12. Vicente Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corp.

G.R. No. 168115, June 8, 2007

DOCTRINE: A lessee has an insurable interest in the equipment and motor vehicles leased, and the
measure of its insurable interest is the extent to which it may be damnified by loss or injury thereof.

FACTS: FEB entered into a lease of equipment and motor vehicles with JVL Food Products (JVL). Vicente
Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement with FEB to guarantee the prompt
and faithful performance of the terms and conditions of the aforesaid lease agreement. Under the
contract, JVL was obliged to pay FEB an aggregate gross monthly rental of ₱170,494.

JVL defaulted in the payment of the monthly rentals amounting to ₱3,414,468.75. FEB sent a letter to
JVL demanding payment of the said amount. However, JVL failed to pay. FEB filed a Complaint with the
RTC for sum of money, damages, and replevin against JVL, Lim, and John Doe.

JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale of
equipment on installment basis, with FEB acting as the financier. JVL and Lim claimed that this intention
was apparent from the fact that they were made to believe that when full payment was effected, a
Deed of Sale will be executed by FEB as vendor in favor of JVL and Lim as vendees. FEB purportedly
assured them that documenting the transaction as a lease agreement is just an industry practice and
that the proper documentation would be effected as soon as full payment for every item was made.
They also contended that the lease agreement is a contract of adhesion and should, therefore, be
construed against the party who prepared it, i.e., FEB.

RTC: Upheld JVL and Lim’s stance, as it found contradictory terms in the lease agreement. The RTC thus
ruled: “In property insurance against loss or other accidental causes, the assured must have an insurable
interest.It has also been held that the test of insurable interest in property is whether the assured has a
right, title or interest therein that he will be benefited by its preservation and continued existence or
suffer a direct pecuniary loss from its destruction or injury by the peril insured against. If the defendants
were to be regarded as only a lessee, logically the lessor who asserts ownership will be the one directly
benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable
interest.”

CA: Reversed the RTC ruling

ISSUE: WON petitioner has an insurable interest in the equipment and motor vehicles leased?

HELD: YES. The stipulation in Section 14 of the lease contract, that the equipment shall be insured at
the cost and expense of the lessee against loss, damage, or destruction from fire, theft, accident, or
other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a
lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof. It cannot be denied that JVL will be directly
damnified in case of loss, damage, or destruction of any of the properties leased.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant the
merchantability of the equipment is a valid stipulation.
In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or
capacity of the equipment. This stipulation provides that, in case of defect of any kind that will be found
by the lessee in any of the equipment, recourse should be made to the manufacturer. "The financial
lessor, being a financing company, i.e., an extender of credit rather than an ordinary equipment rental
company, does not extend a warranty of the fitness of the equipment for any particular use. Thus, the
financial lessee was precisely in a position to enforce such warranty directly against the supplier of the
equipment and not against the financial lessor. We find nothing contra legem or contrary to public
policy in such a contractual arrangement."

CONCEALMENT

13. Great Pacific Life Ass. Corp. vs. CA and Medarda V. Leuterio
G.R. No. 113899. Oct. 13, 1999

DOCTRINE: Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same.

FACTS: A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (Grepalife) and DBP. Grepalife agreed to insure the lives of eligible housing loan
mortgagors of DBP. In 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions
concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition,

high blood pressure, cancer, diabetes, lung; kidney or stomach disorder
or any other physical impairment?

Answer: No. If so give details _____________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [x] Yes [ ] NO.

Grepalife issued an insurance coverage to Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to P86, 200 pesos. A year later, Dr. Leuterio died due to "massive cerebral hemorrhage."
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr.
Leuterio was not physically healthy when he applied for an insurance coverage. Grepalife insisted that
Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death.
Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

The widow of the late Dr. Leuterio, respondent Medarda Leuterio, filed a complaint with the RTC
against Grepalife for "Specific Performance with Damages." During the trial, Dr. Mejia, who issued the
death certificate, was called to testify. Dr. Mejia's findings, based partly from the information given by
the respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes
were not ruled out.

RTC: rendered a decision in favor of respondent widow and against Grepalife.

CA: sustained the trial court's decision.

ISSUE: WON petitioner may interpose the defense of concealment?

RULING: NO. Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same.

Petitioner merely relied on the testimony of the attending physician, Dr. Mejia, as supported by the
information given by the widow of the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of
the cause of death of Dr. Leuterio was a duly documented hospital record, and that the widow's
declaration that her husband had "possible hypertension several years ago" should not be considered as
hearsay, but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy
on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of
Dr. Leuterio's any previous hospital confinement. Dr. Leuterio's death certificate stated that
hypertension was only "the possible cause of death." The private respondent's statement, as to the
medical history of her husband, was due to her unreliable recollection of events. Hence, the statement
of the physician was properly considered by the trial court as hearsay.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the
case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable
to pay the proceeds of the insurance.

NOTES:

As to issue on WON the mortgagor of DBP hold the insurer liable without proof of the actual
outstanding mortgage payable: Petitioner claims that there was no evidence as to the amount of Dr.
Leuterio's outstanding indebtedness to DBP at the time of the mortgagor's death. Hence, for private
respondent's failure to establish the same, the action for specific performance should be dismissed.
Petitioner's claim is without merit. A life insurance policy is a valued policy. Unless the interest of a
person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy
of insurance upon life or health is the sum fixed in the policy. However, we noted that the Court of
Appeals' decision was promulgated on May 17, 1993. In private respondent's memorandum, she states
that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan.
Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the
expense of another. Hence, it cannot collect the insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, Medarda
Leuterio.

As to issue on WON the widow of the insured-mortgagor is a real party in interest in a claim under
the life insurance contract: To resolve the issue, we must consider the insurable interest in mortgaged
properties and the parties to this type of contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of
both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage
debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of death; the mortgage
obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness. Consequently, where the mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor's
interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.

Sec. 8 of the Insurance Code provides: Unless the policy provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy
of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who
does not cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor,
may be performed by the mortgagee therein named, with the same effect as if it had been performed by
the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor
[DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to
the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor." When DBP submitted the insurance claim against petitioner, the latter
denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter,
DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the
residential lot of private respondent.

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it whatever the insured might
have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

14. New Life Enterprises v. CA

G.R. No. 94071, March 31, 1992, 207 SCRA 669

DOCTRINE: Insured is specifically required to disclose to the insurer any other insurance and its
particulars which he may have effected on the same subject matter.
FACTS: Julian Sy and Jose Sy Bang have formed a business partnership, New Life Enterprises, in the City
of Lucena. The partnership engaged in the sale of construction materials at its place of business, a two
storey building. Julian Sy insured the stocks in trade of New Life Enterprises with Western Guaranty
Corporation, Reliance Surety and Insurance and Equitable Insurance Corporation.

Western Guaranty issued a Fire Insurance Policy in the amount of P350,000. Reliance Surety issued a
Fire Insurance Policy in the amount of P300,000 and an additional insurance in the amount of P700,000.
Equitable Insurance issued Fire Insurance Policy in the amount of P200,000.

Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00 o'clock in
the morning of October 19, 1982, the stocks in the trade inside said building were insured against fire in
the total amount of P1,550,000. According to the certification issued by the Headquarters, Philippine
Constabulary, the cause of fire was electrical in nature.

According to the plaintiffs, the building and the stocks inside were burned. After the fire, Julian Sy went
to the agent of Reliance Insurance whom he asked to accompany him to the office of the company so
that he can file his claim. He averred that in support of his claim, he submitted the fire clearance, the
insurance policies and inventory of stocks. He further testified that the three insurance companies are
sister companies, and as a matter of fact when he was following-up his claim with Equitable Insurance,
the Claims Manager told him to go first to Reliance Insurance and if said company agrees to pay, they
would also pay. The same treatment was given him by the other insurance companies. Ultimately, the
three insurance companies denied plaintiffs' claim for payment.

In its letter of denial, Western Guaranty told the plaintiff that his claim "is denied for breach of policy
conditions." Reliance Insurance and Equitable insurance purveyed the same message in their letters.
Reliance Surety stated that Sy violated Policy Condition No. "3" which requires the insured to give notice
of any insurance or insurances already effected covering the stocks in trade.

RTC: Ordered Equitable Insurance to pay New Life the amount of P200k, Reliance Surety to pay the sum
of P1,000,000, and Wester Guaranty to pay the sum of P350,000.

CA: Reversed RTC ruling

ISSUE: WON Condition No. 3 of the insurance contract was violated by petitioners thereby resulting in
their forfeiture of all the benefits thereunder?

HELD: YES. Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause,"
is uniformly contained in all the aforestated insurance contracts of herein petitioners, as follows:

3. The insured shall give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated therein or endorsed on this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that
 this condition shall not apply when the total insurance or insurances in force at the time
of loss or damage not more than P200,000.

Petitioners admit that the respective insurance policies issued by private respondents did not state or
endorse thereon the other insurance coverage obtained or subsequently effected on the same stocks in
trade for the loss of which compensation is claimed by petitioners. The policy issued by respondent
Western did not declare respondent Reliance and respondent Equitable Insurance as co-insurers on the
same stocks, while Reliance's Policies covering the same stocks did not likewise declare Western and
Equitable as such co-insurers.

In other words, the coverage by other insurance or co-insurance effected or subsequently arranged by
petitioners were neither stated nor endorsed in the policies of the three (3) private respondents,
warranting forfeiture of all benefits thereunder if we are to follow the express stipulation in the
aforequoted Policy Condition No. 3.

Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent
Alvarez (for Western) and Chuan (for Reliance and Equitable) knew about the existence of the additional
insurance coverage and that they were not informed about the requirement that such other or
additional insurance should be stated in the policy, as they have not even read policies. These
contentions cannot pass judicial muster.

The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to
the insurer any other insurance and its particulars which he may have effected on the same subject
matter. The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof
by the former, is not the "notice" that would estop the insurers from denying the claim. Besides, the so-
called theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside
from being of dubious applicability here has likewise been roundly refuted by respondent court whose
factual findings we find acceptable.

Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez
regarding the co-insurance on the property, he contradicted himself by inexplicably claiming that he had
not read the terms of the policies; that Yap Dam Chuan could not likewise have obtained such
knowledge for the same reason, aside from the fact that the insurance with Western was obtained
before those of Reliance and Equitable; and that the conclusion of the trial court that Reliance and
Equitable are "sister companies" is an unfounded conjecture drawn from the mere fact that Yap Kam
Chuan was an agent for both companies which also had the same insurance claims adjuster. Availment
of the services of the same agents and adjusters by different companies is a common practice in the
insurance business and such facts do not warrant the speculative conclusion of the trial court.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed
liberally in favor of the insured and strictly against the insurer company, yet contracts of insurance, like
other contracts, are to be construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense. Moreover, obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good faith. 13
As jurisprudence provides, 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.

Subsequently, in the case of Pacific Banking vs. CA we held: It is not disputed that the insured failed to
reveal before the loss three other insurances. By reason of said unrevealed insurances, the insured had
been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured
had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that
there were many co-insurances, it could have hesitated or plainly desisted from entering into such
contract. Hence, the insured was guilty of clear fraud. As the insurance policy against fire expressly
required that notice should be given by the insured of other insurance upon the same property, the total
absence of such notice nullifies the policy.

To further warrant and justify the forfeiture of the benefits under the insurance contracts involved, we
need merely to turn to Policy Condition No. 15 thereof, which reads in part:

15. . . . if any false declaration be made or used in support thereof, . . . all benefits under
this Policy shall be forfeited . . . .

NOTEs:

As to issue on WON condition no. 27 was violated: The complaint for recovery was filed in court by
petitioners more than one (1) year from petitioners' receipt of the insurers' letter of denial. Policy
Condition No. 27 of their insurance contract with Reliance provides: 27. Action or suit clause. — If a
claim be made and rejected and an action or suit be not commenced either in the Insurance Commission
or any court of competent jurisdiction of notice of such rejection, or in case of arbitration taking place as
provided herein, within twelve (12) months after due notice of the award made by the arbitrator or
arbitrators or umpire, then the claim shall for all purposes be deemed to have been abandoned and shall
not thereafter be recoverable hereunder. 20

It is important to note the principle laid down by this Court in the case of Ang vs. Fulton Fire to wit: The
condition contained in an insurance policy that claims must be presented within one year after rejection
is not merely a procedural requirement but an important matter essential to a prompt settlement of
claims against insurance companies as it demands that insurance suits be brought by the insured while
the evidence as to the origin and cause of destruction have not yet disappeared.

Furthermore, assuming arguendo that petitioners felt the legitimate need to be clarified as to the policy
condition violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory
letter dated March 30, 1983, up to the time the complaint was filed in court on January 31, 1984. The
one-year prescriptive period was yet to expire on November 29, 1983, or about eight (8) months from
the receipt of the clarificatory letter, but petitioners let the period lapse without bringing their action in
court. We accordingly find no "peculiar circumstances" sufficient to relax the enforcement of the one-
year prescriptive period and we, therefore, hold that petitioners' claim was definitely filed out of time.

15. Ma. Lourdes S. Florendo vs. Philam Plans, Inc., et. al.
G.R. No. 186983, Feb. 22, 2012
DOCTRINE: 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. Pursuant to Section 27 of the Insurance
Code, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with him.

FACTS: On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, after some convincing by respondent Perla Abcede. The plan had a pre-need
price of ₱997,050, payable in 10 years, and had a maturity value of ₱2,890,000 after 20 years. Manuel
signed the application and left to Perla the task of supplying the information needed in the application.
Respondent Ma. Celeste Abcede, Perla’s daughter, signed the application as sales counselor.

Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to
Florendo. This was covered by a Group Master Policy that Philam Life issued to Philam Plans. 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. 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.

Philam Plans issued a Pension Plan Agreement to Manuel, with petitioner Ma. Lourdes Florendo, his
wife, as beneficiary. In time, Manuel paid his quarterly premiums.

Eleven months later, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam
Plans for the payment of the benefits under her husband’s plan. 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.

Philam Plans wrote Lourdes a letter, 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 plan but
Philam Plans rejected it, prompting her to file the present action against the pension plan company
before the QC RTC.

RTC: ordered Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husband’s pension plan. The RTC ruled that Manuel was not guilty of concealing the state of his health
from his pension plan application.

CA: reversed the RTC decision, 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.

ISSUE: WON Manuel is 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?

RULING: YES. 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.

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.

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, and insulin, a drug used in the treatment of diabetes
mellitus, at that time.
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. 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. 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. That Manuel still had his
pacemaker when he applied for a pension plan 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, 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.

NOTES:

As to issue on WON 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: NO. In signing the pension plan application, Manuel certified that he wrote all the information
stated in it or had someone do it under his direction. 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.

As the Court said in New Life Enterprises v. Court of Appeals: 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.

The same may be said of Manuel, a civil engineer and manager of a construction company. 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.

As to the issue on WON any defect or insufficiency in the information provided by the pension plan
application should be deemed waived: NO. The comprehensive pension plan that Philam Plans issued
contains a one-year incontestability period. The 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, 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.

16. Great Pacific Life Ass. Co. vs. CA and Ngo Hing
G.R. No. L-31845, April 30, 1979

DOCTRINE: The contract of insurance is one of perfect good faith uberrimae fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or demotion,
however slight, not for the alone but equally so for the insurer. Concealment is a neglect to communicate
that which a party knows and ought to communicate. Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance.

FACTS: On March 14, 1957, private respondent Ngo Hing filed an application with Pacific Life for a
twenty-year endowment policy in the amount of P50,000 on the life of his one-year old daughter Helen
Go. Said respondent supplied the essential data which petitioner Lapulapu Mondragon, Branch Manager
of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting.

Mondragon finally type-wrote the data on the application form which was signed by Ngo Hing. The
latter paid the annual premium the sum of P1,077.75 going over to the Company, but he retained the
amount of P1,317 as his commission for being a duly authorized agent of Pacific Life. Upon the payment
of the insurance premium, the binding deposit receipt was issued to Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application.

Mondragon received a letter from Pacific Life disapproving the insurance application. The letter stated
that the said life insurance application for 20-year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised
that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by Mondragon
to Ngo Hing. Instead, Mondragon wrote back Pacific Life again strongly recommending the approval of
the 20-year endowment insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage.

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of bronchopneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery of the same before the CFI
Cebu.

RTC: ordered Pacific Life and Mondragon jointly and severally to pay Ngo Hing the amount of
P50,000with interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75,
without interest.
CA: Affirmed RTC ruling

ISSUE: WON Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered
void the binding deposit receipt?

RULING: YES. Ngo Hing had deliberately concealed the state of health and physical condition of his
daughter Helen Go. When he supplied the required essential data for the insurance application form, he
was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical
defect could never be disguised. Nonetheless, in apparent bad faith, he withheld the fact material to the
risk to be assumed by the insurance company. As an insurance agent of Pacific Life, he ought to know, as
he surely must have known his duty and responsibility to such a material fact. Had he disclosed said
significant fact in the insurance application form, Pacific Life would have verified the same and would
have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrimae fides meaning good faith, absolute and
perfect candor or openness and honesty; the absence of any concealment or demotion, however slight,
not for the alone but equally so for the insurer. Concealment is a neglect to communicate that which a
party knows and ought to communicate. Whether intentional or unintentional the concealment entitles
the insurer to rescind the contract of insurance. Ngo Hing appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the parties with the
noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined,
having been committed by Ngo Hing.

NOTES:

As to issue on WON the binding deposit receipt (Exhibit E) constituted a temporary contract of the life
insurance in question: At the back of Exhibit E are condition precedents required before a deposit is
considered a BINDING RECEIPT. These conditions state that:

A. If the Company or its agent, shan have received the premium deposit ... and the
insurance application, ON or PRIOR to the date of medical examination ... said insurance
shan be in force and in effect from the date of such medical examination, for such
period as is covered by the deposit ..., PROVIDED the company shall be satisfied that on
said date the applicant was insurable on standard rates under its rule for the amount of
insurance and the kind of policy requested in the application.

D. If the Company does not accept the application on standard rate for the amount of
insurance and/or the kind of policy requested in the application but issue, or offers to
issue a policy for a different plan and/or amount ..., the insurance shall not be in force
and in effect until the applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant does not accept
the policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and the
Company declines to approve the application the insurance applied for shall not have
 been in force at any time and the sum paid be returned to the applicant upon the
surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be
merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be reftmded; and (3) that if the applicant is not ble according to the standard rates, and the
company disapproves the application, the insurance applied for shall not be in force at any time, and the
premium paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether or
not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never become in force
at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not
insure outright. As held by this Court, where an agreement is made between the applicant and the
agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent.
The acceptance is merely conditional and is subordinated to the act of the company in approving or
rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by
itself..

In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo
Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's
one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance contract duly perfected between
them Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.

17. Saturnino vs. Phil. American Life

7 SCRA 316, 319

DOCTRINE: The con-cealment of the fact of the operation itself is fraudulent, as there could not have
been any mistake about it, no matter what the ailment.

FACTS: The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy
dispenses with the medical examination of the applicant usually required in ordinary life policies.
However, detailed information is called for in the application concerning the applicant's health and
medical history. The written application in this case was submitted by Saturnino to appellee Phil.
American Life on November 16, 1957. The policy was issued on the same day, upon payment of the first
year's premium.
On September 19, 1958 Saturnino died of pneumonia, secondary to influenza. Appellants here, who are
her surviving husband and minor child, respectively, demanded payment of the face value of the policy.
The claim was rejected and this suit was subsequently instituted.

It appears that two months prior to the issuance of the policy, Saturnino was operated on for cancer,
involving complete removal of the right breast, including the pectoral muscles and the glands found in
the right armpit. She stayed in the hospital for a period of eight days, after which she was discharged,
although according to the surgeon who operated on her she could not be considered definitely cured,
her ailment being of the malignant type.

Notwithstanding the fact of her operation Estefania Saturnino did not make a disclosure thereof in her
application for insurance. On the contrary, she stated therein that she did not have, nor had she ever
had, among other ailments listed in the application, cancer or other tumors; that she had not consulted
any physician, undergone any operation or suffered any injury within the preceding five years; and that
she had never been treated for nor did she ever have any illness or disease peculiar to her sex,
particularly of the breast, ovaries, uterus, and menstrual disorders. The application also recites that the
foregoing declarations constituted "a further basis for the issuance of the policy."

RTC: Both the complaint and the counterclaim were dismissed by the trial court; but appellants were
declared entitled to the return of the premium already paid; plus interest at 6% up to January 8, 1959,
when a check for the corresponding amount — P359.65 — was sent to them by appellee.

ISSUE: WON the insured made such false representations of material facts as to avoid the policy?

HELD: YES. The Insurance Law (Section 30) provides that "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 the
communication is due, in forming his estimate of the proposed contract, or in making his inquiries." It
seems to be the contention of appellants that the facts subject of the representation were not material
in view of the "non-medical" nature of the insurance applied for, which does away with the usual
requirement of medical examination before the policy is issued. The contention is without merit.

If anything, the waiver of medical examination 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. It is logical to assume that if appellee had been properly apprised of
the insured's medical history she would at least have been made to undergo medical examination in
order to determine her insurability.

Appellants argue that due information concerning the insured's previous illness and operation had been
given to appellees agent Edward A. Santos, who filled the application form after it was signed in blank by
Estefania A. Saturnino. This was denied by Santos in his testimony, and the trial court found such
testimony to be true. This is a finding of fact which is binding upon us, this appeal having been taken
upon questions of law alone. We do not deem it necessary, therefore, to consider appellee's additional
argument, which was upheld by the trial court, that in signing the application form in blank and leaving
it to Edward A. Santos to fill (assuming that to be the truth) the insured in effect made Santos her agent
for that purpose and consequently was responsible for the errors in the entries made by him in that
capacity.
In the application for insurance signed by the insured in this case, she agreed to submit to a medical
examination by a duly appointed examiner of appellee if in the latter's opinion such examination was
necessary as further evidence of insurability. In not asking her to submit to a medical examination,
appellants maintain, appellee was guilty of negligence, which precluded it from finding about her actual
state of health. No such negligence can be imputed to appellee. It was precisely because the insured had
given herself a clean bill of health that appellee no longer considered an actual medical checkup
necessary.

Appellants also contend there was no fraudulent concealment of the truth inasmuch as the insured
herself did not know, since her doctor never told her, that the disease for which she had been operated
on was cancer. In the first place the concealment of the fact of the operation itself was fraudulent, as
there could not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid
a policy it is not necessary to show actual fraud on the part of the insured.

In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind
the contract of insurance, concealment being defined as "negligence to communicate that which a party
knows and ought to communicate."

"The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the
insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying
upon the belief that the assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby
induced to estimate the risk upon a false basis that it does not exist."

Warranties

18. Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd.
98 Phil. 85 (1955)

DOCTRINE: The insurer is barred by estoppel to claim violation of the so-called fire hydrant warranty
where, knowing fully well that the number of hydrants demanded in the warranty never existed from the
very beginning, it nevertheless issued the policies subject to such warranty, and received the
corresponding premiums.

FACTS: Qua Chee Gan, a merchant of Albay, instituted this action seeking to recover the proceeds of
certain fire insurance policies totalling P370,000, issued by the Law Union & Rock Insurance upon certain
bodegas and merchandise of the insured that were burned on June 21, 1940. The record shows that
before the last war, plaintiff-appellee Qua Chee Gan, owned four warehouses or bodegas (designated
as Bodegas Nos. 1 to 4) in the municipality of Tabaco, Albay, used for the storage of stocks of copra and
of hemp, baled and loose. They had been, with their contents, insured with the defendant Company
since 1937, and the lose made payable to the PNB as mortgage of the hemp and crops, to the extent of
its interest.

Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almost one
week, gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren.
Plaintiff-appellee informed the insurer by telegram on the same date; and on the next day, the fire
adjusters engaged by appellant insurance company arrived and proceeded to examine and photograph
the premises, pored over the books of the insured and conducted an extensive investigation. The
plaintiff having submitted the corresponding fire claims, totalling P398,562.81 (but reduced to the full
amount of the insurance, P370,000), the Insurance Company resisted payment, claiming violation of
warranties and conditions, filing of fraudulent claims, and that the fire had been deliberately caused by
the insured or by other persons in connivance with him.

With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with his brother,
Qua Chee Pao, and some employees of his, were indicted and tried in 1940 for the crime of arson, it
being claimed that they had set fire to the destroyed warehouses to collect the insurance. They were,
however, acquitted by the trial court in a final decision.

1st ISSUE: WON the policies were avoided for breach of warranty, specifically the one appearing on a
rider pasted (with other similar riders) on the face of the policies

HELD: NO. These riders read as follows:

Memo. of Warranty. — The undernoted Appliances for the extinction of fire being kept on the
premises insured hereby, and it being declared and understood that there is an ample and
constant water supply with sufficient pressure available at all seasons for the same, it is hereby
warranted that the said appliances shall be maintained in efficient working order during the
currency of this policy, by reason whereof a discount of 2 1/2 per cent is allowed on the
premium chargeable under this policy.

Hydrants in the compound, not less in number than one for each 150 feet of external wall
measurement of building, protected, with not less than 100 feet of hose piping and nozzles for
every two hydrants kept under cover in convenient places, the hydrants being supplied with
water pressure by a pumping engine, or from some other source, capable of discharging at the
rate of not less than 200 gallons of water per minute into the upper story of the highest building
protected, and a trained brigade of not less than 20 men to work the same.'

It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet,
the appellee should have eleven fire hydrants in the compound, and that he actually had only two, with
a further pair nearby, belonging to the municipality of Tabaco.

We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to
claim violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the
number of hydrants demanded therein never existed from the very beginning, the appellant neverthless
issued the policies in question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant to claims now as
void ab initio the policies that it had issued to the plaintiff without warning of their fatal defect, of which
it was informed, and after it had misled the defendant into believing that the policies were effective.

The insurance company was aware, even before the policies were issued, that in the premises insured
there were only two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the
municipality of TAbaco, contrary to the requirements of the warranty in question. Such fact appears
from positive testimony for the insured that appellant's agents inspected the premises; and the simple
denials of appellant's representative (Jamiczon) can not overcome that proof. That such inspection was
made is moreover rendered probable by its being a prerequisite for the fixing of the discount on the
premium to which the insured was entitled, since the discount depended on the number of hydrants,
and the fire fighting equipment available (See "Scale of Allowances" to which the policies were expressly
made subject).

The law, supported by a long line of cases, is expressed by American Jurisprudence to be as follows: It is
usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge of
existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is charitable enough to assume, in the
absence of any showing to the contrary, that an insurance company intends to executed a valid contract
in return for the premium received; and when the policy contains a condition which renders it voidable at
its inception, and this result is known to the insurer, it will be presumed to have intended to waive the
conditions and to execute a binding contract, rather than to have deceived the insured into thinking he is
insured when in fact he is not, and to have taken his money without consideration.

The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's
money for a policy of insurance which it then knows to be void and of no effect, though it knows as it
must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and
fair dealing, and so closely related to positive fraud, as to the abhorent to fairminded men. It would be
to allow the company to treat the policy as valid long enough to get the preium on it, and leave it at
liberty to repudiate it the next moment. This cannot be deemed to be the real intention of the parties.
To hold that a literal construction of the policy expressed the true intention of the company would be to
indict it, for fraudulent purposes and designs which we cannot believe it to be guilty of.

The inequitableness of the conduct observed by the insurance company in this case is heightened by the
fact that after the insured had incurred the expense of installing the two hydrants, the company
collected the premiums and issued him a policy so worded that it gave the insured a discount much
smaller than that he was normaly entitledto. According to the "Scale of Allowances," a policy subject to
a warranty of the existence of one fire hydrant for every 150 feet of external wall entitled the insured to
a discount of 7 1/2 per cent of the premium; while the existence of "hydrants, in compund" (regardless
of number) reduced the allowance on the premium to a mere 2 1/2 per cent.

This schedule was logical, since a greater number of hydrants and fire fighting appliances reduced the
risk of loss. But the appellant company, in the particular case now before us, so worded the policies that
while exacting the greater number of fire hydrants and appliances, it kept the premium discount at the
minimum of 2 1/2 per cent, thereby giving the insurance company a double benefit. No reason is shown
why appellant's premises, that had been insured with appellant for several years past, suddenly should
be regarded in 1939 as so hazardous as to be accorded a treatment beyond the limits of appellant's own
scale of allowances. Such abnormal treatment of the insured strongly points at an abuse of the
insurance company's selection of the words and terms of the contract, over which it had absolute
control.

These considerations lead us to regard the parol evidence rule, invoked by the appellant as not
applicable to the present case. It is not a question here whether or not the parties may vary a written
contract by oral evidence; but whether testimony is receivable so that a party may be, by reason of
inequitable conduct shown, estopped from enforcing forfeitures in its favor, in order to forestall fraud or
imposition on the insured.

Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly
interpreted against the party that caused them, the "memo of warranty" invoked by appellant bars the
latter from questioning the existence of the appliances called for in the insured premises, since its initial
expression, "the undernoted appliances for the extinction of fire being kept on the premises insured
hereby, . . . it is hereby warranted . . .", admists of interpretation as an admission of the existence of
such appliances which appellant cannot now contradict, should the parol evidence rule apply.

The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equally
rejected, since the appellant's argument thereon is based on the assumption that the insured was
bound to maintain no less than eleven hydrants (one per 150 feet of wall), which requirement appellant
is estopped from enforcing. The supposed breach of the wter pressure condition is made to rest on the
testimony of witness Serra, that the water supply could fill a 5-gallon can in 3 seconds; appellant
thereupon inferring that the maximum quantity obtainable from the hydrants was 100 gallons a minute,
when the warranty called for 200 gallons a minute. The transcript shows, however, that Serra repeatedly
refused and professed inability to estimate the rate of discharge of the water, and only gave the "5-
gallon per 3-second" rate because the insistence of appellant's counsel forced the witness to hazard a
guess. Obviously, the testimony is worthless and insufficient to establish the violation claimed, specially
since the burden of its proof lay on appellant.

As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was
organized, and drilled, from time to give, altho not maintained as a permanently separate unit, which
the warranty did not require. Anyway, it would be unreasonable to expect the insured to maintain for
his compound alone a fire fighting force that many municipalities in the Islands do not even possess.
There is no merit in appellant's claim that subordinate membership of the business manager (Co Cuan)
in the fire brigade, while its direction was entrusted to a minor employee unders the testimony
improbable. A business manager is not necessarily adept at fire fighting, the qualities required being
different for both activities.

2nd Issue: WON the insured violated the "Hemp Warranty" provisions of Policy No. 2637165 against the
storage of gasoline, since appellee admitted that there were 36 cans (latas) of gasoline in the building
designed as "Bodega No. 2" that was a separate structure not affected by the fire.

HELD: It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in
the so-called "hemp warranty." The cause relied upon by the insurer speaks of "oils (animal and/or
vegetable and/or mineral and/or their liquid products having a flash point below 300o Fahrenheit", and
is decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not
gasoline or kerosene. And how many insured, it may well be wondered, are in a position to understand
or determine "flash point below 003o Fahrenheit. Here, again, by reason of the exclusive control of the
insurance company over the terms and phraseology of the contract, the ambiguity must be held strictly
against the insurer and liberraly in favor of the insured, specially to avoid a forfeiture.

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the hearing and possible complications of every contingency. So
long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which
conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co)

We see no reason why the prohibition of keeping gasoline in the premises could not be expressed
clearly and unmistakably, in the language and terms that the general public can readily understand,
without resort to obscure esoteric expression (now derisively termed "gobbledygook").

Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only incidental
to his business, being no more than a customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise. "It is well settled that the keeping of inflammable oils on the
premises though prohibited by the policy does not void it if such keeping is incidental to the business." ;
and "according to the weight of authority, even though there are printed prohibitions against keeping
certain articles on the insured premises the policy will not be avoided by a violation of these
prohibitions, if the prohibited articles are necessary or in customary use in carrying on the trade or
business conducted on the premises." It should also be noted that the "Hemp Warranty" forbade
storage only "in the building to which this insurance applies and/or in any building communicating
therewith", and it is undisputed that no gasoline was stored in the burned bodegas, and that "Bodega
No. 2" which was not burned and where the gasoline was found, stood isolated from the other insured
bodegas.

Double Insurance

19. Geagonia v. Court of Appeals

241 SCRA 152, 160 (1995)

DOCTRINE: A double insurance exists where the same person is insured by several insurers separately in
respect of the same subject and interest.

FACTS: The petitioner, Armando Geagonia, is the owner of Norman's Mart located in the public market
of San Francisco, Agusan del Sur. He obtained from the private respondent Country Bankers Insurance
fire insurance policy No. F-14622 for P100,000.00. The policy covered the following: "Stock-in-trade
consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's
business." The petitioner declared in the policy under the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer for P50,000.

The policy contained the following condition:

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 or
properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated therein or endorsed in this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that
this condition shall not apply when the total insurance or insurances in force at the time
of the loss or damage is not more than P200,000.
A fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan
del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting him to file with
the private respondent a claim under the policy. The private respondent denied the claim because it
found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by two fire
insurance policies, for P100,000 each, issued by PFIC. These policies indicate that the insured was
"Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause.

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the
policy.

Insurance Commission: found that the petitioner did not violate Condition 3 as he had no knowledge of
the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles
which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing
Textile, as his creditor, had insurable interest on the stocks.

CA: reversed the decision of the Insurance Commission because it found that the petitioner knew of the
existence of the two other policies issued by the PFIC.

ISSUE: (a) whether the petitioner had prior knowledge of the two insurance policies issued by the PFIC
when he obtained the fire insurance policy from the private respondent, thereby, for not disclosing such
fact, violating Condition 3 of the policy, and

(b) if he had, whether he is precluded from recovering therefrom.

HELD:

We agree with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of
January 1991 to the private respondent conclusively proves this knowledge. It was, indeed, incredible
that he did not know about the prior policies since these policies were not new or original.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law.
Its incorporation in the policy is allowed by Section 75 of the Insurance Code which provides that "[a]
policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of
an immaterial provision does not avoid the policy." Such a condition is a provision which invariably
appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to
constitute a violation, the other insurance must be upon same subject matter, the same interest therein,
and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy covering
his interest, either at the same or at separate times. The mortgagor's insurable interest covers the full
value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the
property. The mortgagee's insurable interest is to the extent of the debt, since the property is relied
upon as security thereof, and in insuring he is not insuring the property but his interest or lien thereon.
His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt,
not exceeding the value of the mortgaged property. Thus, separate insurances covering different
insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial payee in several ways. He may become the
assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or the
original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as
his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached; or the policy, though by its
terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract
duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon
the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by
the insurer but not made a party to the contract himself. Hence, any act of the mortgagor which defeats
his right will also defeat the right of the mortgagee. This kind of policy covers only such interest as the
mortgagee has at the issuing of the policy.

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It has
been noted, however, that although the mortgagee is himself the insured, as where he applies for a
policy, fully informs the authorized agent of his interest, pays the premiums, and obtains on the
assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with loss
payable clause.

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage
clause which reads: Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest
may appear subject to the terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor
of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest
protection which the insured was endeavoring to secure when he applied for insurance. It is also a
cardinal principle of law that forfeitures are not favored and that any construction which would result in
the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is possible
to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for
such forfeiture. Stated differently, provisions, conditions or exceptions in policies which tend to work a
forfeiture of insurance policies should be construed most strictly against those for whose benefits they
are inserted, and most favorably toward those against whom they are intended to operate. The reason
for this is that, except for riders which may later be inserted, the insured sees the contract already in its
final form and has had no voice in the selection or arrangement of the words employed therein. On the
other hand, the language of the contract was carefully chosen and deliberated upon by experts and legal
advisers who had acted exclusively in the interest of the insurers and the technical language employed
therein is rarely understood by ordinary laymen.
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude
that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to
the extent exceeding P200,000 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering
any of the property or properties consisting of stocks in trade, goods in process and/or inventories only
hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE
that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.

A double insurance exists where the same person is insured by several insurers separately in respect of
the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee
on the mortgaged property are distinct and separate. Since the two policies of the PFIC do not cover the
same interest as that covered by the policy of the private respondent, no double insurance exists. The
non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the
private respondent's policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance
in force at the time of loss does not exceed P200,000, the private respondent was amenable to assume
a co-insurer's liability up to a loss not exceeding P200,000. What it had in mind was to discourage over-
insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to
prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains
insurance policies from two or more insurers in a total amount that exceeds the property's value, the
insured may have an inducement to destroy the property for the purpose of collecting the insurance.
The public as well as the insurer is interested in preventing a situation in which a fire would be profitable
to the insured.

20. Malayan Ins. Co., Inc. vs. Phils. First Ins. Co., Inc. and Reputable Forwarder Services, Inc.,
G.R. No. 184300, July 11, 2012

DOCTRINE: By the express provision of Section 93 of the Insurance Code, double insurance exists where
the same person is insured by several insurers separately in respect to the same subject and interest and
risk. The requisites in order for double insurance to arise are as follows: 1. The person insured is the
same; 2. Two or more insurers insuring separately; 3. There is identity of subject matter; 4. There is
identity of interest insured; and 5. There is identity of the risk or peril insured against.

FACTS: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc.
(Reputable) had been annually executing a contract of carriage, whereby the latter undertook to
transport and deliver the former’s products to its customers, dealers or salesmen.

Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First
Insurance Co., Inc. to secure its interest over its own products. Philippines First thereby insured Wyeth’s
nutritional, pharmaceutical and other products usual or incidental to the insured’s business while the
same were being transported or shipped in the Philippines. The policy covers all risks of direct physical
loss or damage from any external cause, if by land, and provides a limit of P6,000,000 per any one land
vehicle.

Wyeth executed its annual contract of carriage with Reputable. Under the contract, Reputable
undertook to answer for "all risks with respect to the goods and shall be liable to Wyeth, for the loss,
destruction, or damage of the goods/products due to any and all causes whatsoever, including theft,
robbery, flood, storm, earthquakes, lightning, and other force majeure while the goods/products are in
transit and until actual delivery to the customers, salesmen, and dealers of Wyeth".

The contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, Reputable
signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.

During the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of
Promil infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in
Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked
by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they
refuse to turn over the truck and its contents to the said highway robbers. The hijacked truck was
recovered two weeks later without its cargo.

Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid Wyeth
P2,133,257.00 as indemnity. Philippines First then demanded reimbursement from Reputable, having
been subrogated to the rights of Wyeth by virtue of the payment. The latter, however, ignored the
demand. Consequently, Philippines First instituted an action for sum of money against Reputable.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount
covered in the SR Policy.

RTC: found Reputable liable to Philippines First for the amount of indemnity it paid to Wyeth, among
others. In turn, Malayan was found by the RTC to be liable to Reputable to the extent of the policy
coverage.

For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to
property which at the time of the happening of such loss or damage is insured by or would but for the
existence of this policy, be insured by any Fire or Marine policy or policies except in respect of any excess
beyond the amount which would have been payable under the Fire or Marine policy or policies had this
insurance not been effected.

Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it
be held liable for no more than P468,766.70, its alleged pro-rata share of the loss based on the amount
covered by the policy, subject to the provision of Section 12 of the SR Policy, which states:

12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby
insured, there be any other subsisting insurance or insurances, whether effected by the insured or by any
other person or persons, covering the same property, the company shall not be liable to pay or contribute
more than its ratable proportion of such loss or damage.
CA: sustained RTC ruling

ISSUE: Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy

HELD: Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a
"modified ‘other insurance’ clause". In rendering inapplicable said provisions in the SR Policy, the CA
ruled in this wise:

Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would be sufficient to
cover the entire amount of the loss, it is in direct conflict with Sec. 12 which provides only for a pro-
rated contribution between the two insurers. Being the later provision, and pursuant to the rules on
interpretation of contracts, Sec. 12 should therefore prevail.

xxxx

x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec.
12 of their contract, as it was intended by the parties to operate only in case of double insurance, or
where the benefits of the policies of both plaintiff-appellee and Malayan should pertain to Reputable
alone. But since the court a quo correctly ruled that there is no double insurance in this case inasmuch
as Reputable was not privy thereto, and therefore did not stand to benefit from the policy issued by
plaintiff-appellee in favor of Wyeth, then Malayan’s stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable
which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to
recover said amount for the simple reason that the same property is covered by another insurance
policy, a policy to which it was not a party to and much less, from which it did not stand to benefit.
Plainly, this unfair situation could not have been the intention of both Reputable and Malayan in signing
the insurance contract in question.33

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable
under distinct circumstances. Malayan argues that "it will not be completely absolved under Section 5 of
its policy if it were the assured itself who obtained additional insurance coverage on the same property
and the loss incurred by Wyeth’s cargo was more than that insured by Philippines First’s marine policy.
On the other hand, Section 12 will not completely absolve Malayan if additional insurance coverage on
the same cargo were obtained by someone besides Reputable, in which case Malayan’s SR policy will
contribute or share ratable proportion of a covered cargo loss."34

Malayan’s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double
insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA, which validity was upheld by the
Court as a warranty that no other insurance exists.

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR
Policy but simply limits the liability of Malayan only up to the excess of the amount that was not covered
by the other insurance policy. In interpreting the "other insurance clause" in Geagonia, the Court ruled
that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute
a violation of the clause, the other insurance must be upon same subject matter, the same interest
therein, and the same risk. Thus, even though the multiple insurance policies involved were all issued in
the name of the same assured, over the same subject matter and covering the same risk, it was ruled
that there was no violation of the "other insurance clause" since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers
the situation where there is over insurance due to double insurance. In such case, Section 15 provides
that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss or
damage." This is in accord with the principle of contribution provided under Section 94(e) of the
Insurance Code,37 which states that "where the insured is over insured by double insurance, each insurer
is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to
the amount for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question
that now arises is whether there is double insurance in this case such that either Section 5 or Section 12
of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows:

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the
same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it
is, however, beyond cavil that the said policies were issued to two different persons or entities. It is
undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while
Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured
Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its
contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the
said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also different and
distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of the legal
and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan
to Reputable was over the latter’s insurable interest over the safety of the goods, which may become
the basis of the latter’s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.
Therefore, even though the two concerned insurance policies were issued over the same goods and
cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance
cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of
the SR Policy can be applied.

Notice of Loss

21. Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.
212 SCRA 194, August 5, 1992

DOCTRINE: Where the contract of shipment contains a reasonable requirement of giving notice of loss of
or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or
the right to enforce the carrier’s liability.

FACTS: In or about March 1977, the vessel SS "VISHVA YASH" belonging to or operated by the foreign
common carrier, took on board at Baton Rouge, LA, two consignments of cargoes for shipment to
Manila and later for transhipment to Davao City, consisting of 600 bags Low Density Polyethylene 631
and another 6,400 bags Low Density Polyethylene 647, both consigned to the order of FEBTC, with
arrival notice to Tagum Plastics. The cargoes were likewise insured by TIP with Petitioner Philamgen.

The said vessel arrived at Manila and discharged its cargoes in the Port of Manila for transhipment to
Davao City. For this purpose, the foreign carrier awaited and made use of the services of the vessel
called M/V "Sweet Love" owned and operated by defendant interisland carrier. Subject cargoes were
loaded in Holds Nos. 2 and 3 of the interisland carrier.

On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the custody of the
consignee. A later survey conducted on July 8, 1977, shows that some bags were either shortlanded or
were missing, and some of the 1,080 bags were torn, the contents thereof partly spilled or were
fully/partially emptied, but, worse, the contents thereof contaminated with foreign matters and
therefore could no longer serve their intended purpose.

A maritime suit was commenced by herein Petitioner Philamgen and Tagum Plastics, Inc. (TPI) against
private respondents Sweet Lines, Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc. (DVAPSI),
along with S.C.I. Line and F.E. Zuellig.

RTC: rendered judgment in favor of herein petitioners

CA: reversed on the ground of prescription

ISSUE: WON the action has prescribed?

HELD: YES. In the present case and under the aforestated assumption that the time limit involved is a
prescriptive period, respondent carrier duly raised prescription as an affirmative defense in its answer
setting forth paragraph 5 of the pertinent bills of lading which comprised the stipulation thereon by
parties, to wit:

5. Claims for shortage, damage, must be made at the time of delivery to consignee or
agent, if container shows exterior signs of damage or shortage. Claims for non-delivery,
misdelivery, loss or damage must be filed within 30 days from accrual. Suits arising from
shortage, damage or loss, non-delivery or misdelivery shall be instituted within 60 days
from date of accrual of right of action. Failure to file claims or institute judicial
proceedings as herein provided constitutes waiver of claim or right of action. In no case
shall carrier be liable for any delay, non-delivery, misdelivery, loss of damage to cargo
while cargo is not in actual custody of carrier.

In their reply thereto, herein petitioners failed to controvert the existence of the bills of lading and the
aforequoted provisions therein, hence they impliedly admitted the same when they merely assailed the
validity of subject stipulations.

Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or
damage to goods shipped in order to impose liability on the carrier operate to prevent the enforcement
of the contract when not complied with, that is, notice is a condition precedent and the carrier is not
liable if notice is not given in accordance with the stipulation, as the failure to comply with such a
stipulation in a contract of carriage with respect to notice of loss or claim for damage bars recovery for
the loss or damage suffered.

On the other hand, the validity of a contractual limitation of time for filing the suit itself against a carrier
shorter than the statutory period therefor has generally been upheld as such stipulation merely affects
the shipper's remedy and does not affect the liability of the carrier. In the absence of any statutory
limitation and subject only to the requirement on the reasonableness of the stipulated limitation period,
the parties to a contract of carriage may fix by agreement a shorter time for the bringing of suit on a
claim for the loss of or damage to the shipment than that provided by the statute of limitations. Such
limitation is not contrary to public policy for it does not in any way defeat the complete vestiture of the
right to recover, but merely requires the assertion of that right by action at an earlier period than would
be necessary to defeat it through the operation of the ordinary statute of limitations.

In the case at bar, there is neither any showing of compliance by petitioners with the requirement for
the filing of a notice of claim within the prescribed period nor any allegation to that effect. It may then
be said that while petitioners may possibly have a cause of action, for failure to comply with the above
condition precedent they lost whatever right of action they may have in their favor or, token in another
sense, that remedial right or right to relief had prescribed.

The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it was
from this date that petitioners' cause of action accrued, with thirty (30) days therefrom within which to
file a claim with the carrier for any loss or damage which may have been suffered by the cargo and
thereby perfect their right of action. The findings of respondent court as supported by petitioners'
formal offer of evidence in the court below show that the claim was filed with SLI only on April 28, 1978,
way beyond the period provided in the bills of lading and violative of the contractual provision, the
inevitable consequence of which is the loss of petitioners' remedy or right to sue. Even the filing of the
complaint on May 12, 1978 is of no remedial or practical consequence, since the time limits for the filing
thereof, whether viewed as a condition precedent or as a prescriptive period, would in this case be
productive of the same result, that is, that petitioners had no right of action to begin with or, at any
rate, their claim was time-barred.

What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as
early as June 14, 1977 and, as found by the trial court, a survey fixing the extent of loss of and/or
damage to the cargo was conducted on July 8, 1977 at the instance of petitioners. If petitioners had the
opportunity and awareness to file such provisional claim and to cause a survey to be conducted soon
after the discharge of the cargo, then they could very easily have filed the necessary formal, or even a
provisional, claim with SLI itself within the stipulated period therefor, instead of doing so only on April
28, 1978 despite the vessel's arrival at the port of destination on May 15, 1977. Their failure to timely
act brings us to no inference other than the fact that petitioners slept on their rights and they must now
face the consequences of such inaction.

The shortened period for filing suit is not unreasonable and has in fact been generally recognized to be a
valid business practice in the shipping industry. Petitioners' advertence to the Court's holding in the
Southern Lines case, supra, is futile as what was involved was a claim for refund of excess payment. We
ruled therein that non-compliance with the requirement of filing a notice of claim under Article 366 of
the Code of Commerce does not affect the consignee's right of action against the carrier because said
requirement applies only to cases for recovery of damages on account of loss of or damage to cargo, not
to an action for refund of overpayment, and on the further consideration that neither the Code of
Commerce nor the bills of lading therein provided any time limitation for suing for refund of money paid
in excess, except only that it be filed within a reasonable time.

The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the
subject bill of lading as a contract of adhesion and, under the circumstances therein, void for being
contrary to public policy is evidently likewise unavailing in view of the discrete environmental facts
involved and the fact that the restriction therein was unreasonable. In any case, Ong Yiu vs. Court of
Appeals, et al., 50 instructs us that "contracts of adhesion wherein one party imposes a ready-made form
of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres he gives his consent." In the present case, not even an
allegation of ignorance of a party excuses non-compliance with the contractual stipulations since the
responsibility for ensuring full comprehension of the provisions of a contract of carriage devolves not on
the carrier but on the owner, shipper, or consignee as the case may be.

While it is true that substantial compliance with provisions on filing of claim for loss of or damage to
cargo may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the object
or purpose which such a provision seeks to attain and that is to afford the carrier a reasonable
opportunity to determine the merits and validity of the claim and to protect itself against unfounded
impositions. Petitioners' would nevertheless adopt an adamant posture hinged on the issuance by SLI of
a "Report on Losses and Damages," dated May 15, 1977, from which petitioners theorize that this
charges private respondents with actual knowledge of the loss and damage involved in the present case
as would obviate the need for or render superfluous the filing of a claim within the stipulated period.

Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from
the issuance of said report is not equivalent to nor does it approximate the legal purpose served by the
filing of the requisite claim, that is, to promptly apprise the carrier about a consignee's intention to file a
claim and thus cause the prompt investigation of the veracity and merit thereof for its protection. It
would be an unfair imposition to require the carrier, upon discovery in the process of preparing the
report on losses or damages of any and all such loss or damage, to presume the existence of a claim
against it when at that time the carrier is expectedly concerned merely with accounting for each and
every shipment and assessing its condition. Unless and until a notice of claim is therewith timely filed,
the carrier cannot be expected to presume that for every loss or damage tallied, a corresponding claim
therefor has been filed or is already in existence as would alert it to the urgency for an immediate
investigation of the soundness of the claim. The report on losses and damages is not the claim referred
to and required by the bills of lading for it does not fix responsibility for the loss or damage, but merely
states the condition of the goods shipped. The claim contemplated herein, in whatever form, must be
something more than a notice that the goods have been lost or damaged; it must contain a claim for
compensation or indicate an intent to claim.

Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of
which is standard procedure upon unloading of cargo at the port of destination, on the same level as
that of a notice of claim by imploring substantial compliance is definitely farfetched. Besides, the cited
notation on the carrier's report itself makes it clear that the filing of a notice of claim in any case is
imperative if carrier is to be held liable at all for the loss of or damage to cargo.

Premiums

22. Jaime T. Gaisano vs. Development Insurance and Surety Corp.

G.R. No. 190702, Feb. 27, 2017

DOCTRINE: 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.

FACTS: Petitioner Jaime Gaisano was the registered owner of a 1992 Mitsubishi Montero while
respondent Development Insurance is a domestic corporation engaged in the insurance business. On
September 27, 1996, Development Insurance issued a comprehensive commercial vehicle policy to
Jaime in the amount of P1,500,000 over the vehicle for a period of one year commencing on September
27, 1996 up to September 27, 1997. Respondent also issued two other commercial vehicle policies to
petitioner covering two other motor vehicles for the same period.

To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific, issued a
statement of account to petitioner's company, Noah's Ark Merchandising. Noah's Ark immediately
processed the payments and issued a check payable to Trans-Pacific. The check bearing the amount of
P140,893.50 represents payment for the three insurance policies, with P55,620.60 for the premium and
other charges over the vehicle.

However, nobody from Trans-Pacific picked up the check that day (September 27) because its president
and general manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's
Ark that its messenger would get the check the next day, September 28.

In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager
Achilles Pacquing as a service company vehicle, the vehicle was stolen in the vicinity of SM Megamall.
Pacquing reported the loss to the PNP. The vehicle was not recovered.

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an
official receipt numbered 124713 dated September 28, 1996, acknowledging the receipt of P55,620.60
for the premium and other charges over the vehicle. The check issued to Trans-Pacific for P140,893.50
was deposited with Metrobank for encashment.

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported
the loss and filed a claim with respondent for the insurance proceeds of P1,500,000. After investigation,
respondent denied petitioner's claim on the ground that there was no insurance contract. Petitioner,
through counsel, sent a final demand on July 7, 1997. Respondent, however, refused to pay the
insurance proceeds or return the premium paid on the vehicle.

Petitioner filed a complaint for collection of sum of money and damages with the RTC where it sought to
collect the insurance proceeds from respondent. In its Answer, respondent asserted that the non-
payment of the premium rendered the policy ineffective. The premium was received by the respondent
only on October 2, 1996, and there was no known loss covered by the policy to which the payment
could be applied.
RTC: ruled in favor of petitioner.

CA: upheld respondent's position that an insurance contract becomes valid and binding only after the
premium is paid pursuant to Section 77 of the Insurance Code (Presidential Decree No. 612, as amended
by Republic Act No. 10607).

ISSUE: WON there is a binding insurance contract between petitioner and respondent.
HELD: There is none. Insurance is a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. Just like any
other contract, it requires a cause or consideration. The consideration is the premium, which must be
paid at the time and in the way and manner specified in the policy. If not so paid, the policy will lapse
and be forfeited by its own terms.

The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding. Section 77 of the Insurance Code, applicable at the time of the
issuance of the policy, provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy whenever the grace period provision applies.

In Tibay v. CA, we emphasized the importance of this rule. We explained that in an insurance contract,
both the insured and insurer undertake risks. On one hand, there is the insured, a member of a group
exposed to a particular peril, who contributes premiums under the risk of receiving nothing in return in
case the contingency does not happen; on the other, there is the insurer, who undertakes to pay the
entire sum agreed upon in case the contingency happens. This risk-distributing mechanism operates
under a system where, by prompt payment of the premiums, the insurer is able to meet its legal
obligation to maintain a legal reserve fund needed to meet its contingent obligations to the public. The
premium, therefore, is the elixir vitae or source of life of the insurance business.

Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time of
the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was informed
that the check was ready for pick-up on September 27, 1996, the notice of the availability of the check,
by itself, does not produce the effect of payment of the premium. Trans-Pacific could not be considered
in delay in accepting the check because when it informed petitioner that it will only be able to pick-up
the check the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so.
Thus, at the time of loss, there was no payment of premium yet to make the insurance policy effective.

There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is
paid.

In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77
itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3)
where the parties agreed that premium payment shall be in installments and partial payment has been
made at the time of loss; (4) where the insurer granted the insured a credit term for the payment of the
premium, and loss occurs before the expiration of the term; and (5) where the insurer is in estoppel as
when it has consistently granted a 60 to 90-day credit term for the payment of premiums.

The insurance policy in question does not fall under the first to third exceptions laid out in UCPB General
Insurance Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does not contain an
acknowledgment of the receipt of premium but merely a statement of account on its face; and (3) no
payment of an installment was made at the time of loss on September 27.

Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended
the contract of insurance to be immediately effective upon issuance, despite non-payment of the
premium. This waiver to a pre-payment in full of the premium places respondent in estoppel.

We do not agree with petitioner.

The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the
insurers have consistently granted the insured a credit extension or term for the payment of the
premium. Here, however, petitioner failed to establish the fact of a grant by respondent of a credit term
in his favor, or that the grant has been consistent. While there was mention of a credit agreement
between Trans-Pacific and respondent, such arrangement was not proven and was internal between
agent and principal.55 Under the principle of relativity of contracts, contracts bind the parties who
entered into it. It cannot favor or prejudice a third person, even if he is aware of the contract and has
acted with knowledge.56

We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately
effective upon issuance despite non payment of the premiums. Even if there is a waiver of pre-payment
of premiums, that in itself does not become an exception to Section 77, unless the insured clearly gave a
credit term or extension. This is the clear import of the fourth exception in the UCPB General Insurance
Co., Inc. To rule otherwise would render nugatory the requirement in Section 77 that "[n]otwithstanding
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, x x x." Moreover, the policy itself
states that the insured's application for the insurance is subject to the payment of the premium. There is
no waiver of pre-payment, in full or in installment, of the premiums under the policy. Consequently,
respondent cannot be placed in estoppel.

Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy
became effective for lack of premium payment. The consequence of this declaration is that petitioner is
entitled to a return of the premium paid for the vehicle in the amount of P55,620.60 under the principle
of unjust enrichment.

23. Arce v. Capital Insurance & Surety Co., Inc.

117 SCRA 63 (1982)

DOCTRINE: Time is of the essence in respect of the payment of the insurance premium so that if it is not
paid the contract does not take effect unless there is still another stipulation to the contrary.

FACTS: The INSURED was the owner of a residential house in Tondo, Manila, which had been insured
with the COMPANY since 1961. The COMPANY requested payment of the corresponding premium in the
amount of P 38.10.

Anticipating that the premium could not be paid on time, the INSURED, thru his wife, promised to pay it
on January 4, 1966. The COMPANY accepted the promise but the premium was not paid on January 4,
1966. On January 8, 1966, the house of the INSURED was totally destroyed by fire.

On January 10, 1966, INSURED's wife presented a claim for indemnity to the COMPANY. She was told
that no indemnity was due because the premium on the policy was not paid. Nonetheless the COMPANY
tendered a check for P300 as financial aid which was received by the INSURED's daughter, Evelina. The
voucher for the check which Evelina signed stated that it was "in full settlement (ex gratia) of the fire
loss under Claim.“ Thereafter the INSURED and his wife went to the office of the COMPANY to have his
signature on the check Identified preparatory to encashment. At that time the COMPANY reiterated that
the check was given "not as an obligation, but as a concession" because the renewal premium had not
been paid, The INSURED cashed the check but then sued the COMPANY on the policy.

Trial Court: held that since the COMPANY could have demanded payment of the premium, mutuality of
obligation requires that it should also be liable on its policy. The court a quo also held that the INSURED
was not bound by the signature of Evelina on the check voucher because he did not authorize her to sign
the waiver.

ISSUE: WON the petitioners are entitled to claim from their policy despite the non-payment of their
premium?

HELD: NO. Sec. 72 of the Insurance Act, as amended by R.A. No. 3540 reads:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is
exposed to the perils insured against, unless there is clear agreement to grant credit
 extension for the premium due. No policy issued by an insurance company is valid and
binding unless and until the premium thereof has been paid " (Italics supplied.) (p. 11,
Appellant's Brief.)

Morever, the parties in this case had stipulated:

IT IS HEREBY DECLARED AND AGREED that not. withstanding anything to the contrary
contained in the within policy, this insurance will be deemed valid and binding upon the
Company only when the premium and documentary stamps therefor have actually been
paid in full and duly acknowledged in an official receipt signed by an authorized
official/representative of the Company, "

It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time is of
the essence in respect of the payment of the insurance premium so that if it is not paid the contract
does not take effect unless there is still another stipulation to the contrary. In the instant case, the
INSURED was given a grace period to pay the premium but the period having expired with no payment
made, he cannot insist that the COMPANY is nonetheless obligated to him.