TOPIC: Sections 1-4 of the Insurance Code Surety Corporation (Pioneer).

Subsequently, White Gold was

issued a Certificate of Entry and Acceptance.3Pioneer also
Republic of the Philippines
 issued receipts evidencing payments for the coverage. When
SUPREME COURT White Gold failed to fully pay its accounts, Steamship Mutual
refused to renew the coverage.
FIRST DIVISION Steamship Mutual thereafter filed a case against White Gold for
collection of sum of money to recover the latter’s unpaid
G.R. No. 154514. July 28, 2005 balance. White Gold on the other hand, filed a complaint before
the Insurance Commission claiming that Steamship Mutual
WHITE GOLD MARINE SERVICES, INC., Petitioners, 
 violated Sections 1864 and 1875 of the Insurance Code, while
vs.
 Pioneer violated Sections 299,63007 and 3018 in relation to
PIONEER INSURANCE AND SURETY CORPORATION Sections 302 and 303, thereof.
AND THE STEAMSHIP MUTUAL UNDERWRITING The Insurance Commission dismissed the complaint. It said that
ASSOCIATION (BERMUDA) LTD., Respondents. there was no need for Steamship Mutual to secure a license
because it was not engaged in the insurance business. It
DECISION explained that Steamship Mutual was a Protection and
Indemnity Club (P & I Club). Likewise, Pioneer need not
QUISUMBING, J.: obtain another license as insurance agent and/or a broker for
Steamship Mutual because Steamship Mutual was not engaged
This petition for review assails the Decision1 dated July 30, in the insurance business. Moreover, Pioneer was already
2002 of the Court of Appeals in CA-G.R. SP No. 60144, licensed, hence, a separate license solely as agent/broker of
affirming the Decision2 dated May 3, 2000 of the Insurance Steamship Mutual was already superfluous.
Commission in I.C. Adm. Case No. RD-277. Both decisions The Court of Appeals affirmed the decision of the Insurance
held that there was no violation of the Insurance Code and the Commissioner. In its decision, the appellate court distinguished
respondents do not need license as insurer and insurance agent/ between P & I Clubs vis-à-vis conventional insurance. The
broker. The facts are undisputed. appellate court also held that Pioneer merely acted as a
White Gold Marine Services, Inc. (White Gold) procured a collection agent of Steamship Mutual.
protection and indemnity coverage for its vessels from The In this petition, petitioner assigns the following errors allegedly
Steamship Mutual Underwriting Association (Bermuda) committed by the appellate court,
Limited (Steamship Mutual) through Pioneer Insurance and
 FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT
RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN
THE PHILIPPINES ON THE GROUND THAT IT
COURSED . . . ITS TRANSACTIONS THROUGH ITS
AGENT AND/OR BROKER HENCE AS AN INSURER IT
NEED NOT SECURE A LICENSE TO ENGAGE IN
INSURANCE BUSINESS IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE
RECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN
INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT
RESPONDENT PIONEER NEED NOT SECURE A LICENSE
WHEN CONDUCTING ITS AFFAIR AS AN AGENT/
BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE
LICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THE OFFICERS AND DIRECTORS OF
RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual,
a P & I Club, engaged in the insurance business in the
Philippines? (2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club.
Steamship Mutual admits it does not have a license to do
business in the Philippines although Pioneer is its resident
agent. This relationship is reflected in the certifications issued
by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is
engaged in the insurance business. To buttress its assertion, it
cites the definition of a P & I Club in Hyopsung Maritime Co.,
Ltd. v. Court of Appeals10 as "an association composed of
shipowners in general who band together for the specific
purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in
favor of third parties." It stresses that as a P & I Club,
Steamship Mutual’s primary purpose is to solicit and provide
protection and indemnity coverage and for this purpose, it has
engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I
Club, it is not engaged in the insurance business in the
Philippines. It is merely an association of vessel owners who
have come together to provide mutual protection against
liabilities incidental to shipowning. 11 Respondents
aver Hyopsung is inapplicable in this case because the issue
in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes
"doing an insurance business" or "transacting an insurance
business". These are:
(a) making or proposing to make, as insurer, any insurance
contract;
(b) making, or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
The same provision also provides, the fact that no profit is
derived from the making of insurance contracts, agreements or
transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an
insurance business.12
The test to determine if a contract is an insurance contract or
not, depends on the nature of the promise, the act required to be
performed, and the exact nature of the agreement in the light of
the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it,
one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent
event.14
In particular, a marine insurance undertakes to indemnify the
assured against marine losses, such as the losses incident to a
marine adventure.15 Section 9916 of the Insurance Code
enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative
enterprise where the members are both the insurer and insured.
In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest.17 Additionally,
mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and
defense costs.18
A P & I Club is "a form of insurance against third party
liability, where the third party is anyone other than the P & I
Club and the members."19 By definition then, Steamship
Mutual as a P & I Club is a mutual insurance association
engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the
country albeit without the requisite certificate of authority
mandated by Section 18720 of the Insurance Code. It maintains
a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it was cancelled due to
non-payment of the calls. Thus, to continue doing business
here, Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission.
Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the insurance
business without a license or a certificate of authority from the
Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a
special license?
Pioneer is the resident agent of Steamship Mutual as evidenced
by the certificate of registration22 issued by the Insurance
Commission. It has been licensed to do or transact insurance
business by virtue of the certificate of authority23 issued by the
same agency. However, a Certification from the Commission
states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company,
it needs a separate license to act as insurance agent for
Steamship Mutual. Section 299 of the Insurance Code clearly
states: SEC. 299 . . .
No person shall act as an insurance agent or as an insurance
broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first
day of January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneer’s certificate of
authority and removal of its directors and officers. Regrettably,
we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The
Decision dated July 30, 2002 of the Court of Appeals affirming
the Decision dated May 3, 2000 of the Insurance Commission
is hereby REVERSED AND SET ASIDE. The Steamship
Mutual Underwriting Association (Bermuda) Ltd., and Pioneer
Insurance and Surety Corporation are ORDERED to obtain
licenses and to secure proper authorizations to do business as
insurer and insurance agent, respectively. The petitioner’s
prayer for the revocation of Pioneer’s Certificate of Authority
and removal of its directors and officers, is DENIED. Costs
against respondents.
SO ORDERED.
Republic of the Philippines

SUPREME COURT

Manila
THIRD DIVISION
G.R. No. 75605 January 22, 1993
RAFAEL (REX) VERENDIA, petitioner, 

vs.

COURT OF APPEALS and FIDELITY & SURETY CO.
OF THE PHILIPPINES, respondents.
G.R. No. 76399 January 22, 1993
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC.,
petitioner, 

vs.

RAFAEL VERENDIA and THE COURT OF APPEALS,
respondents.
MELO, J.:
The two consolidated cases involved herein stemmed from
the issuance by Fidelity and Surety Insurance Company of
the Philippines (Fidelity for short) of its Fire Insurance
Policy No. F-18876 effective between June 23, 1980 and
June 23, 1981 covering Rafael (Rex) Verendia's residential
building located at Tulip Drive, Beverly Hills, Antipolo,
Rizal in the amount of P385,000.00. Designated as
beneficiary was the Monte de Piedad & Savings Bank.
Verendia also insured the same building with two other
companies, namely, The Country Bankers Insurance for
P56,000.00 under Policy No. PDB-80-1913 expiring on May
12, 1981, and The Development Insurance for P400,000.00
under Policy No. F-48867 expiring on June 30, 198l.
While the three fire insurance policies were in force, the
insured property was completely destroyed by fire on the
early morning of December 28, 1980. Fidelity was
accordingly informed of the loss and despite demands,
refused payment under its policy, thus prompting Verendia
to file a complaint with the then Court of First Instance of
Quezon City, praying for payment of P385,000.00, legal
interest thereon, plus attorney's fees and litigation expenses.
The complaint was later amended to include Monte de
Piedad as an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things,
averred that the policy was avoided by reason of over-
insurance; that Verendia maliciously represented that the
building at the time of the fire was leased under a contract
executed on June 25, 1980 to a certain Roberto Garcia,
when actually it was a Marcelo Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per
Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In
sustaining the defenses set up by Fidelity, the trial court
ruled that Paragraph 3 of the policy was also violated by
Verendia in that the insured failed to inform Fidelity of his
other insurance coverages with Country Bankers Insurance
and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court
and in a decision promulgated on March 31, 1986, (CA-
G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and
Ejercito (P), JJ.), the appellate court reversed for the
following reasons: (a) there was no misrepresentation
concerning the lease for the contract was signed by Marcelo
Garcia in the name of Roberto Garcia; and (b) Paragraph 3
of the policy contract requiring Verendia to give notice to
Fidelity of other contracts of insurance was waived by
Fidelity as shown by its conduct in attempting to settle the
claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on
April 4, 1986, but instead of directly filing a motion for
reconsideration within 15 days therefrom, Fidelity filed on
April 21, 1986, a motion for extension of 3 days within
which to file a motion for reconsideration. The motion for
extension was not filed on April 19, 1986 which was the 15th
day after receipt of the decision because said 15th day was a
Saturday and of course, the following day was a Sunday (p.
14., Rollo of G.R. No. 75605). The motion for extension was
granted by the appellate court on April 30, 1986 (p.
15. ibid.), but Fidelity had in the meantime filed its motion
for reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record
Fidelity's motion for reconsideration on the ground that the
motion for extension was filed out of time because the 15th
day from receipt of the decision which fell on a Saturday
was ignored by Fidelity, for indeed, so Verendia contended,
the Intermediate Appellate Court has personnel receiving
pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p.
27, ibid.) and after a motion for reconsideration was
similarly brushed aside on July 22, 1986 (p. 30, ibid .), the
petition herein docketed as G.R. No. 75605 was initiated.
Subsequently, or more specifically on October 21, 1986, the
appellate court denied Fidelity's motion for reconsideration
and account thereof. Fidelity filed on March 31, 1986, the
petition for review on certiorari now docketed as G.R. No.
76399. The two petitions, inter-related as they are, were
consolidated
 . . . the rule shall be strictly enforced that no motion for
(p. 54, Rollo of G.R. No. 76399) and thereafter given due
course.
Before we can even begin to look into the merits of the main
case which is the petition for review on certiorari, we must
first determine whether the decision of the appellate court
may still be reviewed, or whether the same is beyond
further judicial scrutiny. Stated otherwise, before anything
else, inquiry must be made into the issue of whether Fidelity
could have legally asked for an extension of the 15-day
reglementary period for appealing or for moving for
reconsideration.
As early as 1944, this Court through Justice Ozaeta already
pronounced the doctrine that the pendency of a motion for
extension of time to perfect an appeal does not suspend the
running of the period sought to be extended (Garcia vs.
Buenaventura 74 Phil. 611 [1944]). To the same effect were
the rulings in Gibbs vs. CFI of Manila (80 Phil. 160
[1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs.
King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of
Court do not expressly prohibit the filing of a motion for
extension of time to file a motion for reconsideration in
regard to a final order or judgment, magistrates, including
those in the Court of Appeals, held sharply divided opinions
on whether the period for appealing which also includes the
period for moving to reconsider may be extended. The
matter was not definitely settled until this Court issued its
Resolution in Habaluyas Enterprises, Inc. vs. Japson (142
SCRA [1986]), declaring that beginning one month from the
promulgation of the resolution on May 30, 1986 —
extension of time to file a motion for new trial or
reconsideration shall be filed . . . (at p. 212.)
In the instant case, the motion for extension was filed and
granted before June 30, 1986, although, of course,
Ve re n d i a ' s m o t i o n t o e x p u n g e t h e m o t i o n f o r
reconsideration was not finally disposed until July 22, 1986,
or after the dictum in Habaluyas had taken effect.
Seemingly, therefore, the filing of the motion for extension
came before its formal proscription under Habaluyas, for
which reason we now turn our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein
are: (a) whether or not the contract of lease submitted by
Verendia to support his claim on the fire insurance policy
constitutes a false declaration which would forfeit his
benefits under Section 13 of the policy and (b) whether or
not, in submitting the subrogation receipt in evidence,
Fidelity had in effect agreed to settle Verendia's claim in the
amount stated in said receipt.1
Verging on the factual, the issue of the veracity or falsity of the
lease contract could have been better resolved by the appellate
court for, in a petition for review on certiorari under Rule 45,
the jurisdiction of this Court is limited to the review of errors of
law. The appellate court's findings of fact are, therefore,
conclusive upon this Court except in the following cases: (1)
when the conclusion is a finding grounded entirely on
speculation, surmises, or conjectures; (2) when the inference
made is manifestly absurd, mistaken, or impossible; (3) when
there is grave abuse of discretion in the appreciation of facts;
(4) when the judgment is premised on a misapprehension of
facts; (5) when the findings of fact are conflicting; and (6)
when the Court of Appeals in making its findings went beyond
the issues of the case and the same are contrary to the
admissions of both appellant and appellee (Ronquillo v. Court
of Appeals, 195 SCRA 433 [1991]). In view of the conflicting
findings of the trial court and the appellate court on important
issues in these consolidated cases and it appearing that the
appellate court judgment is based on a misapprehension of
facts, this Court shall review the evidence on record.
The contract of lease upon which Verendia relies to support his
claim for insurance benefits, was entered into between him and
one Robert Garcia, married to Helen Cawinian, on June 25,
1980 (Exh. "1"), a couple of days after the effectivity of the
insurance policy. When the rented residential building was
razed to the ground on December 28, 1980, it appears that
Robert Garcia (or Roberto Garcia) was still within the
premises. However, according to the investigation report
prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police,
the building appeared to have "no occupant" and that Mr.
Roberto Garcia was "renting on the otherside (sic) portion of
said compound"
 of Appeals 168 SCRA 1 [1988]). Its terms and conditions
(Exh. "E"). These pieces of evidence belie Verendia's
uncorroborated testimony that Marcelo Garcia, whom he
considered as the real lessee, was occupying the building when
it was burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October
9, 1981 that an adjuster was able to locate him. Robert Garcia
then executed an affidavit before the National Intelligence and
Security Authority (NISA) to the effect that he was not the
lessee of Verendia's house and that his signature on the contract
of lease was a complete forgery. Thus, on the strength of these
facts, the adjuster submitted a report dated December 4, 1981
recommending the denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not
Robert Garcia who signed the lease contract. According to
Verendia, it was signed by Marcelo Garcia, cousin of Robert,
who had been paying the rentals all the while. Verendia,
however, failed to explain why Marcelo had to sign his cousin's
name when he in fact was paying for the rent and why he
(Verendia) himself, the lessor, allowed such a ruse. Fidelity's
conclusions on these proven facts appear, therefore, to have
sufficient bases; Verendia concocted the lease contract to
deflect responsibility for the fire towards an alleged "lessee",
inflated the value of the property by the alleged monthly rental
of P6,500 when in fact, the Provincial Assessor of Rizal had
assessed the property's fair market value to be only P40,300.00,
insured the same property with two other insurance companies
for a total coverage of around P900,000, and created a dead-end
for the adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the
law between the parties (Pacific Banking Corporation vs. Court
constitute the measure of the insurer's liability and compliance
therewith is a condition precedent to the insured's right to
recovery from the insurer (Oriental Assurance Corporation vs.
Court of Appeals, 200 SCRA 459 [1991], citing Perla
Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA
741 [1991]). As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured
and strictly against the insurer company which usually prepares received the aforesaid amount. However, that Verendia had not
it (Western Guaranty Corporation vs. Court of Appeals, 187 received the amount stated therein, is proven by the fact that
SCRA 652 [1980]). Verendia himself filed the complaint for the full amount of
Considering, however, the foregoing discussion pointing to the P385,000.00 stated in the policy. It might be that there had been
fact that Verendia used a false lease contract to support his efforts to settle Verendia's claims, but surely, the subrogation
claim under Fire Insurance Policy No. F-18876, the terms of receipt by itself does not prove that a settlement had been
the policy should be strictly construed against the insured. arrived at and enforced. Thus, to interpret Fidelity's
Verendia failed to live by the terms of the policy, specifically presentation of the subrogation receipt in evidence as indicative
Section 13 thereof which is expressed in terms that are clear of its accession to its "terms" is not only wanting in rational
and unambiguous, that all benefits under the policy shall be basis but would be substituting the will of the Court for that of
forfeited "If the claim be in any respect fraudulent, or if any the parties.
false declaration be made or used in support thereof, or if any WHEREFORE, the petition in G.R. No. 75605 is DISMISSED.
fraudulent means or devises are used by the Insured or anyone The petition in G.R. No. 76399 is GRANTED and the decision
acting in his behalf to obtain any benefit under the policy". of the then Intermediate Appellate Court under review is
Verendia, having presented a false declaration to support his REVERSED and SET ASIDE and that of the trial court is
claim for benefits in the form of a fraudulent lease contract, he hereby REINSTATED and UPHELD.
forfeited all benefits therein by virtue of Section 13 of the SO ORDERED.
policy in the absence of proof that Fidelity waived such
provision (Pacific Banking Corporation vs. Court of Appeals,
supra). Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance
contracts are uberrimae fidae and demand the most abundant
good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the
subrogation receipt as evidence in court, Fidelity bound itself to
a "mutual agreement" to settle Verendia's claims in
consideration of the amount of P142,685.77. While the said
receipt appears to have been a filled-up form of Fidelity, no
representative of Fidelity had signed it. It is even incomplete as
the blank spaces for a witness and his address are not filled up.
More significantly, the same receipt states that Verendia had
 Republic of the Philippines
 "‘On stocks of finished and/or unfinished products, raw
SUPREME COURT
 materials and supplies of every kind and description, the
Manila properties of the Insureds and/or held by them in trust, on
THIRD DIVISION commission or on joint account with others and/or for which
they (sic) responsible in case of loss whilst contained and/or
G.R. No. 112360 July 18, 2000 stored during the currency of this Policy in the premises
RIZAL SURETY & INSURANCE COMPANY, petitioner, 
 occupied by them forming part of the buildings situate (sic)
vs.
 within own Compound at MAGDALO STREET, BARRIO
COURT OF APPEALS and TRANSWORLD KNITTING UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK
MILLS, INC., respondents. NO. 601.’
xxx xxx xxx
DECISION ‘Said building of four-span lofty one storey in height with
mezzanine portions is constructed of reinforced concrete and
hollow blocks and/or concrete under galvanized iron roof and
PURISIMA, J.:
occupied as hosiery mills, garment and lingerie factory,
At bar is a Petition for Review on Certiorari under Rule 45 of
transistor-stereo assembly plant, offices, warehouse and
the Rules of Court seeking to annul and set aside the July 15,
caretaker's quarters.
1993 Decision1 and October 22, 1993 Resolution2 of the Court
'Bounds in front partly by one-storey concrete building under
of Appeals3 in CA-G.R. CV NO. 28779, which modified the
galvanized iron roof occupied as canteen and guardhouse,
Ruling4 of the Regional Trial Court of Pasig, Branch 161, in
partly by building of two and partly one storey constructed of
Civil Case No. 46106.
concrete below, timber above undergalvanized iron roof
The antecedent facts that matter are as follows:
occupied as garage and quarters and partly by open space and/
On March 13, 1980, Rizal Surety & Insurance Company (Rizal
or tracking/ packing, beyond which is the aforementioned
Insurance) issued Fire Insurance Policy No. 45727 in favor of
Magdalo Street; on its right and left by driveway, thence open
Transworld Knitting Mills, Inc. (Transworld), initially for One
spaces, and at the rear by open spaces.'"5
Million (₱1,000,000.00) Pesos and eventually increased to One
The same pieces of property insured with the petitioner were
Million Five Hundred Thousand (₱1,500,000.00) Pesos,
also insured with New India Assurance Company, Ltd., (New
covering the period from August 14, 1980 to March 13, 1981.
India).
Pertinent portions of subject policy on the buildings insured,
On January 12, 1981, fire broke out in the compound of
and location thereof, read:
Transworld, razing the middle portion of its four-span building
and partly gutting the left and right sections thereof. A two-
storey building (behind said four-span building) where fun and
amusement machines and spare parts were stored, was also
destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety &
Insurance Company and New India Assurance Company but to
no avail.
On May 26, 1982, private respondent brought against the said
insurance companies an action for collection of sum of money
and damages, docketed as Civil Case No. 46106 before Branch
161 of the then Court of First Instance of Rizal; praying for
judgment ordering Rizal Insurance and New India to pay the
amount of ₱2,747, 867.00 plus legal interest, ₱400,000.00 as
attorney's fees, exemplary damages, expenses of litigation of
₱50,000.00 and costs of suit.6
Petitioner Rizal Insurance countered that its fire insurance
policy sued upon covered only the contents of the four-span
building, which was partly burned, and not the damage caused
by the fire on the two-storey annex building.7
On January 4, 1990, the trial court rendered its decision;
disposing as follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance
Co., Ltd.;
(2) Ordering defendant Rizal Surety And Insurance Company
to pay Transwrold (sic) Knitting Mills, Inc. the amount of P826,
500.00 representing the actual value of the losses suffered by it;
and
(3) Cost against defendant Rizal Surety and Insurance
Company.
SO ORDERED."8
Both the petitioner, Rizal Insurance Company, and private
respondent, Transworld Knitting Mills, Inc., went to the Court
of Appeals, which came out with its decision of July 15, 1993
under attack, the decretal portion of which reads:
"WHEREFORE, and upon all the foregoing, the decision of the
court below is MODIFIED in that defendant New India
Assurance Company has and is hereby required to pay plaintiff-
appellant the amount of P1,818,604.19 while the other Rizal
Surety has to pay the plaintiff-appellant P470,328.67, based on
the actual losses sustained by plaintiff Transworld in the fire,
totalling P2,790,376.00 as against the amounts of fire insurance
coverages respectively extended by New India in the amount of
P5,800,000.00 and Rizal Surety and Insurance Company in the
amount of P1,500,000.00.
No costs.
SO ORDERED."9
On August 20, 1993, from the aforesaid judgment of the Court
of Appeals New India appealed to this Court theorizing inter
alia that the private respondent could not be compensated for
the loss of the fun and amusement machines and spare parts
stored at the two-storey building because it (Transworld) had
no insurable interest in said goods or items.
On February 2, 1994, the Court denied the appeal with finality
in G.R. No. L-111118 (New India Assurance Company Ltd. vs.
Court of Appeals).
Petitioner Rizal Insurance and private respondent Transworld,
interposed a Motion for Reconsideration before the Court of
Appeals, and on October 22, 1993, the Court of Appeals
reconsidered its decision of July 15, 1993, as regards the
imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but
only insofar as the imposition of legal interest is concerned,
that, on the assessment against New India Assurance Company
on the amount of P1,818,604.19 and that against Rizal Surety &
Insurance Company on the amount of P470,328.67, from May
26, 1982 when the complaint was filed until payment is made.
The rest of the said decision is retained in all other respects.
SO ORDERED."10
Undaunted, petitioner Rizal Surety & Insurance Company
found its way to this Court via the present Petition, contending
that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING
THAT THE ANNEX BUILDING WHERE THE BULK OF
THE BURNED PROPERTIES WERE STORED, WAS
INCLUDED IN THE COVERAGE OF THE INSURANCE
POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A
AND B) ERRED IN NOT CONSIDERING THE PICTURES
( E X H S . 3 T O 7 - C - R I Z A L S U R E T Y ) , TA K E N
IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY
S H O W T H AT T H E P R E M I S E S O C C U P I E D B Y
TRANSWORLD, WHERE THE INSURED PROPERTIES
WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT
HOLDING THAT TRANSWORLD HAD ACTED IN
PALPABLE BAD FAITH AND WITH MALICE IN FILING
ITS CLEARLY UNFOUNDED CIVIL ACTION, AND IN
NOT ORDERING TRANSWORLD TO PAY TO RIZAL
SURETY MORAL AND PUNITIVE DAMAGES (ART. 2205,
CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES
OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).
11
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy
litigated upon protected only the contents of the main building
(four-span),12 and did not include those stored in the two-storey
annex building. On the other hand, the private respondent
theorized that the so called "annex" was not an annex but was
actually an integral part of the four-span building13 and
therefore, the goods and items stored therein were covered by
the same fire insurance policy.
Resolution of the issues posited here hinges on the proper
interpretation of the stipulation in subject fire insurance policy
regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this Policy
in the premises occupied by them forming part of the buildings
situate (sic) within own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance
policy in question did not limit its coverage to what were stored
in the four-span building. As opined by the trial court of origin,
two requirements must concur in order that the said fun and
amusement machines and spare parts would be deemed
protected by the fire insurance policy under scrutiny, to wit:
"First, said properties must be contained and/or stored in the
areas occupied by Transworld and second, said areas must form
part of the building described in the policy xxx"14
'Said building of four-span lofty one storey in height with
mezzanine portions is constructed of reinforced concrete and
hollow blocks and/or concrete under galvanized iron roof and
occupied as hosiery mills, garment and lingerie factory,
transistor-stereo assembly plant, offices, ware house and
caretaker's quarter.'
The Court is mindful of the well-entrenched doctrine that
factual findings by the Court of Appeals are conclusive on the
parties and not reviewable by this Court, and the same carry
even more weight when the Court of Appeals has affirmed the
findings of fact arrived at by the lower court.15
In the case under consideration, both the trial court and the
Court of Appeals found that the so called "annex " was not an
annex building but an integral and inseparable part of the four-
span building described in the policy and consequently, the
machines and spare parts stored therein were covered by the
fire insurance in dispute. The letter-report of the Manila
Adjusters and Surveyor's Company, which petitioner itself cited
and invoked, describes the "annex" building as follows:
"Two-storey building constructed of partly timber and partly
concrete hollow blocks under g.i. roof which is adjoining and
intercommunicating with the repair of the first right span of the
lofty storey building and thence by property fence wall."16
Verily, the two-storey building involved, a permanent structure
which adjoins and intercommunicates with the "first right span
of the lofty storey building",17 formed part thereof, and meets
the requisites for compensability under the fire insurance policy
sued upon.
So also, considering that the two-storey building
aforementioned was already existing when subject fire
insurance policy contract was entered into on January 12, 1981,
having been constructed sometime in 1978,18 petitioner should
have specifically excluded the said two-storey building from
the coverage of the fire insurance if minded to exclude the same
but if did not, and instead, went on to provide that such fire
insurance policy covers the products, raw materials and
supplies stored within the premises of respondent Transworld
which was an integral part of the four-span building occupied
by Transworld, knowing fully well the existence of such
building adjoining and intercommunicating with the right
section of the four-span building.
After a careful study, the Court does not find any basis for
disturbing what the lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance
policy under controversy has created a doubt regarding the
portions of the building insured thereby. Article 1377 of the
New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be
resolved against the petitioner, Rizal Surety Insurance
Company, whose lawyer or managers drafted the fire insurance
policy contract under scrutiny. Citing the aforecited provision
of law in point, the Court in Landicho vs. Government Service
Insurance System,19 ruled:
"This is particularly true as regards insurance policies, in
respect of which it is settled that the 'terms in an insurance
policy, which are ambiguous, equivocal, or uncertain x x x are
to be construed strictly and most strongly against the insurer,
and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially
where forfeiture is involved' (29 Am. Jur., 181), and the reason
for this is that the 'insured usually has no voice in the selection
or arrangement of the words employed and that the language of
the contract is selected with great care and deliberation by
experts and legal advisers employed by, and acting exclusively
in the interest of, the insurance company.' (44 C.J.S., p.
1174).""20
Equally relevant is the following disquisition of the Court
in Fieldmen's Insurance Company, Inc. vs. Vda. De Songco,21 to
wit:
"'This rigid application of the rule on ambiguities has become
necessary in view of current business practices.1âwphi1 The
courts cannot ignore that nowadays monopolies, cartels and
concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them
cunningly prepared 'agreements' that the weaker party may not
change one whit, his participation in the 'agreement' being
reduced to the alternative to 'take it or leave it' labelled since
Raymond Saleilles 'contracts by adherence' (contrats [sic]
d'adhesion), in contrast to these entered into by parties
bargaining on an equal footing, such contracts (of which
policies of insurance and international bills of lading are prime
example) obviously call for greater strictness and vigilance on
the part of courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming
traps for the unwary (New Civil Code, Article 24; Sent. of
Supreme Court of Spain, 13 Dec. 1934, 27 February 1942.)'"22
The issue of whether or not Transworld has an insurable
interest in the fun and amusement machines and spare parts,
which entitles it to be indemnified for the loss thereof, had been
settled in G.R. No. L-111118, entitled New India Assurance
Company, Ltd., vs. Court of Appeals, where the appeal of New
India from the decision of the Court of Appeals under review,
was denied with finality by this Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains under
the premises, precludes the relitigation of a particular fact or
issue in another action between the same parties based on a
different claim or cause of action. "xxx the judgment in the
prior action operates as estoppel only as to those matters in
issue or points controverted, upon the determination of which
the finding or judgment was rendered. In fine, the previous
judgment is conclusive in the second case, only as those matters
actually and directly controverted and determined and not as to
matters merely involved therein."23
Applying the abovecited pronouncement, the Court, in Smith
Bell and Company (Phils.), Inc. vs. Court of Appeals,24held that
the issue of negligence of the shipping line, which issue had
already been passed upon in a case filed by one of the insurers,
is conclusive and can no longer be relitigated in a similar case
filed by another insurer against the same shipping line on the
basis of the same factual circumstances. Ratiocinating further,
the Court opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or
'Yotai Maru') had been negligent, or so negligent as to have
proximately caused the collision between them, was an issue
that was actually, directly and expressly raised, controverted
and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J.,
resolved that issue in his Decision and held the 'Don Carlos' to
have been negligent rather than the 'Yotai Maru' and, as
already noted, that Decision was affirmed by this Court in G.R.
No. L-48839 in a Resolution dated 6 December 1987. The
Reyes Decision thus became final and executory approximately
two (2) years before the Sison Decision, which is assailed in the
case at bar, was promulgated. Applying the rule of
conclusiveness of judgment, the question of which vessel had
been negligent in the collision between the two (2) vessels, had
long been settled by this Court and could no longer be
relitigated in C.A.-G.R. No. 61206-R. Private respondent Go
Thong was certainly bound by the ruling or judgment of Reyes,
L.B., J. and that of this Court. The Court of Appeals fell into
clear and reversible error when it disregarded the Decision of
this Court affirming the Reyes Decision."25
The controversy at bar is on all fours with the aforecited case.
Considering that private respondent's insurable interest in, and
compensability for the loss of subject fun and amusement
machines and spare parts, had been adjudicated, settled and
sustained by the Court of Appeals in CA-G.R. CV NO. 28779,
and by this Court in G.R. No. L-111118, in a Resolution, dated
February 2, 1994, the same can no longer be relitigated and
passed upon in the present case. Ineluctably, the petitioner,
Rizal Surety Insurance Company, is bound by the ruling of the
Court of Appeals and of this Court that the private respondent
has an insurable interest in the aforesaid fun and amusement
machines and spare parts; and should be indemnified for the
loss of the same.
So also, the Court of Appeals correctly adjudged petitioner
liable for the amount of P470,328.67, it being the total loss and
damage suffered by Transworld for which petitioner Rizal
Insurance is liable.26
All things studiedly considered and viewed in proper
perspective, the Court is of the irresistible conclusion, and so
finds, that the Court of Appeals erred not in holding the
petitioner, Rizal Surety Insurance Company, liable for the
destruction and loss of the insured buildings and articles of the
private respondent.
WHEREFORE, the Decision, dated July 15, 1993, and the
Resolution, dated October 22, 1993, of the Court of Appeals in
CA-G.R. CV NO. 28779 are AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
Republic of the Philippines

SUPREME COURT

Manila
FIRST DIVISION
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, 

vs.

COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos,
applied for a health care coverage with petitioner Philamcare
Health Systems, Inc. In the standard application form, he
answered no to the following question:
Have you or any of your family members ever consulted or
been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).1
The application was approved for a period of one year from
March 1, 1988 to March 1, 1989. Accordingly, he was issued
Health Care Agreement No. P010194. Under the agreement,
respondent’s husband was entitled to avail of hospitalization
benefits, whether ordinary or emergency, listed therein. He was
also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out-
patient services.
Upon the termination of the agreement, the same was extended
for another year from March 1, 1989 to March 1, 1990, then
from March 1, 1990 to June 1, 1990. The amount of coverage
was increased to a maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart
attack and was confined at the Manila Medical Center (MMC)
for one month beginning March 9, 1990. While her husband
was in the hospital, respondent tried to claim the benefits under
the health care agreement. However, petitioner denied her claim
saying that the Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernani’s medical
history. Doctors at the MMC allegedly discovered at the time of
Ernani’s confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus,
respondent paid the hospitalization expenses herself, amounting
to about P76,000.00.
After her husband was discharged from the MMC, he was
attended by a physical therapist at home. Later, he was admitted
at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling
very weak. Respondent was constrained to bring him back to
the Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial
Court of Manila, Branch 44, an action for damages against
petitioner and its president, Dr. Benito Reverente, which was
docketed as Civil Case No. 90-53795. She asked for
reimbursement of her expenses plus moral damages and
attorney’s fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital
coverage of the late Ernani Trinos in the amount of P76,000.00
plus interest, until the amount is fully paid to plaintiff who paid
the same;
2. Defendants to pay the reduced amount of moral damages of
P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as
exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs
of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the
trial court but deleted all awards for damages and absolved
petitioner Reverente.4 Petitioner’s motion for reconsideration
was denied.5 Hence, petitioner brought the instant petition for
review, raising the primary argument that a health care
agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code6 does not
apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits,"
such as medical check-ups and hospitalization which a member
may immediately enjoy so long as he is alive upon effectivity
of the agreement until its expiration one-year thereafter.
Petitioner also points out that only medical and hospitalization
benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the
insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to
insurance contracts which last longer,7 petitioner argues that the
incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues
that it is not an insurance company, which is governed by the
Insurance Commission, but a Health Maintenance Organization
under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of
the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing
a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a
premium.8
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which may damnify a
person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of which
death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested
in him depends.
In the case at bar, the insurable interest of respondent’s husband
in obtaining the health care agreement was his own health. The
health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity.9 Once the member
incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under
the contract.
Petitioner argues that respondent’s husband concealed a
material fact in his application. It appears that in the application
for health coverage, petitioners required respondent’s husband
to sign an express authorization for any person, organization or
entity that has any record or knowledge of his health to furnish
any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination.10 Specifically, the Health Care Agreement signed
by respondent’s husband states:
We hereby declare and agree that all statement and answers
contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall
be no contract of health care coverage unless and until an
Agreement is issued on this application and the full
Membership Fee according to the mode of payment applied for
is actually paid during the lifetime and good health of proposed
Members; that no information acquired by any Representative
of PhilamCare shall be binding upon PhilamCare unless set out
in writing in the application; that any physician is, by these
presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his
professional capacity upon any question affecting the eligibility
for health care coverage of the Proposed Members and that the
acceptance of any Agreement issued on this application shall be
a ratification of any correction in or addition to this application
as stated in the space for Home Office Endorsement.
11 (Underscoring ours)
In addition to the above condition, petitioner additionally
required the applicant for authorization to inquire about the
applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that has
any record or knowledge of my health and/or that of
__________ to give to the PhilamCare Health Systems,
Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination. This authorization is in connection with the
application for health care coverage only. A photographic copy
of this authorization shall be as valid as the original.
12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation
of agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return
of all Membership Fees paid. An undisclosed or misrepresented
information is deemed material if its revelation would have
resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or
benefits applied for.13
The answer assailed by petitioner was in response to the
question relating to the medical history of the applicant. This
largely depends on opinion rather than fact, especially coming
from respondent’s husband who was not a medical doctor.
Where matters of opinion or judgment are called for, answers
made in good faith and without intent to deceive will not avoid
a policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the
policy if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk,
if the statement is obviously of the foregoing character, since in
such case the insurer is not justified in relying upon such
statement, but is obligated to make further inquiry. There is a
clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a
matter of expectation or belief, that which he then knows, to be
actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to
deceive the insurer is obvious and amounts to actual fraud.
15(Underscoring ours)
The fraudulent intent on the part of the insured must be
established to warrant rescission of the insurance contract.
16 Concealment as a defense for the health care provider or
insurer to avoid liability is an affirmative defense and the duty
to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with or
without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement
or whenever he avails of the covered benefits which he has
prepaid.
Under Section 27 of the Insurance Code, "a concealment
entitles the injured party to rescind a contract of insurance."
The right to rescind should be exercised previous to the
commencement of an action on the contract.17In this case, no
rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of
the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date
of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the
address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of
the Insurance Code and upon request of insured, to furnish facts
on which cancellation is based.18
None of the above pre-conditions was fulfilled in this case.
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.
19 Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which
prepared the contract – the insurer.20 By reason of the exclusive
control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture.21 This is equally
applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as the one at bar,
must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly
construed against the provider.22
Anent the incontestability of the membership of respondent’s
husband, we quote with approval the following findings of the
trial court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient
was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no
longer lie.23
Finally, petitioner alleges that respondent was not the legal wife
of the deceased member considering that at the time of their
marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be
made to the party who incurred the expenses. It is not
controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The
records adequately prove the expenses incurred by respondent
for the deceased’s hospitalization, medication and the
professional fees of the attending physicians.24
WHEREFORE, in view of the foregoing, the petition
is DENIED. The assailed decision of the Court of Appeals
dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Republic of the Philippines

SUPREME COURT

Manila
FIRST DIVISION
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO.,
INC., petitioner, 

vs.

COURT OF APPEALS and PRODUCERS BANK OF THE
PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review
on certiorari is whether the petitioner is liable under the
Money, Security, and Payroll Robbery policy it issued to the
private respondent or whether recovery thereunder is precluded
under the general exceptions clause thereof. Both the trial court
and the Court of Appeals held that there should be recovery.
The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court
(RTC) of Makati, Metro Manila, by private respondent
Producers Bank of the Philippines (hereinafter Producers)
against petitioner Fortune Insurance and Surety Co., Inc.
(hereinafter Fortune) of a complaint for recovery of the sum of
P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle
while it was in transit to transfer the money from its Pasay City
Branch to its head office in Makati. The case was docketed as
Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render
judgment based on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance
policy was issued, the duplicate original of which is hereto
attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of
transferring cash in the sum of P725,000.00 under the custody
of its teller, Maribeth Alampay, from its Pasay Branch to its
Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on
June 29, 1987, was robbed of the said cash. The robbery took
place while the armored car was traveling along Taft Avenue in
Pasay City;
3. The said armored car was driven by Benjamin Magalong Y
de Vera, escorted by Security Guard Saturnino Atiga Y Rosete.
Driver Magalong was assigned by PRC Management Systems
with the plaintiff by virtue of an Agreement executed on August
7, 1983, a duplicate original copy of which is hereto attached as
Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of
Security Service executed on October 25, 1982, a duplicate
original copy of which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police
authorities, the driver Magalong and guard Atiga were charged,
together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino
and John Doe, with violation of P.D. 532 (Anti-Highway
Robbery Law) before the Fiscal of Pasay City. A copy of the
complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging
the aforesaid persons with the said crime before Branch 112 of
the Regional Trial Court of Pasay City. A copy of the said
information is hereto attached as Exhibit "E." The case is still
being tried as of this date;
7. Demands were made by the plaintiff upon the defendant to
pay the amount of the loss of P725,000.00, but the latter
refused to pay as the loss is excluded from the coverage of the
insurance policy, attached hereto as Exhibit "A," specifically
under page 1 thereof, "General Exceptions" Section (b), which
is marked as Exhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act
of the insured or any officer, employee, partner, director, trustee
or authorized representative of the Insured whether acting
alone or in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant and
contends that Atiga and Magalong are not its "officer,
employee, . . . trustee or authorized representative . . . at the
time of the robbery.1
On 26 April 1990, the trial court rendered its decision in favor
of Producers. The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for
plaintiff and against defendant, and
(a) orders defendant to pay plaintiff the net amount of
P540,000.00 as liability under Policy No. 0207 (as mitigated by
the P40,000.00 special clause deduction and by the recovered
sum of P145,000.00), with interest thereon at the legal rate,
until fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as
and for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed
forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not
employees or representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have
selected and engaged Magalong and Atiga, their services as
armored car driver and as security guard having been merely
offered by PRC Management and by Unicorn Security and
which latter firms assigned them to plaintiff. The wages and
salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss
them. Magalong and Atiga are assigned to plaintiff in
fulfillment of agreements to provide driving services and
property protection as such — in a context which does not
impress the Court as translating into plaintiff's power to control
the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such
driver guard. The finding is accordingly compelled that neither
Magalong nor Atiga were plaintiff's "employees" in avoidance
of defendant's liability under the policy, particularly the general
exceptions therein embodied.
Neither is the Court prepared to accept the proposition that
driver Magalong and guard Atiga were the "authorized
representatives" of plaintiff. They were merely an assigned
armored car driver and security guard, respectively, for the June
29, 1987 money transfer from plaintiff's Pasay Branch to its
Makati Head Office. Quite plainly — it was teller Maribeth
Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's
then designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which
docketed the case as CA-G.R. CV No. 32946. In its
decision 4 promulgated on 3 May 1994, it affirmed in toto the
appealed decision.
The Court of Appeals agreed with the conclusion of the trial
court that Magalong and Atiga were neither employees nor
authorized representatives of Producers and ratiocinated as
follows:
A policy or contract of insurance is to be construed liberally in
favor of the insured and strictly against the insurance company
(New Life Enterprises vs. Court of Appeals, 207 SCRA 669;
Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). Contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense (New Life Enterprises
Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of
Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted
stipulation is plain, ordinary and simple. No other interpretation
is necessary. The word "employee" must be taken to mean in
the ordinary sense.
The Labor Code is a special law specifically dealing with/and
specifically designed to protect labor and therefore its
definition as to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must
necessarily be inapplicable to an insurance contract which
defendant-appellant itself had formulated. Had it intended to
apply the Labor Code in defining what the word "employee"
refers to, it must/should have so stated expressly in the
insurance policy.
Said driver and security guard cannot be considered as
employees of plaintiff-appellee bank because it has no power to
hire or to dismiss said driver and security guard under the
contracts (Exhs. 8 and C) except only to ask for their
replacements from the contractors.5
On 20 June 1994, Fortune filed this petition for review
on certiorari. It alleges that the trial court and the Court of
Appeals erred in holding it liable under the insurance policy
because the loss falls within the general exceptions clause
considering that driver Magalong and security guard Atiga were
Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in
Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard
and a driver to transfer its funds from one branch to another,
they effectively and necessarily became its authorized
representatives in the care and custody of the money. Assuming
that they could not be considered authorized representatives,
they were, nevertheless, employees of Producers. It asserts that
the existence of an employer-employee relationship "is
determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee
relationship between Producers, on the one hand, and
Magalong and Atiga, on the other, the provisions in the
contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which
state that Producers is not their employer and that it is absolved
from any liability as an employer, would not obliterate the
relationship.
Fortune points out that an employer-employee relationship
depends upon four standards: (1) the manner of selection and
engagement of the putative employee; (2) the mode of payment
of wages; (3) the presence or absence of a power to dismiss;
and (4) the presence and absence of a power to control the
putative employee's conduct. Of the four, the right-of-control
test has been held to be the decisive factor. 6 It asserts that the
power of control over Magalong and Atiga was vested in and
exercised by Producers. Fortune further insists that PRC
Management System and Unicorn Security Services are but
"labor-only" contractors under Article 106 of the Labor Code
which provides:
Art. 106. Contractor or subcontractor. — There is "labor-only"
contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are
performing activities which are directly related to the principal
business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by
him.
Fortune thus contends that Magalong and Atiga were
employees of Producers, following the ruling in International
Timber Corp. vs. NLRC 7 that a finding that a contractor is a
"labor-only" contractor is equivalent to a finding that there is an
employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and
Atiga were not its employees since it had nothing to do with
their selection and engagement, the payment of their wages,
their dismissal, and the control of their conduct. Producers
argued that the rule in International Timber Corp. is not
applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a
social legislation whose provisions may set aside contracts
entered into by parties in order to give protection to the
working man.
Producers further asseverates that what should be applied is the
rule in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee
relationship, the following elements are generally considered,
namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee's conduct.
Since under Producers' contract with PRC Management
Systems it is the latter which assigned Magalong as the driver
of Producers' armored car and was responsible for his faithful
discharge of his duties and responsibilities, and since Producers
paid the monthly compensation of P1,400.00 per driver to PRC
Management Systems and not to Magalong, it is clear that
Magalong was not Producers' employee. As to Atiga, Producers
relies on the provision of its contract with Unicorn Security
Services which provides that the guards of the latter "are in no
sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the
parties is a theft or robbery insurance policy which is a form of
casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as falling
exclusively within the scope of insurance such as fire or
marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of
insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability
insurance, the Insurance Code contains no other provisions
applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the
general provisions applicable to all types of insurance. Outside
of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into
consideration its purpose and always in accordance with the
general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft
insurance, "the opportunity to defraud the insurer — the moral
hazard — is so great that insurers have found it necessary to fill
up their policies with countless restrictions, many designed to
reduce this hazard. Seldom does the insurer assume the risk of
all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the
insured's service and employment. 11 The purpose of the
exception is to guard against liability should the theft be
committed by one having unrestricted access to the
property. 12 In such cases, the terms specifying the excluded
classes are to be given their meaning as understood in common
speech. 13 The terms "service" and "employment" are generally
associated with the idea of selection, control, and
compensation. 14
A contract of insurance is a contract of adhesion, thus any
ambiguity therein should be resolved against the insurer, 15 or it
should be construed liberally in favor of the insured and strictly
against the insurer. 16 Limitations of liability should be regarded
with extreme jealousy and must be construed 
 losses arising from dishonest, fraudulent, or criminal acts of
in such a way, as to preclude the insurer from non-compliance
with its obligation. 17 It goes without saying then that if the
terms of the contract are clear and unambiguous, there is no
room for construction and such terms cannot be enlarged or
diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms
and conditions specified therein. 19 It is settled that the terms of
the policy constitute the measure of the insurer's liability. 20 In
the absence of statutory prohibition to the contrary, insurance
companies have the same rights as individuals to limit their
liability and to impose whatever conditions they deem best
upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked
whether Magalong and Atiga qualify as employees or
authorized representatives of Producers under paragraph (b) of
the general exceptions clause of the policy which, for easy
reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act
of the insured or any officer, employee, partner, director, trustee
or authorized representative of the Insured whether acting
alone or in conjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the
correct meaning of the terms "employee" and "authorized
representatives."
It is clear to us that insofar as Fortune is concerned, it was its
intention to exclude and exempt from protection and coverage
persons granted or having unrestricted access to Producers'
money or payroll. When it used then the term "employee," it
must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially
established in the light of the four standards in the
determination of the employer-employee relationship, 21 or as
statutorily declared even in a limited sense as in the case of
Article 106 of the Labor Code which considers the employees
under a "labor-only" contract as employees of the party
employing them and not of the party who supplied them to the
employer. 22
Fortune claims that Producers' contracts with PRC Management
Systems and Unicorn Security Services are "labor-only"
contracts.
Producers, however, insists that by the express terms thereof, it
is not the employer of Magalong. Notwithstanding such express
assumption of PRC Management Systems and Unicorn Security
Services that the drivers and the security guards each shall
supply to Producers are not the latter's employees, it may, in
fact, be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria
provided for in Article 106 of the Labor Code, a question of
fact. Since the parties opted to submit the case for judgment on
the basis of their stipulation of facts which are strictly limited to
the insurance policy, the contracts with PRC Management
Systems and Unicorn Security Services, the complaint for
violation of P.D. No. 532, and the information therefor filed by
the City Fiscal of Pasay City, there is a paucity of evidence as
to whether the contracts between Producers and PRC
Management Systems and Unicorn Security Services are
"labor-only" contracts.
But even granting for the sake of argument that these contracts
were not "labor-only" contracts, and PRC Management
Systems and Unicorn Security Services were truly independent
contractors, we are satisfied that Magalong and Atiga were, in
respect of the transfer of Producer's money from its Pasay City
branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth
Alampay. Howsoever viewed, Producers entrusted the three
with the specific duty to safely transfer the money to its head
office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the
money; and Atiga to provide the needed security for the money,
the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in
the place of another; one who represents others or another in a
special capacity, as an agent, and is interchangeable with
"agent." 23
In view of the foregoing, Fortune is exempt from liability under
the general exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The
decision of the Court of Appeals in CA-G.R. CV No. 32946
dated 3 May 1994 as well as that of Branch 146 of the Regional
Trial Court of Makati in Civil Case No. 1817 are REVERSED
and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED. No pronouncement as to costs. SO ORDERED.
Republic of the Philippines

SUPREME COURT

Manila
SECOND DIVISION
G.R. No. 156167 May 16, 2005
GULF RESORTS, INC., petitioner, 

vs.

PHILIPPINE CHARTER INSURANCE
CORPORATION, respondent.
DECISION
PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of
the Revised Rules of Court by petitioner GULF RESORTS,
INC., against respondent PHILIPPINE CHARTER
INSURANCE CORPORATION. Petitioner assails the appellate
court decision1 which dismissed its two appeals and affirmed
the judgment of the trial court.
For review are the warring interpretations of petitioner and Warranties at Time of Issue", which read "Endorsement to
respondent on the scope of the insurance company’s liability for Include Earthquake Shock (Exh. "6-B-1") in the amount
earthquake damage to petitioner’s properties. Petitioner avers of P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as
that, pursuant to its earthquake shock endorsement rider, premium thereof, computed as follows:
Insurance Policy No. 31944 covers all damages to the Item - P7,691,000. - on the Clubhouse only
properties within its resort caused by earthquake. Respondent 00 @ .392%;
contends that the rider limits its liability for loss to the two
swimming pools of petitioner. - 1,500,000.0 - on the furniture, etc. contained in
The facts as established by the court a quo, and affirmed by the 0 the building above-mentioned@ .
appellate court are as follows: 490%;
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La - 393,000.00 - on the two swimming pools, only
Union and had its properties in said resort insured originally (against the peril of earthquake
with the American Home Assurance Company (AHAC-AIU). shock only) @ 0.100%
In the first four insurance policies issued by AHAC-AIU from - 116,600.00 other buildings include as follows:
1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D",
"E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the a) Tilter - P19,800. - 0.551%
risk of loss from earthquake shock was extended only to House 00
plaintiff’s two swimming pools, thus, "earthquake shock b) Power - P41,000. - 0.551%
endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) House 00
swimming pools only (Exhs. "C-1"; ‘D-1", "E" and "F-1").
c) House - P55,000. - 0.540%
"Item 5" in those policies referred to the two (2) swimming
Shed 00
pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that
subsequently AHAC(AIU) issued in plaintiff’s favor Policy No. P100,000.00 - for furniture, fixtures, lines air-con
206-4182383-0 covering the period March 14, 1988 to March and operating equipment
14, 1989 (Exhs. "G" also "G-1") and in said policy the that plaintiff agreed to insure with defendant the properties
earthquake endorsement clause as indicated in Exhibits "C-1", covered by AHAC (AIU) Policy No. 206-4568061-9 (Exh. "H")
"D-1", Exhibits "E" and "F-1" was deleted and the entry under provided that the policy wording and rates in said policy be
Endorsements/Warranties at the time of issue read that plaintiff copied in the policy to be issued by defendant; that defendant
renewed its policy with AHAC (AIU) for the period of March issued Policy No. 31944 to plaintiff covering the period of
14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 March 14, 1990 to March 14, 1991 for P10,700,600.00 for a
(Exh. "H") which carried the entry under "Endorsement/
total premium of P45,159.92 (Exh. "I"); that in the computation occasioned by or through or in consequence of earthquake
of the premium, defendant’s Policy No. 31944 (Exh. "I"), (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C");
which is the policy in question, contained on the right-hand that in Exhibit "7-C" the word "included" above the underlined
upper portion of page 7 thereof, the following: portion was deleted; that on July 16, 1990 an earthquake struck
Rate-Various Central Luzon and Northern Luzon and plaintiff’s properties
covered by Policy No. 31944 issued by defendant, including the
Premium – P37,420.60 F/L two swimming pools in its Agoo Playa Resort were damaged.2
– 2,061.52 – Typhoon After the earthquake, petitioner advised respondent that it
– 1,030.76 – EC would be making a claim under its Insurance Policy No. 31944
for damages on its properties. Respondent instructed petitioner
– 393.00 – ES to file a formal claim, then assigned the investigation of the
Doc. Stamps 3,068.10 claim to an independent claims adjuster, Bayne Adjusters and
Surveyors, Inc.3 On July 30, 1990, respondent, through its
F.S.T. 776.89
adjuster, requested petitioner to submit various documents in
Prem. Tax 409.05 support of its claim. On August 7, 1990, Bayne Adjusters and
TOTAL 45,159.92; Surveyors, Inc., through its Vice-President A.R. de Leon,
4 rendered a preliminary report5 finding extensive damage
that the above break-down of premiums shows that plaintiff caused by the earthquake to the clubhouse and to the two
paid only P393.00 as premium against earthquake shock (ES); swimming pools. Mr. de Leon stated that "except for the
that in all the six insurance policies (Exhs. "C", "D", "E", "F", swimming pools, all affected items have no coverage for
"G" and "H"), the premium against the peril of earthquake earthquake shocks."6 On August 11, 1990, petitioner filed its
shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" formal demand7 for settlement of the damage to all its
and "3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5- properties in the Agoo Playa Resort. On August 23, 1990,
C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" respondent denied petitioner’s claim on the ground that its
and "H") and in Policy No. 31944 issued by defendant, the insurance policy only afforded earthquake shock coverage to
shock endorsement provide(sic): the two swimming pools of the resort.8 Petitioner and
In consideration of the payment by the insured to the company respondent failed to arrive at a settlement.9 Thus, on January
of the sum included additional premium the Company agrees, 24, 1991, petitioner filed a complaint10 with the regional trial
notwithstanding what is stated in the printed conditions of this court of Pasig praying for the payment of the following:
policy due to the contrary, that this insurance covers loss or
damage to shock to any of the property insured by this Policy
1.) The sum of P5,427,779.00, representing losses sustained by
the insured properties, with interest thereon, as computed under
par. 29 of the policy (Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing
losses sustained by plaintiff on account of defendant’s refusal to
pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorney’s fees and
expenses of litigation;
5.) Costs.11
Respondent filed its Answer with Special and Affirmative
Defenses with Compulsory Counterclaims.12
On February 21, 1994, the lower court after trial ruled in favor
of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a
premium of P393.00 against the peril of earthquake shock, the
same premium it paid against earthquake shock only on the two
swimming pools in all the policies issued by AHAC(AIU)
(Exhibits "C", "D", "E", "F" and "G"). From this fact the Court
must consequently agree with the position of defendant that the
endorsement rider (Exhibit "7-C") means that only the two
swimming pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a
contract of adhesion hence, where the language used in an
insurance contract or application is such as to create ambiguity
the same should be resolved against the party responsible
therefor, i.e., the insurance company which prepared the
contract. To the mind of [the] Court, the language used in the
policy in litigation is clear and unambiguous hence there is no
need for interpretation or construction but only application of
the provisions therein.
From the above observations the Court finds that only the two
(2) swimming pools had earthquake shock coverage and were
heavily damaged by the earthquake which struck on July 16,
1990. Defendant having admitted that the damage to the
swimming pools was appraised by defendant’s adjuster
at P386,000.00, defendant must, by virtue of the contract of
insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the
immediately preceding paragraph that defendant is liable only
for the damage caused to the two (2) swimming pools and that
defendant has made known to plaintiff its willingness and
readiness to settle said liability, there is no basis for the grant of
the other damages prayed for by plaintiff. As to the
counterclaims of defendant, the Court does not agree that the
action filed by plaintiff is baseless and highly speculative since
such action is a lawful exercise of the plaintiff’s right to come
to Court in the honest belief that their Complaint is meritorious.
The prayer, therefore, of defendant for damages is likewise
denied.
WHEREFORE, premises considered, defendant is ordered to
pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX
THOUSAND PESOS (P386,000.00) representing damage to
the two (2) swimming pools, with interest at 6% per annum
from the date of the filing of the Complaint until defendant’s
obligation to plaintiff is fully paid.
No pronouncement as to costs.13
Petitioner’s Motion for Reconsideration was denied. Thus,
petitioner filed an appeal with the Court of Appeals based on
the following assigned errors:14
A. THE TRIAL COURT ERRED IN FINDING THAT
PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE
DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS
FIRE POLICY NO. 31944, CONSIDERING ITS
PROVISIONS, THE CIRCUMSTANCES SURROUNDING
THE ISSUANCE OF SAID POLICY AND THE
ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE
EARTHQUAKE OF JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING
PLAINTIFF-APPELLANT’S RIGHT TO RECOVER UNDER
DEFENDANT-APPELLEE’S POLICY (NO. 31944; EXH "I")
BY LIMITING ITSELF TO A CONSIDERATION OF THE
SAID POLICY ISOLATED FROM THE CIRCUMSTANCES
SURROUNDING ITS ISSUANCE AND THE ACTUATIONS
OF THE PARTIES AFTER THE EARTHQUAKE OF JULY
16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT
PLAINTIFF-APPELLANT IS ENTITLED TO THE
DAMAGES CLAIMED, WITH INTEREST COMPUTED AT
24% PER ANNUM ON CLAIMS ON PROCEEDS OF
POLICY.
On the other hand, respondent filed a partial appeal, assailing
the lower court’s failure to award it attorney’s fees and damages
on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the
trial court and ruled, thus:
However, after carefully perusing the documentary evidence of
both parties, We are not convinced that the last two (2)
insurance contracts (Exhs. "G" and "H"), which the plaintiff-
appellant had with AHAC (AIU) and upon which the subject
insurance contract with Philippine Charter Insurance
Corporation is said to have been based and copied (Exh. "I"),
covered an extended earthquake shock insurance on all the
insured properties.
xxx
We also find that the Court a quo was correct in not granting
the plaintiff-appellant’s prayer for the imposition of interest –
24% on the insurance claim and 6% on loss of income allegedly
amounting to P4,280,000.00. Since the defendant-appellant has
expressed its willingness to pay the damage caused on the two
(2) swimming pools, as the Court a quo and this Court correctly
found it to be liable only, it then cannot be said that it was in
default and therefore liable for interest.
Coming to the defendant-appellant’s prayer for an attorney’s
fees, long-standing is the rule that the award thereof is subject
to the sound discretion of the court. Thus, if such discretion is
well-exercised, it will not be disturbed on appeal (Castro et al.
v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being
the award thereof an exception rather than a rule, it is necessary
for the court to make findings of facts and law that would bring
the case within the exception and justify the grant of such
award (Country Bankers Insurance Corp. v. Lianga Bay and
Community Multi-Purpose Coop., Inc., G.R. No. 136914,
January 25, 2002). Therefore, holding that the plaintiff-
appellant’s action is not baseless and highly speculative, We
find that the Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are
hereby DISMISSED and judgment of the Trial Court hereby
AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues:
16
A. WHETHER THE COURT OF APPEALS CORRECTLY
HELD THAT UNDER RESPONDENT’S INSURANCE
POLICY NO. 31944, ONLY THE TWO (2) SWIMMING
POOLS, RATHER THAN ALL THE PROPERTIES
COVERED THEREUNDER, ARE INSURED AGAINST THE
RISK OF EARTHQUAKE SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY
DENIED PETITIONER’S PRAYER FOR DAMAGES WITH
INTEREST THEREON AT THE RATE CLAIMED,
ATTORNEY’S FEES AND EXPENSES OF LITIGATION.
Petitioner contends:
First, that the policy’s earthquake shock endorsement clearly
covers all of the properties insured and not only the swimming
pools. It used the words "any property insured by this policy,"
and it should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the
earthquake shock endorsement is confirmed in the body of the
insurance policy itself, which states that it is "[s]ubject to:
Other Insurance Clause, Typhoon Endorsement, Earthquake
Shock Endt., Extended Coverage Endt., FEA Warranty &
Annual Payment Agreement On Long Term Policies."17
Third, that the qualification referring to the two swimming
pools had already been deleted in the earthquake shock
endorsement.
Fourth, it is unbelievable for respondent to claim that it only
made an inadvertent omission when it deleted the said
qualification.
Fifth, that the earthquake shock endorsement rider should be
given precedence over the wording of the insurance policy,
because the rider is the more deliberate expression of the
agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were
placed on the endorsements/warranties enumerated at the time
of issue.
Seventh, any ambiguity in the earthquake shock endorsement
should be resolved in favor of petitioner and against
respondent. It was respondent which caused the ambiguity
when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the
earthquake shock endorsement should be interpreted as a caveat
on the standard fire insurance policy, such as to remove the two
swimming pools from the coverage for the risk of fire. It should
not be used to limit the respondent’s liability for earthquake
shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the
additional premium was not paid under the extended coverage.
The premium for the earthquake shock coverage was already
included in the premium paid for the policy.
Tenth, the parties’ contemporaneous and subsequent acts show
that they intended to extend earthquake shock coverage to all
insured properties. When it secured an insurance policy from
respondent, petitioner told respondent that it wanted an exact
replica of its latest insurance policy from American Home
Assurance Company (AHAC-AIU), which covered all the
resort’s properties for earthquake shock damage and respondent
agreed. After the July 16, 1990 earthquake, respondent assured
petitioner that it was covered for earthquake shock.
Respondent’s insurance adjuster, Bayne Adjusters and
Surveyors, Inc., likewise requested petitioner to submit the
necessary documents for its building claims and other repair
costs. Thus, under the doctrine of equitable estoppel, it cannot
deny that the insurance policy it issued to petitioner covered all
of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review
by certiorari under Rule 45 of the Revised Rules of Court as its
remedy, and there is no need for calibration of the evidence in
order to establish the facts upon which this petition is based.
On the other hand, respondent made the following counter
arguments:18
First, none of the previous policies issued by AHAC-AIU from
1983 to 1990 explicitly extended coverage against earthquake
shock to petitioner’s insured properties other than on the two
swimming pools. Petitioner admitted that from 1984 to 1988,
only the two swimming pools were insured against earthquake
shock. From 1988 until 1990, the provisions in its policy were
practically identical to its earlier policies, and there was no
increase in the premium paid. AHAC-AIU, in a letter19 by its
representative Manuel C. Quijano, categorically stated that its
previous policy, from which respondent’s policy was copied,
covered only earthquake shock for the two swimming pools.
Second, petitioner’s payment of additional premium in the
amount of P393.00 shows that the policy only covered
earthquake shock damage on the two swimming pools. The
amount was the same amount paid by petitioner for earthquake
shock coverage on the two swimming pools from 1990-1991.
No additional premium was paid to warrant coverage of the
other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of
the earthquake shock endorsement to the two swimming pools
in the policy schedule did not expand the earthquake shock
coverage to all of petitioner’s properties. As per its agreement
with petitioner, respondent copied its policy from the AHAC-
AIU policy provided by petitioner. Although the first five
policies contained the said qualification in their rider’s title, in
the last two policies, this qualification in the title was deleted.
AHAC-AIU, through Mr. J. Baranda III, stated that such
deletion was a mere inadvertence. This inadvertence did not
make the policy incomplete, nor did it broaden the scope of the
endorsement whose descriptive title was merely enumerated.
Any ambiguity in the policy can be easily resolved by looking
at the other provisions, specially the enumeration of the items
insured, where only the two swimming pools were noted as
covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies
from 1984 through 1988, the phrase "Item 5 – P393,000.00 –
on the two swimming pools only (against the peril of
earthquake shock only)" meant that only the swimming pools
were insured for earthquake damage. The same phrase is
used in toto in the policies from 1989 to 1990, the only
difference being the designation of the two swimming pools as
"Item 3."
Fifth, in order for the earthquake shock endorsement to be
effective, premiums must be paid for all the properties covered.
In all of its seven insurance policies, petitioner only
paid P393.00 as premium for coverage of the swimming pools
against earthquake shock. No other premium was paid for
earthquake shock coverage on the other properties. In addition,
the use of the qualifier "ANY" instead of "ALL" to describe the
property covered was done deliberately to enable the parties to
specify the properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement
that all of its properties must be included in the earthquake
shock coverage. Petitioner’s own evidence shows that it only
required respondent to follow the exact provisions of its
previous policy from AHAC-AIU. Respondent complied with
this requirement. Respondent’s only deviation from the
agreement was when it modified the provisions regarding the
replacement cost endorsement. With regard to the issue under
litigation, the riders of the old policy and the policy in issue are
identical.
Seventh, respondent did not do any act or give any assurance to
petitioner as would estop it from maintaining that only the two
swimming pools were covered for earthquake shock. The
adjuster’s letter notifying petitioner to present certain
documents for its building claims and repair costs was given to
petitioner before the adjuster knew the full coverage of its
policy.
Petitioner anchors its claims on AHAC-AIU’s inadvertent
deletion of the phrase "Item 5 Only" after the descriptive name
or title of the Earthquake Shock Endorsement. However, the
words of the policy reflect the parties’ clear intention to limit
earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to
read its conditions. It did not object to any deficiency nor did it
institute any action to reform the policy. The policy binds the
petitioner.
Eighth, there is no basis for petitioner to claim damages,
attorney’s fees and litigation expenses. Since respondent was
willing and able to pay for the damage caused on the two
swimming pools, it cannot be considered to be in default, and
therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in
the resolution of the case at bar.
First, in the designation of location of risk, only the two
swimming pools were specified as included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only
(against the peril of earthquake shock only)20
Second, under the breakdown for premium payments,21 it was
stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
3 393,000.00 0.100%-E/S 393.0022]
Third, Policy Condition No. 6 stated:
6. This insurance does not cover any loss or damage occasioned
by or through or in consequence, directly or indirectly of any of
the following occurrences, namely:--
(a) Earthquake, volcanic eruption or other convulsion of
nature. 23
Fourth, the rider attached to the policy, titled "Extended
Coverage Endorsement (To Include the Perils of Explosion,
Aircraft, Vehicle and Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON
 policy cannot be construed piecemeal. Certain stipulations
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING
ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION
OF A DISCOUNT OF 5% OR 7 ½ % OF THE NET
PREMIUM x x x POLICY HEREBY UNDERTAKES TO
CONTINUE THE INSURANCE UNDER THE ABOVE
NAMED x x x AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company
of the sum of P. . . . . . . . . . . . . . . . . additional premium the
Company agrees, notwithstanding what is stated in the printed
conditions of this Policy to the contrary, that this insurance
covers loss or damage (including loss or damage by fire) to any
of the property insured by this Policy occasioned by or through
or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall
apply (except in so far as they may be hereby expressly varied)
and that any reference therein to loss or damage by fire should
be deemed to apply also to loss or damage occasioned by or
through or in consequence of Earthquake.24
Petitioner contends that pursuant to this rider, no qualifications
were placed on the scope of the earthquake shock coverage.
Thus, the policy extended earthquake shock coverage to all of
the insured properties.
It is basic that all the provisions of the insurance policy should
be examined and interpreted in consonance with each other.
25 All its parts are reflective of the true intent of the parties. The
cannot be segregated and then made to control; neither do
particular words or phrases necessarily determine its character.
Petitioner cannot focus on the earthquake shock endorsement to
the exclusion of the other provisions. All the provisions and
riders, taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to
the two swimming pools only.
A careful examination of the premium recapitulation will show
that it is the clear intent of the parties to extend earthquake
shock coverage only to the two swimming pools. Section 2(1)
of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from
an unknown or contingent event. Thus, an insurance contract
exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of
the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing
a similar risk; and
5. In consideration of the insurer's promise, the insured
pays a premium.26 (Emphasis ours)
An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril.
27 In fire, casualty, and marine insurance, the premium payable
becomes a debt as soon as the risk attaches.28 In the subject
policy, no premium payments were made with regard to
earthquake shock coverage, except on the two swimming pools.
There is no mention of any premium payable for the other
resort properties with regard to earthquake shock. This is
consistent with the history of petitioner’s previous insurance
policies from AHAC-AIU. As borne out by petitioner’s
witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, November 25, 1991
 recommend what insurance to take.
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that
insofar as your insurance policy during the period from March
4, 1984 to March 4, 1985 the coverage on earthquake shock
was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically
shown in the warranty, there is a provision here that it was only
for item 5.
Q. More specifically Item 5 states the amount of P393,000.00
corresponding to the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989,
did you personally arrange for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your
company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as
operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is
concerned they are of course subject to your instruction, is that
not correct?
A. Yes, sir. The final action is still with us although they can
Q. In the procurement of the insurance police (sic) from March
14, 1988 to March 14, 1989, did you give written instruction to
Forte Insurance Agency advising it that the earthquake shock
coverage must extend to all properties of Agoo Playa Resort in
La Union?
A. No, sir. We did not make any written instruction, although
we made an oral instruction to that effect of extending the
coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important
because in April 1987 there was an earthquake tremor in La
Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar
tremors in the [future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to
check the provisions with respect to your instructions that all
properties must be covered again by earthquake shock
endorsement?
A. Are you referring to the insurance policy issued by American
Home Assurance Company marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the
earthquake shock endorsement has no more limitation referring
to the two swimming pools only, I was contented already that
the previous limitation pertaining to the two swimming pools
was already removed.
Petitioner also cited and relies on the attachment of the phrase
"Subject to: Other Insurance Clause, Typhoon
Endorsement, Earthquake Shock Endorsement, Extended
Coverage Endorsement, FEA Warranty & Annual Payment
Agreement on Long Term Policies"29 to the insurance policy
as proof of the intent of the parties to extend the coverage for
earthquake shock. However, this phrase is merely an
enumeration of the descriptive titles of the riders, clauses,
warranties or endorsements to which the policy is subject, as
required under Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion
of the qualification limiting the coverage to the two swimming
pools. The earthquake shock endorsement cannot stand alone.
As explained by the testimony of Juan Baranda III, underwriter
for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30 
 Because it says here in the policies, in the enumeration
TSN, August 11, 1992
 "Earthquake Shock Endorsement, in the Clauses and
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H
inclusive have been previously marked by counsel for
defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to
review of (sic) these six (6) policies issued by your company
[in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point
of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence
as Exhibits C to H respectively carries an earthquake shock
endorsement[?] My question to you is, on the basis on (sic) the
wordings indicated in Exhibits C to H respectively what was
the extent of the coverage [against] the peril of earthquake
shock as provided for in each of the six (6) policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming
pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D,
E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against
earthquake shock as provided for in each of the six (6) policies
extend to the two (2) swimming pools only?
WITNESS:
Warranties: Item 5 only (Earthquake Shock Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on
stand alone basis. For swimming pools we do cover earthquake
shock. For building we covered it for full earthquake coverage
which includes earthquake shock…
COURT:
As far as earthquake shock endorsement you do not have a
specific coverage for other things other than swimming pool?
You are covering building? They are covered by a general
insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are
covering building or another we can issue earthquake shock
solely but that the moment I see this, the thing that comes to my
mind is either insuring a swimming pool, foundations, they are
normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
 TSN, September 7, 1992
TSN, August 11, 1992
 pp. 4-6
pp. 23-25
Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged
that only Exhibits C, D, E and F inclusive [remained] its
coverage against earthquake shock to two (2) swimming pools
only but that Exhibits G and H respectively entend the coverage
against earthquake shock to all the properties indicated in the
respective schedules attached to said policies, what can you say
about that testimony of plaintiff’s witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand
alone without the other half of it. I assure you that this one
covers the two swimming pools with respect to earthquake
shock endorsement. Based on it, if we are going to look at the
premium there has been no change with respect to the rates.
Everytime (sic) there is a renewal if the intention of the insurer
was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to
consider the two (2) swimming pools of the other as stated in
the policy. As I see, there is no increase in the amount of the
premium. I must say that the coverage was not broaden (sic) to
include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the
coverage. If you are going to do some computation based on
the rates you will arrive at the same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III



ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for
fire insurance?
WITNESS:
No, we don’t, sir.
Q. That is why the phrase "earthquake shock to the two (2)
swimming pools only" was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G
and H which you have pointed to during your direct-
examination, the phrase "Item no. 5 only" meaning to (sic) the
two (2) swimming pools was deleted from the policies issued
by AIU, is it not?
xxx
ATTY. ANDRES:
As an insurance executive will you not attach any significance
to the deletion of the qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular
phrase is inadvertent. Being a company underwriter, we do not
cover. . it was inadvertent because of the previous policies that
we have issued with no specific attachments, premium rates
and so on. It was inadvertent, sir.
The Court also rejects petitioner’s contention that respondent’s
contemporaneous and subsequent acts to the issuance of the
insurance policy falsely gave the petitioner assurance that the
coverage of the earthquake shock endorsement included all its
properties in the resort. Respondent only insured the properties
as intended by the petitioner. Petitioner’s own witness testified
to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
 was assured already that the policy wordings and rates were
TSN, January 14, 1992
 copied from the insurance policy I sent them but it was only
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr.
Witness, what exactly did you tell Atty. Omlas (sic) to copy
from Exhibit "H" for purposes of procuring the policy from
Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will
have the same provisions as this American Home Insurance
Policy No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the
premium rates?
A. Yes, sir. He assured me that with regards to the insurance
premium rates that they will be charging will be limited to this
one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992

pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a
comparison of the provisions and scope of coverage of Exhibits
"I" and "H" sometime in the third week of March, 1990 or
thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or
difference between the policy wordings as well as scope of
coverage of Exhibits "I" and "H" respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I
when this case erupted that we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage
did you notice any discrepancy at any time between those
indicated in Exhibit "I" and those indicated in Exhibit "H"
respectively?
A. With regard to the wordings I did not notice any difference
because it was exactly the same P393,000.00 on the two (2)
swimming pools only against the peril of earthquake shock
which I understood before that this provision will have to be
placed here because this particular provision under the peril of
earthquake shock only is requested because this is an insurance
policy and therefore cannot be insured against fire, so this has
to be placed.
The verbal assurances allegedly given by respondent’s
representative Atty. Umlas were not proved. Atty. Umlas
categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondent’s
independent claims adjuster, Bayne Adjusters and Surveyors,
Inc. But as testified to by the representative of Bayne Adjusters
and Surveyors, Inc., respondent never meant to lead petitioner
to believe that the endorsement for earthquake shock covered
properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
Adjusters and Surveyors, Inc.)
 riders. Petitioner cannot rely on the general rule that insurance
TSN, January 26, 1993
 contracts are contracts of adhesion which should be liberally
pp. 22-26
Q. Do you recall the circumstances that led to your discussion
regarding the extent of coverage of the policy issued by
Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the
inspection, I got a photocopy of the insurance coverage policy
and it was indicated under Item 3 specifically that the coverage
is only for earthquake shock. Then, I remember I had a talk
with Atty. Umlas (sic), and I relayed to him what I had found
out in the policy and he confirmed to me indeed only Item 3
which were the two swimming pools have coverage for
earthquake shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if
any, for stating that except for the swimming pools all affected
items have no coverage for earthquake shock?
xxx
A. I based my statement on my findings, because upon my
examination of the policy I found out that under Item 3 it was
specific on the wordings that on the two swimming pools only,
then enclosed in parenthesis (against the peril[s] of earthquake
shock only), and secondly, when I examined the summary of
premium payment only Item 3 which refers to the swimming
pools have a computation for premium payment for earthquake
shock and all the other items have no computation for payment
of premiums.
In sum, there is no ambiguity in the terms of the contract and its
construed in favor of the insured and strictly against the insurer
company which usually prepares it.31 A contract of adhesion is
one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes
his signature or his "adhesion" thereto. Through the years, the
courts have held that in these type of contracts, the parties do
not bargain on equal footing, the weaker party's participation
being reduced to the alternative to take it or leave it. Thus, these
contracts are viewed as traps for the weaker party whom the
courts of justice must protect.32 Consequently, any ambiguity
therein is resolved against the insurer, or construed liberally in
favor of the insured.33
The case law will show that this Court will only rule out blind
adherence to terms where facts and circumstances will show
that they are basically one-sided.34 Thus, we have called on Q. What steps did you take?
lower courts to remain careful in scrutinizing the factual A. When I examined the policy of the Philippine Charter
circumstances behind each case to determine the efficacy of the Insurance Corporation I specifically told him that the policy
claims of contending parties. In Development Bank of the and wordings shall be copied from the AIU Policy No.
Philippines v. National Merchandising Corporation, et al., 206-4568061-9.
35 the parties, who were acute businessmen of experience, were
Respondent, in compliance with the condition set by the
presumed to have assented to the assailed documents with full petitioner, copied AIU Policy No. 206-4568061-9 in drafting its
knowledge. Insurance Policy No. 31944. It is true that there was variance in
We cannot apply the general rule on contracts of adhesion to some terms, specifically in the replacement cost endorsement,
the case at bar. Petitioner cannot claim it did not know the but the principal provisions of the policy remained essentially
provisions of the policy. From the inception of the policy, similar to AHAC-AIU’s policy. Consequently, we cannot apply
petitioner had required the respondent to copy verbatimthe the "fine print" or "contract of adhesion" rule in this case as the
provisions and terms of its latest insurance policy from AHAC- parties’ intent to limit the coverage of the policy to the two
AIU. The testimony of Mr. Leopoldo Mantohac, a direct swimming pools only is not ambiguous.37
participant in securing the insurance policy of petitioner, is IN VIEW WHEREOF, the judgment of the Court of Appeals
reflective of petitioner’s knowledge, viz: is affirmed. The petition for certiorari is dismissed. No costs.
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36
 SO ORDERED.
TSN, September 23, 1991

pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy
you would want for those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this
policy under Philippine Charter Insurance Corporation as long
as it will follow the same or exact provisions of the previous
insurance policy we had with American Home Assurance
Corporation.
Q. Did you take any step Mr. Witness to ensure that the
provisions which you wanted in the American Home Insurance
policy are to be incorporated in the PCIC policy?
A. Yes, sir.
 Republic of the Philippines
 respondent company to all its right to action against San Miguel
SUPREME COURT
 Corporation.
Manila On 11 December 1972, respondent company wrote Insurance
SECOND DIVISION Adjusters, Inc. to demand reimbursement from San Miguel
Corporation of the amount it had paid petitioner. Insurance
G.R. No. L-52756 October 12, 1987 Adjusters, Inc. refused reimbursement, alleging that San
MANILA MAHOGANY MANUFACTURING Miguel Corporation had already paid petitioner P4,500.00 for
CORPORATION, petitioner, 
 the damages to petitioner's motor vehicle, as evidenced by a
vs.
 cash voucher and a Release of Claim executed by the General
COURT OF APPEALS AND ZENITH INSURANCE Manager of petitioner discharging San Miguel Corporation
CORPORATION, respondents. from "all actions, claims, demands the rights of action that now
exist or hereafter [sic] develop arising out of or as a
PADILLA, J: consequence of the accident."
Petition to review the decision * of the Court of Appeals, in Respondent insurance company thus demanded from petitioner
CA-G.R. No. SP-08642, dated 21 March 1979, ordering reimbursement of the sum of P4,500.00 paid by San Miguel
petitioner Manila Mahogany Manufacturing Corporation to pay Corporation. Petitioner refused; hence, respondent company
private respondent Zenith Insurance Corporation the sum of filed suit in the City Court of Manila for the recovery of
Five Thousand Pesos (P5,000.00) with 6% annual interest from P4,500.00. The City Court ordered petitioner to pay respondent
18 January 1973, attorney's fees in the sum of five hundred P4,500.00. On appeal the Court of First Instance of Manila
pesos (P500.00), and costs of suit, and the resolution of the affirmed the City Court's decision in toto, which CFI decision
same Court, dated 8 February 1980, denying petitioner's motion was affirmed by the Court of Appeals, with the modification
for reconsideration of it's decision. that petitioner was to pay respondent the total amount of
P5,000.00 that it had earlier received from the respondent
From 6 March 1970 to 6 March 1971, petitioner insured its
insurance company.
Mercedes Benz 4-door sedan with respondent insurance
company. On 4 May 1970 the insured vehicle was bumped and Petitioner now contends it is not bound to pay P4,500.00, and
damaged by a truck owned by San Miguel Corporation. For the much more, P5,000.00 to respondent company as the
damage caused, respondent company paid petitioner five subrogation in the Release of Claim it executed in favor of
thousand pesos (P5,000.00) in amicable settlement. Petitioner's respondent was conditioned on recovery of the total amount of
general manager executed a Release of Claim, subrogating damages petitioner had sustained. Since total damages were
valued by petitioner at P9,486.43 and only P5,000.00 was
received by petitioner from respondent, petitioner argues that it
was entitled to go after San Miguel Corporation to claim the
additional P4,500.00 eventually paid to it by the latter, without
having to turn over said amount to respondent. Respondent of
course disputes this allegation and states that there was no
qualification to its right of subrogation under the Release of
Claim executed by petitioner, the contents of said deed having
expressed all the intents and purposes of the parties.
To support its alleged right not to return the P4,500.00 paid by
San Miguel Corporation, petitioner cites Art. 2207 of the Civil
Code, which states:
If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of the
insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated
the contract. If the amount paid by the insurance company does
not fully cover the injury or loss the aggrieved party shall be
entitled to recover the deficiency from the person causing the
loss or injury.
Petitioner also invokes Art. 1304 of the Civil Code, stating.
A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred to
the person who has been subrogated in his place in virtue of the
partial payment of the same credit.
We find petitioners arguments to be untenable and without
merit. In the absence of any other evidence to support its
allegation that a gentlemen's agreement existed between it and
respondent, not embodied in the Release of Claim, such ease of
Claim must be taken as the best evidence of the intent and
purpose of the parties. Thus, the Court of Appeals rightly
stated:
Petitioner argues that the release claim it executed subrogating
Private respondent to any right of action it had against San
Miguel Corporation did not preclude Manila Mahogany from
filing a deficiency claim against the wrongdoer. Citing Article
2207, New Civil Code, to the effect that if the amount paid by
an insurance company does not fully cover the loss, the
aggrieved party shall be entitled to recover the deficiency from
the person causing the loss, petitioner claims a preferred right
to retain the amount coming from San Miguel Corporation,
despite the subrogation in favor of Private respondent.
Although petitioners right to file a deficiency claim against San
Miguel Corporation is with legal basis, without prejudice to the
insurer's right of subrogation, nevertheless when Manila
Mahogany executed another release claim (Exhibit K)
discharging San Miguel Corporation from "all actions, claims,
demands and rights of action that now exist or hereafter arising
out of or as a consequence of the accident" after the insurer had
paid the proceeds of the policy- the compromise agreement of
P5,000.00 being based on the insurance policy-the insurer is
entitled to recover from the insured the amount of insurance
money paid (Metropolitan Casualty Insurance Company of
New York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132 cited in
Insurance Code and Insolvency Law with comments and
annotations, H.B. Perez 1976, p. 151). Since petitioner by its
own acts released San Miguel Corporation, thereby defeating
private respondents, the right of subrogation, the right of action
of petitioner against the insurer was also nullified. (Sy Keng &
Co. vs. Queensland Insurance Co., Ltd., 54 O.G. 391)
Otherwise stated: private respondent may recover the sum of
P5,000.00 it had earlier paid to petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co., 2
If a property is insured and the owner receives the indemnity
from the insurer, it is provided in [Article 2207 of the New
Civil Code] that the insurer is deemed subrogated to the rights
of the insured against the wrongdoer and if the amount paid by
the insurer does not fully cover the loss, then the aggrieved
party is the one entitled to recover the deficiency. ... Under this
legal provision, the real party in interest with regard to the
portion of the indemnity paid is the insurer and not the
insured 3 (Emphasis supplied)
The decision of the respondent court ordering petitioner to pay
respondent company, not the P4,500.00 as originally asked for,
but P5,000.00, the amount respondent company paid petitioner
as insurance, is also in accord with law and jurisprudence. In
disposing of this issue, the Court of Appeals held:
... petitioner is entitled to keep the sum of P4,500.00 paid by
San Miguel Corporation under its clear right to file a deficiency
claim for damages incurred, against the wrongdoer, should the
insurance company not fully pay for the injury caused (Article
2207, New Civil Code). However, when petitioner released San
Miguel Corporation from any liability, petitioner's right to
retain the sum of P5,000.00 no longer existed, thereby entitling
private respondent to recover the same. (Emphasis supplied)
As has been observed:
... The right of subrogation can only exist after the insurer has
paid the otherwise the insured will be deprived of his right to
full indemnity. If the insurance proceeds are not sufficient to
cover the damages suffered by the insured, then he may sue the
party responsible for the damage for the the [sic] remainder. To
the extent of the amount he has already received from the
insurer enjoy's [sic] the right of subrogation.
Since the insurer can be subrogated to only such rights as the
insured may have, should the insured, after receiving payment
from the insurer, release the wrongdoer who caused the loss,
the insurer loses his rights against the latter. But in such a case,
the insurer will be entitled to recover from the insured whatever
it has paid to the latter, unless the release was made with the
consent of the insurer. 4(Emphasis supplied.)
And even if the specific amount asked for in the complaint is
P4,500.00 only and not P5,000.00, still, the respondent Court
acted well within its discretion in awarding P5,000.00, the total
amount paid by the insurer. The Court of Appeals rightly
reasoned as follows:
It is to be noted that private respondent, in its companies, prays
for the recovery, not of P5,000.00 it had paid under the
insurance policy but P4,500.00 San Miguel Corporation had
paid to petitioner. On this score, We believe the City Court and
Court of First Instance erred in not awarding the proper relief.
Although private respondent prays for the reimbursement of
P4,500.00 paid by San Miguel Corporation, instead of
P5,000.00 paid under the insurance policy, the trial court should
have awarded the latter, although not prayed for, under the
general prayer in the complaint "for such further or other relief
as may be deemed just or equitable, (Rule 6, Sec. 3, Revised
Rules of Court; Rosales vs. Reyes Ordoveza, 25 Phil. 495 ;
Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios Tupas, 77
Phil 120).
WHEREFORE, premises considered, the petition is DENIED. "WHEREFORE, premises considered, the present appeal is
The judgment appealed from is hereby AFFIRMED with costs hereby DISMISSED for lack of merit. The appealed Decision
against petitioner. of Branch 149 of the Regional Trial Court of Makati City
SO ORDERED. in Civil Case No. 95-1219, entitled 'American Home Assurance
Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS
Republic of the Philippines
 CORPORATION and/or CARGOHAUS, INC. (formerly U-
SUPREME COURT
 WA R E H O U S E , INC.),' is
Manila hereby AFFIRMED and REITERATED.
THIRD DIVISION "Costs against the [petitioner and Cargohaus, Inc.]."4
The assailed Resolution denied petitioner's Motion for
G.R. No. 150094 August 18, 2004 Reconsideration.
FEDERAL EXPRESS CORPORATION, petitioner, 
 The Facts
vs.
 The antecedent facts are summarized by the appellate court as
AMERICAN HOME ASSURANCE COMPANY and follows:
PHILAM INSURANCE COMPANY, INC., respondents. "On January 26, 1994, SMITHKLINE Beecham
(SMITHKLINE for brevity) of Nebraska, USA delivered to
DECISION Burlington Air Express (BURLINGTON), an agent of
[Petitioner] Federal Express Corporation, a shipment of 109
cartons of veterinary biologicals for delivery to consignee
PANGANIBAN, J.:
SMITHKLINE and French Overseas Company in Makati City,
Basic is the requirement that before suing to recover loss of or
Metro Manila. The shipment was covered by Burlington
damage to transported goods, the plaintiff must give the carrier
Airway Bill No. 11263825 with the words, 'REFRIGERATE
notice of the loss or damage, within the period prescribed by
WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked
the Warsaw Convention and/or the airway bill.
on its face. That same day, Burlington insured the cargoes in the
The Case
amount of $39,339.00 with American Home Assurance
Before us is a Petition for Review1 under Rule 45 of the Rules Company (AHAC). The following day, Burlington turned over
of Court, challenging the June 4, 2001 Decision2 and the the custody of said cargoes to Federal Express which
September 21, 2001 Resolution3 of the Court of Appeals (CA) transported the same to Manila. The first shipment, consisting
in CA-GR CV No. 58208. The assailed Decision disposed as of 92 cartons arrived in Manila on January 29, 1994 in Flight
follows: No. 0071-28NRT and was immediately stored at [Cargohaus
Inc.'s] warehouse. While the second, consisting of 17 cartons,
came in two (2) days later, or on January 31, 1994, in Flight
No. 0071-30NRT which was likewise immediately stored at
Cargohaus' warehouse. Prior to the arrival of the cargoes,
Federal Express informed GETC Cargo International
Corporation, the customs broker hired by the consignee to
facilitate the release of its cargoes from the Bureau of Customs,
of the impending arrival of its client's cargoes.
"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'),
twelve (12) days after the cargoes arrived in Manila, a non-
licensed custom's broker who was assigned by GETC to
facilitate the release of the subject cargoes, found out, while he
was about to cause the release of the said cargoes, that the same
[were] stored only in a room with two (2) air conditioners
running, to cool the place instead of a refrigerator. When he
asked an employee of Cargohaus why the cargoes were stored
in the 'cool room' only, the latter told him that the cartons where
the vaccines were contained specifically indicated therein that it
should not be subjected to hot or cold temperature. Thereafter,
DIONEDA, upon instructions from GETC, did not proceed
with the withdrawal of the vaccines and instead, samples of the
same were taken and brought to the Bureau of Animal Industry
of the Department of Agriculture in the Philippines by
SMITHKLINE for examination wherein it was discovered that
the 'ELISA reading of vaccinates sera are below the positive
reference serum.'
"As a consequence of the foregoing result of the veterinary
biologics test, SMITHKLINE abandoned the shipment and,
declaring 'total loss' for the unusable shipment, filed a claim
with AHAC through its representative in the Philippines, the
Philam Insurance Co., Inc. ('PHILAM') which recompensed
SMITHKLINE for the whole insured amount of THIRTY
NINE THOUSAND THREE HUNDRED THIRTY NINE
DOLLARS ($39,339.00). Thereafter, [respondents] filed an
action for damages against the [petitioner] imputing negligence
on either or both of them in the handling of the cargo.
"Trial ensued and ultimately concluded on March 18, 1997 with
the [petitioner] being held solidarily liable for the loss as
follows:
'WHEREFORE, judgment is hereby rendered in favor of
[respondents] and [petitioner and its Co-Defendant Cargohaus]
are directed to pay [respondents], jointly and severally, the
following:
1. Actual damages in the amount of the peso equivalent of
US$39,339.00 with interest from the time of the filing of the
complaint to the time the same is fully paid.
2. Attorney's fees in the amount of P50,000.00 and
3. Costs of suit.
'SO ORDERED.'
"Aggrieved, [petitioner] appealed to [the CA]."5
Ruling of the Court of Appeals
The Test Report issued by the United States Department of
Agriculture (Animal and Plant Health Inspection Service) was
found by the CA to be inadmissible in evidence. Despite this
ruling, the appellate court held that the shipping Receipts were
a prima facie proof that the goods had indeed been delivered to
the carrier in good condition. We quote from the ruling as
follows:
"Where the plaintiff introduces evidence which shows prima
facie that the goods were delivered to the carrier in good
condition [i.e., the shipping receipts], and that the carrier
delivered the goods in a damaged condition, a presumption is
raised that the damage occurred through the fault or negligence
of the carrier, and this casts upon the carrier the burden of
showing that the goods were not in good condition when
delivered to the carrier, or that the damage was occasioned by
some cause excepting the carrier from absolute liability. This
the [petitioner] failed to discharge. x x x."6
Found devoid of merit was petitioner's claim that respondents
had no personality to sue. This argument was supposedly not
raised in the Answer or during trial.
Hence, this Petition.7
The Issues
In its Memorandum, petitioner raises the following issues for
our consideration:
"I.
Are the decision and resolution of the Honorable Court of
Appeals proper subject for review by the Honorable Court
under Rule 45 of the 1997 Rules of Civil Procedure?
"II.
Is the conclusion of the Honorable Court of Appeals –
petitioner's claim that respondents have no personality to sue
because the payment was made by the respondents to
Smithkline when the insured under the policy is Burlington Air
Express is devoid of merit – correct or not?
"III.
Is the conclusion of the Honorable Court of Appeals that the
goods were received in good condition, correct or not?
"IV.
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not
admissible?
"V.
Is the Honorable Court of Appeals correct in ignoring and
disregarding respondents' own admission that petitioner is not
liable? and
"VI.
Is the Honorable Court of Appeals correct in ignoring the
Warsaw Convention?"8
Simply stated, the issues are as follows: (1) Is the Petition
proper for review by the Supreme Court? (2) Is Federal Express
liable for damage to or loss of the insured goods?
This Court's Ruling
The Petition has merit.
Preliminary Issue:

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

Liability for Damages
Petitioner contends that respondents have no personality to sue
-- thus, no cause of action against it -- because the payment
made to Smithkline was erroneous.
Pertinent to this issue is the Certificate of
Insurance10 ("Certificate") that both opposing parties cite in
support of their respective positions. They differ only in their
interpretation of what their rights are under its terms. The
determination of those rights involves a question of law, not a
question of fact. "As distinguished from a question of law
which exists 'when the doubt or difference arises as to what the
law is on a certain state of facts' -- 'there is a question of fact
when the doubt or difference arises as to the truth or the
falsehood of alleged facts'; or when the 'query necessarily
invites calibration of the whole evidence considering mainly
the credibility of witnesses, existence and relevancy of specific
surrounding circumstance, their relation to each other and to the
whole and the probabilities of the situation.'"11
Proper Payee
The Certificate specifies that loss of or damage to the insured
cargo is "payable to order x x x upon surrender of this
Certificate." Such wording conveys the right of collecting on
any such damage or loss, as fully as if the property were
covered by a special policy in the name of the holder itself. At
the back of the Certificate appears the signature of the
representative of Burlington. This document has thus been duly
indorsed in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the
latter had the right of collecting or of being indemnified for loss
of or damage to the insured shipment, as fully as if the property
were covered by a special policy in the name of the holder.
Hence, being the holder of the Certificate and having an
insurable interest in the goods, Smithkline was the proper payee
of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee
(Smithkline) executed a subrogation Receipt12 in favor of
respondents. The latter were thus authorized "to file claims and
begin suit against any such carrier, vessel, person, corporation
or government." Undeniably, the consignee had a legal right to
receive the goods in the same condition it was delivered for
transport to petitioner. If that right was violated, the consignee
would have a cause of action against the person responsible
therefor.
Upon payment to the consignee of an indemnity for the loss of
or damage to the insured goods, the insurer's entitlement to
subrogation pro tanto -- being of the highest equity -- equips it
with a cause of action in case of a contractual breach or
negligence.13 "Further, the insurer's subrogatory right to sue for
recovery under the bill of lading in case of loss of or damage to
the cargo is jurisprudentially upheld."14
In the exercise of its subrogatory right, an insurer may proceed
against an erring carrier. To all intents and purposes, it stands in
the place and in substitution of the consignee. A fortiori, both
the insurer and the consignee are bound by the contractual
stipulations under the bill of lading.15
Prescription of Claim
From the initial proceedings in the trial court up to the present,
petitioner has tirelessly pointed out that respondents' claim and
right of action are already barred. The latter, and even the
consignee, never filed with the carrier any written notice or
complaint regarding its claim for damage of or loss to the
subject cargo within the period required by the Warsaw
Convention and/or in the airway bill. Indeed, this fact has never
been denied by respondents and is plainly evident from the
records.
Airway Bill No. 11263825, issued by Burlington as agent of
petitioner, states:
"6. No action shall be maintained in the case of damage to or
partial loss of the shipment unless a written notice, sufficiently
describing the goods concerned, the approximate date of the
damage or loss, and the details of the claim, is presented by
shipper or consignee to an office of Burlington within (14) days
from the date the goods are placed at the disposal of the person
entitled to delivery, or in the case of total loss (including non-
delivery) unless presented within (120) days from the date of
issue of the [Airway Bill]."16
Relevantly, petitioner's airway bill states:
"12./12.1 The person entitled to delivery must make a
complaint to the carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately after
discovery of the damage and at the latest within fourteen (14)
days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days
from the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods
are placed at his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and
twenty (120) days from the date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made
to the carrier whose air waybill was used, or to the first carrier
or to the last carrier or to the carrier who performed the
transportation during which the loss, damage or delay took
place."17
Article 26 of the Warsaw Convention, on the other hand,
provides:
"ART. 26. (1) Receipt by the person entitled to the delivery of
baggage or goods without complaint shall be prima facie
evidence that the same have been delivered in good condition
and in accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must
complain to the carrier forthwith after the discovery of the
damage, and, at the latest, within 3 days from the date of receipt
in the case of baggage and 7 days from the date of receipt in the
case of goods. In case of delay the complaint must be made at
the latest within 14 days from the date on which the baggage or
goods have been placed at his disposal.
(3) Every complaint must be made in writing upon the
document of transportation or by separate notice in writing
dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall
lie against the carrier, save in the case of fraud on his part."18
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within
the time limitation therefor actually constitutes a condition
precedent to the accrual of a right of action against a carrier for
loss of or damage to the goods.19 The shipper or consignee must
allege and prove the fulfillment of the condition. If it fails to do
so, no right of action against the carrier can accrue in favor of
the former. The aforementioned requirement is a reasonable
condition precedent; it does not constitute a limitation of action.
20
The requirement of giving notice of loss of or injury to the
goods is not an empty formalism. The fundamental reasons for
such a stipulation are (1) to inform the carrier that the cargo has
been damaged, and that it is being charged with liability
therefor; and (2) to give it an opportunity to examine the nature
and extent of the injury. "This protects the carrier by affording
it an opportunity to make an investigation of a claim while the Republic of the Philippines

matter is fresh and easily investigated so as to safeguard itself SUPREME COURT

from false and fraudulent claims."21 Baguio City
When an airway bill -- or any contract of carriage for that SECOND DIVISION
matter -- has a stipulation that requires a notice of claim for loss
of or damage to goods shipped and the stipulation is not G.R. No. 166245 April 9, 2008
complied with, its enforcement can be prevented and the ETERNAL GARDENS MEMORIAL PARK
liability cannot be imposed on the carrier. To stress, notice is a CORPORATION, petitioner, 

condition precedent, and the carrier is not liable if notice is not vs.

given in accordance with the stipulation.22 Failure to comply THE PHILIPPINE AMERICAN LIFE INSURANCE
with such a stipulation bars recovery for the loss or damage COMPANY, respondent.
suffered.23
Being a condition precedent, the notice must precede a suit for DECISION
enforcement.24 In the present case, there is neither an allegation
nor a showing of respondents' compliance with this requirement VELASCO, JR., J.:
within the prescribed period. While respondents may have had
The Case
a cause of action then, they cannot now enforce it for their
Central to this Petition for Review on Certiorari under Rule 45
failure to comply with the aforesaid condition precedent.
which seeks to reverse and set aside the November 26, 2004
In view of the foregoing, we find no more necessity to pass
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
upon the other issues raised by petitioner.
57810 is the query: May the inaction of the insurer on the
We note that respondents are not without recourse. Cargohaus, insurance application be considered as approval of the
Inc. -- petitioner's co-defendant in respondents' Complaint application?
below -- has been adjudged by the trial court as liable for, inter
The Facts
alia, "actual damages in the amount of the peso equivalent of
On December 10, 1980, respondent Philippine American Life
US $39,339."25 This judgment was affirmed by the Court of
Insurance Company (Philamlife) entered into an agreement
Appeals and is already final and executory.26
denominated as Creditor Group Life Policy No. P-19202 with
WHEREFORE, the Petition is GRANTED, and the assailed
petitioner Eternal Gardens Memorial Park Corporation
Decision REVERSED insofar as it pertains to Petitioner Federal
(Eternal). Under the policy, the clients of Eternal who
Express Corporation. No pronouncement as to costs.
purchased burial lots from it on installment basis would be
SO ORDERED. insured by Philamlife. The amount of insurance coverage
depended upon the existing balance of the purchased burial
lots. The policy was to be effective for a period of one year,
renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not
more than 65 years of age, is indebted to the Assured for the
unpaid balance of his loan with the Assured, and is accepted for
Life Insurance coverage by the Company on its effective date is
eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of
insurance up to P50,000.00. However, a declaration of good
health shall be required for all Lot Purchasers as part of the
application. The Company reserves the right to require further
evidence of insurability satisfactory to the Company in respect
of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time
shall be the amount of the unpaid balance of his loan (including
arrears up to but not exceeding 2 months) as reported by the
Assured to the Company or the sum of P100,000.00, whichever
is smaller. Such benefit shall be paid to the Assured if the Lot
Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective
on the date he contracts a loan with the Assured. However,
there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.3
Eternal was required under the policy to submit to Philamlife a
list of all new lot purchasers, together with a copy of the
application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the
instant petition, Eternal complied by submitting a letter dated
December 29, 1982,4 containing a list of insurable balances of
its lot buyers for October 1982. One of those included in the list
as "new business" was a certain John Chuang. His balance of
payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife,
which served as an insurance claim for Chuang’s death.
Attached to the claim were the following documents: (1)
Chuang’s Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician;
and (5) Assured’s Certificate.
In reply, Philamlife wrote Eternal a letter on November 12,
1984,6 requiring Eternal to submit the following documents
relative to its insurance claim for Chuang’s death: (1)
Certificate of Claimant (with form attached); (2) Assured’s
Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still
living; and (4) Statement of Account showing the unpaid
balance of Chuang before his death.
Eternal transmitted the required documents through a letter
dated November 14, 1984,7 which was received by Philamlife
on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal
with any reply to the latter’s insurance claim. This prompted
Eternal to demand from Philamlife the payment of the claim for
PhP 100,000 on April 25, 1986.8
In response to Eternal’s demand, Philamlife denied Eternal’s
insurance claim in a letter dated May 20, 1986,9 a portion of
which reads:
The deceased was 59 years old when he entered into Contract
#9558 and 9529 with Eternal Gardens Memorial Park in
October 1982 for the total maximum insurable amount of
P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditor’s Group Life Policy No.
P-1920, under Evidence of Insurability provision, "a
declaration of good health shall be required for all Lot
Purchasers as party of the application." We cite further the
provision on Effective Date of Coverage under the policy
which states that "there shall be no insurance if the application
is not approved by the Company." Since no application had
been submitted by the Insured/Assured, prior to his death, for
our approval but was submitted instead on November 15, 1984,
after his death, Mr. John Uy Chuang was not covered under the
Policy. We wish to point out that Eternal Gardens being the
Assured was a party to the Contract and was therefore aware of
these pertinent provisions.
With regard to our acceptance of premiums, these do not
connote our approval per se of the insurance coverage but are
held by us in trust for the payor until the prerequisites for
insurance coverage shall have been met. We will however,
return all the premiums which have been paid in behalf of John
Uy Chuang.
Consequently, Eternal filed a case before the Makati City
Regional Trial Court (RTC) for a sum of money against
Philamlife, docketed as Civil Case No. 14736. The trial court
decided in favor of Eternal, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of Plaintiff ETERNAL, against Defendant
PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay
the sum of P100,000.00, representing the proceeds of the Policy
of John Uy Chuang, plus legal rate of interest, until fully paid;
and, to pay the sum of P10,000.00 as attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for
insurance which he accomplished before his death, as testified
to by Eternal’s witness and evidenced by the letter dated
December 29, 1982, stating, among others: "Encl: Phil-Am Life
Insurance Application Forms & Cert."10 It further ruled that due
to Philamlife’s inaction from the submission of the
requirements of the group insurance on December 29, 1982 to
Chuang’s death on August 2, 1984, as well as Philamlife’s
acceptance of the premiums during the same period, Philamlife
was deemed to have approved Chuang’s application. The RTC
said that since the contract is a group life insurance, once proof
of death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of
Makati in Civil Case No. 57810 is REVERSED and SET
ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s
application was not enclosed in Eternal’s letter dated December
29, 1982. It further ruled that the non-accomplishment of the
submitted application form violated Section 26 of the Insurance
Code. Thus, the CA concluded, there being no application form,
Chuang was not covered by Philamlife’s insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of
substance, not therefore determined by this Honorable Court, or
has decided it in a way not in accord with law or with the
applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to
respondent PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional
Trial Court dated May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not
re-examine factual issues raised before the CA and first level
courts, considering their findings of facts are conclusive and
binding on this Court. However, such rule is subject to
exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings [of the CA] are contrary to the trial court; (8) when
the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth
in the petition as well as in the petitioner’s main and reply
briefs are not disputed by the respondent; (10) when the
findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11)
when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.12(Emphasis
supplied.)
In the instant case, the factual findings of the RTC were
reversed by the CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial
court supports its contention that it submitted a copy of the
insurance application of Chuang before his death. In Eternal’s
letter dated December 29, 1982, a list of insurable interests of
buyers for October 1982 was attached, including Chuang in the
list of new businesses. Eternal added it was noted at the bottom
of said letter that the corresponding "Phil-Am Life Insurance
Application Forms & Cert." were enclosed in the letter that was
apparently received by Philamlife on January 15, 1983. Finally,
Eternal alleged that it provided a copy of the insurance
application which was signed by Chuang himself and executed
before his death.
On the other hand, Philamlife claims that the evidence
presented by Eternal is insufficient, arguing that Eternal must
present evidence showing that Philamlife received a copy of
Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982,
which Philamlife stamped as received, states that the insurance
forms for the attached list of burial lot buyers were attached to
the letter. Such stamp of receipt has the effect of
acknowledging receipt of the letter together with the
attachments. Such receipt is an admission by Philamlife against
its own interest.13 The burden of evidence has shifted to
Philamlife, which must prove that the letter did not contain
Chuang’s insurance application. However, Philamlife failed to
do so; thus, Philamlife is deemed to have received Chuang’s
insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that
before a transmittal letter is stamped as received, the contents
of the letter are correct and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of
credibility and reliability due to inconsistencies is groundless.
The trial court is in the best position to determine the reliability
and credibility of the witnesses, because it has the opportunity
to observe firsthand the witnesses’ demeanor, conduct, and
attitude. Findings of the trial court on such matters are binding
and conclusive on the appellate court, unless some facts or
circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered, might
affect the result of the case.15
An examination of the testimonies of the witnesses mentioned
by Philamlife, however, reveals no overlooked facts of
substance and value.
Philamlife primarily claims that Eternal did not even know
where the original insurance application of Chuang was, as
shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is
required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill
up two copies of this form and the original of this is submitted
to Philamlife together with the monthly remittances and the
second copy is remained or retained with the marketing
department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as
counsel is merely asking for the location and does not [ask] for
the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but
when I submitted with that payment together with the new
clients all the originals I see to it before I sign the transmittal
letter the originals are attached therein.16
In other words, the witness admitted not knowing where the
original insurance application was, but believed that the
application was transmitted to Philamlife as an attachment to a
transmittal letter.
As to the seeming inconsistencies between the testimony of
Manuel Cortez on whether one or two insurance application
forms were accomplished and the testimony of Mendoza on
who actually filled out the application form, these are minor
inconsistencies that do not affect the credibility of the
witnesses. Thus, we ruled in People v. Paredes that minor
inconsistencies are too trivial to affect the credibility of
witnesses, and these may even serve to strengthen their
credibility as these negate any suspicion that the testimonies
have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the
essential integrity of the prosecution’s evidence as a whole or
reflect on the witnesses’ honesty. The test is whether the
testimonies agree on essential facts and whether the respective
versions corroborate and substantially coincide with each other
so as to make a consistent and coherent whole.18
In the present case, the number of copies of the insurance
application that Chuang executed is not at issue, neither is
whether the insurance application presented by Eternal has
been falsified. Thus, the inconsistencies pointed out by
Philamlife are minor and do not affect the credibility of
Eternal’s witnesses.
However, the question arises as to whether Philamlife assumed
the risk of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an
agreement denominated as Creditor Group Life Policy No.
P-1920 dated December 10, 1980. In the policy, it is provided
that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective
on the date he contracts a loan with the Assured. However,
there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity
between its two sentences. The first sentence appears to state
that the insurance coverage of the clients of Eternal already
became effective upon contracting a loan with Eternal while the
second sentence appears to require Philamlife to approve the
insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract
of adhesion which must be construed liberally in favor of the
insured and strictly against the insurer in order to safeguard the
latter’s interest. Thus, in Malayan Insurance Corporation v.
Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as
to preclude the insurer from noncompliance with its
obligations.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v.
Court of Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.
Being a contract of adhesion, the terms of an insurance contract
are to be construed strictly against the party which prepared the
contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured,
especially to avoid forfeiture.20
Clearly, the vague contractual provision, in Creditor Group Life
Policy No. P-1920 dated December 10, 1980, must be
construed in favor of the insured and in favor of the effectivity
of the insurance contract.
On the other hand, the seemingly conflicting provisions must
be harmonized to mean that upon a party’s purchase of a
memorial lot on installment from Eternal, an insurance contract
covering the lot purchaser is created and the same is effective,
valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of
Creditor Group Life Policy No. P-1920 on the Effective Date of
Benefit is in the nature of a resolutory condition which would
lead to the cessation of the insurance contract. Moreover, the
mere inaction of the insurer on the insurance application must
not work to prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and
unambiguous.
As a final note, to characterize the insurer and the insured as
contracting parties on equal footing is inaccurate at best.
Insurance contracts are wholly prepared by the insurer with vast
amounts of experience in the industry purposefully used to its
advantage. More often than not, insurance contracts are
contracts of adhesion containing technical terms and conditions
of the industry, confusing if at all understandable to laypersons,
that are imposed on those who wish to avail of insurance. As
such, insurance contracts are imbued with public interest that
must be considered whenever the rights and obligations of the
insurer and the insured are to be delineated. Hence, in order to
protect the interest of insurance applicants, insurance
companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise
be bound to honor the application as a valid, binding, and
effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26,
2004 CA Decision in CA-G.R. CV No. 57810
is REVERSED and SET ASIDE. The May 29, 1996 Decision
of the Makati City RTC, Branch 138 is MODIFIED.
Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the
proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%)
per annum of PhP 100,000 from the time of extra-judicial
demand by Eternal until Philamlife’s receipt of the May 29,
1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent
(12%) per annum of PhP 100,000 from June 17, 1996 until full
payment of this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
 Republic of the Philippines
 The application was immediately forwarded to the head office
SUPREME COURT
 of the company at Montreal, Canada. On November 26, 1917,
Manila
EN BANC
G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the
late Joaquin Ma. Herrer, plaintiff-appellant, 
 On December 18, 1917, attorney Aurelio A. Torres wrote to the
vs.
 Manila office of the company stating that Herrer desired to
SUN LIFE ASSURANCE COMPANY OF
CANADA, defendant-appellee.
MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the
estate of the late Joaquin Ma. Herrer to recover from the
defendant life insurance company the sum of pesos 6,000 paid
by the deceased for a life annuity. The trial court gave judgment
for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917,
Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life
annuity. Two days later he paid the sum of P6,000 to the
manager of the company's Manila office and was given a
receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de
Manila como prima dela Renta Vitalicia solicitada por dicho
Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion
de la Oficina Central de la Compañia.
the head office gave notice of acceptance by cable to Manila.
(Whether on the same day the cable was received notice was
sent by the Manila office of Herrer that the application had
been accepted, is a disputed point, which will be discussed
later.) On December 4, 1917, the policy was issued at Montreal.
withdraw his application. The following day the local office
replied to Mr. Torres, stating that the policy had been issued,
and called attention to the notification of November 26, 1917.
This letter was received by Mr. Torres on the morning of
December 21, 1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is
whether Herrer received notice of acceptance of his application.
To resolve this question, we propose to go directly to the
evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance
Company of Canada at the time of the trial testified that he
prepared the letter introduced in evidence as Exhibit 3, of date
November 26, 1917, and handed it to the local manager, Mr. E.
E. White, for signature. The witness admitted on cross-
examination that after preparing the letter and giving it to he
manager, he new nothing of what became of it. The local
manager, Mr. White, testified to having received the cablegram
accepting the application of Mr. Herrer from the home office on
November 26, 1917. He said that on the same day he signed a
letter notifying Mr. Herrer of this acceptance. The witness
further said that letters, after being signed, were sent to the
chief clerk and placed on the mailing desk for transmission.
The witness could not tell if the letter had every actually been
placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the
defense, attorney Manuel Torres testified to having prepared the
will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer
mentioned his application for a life annuity, and that he said
that the only document relating to the transaction in his
possession was the provisional receipt. Rafael Enriquez, the
administrator of the estate, testified that he had gone through
the effects of the deceased and had found no letter of
notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the
letter of November 26, 1917, notifying Mr. Herrer that his
application had been accepted, was prepared and signed in the
local office of the insurance company, was placed in the
ordinary channels for transmission, but as far as we know, was
never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes necessary
to determine the law which should be applied to the facts. In
order to reach our legal goal, the obvious signposts along the
way must be noticed.
Until quite recently, all of the provisions concerning life
insurance in the Philippines were found in the Code of
Commerce and the Civil Code. In the Code of the Commerce,
there formerly existed Title VIII of Book III and Section III of
Title III of Book III, which dealt with insurance contracts. In
the Civil Code there formerly existed and presumably still
exist, Chapters II and IV, entitled insurance contracts and life
annuities, respectively, of Title XII of Book IV. On the after
July 1, 1915, there was, however, in force the Insurance Act.
No. 2427. Chapter IV of this Act concerns life and health
insurance. The Act expressly repealed Title VIII of Book II and
Section III of Title III of Book III of the code of Commerce.
The law of insurance is consequently now found in the
Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life
insurance, it is silent as to the methods to be followed in order
that there may be a contract of insurance. On the other hand,
the Civil Code, in article 1802, not only describes a contact of
life annuity markedly similar to the one we are considering, but
in two other articles, gives strong clues as to the proper
disposition of the case. For instance, article 16 of the Civil
Code provides that "In matters which are governed by special
laws, any deficiency of the latter shall be supplied by the
provisions of this Code." On the supposition, therefore, which
is incontestable, that the special law on the subject of insurance
is deficient in enunciating the principles governing acceptance,
the subject-matter of the Civil code, if there be any, would be
controlling. In the Civil Code is found article 1262 providing
that "Consent is shown by the concurrence of offer and
acceptance with respect to the thing and the consideration
which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the
time it came to his knowledge. The contract, in such case, is
presumed to have been entered into at the place where the offer
was made." This latter article is in opposition to the provisions
of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps
by which we reach a conclusion, then the only duty remaining
is for the court to apply the law as it is found. The legislature in
its wisdom having enacted a new law on insurance, and
expressly repealed the provisions in the Code of Commerce on
the same subject, and having thus left a void in the commercial
law, it would seem logical to make use of the only pertinent
provision of law found in the Civil code, closely related to the
chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall
bind the person making the offer only from the date it came to
his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement
avoids uncertainty and tends to security. Not only this, but in
order that the principle may not be taken too lightly, let it be
noticed that it is identical with the principles announced by a
considerable number of respectable courts in the United States.
The courts who take this view have expressly held that an
acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a
contract. Only the mailing of acceptance, it has been said,
completes the contract of insurance, as the locus poenitentiae is
ended when the acceptance has passed beyond the control of
the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to
be the second paragraph of article 1262 of the Civil Code
providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his
knowledge. The pertinent fact is, that according to the
provisional receipt, three things had to be accomplished by the
insurance company before there was a contract: (1) There had
to be a medical examination of the applicant; (2) there had to be
approval of the application by the head office of the company;
and (3) this approval had in some way to be communicated by
the company to the applicant. The further admitted facts are
that the head office in Montreal did accept the application, did
cable the Manila office to that effect, did actually issue the
policy and did, through its agent in Manila, actually write the
letter of notification and place it in the usual channels for
transmission to the addressee. The fact as to the letter of
notification thus fails to concur with the essential elements of
the general rule pertaining to the mailing and delivery of mail
matter as announced by the American courts, namely, when a
letter or other mail matter is addressed and mailed with postage
prepaid there is a rebuttable presumption of fact that it was
received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mails. But if
any one of these elemental facts fails to appear, it is fatal to the
presumption. For instance, a letter will not be presumed to have
been received by the addressee unless it is shown that it was
deposited in the post-office, properly addressed and stamped.
(See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar
was not perfected because it has not been proved satisfactorily
that the acceptance of the application ever came to the
knowledge of the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover
from the defendant the sum of P6,000 with legal interest from
November 20, 1918, until paid, without special finding as to
costs in either instance. So ordered.
 Republic of the Philippines
 A loan, in the reduced amount of P300,000.00, was approved
SUPREME COURT
 by DBP on August 4, 1987 and released on August 11, 1987.
Manila From the proceeds of the loan, DBP deducted the amount of
FIRST DIVISION P1,476.00 as payment for the MRI premium. On August 15,
1987, Dans accomplished and submitted the "MRI Application
G.R. No. L-109937 March 21, 1994 for Insurance" and the "Health Statement for DBP MRI Pool."
DEVELOPMENT BANK OF THE On August 20, 1987, the MRI premium of Dans, less the DBP
PHILIPPINES, petitioner, 
 service fee of 10 percent, was credited by DBP to the savings
vs.
 account of the DBP MRI Pool. Accordingly, the DBP MRI Pool
COURT OF APPEALS and the ESTATE OF THE LATE was advised of the credit.
JUAN B. DANS, represented by CANDIDA G. DANS, and On September 3, 1987, Dans died of cardiac arrest. The DBP,
the DBP MORTGAGE REDEMPTION INSURANCE upon notice, relayed this information to the DBP MRI Pool. On
POOL, respondents. September 23, 1987, the DBP MRI Pool notified DBP that
Dans was not eligible for MRI coverage, being over the
QUIASON, J.: acceptance age limit of 60 years at the time of application.
This is a petition for review on certiorari under Rule 45 of the On October 21, 1987, DBP apprised Candida Dans of the
Revised Rules of Court to reverse and set aside the decision of disapproval of her late husband's MRI application. The DBP
the Court of Appeals in CA-G.R CV No. 26434 and its offered to refund the premium of P1,476.00 which the deceased
resolution denying reconsideration thereof. had paid, but Candida Dans refused to accept the same,
We affirm the decision of the Court of Appeals with demanding payment of the face value of the MRI or an amount
modification. equivalent to the loan. She, likewise, refused to accept an ex
gratia settlement of P30,000.00, which the DBP later offered.
I
On February 10, 1989, respondent Estate, through Candida
In May 1987, Juan B. Dans, together with his wife Candida, his
Dans as administratrix, filed a complaint with the Regional
son and daughter-in-law, applied for a loan of P500,000.00 with
Trial Court, Branch I, Basilan, against DBP and the insurance
the Development Bank of the Philippines (DBP), Basilan
pool for "Collection of Sum of Money with Damages."
Branch. As the principal mortgagor, Dans, then 76 years of age,
Respondent Estate alleged that Dans became insured by the
was advised by DBP to obtain a mortgage redemption
DBP MRI Pool when DBP, with full knowledge of Dans' age at
insurance (MRI) with the DBP Mortgage Redemption
the time of application, required him to apply for MRI, and
Insurance Pool (DBP MRI Pool).
later collected the insurance premium thereon. Respondent
Estate therefore prayed: (1) that the sum of P139,500.00, which
it paid under protest for the loan, be reimbursed; (2) that the
mortgage debt of the deceased be declared fully paid; and (3)
that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers,
with the former asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the
documents and exhibits submitted by respondent Estate. As a
result of these admissions, the trial court narrowed down the
issues and, without opposition from the parties, found the case
ripe for summary judgment. Consequently, the trial court
ordered the parties to submit their respective position papers
and documentary evidence, which may serve as basis for the
judgment.
On March 10, 1990, the trial court rendered a decision in favor
of respondent Estate and against DBP. The DBP MRI Pool,
however, was absolved from liability, after the trial court found
no privity of contract between it and the deceased. The trial
court declared DBP in estoppel for having led Dans into
applying for MRI and actually collecting the premium and the
service fee, despite knowledge of his age ineligibility. The
dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in
the furtherance of justice and equity, the Court finds judgment
for the plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00
plus legal rate of interest as amortization payment paid under
protest;
2. To consider the mortgage loan of P300,000.00 including all
interest accumulated or otherwise to have been settled, satisfied
or set-off by virtue of the insurance coverage of the late Juan B.
Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of
litigation and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL
are hereby dismissed. The Cross-claim of Defendant DBP is
likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated
September 7, 1992, the appellate court affirmed in toto the
decision of the trial court. The DBP's motion for
reconsideration was denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed
a "Health Statement for DBP MRI Pool" (Exh. "5-Bank") with
the following declaration:
I hereby declare and agree that all the statements and answers
contained herein are true, complete and correct to the best of
my knowledge and belief and form part of my application for
insurance. It is understood and agreed that no insurance
coverage shall be effected unless and until this application is
approved and the full premium is paid during my continued
good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall
take effect: (1) when the application shall be approved by the
insurance pool; and (2) when the full premium is paid during
the continued good health of the applicant. These two
conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged
with the DBP MRI Pool. The pool, however, did not approve
the application of Dans. There is also no showing that it
accepted the sum of P1,476.00, which DBP credited to its
account with full knowledge that it was payment for Dan's
premium. There was, as a result, no perfected contract of
insurance; hence, the DBP MRI Pool cannot be held liable on a
contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required
Dans, the borrower, to secure MRI coverage. Instead of
allowing Dans to look for his own insurance carrier or some
other form of insurance policy, DBP compelled him to apply
with the DBP MRI Pool for MRI coverage. When Dan's loan
was released on August 11, 1987, DBP already deducted from
the proceeds thereof the MRI premium. Four days latter, DBP
made Dans fill up and sign his application for MRI, as well as
his health statement. The DBP later submitted both the
application form and health statement to the DBP MRI Pool at
the DBP Main Building, Makati Metro Manila. As service fee,
DBP deducted 10 percent of the premium collected by it from
Dans.
In dealing with Dans, DBP was wearing two legal hats: the first
as a lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion
of applying for said insurance, thereby leading him and his
family to believe that they had already fulfilled all the
requirements for the MRI and that the issuance of their policy
was forthcoming. Apparently, DBP had full knowledge that
Dan's application was never going to be approved. The
maximum age for MRI acceptance is 60 years as clearly and
specifically provided in Article 1 of the Group Mortgage
Redemption Insurance Policy signed in 1984 by all the
insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the
agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when
its clients are more than 60 years of age (Exh. "1-Pool").
Knowing all the while that Dans was ineligible for MRI
coverage because of his advanced age, DBP exceeded the scope
of its authority when it accepted Dan's application for MRI by
collecting the insurance premium, and deducting its agent's
commission and service fee.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of
the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the
limits of the authority conferred by the principal on the agent
and he (third person) has been deceived by the non-disclosure
thereof by the agent, then the latter is liable for damages to him
(V Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba]
of September 25, 1907). The rule that the agent is liable when
he acts without authority is founded upon the supposition that
there has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority
under which he assumes to act (Francisco, V., Agency 307
[1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as
the non-disclosure of the limits of the agency carries with it the
implication that a deception was perpetrated on the
unsuspecting client, the provisions of Articles 19, 20 and 21 of
the Civil Code of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his
due and observe honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently
causes damage to another, shall indemnify the latter for the
same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of
the insurance policy. To assume that were it not for DBP's
concealment of the limits of its authority, Dans would have
secured an MRI from another insurance company, and therefore
would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute
certainty that Dans could obtain an insurance coverage from
another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the
MRI, and on the twenty-third day from the date of release of his
loan.
One is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved (Civil
Code of the Philippines, Art. 2199). Damages, to be
recoverable, must not only be capable of proof, but must be
actually proved with a reasonable degree of certainty
(Refractories Corporation v. Intermediate Appellate Court, 176
SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co.,
34 Phil. 447 [1916]). Speculative damages are too remote to be
included in an accurate estimate of damages (Sun Life
Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is
entitled to moral damages. No proof of pecuniary loss is
required in the assessment of said kind of damages (Civil Code
of Philippines, Art. 2216). The same may be recovered in acts
referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the
court according to the circumstances of each case (Civil Code
of the Philippines, Art. 2216). Considering that DBP had
offered to pay P30,000.00 to respondent Estate in ex
gratia settlement of its claim and that DBP's non-disclosure of
the limits of its authority amounted to a deception to its client,
an award of moral damages in the amount of P50,000.00 would
be reasonable.
The award of attorney's fees is also just and equitable under the
circumstances (Civil Code of the Philippines, Article 2208
[11]).
WHEREFORE, the decision of the Court of Appeals in CA
G.R.-CV

No. 26434 is MODIFIED and petitioner DBP is ORDERED:
(1) to REIMBURSE respondent Estate of Juan B. Dans the
amount of P1,476.00 with legal interest from the date of the First Instance of Cebu, ordering "the defendants (herein
filing of the complaint until fully paid; and (2) to PAY said petitioners Great Pacific Ligfe Assurance Company and
Estate the amount of Fifty Thousand Pesos (P50,000.00) as Mondragon) jointly and severally to pay plaintiff (herein
moral damages and the amount of Ten Thousand Pesos private respondent Ngo Hing) the amount of P50,000.00 with
(P10,000.00) as attorney's fees. With costs against petitioner. interest at 6% from the date of the filing of the complaint, and
SO ORDERED. the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo
Hing filed an application with the Great Pacific Life Assurance
Republic of the Philippines
 Company (hereinafter referred to as Pacific Life) for a twenty-
SUPREME COURT
 year endownment policy in the amount of P50,000.00 on the
Manila life of his one-year old daughter Helen Go. Said respondent
FIRST DIVISION supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City
G.R. No. L-31845 April 30, 1979 wrote on the corresponding form in his own handwriting
GREAT PACIFIC LIFE ASSURANCE (Exhibit I-M). Mondragon finally type-wrote the data on the
COMPANY, petitioner, 
 application form which was signed by private respondent Ngo
vs.
 Hing. The latter paid the annual premuim the sum of P1,077.75
HONORABLE COURT OF APPEALS, respondents. going over to the Company, but he reatined the amount of
P1,317.00 as his commission for being a duly authorized agebt
G.R. No. L-31878 April 30, 1979
of Pacific Life. Upon the payment of the insurance premuim,
LAPULAPU D. MONDRAGON, petitioner, 

the binding deposit receipt (Exhibit E) was issued to private
vs.

respondent Ngo Hing. Likewise, petitioner Mondragon
HON. COURT OF APPEALS and NGO HING, respondents.
handwrote at the bottom of the back page of the application
form his strong recommendation for the approval of the
DE CASTRO, J.: insurance application. Then on April 30, 1957, Mondragon
The two above-entitled cases were ordered consolidated by the received a letter from Pacific Life disapproving the insurance
Resolution of this Court dated April 29, 1970, (Rollo, No. application (Exhibit 3-M). The letter stated that the said life
L-31878, p. 58), because the petitioners in both cases seek insurance application for 20-year endowment plan is not
similar relief, through these petitions for certiorari by way of available for minors below seven years old, but Pacific Life can
appeal, from the amended decision of respondent Court of consider the same under the Juvenile Triple Action Plan, and
Appeals which affirmed in toto the decision of the Court of
advised that if the offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by petitioner Mondragon to private
respondent Ngo Hing. Instead, on May 6, 1957, Mondragon
wrote back Pacific Life again strongly recommending the
approval of the 20-year endowment insurance plan to children,
pointing out that since 1954 the customers, especially the
Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957
Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, private respondent sought the
payment of the proceeds of the insurance, but having failed in
his effort, he filed the action for the recovery of the same before
the Court of First Instance of Cebu, which rendered the adverse
decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding
deposit receipt (Exhibit E) constituted a temporary contract of
the life insurance in question; and (2) whether private
respondent Ngo Hing concealed the state of health and physical
condition of Helen Go, which rendered void the aforesaid
Exhibit E.
1. At the back of Exhibit E are condition precedents required
before a deposit is considered a BINDING RECEIPT. These
conditions state that:
A. If the Company or its agent, shan have received the premium
deposit ... and the insurance application, ON or PRIOR to the
date of medical examination ... said insurance shan be in force
and in effect from the date of such medical examination, for
such period as is covered by the deposit ..., PROVIDED the
company shall be satisfied that on said date the applicant was
insurable on standard rates under its rule for the amount of
insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard
rate for the amount of insurance and/or the kind of policy
requested in the application but issue, or offers to issue a policy
for a different plan and/or amount ..., the insurance shall not be
in force and in effect until the applicant shall have accepted the
policy as issued or offered by the Company and shall have paid
the full premium thereof. If the applicant does not accept the
policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under
Condition A above, and the Company declines to approve the
application the insurance applied for shall not have been in
force at any time and the sum paid be returned to the applicant
upon the surrender of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the
binding deposit receipt is intended to be merely a provisional or
temporary insurance contract and only upon compliance of the
following conditions: (1) that the company shall be satisfied
that the applicant was insurable on standard rates; (2) that if the
company does not accept the application and offers to issue a
policy for a different plan, the insurance contract shall not be
binding until the applicant accepts the policy offered;
otherwise, the deposit shall be reftmded; and (3) that if the
applicant is not ble according to the standard rates, and the
company disapproves the application, the insurance applied for
shall not be in force at any time, and the premium paid shall be
returned to the applicant.
Clearly implied from the aforesaid conditions is that the
binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's
branch office had received from the applicant the insurance
premium and had accepted the application subject for
processing by the insurance company; and that the latter will
either approve or reject the same on the basis of whether or not
the applicant is "insurable on standard rates." Since petitioner
Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question
had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is,
manifestly, merely conditional and does not insure outright. As
held by this Court, where an agreement is made between the
applicant and the agent, no liability shall attach until the
principal approves the risk and a receipt is given by the agent.
The acceptance is merely conditional and is subordinated to the
act of the company in approving or rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company
communication of April 30, 1957 (Exhibit 3-M), Pacific Life
disapproved the insurance application in question on the ground
that it is not offering the twenty-year endowment insurance
policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action,
which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and
private respondent Ngo Hing over the 20-year endowment life
insurance in the amount of P50,000.00 in favor of the latter's
one-year old daughter, and with the non-compliance of the
abovequoted conditions stated in the disputed binding deposit
receipt, there could have been no insurance contract duly
perfected between thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of
Canada, supra, "a contract of insurance, like other contracts,
must be assented to by both parties either in person or by their
agents ... The contract, to be binding from the date of the
application, must have been a completed contract, one that
leaves nothing to be dione, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There
can be no contract of insurance unless the minds of the parties
have met in agreement."
We are not impressed with private respondent's contention that
failure of petitioner Mondragon to communicate to him the
rejection of the insurance application would not have any
adverse effect on the allegedly perfected temporary contract
(Respondent's Brief, pp. 13-14). In this first place, there was no
contract perfected between the parties who had no meeting of
their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably
aware that said company does not offer the life insurance
applied for. When he filed the insurance application in dispute,
private respondent was, therefore, only taking the chance that
Pacific Life will approve the recommendation of Mondragon
for the acceptance and approval of the application in question
along with his proposal that the insurance company starts to
offer the 20-year endowment insurance plan for children less
than seven years. Nonetheless, the record discloses that Pacific
Life had rejected the proposal and recommendation. Secondly,
having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an offense
associate of petitioner Mondragon, private respondent Ngo
Hing must have known and followed the progress on the
processing of such application and could not pretend ignorance
of the Company's rejection of the 20-year endowment life
insurance application.
At this juncture, We find it fit to quote with approval, the very
apt observation of then Appellate Associate Justice Ruperto G.
Martin who later came up to this Court, from his dissenting
opinion to the amended decision of the respondent court which
completely reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum
of rejection (Exhibit 3-M) nor the reply thereto of appellant
Mondragon reiterating the desire for applicant's father to have
the application considered as one for a 20-year endowment plan
was ever duly communicated to Ngo; Hing, father of the minor
applicant. I am not quite conninced that this was so. Ngo Hing,
as father of the applicant herself, was precisely the "underwriter
who wrote this case" (Exhibit H-1). The unchallenged
statement of appellant Mondragon in his letter of May 6, 1957)
(Exhibit 4-M), specifically admits that said Ngo Hing was "our
associate" and that it was the latter who "insisted that the plan
be placed on the 20-year endowment plan." Under these
circumstances, it is inconceivable that the progress in the
processing of the application was not brought home to his
knowledge. He must have been duly apprised of the rejection of
the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing
himself who insisted on the application as originally filed,
thereby implictly declining the offer to consider the application
under the Juvenile Triple Action Plan. Besides, the associate of
Mondragon that he was, Ngo Hing should only be presumed to
know what kind of policies are available in the company for
minors below 7 years old. What he and Mondragon were
apparently trying to do in the premises was merely to prod the
company into going into the business of issuing endowment
policies for minors just as other insurance companies allegedly
do. Until such a definite policy is however, adopted by the
company, it can hardly be said that it could have been bound at
all under the binding slip for a plan of insurance that it could
not have, by then issued at all. (Amended Decision, Rollo, pp-
52-53).
2. Relative to the second issue of alleged concealment. this
Court is of the firm belief that private respondent had
deliberately concealed the state of health and piysical condition
of his daughter Helen Go. Wher private regpondeit supplied the
required essential data for the insurance application form, he
was fully aware that his one-year old daughter is typically a
mongoloid child. Such a congenital physical defect could never
be ensconced nor disguished. Nonetheless, private respondent,
in apparent bad faith, withheld the fact materal to the risk to be
assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known.
his duty and responsibility to such a material fact. Had he
diamond said significant fact in the insurance application fom
Pacific Life would have verified the same and would have had
no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima
fides meaning good faith, absolute and perfect candor or
openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd
Edition], not for the alone but equally so for the insurer (Field
man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY
knows aDd Ought to communicate (Section 25, Act No. 2427).
Whether intentional or unintentional the concealment entitles
the insurer to rescind the contract of insurance (Section 26, Id.:
Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930;
Satumino vs. Philippine American Life Insurance Company, 7
SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was
perfected between the parties with the noncompliance of the
conditions provided in the binding receipt, and concealment, as
legally defined, having been comraitted by herein private
respondent.
WHEREFORE, the decision appealed from is hereby set aside,
and in lieu thereof, one is hereby entered absolving petitioners
Lapulapu D. Mondragon and Great Pacific Life Assurance
Company from their civil liabilities as found by respondent
Court and ordering the aforesaid insurance company to
reimburse the amount of P1,077.75, without interest, to private
respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.