Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-52756 October 12, 1987

MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,

vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.

PADILLA, J:

Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 March 1979,
ordering petitioner Manila Mahogany Manufacturing Corporation to pay private respondent Zenith Insurance
Corporation the sum of Five Thousand Pesos (P5,000.00) with 6% annual interest from 18 January 1973,
attorney's fees in the sum of five hundred pesos (P500.00), and costs of suit, and the resolution of the same
Court, dated 8 February 1980, denying petitioner's motion for reconsideration of it's decision.

From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with respondent
insurance company. On 4 May 1970 the insured vehicle was bumped and damaged by a truck owned by San
Miguel Corporation. For the damage caused, respondent company paid petitioner five thousand pesos
(P5,000.00) in amicable settlement. Petitioner's general manager executed a Release of Claim, subrogating
respondent company to all its right to action against San Miguel Corporation.

On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement from
San Miguel Corporation of the amount it had paid petitioner. Insurance Adjusters, Inc. refused reimbursement,
alleging that San Miguel Corporation had already paid petitioner P4,500.00 for the damages to petitioner's motor
vehicle, as evidenced by a cash voucher and a Release of Claim executed by the General Manager of petitioner
discharging San Miguel Corporation from "all actions, claims, demands the rights of action that now exist or
hereafter [sic] develop arising out of or as a consequence of the accident."

Respondent insurance company thus demanded from petitioner reimbursement of the sum of P4,500.00 paid by
San Miguel Corporation. Petitioner refused; hence, respondent company filed suit in the City Court of Manila for
the recovery of P4,500.00. The City Court ordered petitioner to pay respondent P4,500.00. On appeal the Court
of First Instance of Manila affirmed the City Court's decision in toto, which CFI decision was affirmed by the Court
of Appeals, with the modification that petitioner was to pay respondent the total amount of P5,000.00 that it had
earlier received from the respondent insurance company.

Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to respondent company
as the subrogation in the Release of Claim it executed in favor of respondent was conditioned on recovery of the
total amount of damages petitioner had sustained. Since total damages were valued by petitioner at P9,486.43
and only P5,000.00 was received by petitioner from respondent, petitioner argues that it was entitled to go after
San Miguel Corporation to claim the additional P4,500.00 eventually paid to it by the latter, without having to turn
over said amount to respondent. Respondent of course disputes this allegation and states that there was no
qualification to its right of subrogation under the Release of Claim executed by petitioner, the contents of said
deed having expressed all the intents and purposes of the parties.

To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation, petitioner cites Art. 2207
of the Civil Code, which states:
 If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.

Petitioner also invokes Art. 1304 of the Civil Code, stating.

A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his place
in virtue of the partial payment of the same credit.

We find petitioners arguments to be untenable and without merit. In the absence of any other evidence to support
its allegation that a gentlemen's agreement existed between it and respondent, not embodied in the Release of
Claim, such ease of Claim must be taken as the best evidence of the intent and purpose of the parties. Thus,
the Court of Appeals rightly stated:

Petitioner argues that the release claim it executed subrogating Private respondent to any
right of action it had against San Miguel Corporation did not preclude Manila Mahogany
from filing a deficiency claim against the wrongdoer. Citing Article 2207, New Civil Code,
to the effect that if the amount paid by an insurance company does not fully cover the loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss, petitioner claims a preferred right to retain the amount coming from San Miguel
Corporation, despite the subrogation in favor of Private respondent.

Although petitioners right to file a deficiency claim against San Miguel Corporation is with
legal basis, without prejudice to the insurer's right of subrogation, nevertheless when
Manila Mahogany executed another release claim (Exhibit K) discharging San Miguel
Corporation from "all actions, claims, demands and rights of action that now exist or
hereafter arising out of or as a consequence of the accident" after the insurer had paid the
proceeds of the policy- the compromise agreement of P5,000.00 being based on the
insurance policy-the insurer is entitled to recover from the insured the amount of insurance
money paid (Metropolitan Casualty Insurance Company of New York vs. Badler, 229
N.Y.S. 61, 132 Misc. 132 cited in Insurance Code and Insolvency Law with comments and
annotations, H.B. Perez 1976, p. 151). Since petitioner by its own acts released San
Miguel Corporation, thereby defeating private respondents, the right of subrogation, the
right of action of petitioner against the insurer was also nullified. (Sy Keng & Co. vs.
Queensland Insurance Co., Ltd., 54 O.G. 391) Otherwise stated: private respondent may
recover the sum of P5,000.00 it had earlier paid to petitioner. 1

As held in Phil. Air Lines v. Heald Lumber Co., 2

If a property is insured and the owner receives the indemnity from the insurer, it is provided
in [Article 2207 of the New Civil Code] that the insurer is deemed subrogated to the rights
of the insured against the wrongdoer and if the amount paid by the insurer does not fully
cover the loss, then the aggrieved party is the one entitled to recover the deficiency. ...
Under this legal provision, the real party in interest with regard to the portion of the
indemnity paid is the insurer and not the insured 3 (Emphasis supplied)

The decision of the respondent court ordering petitioner to pay respondent company, not the P4,500.00 as
originally asked for, but P5,000.00, the amount respondent company paid petitioner as insurance, is also in
accord with law and jurisprudence. In disposing of this issue, the Court of Appeals held:
 ... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation under
its clear right to file a deficiency claim for damages incurred, against the wrongdoer, should
the insurance company not fully pay for the injury caused (Article 2207, New Civil Code).
However, when petitioner released San Miguel Corporation from any liability, petitioner's
right to retain the sum of P5,000.00 no longer existed, thereby entitling private respondent
to recover the same. (Emphasis supplied)

As has been observed:

... The right of subrogation can only exist after the insurer has paid the otherwise the
insured will be deprived of his right to full indemnity. If the insurance proceeds are not
sufficient to cover the damages suffered by the insured, then he may sue the party
responsible for the damage for the the [sic] remainder. To the extent of the amount he has
already received from the insurer enjoy's [sic] the right of subrogation.

Since the insurer can be subrogated to only such rights as the insured may have, should
the insured, after receiving payment from the insurer, release the wrongdoer who caused
the loss, the insurer loses his rights against the latter. But in such a case, the insurer will
be entitled to recover from the insured whatever it has paid to the latter, unless the release
was made with the consent of the insurer. 4 (Emphasis supplied.)

And even if the specific amount asked for in the complaint is P4,500.00 only and not P5,000.00, still, the
respondent Court acted well within its discretion in awarding P5,000.00, the total amount paid by the insurer.
The Court of Appeals rightly reasoned as follows:

It is to be noted that private respondent, in its companies, prays for the recovery, not of
P5,000.00 it had paid under the insurance policy but P4,500.00 San Miguel Corporation
had paid to petitioner. On this score, We believe the City Court and Court of First Instance
erred in not awarding the proper relief. Although private respondent prays for the
reimbursement of P4,500.00 paid by San Miguel Corporation, instead of P5,000.00 paid
under the insurance policy, the trial court should have awarded the latter, although not
prayed for, under the general prayer in the complaint "for such further or other relief as
may be deemed just or equitable, (Rule 6, Sec. 3, Revised Rules of Court; Rosales vs.
Reyes Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios Tupas,
77 Phil 120).

WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is hereby AFFIRMED
with costs against petitioner.

SO ORDERED.
 THIRD DIVISION

G.R. No. 150094 August 18, 2004

FEDERAL EXPRESS CORPORATION, petitioner,

vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., respondents.

DECISION

PANGANIBAN, J.:

Basic is the requirement that before suing to recover loss of or damage to transported goods, the plaintiff must
give the carrier notice of the loss or damage, within the period prescribed by the Warsaw Convention and/or the
airway bill.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 4, 2001 Decision2
and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208. The assailed
Decision disposed as follows:

"WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit. The
appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No. 95-1219,
entitled 'American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS
CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.),' is hereby AFFIRMED
and REITERATED.

"Costs against the [petitioner and Cargohaus, Inc.]."4

The assailed Resolution denied petitioner's Motion for Reconsideration.

The Facts

The antecedent facts are summarized by the appellate court as follows:

"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to
Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment
of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas
Company in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill No.
11263825 with the words, 'REFRIGERATE WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked
on its face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with American
 Home Assurance Company (AHAC). The following day, Burlington turned over the custody of said
cargoes to Federal Express which transported the same to Manila. The first shipment, consisting of 92
cartons arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at
[Cargohaus Inc.'s] warehouse. While the second, consisting of 17 cartons, came in two (2) days later, or
on January 31, 1994, in Flight No. 0071-30NRT which was likewise immediately stored at Cargohaus'
warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo International
Corporation, the customs broker hired by the consignee to facilitate the release of its cargoes from the
Bureau of Customs, of the impending arrival of its client's cargoes.

"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after the cargoes arrived in
Manila, a non-licensed custom's broker who was assigned by GETC to facilitate the release of the subject
cargoes, found out, while he was about to cause the release of the said cargoes, that the same [were]
stored only in a room with two (2) air conditioners running, to cool the place instead of a refrigerator.
When he asked an employee of Cargohaus why the cargoes were stored in the 'cool room' only, the latter
told him that the cartons where the vaccines were contained specifically indicated therein that it should
not be subjected to hot or cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not
proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought
to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for
examination wherein it was discovered that the 'ELISA reading of vaccinates sera are below the positive
reference serum.'

"As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the
shipment and, declaring 'total loss' for the unusable shipment, filed a claim with AHAC through its
representative in the Philippines, the Philam Insurance Co., Inc. ('PHILAM') which recompensed
SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY
NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for damages against the
[petitioner] imputing negligence on either or both of them in the handling of the cargo.

"Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily liable
for the loss as follows:

'WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its Co-
Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the following:

1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest
from the time of the filing of the complaint to the time the same is fully paid.

2. Attorney's fees in the amount of P50,000.00 and

3. Costs of suit.

'SO ORDERED.'

"Aggrieved, [petitioner] appealed to [the CA]."5

Ruling of the Court of Appeals

The Test Report issued by the United States Department of Agriculture (Animal and Plant Health Inspection
Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate court held that
the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good
condition. We quote from the ruling as follows:

"Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to the
carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a damaged
condition, a presumption is raised that the damage occurred through the fault or negligence of the carrier,
 and this casts upon the carrier the burden of showing that the goods were not in good condition when
delivered to the carrier, or that the damage was occasioned by some cause excepting the carrier from
absolute liability. This the [petitioner] failed to discharge. x x x."6

Found devoid of merit was petitioner's claim that respondents had no personality to sue. This argument was
supposedly not raised in the Answer or during trial.

Hence, this Petition.7

The Issues

In its Memorandum, petitioner raises the following issues for our consideration:

"I.

Are the decision and resolution of the Honorable Court of Appeals proper subject for review by the
Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?

"II.

Is the conclusion of the Honorable Court of Appeals – petitioner's claim that respondents have no
personality to sue because the payment was made by the respondents to Smithkline when the insured
under the policy is Burlington Air Express is devoid of merit – correct or not?

"III.

Is the conclusion of the Honorable Court of Appeals that the goods were received in good condition,
correct or not?

"IV.

Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?

"V.

Is the Honorable Court of Appeals correct in ignoring and disregarding respondents' own admission that
petitioner is not liable? and

"VI.

Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?"8

Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is Federal
Express liable for damage to or loss of the insured goods?

This Court's Ruling

The Petition has merit.

Preliminary Issue:
Propriety of Review

The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question of law
cognizable by the Supreme Court.9
In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the conclusions
drawn from such facts. Hence, this case is a proper subject for review by this Court.

Main Issue:
Liability for Damages

Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it -- because
the payment made to Smithkline was erroneous.

Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that both opposing parties cite in support of
their respective positions. They differ only in their interpretation of what their rights are under its terms. The
determination of those rights involves a question of law, not a question of fact. "As distinguished from a question
of law which exists 'when the doubt or difference arises as to what the law is on a certain state of facts' -- 'there
is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts'; or when
the 'query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses,
existence and relevancy of specific surrounding circumstance, their relation to each other and to the whole and
the probabilities of the situation.'"11

Proper Payee

The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x x upon surrender of
this Certificate." Such wording conveys the right of collecting on any such damage or loss, as fully as if the
property were covered by a special policy in the name of the holder itself. At the back of the Certificate appears
the signature of the representative of Burlington. This document has thus been duly indorsed in blank and is
deemed a bearer instrument.

Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being
indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special
policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in
the goods, Smithkline was the proper payee of the insurance proceeds.

Subrogation

Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt12 in favor
of respondents. The latter were thus authorized "to file claims and begin suit against any such carrier, vessel,
person, corporation or government." Undeniably, the consignee had a legal right to receive the goods in the
same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a
cause of action against the person responsible therefor.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurer's
entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a
contractual breach or negligence.13 "Further, the insurer's subrogatory right to sue for recovery under the bill of
lading in case of loss of or damage to the cargo is jurisprudentially upheld."14

In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and
purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the consignee
are bound by the contractual stipulations under the bill of lading.15

Prescription of Claim

From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that
respondents' claim and right of action are already barred. The latter, and even the consignee, never filed with
the carrier any written notice or complaint regarding its claim for damage of or loss to the subject cargo within
the period required by the Warsaw Convention and/or in the airway bill. Indeed, this fact has never been denied
by respondents and is plainly evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:

"6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written
notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the
details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from
the date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss
(including non-delivery) unless presented within (120) days from the date of issue of the [Airway Bill]."16

Relevantly, petitioner's airway bill states:

"12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case:

12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within
fourteen (14) days from receipt of the goods;

12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods;

12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and

12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the issue
of the air waybill.

12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was used,
or to the first carrier or to the last carrier or to the carrier who performed the transportation during which
the loss, damage or delay took place."17

Article 26 of the Warsaw Convention, on the other hand, provides:

"ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint shall
be prima facie evidence that the same have been delivered in good condition and in accordance with the
document of transportation.

(2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the
discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage
and 7 days from the date of receipt in the case of goods. In case of delay the complaint must be made at
the latest within 14 days from the date on which the baggage or goods have been placed at his disposal.

(3) Every complaint must be made in writing upon the document of transportation or by separate notice
in writing dispatched within the times aforesaid.

(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of
fraud on his part."18

Condition Precedent

In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually constitutes a
condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods.19 The
shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition
precedent; it does not constitute a limitation of action.20

The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental
reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being
charged with liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury.
"This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is
fresh and easily investigated so as to safeguard itself from false and fraudulent claims."21

When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a notice of claim
for loss of or damage to goods shipped and the stipulation is not complied with, its enforcement can be prevented
and the liability cannot be imposed on the carrier. To stress, notice is a condition precedent, and the carrier is
not liable if notice is not given in accordance with the stipulation.22 Failure to comply with such a stipulation bars
recovery for the loss or damage suffered.23

Being a condition precedent, the notice must precede a suit for enforcement.24 In the present case, there is
neither an allegation nor a showing of respondents' compliance with this requirement within the prescribed
period. While respondents may have had a cause of action then, they cannot now enforce it for their failure to
comply with the aforesaid condition precedent.

In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner.

We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co-defendant in respondents'
Complaint below -- has been adjudged by the trial court as liable for, inter alia, "actual damages in the amount
of the peso equivalent of US $39,339."25 This judgment was affirmed by the Court of Appeals and is already
final and executory.26

WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to
Petitioner Federal Express Corporation. No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Baguio City

SECOND DIVISION

G.R. No. 166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

DECISION

VELASCO, JR., J.:

The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November
26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the
insurer on the insurance application be considered as approval of the application?

The Facts

On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an
agreement denominated as Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial
Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment
basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance
of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to
the Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance
coverage by the Company on its effective date is eligible for insurance under the Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a

declaration of good health shall be required for all Lot Purchasers as part of the application. The Company
reserves the right to require further evidence of insurability satisfactory to the Company in respect of the
following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance
of his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the
 Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if
the Lot Purchaser dies while insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by
the Company.3

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy
of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot
purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4
containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as "new
business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang
died.

Eternal sent a letter dated August 20, 1984 5 to Philamlife, which served as an insurance claim for Chuang’s
death. Attached to the claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification
Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of
Attending Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following
documents relative to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2)
Assured’s Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured,
Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was received by
Philamlife on November 15, 1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This
prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986, 9 a
portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No
application for Group Insurance was submitted in our office prior to his death on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision,
"a declaration of good health shall be required for all Lot Purchasers as party of the application." We cite
further the provision on Effective Date of Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company." Since no application had been submitted
by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15,
1984, after his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that
Eternal Gardens being the Assured was a party to the Contract and was therefore aware of these
pertinent provisions.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance
coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have
been met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against
Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion
of which reads:
 WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against
Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00,
representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid;
and, to pay the sum of P10,000.00 as attorney’s fees.

SO ORDERED.

The RTC found that Eternal submitted Chuang’s application for insurance which he accomplished before his
death, as testified to by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among
others: "Encl: Phil-Am Life Insurance Application Forms & Cert." 10 It further ruled that due to Philamlife’s inaction
from the submission of the requirements of the group insurance on December 29, 1982 to Chuang’s death on
August 2, 1984, as well as Philamlife’s acceptance of the premiums during the same period, Philamlife was
deemed to have approved Chuang’s application. The RTC said that since the contract is a group life insurance,
once proof of death is submitted, payment must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED
and SET ASIDE, and the complaint is DISMISSED. No costs.

SO ORDERED.11

The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter
dated December 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated
Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not
covered by Philamlife’s insurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this
Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence,
in holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death
of John Chuang;

II. There was no valid insurance coverage; and

III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court’s Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and
first level courts, considering their findings of facts are conclusive and binding on this Court. However, such rule
is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and
reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of
 Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.12 (Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.

Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a
copy of the insurance application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list
of insurable interests of buyers for October 1982 was attached, including Chuang in the list of new businesses.
Eternal added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance Application
Forms & Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983.
Finally, Eternal alleged that it provided a copy of the insurance application which was signed by Chuang himself
and executed before his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal
must present evidence showing that Philamlife received a copy of Chuang’s insurance application.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that
the insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt
has the effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission
by Philamlife against its own interest.13 The burden of evidence has shifted to Philamlife, which must prove that
the letter did not contain Chuang’s insurance application. However, Philamlife failed to do so; thus, Philamlife is
deemed to have received Chuang’s insurance application.

To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received,
the contents of the letter are correct and accounted for.

Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is
groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the witnesses’ demeanor, conduct, and attitude. Findings of
the trial court on such matters are binding and conclusive on the appellate court, unless some facts or
circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted, 14 that, if
considered, might affect the result of the case.15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked
facts of substance and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang
was, as shown by the testimony of Edilberto Mendoza:

Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original
of this is submitted to Philamlife together with the monthly remittances and the second copy is remained
or retained with the marketing department of Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the location and
does not [ask] for the number of copy.
 Atty. Arevalo:

Q Where is the original?

[Mendoza:]

A As far as I remember I do not know where the original but when I submitted with that payment together
with the new clients all the originals I see to it before I sign the transmittal letter the originals are attached
therein.16

In other words, the witness admitted not knowing where the original insurance application was, but believed that
the application was transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of Mendoza on who actually filled out the application
form, these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People
v. Paredes that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even
serve to strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed. 17

We reiterated the above ruling in Merencillo v. People:

Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence
as a whole or reflect on the witnesses’ honesty. The test is whether the testimonies agree on essential
facts and whether the respective versions corroborate and substantially coincide with each other so as
to make a consistent and coherent whole.18

In the present case, the number of copies of the insurance application that Chuang executed is not at issue,
neither is whether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies
pointed out by Philamlife are minor and do not affect the credibility of Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.

This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy
No. P-1920 dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by
the Company.

An examination of the above provision would show ambiguity between its two sentences. The first sentence
appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting
a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract
before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in
favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving
any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should
 be resolved against the insurer; in other words, it should be construed liberally in favor of the insured
and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from noncompliance with its obligations. 19
(Emphasis supplied.)

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling,
stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such
a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which prepared the
contract, the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture. 20

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980,
must be construed in favor of the insured and in favor of the effectivity of the insurance contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance
application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in
the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the
mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be
interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer
must be explicit and unambiguous.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate
at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing
technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed
on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must
be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence,
in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste
upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application
as a valid, binding, and effective insurance contract.21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is
REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED.
Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of
Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time
of extra-judicial demand by Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June
17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June
17, 1996 until full payment of this award; and

(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

No costs. SO ORDERED.