated May 26, 1977 to petitioner, respondent insurance company admitted in no
uncertain terms, the damages as indicated in the survey report in this manner:
We do not question the fact that out of the 600 bags shipment 403 bags appeared to
be in bad order or in damaged condition as indicated in the survey report of the
vessel surveyor. . . . 8
This admission even standing alone is sufficient proof of loss or damage to the cargo.
The appellate court observed that the cargo was discharged from the vessel and delivered to the
custody of the broker under the clean tally sheet, that the container van containing the cargo was
found with both its seal and lock intact; and that the cargo was delivered to the possession of the
petitioner by the broker in good order and condition as shown by the clean gate passes and delivery
permit.
The clean tally sheet referred to by the appellate court covers the van container and not the cargo
stuffed therein. 9The appellate court clearly stated that the clean tally sheet issued by the broker covers
the cargo vans received by it in good order and condition with lock and seal intact. Said tally sheet is no
evidence of the condition of the cargo therein contained. Even the witness of the respondent insurance
company, Sergio Icasiano, stated that the clean gate passes do not reflect the actual condition of the
cargo when released by the broker as it was not physically examined by the broker. 10
There is no question, therefore, that there were 403 bags in damaged condition delivered and
received by petitioner.
Nevertheless, on the assumption that the cargo suffered damages, the appellate court ruled:
Even assuming that the cargo indeed sustained damage, still the appellant cannot
hold the appellee insurance company liable on the insurance policy. In the case at
bar, appellant failed to prove that the alleged damage was due to risks connected
with navigation. A distinction should be made between "perils of the sea" which
render the insurer liable on account of the loss and/or damage brought about thereof
and "perils of the ship" which do not render the insurer liable for any loss or damage.
Perils of the sea or perils of navigation embrace all kinds of marine casualties, such
as shipwreck, foundering, stranding, collision and every specie of damage done to
the ship or goods at sea by the violent action of the winds or waves. They do not
embrace all loses happening on the sea. A peril whose only connection with the sea
is that it arises aboard ship is not necessarily a peril of the sea; the peril must be of
the sea and not merely one accruing on the sea (The Phil. Insurance Law, by
Guevarra, 4th ed., 1961, p. 143). In Wilson, Sons and Co. vs. Owners of Cargo per
the Xantho (1887) A.C. 503, 508, it was held:
There must, in order to make the insurer liable be "some casualty,"

something which could not be foreseen as one of the necessary
incidents of the adventure. The purpose of the policy is to secure an
indemnity against accidents which may happen, not against events
which must happen.
Moreover, the cargo in question was insured in an "against all risk policy." Insurance
"against all risk" has a technical meaning in marine insurance. Under an "all risk"
marine policy, there must be a general rule be a fortuitous event in order to impose
liability on the insurer; losses occasioned by ordinary circumstances or wear and tear
are not covered, thus, while an "all risk" marine policy purports to cover losses from
casualties at sea, it does not cover losses occasioned by the ordinary circumstances
of a voyage, but only those resulting from extra and fortuitous events.
It has been held that damage to a cargo by high seas and other weather is not
covered by an "all risk" marine policy, since it is not fortuitous, particularly where the
bad weather occurs at a place where it could be expected at the time in question. (44
Am. Jur. 2d. 216) In Go Tiaoco y Hermanas vs. Union Insurance Society of Canto,
40 Phil. 40, it was held:
In the present case, the entrance of the sea water into the ship's hold
through the defective pipe already described was not due to any
accident which happened during the voyage, but to the failure of the
ship's owner properly to repair a defect of the existence of which he
was apprised. The loss was therefore more analogous to that which
directly results from simple unseaworthiness than to that whose
results, from perils of the sea. 11
The Court disagrees.
In Gloren Inc. vs. Filipinas Cia. de Seguros, 12 it was held that an all risk insurance policy insures
against all causes of conceivable loss or damage, except as otherwise excluded in the policy or due to
fraud or intentional misconduct on the part of the insured. It covers all losses during the voyage whether
arising from a marine peril or not, including pilferage losses during the war.
In the present case, the "all risks" clause of the policy sued upon reads 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. 13
The terms of the policy are so clear and require no interpretation. The insurance policy covers all
loss or damage to the cargo except those caused by delay or inherent vice or nature of the cargo
insured. It is the duty of the respondent insurance company to establish that said loss or damage
falls within the exceptions provided for by law, otherwise it is liable therefor.
An "all risks" provision of a marine 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 peril falling within the policy's coverage. The insurer can avoid
coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. 14
In this case, the damage caused to the cargo has not been attributed to any of the exceptions
provided for nor is there any pretension to this effect. Thus, the liability of respondent insurance
company is clear.
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and another
judgment is hereby rendered ordering the respondent Filipinas Merchants Insurance Company, Inc.
to pay the sum of P33,117.63 as damages to petitioner with legal interest from the filing of the
complaint, plus attorney's fees and expenses of litigation in the amount of P10,000.00 as well as the
costs of the suit.
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.

SEAWORTHINESS

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 131166 September 30, 1999
CALTEX (PHILIPPINES), INC., petitioner,

vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO,
VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO,
EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION,
TERESITA G. CAÑEZAL, AND SOTERA E. CAÑEZAL, respondents.
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered
vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products
of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with
MV Doña Paz, killing almost all the passengers and crew members of both ships, and thus resulting
in one of the country's worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner jointly liable
with the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.'s passenger
ship MV Doña Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to
Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. 2 MT Vector
is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business
of transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular
voyage, the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a
charter contract between
them. 3
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master and his
officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. 4 The MV Doña
Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of
Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the
vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV
Doña Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time
of the incident.
1âwphi1.nêt
The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been rescued from the burning waters by
vessels that responded to distress calls. 5Among those who perished were public school teacher
Sebastian Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested
passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation found
that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator
Vector Shipping Corporation, were at fault and responsible for its collision with MV Doña Paz. 6
On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal's wife and
mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for "Damages
Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter Sulpicio).
Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector Shipping Corporation
and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and
evident bad faith knowing fully well that MT Vector was improperly manned, ill-equipped,
unseaworthy and a hazard to safe navigation; as a result, it rammed against MV Doña Paz in the
open sea setting MT Vector's highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing, the third party complaint
against petitioner. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against

defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Cañezal and his 11-year old daughter Corazon G.
Cañezal, including loss of future earnings of said Sebastian, moral and exemplary
damages, attorney's fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation
and with costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
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On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of
Appeal modified the trial court's ruling and included petitioner Caltex as one of the those liable for
damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional
Trial Court is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of

Sebastian E. Cañezal and Corazon Cañezal:
1. Compensatory damages for the death of Sebastian E. Cañezal and Corazon

Cañezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E.

Cañezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS

(P300,000.00);
4. Attorney's fees in the concept of actual damages in the amount of FIFTY

THOUSAND PESOS (P50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally
liable under the third party complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. of the above-mentioned damages, attorney's fees and costs which the
latter is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co.
(being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc.
(being the charterer that negligently caused the shipping of combustible cargo
aboard an unseaworthy vessel).
SO ORDERED.
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WE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIÑO HERMACHUELOS
Associate Justice Associate Justice. 8
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under

Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is
public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping
documents on the one hand, or a charter party or similar contract on the other. 9
Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter. 10
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; a contract of affreightment is one by which the
owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight. 11
A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage.
In both cases, the charter-party provides for the hire of the vessel only, either for a determinate
period of time or for a single or consecutive voyage, the ship owner to supply the ship's store, pay for
the wages of the master of the crew, and defray the expenses for the maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for
damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship
as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The
charterer is free from liability to third persons in respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter. Does a charter party agreement turn the common carrier into a private one? We need to
answer this question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private carrier.
The parties entered into a voyage charter, which retains the character of the vessel as a common
carrier.
In Planters Products, Inc. vs. Court of Appeals, 14 we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding

the charter of the whole portion of a vessel of one or more persons, provided the
charter is limited to the ship only, as in the case of a time-charter or the voyage
charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the
particular voyage covering the charter-party is concerned. Indubitably, a ship-owner
in a time or voyage charter retains possession and control of the ship, although her
holds may, for the moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15
Although a charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment . . .
A common carrier is a person or corporation whose regular business is to carry passengers or

property for all persons who may choose to employ and to remunerate him. 16 MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals, 17 we
ruled:
The Civil Code defines "common carriers" in the following terms:
Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers for passengers or
goods or both, by land, water, or air for compensation, offering their services to the
public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such services on
anoccasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.
It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic,
occasional rather than regular or scheduled manner, and even though
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that the fee frequently fell below commercial freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of
competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the
Civil Code. 18
The provisions owed their conception to the nature of the business of common carriers. This
business is impressed with a special public duty. The public must of necessity rely on the care and
skill of common carriers in the vigilance over the goods and safety of the passengers, especially
because with the modern development of science and invention, transportation has become more
rapid, more complicated and somehow more hazardous. 19 For these reasons, a passenger or a
shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being
obliged by law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these deficiencies.
1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only
in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and lookout; and
5. The vessel had a defective main engine. 20
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil
Code, which provide:
Art. 20. — Every person who contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same.
Art. 2176. — Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the
failure to observe that degree of care, precaution, and vigilance, which the circumstances justly demand,
or the omission to do something which ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier simply for
being engaged in "public service." 22The Civil Code demands diligence which is required by the nature
of the obligation and that which corresponds with the circumstances of the persons, the time and the
place. Hence, considering the nature of the obligation between Caltex and MT Vector, liability as found by
the Court of Appeals is without basis.
1âw phi 1.nêt
The relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness, 23 shippers of goods, when transacting with common carriers, are not
expected to inquire into the vessel's seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but
the futility of our maritime laws insofar as the protection of the public in general is concerned. By the
same token, we cannot expect passengers to inquire every time they board a common carrier, whether
the carrier possesses the necessary papers or that all the carrier's employees are qualified. Such a
practice would be an absurdity in a business where time is always of the essence. Considering the nature
of transportation business, passengers and shippers alike customarily presume that common carriers
possess all the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in
shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector
could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the
entries here under "VESSEL'S DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986,

and Expires December 7, 1987", Mr. Witness, what steps did you
take regarding the impending expiry of the C.I. or the Certificate of
Inspection No. 1290-85 during the hiring of MT Vector?
Apolinario Ng: At the time when I extended the Contract, I did nothing
because the tanker has a valid C.I. which will expire on December 7,
1987 but on the last week of November, I called the attention of Mr.
Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn,
assured me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr.

Abalos, and said they were going to send me a copy as soon as
possible, sir. 24
xxx xxx xxx
Q: What did you do with the C.I.?

A: We did not insist on getting a copy of the C.I. from Mr. Abalos on
the first place, because of our long business relation, we trust Mr.
Abalos and the fact that the vessel was able to sail indicates that the
documents are in order. . . . 25
On cross examination —
Atty. Sarenas: This being the case, and this being an admission by
you, this Certificate of Inspection has expired on December 7. Did it
occur to you not to let the vessel sail on that day because of the very
approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager

assured us that they were able to secure a renewal of the Certificate
of Inspection and that they will in time submit us a
copy. 26
Finally, on Mr. Ng's redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of
the Certificate of Inspection in the coastwise license on December 7,
1987. What was your assurance for the record that this document
was renewed by the MT Vector?
Atty. Sarenas: . . .
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time

business partner; secondly, those three years; they were allowed to
sail by the Coast Guard. That are some that make me believe that
they in fact were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the

effect that if it was allowed, referring to MV Vector, to sail, where it is
loaded and that it was scheduled for a destination by the Coast
Guard, it means that it has Certificate of Inspection extended as
assured to this witness by Restituto Abalos. That in no case MV
Vector will be allowed to sail if the Certificate of inspection is, indeed,
not to be extended. That was his repeated explanation to the cross-
examination. So, there is no need to clarify the same in the re-direct
examination.27
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to
observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as
even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we
find no legal basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit our
ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling insofar as
Vector is concerned.
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of
Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable
under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages
the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court of
Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Cañezal and
Corazon Cañezal damages as set forth therein. Third-party defendant-appellee Vector Shipping
Corporation and Francisco Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines,
Inc. whatever damages, attorneys' fees and costs the latter is adjudged to pay plaintiffs-appellees in
the case.1âwphi1.nêt
No costs in this instance.
SO ORDERED.
Davide, Jr., C.J., Kapunan and Ynares-Santiago, JJ., concur.
Puno, J., no part due to close relation with a party.

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INSURANCE FULL TEXT

Republic of the Philippines

G.R. No. 137172 June 15, 1999

UCPB GENERAL INSURANCE CO., INC., petitioner,

The facts are undisputed and may be related as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

Makati, Metro-Manila, March 10, 1993.

Hence, this appeal.

We give due course to the appeal.

Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur.

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view

While the import of Section 77 is that prepayment of premiums is strictly required as

The reliance by petitioner on Arce vs. Capital Surety and Insurance

Cruz, Padilla and Griño-Aquino, JJ., concur.

Medialdea, J., is on leave.

Republic of the Philippines

G.R. No. 136914 January 25, 2002

COUNTRY BANKERS INSURANCE CORPORATION, petitioner,

DE LEON, JR., J.:

The facts are undisputed:

xxx xxx xxx

3. To pay as and in the concept of exemplary damages in the total sum

4. To pay in the concept of litigation expenses the sum of P5,000.00;

6. To pay the costs of the suit.

1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE

2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER

1. When the obligation is breached, and it consists in the payment of a sum of

2. When an obligation, not constituting a loan or forbearance of money, is breached,

Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

Republic of the Philippines

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,

Simeon C. Sato for petitioner.

I hereby declare that:

(3) I am, to the best of my knowledge, in good health.

Signed at Manila his 4th day of August, 1992.

xxx xxx xxx

. . . if anything, the waiver of medical examination [in a non-medical insurance

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured

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

G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,

We grant the petition.

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?

c) attended or been admitted to any hospital or other medical facility?

6. Have you ever had or sought advice for:

xxx xxx xxx

b) urine, kidney or bladder disorder? (Rollo, p. 53)

Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).

Petitioner's motion for reconsideration was denied; hence, this petition.

We reverse the decision of the Court of Appeals.

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to

A neglect to communicate that which a party knows and ought to communicate, is

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

Republic of the Philippines

G.R. No. L-47593 December 29, 1943

THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,

Each of the policies sued upon contains the following stipulations:

The application contains, among others, the following statements:

xxx xxx xxx