G.R. No.
168115 June 8, 2007
VICENTE ONG LIM SING, JR., petitioner,
vs.
FEB LEASING & FINANCE CORPORATION, respondent.
DECISION
NACHURA, J.:
This is a petition for review on certiorari assailing the Decision1 dated March 15, 2005 and
the Resolution2 dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease3 of
equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong
Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement4 with FEB to guarantee the
prompt and faithful performance of the terms and conditions of the aforesaid lease
agreement. Corresponding Lease Schedules with Delivery and Acceptance Certificates5 over
the equipment and motor vehicles formed part of the agreement. Under the contract, JVL was
obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand
Four Hundred Ninety-Four Pesos (₱170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in
arrears, including penalty charges and insurance premiums, amounted to Three Million Four
Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (₱3,414,468.75).
On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount.
However, JVL failed to pay.6
On December 6, 2000, FEB filed a Complaint7 with the Regional Trial Court of Manila,
docketed as Civil Case No. 00-99451, for sum of money, damages, and replevin against JVL,
Lim, and John Doe.
In the Amended Answer,8 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.9 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.
In upholding JVL and Lim’s stance, the trial court stressed the contradictory terms it found in
the lease agreement. The pertinent portions of the Decision dated November 22, 2002 read:
A profound scrutiny of the provisions of the contract which is a contract of adhesion at once
exposed the use of several contradictory terms. To name a few, in Section 9 of the said
contract – disclaiming warranty, it is stated that the lessor is not the manufacturer nor the
latter’s agent and therefore does not guarantee any feature or aspect of the object of the
contract as to its merchantability. Merchantability is a term applied in a contract of sale of
goods where conditions and warranties are made to apply. Article 1547 of the Civil Code
provides that unless a contrary intention appears an implied warranty on the part of the seller
that he has the right to sell and to pass ownership of the object is furnished by law together
with an implied warranty that the thing shall be free from hidden faults or defects or any
charge or encumbrance not known to the buyer.
In an adhesion contract which is drafted and printed in advance and parties are not given a
real arms’ length opportunity to transact, the Courts treat this kind of contract strictly against
their architects for the reason that the party entering into this kind of contract has no choice
but to accept the terms and conditions found therein even if he is not in accord therewith and
for that matter may not have understood all the terms and stipulations prescribed thereat.
Contracts of this character are prepared unilaterally by the stronger party with the best legal
talents at its disposal. It is upon that thought that the Courts are called upon to analyze
closely said contracts so that the weaker party could be fully protected.
Another instance is when the alleged lessee was required to insure the thing against loss,
damage or destruction.
In property insurance against loss or other accidental causes, the assured must have an
insurable interest, 32 Corpus Juris 1059.
xxxx
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.
There is also an observation from the records that the actual value of each object of the
contract would be the result after computing the monthly rentals by multiplying the said
rentals by the number of months specified when the rentals ought to be paid.
Still another observation is the existence in the records of a Deed of Absolute Sale by and
between the same parties, plaintiff and defendants which was an exhibit of the defendant
where the plaintiff sold to the same defendants one unit 1995 Mitsubishi L-200 STRADA DC
PICK UP and in said Deed, The Court noticed that the same terms as in the alleged lease
were used in respect to warranty, as well as liability in case of loss and other conditions. This
action of the plaintiff unequivocally exhibited their real intention to execute the corresponding
Deed after the defendants have paid in full and as heretofore discussed and for the sake of
emphasis the obscurity in the written contract cannot favor the party who caused the
obscurity.
Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulations shall control. If
the words appear to be contrary to the evident intention of the parties, their contemporaneous
and subsequent acts shall be principally considered. If the doubts are cast upon the principal
object of the contract in such a way that it cannot be known what may have been the intention
or will of the parties, the contract shall be null and void.10
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on installment there is no chattel mortgage
on the thing sold, but it appears amongst the Complaint’s prayer, that the plaintiff elected to
exact fulfillment of the obligation.
For the vehicles returned, the plaintiff can only recover the unpaid balance of the price
because of the previous payments made by the defendants for the reasonable use of the
units, specially so, as it appears, these returned vehicles were sold at auction and that the
plaintiff can apply the proceeds to the balance. However, with respect to the unreturned units
and machineries still in the possession of the defendants, it is this Court’s view and so hold
that the defendants are liable therefore and accordingly are ordered jointly and severally to
pay the price thereof to the plaintiff together with attorney’s fee and the costs of suit in the
sum of Php25,000.00.
SO ORDERED.11
On December 27, 2002, FEB filed its Notice of Appeal.12 Accordingly, on January 17, 2003,
the court issued an Order13 elevating the entire records of the case to the CA. FEB averred
that the trial court erred:
A. When it ruled that the agreement between the Parties-Litigants is one of sale of personal
properties on installment and not of lease;
B. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not
R.A. No. 8556;
C. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the
price because of the previous payments made by the defendants for the reasonable use of
the units;
D. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente
Ong Lim, Jr. to the Plaintiff-Appellant.14
On March 15, 2005, the CA issued its Decision15 declaring the transaction between the
parties as a financial lease agreement under Republic Act (R.A.) No. 8556.16 The fallo of the
assailed Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22
November 2002 rendered by the Regional Trial Court of Manila, Branch 49 in Civil Case No.
00-99451 is REVERSED and SET ASIDE, and a new judgment is hereby ENTERED ordering
appellees JVL Food Products and Vicente Ong Lim, Jr. to solidarily pay appellant FEB
Leasing and Finance Corporation the amount of Three Million Four Hundred Fourteen
Thousand Four Hundred Sixty Eight Pesos and 75/100 (Php3,414,468.75), with interest at
the rate of twelve percent (12%) per annum starting from the date of judicial demand on 06
December 2000, until full payment thereof. Costs against appellees.
SO ORDERED.17
Lim filed the instant Petition for Review on Certiorari under Rule 45
contending that:
I
The Honorable Court of Appeals erred when it failed to consider that the undated complaint
was filed by Saturnino J. Galang, Jr., without any authority from respondent’s Board of
Directors and/or Secretary’s Certificate.
II
The Honorable Court of Appeals erred when it failed to strictly apply Section 7, Rule 18 of the
1997 Rules of Civil Procedure and now Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004).
III
The Honorable Court of Appeals erred in not dismissing the appeal for failure of the
respondent to file on time its appellant’s brief and to separately rule on the petitioner’s motion
to dismiss.
IV
The Honorable Court of Appeals erred in finding that the contract between the parties is one
of a financial lease and not of a contract of sale.
V
The Honorable Court of Appeals ERRED IN ruling that the payments paid by the petitioner to
the respondent are "rentals" and not installments paid for the purchase price of the subject
motor vehicles, heavy machines and equipment.

VI
The Honorable Court of Appeals erred in ruling that the previous contract of sale involving the
pick-up vehicle is of no consequence.
VII
The Honorable Court of Appeals failed to take into consideration that the contract of lease, a
contract of adhesion, concealed the true intention of the parties, which is a contract of sale.
VIII
The Honorable Court of Appeals erred in ruling that the petitioner is a lessee with insurable
interest over the subject personal properties.
IX
The Honorable Court of Appeals erred in construing the intentions of the Court a quo in its
usage of the term merchantability.18
We affirm the ruling of the appellate court.
First, Lim can no longer question Galang’s authority as FEB’s authorized representative in
filing the suit against Lim. Galang was the representative of FEB in the proceedings before
the trial court up to the appellate court. Petitioner never placed in issue the validity of
Galang’s representation before the trial and appellate courts. Issues raised for the first time
on appeal are barred by estoppel. Arguments not raised in the original proceedings cannot be
considered on review; otherwise, it would violate basic principles of fair play.19
Second, there is no legal basis for Lim to question the authority of the CA to go beyond the
matters agreed upon during the pre-trial conference, or in not dismissing the appeal for failure
of FEB to file its brief on time, or in not ruling separately on the petitioner’s motion to dismiss.
Courts have the prerogative to relax procedural rules of even the most mandatory character,
mindful of the duty to reconcile both the need to speedily put an end to litigation and the
parties’ right to due process. In numerous cases, this Court has allowed liberal construction of
the rules when to do so would serve the demands of substantial justice and equity.20 In
Aguam v. Court of Appeals , the Court explained:
The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power
conferred on the court, not a duty. The "discretion must be a sound one, to be exercised in
accordance with the tenets of justice and fair play, having in mind the circumstances
obtaining in each case." Technicalities, however, must be avoided. The law abhors
technicalities that impede the cause of justice. The court's primary duty is to render or
dispense justice. "A litigation is not a game of technicalities." "Lawsuits unlike duels are not to
be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant consideration from
courts." Litigations must be decided on their merits and not on technicality. Every party litigant
must be afforded the amplest opportunity for the proper and just determination of his cause,
free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on
technical grounds is frowned upon where the policy of the court is to encourage hearings of
appeals on their merits and the rules of procedure ought not to be applied in a very rigid,
technical sense; rules of procedure are used only to help secure, not override substantial
justice. It is a far better and more prudent course of action for the court to excuse a technical
lapse and afford the parties a review of the case on appeal to attain the ends of justice rather
than dispose of the case on technicality and cause a grave injustice to the parties, giving a
false impression of speedy disposal of cases while actually resulting in more delay, if not a
miscarriage of justice.21
Third, while we affirm that the subject lease agreement is a contract of adhesion, such a
contract is not void per se. It is as binding as any ordinary contract. A party who enters into
an adhesion contract is free to reject the stipulations entirely.22 If the terms thereof are
accepted without objection, then the contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement
between them, and that no representations have been made other than as set forth herein.
This Agreement shall not be amended or altered in any manner, unless such amendment be
made in writing and signed by the parties hereto.
Petitioner’s claim that the real intention of the parties was a contract of sale of personal
property on installment basis is more likely a mere afterthought in order to defeat the rights of
the respondent.
The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance
Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section
3(d) thereof defines "financial leasing" as:
[A] mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of money sufficient to
amortize at least seventy (70%) of the purchase price or acquisition cost, including any
incidental expenses and a margin of profit over an obligatory period of not less than two (2)
years during which the lessee has the right to hold and use the leased property with the right
to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance,
insurance and preservation thereof, but with no obligation or option on his part to purchase
the leased property from the owner-lessor at the end of the lease contract.
FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly
periodic payment of ₱170,494.00. The periodic payment by petitioner is sufficient to amortize
at least 70% of the purchase price or acquisition cost of the said movables in accordance with
the Lease Schedules with Delivery and Acceptance Certificates. "The basic purpose of a
financial leasing transaction is to enable the prospective buyer of equipment, who is unable to
pay for such equipment in cash in one lump sum, to lease such equipment in the meantime
for his use, at a fixed rental sufficient to amortize at least 70% of the acquisition cost
(including the expenses and a margin of profit for the financial lessor) with the expectation
that at the end of the lease period the buyer/financial lessee will be able to pay any remaining
balance of the purchase price."23
The allegation of petitioner that the rent for the use of each movable constitutes the value of
the vehicle or equipment leased is of no moment. The law on financial lease does not prohibit
such a circumstance and this alone does not make the transaction between the parties a sale
of personal property on installment. In fact, the value of the lease, usually constituting the
value or amount of the property involved, is a benefit allowed by law to the lessor for the use
of the property by the lessee for the duration of the lease. It is recognized that the value of
these movables depreciates through wear and tear upon use by the lessee. In Beltran v.
PAIC Finance Corporation,24 we stated that:
Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading
company. Neither is it an ordinary leasing company; it does not make its profit by buying
equipment and repeatedly leasing out such equipment to different users thereof. But a
financial lease must be preceded by a purchase and sale contract covering the equipment
which becomes the subject matter of the financial lease. The financial lessor takes the role of
the buyer of the equipment leased. And so the formal or documentary tie between the seller
and the real buyer of the equipment, i.e., the financial lessee, is apparently severed. In
economic reality, however, that relationship remains. The sale of the equipment by the
supplier thereof to the financial lessor and the latter's legal ownership thereof are intended to
secure the repayment over time of the purchase price of the equipment, plus financing
charges, through the payment of lease rentals; that legal title is the upfront security held by
the financial lessor, a security probably superior in some instances to a chattel mortgagee's
lien.25
Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL
entered into the lease contract with full knowledge of its terms and conditions. The contract
was in force for more than four years. Since its inception on March 9, 1995, JVL and Lim
never questioned its provisions. They only attacked the validity of the contract after they were
judicially made to answer for their default in the payment of the agreed rentals.
It is settled that the parties are free to agree to such stipulations, clauses, terms, and
conditions as they may want to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public order, they shall have the force
of law between the parties.26 Contracting parties may stipulate on terms and conditions as
they may see fit and these have the force of law between them.27
The stipulation in Section 1428 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. Section 9.1 of the lease contract is
stated as:
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE
MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF THE
MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES
THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER THEREOF AND THAT
THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR
INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR
ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT
OR ANY PART THEREOF, OR AS TO ITS FITNESS, SUITABILITY, CAPACITY,
CONDITION OR MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL
MEET THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS OR CONTRACT
WHICH PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL
METHODS.29
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."30
Fifth, petitioner further proffers the view that the real intention of the parties was to enter into
a contract of sale on installment in the same manner that a previous transaction between the
parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an
agreement denominated as a lease and eventually became the subject of a Deed of Absolute
Sale.
We join the CA in rejecting this view because to allow the transaction involving the pick-up to
be read into the terms of the lease agreement would expand the coverage of the agreement,
in violation of Article 1372 of the New Civil Code. 31 The lease contract subject of the
complaint speaks only of a lease. Any agreement between the parties after the lease contract
has ended is a different transaction altogether and should not be included as part of the
lease. Furthermore, it is a cardinal rule in the interpretation of contracts that if the terms of a
contract are clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations shall control. No amount of extrinsic aid is necessary in order to
determine the parties' intent.32
WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of the
CA in CA-G.R. CV No. 77498 dated March 15, 2005 and Resolution dated May 23, 2005 are
AFFIRMED. Costs against petitioner.
SO ORDERED.
Fireman's Fund Insurance
v.
Cox
No. 87-1632 Civ-T-10(A).
January 9, 1989.
Brendan P. O'Sullivan, Fowler, White, Gillen, Boggs, Villareal Banker, Tampa, Fla., for
plaintiff.
David Pope, Thomas Long, Tampa, Fla., for defendants.
ORDER
HODGES, District Judge.
Plaintiff, Fireman's Fund Insurance Company, issued an insurance policy to Defendants
covering their shrimp trawler, LESLIE RAE. The contract of insurance was issued on
November 26, 1986 and was to be in effect for one year. The contract described the risks
insured and provided that the coverage would be void if the number of crew members on
board the vessel exceeded three.
On July 29, 1987, while the insurance policy was in effect, the captain and mate of the
LESLIE RAE were attacked by two crew members while the trawler was at sea in the Atlantic
Ocean. As a result of the attack, the captain is missing and presumed dead and the mate was
injured. Claims have been filed against the Defendants by the mate and by the family and
estate of the captain. Fireman's Fund instituted this action seeking a declaratory judgment
that it is under no duty to defend or indemnify Defendants for any liability they have incurred
or may incur in connection with the July 29, 1987 mutiny aboard the LESLIE RAE.
Defendants have answered and counterclaimed seeking enforcement of the policy.
Before the Court is Plaintiff's motion for summary judgment. Plaintiff contends that it is
entitled to judgment as a matter of law because it is undisputed that there were five
individuals on board the LESLIE RAE at the time of the assault — Phillip Roush, captain;
William Carpentier, mate; William Rector, crewmember; William Gossett, Jr., crewmember;
and Marie Barnes, cook. Plaintiff contends that all five of these individuals were members of
the LESLIE RAE's crew and, therefore, there was no coverage because the policy explicitly
limited coverage to those times when three or fewer crew members were aboard the vessel.
Defendants have responded contending that only two crew members were on board the
LESLIE RAE. Defendants argue that neither the captain, the mate nor the cook were "crew
members" within the meaning of the insurance policy.
In determining the parties' intent the Court must look at the contract as a whole and give the
disputed provision its natural and most commonly understood meaning. Gibbs v. Air Canada,
810 F.2d 1529, 1533 (11th Cir. 1987). If the language of the contract is clear and
unambiguous, then the parties' intent must be derived from the four corners of the document.
Robert C. Roy Agency v. Sun First National Bank of Palm Beach, 468 So.2d 399, 405 (Fla.
4th DCA 1985). The Court may consider extrinsic evidence of the parties' intent only if an
ambiguity appears on the face of the contract. Boat Town U.S.A., Inc. v. Mercury Marine
Division of Brunswick Corp., 364 So.2d 15, 17 (Fla. 4th DCA 1978).
Upon a full review of the contract of insurance, the Court does not believe the meaning of
"crewmember" is ambiguous. Since the contract itself provides no definition of "crew" or
"crewmember", the Court must look to the commonly accepted definition of those terms in the
field of admiralty law for guidance as to the parties' intent. As the District Court for the
Western District of Washington has correctly noted,
The crew is usually referred to and is naturally and primarily thought of as those who are on
board and aiding in the navigation without reference to the nature of the arrangement under
which they are on board. (citation omitted) "The commonly accepted meaning of the word
`crew' is the whole company which mans a ship and aids in the navigation, or the `ship's
company.'"
Puget Sound Navigation Co. v. Marshall, 31 F. Supp. 903, 906 (W.D.Wash. 1940) quoting
Taylor v. McManigal, 89 F.2d 583, 585 (6th Cir.). The language in the policy supports the
view that this commonly accepted definition of "crew" was what the parties intended at the
time of contracting. For example, the term "crew" and the term "seaman" are used
interchangeably in the contract, and the term "seaman" has been defined in this circuit as any
employee who (1) was working on or in connection with a vessel in navigation, (2) had a
more or less permanent connection with that vessel; and (3) was aboard the vessel primarily
to aid in navigation. Offshore Co. v. Robison, 266 F.2d 769 (5th Cir. 1959). Further, the
coverage afforded to the "crew" mirrors the vessel owners' potential liability under the
admiralty law remedy of maintenance and cure which applies to all those on board in the
service of the ship. The only language in the contract which casts any doubt on the definition
of "crew" is paragraph (10) which covers "[e]xpenses incurred in resisting any unfounded
claim by the master or crew . . ." In this section, and in this section only, a distinction is made
between "master" and "crew." Even if the captain of the LESLIE RAE is eliminated from the
analysis, however, it remains clear that there were four crew members aboard the vessel
when the mutiny occurred — Carpentier, Rector, Gossett and Barnes. Defendants' contention
that neither mate Carpentier nor cook Barnes were crew members is without merit as both
were in the employ of the vessel and in aid of its navigation.
The Court notes that Defendants have not argued that the vessel cannot be operated with
less than four "crew members" or individuals on board.
Defendants next contend that, regardless of the number of crew members on board the
vessel at the time of the mutiny, Plaintiff cannot escape liability because the additional crew
members did not increase the hazard to the vessel. In support of their argument Defendants
rely on § 627.409(2), Fla.Stat., which provides:
A breach or violation by the insured of any warranty, condition, or provision of any wet marine
or transportation insurance policy, contract of insurance, endorsement, or application therefor
shall not render void the policy or contract, or constitute a defense to a loss thereon, unless
such breach or violation increased the hazard by any means within the control of the insured.
Defendants argue that since there is no evidence showing that an increase in the number of
crew members bore any relationship to the mutiny, the presence of additional crew members
cannot be used by Plaintiff as a basis for denying coverage.
The Court cannot agree. Clearly, the fact that there were four or five crew members on board
the LESLIE RAE increased the potential hazard or risk of loss over and above that which
Plaintiff had agreed to insure. See Mutual Fire, Marine Inland Insurance Co. v. Costa, 789
F.2d 83 (1st Cir. 1986) (insurance carrier could deny coverage when policy set limit of 100
passengers and 116 passengers were actually aboard vessel when injuries occurred). The
presence of one or two additional crew members, particularly when the policy expressly set a
limit of only three to begin with, is not a mere technical violation of the policy but significantly
alters the risk of loss Plaintiff would be called on to bear. Cf. Windward Traders v. Fred S.
James Co. of New York, 855 F.2d 814, 818 (11th Cir. 1988).
The Court, therefore, concludes and declares that Defendants' losses were not covered by
their insurance policy because there were more than three crew members present on the
vessel; and, further, the Plaintiff is not precluded from denying coverage under § 627.409(2),
Fla.Stat., because the presence of the additional crew members increased the hazard
insured against.
Accordingly, Plaintiff's motion for summary judgment is GRANTED. The Clerk shall enter
judgment in favor of the Plaintiff and against the Defendants both on the Plaintiff's complaint
and on Defendants' counterclaim, with costs to be assessed according to law.
IT IS SO ORDERED.
DONE and ORDERED.
G.R. No. 124540 November 14, 1997
MERLINDA JACINTO, ADELINA AGUSTIN, SUSAN AGUSTIN, EVELYN ATIENZA, NIDA
BALANE, ANICIA CARLOS, CELEDONIA CARLOS, LIWANAG CASTILLO, JOSEFINA
DE GUZMAN, MINERVA GARCIA, MARIA GATDULA, ALICIA GUNDA, AURORA LOPEZ,
CARMENCITA MANANSALA, ERLINDA MARTINEZ, LOLITA NAVARRETE,
GUADALUPE PANERGO, MARIA PULGA, PAZ SERRA and VIRGINIA ZAMORA,
petitioners,
vs.
HON. COURT OF APPEALS; THE CIVIL SERVICE COMMISSION; and THE SECRETARY
OF EDUCATION, CULTURE AND SPORTS, respondents.
PANGANIBAN, J.:
While we recognize and appreciate the toil and hardship of our public schoolteachers in
fulfilling the state's responsibility of educating our children, and realize their inadequately
addressed plight as compared to other professionals, we have the equal task of promoting
the larger public interest which withholds from them and other similarly situated government
workers the right to engage in mass actions resulting in work stoppages for any purpose.
Although the Constitution vests in them the right to organize, to assemble peaceably and to
petition the government for a redress of grievances, there is no like express provision
granting them the right to strike. Rather, the constitutional grant of the right to strike is
restrained by the proviso that its exercise shall be done in accordance with law.
The Case
Before us is a petition for review under Rule 45 of the Rules of Court seeking to set aside the
November 27, 1995 Decision 1 of the Court of Appeals 2 in CA-G.R. SP No. 37596, which
found no grave abuse of discretion on the part of the Civil Service Commission (CSC) in
issuing its resolutions 3 disposing of the separate appeals and motions for reconsideration of
herein petitioners. The dispositive portions of most of the CSC resolutions, with the exception
of the name of the appellant concerned, uniformly read:
WHEREFORE, foregoing premises considered, the Commission hereby resolves to find
Susan Agustin guilty of Conduct Prejudicial to the Best Interest of the Service. She is meted
out the penalty of six (6) months suspension without pay. Agustin is now automatically
reinstated in the service without payment of back salaries. 4
As regards Petitioner Merlinda Jacinto, the decretal portion of the resolution pertaining to her
case reads:
WHEREFORE, foregoing premises considered, the Commission hereby resolves to find
Merlinda Jacinto guilty of Violation of Reasonable Office Rules and Regulations. She is
hereby meted out the penalty of reprimand. She is automatically reinstated in the service
without payment of back salaries. 5
In a Resolution 6 dated March 29, 1996, Respondent Court of Appeals denied the petitioners'
motion for reconsideration.
The Facts
The following are the antecedents of the case as narrated by the Court of Appeals, which we
find substantiated by the records:
Petitioners are public school teachers from various schools in Metropolitan Manila. Between
the period September 17 to 21, 1990, they incurred unauthorized absences in connection
with the mass actions then staged; and on September 17, 1990, DECS Secretary Isidro
Cariño immediately issued a return-to-work order worded as follows:
TO: ALL PUBLIC SCHOOL TEACHERS AND
OTHER DECS PERSONNEL
SUBJECT: RETURN TO WORK ORDER
Under Civil service law and rules, strikes, unauthorized mass leaves and other forms of mass
actions by civil servants which disrupt public services are strictly prohibited.
Those of you who are engaged in the above-mentioned prohibited acts are therefore ordered,
in the interest of public service, to return to work within 24 hours from your walkout otherwise
dismissal proceedings shall be instituted against you. (Emphasis supplied).
The directive was ignored by petitioners. Consequently, on separate dates, Secretary Cariño
issued formal charges and preventive suspension orders against them. They were
administratively charged with gross misconduct; gross neglect of duty, etc. for joining
unauthorized mass actions; ignoring report-to-work directives; unjustified abandonment of
teaching posts; non-observance of Civil Service law, rules and regulations; non-compliance
with reasonable office rules and regulations; and incurring unauthorized absences without
leave, etc. An investigation committee was then created by Sec. Cariño to look into the
matter. However, during the investigation, petitioners did not file their answers or controvert
the charges against them. As a consequence, Sec. Cariño, in his decisions found them guilty
as charged and imposed the penalty of dismissal, except with respect to petitioners Merlinda
Jacinto and Adelina Agustin who were meted only six (6) months suspension.
The decisions were appealed to the Merit Systems Protection Board (MSPB) which
dismissed the appeals for lack of merit and then to the Civil Service Commission which set
aside the Orders of the MSPB in the contested resolutions. The Civil Service Commission, in
separate resolutions, found the petitioners (except Merlinda Jacinto) guilty of Conduct
Prejudicial to the Best Interest of the Service; imposed upon them the penalty of six (6)
months suspension without pay; and automatically reinstated them to the service without
payment of back salaries . . . In the case of Petitioner Merlinda Jacinto, the CSC found her
guilty of Violation of Reasonable Office Rules and Regulations; imposed upon her the penalty
of reprimand; and automatically reinstated her in the service without payment of back salaries
...
Acting on the motions for reconsideration, the CSC rendered the assailed resolutions denying
the motions for lack of merit. 7
Petitioners initially questioned the CSC resolutions directly before this Court in petitions
docketed as G.R. Nos. 118252 to 118271. In accordance with Revised Administrative
Circular 1-95, we referred them to the Court of Appeals.
Respondent Court found that the "petitioners absented themselves from their classes in
furtherance of or in connection with the 'mass action' for the purpose of pressuring the
government to grant their demands." Citing the resolution of this Court in MPSTA vs. Laguio
8 that the mass actions staged by the public school teachers from September 17 to
September 19, 1990, were "to all intents and purposes a strike," it denied the petition, since
the right to strike did not extend to civil service employees. In the case of Merlinda Jacinto,
Respondent Court found no error on the part of the CSC in finding her guilty of violation of
reasonable office rules and regulations. Neither did it find the petitioners entitled to
backwages for the period of their preventive suspension, as they were "not exonerated of the
charges against them."
Hence, this petition. 9
Issues
Petitioners raise the following grounds for their appeal:
I. The Respondent Court of Appeals committed grave abuse of discretion when it upheld the
resolutions of the Civil Service Commission that penalized all the petitioners whose only
"offense" (except Jacinto) was to exercise their constitutional right peaceably to assemble
and petition the government for redress of grievances.
II. The Respondent Court of Appeals committed grave abuse of discretion when it upheld the
resolutions of the Civil Service Commission that penalized Petitioner Jacinto for an alleged
offense which has no basis whatsoever thereby violating her right to security of tenure.
III. The Respondent Court of Appeals committed grave abuse of discretion when it upheld the
resolutions of the Civil Service Commission that denied petitioners their right to backwages
covering the period when they were illegally not allowed to teach. 10
Preliminarily, we note that the remedy resorted to by petitioners is a petition for review under
Rule 45 of the Rules of Court which, however, allows "only questions of law." 11
Jurisprudence has extended this remedy to questions of fact in exceptional cases. 12 Where
the issues raised involve lack of jurisdiction or grave abuse of discretion as in this case, the
Rules provide for a different remedy — Rule 65. In the interest of substantial justice, however,
we hereby decide to deal with this petition as one filed under Rule 45, as denominated in its
prefatory paragraph, and treat the "grave abuse of discretion" on the part of Respondent
Court of Appeals as allegations of "reversible errors."
The Court's Ruling
The petition, which fails to convince us, merits only dismissal.
First Issue: Improper Exercise of the Right to
Peaceful Assembly and to Petition for a Redress of Grievances
There is no question as to the petitioners' rights to peaceful assembly to petition the
government for a redress of grievances and, for that matter, to organize or form associations
for purposes not contrary to law, as well as to engage in peaceful concerted activities. These
rights are guaranteed by no less than the Constitution, particularly Sections 4 13 and 8 14 of
the Bill of Rights, Section 2(5) 15 of Article IX, and Section 3 16 of Article XIII. Jurisprudence
abounds with hallowed pronouncements defending and promoting the people's exercise of
these rights. As early as the onset of this century, this Court, in U.S. vs. Apurado, 17 already
upheld the right to assembly and petition and even went as far as to acknowledge:
It is rather to be expected that more or less disorder will mark the public assembly of the
people to protest against grievances whether real or imaginary, because on such occasions
feeling is always wrought to a high pitch of excitement, and the greater the grievance and the
more intense the feeling, the less perfect, as a rule, will be the disciplinary control of the
leaders over their irresponsible followers. But if the prosecution be permitted to seize upon
every instance of such disorderly conduct by individual members of a crowd as an excuse to
characterize the assembly as a seditious and tumultuous rising against the authorities, then
the right to assemble and to petition for redress of grievances would become a delusion and
a snare and the attempt to exercise it on the most righteous occasion and in the most
peaceable manner would expose all those who took part therein to the severest and most
unmerited punishment, if the purposes which they sought to attain did not happen to be
pleasing to the prosecuting authorities. If instances of disorderly conduct occur on such
occasions, the guilty individuals should be sought out and punished therefor, but the utmost
discretion must be exercised in drawing the line between disorderly and seditious conduct
and between an essentially peaceable assembly and a tumultuous uprising. 18
Primicias vs. Fugoso 19 further sustained the supremacy of the freedoms of speech and of
assembly over comfort and convenience in the use of streets or parks. Although the Court
opined that the exercise of the rights of free speech and of peaceful assembly to petition the
government for redress of grievances "is not absolute for it may be so regulated that it shall
not be injurious to the equal enjoyment of others having equal rights, nor injurious to the
rights of the community or society," regulation was limited to the mayor's reasonable
discretion in issuing a permit to determine or specify only the streets or public places to be
used for the purpose and to provide adequate and proper policing to minimize the risk of
disorder. Quoting Justice Brandeis in his concurring opinion in Whitney vs. California, the
Court said: 20
Fear of serious injury cannot alone justify suppression of free speech and assembly. . . . To
justify suppression of free speech there must be reasonable ground to fear that serious evil
will result if free speech is practiced. There must be reasonable ground to believe that the
danger apprehended is imminent. There must be reasonable ground to believe that the evil to
be prevented is a serious one . . .
xxx xxx xxx
. . . The fact that speech is likely to result in some violence or in destruction of property is not
enough to justify its suppression. There must be the probability of serious injury to the
state. . . .
This limitation was strictly applied in Reyes vs. Bagatsing, 21 in which "the Court [was] called
upon to protect the exercise of the cognate rights to free speech and peaceful assembly,
arising from the denial of a permit." In that case, retired Justice J.B.L. Reyes, on behalf of the
Anti-Bases Coalition, sought a permit from the mayor of Manila to hold a march and a rally
starting from Luneta, proceeding through Roxas Boulevard to the gates of the U.S. Embassy,
to be attended by local and foreign participants to the International Conference for General
Disarmament, World Peace and the Removal of All Foreign Military Bases. The Manila mayor
denied them the permit "due to police intelligence reports which strongly militate against the
advisability of issuing such permit at this time and at the place applied for." In reversing the
mayor, this Court stated that to justify limitations on freedom of assembly, there must be proof
of sufficient weight to satisfy the "clear and present danger" 22 test. Thereafter, the Court
proceeded to summarize the rules on assembly and petition, 23 making the clear-and-present
danger rule the standard for refusing or modifying the grant of a permit. But it stressed that
"the presumption must be to incline the weight of the scales of justice on the side of such
rights [of free speech and peaceable assembly], enjoying as they do precedence and
primacy."
Philippine Blooming Mills Employees Organization vs. Philippine Blooming Mills Co., Inc., 24
which was promulgated after the proclamation of martial law, further underscored the
supremacy of these basic constitutional rights, this time over property rights. Speaking
through Mr. Justice Makasiar, the Court explained:
. . . the primacy of human rights — freedom of expression, of peaceful assembly and of
petition for redress of grievances — over property rights has been sustained. Emphatic
reiteration of this basic tenet as a coveted boon — at once the shield and armor of the dignity
and worth of the human personality, the all-consuming ideal of our enlightened civilization —
becomes [o]ur duty, if freedom and social justice have any meaning at all for him who toils so
that capital can produce economic goods that can generate happiness for all. To regard the
demonstration against police officers, not against the employer, as evidence of bad faith in
collective bargaining and hence a violation of the collective bargaining agreement and a
cause for the dismissal from employment of the demonstrating employees, stretches unduly
the compass of the collective bargaining agreement, is "a potent means of inhibiting speech"
and therefore inflicts a moral as well as mortal wound on the constitutional guarantees of free
expression, of peaceful assembly and of petition. 25
Specifically, the right of civil servants to organize themselves was positively recognized in
Association of Court of Appeals Employees (ACAE) vs. Ferrer-Calleja. 26 But, as in the
exercise of the rights of free expression and of assembly, there are standards for allowable
limitations such as the legitimacy of the purposes of the association, 27 the overriding
considerations of national security and the preservation of democratic institutions. 28
As regards the right to strike, the Constitution itself qualifies its exercise with the proviso "in
accordance with law." This is a clear manifestation that the state may, by law, regulate the
use of this right, or even deny certain sectors such right. Executive Order 180 29 which
provides guidelines for the exercise of the right of government workers to organize, for
instance, implicitly endorsed an earlier CSC circular which "enjoins under pain of
administrative sanctions, all government officers and employees from staging strikes,
demonstrations, mass leaves, walkouts and other forms of mass action which will result in
temporary stoppage or disruption of public service," 30 by stating that the Civil Service law
and rules governing concerted activities and strikes in the government service shall be
observed. 31
It is also settled in jurisprudence that, in general, workers in the public sector do not enjoy the
right to strike. Alliance of Government Workers vs. Minister of Labor and Employment 32
rationalized the proscription thus:
The general rule in the past and up to the present is that the "terms and conditions of
employment in the Government, including any political subdivision or instrumentality thereof
are governed by law." . . . Since the terms and conditions of government employment are
fixed by law, government workers cannot use the same weapons employed by the workers in
the private sector to secure concessions from their employers. The principle behind labor
unionism in private industry is that industrial peace cannot be secured through compulsion by
law. Relations between private employers and their employees rest on an essentially
voluntary basis. Subject to the minimum requirements of wage laws and other labor and
welfare legislation, the terms and conditions of employment in the unionized private sector
are settled through the process of collective bargaining. In government employment,
however, it is the legislature and, where properly given delegated power, the administrative
heads of government which fix the terms and conditions of employment. And this is effected
through statutes or administrative circulars, rules, and regulations, not through collective
bargaining agreements. 33
After delving into the intent of the framers of the Constitution, the Court affirmed the above
rule in Social Security System Employees Association (SSSEA) vs. Court of Appeals 34 and
explained:
Government employees may, therefore, through their unions or associations, either petition
the Congress for the betterment of the terms and conditions of employment which are within
the ambit of legislation or negotiate with the appropriate government agencies for the
improvement of those which are not fixed by law. If there be any unresolved grievances, the
dispute may be referred to the Public Sector Labor-Management Council for appropriate
action. But employees in the civil service may not resort to strikes, walkouts and other
temporary work stoppages, like workers in the private sector, to pressure the Government to
accede to their demands. As now provided under Sec. 4, Rule III of the Rules and
Regulations to Govern the Exercise of the Right of Government Employees to Self-
Organization, which took effect after the instant dispute arose, "[t]he terms and conditions of
employment in the government, including any political subdivision or instrumentality thereof
and government-owned and controlled corporations with original charters are governed by
law and employees therein shall not strike for the purpose of securing changes [thereto]. 35
We now come to the case before us. Petitioners, who are public schoolteachers and thus
government employees, do not seek to establish that they have a right to strike. Rather, they
tenaciously insist that their absences during certain dates in September 1990 were a valid
exercise of their constitutional right to engage in peaceful assembly to petition the
government for a redress of grievances. They claim that their gathering was not a strike;
therefore, their participation therein did not constitute any offense. MPSTA vs. Laguio 36 and
ACT vs. Cariño, 37 in which this Court declared that "these 'mass actions' were to all intents
and purposes a strike; they constituted a concerted and unauthorized stoppage of, or
absence from, work which it was the teachers' duty to perform, undertaken for essentially
economic reasons," should not principally resolve the present case, as the underlying facts
are allegedly not identical.
Strike, as defined by law, means any temporary stoppage of work by the concerted action of
employees as a result of an industrial or labor dispute. 38 A labor dispute includes any
controversy or matter concerning terms and conditions of employment; or the association or
representation of persons in negotiating, fixing, maintaining, changing or arranging the terms
and conditions of employment, regardless of whether the disputants stand in the proximate
relation of employers and employees. 39 With these premises, we now evaluate the
circumstances of the instant petition.
It cannot be denied that the mass action or assembly staged by the petitioners resulted in the
non-holding of classes in several public schools during the corresponding period. Petitioners
do not dispute that the grievances for which they sought redress concerned the alleged
failure of public authorities — essentially, their "employers" — to fully and justly implement
certain laws and measures intended to benefit them materially, such as:
1. Immediate release of P680 million Secondary Education Fund (SEF) fringe benefits of
teachers under Section 17 of Republic Act 6758.
2. Clothing allowance at P500 to P1,000 per teachers [sic] under the General Appropriations
Act of 1990
3. DMB Circular 904
4. Increase in minimum wage to P5,000 for teachers. 40

And probably to clothe their action with permissible character, 41 they also raised national
issues such as the removal of the U.S. bases and the repudiation of foreign debt. In
Balingasan vs. Court of Appeals, 42 however, this Court said that the fact that the
conventional term "strike" was not used by the participants to describe their common course
of action was insignificant, since the substance of the situation, and not its appearance, was
deemed controlling. 43
Moreover, the petitioners here, except Merlinda Jacinto, were not penalized for the exercise
of their right to assemble peacefully and to petition the government for a redress of
grievances. Rather, the Civil Service Commission found them guilty of conduct prejudicial to
the best interest of the service for having absented themselves without proper authority, from
their schools during regular school days, in order to participate in the mass protest, their
absence ineluctably resulting in the non-holding of classes and in the deprivation of students
of education, for which they were responsible. Had petitioners availed themselves of their free
time — recess, after classes, weekends or holidays — to dramatize their grievances and to
dialogue with the proper authorities within the bounds of law, no one — not the DECS, the
CSC or even this Court — could have held them liable for the valid exercise of their
constitutionally guaranteed rights. As it was, the temporary stoppage of classes resulting from
their activity necessarily disrupted public services, the very evil sought to be forestalled by the
prohibition against strikes by government workers. Their act by its nature was enjoined by the
Civil Service law, rules and regulations, for which they must, therefore, be made answerable.
Second Issue: Violation by Petitioner Jacinto
of Reasonable Office Rules and Regulations
Petitioner Jacinto, for her part, pleads for exoneration. She asks the Court to reexamine and
give due weight to the certification 44 issued by her school principal that she met her class on
September 20, 1990 but failed to sign in the attendance logbook. Stated elsewise, Jacinto
wants us to scrutinize firsthand a document already ruled upon by the Civil Service
Commission and the Court of Appeals to be of doubtful credibility. Time and again, we have
held that findings of administrative agencies, which have acquired expertise because their
jurisdiction is confined to specific matters, are accorded not only respect but even finality 45
particularly when affirmed by the appellate tribunal. It is not a function of this Court to
examine and evaluate the probative value of the evidence proffered in the concerned forum,
which formed the basis of the latter's impugned decision, resolution or order, 46 absent a
dear showing of arbitrariness and want of any rational basis therefor. 47 In the instant case,
we find no sufficient reason to reverse the findings of the CSC.
In any event, as observed by the Commission, said certification, dated December 19, 1990,
was belatedly submitted by Petitioner Jacinto only with her motion for reconsideration of the
CSC resolution promulgated September 21, 1993; thus, it was correctly rejected as a newly
discovered evidence. Additionally, the Commission explained:
. . . such certification contradicts the allegation that she filed an application for leave. If she
was really present on September 20, 1990, there would have been no need for her to file an
application for leave. Apparently, this is a vain effort to present documents of doubtful
credibility just to have Jacinto exonerated of the charges against her. 48
The futility of the tactics of Petitioner Jacinto to evade culpability is further exemplified by her
contradictory assertions. In a sworn explanation submitted to Secretary Cariño, she claimed
that she left the school premises on the day in question, because she "was emotionally and
mentally depressed," and went to see a physician. 49 In her motion for reconsideration before
the CSC, she submitted the above certification to the effect that she was not absent. Now, in
assailing the Commission's decision to reprimand her for violation of reasonable office rules
and regulations in not filing an application for leave of absence, she invokes Sec. 15, Rule
XVI of the Civil Service rules, which provides:
Sec. 15. Applications for vacation leave of absence for one full day or more shall be
submitted on the prescribed form for action by the proper chief of agency in advance,
whenever possible, of the effective date of such leave.
She contends that the filing of an application for vacation leave need not always be in
advance of the effective date thereof. 50 Clearly, her present stance is diametric to her
"illness" justification before the DECS. In the latter case, it is Section 16 of said rules that is
pertinent:
Sec. 16. All applications for sick leaves of absence for one full day or more shall be on the
prescribed form and shall be filed immediately upon the employee's return from such leave.
Notice of absence, however, should be sent to the immediate supervisor and/or to the office
head. . . .
The regulation requires (1) the filing of the application for sick leave on the prescribed form
immediately upon the employee's return from sick leave and (2) a notice of absence to be
sent to the immediate supervisor and/or office head. But the Commission found that "the
records are bereft of any showing that Jacinto asked permission from school authorities to go
out of school premises and seek medical attention outside nor did she file an application for
sick leave . . ." 51 Hence, its conclusion that petitioner violated reasonable office rules and
regulations.
The totality of the evidence on record sustains the findings and conclusions of the
Commission, as affirmed by the Court of Appeals. We have no reason to reverse them. The
Civil Service rules clearly provide that violation of reasonable office rules and regulations, on
first offense, carries the penalty of reprimand. 52
Third Issue: No Right to Backwages
Petitioners anchor their claim for backwages on the supposed illegality of (1) their preventive
suspension upon the filing of the charges against them and (2) the immediate execution of
the DECS Secretary's decisions ordering their dismissal.
The charges against petitioners consisted of the following: (1) grave misconduct; (2) gross
neglect of duty; (3) gross violation of Civil Service law, rules and regulations and reasonable
office regulations; (4) refusal to perform official duty; (5) gross insubordination; (6) conduct
prejudicial to the best interest of the service; and (7) absence without approved leave. These
were based on their alleged unauthorized participation in the mass actions in September
1990, disregard of report-to-work directives, unjustified abandonment of teaching posts,
unauthorized absences without leave, and other similar violations reported to the DECS
Secretary by their respective school supervisors. 53
We find that the charges filed against petitioners warranted their preventive suspension from
the service, as provided under Section 51, Chapter 7 (on Discipline) of the Administrative
Code, which reads:
Sec. 51. Preventive Suspension. — The proper disciplining authority may preventively
suspend any subordinate officer or employee under his authority pending an investigation, if
the charge against such officer or employee involves dishonesty, oppression or grave
misconduct, or neglect in the performance of duty, or if there are reasons to believe that the
respondent is guilty of charges which would warrant his removal from the service.
The petitioners' alleged lapses, initially found substantiated by the DECS, qualify as grave
misconduct or neglect in the performance of duty under the above rule. Thus, former
Education Secretary Cariño had the legal authority to suspend them pending further
investigation.
The Secretary's immediate execution of his decisions imposing the penalty of dismissal finds
legal basis in Sec. 47 (2) of the Civil Service law 54 which provides:
Sec. 47. Disciplinary Jurisdiction. — . . .
(2) The Secretaries and heads of agencies and instrumentalities, provinces, cities and
municipalities shall have jurisdiction to investigate and decide matters involving disciplinary
action against officers and employees under their jurisdiction. Their decisions shall be final in
case the penalty imposed is suspension for not more than thirty days or fine in an amount not
exceeding thirty days' salary. In case the decision rendered by a bureau or office head is
appealable to the Commission, the same may be initially appealed to the department and
finally to the Commission and pending appeal, the same shall be executory except when the
penalty is removal, in which case the same shall be executory only after confirmation by the
Secretary concerned.
As can be gleaned from the above, the department secretary's decision confirming the
removal of an officer or employee under his jurisdiction is executory in character, i.e. such
decision may be immediately executed even pending further remedy, such as an appeal, 55
by the dismissed officer or employee. In the case at bar, it was already the final judgments of
Secretary Cariño which were forthwith carried out. The aforequoted statutory provision rules
out the alleged illegality of the actions of the DECS Secretary.
In any event, the rule is settled that backwages may be granted only to those who have been
illegally dismissed and thenceforth ordered reinstated, or to those acquitted of the charge
against them. 56 Even a pardoned convicted employee is not automatically entitled to
backpay. Monsanto vs. Factoran Jr. 57 established the general rule that — while pardon has
been commonly regarded as eliminating the existence of guilt so that in the eyes of the law
the offender is as innocent as though he never committed the offense — such exoneration
does not operate for all purposes. It does not erase the fact of the commission of the offense
and the conviction therefor. It frees the convict from all penalties and legal disabilities and
restores to him all his civil rights; but unless expressly grounded on the person's innocence, it
does not ipso facto restore him to public office necessarily relinquished or forfeited by reason
of the conviction. Pardon does not generally result in automatic reinstatement because the
offender has to apply for reappointment; neither is he entitled to backpay. 58
Thus, in Sabello vs. DECS, 59 although we reinstated the petitioner-pardonee to his previous
position in the interest of "justice and equity," we did not grant him backwages since he "was
lawfully separated from the government service upon his conviction for an offense." We
reiterated that the right to backwages was afforded only to those who were illegally dismissed
but thereafter ordered reinstated, or to those otherwise acquitted of the charge against them.
Again, in City Mayor of Zamboanga vs. Court of Appeals, 60 we said that "back salaries may
be ordered paid to an officer or employee only if he is exonerated of the charge against him
and his suspension or dismissal is found and declared to be illegal." Hence, in Garcia vs.
Chairman, Commission on Audit, 61 we said that "if the pardon is based on the innocence of
the individual, it affirms this innocence and makes him a new man and as innocent as if he
had not been found guilty of the offense charged." 62 In that case, Garcia was found
administratively liable for dishonesty. He was, however, acquitted by the trial court of the
complaint for qualified theft based on the very same acts. The acquittal was founded not on
lack of proof beyond reasonable doubt but on the fact that he did not commit the offense
imputed to him. This Court said that after having been declared innocent of the criminal
complaint, which had the same basis as the administrative charge, for all legal purposes the
petitioner should not be considered to have left his office, so that he was entitled to all the
rights and privileges that accrued to him by virtue of the office held, including backwages. He
was restored to his office ipso facto upon the issuance of the clemency. The grant of
backwages was justified "to afford relief to [the] petitioner who [was] innocent from the start
and to make reparation for what he [had] suffered as a result of his unjust dismissal from the
service." 63
However, in Balingasan, finding that petitioners therein indeed participated in the unlawful
mass actions for which they were similarly meted suspension, the Court opined that they
were not completely exonerated of the charges against them. They were denied back salaries
because they had given ground for their suspension. This means that being found liable for a
lesser offense is not equivalent to exoneration from the original complaint against the
concerned public officer or employee. Balingasan referred to the earlier case of Yacia vs. City
of Baguio, 64 in which this Court denied the claim of an employee for backwages for the
period during which he was not allowed to work because of the execution of the CSC
decision dismissing him for dishonesty, even though, on appeal, his penalty was reduced to a
fine equivalent to six months' pay.
Based on the above premises, petitioners' demand for backwages cannot be granted, for
they had given cause for their suspension — their unjustified abandonment of classes to the
prejudice of their students. Although they were eventually found guilty only of conduct
prejudicial to the best interest of the service, and not grave misconduct or other offense
warranting their dismissal from the service, they were not fully innocent of the charges
against them.
We find the case of Petitioner Jacinto different, however. The Civil Service Commission found
her culpable only of violation of reasonable office rules and regulations, for not having asked
permission from school authorities to leave the school premises and seek medical attention
and for not filing an application for sick leave for approval by the school authorities. There
was no proof that she joined the mass actions which caused prejudice to the school system.
In Balingasan, this Court, after finding that Rodolfo Mariano was not involved in the mass
actions but was absent because he attended the wake and burial of his grandmother in Ilocos
Sur without however the benefit of an approved leave of absence, held that "[t]o deny
petitioner Mariano his back wages during his suspension would be tantamount to punishing
him after his exoneration from the charges which caused his dismissal from the service," i.e.
participation in the unlawful mass actions. Therefore, in line with Balingasan, we likewise
grant back salaries to Petitioner Jacinto who did not join the illegal activity.
WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the assailed
Decision of the Court of Appeals is hereby AFFIRMED with the modification that Petitioner
Merlinda Jacinto is granted backwages, without deduction or qualification, from the time she
was suspended until her actual reinstatement, the total of which, consistent with prevailing
jurisprudence, 65 should not exceed five years.
Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza and
Francisco, JJ., concur.
Narvasa, C.J., is on leave.
G.R. No. 20341 September 1, 1923
DOMINGO GARCIA and THE PHILIPPINE NATIONAL BANK, plaintiffs-appellees,
vs.
THE HONGKONG FIRE & MARINE INSURANCE CO., LTD., defendant-appellant.
William and Ferrier for appellant.
Roman Lacson for the appellee Bank.
Vicente de Vera for the other appellee.
STATEMENT
After formal pleas, the plaintiff's allege that on the 19th of March, 1918, in the City of Manila,
the plaintiff, Domingo Garcia, then a merchant and owner of a bazaar known as "Las
Novedades" in the district of Legaspi, municipality and Province of Albay, entered into a
contract with the defendant whereby it insured his merchandise in the sum of P15,000 at a
premium of P300 per annum; that in consideration of such premium, the defendant issued its
fire insurance policy No. 1951 in favor of the plaintiff, not on the merchandise in the building,
but on the building which contained the merchandise; that for such reason the policy does not
contain the true agreement and intent of the parties; that the plaintiff was not the owner of,
and did not have any interest in, the building; and that the policy was so issued through error,
carelessness and negligence of the defendant.
That on august 30, 1919, Garcia executed a mortgage to the plaintiff Bank on the
merchandise insured by the defendant, and that with the consent of the defendant, the
plaintiff endorsed the policy to the Bank; that on February 6, 1920, and while the policy was in
force and effect, a fire took place which destroyed the merchandise in the building of the
value of P20,000, together with the building itself; that demand was made upon the defendant
for the payment of P15,000, as provided for in the policy, and that payment was refused.
Wherefore, plaintiffs pray judgment for that amount, with legal interest from the date of filing
of the complaint, and costs.
For answer, the defendant admits the formal allegations of the complaint, and denies
generally and specifically all other allegations.
As a result of the trial, the lower court rendered judgment for the plaintiff, as prayed for in the
complaint, from which the defendant appeals and contends that the lower court erred in
denying its motion to make the complaint more definite and certain; in permitting Garcia over
its objection to testify to the contents of certain documents; in refusing to strike them from the
record; in finding that the defendant, through its agent, knew that it was the merchandise
which was insured and not the building; in failing to find the plaintiffs, and Garcia in particular,
guilty of negligence; in finding that the defendant committed error in making out the policy to
cover the building rather than the merchandise; in rendering the judgment; and in denying
defendant's motion for a new trial.
JOHNS, J.:
It appears that the policy was in the English language, of which the plaintiff Garcia is ignorant.
When he received it he noticed that the amount P15,000 was correct, and never personally
made a further investigation. He was the exclusive owner of the merchandise in the building
which, at the time of the fire, was of the probable value of P20,000. He did not own or claim
any interest in the building. Desiring to have his merchandise insured for P15,000, he wrote a
letter to "El Pilar," requesting that firm to have it insured, as a result of which, the policy in
questions was issued and delivered to him, and it was issued on the building with Garcia did
not own, and did not cover the merchandise which he did own. Desiring to obtain a loan from
the Philippine National Bank, Garcia later delivered and assigned the policy to the plaintiff
Bank as collateral security for a loan. Upon receipt of the policy, and as one of the conditions
for the making of the loan, the Bank, through its manager, addressed the following letter to
the agents of the defendant on August 6, 1919:
We beg to advise that the merchandise insured by you against fire in favor of Mr. Domingo
Garcia of Legaspi, Albay, P. I., for P15,000 for which you issued policy No. 1951, has been
mortgaged to this bank together with the policy to secure a credit and loans not to exceed
P6,000 in all.
We would appreciate very much if you have our claims against the property and policy
covering it, on account of the mortgage, entered in your records and advise us accordingly.
Hoping to hear from you soon, we are,
Very truly yours,
This was answered by the agents August 14, 1919, as follows:
We beg to acknowledge receipt of your esteemed favor of the 6th inst., informing us that the
Hongkong Fire Insurance Company, Ltd.'s Policy in the name of Mr. Domingo Garcia, for the
sum of P15,000 has been mortgaged to your goodselves. In order that this transaction made
by officially recorded, it will be necessary to make an endorsement upon the original policy,
and we shall be glad, therefore, if you will return this document to us as soon as convenient.
We are, Dear Sirs,
Yours faithfully.
August 18, 1919, the Bank wrote the following letter to the agents:
Complying with your request of the 13th ultimo, we beg to inclose herewith policy No. 1951 in
favor of Mr. Domingo Garcia, Legaspi, Albay, for P15,000, which has been mortgaged to this
Bank to secure a credit and loan of not exceed P6,000 in all, for your proper indorsement.
Trusting to have your prompt action in this matter, we are,
Very respectfully yours.
September 1, 1919, the agents wrote the Bank as follows:
We beg to acknowledge receipt of your favour of the 18th ultimo, enclosing Hongkong Fire
Insurance Fire Insurance Co., Ltd.'s Policy No. 1951, in the name of Mr. Domingo Garcia,
and in accordance with your request have endorsed same in your favour, and beg to return
the document herewith. Please be good enough to acknowledge safe receipt in due course
and oblige.
Yours faithfully.
It clearly appears that where the word "merchandise" was written in the letter of August 6th
above quoted, some other word had been previously written and erased, and the word
"merchandise" was the written, as it now appears.
It is contended that when the letter was written, the Bank, which then had the possession of
the policy, knew that it covered the building and did not insure the merchandise. That, having
such knowledge, it was the duty of the Bank to notify the defendant, and having failed to do
so, it cannot now contend that the policy was issued through a mistake. The fact remains that
the defendant, through its agents, received this letter, and that it recites:
We beg to advise that the merchandise insured by you against fire in favor of Mr. Domingo
Garcia, etc.
That was a personal notice to the defendant of the fact that the policy was on the
merchandise. It is pointed out that the Bank and not the defendant then had the policy, and,
for such reason, the Bank did not have notice of the error. Although the policy was in
possession of the Bank, the defendant had among its own records all of the data and
information upon which the policy was issued, and, as a matter of fact, its agents knew or
should have known the kind of property insured.
It is possible that when the Bank wrote the letter, it knew of the error in the issuance of the
policy. But that is a matter of inference or conjecture only. Outside of the appearance of the
letter itself, there is no evidence that the Bank had any acknowledge of the error.
Garcia had his dealings with the officials of the branch Bank at Legaspi where he was doing
business as a merchant, of which the officials of that Bank had knowledge. Under such facts,
the presumption of knowledge, if any, on the part of the Bank would be that the policy was on
the merchandise. Be that as it may, when the defendant received the letter from the Bank, it
knew from its own records that the policy was issued on the building, and, as a matter of fair
dealing, it should have notified the Bank that the policy was on the building. It will be noted
that the letters in question were all written several months before the fire.
In the final analysis, Garcia wanted insurance upon a stock of goods, which he owned, and
he received and paid for a policy on a building, which he did not own, and while the policy
was in force and effect, both the building, which he did not own, and the stock of
merchandise, which he did own, were completely destroyed by fire. Garcia was a well known
merchant, and his merchandise was in the building described in the policy.
For some unknown reason, the party who applied for the insurance at the instance and
request of Garcia was not called as a witness, and, as stated, that answer of the defendant is
confined to general denial, and it did not offer any evidence.
In a well-written opinion, the trial court analyzed the evidence and made findings of fact upon
which it rendered judgment for the plaintiff. It is claimed that the letters and the copy of the
telegram introduced in evidence were hearsay and not competent. If for no other purpose,
they were competent to show that Garcia wanted insurance on his merchandise and the
reason why he wanted it.
The defense is purely technical, and is founded upon the contention that plaintiff cannot
recover, because the policy covers loss on a building, and does not cover loss of
merchandise.
It is very apparent that a mistake was made in the issuance of the policy.
In its opinion the trial court says:
Under these circumstances it seems clear and manifest that the insured, as well as the
manager of the National Bank at Legaspi, who was interested in the policy, because the
same secured a loan of P6,000 made to Domingo Garcia, and the corporation of Wise & Co.,
Ltd., which represented the insurance company, have been in the belief that it was not the
building but the merchandise that was insured, for the reason that none of them paid attention
to the context of the policy.
The opinion of the trial court further points out that, under the pleadings and proof, there is
ground for the contention that the plaintiff would be entitled to recover on the policy for the
loss of the building.
All things considered, the judgment of the lower court is affirmed, with costs. So ordered.
Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor and Romualdez, JJ., concur.
Street, J., dissents.
G.R. No. 183526 August 25, 2009
VIOLETA R. LALICAN, Petitioner,
vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE
PRESIDENT VICENTE R. AVILON, Respondent.
DECISION
CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court are
the Decision2 dated 30 August 2007 and the Orders dated 10 April 20083 and 3 July 20084
of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In its
assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta
R. Lalican (Violeta) against respondent Insular Life Assurance Company Limited (Insular
Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively, the
RTC declared the finality of the aforesaid Decision and denied petitioner’s Notice of Appeal.
The factual and procedural antecedents of the case, as culled from the records, are as
follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997,
Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor
of Eulogio Policy No. 9011992,5 which contained a 20-Year Endowment Variable Income
Package Flexi Plan worth ₱500,000.00,6 with two riders valued at ₱500,000.00 each.7 Thus,
the value of the policy amounted to ₱1,500,000.00. Violeta was named as the primary
beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly
basis in the amount of ₱8,062.00, payable every 24 April, 24 July, 24 October and 24
January of each year, until the end of the 20-year period of the policy. According to the Policy
Contract, there was a grace period of 31 days for the payment of each premium subsequent
to the first. If any premium was not paid on or before the due date, the policy would be in
default, and if the premium remained unpaid until the end of the grace period, the policy
would automatically lapse and become void.8
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to
pay the premium due on 24 January 1998, even after the lapse of the grace period of 31
days. Policy No. 9011992, therefore, lapsed and became void.
Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26
May 1998, an Application for Reinstatement9 of Policy No. 9011992, together with the
amount of ₱8,062.00 to pay for the premium due on 24 January 1998. In a letter10 dated 17
July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be
fully processed because, although he already deposited ₱8,062.00 as payment for the 24
January 1998 premium, he left unpaid the overdue interest thereon amounting to ₱322.48.
Thus, Insular Life instructed Eulogio to pay the amount of interest and to file another
application for reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums
that subsequently became due on 24 April 1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second
Application for Reinstatement11 of Policy No. 9011992, including the amount of ₱17,500.00,
representing payments for the overdue interest on the premium for 24 January 1998, and the
premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a
business errand, her husband received Eulogio’s second Application for Reinstatement and
issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest
secondary to electrocution.

Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in
the City of San Fernando, on 18 September 1998, Eulogio’s second Application for
Reinstatement of Policy No. 9011992 and ₱17,500.00 deposit. However, Insular Life no
longer acted upon Eulogio’s second Application for Reinstatement, as the former was
informed on 21 September 1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds
of Policy No. 9011992.
In a letter12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be
granted since, at the time of Eulogio’s death, Policy No. 9011992 had already lapsed, and
Eulogio failed to reinstate the same. According to the Application for Reinstatement, the
policy would only be considered reinstated upon approval of the application by Insular Life
during the applicant’s "lifetime and good health," and whatever amount the applicant paid in
connection thereto was considered to be a deposit only until approval of said application.
Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check No.
0000309734, for the amount of ₱25,417.00, drawn in Violeta’s favor, representing the full
refund of the payments made by Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In
a letter13 dated 10 March 1999, Insular Life stated that it could not find any reason to
reconsider its decision rejecting Violeta’s claim. Insular Life again tendered to Violeta the
above-mentioned check in the amount of ₱25,417.00.
Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the
Cabanatuan District Office of Insular Life. Violeta’s counsel subsequently sent a letter14
dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No.
9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to
conduct a re-evaluation of Violeta’s claim.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on
11 October 1999, a Complaint for Death Claim Benefit,15 which was docketed as Civil Case
No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement practice and
deliberately failed to act with reasonable promptness on her insurance claim. Violeta prayed
that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992, in the
amount of ₱1,500,000.00, plus interests, attorney’s fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim,16 asserting that Violeta’s
Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992, on
which Violeta sought to recover, was rendered void by the non-payment of the 24 January
1998 premium and non-compliance with the requirements for the reinstatement of the same.
By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorney’s fees and
expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the
reinstatement of Policy No. 9011992 had been complied with and the defenses put up by
Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the
same reinstated:
[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and
July 24, 1998 were not paid by [Eulogio] even after the lapse of the 31-day grace period, his
insurance policy necessarily lapsed. This is clear from the terms and conditions of the
contract between [Insular Life] and [Eulogio] which are written in [the] Policy provisions of
Policy No. 9011992 x x x.17
The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and
Insular Life and the Application for Reinstatement Eulogio subsequently signed and submitted
to Insular Life, held that Eulogio was not able to fully comply with the requirements for the
reinstatement of Policy No. 9011992:
The well-settled rule is that a contract has the force of law between the parties. In the instant
case, the terms of the insurance contract between [Eulogio] and [Insular Life] were spelled
out in the policy provisions of Insurance Policy No. 9011992. There is likewise no dispute that
said insurance contract is by nature a contract of adhesion[,] which is defined as "one in
which one of the contracting parties imposes a ready-made form of contract which the other
party may accept or reject but cannot modify." (Polotan, Sr. vs. CA, 296 SCRA 247).
xxxx
The New Lexicon Webster’s Dictionary defines ambiguity as the "quality of having more than
one meaning" and "an idea, statement or expression capable of being understood in more
than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme Court
stated that[:]
"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a
result thereby, must be read and construed against the party who drafted it on the
assumption that it could have been avoided by the exercise of a little care."
In the instant case, the dispute arises from the afore-quoted provisions written on the face of
the second application for reinstatement. Examining the said provisions, the court finds the
same clearly written in terms that are simple enough to admit of only one interpretation. They
are clearly not ambiguous, equivocal or uncertain that would need further construction. The
same are written on the very face of the application just above the space where [Eulogio]
signed his name. It is inconceivable that he signed it without reading and understanding its
import.1avvphi1
Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple
and clear layman’s language, rendering it free from any ambiguity that would require a legal
interpretation or construction. Thus, the court believes that [Eulogio] was well aware that
when he filed the said application for reinstatement, his lapsed policy was not automatically
reinstated and that its approval was subject to certain conditions. Nowhere in the policy or in
the application for reinstatement was it ever mentioned that the payment of premiums would
have the effect of an automatic and immediate renewal of the lapsed policy. Instead, what
was clearly stated in the application for reinstatement is that pending approval thereof, the
premiums paid would be treated as a "deposit only and shall not bind the company until this
application is finally approved during my/our" lifetime and good health[.]"
Again, the court finds nothing in the aforesaid provisions that would even suggest an
ambiguity either in the words used or in the manner they were written. [Violeta] did not
present any proof that [Eulogio] was not conversant with the English language. Hence, his
having personally signed the application for reinstatement[,] which consisted only of one
page, could only mean that he has read its contents and that he understood them. x x x
Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in
the policy provisions of Policy No. 9011992 and in the application for reinstatement subject of
this case, the court finds no merit in [Violeta’s] contention that the policy provision stating that
[the lapsed policy of Eulogio] should be reinstated during his lifetime is ambiguous and should
be construed in his favor. It is true that [Eulogio] submitted his application for reinstatement,
together with his premium and interest payments, to [Insular Life] through its agent Josephine
Malaluan in the morning of September 17, 1998. Unfortunately, he died in the afternoon of
that same day. It was only on the following day, September 18, 1998 that Ms. Malaluan
brought the said document to [the regional office of Insular Life] in San Fernando, Pampanga
for approval. As correctly pointed out by [Insular Life] there was no more application to
approve because the applicant was already dead and no insurance company would issue an
insurance policy to a dead person.18 (Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot
express the same by interpreting the insurance agreement in her favor where there is no
need for such interpretation. It is conceded that [Eulogio’s] payment of overdue premiums
and interest was received by [Insular Life] through its agent Ms. Malaluan. It is also true that
[the] application for reinstatement was filed by [Eulogio] a day before his death. However,
there is nothing that would justify a conclusion that such receipt amounted to an automatic
reinstatement of the policy that has already lapsed. The evidence suggests clearly that no
such automatic renewal was contemplated in the contract between [Eulogio] and [Insular
Life]. Neither was it shown that Ms. Malaluan was the officer authorized to approve the
application for reinstatement and that her receipt of the documents submitted by [Eulogio]
amounted to its approval.19 (Emphasis ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to
establish by preponderance of evidence her cause of action against the defendant, let this
case be, as it is hereby DISMISSED.20
On 14 September 2007, Violeta filed a Motion for Reconsideration21 of the afore-mentioned
RTC Decision. Insular Life opposed22 the said motion, averring that the arguments raised
therein were merely a rehash of the issues already considered and addressed by the RTC. In
an Order23 dated 8 November 2007, the RTC denied Violeta’s Motion for Reconsideration,
finding no cogent and compelling reason to disturb its earlier findings. Per the Registry Return
Receipt on record, the 8 November 2007 Order of the RTC was received by Violeta on 3
December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply24 to the Motion for
Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration for the
setting aside of the Decision dated 30 August 2007. Despite already receiving on 3
December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion
for Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply Extended
Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order,25 declaring that the Decision dated 30 August
2007 in Civil Case No. 2177 had already attained finality in view of Violeta’s failure to file the
appropriate notice of appeal within the reglementary period. Thus, any further discussions on
the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and
academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion,26 praying that
the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal with the
Court of Appeals.
In an Order27 dated 3 July 2008, the RTC denied Violeta’s Notice of Appeal with Motion
given that the Decision dated 30 August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review on
Certiorari, raising the following issues for consideration:
1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be
reviewed despite having allegedly attained finality and despite the fact that the mode of
appeal that has been availed of by Violeta is erroneous?
2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a
question of law not in accord with law and applicable decisions of the Supreme Court?
Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead
of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the computation of
the reglementary period for appealing the said judgment. Violeta claims that her former
counsel suffered from poor health, which rapidly deteriorated from the first week of July 2008
until the latter’s death just shortly after the filing of the instant Petition on 8 August 2008. In
light of these circumstances, Violeta entreats this Court to admit and give due course to her
appeal even if the same was filed out of time.
Violeta further posits that the Court should address the question of law arising in this case
involving the interpretation of the second sentence of Section 19 of the Insurance Code,
which provides:
Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs.
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life
when he reinstated Policy No. 9011992 just before he passed away on 17 September 1998.
The RTC should have construed the provisions of the Policy Contract and Application for
Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and
considered the special circumstances of the case, to rule that Eulogio had complied with the
requisites for the reinstatement of Policy No. 9011992 prior to his death, and that Violeta is
entitled to claim the proceeds of said policy as the primary beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the case to us via the instant Petition for
Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court,28 provides that
no appeal may be taken from an order disallowing or dismissing an appeal. In such a case,
the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court.29
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long
become final and executory. Violeta filed a Motion for Reconsideration thereof, but the RTC
denied the same in an Order dated 8 November 2007. The records of the case reveal that
Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta
had 15 days30 from said date of receipt, or until 18 December 2007, to file a Notice of
Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five months after
receipt of the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.
Violeta’s claim that her former counsel’s failure to file the proper remedy within the
reglementary period was an honest mistake, attributable to the latter’s deteriorating health, is
unpersuasive.
Violeta merely made a general averment of her former counsel’s poor health, lacking relevant
details and supporting evidence. By Violeta’s own admission, her former counsel’s health
rapidly deteriorated only by the first week of July 2008. The events pertinent to Violeta’s
Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8
November 2007, denying Violeta’s Motion for Reconsideration of the Decision dated 30
August 2007, was received on 3 December 2007; and Violeta’s Notice of Appeal was filed on
20 May 2008. There is utter lack of proof to show that Violeta’s former counsel was already
suffering from ill health during these times; or that the illness of Violeta’s former counsel
would have affected his judgment and competence as a lawyer.
Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary
period binds Violeta, which failure the latter cannot now disown on the basis of her bare
allegation and self-serving pronouncement that the former was ill. A client is bound by his
counsel’s mistakes and negligence.31
The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta’s
Notice of Appeal for being filed beyond the reglementary period. Without an appeal having
been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177 already
became final and executory.
A judgment becomes "final and executory" by operation of law. Finality becomes a fact when
the reglementary period to appeal lapses and no appeal is perfected within such period. As a
consequence, no court (not even this Court) can exercise appellate jurisdiction to review a
case or modify a decision that has become final.32 When a final judgment is executory, it
becomes immutable and unalterable. It may no longer be modified in any respect either by
the court, which rendered it or even by this Court. The doctrine is founded on considerations
of public policy and sound practice that, at the risk of occasional errors, judgments must
become final at some definite point in time.33
The only recognized exceptions to the doctrine of immutability and unalterability are the
correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to
any party, and void judgments.34 The instant case does not fall under any of these
exceptions.
Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve
the substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition involves a question of law, particularly,
whether Eulogio had an existing insurable interest in his own life until the day of his death.
An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have in
the subject matter insured, where he has a relation or connection with or concern in it, such
that the person will derive pecuniary benefit or advantage from the preservation of the subject
matter insured and will suffer pecuniary loss or damage from its destruction, termination, or
injury by the happening of the event insured against.35 The existence of an insurable interest
gives a person the legal right to insure the subject matter of the policy of insurance.36
Section 10 of the Insurance Code indeed provides that every person has an insurable interest
in his own life.37 Section 19 of the same code also states that an interest in the life or health
of a person insured must exist when the insurance takes effect, but need not exist thereafter
or when the loss occurs.38
Upon more extensive study of the Petition, it becomes evident that the matter of insurable
interest is entirely irrelevant in the case at bar. It is actually beyond question that while
Eulogio was still alive, he had an insurable interest in his own life, which he did insure under
Policy No. 9011992. The real point of contention herein is whether Eulogio was able to
reinstate the lapsed insurance policy on his life before his death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30
August 2007 Decision that Policy No. 9011992 lapsed because of Eulogio’s non-payment of
the premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had
lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day
grace period for payment of the premium, which fell due on 24 January 1998, without any
payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his
first Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998,
constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did not act
on Eulogio’s first Application for Reinstatement, since the amount Eulogio simultaneously
deposited was sufficient to cover only the ₱8,062.00 overdue premium for 24 January 1998,
but not the ₱322.48 overdue interests thereon. On 17 September 1998, Eulogio submitted a
second Application for Reinstatement to Insular Life, again through Malaluan, depositing at
the same time ₱17,500.00, to cover payment for the overdue interest on the premium for 24
January 1998, and the premiums that had also become due on 24 April 1998 and 24 July
1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been
permitted to lapse.39 Both the Policy Contract and the Application for Reinstatement provide
for specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for
reinstatement should the policy lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three years after it lapsed if the following
conditions are met: (1) the policy has not been surrendered for its cash value or the period of
extension as a term insurance has not expired; (2) evidence of insurability satisfactory to
[Insular Life] is furnished; (3) overdue premiums are paid with compound interest at a rate not
exceeding that which would have been applicable to said premium and indebtedness in the
policy years prior to reinstatement; and (4) indebtedness which existed at the time of
lapsation is paid or renewed.40
Additional conditions for reinstatement of a lapsed policy were stated in the Application for
Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated until this application is
approved by the Company during my/our lifetime and good health and until all other
Company requirements for the reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be made in connection with this application
shall be considered as deposit only and shall not bind the Company until this application is
finally approved by the Company during my/our lifetime and good health. If this application is
disapproved, I/We also agree to accept the refund of all payments made in connection
herewith, without interest, and to surrender the receipts for such payment.41 (Emphases
ours.)
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions
for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for payment of his overdue premiums
and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by
Insular Life during Eulogio’s lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life
Insurance Company,42 citing McGuire v. The Manufacturer's Life Insurance Co.43:
"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon
written application does not give the insured absolute right to such reinstatement by the mere
filing of an application. The insurer has the right to deny the reinstatement if it is not satisfied
as to the insurability of the insured and if the latter does not pay all overdue premium and all
other indebtedness to the insurer. After the death of the insured the insurance Company
cannot be compelled to entertain an application for reinstatement of the policy because the
conditions precedent to reinstatement can no longer be determined and satisfied."
(Emphases ours.)
It does not matter that when he died, Eulogio’s Application for Reinstatement and deposits for
the overdue premiums and interests were already with Malaluan. Insular Life, through the
Policy Contract, expressly limits the power or authority of its insurance agents, thus:
Our agents have no authority to make or modify this contract, to extend the time limit for
payment of premiums, to waive any lapsation, forfeiture or any of our rights or requirements,
such powers being limited to our president, vice-president or persons authorized by the Board
of Trustees and only in writing.44 (Emphasis ours.)
Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement.
Malaluan still had to turn over to Insular Life Eulogio’s Application for Reinstatement and
accompanying deposits, for processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language, which
could not admit of any meaning or interpretation other than those that they so obviously
embody. A construction in favor of the insured is not called for, as there is no ambiguity in the
said provisions in the first place. The words thereof are clear, unequivocal, and simple
enough so as to preclude any mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. 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 as 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.45
Eulogio’s death, just hours after filing his Application for Reinstatement and depositing his
payment for overdue premiums and interests with Malaluan, does not constitute a special
circumstance that can persuade this Court to already consider Policy No. 9011992 reinstated.
Said circumstance cannot override the clear and express provisions of the Policy Contract
and Application for Reinstatement, and operate to remove the prerogative of Insular Life
thereunder to approve or disapprove the Application for Reinstatement. Even though the
Court commiserates with Violeta, as the tragic and fateful turn of events leaves her practically
empty-handed, the Court cannot arbitrarily burden Insular Life with the payment of proceeds
on a lapsed insurance policy. Justice and fairness must equally apply to all parties to a case.
Courts are not permitted to make contracts for the parties. The function and duty of the courts
consist simply in enforcing and carrying out the contracts actually made.46
Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with
the Policy Contract and Application for Reinstatement before Eulogio’s death. Violeta,
therefore, cannot claim any death benefits from Insular Life on the basis of Policy No.
9011992; but she is entitled to receive the full refund of the payments made by Eulogio
thereon.
WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on
Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April
2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying
petitioner Violeta R. Lalican’s Notice of Appeal, on the ground that the Decision dated 30
August 2007 subject thereof, was already final and executory. No costs.
SO ORDERED.
G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000
of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated
August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-
322 and upheld the causes of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April
11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi
Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies
with book debt endorsements. The insurance policies provide for coverage on "book debts in
connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines."2 The policies defined
book debts as the "unpaid account still appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this Policy."3 The policies also provide for the
following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of
the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and
thus become receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991,
the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was
consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-
made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges
that IMC and LSPI filed with respondent their claims under their respective fire insurance
policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of
petitioner on the sale and delivery of ready-made clothing materials with IMC was
P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC
and LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner;
that respondent made several demands for payment upon petitioner but these went
unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be
held liable because the property covered by the insurance policies were destroyed due to
fortuities event or force majeure; that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed by it since the loss was due to fire
which it could not prevent or foresee; that IMC and LSPI never communicated to it that they
insured their properties; that it never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial
on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It
held that the fire was purely accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that petitioner is the debtor of
IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for
purpose of securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid", IMC and LSPI
retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its
decision setting aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until
fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the
nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne by
petitioner since the proviso contained in the sales invoices is an exception under Article 1504
(1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is
borne by the owner of the thing at the time the loss under the principle of res perit domino;
that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the
payment of its unpaid account and as such the obligation to pay is not extinguished, even if
the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go
against petitioner; that, being a fire insurance with book debt endorsements, what was
insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution
dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of
Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY
THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire and not because of
the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one
over credit, there was no loss as the accounts were not yet due since no prior demands were
made by IMC and LSPI against petitioner for payment of the debt and such demands came
from respondent only after it had already paid IMC and LSPI under the fire insurance
policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer
IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the
goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk
had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from
fire.
For its part, respondent counters that while ownership over the ready- made clothing
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest
over said goods as creditors who stand to suffer direct pecuniary loss from its destruction by
fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to
overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was
caused through petitioner's negligence in failing to provide stringent measures of caution,
care and maintenance on its property because electric wires do not usually short circuit
unless there are defects in their installation or when there is lack of proper maintenance and
supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to
pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees,
litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before
it from the CA is limited to reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any of them.18 The Supreme
Court is not a trier of facts; it is not its function to analyze or weigh evidence all over again.19
Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme
Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may
be resolved by this Court, such as: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when
in making its findings the CA went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion.21 Exceptions (4),
(5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that
the CA erred in construing a fire insurance policy on book debts as one covering the unpaid
accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is
no room for construction.22 In this case, the questioned insurance policies provide coverage
for "book debts in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines."23 ;
and defined book debts as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy."24 Nowhere is it
provided in the questioned insurance policies that the subject of the insurance is the goods
sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.25 Thus, what were insured against
were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the
loss through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of
the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the above described merchandise
remains the property of the vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk
of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest
until full payment of the value of the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title, but whether insured
has substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured." Parenthetically, under Section
14 of the same Code, an insurable interest in property may consist in: (a) an existing interest;
(b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in,
or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that he would be liable to loss should it
be injured or destroyed by the peril against which it is insured.29 Anyone has an insurable
interest in property who derives a benefit from its existence or would suffer loss from its
destruction.30 Indeed, a vendor or seller retains an insurable interest in the property sold so
long as he has any interest therein, in other words, so long as he would suffer by its
destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire
but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the
CA, where the obligation consists in the payment of money, the failure of the debtor to make
the payment even by reason of a fortuitous event shall not relieve him of his liability.33 The
rationale for this is that the rule that an obligor should be held exempt from liability when the
loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in case of fortuitous
event. It does not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." If the obligation
is generic in the sense that the object thereof is designated merely by its class or genus
without any particular designation or physical segregation from all others of the same class,
the loss or destruction of anything of the same kind even without the debtor's fault and before
he has incurred in delay will not have the effect of extinguishing the obligation.35 This rule is
based on the principle that the genus of a thing can never perish. Genus nunquan perit.36 An
obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any
specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to
this case. What is relevant here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-
22"38 show that petitioner has an outstanding account with IMC in the amount of
P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F"40
is the subrogation receipt executed by IMC in favor of respondent upon receipt of the
insurance proceeds. All these documents have been properly identified, presented and
marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not
only the relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by
the insurance company of the insurance claim.41 Respondent's action against petitioner is
squarely sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991
from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the
amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11,
2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,
vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
Balgos & Perez Law Offices for petitioner.
Lapuz Law office for private respondent.
REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the
dispositive part of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino
Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at
legal rate from the date of filing of the complaint, and is modified with respect to the third
party complaint in that (1) third party defendant E. Razon, Inc. is ordered to reimburse third
party plaintiff the sum of P25,471.80 with legal interest from the date of payment until the date
of reimbursement, and (2) the third-party complaint against third party defendant Compagnie
Maritime Des Chargeurs Reunis is dismissed. 1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
This is an action brought by the consignee of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976
and seeks to recover from the defendant insurance company the amount of P51,568.62
representing damages to said shipment which has been insured by the defendant insurance
company under Policy No. M-2678. The defendant brought a third party complaint against
third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc.
seeking judgment against the third (sic) defendants in case Judgment is rendered against the
third party plaintiff. It appears from the evidence presented that in December 1976, plaintiff
insured said shipment with defendant insurance company under said cargo Policy No. M-
2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under
warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600
tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from
the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and
defendant's surveyor ascertained and certified that in such discharge 105 bags were in bad
order condition as jointly surveyed by the ship's agent and the arrastre contractor. The
condition of the bad order was reflected in the turn over survey report of Bad Order cargoes
Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits
4, 5 and 6- Razon. The cargo was also surveyed by the arrastre contractor before delivery of
the cargo to the consignee and the condition of the cargo on such delivery was reflected in E.
Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in
bad order condition. Defendant's surveyor has conducted a final and detailed survey of the
cargo in the warehouse for which he prepared a survey report Exhibit F with the findings on
the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148
kilos, Exhibit F-1. Based on said computation the plaintiff made a formal claim against the
defendant Filipino Merchants Insurance Company for P51,568.62 (Exhibit C) the computation
of which claim is contained therein. A formal claim statement was also presented by the
plaintiff against the vessel dated December 21, 1976, Exhibit B, but the defendant Filipino
Merchants Insurance Company refused to pay the claim. Consequently, the plaintiff brought
an action against said defendant as adverted to above and defendant presented a third party
complaint against the vessel and the arrastre contractor. 2
The court below, after trial on the merits, rendered judgment in favor of private respondent,
the decretal portion whereof reads:
WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff
and against the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to
pay the plaintiff the following amount:
The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;
On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs
Reunis and third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff
jointly and severally reimbursement of the amounts paid by the third party plaintiff with legal
interest from the date of such payment until the date of such reimbursement.
Without pronouncement as to costs.3
On appeal, the respondent court affirmed the decision of the lower court insofar as the award
on the complaint is concerned and modified the same with regard to the adjudication of the
third-party complaint. A motion for reconsideration of the aforesaid decision was denied,
hence this petition with the following assignment of errors:
1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of
the marine insurance policy when it held the petitioner liable to the private respondent for the
partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous event,
casualty, or accidental cause to which the loss is attributable, thereby contradicting the very
precedents cited by it in its decision as well as a prior decision of the same Division of the
said court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove);
2. The Court of Appeals erred in not holding that the private respondent had no insurable
interest in the subject cargo, hence, the marine insurance policy taken out by private
respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in
not disclosing the fact, it being bound out of utmost good faith to do so, that it had no
insurable interest in the subject cargo, which bars its recovery on the policy. 4
On the first assignment of error, petitioner contends that an "all risks" marine policy has a
technical meaning in insurance in that before a claim can be compensable it is essential that
there must be "some fortuity, " "casualty" or "accidental cause" to which the alleged loss is
attributable and the failure of herein private respondent, upon whom lay the burden, to
adduce evidence showing that the alleged loss to the cargo in question was due to a
fortuitous event precludes his right to recover from the insurance policy. We find said
contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but shall
in no case be deemed to extend to cover loss, damage, or expense proximately caused by
delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder
shall be payable irrespective of percentage. 5
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all
losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in
insurance contracts, have not acquired any technical meaning. They are construed by the
courts in their ordinary and common acceptance. Thus, the terms have been taken to mean
that which happens by chance or fortuitously, without intention and design, and which is
unexpected, unusual and unforeseen. An accident is an event that takes place without one's
foresight or expectation; an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected. 6
The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a willful and fraudulent act of the insured. 7 This is pursuant to
the very purpose of an "all risks" insurance to give protection to the insured in those cases
where difficulties of logical explanation or some mystery surround the loss or damage to
property. 8 An "all asks" policy has been evolved to grant greater protection than that
afforded by the "perils clause," in order to assure that no loss can happen through the
incidence of a cause neither insured against nor creating liability in the ship; it is written
against all losses, that is, attributable to external causes. 9
The term "all risks" cannot be given a strained technical meaning, the language of the clause
under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to
all damages/losses suffered by the insured cargo except (a) loss or damage or expense
proximately caused by delay, and (b) loss or damage or expense proximately caused by the
inherent vice or nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered
peril, but under an "all risks" policy the burden is not on the insured to prove the precise
cause of loss or damage for which it seeks compensation. The insured under an "all risks
insurance policy" has the initial burden of proving that the cargo was in good condition when
the policy attached and that the cargo was damaged when unloaded from the vessel;
thereafter, the burden then shifts to the insurer to show the exception to the coverage. 10 As
we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. 11 the basic rule is
that the insurance company has the burden of proving that the loss is caused by the risk
excepted and for want of such proof, the company is liable.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon
the insured the burden of establishing that the loss was due to the peril falling within the
policy's coverage; the insurer can avoid coverage upon demonstrating that a specific
provision expressly excludes the loss from coverage. 12 A marine insurance policy providing
that the insurance was to be "against all risks" must be construed as creating a special
insurance and extending to other risks than are usually contemplated, and covers all losses
except such as arise from the fraud of the insured. 13 The burden of the insured, therefore, is
to prove merely that the goods he transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted
perils. To impose on the insured the burden of proving the precise cause of the loss or
damage would be inconsistent with the broad protective purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the excepted
perils, the insurer is liable under the policy. As aptly stated by the respondent Court of
Appeals, upon due consideration of the authorities and jurisprudence it discussed —
... it is believed that in the absence of any showing that the losses/damages were caused by
an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and
there is no such showing, the lower court did not err in holding that the loss was covered by
the policy.
There is no evidence presented to show that the condition of the gunny bags in which the
fishmeal was packed was such that they could not hold their contents in the course of the
necessary transit, much less any evidence that the bags of cargo had burst as the result of
the weakness of the bags themselves. Had there been such a showing that spillage would
have been a certainty, there may have been good reason to plead that there was no risk
covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, Ibid, p.
125). Under an 'all risks' policy, it was sufficient to show that there was damage occasioned
by some accidental cause of any kind, and there is no necessity to point to any particular
cause. 14
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in
the policy. The agreement has the force of law between the parties. The terms of the policy
constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense.15
Anent the issue of insurable interest, we uphold the ruling of the respondent court that private
respondent, as consignee of the goods in transit under an invoice containing the terms under
"C & F Manila," has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of
such nature that a contemplated peril might directly damnify the insured. In principle, anyone
has an insurable interest in property who derives a benefit from its existence or would suffer
loss from its destruction whether he has or has not any title in, or lien upon or possession of
the property y. 16 Insurable interest in property may consist in (a) an existing interest; (b) an
inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises. 17
Herein private respondent, as vendee/consignee of the goods in transit has such existing
interest therein as may be the subject of a valid contract of insurance. His interest over the
goods is based on the perfected contract of sale. 18 The perfected contract of sale between
him and the shipper of the goods operates to vest in him an equitable title even before
delivery or before be performed the conditions of the sale. 19 The contract of shipment,
whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of
whether the vendee has an insurable interest or not in the goods in transit. The perfected
contract of sale even without delivery vests in the vendee an equitable title, an existing
interest over the goods sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale,
the seller is authorized or required to send the goods to the buyer, delivery of the goods to a
carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is
deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in
the present case. The Court has heretofore ruled that the delivery of the goods on board the
carrying vessels partake of the nature of actual delivery since, from that time, the foreign
buyers assumed the risks of loss of the goods and paid the insurance premium covering
them. 20
C & F contracts are shipment contracts. The term means that the price fixed includes in a
lump sum the cost of the goods and freight to the named destination. 21 It simply means that
the seller must pay the costs and freight necessary to bring the goods to the named
destination but the risk of loss or damage to the goods is transferred from the seller to the
buyer when the goods pass the ship's rail in the port of shipment. 22
Moreover, the issue of lack of insurable interest was not among the defenses averred in
petitioners answer. It was neither an issue agreed upon by the parties at the pre-trial
conference nor was it raised during the trial in the court below. It is a settled rule that an issue
which has not been raised in the court a quo cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process. 23 This is but a
permuted restatement of the long settled rule that when a party deliberately adopts a certain
theory, and the case is tried and decided upon that theory in the court below, he will not be
permitted to change his theory on appeal because, to permit him to do so, would be unfair to
the adverse party. 24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a
disquisition on the issue of insurable interest raised by petitioner, it was to put at rest all
doubts on the matter under the facts in this case and also to dispose of petitioner's third
assignment of error which consequently needs no further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent
Court of Appeals is AFFIRMED in toto.
SO ORDERED.
Paras, Padilla and Sarmiento, JJ., concur.
Melencio-Herrera (Chairperson), J., is on leave.
G.R. No. L-5715 December 20, 1910
E. M. BACHRACH, plaintiff-appellee,
vs.
BRITISH AMERICAN ASSURANCE COMPANY, a corporation, defendant-appellant.
Haussermann, Ortigas, Cohn and Fisher, for appellant
Kincaid & Hurd and Thomas L. Hartigan, for appellee.
JOHNSON, J.:
On the 13th of July, 1908, the plaintiff commenced an action against the defendant to recover
the sum of P9,841.50, the amount due, deducting the salvage, upon the following fire
insurance policy issued by the defendant to the plaintiff:
[Fire policy No. 3007499.]
This policy of insurance witnesseth, that E. M. Bachrach, esq., Manila (hereinafter called the
insured), having paid to the undersigned, as authorized agent of the British American
Assurance Company (hereinafter called the company), the sum of two thousand pesos
Philippine currency, for insuring against loss or damage by fire, as hereinafter mentioned, the
property hereinafter described, in the sum of several sums following, viz:
Ten thousand pesos Philippine currency, on goods, belonging to a general furniture store,
such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands,
mirrors, and sea-grass furniture (in accordance with warranty "D" of the tariff attached hereto)
the property of the assured, in trust, on commission or for which he is responsible, whilst
stored in the ground floor and first story of house and dwelling No. 16 Calle Martinez, district
3, block 70, Manila, built, ground floor of stone and or brick, first story of hard wood and
roofed with galvanized iron — bounded in the front by the said calle, on one side by Calle
David and on the other two sides by buildings of similar construction and occupation.
Co-insurance allowed, particulars of which to be declared in the event of loss or claim.
The company hereby agrees with the insured (but subject to the conditions on the back
hereof, which are to be taken as a part of this policy) that if the property above described, or
any part thereof, shall be destroyed or damaged by fire, at any time between the 21st day of
February, 1908, and 4 o'clock in the afternoon of the 21st day of February, 1909, or (in case
of the renewal of this policy) at any time afterwards, so long as, and during the period in
respect of which the insured shall have paid to the company, and they shall have accepted,
the sum required for the renewal of this policy, the company will, out of their capital stock, and
funds, pay or make good to the insured the value of the property so destroyed, or the amount
of such damage thereto, to any amount not exceeding, in respect of each or any of the
several matters above specified, the sum set opposite thereto, respectively, and not
exceeding in the whole the sum of ten thousand pesos, and also not exceeding, in any case,
the amount of the insurable interest therein of the insured at the time of the happening of
such fire.
In witness whereof, the British American Assurance Company has accused these presents to
be signed this 21st day of February, in the year of our Lord 1908.
For the company.
W. F. STEVENSON & Co. LTD.,
"By...............................................,
"Manager Agents."
And indorsed on the back the following:
The within policy and includes a "Calalac" automobile to the extent of (P1,250) twelve
hundred and fifty pesos Philippine currency.
Memo: Permission is hereby granted for the use of gasoline not to exceed 10 gallons for the
above automobile, but only whilst contained in the reservoir of the car. It is further warranted
that the car be neither filled nor emptied in the within-described building or this policy be null
and void.
Manila, 27th February, 1908.
"W. F. STEVENSON & Co. LTD.,
"By.......................................................,
"Manager Agents."
The defendant answered the complaint, admitting some of the facts alleged by the plaintiff
and denying others. The defendant also alleged certain facts under which it claimed that it
was released from all obligations whatever under said policy. These special facts are as
follows:
First. That the plaintiff maintained a paint and varnish shop in the said building where the
goods which were insured were stored.
Second. That the plaintiff transferred his interest in and to the property covered by the policy
to H. W. Peabody & Co. to secure certain indebtedness due and owing to said company, and
also that the plaintiff had transferred his interest in certain of the goods covered by the said
policy to one Macke, to secure certain obligations assumed by the said Macke for and on
behalf of the insured. That the sanction of the said defendant had not been obtained by the
plaintiff, as required by the said policy.
Third. That the plaintiff, on the 18th of April, 1908, and immediately preceding the outbreak of
the alleged fire, willfully placed a gasoline can containing 10 gallons of gasoline in the upper
story of said building in close proximity to a portion of said goods, wares, and merchandise,
which can was so placed by the plaintiff as to permit the gasoline to run on the floor of said
second story, and after so placing said gasoline, he, the plaintiff, placed in close proximity to
said escaping gasoline a lighted lamp containing alcohol, thereby greatly increasing the risk
of fire.
Fourth. That the plaintiff made no proof of the loss within the time required by condition five of
said policy, nor did the insured file a statement with he municipal or any other judge or court
of the goods alleged to have been in said building at the time of the alleged fire, nor of the
goods saved, nor the loss suffered.
The plaintiff, after denying nearly all of the facts set out in the special answer of the
defendant, alleged:
First. That he had been acquitted in a criminal action against him, after a trial duly and
regularly had, upon a charge of arson, based upon the same alleged facts set out in the
answer of the defendant.
Second. That her had made no proof of the loss set up in his complaint for the reason that
immediately after he had, on the 20th of April, 1908, given the defendant due notice in writing
of said loss, the defendant, on the 21st of April, 1908, and thereafter on other occasions, had
waived all right to require proof of said loss by denying all liability under the policy and by
declaring said policy to be null and void.
After hearing the evidence adduced during the trial of the cause, the lower court found that
the defendant was liable to the plaintiff and rendered a judgment against the defendant for
the sum of P9,841.50, with interest for a period of one year at 6 per cent, making a total of
P10,431.99, with costs.
From that decision the defendant appealed and made the following assignments of error:
1. The court erred in failing to hold that the use of the building, No. 16 Calle Martinez, as a
paint and varnish shop annulled the policy of insurance.
2. The court erred in failing to hold the execution of the chattel mortgages without the
knowledge and consent of the insurance company annulled the policy of insurance.
3. The court erred in holding that the keeping of gasoline and alcohol not in bottles in the
building No. 16 Calle Martinez was not such a violation of the conditions of the policy as to
render the same null and void.
4. The court erred in failing to find as a fact that E. M. Bachrach, the insured, willfully placed a
gasoline can containing about 10 gallons of gasoline in the upper story of said building, No.
16 Calle Martinez, in close proximity to a portion of the goods, wares, and merchandise
stored therein, and that said can was so placed by said Bachrach as to permit the gasoline to
run on the floor of said second story.
5. The court erred in failing to find as a fact that E. M. Bachrach, after placing said gasoline
can in close proximity to the goods, wares, and merchandise covered by the policy of
insurance, the he (Bachrach) placed in close proximity to said escaping gasoline a lighted
lamp containing alcohol, thereby greatly increasing the risk of fire.
6. The court erred in holding that the policy of insurance was in force at the time of said fire,
and that the acts or omissions on the part of the insured which cause, or tended to cause, the
forfeiture of the policy, were waived by the defendant.
7. The court erred in holding the defendant liable for the loss under the policy.lawphil.net
8. The court erred in refusing to deduct from the loss sustained by Bachrach the value of the
automobile, which was saved without damage.
9. The court erred in refusing to grant the motion for a new trial.
10. The court erred in refusing to enter judgment in favor of the defendant and against the
plaintiff.
With reference to the first above assignment of error, the lower court in its decision said:
It is claimed that either gasoline or alcohol was kept in violation of the policy in the bodega
containing the insured property. The testimony on this point is somewhat conflicting, but
conceding all of the defendant's claims, the construction given to this claim by American
courts would not justify the forfeiture of the policy on that ground. The property insured
consisted mainly of household furniture kept for the purpose of sale. The preservation of the
furniture in a salable condition by retouching or otherwise was incidental to the business. The
evidence offered by the plaintiff is to the effect that alcohol was used in preparing varnish for
the purpose of retouching, though he also says that the alcohol was kept in store and not in
the bodega where the furniture was. 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. Thus, where a furniture factory keeps benzine for the purposes of operation
(Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs. American Fire
Insurance Company, 91 Wis., 158), or where it is used for the cleaning machinery (Mears vs.
Humboldt Insurance Company, 92 Pa. St., 15; 37 Am. Rep., 647), the insurer can not on that
ground avoid payment of loss, though the keeping of the benzine on the premises is
expressly prohibited. These authorities also appear sufficient to answer the objection that the
insured automobile contained gasoline and that the plaintiff on one occasion was seen in the
bodega with a lighted lamp. The first was incidental to the use of the insured article and the
second being a single instance falls within the doctrine of the case last cited.
It may be added that there was no provision in the policy prohibiting the keeping of paints and
varnishes upon the premises where the insured property was stored. If the company intended
to rely upon a condition of that character, it ought to have been plainly expressed in the
policy.
With reference to the second above assignment of error, the defendant and appellant
contends that the lower court erred in failing to hold that the execution of the said chattel
mortgage, without the knowledge and consent of the insurance company and without
receiving the sanction of said company, annulled the said policy of insurance.
With reference to this assignment of error, upon reading the policy of insurance issued by the
defendant to the plaintiff, it will be noted that there is no provision in said policy prohibiting the
plaintiff from placing a mortgage upon the property insured, but, admitting that such a
provision was intended, we think the lower court has completely answered this contention of
the defendant. He said, in passing upon this question as it was presented:
It is claimed that the execution of a chattel mortgage on the insured property violated what is
known as the "alienation clause," which is now found in most policies, and which is expressed
in the policies involved in cases 6496 and 6497 by a purchase imposing forfeiture if the
interest in the property pass from the insured. (Cases 6496 and 6497, in which are involved
other action against other insurance companies for the same loss as in the present action.)
This clause has been the subject of a vast number of judicial decisions (13 Am. & Eng.
Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the great weight of authority that the
interest in property insured does not pass by the mere execution of a chattel mortgage and
that while a chattel mortgage is a conditional sale, there is no alienation within the meaning of
the insurance law until the mortgage acquires a right to take possession by default under the
terms of the mortgage. No such right is claimed to have accrued in the case at bar, and the
alienation clause is therefore inapplicable.
With reference to the third assignment of error above noted, upon a reading of the decision of
the lower court it will be found that there is nothing in the decision of the lower court relating
to the facts stated in this assignment of error, neither is there any provision in the policy
relating to the facts alleged in said assignment of error.
Assignment of error numbers 4 and 5 above noted may be considered together.
The record discloses that some time prior to the commencement of this present action, a
criminal action was commenced against the plaintiff herein in the Court of First Instance of
the city of Manila, in which he was charged with willfully and maliciously burning the property
covered by the policy in the present case. At the conclusion of the criminal action and after
hearing the evidence adduced during the trial, the lower court, with the assistance of two
assessors, found that the evidence was insufficient to show beyond peradventure of doubt
that the defendant was guilty of the crime. The evidence adduced during the trial of the
criminal cause was introduced as evidence in the present cause. While the evidence shows
some very peculiar and suspicious circumstances concerning the burning of the goods
covered by the said policy, yet, nevertheless, in view of the findings of the lower court and in
view of the apparent conflict in the testimony, we can not find that there is a preponderance of
evidence showing that the plaintiff did actually set fire or cause fire to be set to the goods in
question. The lower court, in discussing this question, said:
As to the claim that the loss occurred through the voluntary act of the insured, we consider it
unnecessary to review the evidence in detail. That was done by another branch of this court
in disposing of the criminal prosecution brought against the insured, on the same ground,
based mainly on the same evidence. And regardless of whether or not the judgment in that
proceeding is res adjudicata as to anything here, we are at least of the opinion that the
evidence to establish this defense should not be materially less convincing than that required
in order to convict the insured of the crime of arson. (Turtell vs. Beamount, 25 Rev. Rep.,
644.) In order to find that the defense of incendiarism was established here, we would be
obliged, therefore, in effect to set aside the findings of the judge and assessors in the criminal
cause, and this we would be loath to do even though the evidence now produced were much
stronger than it is.
With reference to the sixth assignment of error above noted, to wit:itc@alf That the court
erred in holding that the policy of insurance was in force at the time of said fire and that the
acts or omissions on the part of the insured which caused or tended to cause a forfeiture of
the policy were waived by the defendant, the lower court, in discussing this question, said:
Regardless of the question whether the plaintiff's letter of April 20 (Exhibit B) was a sufficient
compliance with the requirement that he furnish notice of loss, the fact remains that on the
following day the insurers replied by a letter (Exhibit C) declaring that the "policies were null
and void," and in effect denying liability. It is well settled by a preponderance of authorities
that such a denial is a waiver of notice of loss, because if the "policies are null and void," the
furnishing of such notice would be vain and useless. (13 Am. & Eng. Encyc. of Law, 347, 348,
349.) Besides, "immediate notice" is construed to mean only within a reasonable time.
Much the same may be said as to the objection that the insured failed to furnish to the
insurers his books and papers or to present a detailed statement to the "juez municipal," in
accordance with article 404 of the Code of Commerce. The last-named provision is similar to
one appearing in many American policies requiring a certificate from a magistrate nearest the
loss regarding the circumstance thereof. A denial of liability on other grounds waives this
requirement (O'Niel vs. Buffalo Fire Insurance Company, 3 N. Y., 122; Peoria Marine Ins. Co.
vs. Whitehill, 25 Ill., 382), as well as that relating to the production of books and papers (Ga.
Home Ins. Co. vs. Goode & Co., 95 Va., 751; 66 Jur. Civ., 16). Besides, the insured might
have had difficulty in attempting to comply with this clause, for there is no longer an official
here with the title of "juez municipal."
Besides the foregoing reasons, it may be added that there was no requirement in the policy in
question that such notice be given.
With reference to the assignments of error numbers 7, 9, and 10, they are too general in their
character to merit consideration.
With reference to the eight assignment of error above noted, the defendant and appellant
contends that he was entitled to have the amount of his responsibility reduced by the full
value (P1,250) of the said automobile.
It does not positively appear of record that the automobile in question was not included in the
other policies. It does appear that the automobile was saved and was considered as a part of
the salvaged. It is alleged that the salvage amounted to P4,000, including the automobile.
This amount (P4,000) was distributed among the different insurers and the amount of their
responsibility was proportionately reduced. The defendant and appellant in the present case
made no objection at any time in the lower court to that distribution of the salvage. The claim
is now made for the first time. No reason is given why the objection was not made at the time
of the distribution of the salvage, including the automobile, among all of the insurers. The
lower court had no opportunity to pass upon the question now presented for the first time.
The defendant stood by and allowed the other insurers to share in the salvage, which he
claims now wholly belonged to him. We think it is now too late to raise the question.
For all the foregoing reasons, we are of the opinion that the judgment of the lower court
should be affirmed, and it is hereby ordered that judgment be entered against the defendant
and in favor of the plaintiff for the sum of P9,841.50, with interest at the rate of 6 per cent
from the 13th of July, 1908, with costs. So ordered.
Arellano, C. J., and Torres, J., concur.
Trent, J., concurs in the result.
Moreland, J., dissents.
G.R. No. 94052 August 9, 1991
ORIENTAL ASSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS AND PANAMA SAW MILL CO., INC., respondents.
Alejandro P. Ruiz, Jr. for petitioner.
Federico R. Reyes for private respondent.
MELENCIO-HERRERA, J:
An action to recover on a marine insurance policy, issued by petitioner in favor of private
respondent, arising from the loss of a shipment of apitong logs from Palawan to Manila.
The facts relevant to the present review disclose that sometime in January 1986, private
respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong
logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport
the logs by sea to Manila and insured it against loss for P1-M with petitioner Oriental
Assurance Corporation (Oriental Assurance). There is a claim by Panama, however, that the
insurance coverage should have been for P3-M were it not for the fraudulent act of one — Typhoon warranty clause
Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00 for the payment of the
premium for a P3-M policy. — Omnibus clause.

Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which stipulated, The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a
among others: volume of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a
volume of 1,000 cubic meters.
Name of Insured:
Panama Sawmill, Inc. On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole' But, as
Karuhatan, Valenzuela fate would have it, during the voyage, rough seas and strong winds caused damage to Barge
Metro Manila TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.

Vessel: Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its
contracted liability was for "TOTAL LOSS ONLY." The rejection was upon the
MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs recommendation of the Tan Gatue Adjustment Company.
Barge Transpac 1,000-1,000 cubic meter apitong Logs
Voyage or Period of Insurance: Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for
Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and
From Palawan-ETD January 16, 1986 Oriental Assurance, before the Regional Trial Court, Kalookan, Branch 123, docketed as Civil
To: Manila Case No. C-12601.

Subject matter Insured: After trial on the merit, the RTC1 rendered its Decision, with the following dispositive portion:

2,000 cubic meters apitong Logs WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:
Agreed Value
1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama Saw Mill
Amount Insured Hereunder: Inc. the amount of P415,000.00 as insurance indemnity with interest at the rate of 12% per
annum computed from the date of the filing of the complaint;
Pesos: One Million Only (P1,000,000.00)
Philippine Currency 2. Ordering Panama Saw Mill to pay defendant Ever Insurance Agency or Antonio Sy Lee
Yong, owner thereof, (Ever being a single proprietorship) for the amount of P20,000.00 as
Premium — P2,500.00 rate — 0.250% attorney's fee and another amount of P20,000.00 as moral damages.

Doc. stamps 187.60 Invoice No. 157862 3. Dismissing the complaint against defendant Benito Sy Lee Yong.

l % P/tax 25.00 SO ORDERED.

TOTAL P2,712.50 On appeal by both parties, respondent Appellate Court2 affirmed the lower Court judgment in
all respects except for the rate of interest, which was reduce from twelve (12%) to six (6%)
CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES per annum.

Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following Both Courts shared the view that the insurance contract should be liberally construed in order
clauses: to avoid a denial of substantial justice; and that the logs loaded in the two barges should be
treated separately such that the loss sustained by the shipment in one of them may be
— Civil Code Article 1250 Waiver clause considered as "constructive total loss" and correspondingly compensable.
In this Petition for Review on Certiorari, Oriental Assurance challenges the aforesaid
dispositions. In its Comment, Panama, in turn, maintains that the constructive total loss
should be based on a policy value of P3-M and not P1-M, and prays that the award to Ever
Insurance Agency or Antonio Sy Lee Yong of damages and attorney's fees be set aside.
The question for determination is whether or not Oriental Assurance can be held liable under
its marine insurance policy based on the theory of a divisible contract of insurance and,
consequently, a constructive total loss.
Our considered opinion is that no liability attaches.
The terms of the contract constitute the measure of the insurer liability and compliance
therewith is a condition precedent to the insured's right to recovery from the insurer (Perla
Compania de Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA
741). Whether a contract is entire or severable is a question of intention to be determined by
the language employed by the parties. The policy in question shows that the subject matter
insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs
were loaded on two different barges did not make the contract several and divisible as to the
items insured. The logs on the two barges were not separately valued or separately insured.
Only one premium was paid for the entire shipment, making for only one cause or
consideration. The insurance contract must, therefore, be considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be either
actual or constructive (Sec. 129, Insurance Code). An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which
he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured. (Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured a right to abandon, under
Section 139 of the Insurance Code. This provision reads:
SECTION 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion thereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when the cause of the loss is a peril
injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended
to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
xxx xxx xxx
(Emphasis supplied)
Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose
of computing the more than three-fourths value of the logs actually lost, considered the cargo
in one barge as separate from the logs in the other. Thus, it concluded that the loss of 497
pieces of logs from barge TPAC-1000, mathematically speaking, is more than three-fourths
(¾) of the 598 pieces of logs loaded in that barge and may, therefore, be considered as
constructive total loss.
The basis thus used is, in our opinion, reversible error.1âwphi1 The requirements for the
application of Section 139 of the Insurance Code, quoted above, have not been met. The logs
involved, although placed in two barges, were not separately valued by the policy, nor
separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total
number of logs loaded on the same barge can not be made the basis for determining
constructive total loss. The logs having been insured as one inseparable unit, the correct
basis for determining the existence of constructive total loss is the totality of the shipment of
logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of
the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of
all 1,208 pieces of logs, the shipment can not be said to have sustained a constructive total
loss under Section 139(a) of the Insurance Code.
In the absence of either actual or constructive total loss, there can be no recovery by the
insured Panama against the insurer, Oriental Assurance.
By reason of the conclusions arrived at, Panama's asseverations in its Comment need no
longer be passed upon, besides the fact that no review, in proper form, has been sought by it.
WHEREFORE, the judgment under review is hereby SET ASIDE and petitioner, Oriental
Assurance Corporation, is hereby ABSOLVED from liability under its marine insurance policy
No. OAC-M-86/002. No costs.
SO ORDERED.
Paras, Padilla, Sarmiento and Regalado, JJ., concur.
G.R. No. L-16163 February 28, 1963
IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

Eleazaro A. Samson for plaintiffs-appellants.
Abello & Macias for defendant-appellee.
MAKALINTAL, J.:
Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to recover
the sum of P5,000.00, corresponding to the face value of an insurance policy issued by
defendant on the life of Estefania A. Saturnino, and the sum of P1,500.00 as attorney's fees.
Defendant, now appellee, set up special defenses in its answer, with a counterclaim for
damages allegedly sustained as a result of the unwarranted presentation of this case. 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.
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 on November 16, 1957, witnessed by appellee's agent Edward A.
Santos. The policy was issued on the same day, upon payment of the first year's premium of
P339.25. 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 or on September 9, 1957,
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 A. 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."
The question at issue is whether or not the insured made such false representations of
material facts as to avoid the policy. There can be no dispute that the information given by
her in her application for insurance was false, namely, that she had never had cancer or
tumors, or consulted any physician or undergone any operation within the preceding period of
five years. Are the facts then falsely represented material? 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 the case of Kasprzyk v. Metropolitan Insurance Co., 140 N.Y.S.
211, 214, it was held:
Moreover, if it were the law that an insurance company could not depend a policy on the
ground of misrepresentation, unless it could show actual knowledge on the part of the
applicant that the statements were false, then it is plain that it would be impossible for it to
protect itself and its honest policyholders against fraudulent and improper claims. It would be
wholly at the mercy of any one who wished to apply for insurance, as it would be impossible
to show actual fraud except in the extremest cases. It could not rely on an application as
containing information on which it could act. There would be no incentive to an applicant to
tell the truth.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1äwphï1.ñët
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" (Sections 24 & 26, Act No. 2427). In the
case of Argente v. West Coast Life Insurance Co., 51 Phil. 725, 732, this Court said, quoting
from Joyce, The Law of Insurance, 2nd ed., Vol. 3:
"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."
The judgment appealed from, dismissing the complaint and awarding the return to appellants
of the premium already paid, with interest at 6% up to January 29, 1959, affirmed, with costs
against appellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,
Paredes, Dizon and Regala, JJ., concur.
G.R. No. L-24899 March 19, 1928
BERNARDO ARGENTE, plaintiff-appellant,
vs.
WEST COAST LIFE INSURANCE CO., defendant-appellee.
Abad Santos, Camus, Delgado & Recto for appellant.
Gibbs & McDonough and Roman Ozaeta for appellee.
MALCOLM, J.:
This is an action upon a joint life insurance policy for P15,000 issued by the defendant, the
West Coast Life Insurance Co., on May 15, 1925, in favor of the plaintiff, Bernardo Argente,
and his wife, Vicenta de Ocampo, the latter having died on November 18, 1925. Fraud in
obtaining the policy was pleaded by way of special defense. On the issue thus suggested, the
court adopted the theory of the defendant, and held the insurance policy null and void, with
the result that the complaint was dismissed, with costs.
On February 9, 1925, Bernardo Argente signed an application for joint insurance with his wife
in the sum of P2,000. The wife, Vicenta de Ocampo, signed a like application for the same
policy. Both applications, with the exception of the names and the signatures of the
applicants, were written by Jose Geronimo del Rosario, an agent for the West Coast Life
Insurance Co. But all the information contained in the applications was furnished the agent by
Bernardo Argente.
Pursuant to his application, Bernardo Argente was examined by Dr. Cesareo Sta. Ana, a
medical examiner for the West Coast Life Insurance Co., on February 10, 1925, in the office
of the Customs House. The result of such examination was recorded in the Medical
Examiner's Report, and with the exception of the signature of Bernardo Argente, was in the
hand-writing of Doctor Sta. Ana. But the information or answers to the questions contained on
the face of the Medical Examiner's Report were furnished the doctor by the applicant,
Bernardo Argente.
Pursuant to her application, Vicenta de Ocampo, wife of the plaintiff, was examined by Dr.
Cesareo Sta. Ana on February 10, 1925, at her residence in Manila. The result of the medical
examination, including among other things, the answers given by Vicenta de Ocampo to the
questions propounded to her by the physician, appears in the Medical Examiner's Report.
On May 9, 1925, Bernardo Argente and his wife submitted to the West Coast Life Insurance
Co. an amended application for insurance, increasing the amount thereof to P15,000, and
asked that the policy be dated May 15, 1925. The amended application was accompanied by
the documents entitled "Short Form Medical Report." In both of these documents appear
certain questions and answers.
A temporary policy for P15,000 was issued to Bernardo Argente and his wife as of May 15,
but it was not delivered to Bernardo Argente until July 2, 1925, when the first quarterly
premium on the policy was paid. In view of the fact that more than thirty days had elapsed
since the applicants were examined by the company's physician, each of them was required
to file a certificate of health before the policy was delivered to them.
On November 18, 1925, Vicenta de Ocampo died of cerebral apoplexy. Thereafter Bernardo
Argente presented a claim in due form to the West Coast Life Insurance Co. for the payment
of the sum of P15,000 the amount of the joint life Insurance policy. Following investigation
conducted by the Manager of the Manila office of the insurance company, it was apparently
disclosed that the answers given by the insured in their medical examinations with regard to
their health and previous illness and medical attendance were untrue. For that reason, the
West Coast Life Insurance Co. refused to pay the claim of Bernardo Argente, and on May 25,
1926, wrote him to the effect that the claim was rejected because the insurance was obtained
through fraud and misrepresentation.
It is admitted that it appears in the Medical Examiner's Report that Bernardo Argente, in
response to the question asked by the medical examiner, "Have you ever consulted a
physician for, or have you ever suffered from any ailment or disease of, the brain or nervous
system?" answered "No." To the question, "Have you consulted a physician for any ailment or
disease not included in your above answer," answered "Yes. Nature of Ailment, Disease or
Injury. Scabies, Number of attacks 1, Date 1911. Duration 1 month, Severity Fair, results and,
if within five years, name and address of every physician consulted. Dr. P. Guazon. Cured.
Dr. Guazon is dead now." And to the question, "What physician or physicians, if any, not
named above, have you consulted or been treated by, within the last five years and for what
illness or ailment? (If none, so state)" answered "No." It is, however, not disputed that on
January 10, 11, and 13, 1923, Bernardo Argente was confined in the Philippine General
Hospital where he was treated by Dr. Agerico B. M. Sison for cerebral congestion and Bell's
Palsy.
It is further admitted that it appears in the Medical Examiner's Report that Vicenta de
Ocampo, in response to the question asked by the medical examiner, "How frequently, if at
all, and in what quantity do you use beer, wine, spirits or other intoxicants?" answered "Beer
only in small quantities occasionally." To the question, "Have you ever consulted a physician
for or have you ever suffered from any ailment or disease of the brain or nervous system?"
answered "No." To the question, "What physician or physicians, if any, not named above,
have you consulted or been treated by, within the last five years and for what illness or
ailment? (If none, so state)" answered "None." And to the question, "Are you in good health
as far as you know and believe?" answered "Yes." It is, however, not disputed that Vicenta de
Ocampo was taken by a patrolman, at the request of her husband, Bernardo Argente, on May
19, 1924, to the Meisic police station, and from there was transferred to the San Lazaro
Hospital. In San Lazaro Hospital, her case was diagnosed by the admitting physician as
"alcoholism," but later Doctor Domingo made a diagnosis of probable "manic-depressive
psychosis," and still, later in Mary Chiles Hospital, made a final diagnosis of "phycho-
neurosis."
The plaintiff, Bernardo Argente, while readily conceding most of the facts herein narrated, yet
alleges that both he and his wife revealed to the company's physician. Doctor Sta. Ana, all
the facts concerning the previous illnesses and medical attendance, but that Doctor Sta. Ana,
presumably acting in collusion, with the insurance agent, Jose Geronimo del Rosario, failed
to record them in the medical reports. The evidence on these points consists of the testimony
of the plaintiff and his subordinate clerk, Apolonio Espiritu, on the one hand, and of the
testimony of Doctor Sta. Ana and Jose Geronimo del Rosario on the other. On the question of
fact thus raised, the trial judge found with the insurance company. In so doing, we believe
that His Honor gave proper inclination to the weight of the proof. There appears no motive
whatever on the part of Doctor Sta. Ana to falsify the Medical Examiner's Reports and
thereby not only jeopardize his career as a physician, but also gravely implicate himself
criminally.
What has heretofore been stated in this decision is gleaned to a great extent the carefully
prepared decision of the trial judge, the Honorable George R. Harvey. The court found from
the evidence that the representations made by Bernardo Argente and his wife in their
applications to the defendant for life insurance were false with respect to their estate of health
during the period of five years preceding the date of such applications, and that they knew the
representations made by them in their applications were false. The court further found from
the evidence that the answers given by Bernardo Argente and his wife at the time of the
medical examination by Doctor Sta. Ana were false with respect to the condition of their
health at that time and for a period of several years prior thereto. Based on these findings
which must here be accepted since the stenographic transcript is incomplete, the question
arises as to the estate of the law in relation thereto.
One ground for the rescission of a contract of insurance under the Insurance Act is "a
concealment," which in section 25 is defined as "A neglect to communicate that which a party
knows and ought to communicate." Appellant argues that the alleged concealment was
immaterial and insufficient to avoid the policy. We cannot agree. In an action on a life
insurance policy where the evidence conclusively shows that the answers to questions
concerning diseases were untrue, the truth of falsity of the answers become the determining
factor. In the policy was procured by fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent. It can fairly be assumed that had the
true facts been disclosed by the assured, the insurance would never have been granted.
In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following:
Concealment exists where the assured has 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 designated and intentionally with holds the same.
Another rule is that if the assured undertakes to state all the circumstances affecting the risk,
a full and fair statement of all is required.
It is also held that the concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld; so it is held under English law
that if no inquiries are made and no fraud or design to conceal enters into the concealment
the contract is not avoided. And it is determined that even though silence may constitute
misrepresentation or concealment it is not itself necessarily so as it is a question of fact. Nor
is there a concealment justifying a forfeiture where the fact of insanity is not disclosed no
questions being asked concerning the same. . . .
But it would seem that if a material fact is actually known to the assured, its concealment
must of itself necessarily be a fraud, and if the fact is one which the assured ought to know,
or is presumed to know, the presumption of knowledge ought to place the assured in the
same position as in the former case with relation to material facts; and if the jury in such
cases find the fact material, and one tending to increase the risk, it is difficult to see how the
inference of a fraudulent intent or intentional concealment can be avoided. And it is declared
that if a material fact concealed by assured it is equivalent to a false representation that it
does not exist and that the essentials are the truth of the representations whether they were
intended to mislead and did insurer accept them as true and act upon them to his prejudice.
So it is decided that under a stipulation voiding the policy for concealment or
misrepresentation of any material fact or if his interest is not truly stated or is either than the
sole and unconditional ownership the facts are unimportant that insured did not intend to
deceive or withhold information as to encumbrances even though no questions were asked.
And if insured while being examined for life insurance and knowing that she had heart
disease, falsely stated that she was in good health, and though she could not read the
application, it was explained to her and the questions asked through an interpreter, and the
application like the policy contained and provision that no liability should be incurred unless
the policy was delivered while the insured was in good health, the court properly directed a
verdict for the insurer, though a witness who was present at the examination testified that the
insured was not asked whether she had heart disease.
xxx xxx xxx
The basis of the rule vitiating the contract in case 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 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. The principal question, therefore, must be, Was the assurer misled or deceived into
entering a contract obligation or in fixing the premium of insurance by a withholding of
material information of facts within the assured's knowledge or presumed knowledge?
It therefore follows that the assurer in assuming a risk is entitled to know every material fact
of which the assured has exclusive or peculiar knowledge, as well as all material facts which
directly tend to increase the hazard or risk which are known by the assured, or which ought to
be or are presumed to be known by him. And a concealment of such facts vitiates the policy.
"It does not seem to be necessary . . . that the . . . suppression of the truth should have been
willful." If it were but an inadvertent omission, yet if it were material to the risk and such as the
plaintiff should have known to be so, it would render the policy void. But it is held that if untrue
or false answers are given in response to inquiries and they relate to material facts the policy
is avoided without regard to the knowledge or fraud of assured, although under the statute
statements are representations which must be fraudulent to avoid the policy. So under certain
codes the important inquiries are whether the concealment was willful and related to a matter
material to the risk.
xxx xxx xxx
If the assured has exclusive knowledge of material facts, he should fully and fairly disclose
the same, whether he believes them material or not. But notwithstanding this general rule it
will not infrequently happen, especially in life risks, that the assured may have a knowledge
actual or presumed of material facts, and yet entertain an honest belief that they are not
material. . . . The determination of the point whether there has or has not been a material
concealment must rest largely in all cases upon the form of the questions propounded and
the exact terms of the contract. Thus, where in addition to specifically named diseases the
insured was asked whether he had any sickness within ten years, to which he answered
"No," and it was proven that within that period he had a slight of pharyngitis, it was held a
question properly for the jury whether such an inflammation of the throat was a "sickness"
within the intent of the inquiry, and the court remarked on the appeal decision that if it could
be held as a matter of law that the policy was thereby avoided, then it was a mere device on
the part of insurance companies to obtain money without rendering themselves liable under
the policy. . . .
. . . The question should be left to the jury whether the assured truly represented the state of
his health so as not mislead or deceive the insurer; and if he did not deal a good faith with
insurer in that matter, that the inquiry should be made, Did he know the state of his health so
as to be able to furnish a proper answer to such questions as are propounded? A
Massachusetts case, if construed as it is frequently cited, would be opposed to the above
conclusion; but, on the contrary, it sustains it, for the reason that symptoms of consumption
had so far developed themselves within a few months prior to effecting the insurance as to
induce a reasonable belief that the applicant had that fatal disease, and we should further
construe this case as establishing the rule that such a matter cannot rest alone upon the
assured's belief irrespective of what is a reasonable belief, but that it ought to be judged by
the criterion whether the belief is one fairly warranted by the circumstances. A case in
Indiana, however, holds that if the assured has some affection or ailment of one or more of
the organs inquired about so well-defined and marked as to materially derange for a time the
functions of such organ, as in the case of Bright's disease, the policy will be avoided by a
nondisclosure, irrespective of the fact whether the assured knew of such ailment or not. . . .
Lastly, appellant contends that even if the insurance company had a right to rescind the
contract, such right cannot now be enforced in view of the provisions of section 47 of the
Insurance Act providing "Whenever a right to rescind a contract of insurance is given to their
insurer by provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract." This section was derived from section 2583 of
the California Civil Code, but in contrast thereto, makes use of the imperative "must" instead
of the permissive "may." Nevertheless, there are two answers to the problem as propounded.
The first is that the California law as construed by the code examiners, at whose
recommendation it was adopted, conceded that "A failure to exercise the right (of rescission),
cannot, of course, prejudice any defense to the action which the concealment may furnish."
(Codes of California annotated; Tan Chay Heng vs. West Coast Life Insurance Company
[1927], p. 80, ante.) The second answer is that the insurance company more than one month
previous to the commencement of the present action wrote the plaintiff and informed him that
the insurance contract was void because it had been procured through fraudulent
representations, and offered to refund to the plaintiff the premium which the latter had paid
upon the return of the policy for cancellation. As held in California as to a fire insurance
policy, where any of the material representations are false, the insurer's tender of the
premium and notice that the policy is canceled, before the commencement of suit thereon,
operate to rescind the contract of insurance. (Rankin vs. Amazon Insurance Co. [1891], 89
Cal., 203.)
We are content to rest our judgment on the findings of the trial court, and on the law
governing those facts, with the result that the various assignments of error are found to be
without persuasive merit.

Judgment affirmed, with the costs of this instance against the appellant.
Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
G.R. No. 92492 June 17, 1993
THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION,
respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as
suffering from "sinus tachycardia." The doctor prescribed the following fro him: Trazepam, a
tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on
3 August 1982 and this time was found to have "acute bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy
with respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife,
Thelma Canilang, as his beneficiary.1 Jaime Canilang was issued ordinary life insurance
Policy No. 345163, with the face value of P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia."2 Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific
which the insurer denied on 5 December 1983 upon the ground that the insured had
concealed material information from it.
Petitioner then filed a complaint against Great Pacific with the Insurance Commission for
recovery of the insurance proceeds. During the hearing called by the Insurance
Commissioner, petitioner testified that she was not aware of any serious illness suffered by
her late husband3 and that, as far as she knew, her husband had died because of a kidney
disorder.4 A deposition given by Dr. Wilfredo Claudio was presented by petitioner. There Dr.
Claudio stated that he was the family physician of the deceased Jaime Canilang5 and that he
had previously treated him for "sinus tachycardia" and "acute bronchitis."6 Great Pacific for its
part presented Dr. Esperanza Quismorio, a physician
and a medical underwriter working for Great Pacific.7 She testified that the deceased's
insurance application had been approved on the basis of his medical declaration.8 She
explained that as a rule, medical examinations are required only in cases where the applicant
has indicated in his application for insurance coverage that he has previously undergone
medical consultation and hospitalization.9
In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered
Great Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after
holding that:
1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it
would not have affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the health condition of the applicant by the
issuance of the policy despite the lack of answers to "some of the pertinent questions" in the
insurance application;
3. there was no intentional concealment on the part of the insured Jaime Canilang as he had
thought that he was merely suffering from a minor ailment and simple cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not concealment
was intentionally made, was not applicable to Canilang's case as that law became effective
only on 1 June 1985.
On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the
Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's
counterclaim. The Court of Appealed found that the use of the word "intentionally" by the
Insurance Commissioner in defining and resolving the issue agreed upon by the parties at
pre-trial before the Insurance Commissioner was not supported by the evidence; that the
issue agreed upon by the parties had been whether the deceased insured, Jaime Canilang,
made a material concealment as the state of his health at the time of the filing of insurance
application, justifying respondent's denial of the claim. The Court of Appeals also found that
the failure of Jaime Canilang to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great Pacific to
enable the latter to make proper inquiries. The Court of Appeals finally held that the Ng Gan
Zee case which had involved misrepresentation was not applicable in respect of the case at
bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari
alleging that:
1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that
the issue in the case agreed upon between the parties before the Insurance Commission is
whether or not Jaime Canilang "intentionally" made material concealment in stating his state
of health;
2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions
does not amount to fraud and private respondent is deemed to have waived inquiry thereto.
11
The medical declaration which was set out in the application for insurance executed by Jaime
Canilang read as follows:

MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any medical
or surgical advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
__________________________________________________________________________
______
GENERAL DECLARATION
I hereby declare that all the foregoing answers and statements are complete, true and
correct. I hereby agree that if there be any fraud or misrepresentation in the above
statements material to the risk, the INSURANCE COMPANY upon discovery within two (2)
years from the effective date of insurance shall have the right to declare such insurance null
and void. That the liabilities of the Company under the said Policy/TA/Certificate shall accrue
and begin only from the date of commencement of risk stated in the Policy/TA/Certificate,
provided that the first premium is paid and the Policy/TA/Certificate is delivered to, and
accepted by me in person, when I am in actual good health.
Signed at Manila his 4th day of August, 1992.
Illegible
——————————
Signature of Applicant. 12
We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and
2 of the medical declaration, he failed to disclose in the appropriate space, under the caption
"Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio who had found him to be
suffering from "sinus tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time Great Pacific issued the contract of
insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as
the Insurance Code of 1978, which went into effect on 11 June 1978. These provisions read
as follows:
Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith,
all factors within his knowledge which are material to the contract and as to which he makes
no warranty, and which the other has not the means of ascertaining. (Emphasis supplied)
Under the foregoing provisions, the information concealed must be information which the
concealing party knew and "ought to [have] communicate[d]," that is to say, information which
was "material to the contract." The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:
Sec. 31. Materially is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.
(Emphasis supplied)
"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute." 13 The symptoms of this condition include pounding in the chest and sometimes
faintness and weakness of the person affected. The following elaboration was offered by
Great Pacific and set out by the Court of Appeals in its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per minute.
(Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among others, a
common reaction to heart disease, including myocardial infarction, and heart failure per se.
(Henry J.L. Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.) The medication
prescribed by Dr. Claudio for treatment of Canilang's ailment on June 18, 1982, indicates the
condition that said physician was trying to manage. Thus, he prescribed Trazepam,
(Philippine Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is
anti-anxiety, anti-convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for
palpitations and nervous heart. Such treatment could have been a very material information
to the insurer in determining the action to be take on Canilang's application for life insurance
coverage. 14
We agree with the Court of Appeals that the information which Jaime Canilang failed to
disclose was material to the ability of Great Pacific to estimate the probable risk he presented
as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis
made and medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have made further inquiries and would have
probably refused to issue a non-medical insurance policy or, at the very least, required a
higher premium for the same coverage. 15 The materiality of the information withheld by
Great Pacific did not depend upon the state of mind of Jaime Canilang. A man's state of mind
or subjective belief is not capable of proof in our judicial process, except through proof of
external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon the actual or physical events which
ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon
the party to whom the communication should have been made, in assessing the risk involved
in making or omitting to make further inquiries and in accepting the application for insurance;
that "probable and reasonable influence of the facts" concealed must, of course, be
determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v.
Philippine-American Life Insurance Company, 16 this Court held that:
. . . if anything, the waiver of medical examination [in a non-medical insurance contract]
renders even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue the
policy or not . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang
believed that he was suffering from minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time range
material for present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so
as to read as follows:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to have been that by deleting
the phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment
by B.P. Blg. 874) intended to limit the kinds of concealment which generate a right to rescind
on the part of the injured party to "intentional concealments." This argument is not
persuasive. As a simple matter of grammar, it may be noted that "intentional" and
"unintentional" cancel each other out. The net result therefore of the phrase "whether
intentional or unitentional" is precisely to leave unqualified the term "concealment." Thus,
Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment"
without regard to whether such concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact superfluous. The deletion of the phrase
"whether intentional or unintentional" could not have had the effect of imposing an affirmative
requirement that a concealment must be intentional if it is to entitle the injured party to rescind
a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether
intentional or unintentional" merely underscored the fact that all throughout (from 1914 to
1985), the statute did not require proof that concealment must be "intentional" in order to
authorize rescission by the injured party.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such
that the failure to communicate must have been intentional rather than merely inadvertent.
For Jaime Canilang could not have been unaware that his heart beat would at times rise to
high and alarming levels and that he had consulted a doctor twice in the two (2) months
before applying for non-medical insurance. Indeed, the last medical consultation took place
just the day before the insurance application was filed. In all probability, Jaime Canilang went
to visit his doctor precisely because of the discomfort and concern brought about by his
experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out
answers to some of the questions in the insurance application. Such failure precisely
constituted concealment on the part of Canilang. Petitioner's argument, if accepted, would
obviously erase Section 27 from the Insurance Code of 1978.
It remains only to note that the Court of Appeals finding that the parties had not agreed in the
pretrial before the Insurance Commission that the relevant issue was whether or not Jaime
Canilang had intentionally concealed material information from the insurer, was supported by
the evidence of record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes
of the Pre-trial Conference dated 15 October 1984, which "readily shows that the word
"intentional" does not appear in the statement or definition of the issue in the said Order and
Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the
Court of Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED.
No pronouncement as to the costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
G.R. No. L-30685 May 30, 1983
NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.
Alberto Q. Ubay for plaintiff-appellee.

Santiago F. A lidio for defendant-appellant.
ESCOLIN, J.:
This is an appeal from the judgment of the Court of First Instance of Manila, ordering the
appellant Asian-Crusader Life Assurance Corporation to pay the face value of an insurance
policy issued on the life of Kwong Nam the deceased husband of appellee Ng Gan Zee.
Misrepresentation and concealment of material facts in obtaining the policy were pleaded to
avoid the policy. The lower court rejected the appellant's theory and ordered the latter to pay
appellee "the amount of P 20,000.00, with interest at the legal rate from July 24, 1964, the
date of the filing of the complaint, until paid, and the costs. "
The Court of Appeals certified this appeal to Us, as the same involves solely a question of
law.
On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the
sum of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date,
appellant, upon receipt of the required premium from the insured, approved the application
and issued the corresponding policy. On December 6, 1963, Kwong Nam died of cancer of
the liver with metastasis. All premiums had been religiously paid at the time of his death.
On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for
payment of the face value of the policy. On the same date, she submitted the required proof
of death of the insured. Appellant denied the claim on the ground that the answers given by
the insured to the questions appealing in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner, the Hon.
Francisco Y. Mandamus, and the latter, after conducting an investigation, wrote the appellant
that he had found no material concealment on the part of the insured and that, therefore,
appellee should be paid the full face value of the policy. This opinion of the Insurance
Commissioner notwithstanding, appellant refused to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to
the following question appearing in the application for life insurance-
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied for? If, so,
name company and date.
In its brief, appellant rationalized its thesis thus:
... As pointed out in the foregoing summary of the essential facts in this case, the insured had
in January, 1962, applied for reinstatement of his lapsed life insurance policy with the Insular
Life Insurance Co., Ltd, but this was declined by the insurance company, although later on
approved for reinstatement with a very high premium as a result of his medical examination.
Thus notwithstanding the said insured answered 'No' to the [above] question propounded to
him. ... 1
The lower court found the argument bereft of factual basis; and We quote with approval its
disquisition on the matter-
On the first question there is no evidence that the Insular Life Assurance Co., Ltd. ever
refused any application of Kwong Nam for insurance. Neither is there any evidence that any
other insurance company has refused any application of Kwong Nam for insurance.
... The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's
request for reinstatement and amendment of his lapsed insurance policy on April 24, 1962
[Exh. L-2 Stipulation of Facts, Sept. 22, 1965). The Court notes from said application for
reinstatement and amendment, Exh. 'L', that the amount applied for was P20,000.00 only and
not for P50,000.00 as it was in the lapsed policy. The amount of the reinstated and amended
policy was also for P20,000.00. It results, therefore, that when on May 12, 1962 Kwong Nam
answered 'No' to the question whether any life insurance company ever refused his
application for reinstatement of a lapsed policy he did not misrepresent any fact.
... the evidence shows that the application of Kwong Nam with the Insular Life Assurance Co.,
Ltd. was for the reinstatement and amendment of his lapsed insurance policy-Policy No.
369531 -not an application for a 'new insurance policy. The Insular Life Assurance Co., Ltd.
approved the said application on April 24, 1962. Policy No. 369531 was reinstated for the
amount of P20,000.00 as applied for by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new policy
was issued by the Insular Life Assurance Co., Ltd. to Kwong Nam in connection with said
application for reinstatement and amendment. Such being the case, the Court finds that there
is no misrepresentation on this matter. 2
Appellant further maintains that when the insured was examined in connection with his
application for life insurance, he gave the appellant's medical examiner false and misleading
information as to his ailment and previous operation. The alleged false statements given by
Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has been associated
with ulcer of stomach. Tumor taken out was hard and of a hen's egg size. Operation was two
[2] years ago in Chinese General Hospital by Dr. Yap. Now, claims he is completely
recovered.
To demonstrate the insured's misrepresentation, appellant directs Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the Chinese
General Hospital on May 22, 1960, i.e., about 2 years before he applied for an insurance
policy on May 12, 1962. According to said report, Dr. Fu Sun Yuan had diagnosed the
patient's ailment as 'peptic ulcer' for which, an operation, known as a 'sub-total gastric
resection was performed on the patient by Dr. Pacifico Yap; and

[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen
removed from the patient's body was 'a portion of the stomach measuring 12 cm. and 19 cm.
along the lesser curvature with a diameter of 15 cm. along the greatest dimension.
On the bases of the above undisputed medical data showing that the insured was operated
on for peptic ulcer", involving the excision of a portion of the stomach, appellant argues that
the insured's statement in his application that a tumor, "hard and of a hen's egg size," was
removed during said operation, constituted material concealment.
The question to be resolved may be propounded thus: Was appellant, because of insured's
aforesaid representation, misled or deceived into entering the contract or in accepting the risk
at the rate of premium agreed upon?
The lower court answered this question in the negative, and We agree.
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract, and which the other has not the
means of ascertaining, and as to which he makes no warranty. 3
Thus, "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
assurer, but he designedly and intentionally withholds the same." 4
It has also been held "that the concealment must, in the absence of inquiries, be not only
material, but fraudulent, or the fact must have been intentionally withheld." 5
Assuming that the aforesaid answer given by the insured is false, as claimed by the
appellant. Sec. 27 of the Insurance Law, above-quoted, nevertheless requires that fraudulent
intent on the part of the insured be established to entitle the insurer to rescind the contract.
And as correctly observed by the lower court, "misrepresentation as a defense of the insurer
to avoid liability is an 'affirmative' defense. The duty to establish such a defense by
satisfactory and convincing evidence rests upon the defendant. The evidence before the
Court does not clearly and satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the
tumor for which he was operated on was "associated with ulcer of the stomach." In the
absence of evidence that the insured had sufficient medical knowledge as to enable him to
distinguish between "peptic ulcer" and "a tumor", his statement that said tumor was
"associated with ulcer of the stomach, " should be construed as an expression made in good
faith of his belief as to the nature of his ailment and operation. Indeed, such statement must
be presumed to have been made by him without knowledge of its incorrectness and without
any deliberate intent on his part to mislead the appellant.
While it may be conceded that, from the viewpoint of a medical expert, the information
communicated was imperfect, the same was nevertheless sufficient to have induced
appellant to make further inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 24271 provides as follows:
Section 32. The right to information of material facts maybe waived either by the terms of
insurance or by neglect to make inquiries as to such facts where they are distinctly implied in
other facts of which information is communicated.
It has been held that where, upon the face of the application, a question appears to be not
answered at all or to be imperfectly answered, and the insurers issue a policy without any
further inquiry, they waive the imperfection of the answer and render the omission to answer
more fully immaterial. 6
As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an
important bearing on the question of whether the defendant would undertake the insurance or
not, the court cannot understand why the defendant or its medical examiner did not make any
further inquiries on such matters from the Chinese General Hospital or require copies of the
hospital records from the appellant before acting on the application for insurance. The fact of
the matter is that the defendant was too eager to accept the application and receive the
insured's premium. It would be inequitable now to allow the defendant to avoid liability under
the circumstances."
Finding no reversible error committed by the trial court, the judgment appealed from is hereby
affirmed, with costs against appellant Asian-Crusader life Assurance Corporation.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and De Castro), JJ., concur.
Abad Santos, J., I reserve my vote.
G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI,
respondents.
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-
G.R. CV No. 29068, and its Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I sonography and hematology tests.
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double
indemnity in case of accidental death. The designated beneficiary was his mother,
respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a
claim with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he
answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in the
negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial
Court, Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim
and a list of exhibits consisting of medical records furnished by the Lung Center of the
Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health
condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of
several documents as well as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto, thereby rendering an admission of
the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, condemning the latter to pay the former the amount of One Hundred Thousand
Pesos (P100,000.00) the face value of insured's Insurance Policy No. 3903766, and the
Accidental Death Benefit in the amount of One Hundred Thousand Pesos (P100,000.00) and
further sum of P5,000.00 in the concept of reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the
insured were made in good faith and under a belief that they need not be disclosed.
Moreover, it held that the health history of the insured was immaterial since the insurance
policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The
appellate court ruled that petitioner cannot avoid its obligation by claiming concealment
because the cause of death was unrelated to the facts concealed by the insured. It also
sustained the finding of the trial court that matters relating to the health history of the insured
were irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy. Moreover, the appellate court agreed with the trial court that
the policy was "non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this
Court is not absolute and admits of exceptions, such as when the judgment is based on a
misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was
concealment and misrepresentation, however, the same was made in "good faith" and the
facts concealed or misrepresented were irrelevant since the policy was "non-medical". We
disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to
the contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is called
concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate
of the disadvantages of the proposed contract or in making his inquiries (The Insurance
Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the
insurer matters relating to his health.
The information which the insured failed to disclose were material and relevant to the
approval and issuance of the insurance policy. The matters concealed would have definitely
affected petitioner's action on his application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by petitioner in order for it to reasonably
assess the risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of
the information withheld does not depend on the state of mind of the insured. Neither does it
depend on the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that
he was hospitalized for two weeks prior to filing his application for insurance, raises grave
doubts about his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a
medical examination [in a non-medical insurance contract] renders even more material the
information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a contract of insurance where there is
concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates
of the risks of the proposed insurance policy or in making inquiries (Henson v. The Philippine
American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized
that rescission was exercised within the two-year contestability period as recognized in
Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.