INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
G.R. No. L-33637         December 31, 1931
ANG GIOK CHIP, doing business under the name and
style of Hua Bee Kong Si, plaintiff-appellee,  the whole of the goods or merchandise
vs.
SPRINGFIELD FIRE & MARINE INSURANCE
COMPANY, defendant-appellant.
MALCOLM, J.:
An important question in the law of insurance, not heretofore
considered in this jurisdiction and, according to our
information, not directly resolved in California from which
State the Philippine Insurance Act was taken, must be
decided on this appeal for the future guidance of trial courts
and of insurance companies doing business in the Philippine
Islands. This question, flatly stated, is whether a warranty
referred to in the policy as forming part of the contract of
insurance and in the form of a rider to the insurance policy, is
null and void because not complying with the Philippine
Insurance Act. The court has had the benefit of instructive
briefs and memoranda from the parties and has also been
assisted by a well prepared brief submitted on behalf
of amici curiae.
The admitted facts are these: Ang Giok Chip doing business
under the name and style of Hua Bee Kong Si was formerly
the owner of a warehouse situated at No. 643 Calle Reina
Regente, City of Manila. The contents of the warehouse
were insured with the three insurance companies for the total
sum of P60,000. One insurance policy, in the amount of
P10,000, was taken out with the Springfield Fire & Marine
Insurance Company. The warehouse was destroyed by fire
on January 11, 1928, while the policy issued by the latter
company was in force.
Predicated on this policy the plaintiff instituted action in the
Court of First Instance of Manila against the defendant to
recover a proportional part of the loss coming to P8,170.59.
Four special defenses were interposed on behalf of the
insurance company, one being planted on a violation of
warranty F fixing the amount of hazardous goods which
might be stored in the insured building. The trial judge in his
decision found against the insurance company on all points,
and gave judgment in favor of the plaintiff for the sum of
P8,188.74. From this judgment the insurance company has
appealed, and it is to the first and fourth errors assigned that
we would address particular attention.
1
Considering the result at which we arrive, it is unnecessary
for us to discuss three of the four special defenses which
were made by the insurance company. We think, however, of the hazardous goods specified below, but not
exceeding in all 3 per cent of the total value of
that it would be a reasonable deduction to conclude that
more than 3 per cent of the total value of the merchandise
contained in said warehouse, viz; . . . .
contained in the warehouse constituted hazardous goods,
and that this per cent reached as high as 39. We place
reliance on the consular invoices and on the testimony of the The applicable law is found in the Instance Act,
adjuster, Herridge. Having thus swept to one side all Act No. 2427, as amended, section 65 reading:
intervening obstacle, the legal question recurs, as stated in
the beginning of this decision, of whether or not warranty F
was null and void. "Every express warranty, made at or before the execution of
a policy, must be contained in the policy itself, or in another
instrument signed by the insured and referred to in the
To place this question in its proper light, we turn to the policy policy, as making a part of it." As the Philippine law was
issued by the Springfield Fire & Marine Insurance Company taken verbatim from the law of California, in accordance with
in favor of the plaintiff. The description of the risk in this well settled canons of statutory construction, the court should
policy is as follows:lawphil.net follow in fundamental points, at least, the construction placed
by California courts on a California law. Unfortunately the
researches of counsel reveal no authority coming from the
Ten thousand pesos Philippine Currency. — On
courts of California which is exactly on all fours with the case
general non-hazardous merchandise, chiefly
before us. However, there are certain consideration lying at
consisting of chucherias, also produce, Cacao,
the basis of California law and certain indications in the
Flour, all the property of the Insured, or held by
California decisions which point the way for the decision in
them in trust, on commission or on joint account
this case
with others, or for which he is responsible, while
contained during the currency of this policy in
the godown, situate No. 643 Calle Reina Section 65 of the Philippine Insurance Act corresponds to
Regent. . . . section 2605 of the Civil Cod of California. The comments of
the Code Examiners of California disclose that the language
of section 2605 was quite different from that under the Code
This policy is subject to the hereon attached
as adopted in 1872. That language was found too harsh as
"Ordinary Short Period Rate Scale" Warranties
to insurance companies. The Code Examiners' notes state:
A & F, Co-insurances Clause "and Three
"The amendment restores the law as it existed previous to
Fourths Loss Clause," which are forming part of
the Code: See Parsons on Maritime Law, 106, and Phillips
same. Co-insurance declared:
on Insurance, sec. 756." The passage referred to in Philips
on Insurance, was worded by the author as follows:
"P20,000. — Sun Insurance Office Ltd. (K & S)."
(Emphasis inserted.) Securely pasted on the left
hand margin of the face of the policy are five "Any express warranty or condition is always a part of the
policy, but, like any other part of an express contract, may be
warranties and special clauses. One of them is
written in the margin, or contained in proposals or documents
warranty F, specially referred to on the face of
expressly referred to in the policy, and so made a part of it."
the policy, reading in part as follows:
The annotator of the Civil Code of California, after setting
forth these facts, adds:
WARRANTY F
. . . The section as it now reads is in harmony with
It is hereby declared and agreed that during the the rule that a warranty may be contained in
currency of this policy no hazardous goods be another instrument than the policy when expressly
stored in the Building to which this insurance referred to in the policy as forming a part
applies or in any building communicating thereof: . . . .
therewith, provided, always, however, that the
Insured be permitted to stored a small quantity
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
What we have above stated has been paraphrased from the
decision of the California Court of Appeals in the case of
Isaac Upham Co. vs. United States Fidelity & Guaranty Co.
( [1922], 211 Pac., 809), and thus discloses the attitude of
the California courts. Likewise in the Federal courts, in the
case of Conner vs. Manchester Assur. Co. ([1904], 130 Fed.,
743), section 2605 of the Civil Code of California came under
observation, and it was said that it "is in effect an affirmance
of the generally accepted doctrine applicable to such
contracts."
We, therefore, think it wrong to hold that the California law
represents a radical departure from the basic principles
governing the law of insurance. We are more inclined to
believe that the codification of the law of California had
exactly the opposite purpose, and that in the language of the
Federal court it was but an affirmance of the generally
accepted doctrine applicable to such contracts. This being
true, we turn to two of such well recognized doctrines. In the
first place, it is well settled that a rider attached to a policy is
a part of the contract, to the same extent and with like effect
as it actually embodied therein. (I Couch, Cyclopedia of
Insurance Law, sec. 159.) In the second place, it is equally
well settled that an express warranty must appear upon the
face of the policy, or be clearly incorporated therein and
made a part thereof by explicit reference, or by words clearly
evidencing such intention. (4 Couch, Cyclopedia of
Insurance Law, sec. 862.)
Section 65 of the Insurance Act and its counterpart, section
265 of the Civil Code of California, will bear analysis as
tested by reason and authority. The law says that every
express warranty must be "contained in the policy itself." The
word "contained," according to the dictionaries, means
"included," inclosed," "embraced," "comprehended," etc.
When, therefore, the courts speak of a rider attached to the
policy, and thus "embodied" therein, or of a warranty
"incorporated" in the policy, it is believed that the phrase
"contained in the policy itself" must necessarily include such
rider and warranty. As to the alternative relating to "another
instrument," "instrument" as here used could not mean a
mere slip of paper like a rider, but something akin to the
policy itself, which in section 48 of the Insurance Act is
defined as "The written instrument, in which a contract of
insurance is set forth." In California, every paper writing is
not necessarily an "instrument" within the statutory meaning
of the term. The word "instrument has a well defined
definition in California, and as used in the Codes invariably
means some written paper or instrument signed and
delivered by one person to another, transferring the title to,
or giving a lien, on property, or giving a right to debt or duty.
(Hoag vs. Howard [1880], 55 Cal., 564; People vs.
2
Fraser[1913], 137 Pac., 276.) In other words, the rider, complaint, without special pronouncement as to costs in
warranty F, is contained in the policy itself, because by the either instance.
contract of insurance agreed to by the parties it is made to
form a part of the same, but is not another instrument signed
G.R. No. L-25317 August 6, 1979
by the insured and referred to in the policy as forming a part
of it.
PHILIPPINE PHOENIX SURETY & INSURANCE
COMPANY, plaintiff-appellee, 
Again, referring to the jurisprudence of California, another
vs.
rule of insurance adopted in that State is in point. It is
WOODWORKS, INC., defendant-appellant.
admitted that the policy before us was accepted by the
plaintiff. The receipt of this policy by the insured without
objection binds both the acceptor and the insured to the MELENCIO-HERRERA, J.:
terms thereof. The insured may not thereafter be heard to
say that he did not read the policy or know its terms, since it
This case was certified to this Tribunal by the Court of
is his duty to read his policy and it will be assumed that he
Appeals in its Resolution of October 4, 1965 on a pure
did so. In California Jurisprudence, vol. 14, p. 427, from
question of law and "because the issues raised are
which these statements are taken with citations to California
practically the same as those in CA-G.R. No. 32017-R"
decisions, it is added that it has been held that where the
between the same parties, which case had been forwarded
holder of a policy discovers a mistake made by himself and
to us on April 1, 1964. The latter case, "Philippine Phoenix
the local agent in attaching the wrong rider to his application,
Surety & Insurance Inc. vs. Woodworks, Inc.," docketed in
elects to retain the policy issued to him, and neither requests
this Court as L-22684, was decided on August 31, 1967 and
the issuance of a different one nor offers to pay the premium
has been reported in 20 SCRA 1270. 
requisite to insure against the risk which he believe the rider
to cover, he thereby accepts the policy.
Specifically, this action is for recovery of unpaid premium on
a fire insurance policy issued by plaintiff, Philippine Phoenix
We are given to understand, and there is no indication to the
Surety & Insurance Company, in favor of defendant
contrary, that we have here a standard insurance policy. We
Woodworks, Inc. 
are further given to understand, and there is no indication to
the contrary, that the issuance of the policy in this case with
its attached rider conforms to well established practice in the The following are the established facts: 
Philippines and elsewhere. We are further given to
understand, and there is no indication to the contrary, that
there are no less than sixty-nine insurance companies doing On July 21, 1960, upon defendant's application, plaintiff
business in the Philippine Islands with outstanding policies issued in its favor Fire Insurance Policy No. 9749 for
more or less similar to the one involved in this case, and that P500,000.00 whereby plaintiff insured defendant's building,
to nullify such policies would place an unnecessary machinery and equipment for a term of one year from July
hindrance in the transaction of insurance business in the 21, 1960 to July 21, 1961 against loss by fire. The premium
Philippines. These are matters of public policy. We cannot and other charges including the margin fee surcharge of
believe that it was ever the legislative intention to insert in P590.76 and the documentary stamps in the amount of
the Philippine Law on Insurance an oddity, an incongruity, P156.60 affixed on the Policy, amounted to P10,593.36. 
entirely out of harmony with the law as found in other
jurisdiction, and destructive of good business practice. It is undisputed that defendant did not pay the premium
stipulated in the Policy when it was issued nor at any time
thereafter.
We have studied this case carefully and having done so
have reached the definite conclusion that warranty F, a rider
attached to the face of the insurance policy, and referred to On April 19, 1961, or before the expiration of the one-year
in contract of insurance, is valid and sufficient under section term, plaintiff notified defendant, through its Indorsement No.
65 of the Insurance Act. Accordingly, sustaining the first and F-6963/61, of the cancellation of the Policy allegedly upon
fourth errors assigned, and it being unnecessary to discuss request of defendant. 1 The latter has denied having made
the remaining errors, the result will be to reverse the such a request. In said Indorsement, plaintiff credited
judgment appealed from and to order the dismissal of the defendant with the amount of P3,110.25 for the unexpired
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
period of 94 days, and claimed the balance of P7,483.11
representing ,learned premium from July 21, 1960 to 18th
April 1961 or, say 271 days." On July 6, 1961, plaintiff
demanded in writing for the payment of said
amount. 2 Defendant, through counsel, disclaimed any
liability in its reply- letter of August 15, 1961, contending, in
essence, that it need not pay premium "because the Insurer
did not stand liable for any indemnity during the period the
premiums were not paid." 3
On January 30, 1962, plaintiff commenced action in the
Court of First Instance of Manila, Branch IV (Civil Case No.
49468), to recover the amount of P7,483.11 as "earned
premium." Defendant controverted basically on the theory
that its failure "to pay the premium after the issuance of the
policy put an end to the insurance contract and rendered the
policy unenforceable." 4
On September 13, 1962, judgment was rendered in plaintiff's
favor "ordering defendant to pay plaintiff the sum of
P7,483.11, with interest thereon at the rate of 6%, per annum
from January 30, 1962, until the principal shall have been
fully paid, plus the sum of P700.00 as attorney's fees of the
plaintiff, and the costs of the suit." From this adverse
Decision, defendant appealed to the Court of Appeals which,
as heretofore stated, certified the case to us on a question of
law.  with the Insured ... that if the Property
The errors assigned read:  it is obvious that defendant had not accepted the insurer's
1. The lower court erred in sustaining
that Fire Insurance Policy, Exhibit A,
was a binding contract even if the
premium stated in the policy has not
been paid.  day of JULY One Thousand Nine
2. That the lower court erred in
sustaining that the premium in Insurance
Policy, Exhibit B, became an obligation
which was demandable even after the
period in the Policy has expired. 
3. The lower court erred in not deciding
that a premium not paid is not a debt
enforceable by action of the insurer.  printed form of receipt for the same
We find the appeal meritorious.  "there was not only a perfected contract of insurance but a
3
Insurance is "a contract whereby one undertakes for a Paragraph "10" of the Policy also provided: 
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event." 5 The
10. This insurance may be terminated at
consideration is the "premium". "The premium must be paid
any time at the request of the Insured, in
at the time and in the way and manner specified in the policy
which case the Company will retain the
and, if not so paid, the policy will lapse and be forfeited by its
customary short period rate for the time
own terms." 6
the policy has been in force. This
insurance may also at any time be
The provisions on premium in the subject Policy read:  terminated at the option of the
Company, on notice to that effect being
given to the Insured, in which case the
THIS POLICY OF INSURANCE
Company shall be liable to repay on
WITNESSETH, THAT in consideration
demand a ratable proportion of the
of — MESSRS. WOODWORKS, INC. —
premium for the unexpired term from the
hereinafter called the Insured, paying to
date of the cancelment. 
the PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC., hereinafter
called the Company, the sum of — Clearly, the Policy provides for pre-payment of premium.
PESOS NINE THOUSAND EIGHT Accordingly; "when the policy is tendered the insured must
HUNDRED FORTY SIX ONLY — the pay the premium unless credit is given or there is a waiver,
Premium for the first period hereinafter or some agreement obviating the necessity for
mentioned. ... prepayment." 7 To constitute an extension of credit there
must be a clear and express agreement therefor." 8
xxx xxx xxx
From the Policy provisions, we fail to find any clear
agreement that a credit extension was accorded defendant.
THE COMPANY HEREBY AGREES
And even if it were to be presumed that plaintiff had
extended credit from the circumstances of the unconditional
above described, or any part thereof,
delivery of the Policy without prepayment of the premium, yet
shall be destroyed or damaged by Fire
or Lightning after payment of
offer to extend credit, which is essential for the validity of
Premium, at any time between 4:00
such agreement. 
o'clock in the afternoon of the TWENTY
FIRST day of JULY One Thousand Nine
Hundred and SIXTY and 4:00 o'clock in An acceptance of an offer to allow credit,
the afternoon of the TWENTY FIRST if one was made, is as essential to make
a valid agreement for credit, to change a
Hundred and SIXTY ONE. ... (Emphasis conditional delivery of an insurance
supplied)  policy to an unconditional delivery, as it
is to make any other contract. Such an
acceptance could not be merely a
Paragraph "2" of the Policy further contained the following
mental act or state of mind, but would
condition: 
require a promise to pay made known in
some manner to defendant. 9
2. No payment in respect of any
premium shall be deemed to be
In this respect, the instant case differs from that involving the
payment to the Company unless a
same parties entitled Philippine Phoenix Surety & Insurance
Inc. vs. Woodworks, Inc., 10 where recovery of the balance of
signed by an Official or duly-appointed
the unpaid premium was allowed inasmuch as in that case
Agent of the Company shall have been
given to the Insured. 
partially performed one as far as the payment of the agreed
premium was concerned." This is not the situation obtaining
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
here where no partial payment of premiums has been made
whatsoever.  Insurance Code (Presidential Decree No. 612, promulgated
Since the premium had not been paid, the policy must be
deemed to have lapsed.  33868, and 33480, offered to compromise with
The non-payment of premiums does not
merely suspend but put, an end to an
insurance contract, since the time of the
payment is peculiarly of the essence of
the contract. 11
... the rule is that under policy provisions
that upon the failure to make a payment
of a premium or assessment at the time
provided for, the policy shall become
void or forfeited, or the obligation of the
insurer shall cease, or words to like
effect, because the contract so
prescribes and because such a
stipulation is a material and essential
part of the contract. This is true, for
instance, in the case of life, health and
accident, fire and hail insurance
policies. 12
In fact, if the peril insured against had occurred, plaintiff, as
insurer, would have had a valid defense against recovery
under the Policy it had issued. Explicit in the Policy itself is
plaintiff's agreement to indemnify defendant for loss by fire
only "after payment of premium," supra. Compliance by the
insured with the terms of the contract is a condition
precedent to the right of recovery.  another person after having already ceded a
The burden is on an insured to keep a
policy in force by the payment of
premiums, rather than on the insurer to
exert every effort to prevent the insured
from allowing a policy to elapse through
a failure to make premium payments.
The continuance of the insurer's
obligation is conditional upon the
payment of premiums, so that no
recovery can be had upon a lapsed
policy, the contractual relation between
the parties having ceased. 13
Moreover, "an insurer cannot treat a contract as valid for the
purpose of collecting premiums and invalid for the purpose of
indemnity." 14
4
The foregoing findings are buttressed by section 77 of the
on December 18, 1974), which now provides that no contract
of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid,
notwithstanding any agreement to the contrary. 
WHEREFORE, the judgment appealed from is reversed, and
plaintiff's complaint hereby dismissed.
G.R. No. L-33131             December 13, 1930
EMILIO GONZALES LA O, plaintiff-appellee,  defendants, and inasmuch as the latter alleged
vs.
THE YEK TONG LIN FIRE AND MARINE INSURANCE
CO., LTD., defendant-appellant.
VILLAMOR, J.:
This is an action to recover of the defendant the Yek Tong
Lin Fire & Marine Insurance Co., Ltd., the amount of two
insurance policies totaling P100,000 upon leaf tobacco
belonging to the plaintiff, which was damaged by the fire that
destroyed the building on Soler Street No. 188, where said
tobacco was stored, on January 11, 1928.
The defendant filed a general and specific denial of each and
every allegation of the complaint, set up three special
defenses, and prayed to be absolved from the complaint with
costs against the plaintiff.
After the case was tried, the court below rendered judgment
as follows:
In this case and in Nos. 334568, and 33480 of
this court, which, by agreement of the interested
parties, were jointly tried, the plaintiff demands
P290,000 from the defendant assurance
companies, alleging that to be the amount of the
insurance on his leaf tobacco which was
damaged by the fire that destroyed the
warehouse at No. 188 Soler Street, Manila,
where it was stored, on January 11, 1928, the
plaintiff's claim against the herein defendant, the
Yek Tong Lin Fire & Marine Insurance Co. being
for P100,000, and against the defendants in the
three other cases mentioned above, for
P190,000.
After the plaintiff had presented his evidence,
the defendant companies in cases Nos. 33458,
him by paying eighty-five per cent of his claim
against them. In view of the fact that said
defendants had in their answer raised the
question of warranties A and G of the plaintiff's
policies, providing that the building used for the
effects insured would not be occupied by any
other lessee, nor would be used for the deposit
of other goods, without the consent of said
in their answer that the owner of the burnt
building had leased the warehouse to several
persons for the storage of sundry articles, the
plaintiff had to accept the proposed
compromise, and in consequence thereof, the
three cases aforesaid were dismissed.
The present case followed the usual course of
procedure because the plaintiffs refused to
accept the compromise which, in the same
terms as those made by the defendants in the
three cases mentioned, was proposed to him by
the defendant the Yek Tong Lin Fire & Marine
Insurance Company, the plaintiff contending that
said defendant did not, nor could, raise the
question of warranties A and G heretofore
mentioned for the simple reason that it was the
defendant itself, as owner, who had leased the
building which later was destroyed by fire, to
portion of it to said plaintiff.
The only question to be determined, having
been raised in the defendant's answer — both
parties agreeing that the plaintiff insured his leaf
tobacco with the defendant assurance company,
and that said goods were damaged by the fire
which destroyed the warehouse where they
were stored, on January 11, 1928 — is whether
said goods were worth what the plaintiff claims,
that is, about equal to the amount for which they
were insured in the four above mentioned
assurance companies, including the defendant
in this case.
The plaintiff has conclusively shown by the
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
Official Register Book (Exhibit 1) and the Official
Guide (Exhibit J), furnished by the Bureau of
Internal Revenue, and kept under the
supervision thereof in the usual form, in
accordance with articles 10, 34 to 38 of the
Regulations of the same promulgated under No.
17, by the Secretary of Finance; the Stock Book
for recording the quantity of tobacco, Exhibit K,
kept by the plaintiff and presented as part of the
testimony of witnesses Claveria, Bonete, and
Leoncio Jose; the testimony of Estanislao
Lopez, Inspector of Internal Revenue, and the
latter's report (Exhibit N), submitted to the
Collector of Internal Revenue in pursuance of
article 33 of the aforementioned Regulations;
the tobacco invoices of stock damaged by the
fire, Exhibits L and L-1 to L-20; and by the
testimony of Clemente Uson who went over the
plaintiff's books as auditor and public
accountant, and also prepared Exhibits T and U,
attached to the record, that the plaintiff had in
the warehouse at No. 188 Soler at the time of
the fire, not less, but rather more, than 6,200
bales of leaf tobacco worth over P300,000,
which is of course more than the sum total of all
the insurances taken out with the defendant
herein and the defendants in the three
aforementioned cases Nos. 33458, 33868, and
33480.lawphi1>net
The reason why the entry showing that 258
bales of tobacco had been removed from the
warehouse, appearing in the Official Register
Book, Exhibit I, was not posted in the Stock
Book, Exhibit K, has been satisfactorily
explained by the plaintiff's witnesses, who stated
that it was due to the fact that there was no time
to post it in the Stock Book, because the fire
took place and the plaintiff told them not to
touch, and to make no further entries in the
books. Witness White, the defendant company's
adjuster, who carefully examined then plaintiff's
books not only immediately after the fire, but
also during the hearing of this case, seems not
to have found any irregularity therein; at least he
said nothing on the point when he took the
witness stand. On the contrary, in his report
Exhibit UU sent to the defendant herein in his
capacity as adjuster, appointed by the latter,
and in Exhibits WW and XX, admitted by the
5
Yek Tong Lin Ins. Co., Ltd., he admitted that the
leaf tobacco belonging to the plaintiff in the
warehouse when the fire took place exceeded,
in quantity and value, the amount of the
insurance.
The defendant did not present evidence to rebut
the plaintiff's evidence, but only presented
witness Rowlands, whose testimony or opinion
as to the probable number of bales of tobacco in
the warehouse at the date of the fire does not
deserve serious consideration, not only because
of the plaintiff's evidence, but because his
opinion or estimate is based solely upon
photographs of the place taken after the fire.
In view of the foregoing, the court hereby
sentences the defendant the Yek Tong Lin Fire
and Marine Insurance Company, Ltd., to pay the
plaintiff Emilio Gonzales La O, the amount of
one hundred thousand pesos (P100,000), for
which it had accepted the insurance on the leaf
tobacco belonging to said plaintiff, damaged by
the fire which destroyed the warehouse at No.
188 Soler Street, where it was stored, on
January 11, 1928, and legal interest upon said
amount from June 27, 1928, when the complaint
was filed in this case, plus the costs.
So ordered.
Manila, P. I., this 24th day of December, 1929.
ANACLETO DIAZ  recoverable under the policy, . . . .
Judge.
The defendant duly appealed from this judgment, alleging
that the trial court erred in making reference to the settlement
arrived at by the plaintiff and other insurance companies, and
in declaring that the only question involved in the case is
whether or not the tobacco damaged by the fire is worth at
least P290,000.
There is no merit in these assignments of error. Since the
settlement between the plaintiff and the other defendant
companies was reached after the plaintiff had presented his
evidence, and as those three cases were tried jointly with the
instant case, there is no valid reason why the trial court
should not refer to it in deciding this case. Furthermore, the
court's holding here assigned as error, granting there were
other incidental matters to be decided by the court, does not
in itself constitute a reversible error.
In the third assignment of error, the defendant contends that
the plaintiff cannot recover under the policy as he has failed
to prove that the Bank of the Philippine Islands, to whom the
policy was made payable, no longer has any rights and
interests in it. It should be noted that the defendant did not in
its answer allege defect of parties plaintiff, and, besides, it
does not appear that the plaintiff ceded to the bank all his
rights or interests in the insurance, the note attached to the
policies merely stating: "There shall be paid to the Bank of
the Philippine Islands an indemnity for any loss caused by
fire, according to the interest appearing in its favor." And the
fact that the plaintiff himself presented in evidence the
policies mortgaged to the Bank of the Philippine Islands
gives rise to the presumption that the debt thus secured has
been paid, in accordance with article 1191 of the Civil Code.
Corpus Juris, volume 26, pages 483 et seq., states:
Insured, being the person with whom the contract
was made, is primarily the proper person to bring
suit thereon. Subject to some exceptions, insured
may thus sue, although the policy is taken wholly
or in part for the benefit of another person named
or unnamed, and although it is expressly made
payable to another as his interest may appear or
otherwise. Although a policy issued to a mortgagor
is taken out for the benefit of the mortgagee and is
made payable to him, yet the mortgagor may sue
thereon in his own name, especially where the
mortgagee's interest is less than the full amount
And in volume 33, page 82, of the same work, we read the
following:
Insured may be regarded as the real party in
interest, although he has assigned as collateral
security any judgment he may obtain.
It is also contended that the trial court erred in not declaring
that in as much as the plaintiff failed to notify the defendant
corporation in writing, of other insurance policies obtained by
him, he has violated article 3 of the conditions of the policies
in question, thereby rendering these policies null and void.
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
Article 3 of the conditions of the policies in question
prescribes:
ART. 3. Any insurance in force upon all or part of
the things insured must be declared in writing by
the insured and he should cause the company to
insert or mention it in the policy, and without such
requisite said policy will be regarded as null and
void, and the assured deprived of all rights of
indemnity in case of loss.
The following clause has been inserted with a typewriter in
the policies: "Subject to clauses G and A and other
insurances with a special short period attached to this
policy." And attached to said policies issued by the
defendant there is a sheet of "Other insurances" with the
amount and the assurance companies in blank, which,
according to the appellee, constitutes a notification that there
were other insurances existing at the time.
In the case of Benedict vs. Ocean Insurance Co. (31 N.Y.,
391-393), the construction of the clause, "privilege for $4,500
additional insurance," was discussed. One of the printed
clauses of the policy reads as follows:
If said assured, or his assigns, shall hereafter
make any other insurance upon the same
property, and shall not, with all reasonable
diligence, give notice to this corporation, and have
the same indorsed on this instrument, or otherwise
acknowledged by them, in writing, this policy shall
cease and be of no further effect.
The Supreme Court of New York held that the words
"Privilege for $4,500 additional insurance" made it
unnecessary for the assured to inform the insurer of any
other policy up to that amount.
In the case cited the same goods insured by the defendant
company were reinsured to the amount of $4,500 in
accordance with the clause "privilege for $4,500 additional
insurance;" but in the instant case it may be said that the
tobacco insured in the other companies was different from
that insured with the defendant, since the number of bales of
tobacco in the warehouse greatly exceeded that insured with
the defendant and the other companies put together. And
according to the doctrine enunciated in 26 Corpus Juris, 188,
"to be insurance of the sort prohibited the prior policy must
have been insurance upon the same subject matter, and
upon the same interest therein.
6
Furthermore, the appellant cannot invoke the violation of
article 3 of the conditions of the insurance policies for the first
time on appeal, having failed to do so in its answer; besides,
as the appellee correctly contends in his brief, Guillermo Cu
Unjieng, who was then president and majority shareholder of
the appellant company, the Yek Tong Lin Fire & Marine
Insurance Co., knew that there were other insurances, at
least from the attempt to raise the insurance premium on the
warehouse and the appellee's tobacco deposited therein to 1
per centum, and it was later reduced upon petition of the
appellant itself and other assurance companies to 0.75 per
centum presented to the association of assurance
companies in the year 1927, and notwithstanding this, said
appellant did not rescind the insurance policies in question,
but demanded and collected from the appellee the increased
premium.
That the defendant had knowledge of the existence of other
policies obtained by the plaintiff from other insurance
companies, is specifically shown by the defendant's answer
wherein it alleges, by way of special defense, the fact that
there exist other policies issued by the companies mentioned
therein. If, with the knowledge of existence of other
insurances which the defendant deemed violations of the
contract, it has preferred to continue the policy, its action
amounts to a waiver of the annulment of the contract, in
accordance with the following doctrine in 19 Cyc., 791, 792:.
FAILURE TO ASSERT FORFEITURE — IN
GENERAL. — While the weight of authority is that
a policy conditioned to become void upon a breach
of a warranty is void ipso facto upon such a breach
without formal proceedings on the part of the
insurer, yet it is true that such conditions are
inserted for the benefit of the insurer and may be
waived, and that the insurer may elect to continue
the policy despite the breach. If it does the policy is
revived and restored. Its failure to assert a
forfeiture therefore is at least evidence tending to
show a waiver thereof. Many authorities go further,
however, and hold that the failure to assert a
forfeiture after knowledge of a ground thereof will
amount of itself to waiver. . . .
The fifth and sixth assignments of error refer to the quantity
of tobacco in the Soler warehouse at the time of the fire,
which, according to the appellant, did not exceed 4,930
bales. As may be seen, these assignments of error by the
appellant involved purely questions of fact, and it is for this
court to decide whether the findings of the trial court are
supported by the evidence. The judgment appealed from
sets forth clearly the evidence presented to the court in order
to determine the quantity of tobacco in the warehouse at the
time of the fire. We have studied the evidence aforesaid, are
fully convinced that the court's findings are well supported by
the same. Inasmuch as it has not, in our opinion, been
shown that the trial judge overlooked any fact, which, if duly
considered would have change the result of the case, we do
not feel justified in altering of modifying his findings.
Finally, the appellant contends that the trial court erred in
arriving at the damages that plaintiff may recover under the
policies in question by the cost price of the tobacco damaged
by the fire, instead of computing the same on the market
price of the said tobacco at the time of the fire; and in
declaring that the tobacco damaged was worth more than
P300,000. This error is not well taken, for it is clear that the
cost price is competent evidence tending to show the value
of the article in question. And it was so held the case of
Glaser vs. Home Ins. Co. (47 Misc. Rep., 89; 93 N. Y. Supp.,
524; Abbott's Proof of Facts, 3d ed., p. 847), where it was
declared that the cost of the goods destroyed by fire is some
evidence of value, in an action against the insurance
company. Exhibits L to L-20, which are invoices for tobacco
purchased by the appellee, and the testimony of the public
accountant Clemente Uson, who went over them and the
rest of the appellee's books after the fire, taken in connection
with reports T and Z, adduced as part of his testimony, show
that the cost price of each bale of tobacco belonging to the
appellee, damaged by the fire, was P51.8544, which,
multiplied by 6,264, the number of bales, yields a total of
over P320,000.
The adjusters of the appellant, White & Page, in ascertaining
the market price of the plaintiff's tobacco deposited in the
burnt warehouse, taking the information furnished by the
Tabacalera and by M. Pujalte, S. en C., as a basis, thus
conclude their report: "We therefore are obliged to the
conclusion that the value of the tobacco destroyed was not
less than P290,000." And, indeed, said adjusters, in behalf of
the appellant, appraised the appellee's tobacco assured and
damaged by the fire at P303,052.32, collecting from the
proceeds of the sale of the tobacco saved from the fire
P3,000, the appellants share in proportion to the to the
insurance of P100,000 belonging to it, and P190,000
belonging to the other assurance companies, and considered
the appellee himself as his own assurer in the amount of
P13,052.32 which was the difference between the total value
of the tobacco damaged and the total amount of the
insurance, P290,000, for which reason the appellee received
P129.21, as his proportionate share of the tobacco saved, as
shown by Exhibits UU, WW, and XX.
 INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
Hence the last assignment of error is without merit.
Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . . . . . .  P3,000.00
Wherefore, the judgment appealed from is in accordance
with law, and must be, as it is hereby, affirmed, with costs
against the appellant. So ordered.
G.R. No. L-16215             June 29, 1963
SIMEON DEL ROSARIO, plaintiff-appellee,  Insured nor shall it cover Death, Disability, Hospital
vs.
THE EQUITABLE INSURANCE AND CASUALTY CO.,
INC., defendant-appellant.
PAREDES, J.:
On February 7, 1957, the defendant Equitable Insurance and
Casualty Co., Inc., issued Personal Accident Policy No. 7136
on the life of Francisco del Rosario, alias Paquito Bolero, son
of herein plaintiff-appellee, binding itself to pay the sum of
P1,000.00 to P3,000.00, as indemnity for the death of the
insured. The pertinent provisions of the Policy, recite:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is
effected solely through violent, external, visible
and accidental means, and which shall result,
independently of all other causes and within sixty
(60) days from the occurrence thereof, in the
Death of the Insured, the Company shall pay the
amount set opposite such injury:
1. Injury sustained other than those specified below unless excepted
fter. . . . . . . .  P1,000.00
2. Injury sustained by the wrecking or disablement of a railroad
ger car or street railway car in or on which the Insured is travelling as a
ing passenger. . . . . . . .  paid to him (plaintiff) the sum of P1,000.00, pursuant to
P1,500.00
3. Injury sustained by the burning of a church, theatre, public library or
pal administration building while the Insured is therein at the
ncement of the fire. . . . . . . .  P2,000.00
4. Injury sustained by the wrecking or disablement of a regular
ger elevator car in which the Insured is being conveyed as a passenger
or in mines excluded) P2,500.00
7
xxx     xxx     xxx
Part VI. Exceptions
This policy shall not cover disappearance of the
fees, or Loss of Time, caused to the insured:
. . . (h) By drowning except as a consequence of
the wrecking or disablement in the Philippine
waters of a passenger steam or motor vessel in
which the Insured is travelling as a farepaying
passenger; . . . .
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause
Letter (h) embodied in PART VI of the policy is hereby
waived by the company, and to form a part of the provision
covered by the policy.
On February 24, 1957, the insured Francisco del
Rosario, alias Paquito Bolero, while on board the motor
launch "ISLAMA" together with 33 others, including his
beneficiary in the Policy, Remedios Jayme, were forced to
jump off said launch on account of fire which broke out on
said vessel, resulting in the death of drowning, of the insured
and beneficiary in the waters of Jolo. 1äwphï1.ñët
On April 13, 1957, Simeon del Rosario, father of the insured,
and as the sole heir, filed a claim for payment with defendant
company, and on September 13, 1957, defendant company
Section 1 of Part I of the policy. The receipt signed by
plaintiff reads —
RECEIVED of the EQUITABLE
INSURANCE & CASUALTY CO., INC.,
the sum of PESOS — ONE THOUSAND
(P1,000.00) Philippine Currency, being
settlement in full for all claims and
demands against said Company as a
result of an accident which occurred on
February 26, 1957, insured under out
ACCIDENT Policy No. 7136, causing the
death of the Assured. 
In view of the foregoing, this policy is
hereby surrendered and CANCELLED. 
LOSS COMPUTATION
Amount of Insurance                
P1,000.00
__________
vvvvv
On the same date (September 13, 1957), Atty. Vicente J.
Francisco, wrote defendant company acknowledging receipt
by his client (plaintiff herein), of the P1,000.00, but informing
said company that said amount was not the correct one. Atty.
Francisco claimed —
The amount payable under the policy, I believe
should be P1,500.00 under the provision of
Section 2, part 1 of the policy, based on the rule
of pari materia as the death of the insured
occurred under the circumstances similar to that
provided under the aforecited section.
Defendant company, upon receipt of the letter, referred the
matter to the Insurance Commissioner, who rendered an
opinion that the liability of the company was only P1,000.00,
pursuant to Section 1, Part I of the Provisions of the policy
(Exh. F, or 3). Because of the above opinion, defendant
insurance company refused to pay more than P1,000.00. In
the meantime, Atty. Vicente Francisco, in a subsequent letter
to the insurance company, asked for P3,000.00 which the
Company refused, to pay. Hence, a complaint for the
recovery of the balance of P2,000.00 more was instituted
with the Court of First Instance of Rizal (Pasay City, Branch
VII), praying for it further sum of P10,000.00 as attorney's
fees, expenses of litigation and costs.
Defendant Insurance Company presented a Motion to
Dismiss, alleging that the demand or claim is set forth in the
complaint had already been released, plaintiff having
received the full amount due as appearing in policy and as
per opinion of the Insurance Commissioner. An opposition to
the motion to dismiss, was presented by plaintiff, and other
pleadings were subsequently file by the parties. On
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
December 28, 1957, the trial court deferred action on the Besides, on the face of the policy Exhibit "A" itself, findings and conclusions of the trial court, are well taken, for
motion to dismiss until termination of the trial of the case, it death by drowning is a ground for recovery apart they are supported by the generally accepted principles or
appearing that the ground thereof was not indubitable. In the from the bodily injury because death by bodily rulings on insurance, which enunciate that where there is an
Answer to the complaint, defendant company practically injury is covered by Part I of the policy while death ambiguity with respect to the terms and conditions of the
admitted all the allegations therein, denying only those which by drowning is covered by Part VI thereof. But policy, the same will be resolved against the one responsible
stated that under the policy its liability was P3,000.00.  while the policy mentions specific amounts that thereof. It should be recalled in this connection, that
may be recovered for death for bodily injury, yet, generally, the insured, has little, if any, participation in the
there is not specific amount mentioned in the preparation of the policy, together with the drafting of its
On September 1, 1958, the trial court promulgated an
policy for death thru drowning although the latter terms and Conditions. The interpretation of obscure
Amended Decision, the pertinent portions of which read —
is, under Part VI of the policy, a ground for stipulations in a contract should not favor the party who
recovery thereunder. Since the defendant has cause the obscurity (Art. 1377, N.C.C.), which, in the case at
xxx     xxx     xxx bound itself to pay P1000.00 to P3,000.00 as bar, is the insurance company. 
indemnity for the death of the insured but the
policy does not positively state any definite amount
Since the contemporaneous and subsequent acts . . . . And so it has been generally held that the
that may be recovered in case of death by
of the parties show that it was not their intention "terms in an insurance policy, which are
drowning, there is an ambiguity in this respect in
that the payment of P1,000.00 to the plaintiff and ambiguous, equivocal or uncertain . . . are to be
the policy, which ambiguity must be interpreted in
the signing of the loss receipt exhibit "1" would be construed strictly against, the insurer, and liberally
favor of the insured and strictly against the insurer
considered as releasing the defendant completely in favor of the insured so as to effect the dominant
so as to allow greater indemnity. 
from its liability on the policy in question, said purpose of indemnity or payment to the insured,
intention of the parties should prevail over the especially where a forfeiture is involved," (29 Am.
contents of the loss receipt "1" (Articles 1370 and xxx     xxx     xxx Jur. 181) and the reason for this rule is that the
1371, New Civil Code).  "insured usually has no voice in the selection or
arrangement of the words employed and that the
. . . plaintiff is therefore entitled to recover
language of the contract is selected with great care
". . . . Under the terms of this policy, defendant P3,000.00. The defendant had already paid the
and deliberation by expert and legal advisers
company agreed to pay P1,000.00 to P3,000.00 as amount of P1,000.00 to the plaintiff so that there
employed by, and acting exclusively in the interest
indemnity for the death of the insured. The insured still remains a balance of P2,000.00 of the amount
of, the insurance company" (44 C.J.S. 1174).
died of drowning. Death by drowning is covered by to which plaintiff is entitled to recover under the
Calanoc v. Court of Appeals, et al., G.R. No. L-
the policy the pertinent provisions of which reads policy Exhibit "A". 
8151, Dec. 16, 1955.
as follows:
The plaintiff asks for an award of P10,000.00 as
. . . . Where two interpretations, equally fair, of
xxx     xxx     xxx attorney's fees and expenses of litigation.
languages used in an insurance policy may be
However, since it is evident that the defendant had
made, that which allows the greater indemnity will
not acted in bad faith in refusing to pay plaintiff's
"Part I of the policy fixes specific prevail. (L'Engel v. Scotish Union & Nat. F. Ins.
claim, the Court cannot award plaintiff's claim for
amounts as indemnities in case of death Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am.
attorney's fees and expenses of litigation. 
resulting from "bodily injury which is St. Rep. 70, 5 Ann. Cas. 749).
effected solely thru violence, external,
visible and accidental means" but, Part I IN VIEW OF THE FOREGOING, the Court hereby
At any event, the policy under consideration, covers death or
of the Policy is not applicable in case of reconsiders and sets aside its decision dated July
disability by accidental means, and the appellant insurance
death by drowning because death by 21, 1958 and hereby renders judgment, ordering
company agreed to pay P1,000.00 to P3,000.00. is indemnity
drowning is not one resulting from the defendant to pay plaintiff the sum of Two
for death of the insured. 
"bodily injury which is affected solely Thousand (P2,000.00) Pesos and to pay the costs.
thru violent, external, visible and
accidental means" as "Bodily Injury" In view of the conclusions reached, it would seem
The above judgment was appealed to the Court of Appeals
means a cut, a bruise, or a wound and unnecessary to discuss the other issues raised in the
on three (3) counts. Said Court, in a Resolution dated
drowning is death due to suffocation and appeal. 
September 29, 1959, elevated the case to this Court, stating
not to any cut, bruise or wound."
that the genuine issue is purely legal in nature. 
The judgment appealed from is hereby affirmed. Without
xxx     xxx     xxx costs.
All the parties agree that indemnity has to be paid. The
conflict centers on how much should the indemnity be. We
believe that under the proven facts and circumstances, the G.R. No. L-38613 February 25, 1982
8
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
PACIFIC TIMBER EXPORT CORPORATION, petitioner,  accordingly consisted of 1,395 logs, or
vs.
THE HONORABLE COURT OF APPEALS and
WORKMEN'S INSURANCE COMPANY, INC., respondents. 
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of
Appeals reversing the decision of the Court of First Instance
of Manila in favor of petitioner and against private
respondent which ordered the latter to pay the sum of
Pll,042.04 with interest at the rate of 12% interest from
receipt of notice of loss on April 15, 1963 up to the complete
payment, the sum of P3,000.00 as attorney's fees and the
costs 1 thereby dismissing petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are
generally binding upon this Court, Except as shall be
indicated in the discussion of the opinion of this Court the
substantial correctness of still particular finding having been
disputed, thereby raising a question of law reviewable by this
Court 3 are as follows:
March 19, l963, the plaintiff secured
temporary insurance from the defendant
for its exportation of 1,250,000 board
feet of Philippine Lauan and Apitong
logs to be shipped from the Diapitan.
Bay, Quezon Province to Okinawa and
Tokyo, Japan. The defendant issued on
said date Cover Note No. 1010, insuring
the said cargo of the plaintiff "Subject to
the Terms and Conditions of the
WORKMEN'S INSURANCE COMPANY,
INC. printed Marine Policy form as filed
with and approved by the Office of the
Insurance Commissioner (Exhibit A).  covered by Policies Nos. 53 HO 1032
The regular marine cargo policies were
issued by the defendant in favor of the
plaintiff on April 2, 1963. The two marine
policies bore the numbers 53 HO 1032
and 53 HO 1033 (Exhibits B and C,
respectively). Policy No. 53 H0 1033
(Exhibit B) was for 542 pieces of logs
equivalent to 499,950 board feet. Policy
No. 53 H0 1033 was for 853 pieces of
logs equivalent to 695,548 board feet
(Exhibit C). The total cargo insured
under the two marine policies
9
the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No.
1010 (Exhibit A), but before the issuance
of the two marine policies Nos. 53 HO
1032 and 53 HO 1033, some of the logs
intended to be exported were lost during
loading operations in the Diapitan Bay.
The logs were to be loaded on the 'SS
Woodlock' which docked about 500
meters from the shoreline of the Diapitan
Bay. The logs were taken from the log
pond of the plaintiff and from which they
were towed in rafts to the vessel. At
about 10:00 o'clock a. m. on March 29,
1963, while the logs were alongside the
vessel, bad weather developed resulting
in 75 pieces of logs which were rafted
together co break loose from each other.
45 pieces of logs were salvaged, but 30
pieces were verified to have been lost or
washed away as a result of the
accident.  submitted
In a letter dated April 4, 1963, the plaintiff informed the
defendant about the loss of 'appropriately 32 pieces of log's
during loading of the 'SS Woodlock'. The said letter (Exhibit
F) reads as follows:
April 4, 1963 
Workmen's Insurance Company, Inc.
Manila, Philippines  'Report on August 23, 1963 (Exhibit H).
Gentlemen: 
This has reference to Insurance Cover
Note No. 1010 for shipment of 1,250,000
bd. ft. Philippine Lauan and Apitong
Logs. We would like to inform you that
we have received advance preliminary
report from our Office in Diapitan,
Quezon that we have lost approximately
32 pieces of logs during loading of the
SS Woodlock. 
We will send you an accurate report all
the details including values as soon as
same will be reported to us. 
Thank you for your attention, we wish to
remain. 
Very respectfully yours, 
PACIFIC TIMBER EXPORT
CORPORATION 
(Sgd.) EMMANUEL S. ATILANO Asst.
General Manager.
Although dated April 4, 1963, the letter
was received in the office of the
defendant only on April 15, 1963, as
shown by the stamp impression
appearing on the left bottom corner of
said letter. The plaintiff subsequently
a 'Claim Statement
demanding payment of the loss under
Policies Nos. 53 HO 1032 and 53 HO
1033, in the total amount of P19,286.79
(Exhibit G). 
On July 17, 1963, the defendant
requested the First Philippine
Adjustment Corporation to inspect the
loss and assess the damage. The
adjustment company submitted its
In said report, the adjuster found that
'the loss of 30 pieces of logs is not
and 1033 inasmuch as said policies
covered the actual number of logs
loaded on board the 'SS Woodlock'
However, the loss of 30 pieces of logs is
within the 1,250,000 bd. ft. covered by
Cover Note 1010 insured for
$70,000.00.
On September 14, 1963, the adjustment
company submitted a computation of the
defendant's probable liability on the loss
sustained by the shipment, in the total
amount of Pl1,042.04 (Exhibit 4). 
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
On January 13, 1964, the defendant
wrote the plaintiff denying the latter's
claim, on the ground they defendant's
investigation revealed that the entire
shipment of logs covered by the two
marines policies No. 53 110 1032 and
713 HO 1033 were received in good
order at their point of destination. It was
further stated that the said loss may be
considered as covered under Cover
Note No. 1010 because the said Note
had become 'null and void by virtue of
the issuance of Marine Policy Nos. 53
HO 1032 and 1033'(Exhibit J-1). The
denial of the claim by the defendant was
brought by the plaintiff to the attention of
the Insurance Commissioner by means
of a letter dated March 21, 1964 (Exhibit
K). In a reply letter dated March 30,
1964, Insurance Commissioner
Francisco Y. Mandanas observed that 'it
is only fair and equitable to indemnify
the insured under Cover Note No. 1010',
and advised early settlement of the said
marine loss and salvage claim (Exhibit
L).
On June 26, 1964, the defendant
informed the Insurance Commissioner
that, on advice of their attorneys, the
claim of the plaintiff is being denied on
the ground that the cover note is null
and void for lack of valuable
consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the
following:  Had all the logs been lost during the loading operations, but
I  premium could have been paid, since by the nature of the
THE COURT OF APPEALS ERRED IN
HOLDING THAT THE COVER NOTE
WAS NULL AND VOID FOR LACK OF
VALUABLE CONSIDERATION
BECAUSE THE COURT
DISREGARDED THE PROVEN FACTS
THAT PREMIUMS FOR THE
COMPREHENSIVE INSURANCE
COVERAGE THAT INCLUDED THE
COVER NOTE WAS PAID BY
PETITIONER AND THAT INCLUDED
10
THE COVER NOTE WAS PAID BY insurance policies, thereby leaving no account unpaid by
PETITIONER AND THAT NO petitioner due on the insurance coverage, which must be
SEPARATE PREMIUMS ARE deemed to include the Cover Note. If the Note is to be
COLLECTED BY PRIVATE treated as a separate policy instead of integrating it to the
RESPONDENT ON ALL ITS COVER regular policies subsequently issued, the purpose and
NOTES.  function of the Cover Note would be set at naught or
rendered meaningless, for it is in a real sense a contract, not
a mere application for insurance which is a mere offer. 6
II
It may be true that the marine insurance policies issued were
THE COURT OF APPEALS ERRED IN
for logs no longer including those which had been lost during
HOLDING THAT PRIVATE
loading operations. This had to be so because the risk
RESPONDENT WAS RELEASED
insured against is not for loss during operations anymore, but
FROM LIABILITY UNDER THE COVER
for loss during transit, the logs having already been safely
NOTE DUE TO UNREASONABLE
placed aboard. This would make no difference, however,
DELAY IN GIVING NOTICE OF LOSS
insofar as the liability on the cover note is concerned, for the
BECAUSE THE COURT
number or volume of logs lost can be determined
DISREGARDED THE PROVEN FACT
independently as in fact it had been so ascertained at the
THAT PRIVATE RESPONDENT DID
instance of private respondent itself when it sent its own
NOT PROMPTLY AND SPECIFICALLY
adjuster to investigate and assess the loss, after the
OBJECT TO THE CLAIM ON THE
issuance of the marine insurance policies. 
GROUND OF DELAY IN GIVING
NOTICE OF LOSS AND,
CONSEQUENTLY, OBJECTIONS ON The adjuster went as far as submitting his report to
THAT GROUND ARE WAIVED UNDER respondent, as well as its computation of respondent's
SECTION 84 OF THE INSURANCE liability on the insurance coverage. This coverage could not
ACT. 5 have been no other than what was stipulated in the Cover
Note, for no loss or damage had to be assessed on the
coverage arising from the marine insurance policies. For
1. Petitioner contends that the Cover Note was issued with a
obvious reasons, it was not necessary to ask petitioner to
consideration when, by express stipulation, the cover note is
pay premium on the Cover Note, for the loss insured against
made subject to the terms and conditions of the marine
having already occurred, the more practical procedure is
policies, and the payment of premiums is one of the terms of
simply to deduct the premium from the amount due the
the policies. From this undisputed fact, We uphold
petitioner on the Cover Note. The non-payment of premium
petitioner's submission that the Cover Note was not without
on the Cover Note is, therefore, no cause for the petitioner to
consideration for which the respondent court held the Cover
lose what is due it as if there had been payment of premium,
Note as null and void, and denied recovery therefrom. The
for non-payment by it was not chargeable against its fault.
fact that no separate premium was paid on the Cover Note
before the loss insured against occurred, does not militate
after the issuance of the Cover Note, liability on the note
against the validity of petitioner's contention, for no such
would have already arisen even before payment of premium.
This is how the cover note as a "binder" should legally
Cover Note, it did not contain, as all Cover Notes do not
operate otherwise, it would serve no practical purpose in the
contain particulars of the shipment that would serve as basis
realm of commerce, and is supported by the doctrine that
for the computation of the premiums. As a logical
where a policy is delivered without requiring payment of the
consequence, no separate premiums are intended or
premium, the presumption is that a credit was intended and
required to be paid on a Cover Note. This is a fact admitted
policy is valid. 7
by an official of respondent company, Juan Jose Camacho,
in charge of issuing cover notes of the respondent company
(p. 33, tsn, September 24, 1965).  2. The defense of delay as raised by private respondent in
resisting the claim cannot be sustained. The law requires this
ground of delay to be promptly and specifically asserted
At any rate, it is not disputed that petitioner paid in full all the
when a claim on the insurance agreement is made. The
premiums as called for by the statement issued by private
undisputed facts show that instead of invoking the ground of
respondent after the issuance of the two regular marine
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
delay in objecting to petitioner's claim of recovery on the
cover note, it took steps clearly indicative that this particular
ground for objection to the claim was never in its mind. The
nature of this specific ground for resisting a claim places the
insurer on duty to inquire when the loss took place, so that it
could determine whether delay would be a valid ground upon
which to object to a claim against it. 
As already stated earlier, private respondent's reaction upon
receipt of the notice of loss, which was on April 15, 1963,
was to set in motion from July 1963 what would be
necessary to determine the cause and extent of the loss,
with a view to the payment thereof on the insurance
agreement. Thus it sent its adjuster to investigate and
assess the loss in July, 1963. The adjuster submitted his
report on August 23, 1963 and its computation of
respondent's liability on September 14, 1963. From April
1963 to July, 1963, enough time was available for private
respondent to determine if petitioner was guilty of delay in
communicating the loss to respondent company. In the
proceedings that took place later in the Office of the
Insurance Commissioner, private respondent should then
have raised this ground of delay to avoid liability. It did not do
so. It must be because it did not find any delay, as this Court
fails to find a real and substantial sign thereof. But even on
the assumption that there was delay, this Court is satisfied
and convinced that as expressly provided by law, waiver can
successfully be raised against private respondent. Thus
Section 84 of the Insurance Act provides:  purpose of misleading and deceiving the
Section 84.—Delay in the presentation
to an insurer of notice or proof of loss is
waived if caused by any act of his or if
he omits to take objection promptly and
specifically upon that ground.
From what has been said, We find duly substantiated
petitioner's assignments of error.  defendant by its duly authorized agent, Smith, Bell
ACCORDINGLY, the appealed decision is set aside and the
decision of the Court of First Instance is reinstated in toto
with the affirmance of this Court. No special pronouncement
as to costs. 
SO ORDERED.
G.R. No. L-12707            August 10, 1918
11
MRS. HENRY E. HARDING, and her husband, plaintiffs-
appellees,  defendant therefor.
vs.
COMMERCIAL UNION ASSURANCE
COMPANY, defendant-appellant.
FISHER, J.:
This was an action by plaintiffs to recover from defendant the
sum of P3,000 and interest, alleged to be due under the
terms of a policy of insurance. The trial court gave plaintiffs
judgment for the amount demanded, with interest and costs,
and from that decision the defendant appeals.
The court below stated the issues made by the pleadings in
this case, and its finding of fact, as follows:
It is alleged by plaintiffs and admitted by defendant
that plaintiffs are husband and wife and residents
of the city of Manila; that the defendant is a foreign
corporation organized and existing under and by
virtue of the laws of Great Britain and duly
registered in the Philippine Islands, and Smith, Bell
& Co. (limited), a corporation organized and
existing under the laws of the Philippine Islands,
with its principal domicile in the city of Manila, is
the agent in the Philippine Islands of said
defendant.
The plaintiffs alleged that on February 16, 1916,
the plaintiff Mrs. Henry E. Harding was the owner
of a Studebaker automobile, registered number
2063, in the city of Manila; that on said date; in
consideration of the payment to the defendant of
the premium of P150, by said plaintiff, Mrs. Henry
E. Harding, with the consent of her husband, the
& Company (limited), made its policy of insurance
in writing upon said automobile was set forth in
said policy to be P3,000 that the value of said
automobile was set forth in said policy (Exhibit A)
to be P3,000; that on March 24, 1916, said
automobile was totally destroyed by fire; that the
loss thereby to plaintiffs was the sum of P3,000;
that thereafter, within the period mentioned in the
said policy of insurance, the plaintiff, Mrs. Henry E.
Harding, furnished the defendant the proofs of her
said loss and interest, and otherwise performed all
the conditions of said policy on her part, and that
the defendant has not paid said loss nor any part
thereof, although due demand was made upon
The defendant, by its answer, admitted the
allegations of the residence and status of the
parties and denied all the other allegation of the
said complaint, and for a separate and affirmative
defense alleged (1) that on February 17, 1916, at
the city of Manila, P.I. the defendant upon request
of plaintiff, Mrs. Henry E. Harding, issued to the
said plaintiff the policy of insurance on an
automobile alleged by the said plaintiff to be her
property; that the said request for the issuance of
said policy of insurance was made by means of a
proposal in writing signed and delivered by said
plaintiff to the defendant, guaranteeing the truth of
the statements contained therein which said
proposal is referred to in the said policy of
insurance made a part thereof; (2) that certain of
the statements and representations contained in
said proposal and warranted by said plaintiff to be
true, to wit: (a) the price paid by the proposer for
the said automobile; (b) the value of said
automobile at the time of the execution and
delivery of the said proposal and (c) the ownership
of said automobile, were false and known to be
false by the said plaintiff at the time of signing and
delivering the said proposal and were made for the
defendant, and inducing the defendant, relying
upon the warranties, statements, and
representations contained in the said proposal and
believing the same to be true, issued the said
policy of insurance.
The defendant prays that judgment be entered
declaring the said policy of insurance to be null
and void, and that plaintiffs take nothing by this
action; and for such further relief as to the court
may seem just and equitable.
The evidence in this case shows that some time in
the year 1913 Levy Hermanos, the Manila agents
for the Studebaker automobile, sold the
automobile No. 2063 to John Canson for P3,200
(testimony of Mr. Diehl); that under date of October
14, 1914, John Canson sold the said automobile to
Henry Harding for the sum of P1,500 (Exhibit 2);
that under date of November 19, 1914, the said
Henry Harding sold the said automobile No. 2063
to J. Brannigan, of Los Baños, Province of Laguna,
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
P.I., for the sum of P2,000 (Exhibit 3); that under
date of December 20, 1915, J. C. Graham of Los
Baños, Province of Laguna, P.I., sold the said
automobile No. 2063 to Henry Harding of the city
of Manila for the sum of P2,800 (Exhibit 4 and
testimony of J. C. Graham); that on or about
January 1, 1916, the said Henry Harding gave the
said automobile to his wife; Mrs. Henry E. Harding,
one of the plaintiffs, as a present; that said
automobile was repaired and repainted at the
Luneta Garage at a cost of some P900 (testimony
of Mr. Server); that while the said automobile was
at the Luneta Garage; the said Luneta Garage,
acting as agent for Smith, Bell & Company,
(limited), solicited of the plaintiff Mrs. Harding the
insurance of said automobile by the defendant
Company (testimony of Mrs. Henry Harding and
Mr. Server); that a proposal was filled out by the
said agent and signed by the plaintiff Mrs. Henry
E. Harding, and in said proposal under the heading
"Price paid by proposer," is the amount of "3,500"
and under another heading "Present value" is the
amount of "3,000" (Exhibit 1).
The evidence tends to show that after the said
proposal was made a representative of the Manila
agent of defendant went to the Luneta Garage and
examined said automobile No. 2063 and Mr.
Server, the General Manager of the Luneta
Garage, an experienced automobile mechanic,
testified that at the time this automobile was
insured it was worth about P3,000, and the
defendant, by and through its said agent Smith,
Bell & Company (limited), thereafter issued a
policy of insurance upon proposal in which policy
the said automobile was described as of the
"present value" of P3,000 and the said defendant
charged the said plaintiff Mrs. Henry E. Harding as
premium on said policy the sum of P150, or 5 per
cent of the then estimated value of P3,000.
(Exhibit A.)
The "Schedule" in said policy of insurance
describes the automobile here in question, and
provides in part of follows:  of minor importance relating to the exclusion of evidence.
"Now it is hereby agreed as follows:
"That during the period above set forth
and during any period for which the
company may agree to renew this policy
12
the company will subject to the
exception and conditions contained
herein or endorsed hereon indemnify the
insured against loss of or damage to any
motor car described in the schedule
hereto (including accessories) by
whatever cause such loss or damage
may be occasioned and will further
indemnify the insured up to the value of
the car or P3,000 whichever is the
greater against any claim at common
law made by any person (not being a
person in the said motor car nor in the
insured's service) for loss of life or for
accidental bodily injury or damage to
property caused by the said motor car
including law costs payable in
connection with such claim when
incurred with the consent of the
company."
The evidence further shows that on March 24,
1916, the said automobile was totally destroyed by
fire, and that the iron and steel portions of said
automobile which did not burn were taken into the
possession of the defendant by and through its
agent Smith, Bell & Company (limited), and sold by
it for a small sum, which had never been tendered
to the plaintiff prior to the trial of this case, but in
open court during the trial the sum of P10 as the
proceeds of such sale was tendered to plaintiff and
refused.
Upon the facts so found, which we hold are supported by the
evidence, the trial judge decided that there was no proof of
fraud on the part of plaintiff in her statement of the value of
the automobile, or with respect to its ownership; that she had
an insurable interest therein; and that defendant, having
agreed to the estimated value, P3,000, and having insured
the automobile for that amount, upon the basis of which the
premium was paid, is bound by it and must pay the loss in
accordance with the stipulated insured value. The
assignments of error made on behalf of appellant put in issue
the correctness of those conclusions of law, and some others
Disposing of the minor objections first, as we have reached
the conclusion that the trial court was right in holding that the
defendant is bound by the estimated value of the automobile
upon which policy was issued, and that the plaintiff was not
guilty of fraud in regard thereto, the exclusion of the
testimony of the witness Diehl is without importance. It
merely tended to show the alleged actual value of the
automobile, and in the view we take of the case such
evidence was irrelevant.
Appellant contends that Mrs. Harding was not the owner of
the automobile at the time of the issuance of the policy, and,
therefore, had no insurable interest in it. The court below
found that the automobile was given to plaintiff by her
husband shortly after the issuance of the policy here in
question. Appellant does not dispute the correctness of this
finding, but contends that the gift was void, citing article 1334
of the Civil Code which provides that "All gifts between
spouses during the marriage shall be void. Moderate gifts
which the spouses bestow on each other on festive days of
the family are not included in this rule."
We are of the opinion that this contention is without merit. In
the case of Cook vs. McMicking 27 Phil. Rep., 10), this court
said:
It is claimed by the appellants that the so-called
transfer from plaintiff's husband to her was
completely void under article 1458 of the Civil
Code and that, therefore, the property still remains
the property of Edward Cook and subject to levy
under execution against him.
In our opinion the position taken by appellants is
untenable. They are not in a position to challenge
the validity of the transfer, if it may be called such.
They bore absolutely no relation to the parties to
the transfer at the time it occurred and had no
rights or interests inchoate, present, remote, or
otherwise, in the property in question at the time
the transfer occurred. Although certain transfers
from husband to wife or from wife to husband are
prohibited in the article referred to, such prohibition
can be taken advantage of only by persons who
bear such a relation to the parties making the
transfer or to the property itself that such transfer
interferes with their rights or interests. Unless such
a relationship appears the transfer cannot be
attacked.
Even assuming that defendant might have invoked article
1334 as a defense, the burden would be upon it to show that
the gift in question does not fall within the exception therein
established. We cannot say, as a matter of law, that the gift
of an automobile by a husband to his wife is not a moderate
one. Whether it is or is not would depend upon the
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
circumstances of the parties, as to which nothing is disclosed
by the record.
Defendant contends that the statement regarding the cost of
the automobile was a warranty, that the statement was false,
and that, therefore, the policy never attached to the risk. We
are of the opinion that it has not been shown by the evidence
that the statement was false — on the contrary we believe
that it shows that the automobile had in fact cost more than
the amount mentioned. The court below found, and the
evidence shows, that the automobile was bought by plaintiff's
husband a few weeks before the issuance of the policy in
question for the sum of P2,800, and that between that time
and the issuance of the policy some P900 was spent upon it
in repairs and repainting. The witness Server, an expert
automobile mechanic, testified that the automobile was
practically as good as new at the time the insurance was
effected. The form of proposal upon which the policy was
issued does not call for a statement regarding the value of
the automobile at the time of its acquisition by the applicant
for the insurance, but merely a statement of its cost. The
amount stated was less than the actual outlay which the
automobile represented to Mr. Harding, including repairs,
when the insurance policy was issued. It is true that the
printed form calls for a statement of the "price paid by the
proposer," but we are of the opinion that it would be unfair to
hold the policy void simply because the outlay represented
by the automobile was made by the plaintiff's husband and
not by his wife, to whom he had given the automobile. It
cannot be assumed that defendant should not have issued
the policy unless it were strictly true that the price
representing the cost of the machine had been paid by the
insured and by no other person — that it would no event
insure an automobile acquired by gift, inheritance, exchange,
or any other title not requiring the owner to make a specific
cash outlay for its acquisition.
Furthermore, the court below found and the evidence shows,
without dispute, that the proposal upon which the policy in
question was issued was made out by defendant's agent by
whom the insurance was solicited, and that appellee simply
signed the same. It also appears that an examiner employed
by the defendant made an inspection of the automobile
before the acceptance of the risk, and that the sum after this
examination. The trial court found that Mrs. Harding, in fixing
the value of the automobile at P3,000, acted upon
information given her by her husband and by Mr. Server, the
manager of the Luneta Garage. The Luneta Garage, it will be
remembered, was the agent of the defendant corporation in
the solicitation of the insurance. Mrs. Harding did not state of
her own knowledge that the automobile originally cost
P3,000, or that its value at the time of the insurance was
13
P3,000. She merely repeated the information which had
been given her by her husband, and at the same time
disclosed to defendant's agent the source of her information.
There is no evidence to sustain the contention that this
communication was made in bad faith. It appears that the
statements in the proposal as to the price paid for the
automobile and as to its value were written by Mr. Quimby
who solicited the insurance on behalf of defendant, in his
capacity as an employee of the Luneta Garage, and wrote
out the proposal for Mrs. Harding to sign. Under these
circumstances, we do not think that the facts stated in the
proposal can be held as a warranty of the insured, even if it
should have been shown that they were incorrect in the
absence of proof of willful misstatement. Under such
circumstance, the proposal is to be regarded as the act of
the insurer and not of the insured. This question was
considered in the case of the Union Insurance
Company vs. Wilkinson (13 Wall., 222; 20 L. ed., 617), in
which the Supreme Court of the United States said:
This question has been decided differently by
courts of the highest respectability in cases
precisely analogous to the present. It is not to be
denied that the application logically considered, is
the work of the assured, and if left to himself or to
such assistance as he might select, the person so
selected would be his agent, and he alone would
be responsible. On the other hand, it is well-
known, so well that no court would be justified in
shutting its eyes to it, that insurance companies
organized under the laws of one State, and having
in that State their principal business office, send
these agents all over the land, with directions to
solicit and procure applications for policies
furnishing them with printed arguments in favor of
the value and necessity of life insurance, and of
the special advantages of the corporation which
the agent represents. They pay these agents large
commissions on the premiums thus obtained, and
the policies are delivered at their hands to the
assured. The agents are stimulated by letters and
instructions to activity in procuring contracts, and
the party who is in this manner induced to take out
a policy, rarely sees or knows anything about the
company or its officers by whom it is issued, but
looks to and relies upon the agent who has
persuaded him to effect insurance as the full and
complete representative of the company, in all that
is said or done in making the contract. Has he not
a right to so regard him? It is quite true that the
reports of judicial decisions are filled with the
efforts of these companies, by their counsel, to
establish the doctrine for the acts of these agents
to the simple receipt of the premium and delivery
of the policy, the argument being that, as to all
other acts of the agent, he is the agent of the
assured. This proposition is not without support in
some of the earlier decision on the subject; and, at
a time when insurance companies waited for
parties to come to them to seek assurance, or to
forward applications on their own motion, the
doctrine had a reasonable foundation to rest upon.
But to apply such a doctrine, in its full force, to the
system of selling policies through agents, which
we have described, would be a snare and a
delusion, leading, as it has done in numerous
instances, to the grossest frauds, of which the
insurance corporations receive the benefits, and
the parties supposing themselves insured are the
victims. The tendency of the modern decisions in
this country is steadily in the opposite direction.
The powers of the agent are, prima facie, co-
extensive with the business intrusted to his care,
and will not be narrowed by limitations not
communicated to the person with whom he deals.
(Bebee vs. Ins. Co., 25 Conn., 51; Lycoming Ins.
Co. vs. Schoolenberger, 44 Pa., 259; Beal vs. Ins.
Co., 16 Wis., 241; Davenport vs. Ins. Co., 17 Iowa,
276.) An insurance company, establishing a local
agency, must be held responsible to the parties
with whom they transact business, for the acts and
declarations of the agent, within the scope of his
employment, as if they proceeded from the
principal. (Sav. Bk. vs. Ins. Co., 31 Conn., 517;
Hortwitz vs.Ins. Co., 40 Mo., 557; Ayres vs. Ins.
Co., 17 Iowa, 176; Howard Ins. Co. vs. Bruner, 23
Pa., 50.)
In the fifth edition of American Leading Cases,
917, after a full consideration of the authorities, it is
said:
"By the interested or officious zeal of the
agents employed by the insurance
companies in the wish to outbid each
other and procure customers, they not
unfrequently mislead the insured, by a
false or erroneous statement of what the
application should contain; or, taking the
preparation of it into their own hands,
procure his signature by an assurance
that it is properly drawn, and will meet
the requirements of the policy. The
better opinion seems to be that, when
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
this course is pursued, the description of
the risk should, though nominally
proceeding from the insured, be
regarded as the act of the insurers."
(Rowley vs. Empire Ins. Co., 36 N.Y.,
550.)
The modern decisions fully sustain this
proposition, and they seem to us founded on
reason and justice, and meet our entire approval.
This principle does not admit oral testimony to vary
or contradict that which is in writing, but it goes
upon the idea that the writing offered in evidence
was not the instrument of the party whose name is
signed to it; that it was procured under such
circumstances by the other side as estops that
side from using it or relying on its contents; not that
it may be contradicted by oral testimony, but that it
may be shown by such testimony that it cannot be
lawfully used against the party whose name is
signed to it. (See also Am. Life Ins.
Co. vs. Mahone, 21 Wallace, 152.)
The defendant, upon the information given by plaintiff, and
after an inspection of the automobile by its examiner, having
agreed that it was worth P3,000, is bound by this valuation in
the absence of fraud on the part of the insured. All
statements of value are, of necessity, to a large extent
matters of opinion, and it would be outrageous to hold that
the validity of all valued policies must depend upon the
absolute correctness of such estimated value. As was said
by the Supreme Court of the United States in the case of the
First National Bank vs. Hartford Fire Insurance Co. (5 Otto,
673; 24 L. ed., 563), at. p. 565 of the Lawyers Edition:
The ordinary test of the value of property is the
price it will commend in the market if offered for
sale. But that test cannot, in the very nature of the
case, be applied at the time application is made for
insurance. Men may honestly differ about the
value of property, or as to what it will bring in the
market; and such differences are often very
marked among those whose special business it is
to buy and sell property of all kinds. The assured
could do no more than estimate such value; and
that, it seems, was all that he was required to do in
this case. His duty was to deal fairly with the
Company in making such estimate. The special
finding shows that he discharged that duty and
observed good faith. We shall not presume that
the Company, after requiring the assured in his
14
application to give the "estimated value," and then
to covenant that he had stated all material facts in
regard to such value, so far as known to him, and
after carrying that covenant, by express words,
into the written contract, intended to abandon the
theory upon which it sought the contract, and
make the absolute correctness of such estimated
value a condition precedent to any insurance
whatever. The application, with its covenant and
stipulations, having been made a part of the policy,
that presumption cannot be indulged without
imputing to the Company a purpose, by studied
intricacy or an ingenious framing of the policy, to
entrap the assured into incurring obligations which,
perhaps, he had no thought of assuming.
Section 163 of the Insurance Law (Act No. 2427) provides
that "the effect of a valuation in a policy of fire insurance is
the same as in a policy of marine insurance."
By the terms of section 149 of the Act cited, the valuation in
a policy of marine insurance is conclusive if the insured had
an insurable interest and was not guilty of fraud.
We are, therefore, of the opinion and hold that plaintiff was
the owner of the automobile in question and had an insurable
interest therein; that there was no fraud on her part in
procuring the insurance; that the valuation of the automobile,
for the purposes of the insurance, is binding upon the
defendant corporation, and that the judgment of the court
below is, therefore, correct and must be affirmed, with
interest, the costs of this appeal to be paid by the appellant.
So ordered.
G.R. No. 71360 July 16, 1986
DEVELOPMENT INSURANCE CORPORATION, petitioner,  awakened too late. While it is true that in Trajano v.
vs.
INTERMEDIATE APPELLATE COURT, and PHILIPPINE
UNION REALTY DEVELOPMENT
CORPORATION, respondents.
CRUZ, J.:
A fire occurred in the building of the private respondent and it
sued for recovery of damages from the petitioner on the
basis of an insurance contract between them. The petitioner
allegedly failed to answer on time and was declared in
default by the trial court. A judgment of default was
subsequently rendered on the strength of the evidence
submitted ex parte by the private respondent, which was
allowed full recovery of its claimed damages. On learning of
this decision, the petitioner moved to lift the order of default,
invoking excusable neglect, and to vacate the judgment by
default. Its motion was denied. It then went to the respondent
court, which affirmed the decision of the trial court in toto.
The petitioner is now before us, hoping presumably that it will
fare better here than before the trial court and the
Intermediate Appellate Court. We shall see. 
On the question of default, the record argues mightily against
it. It is indisputable that summons was served on it, through
its senior vice-president, on June 19,1980. On July 14, 1980,
ten days after the expiration of the original 15-day period to
answer (excluding July 4), its counsel filed an ex parte
motion for an extension of five days within which to file its
answer. On July 18, 1980, the last day of the requested
extension-which at the time had not yet been granted-the
same counsel filed a second motion for another 5-day
extension, fourteen days after the expiry of the original
period to file its answer. The trial court nevertheless gave it
five days from July 14, 1980, or until July 19, 1980, within
which to file its answer. But it did not. It did so only on July
26, 1980, after the expiry of the original and extended
periods, or twenty-one days after the July 5, deadline. As a
consequence, the trial court, on motion of the private
respondent filed on July 28, 1980, declared the petitioner in
default. This was done almost one month later, on August
25, 1980. Even so, the petitioner made no move at all for two
months thereafter. It was only on October 27, 1980, more
than one month after the judgment of default was rendered
by the trial court on September 26, 1980, that it filed a motion
to lift the order of default and vacate the judgment by
default.1
The pattern of inexcusable neglect, if not deliberate delay, is
all too clear. The petitioner has slumbered on its right and
Cruz,2 which it cites, this Court declared "that judgments by
default are generally looked upon with disfavor," the default
judgment in that case was set aside precisely because there
was excusable neglect, Summons in that case was served
through "an employee in petitioners' office and not the
person in-charge," whereas in the present case summons
was served on the vice-president of the petitioner who
however refused to accept it. Furthermore, as Justice
Guerrero noted, there was no evidence showing that the
petitioners in Trajano intended to unduly delay the case. 
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
Besides, the petitioners in Trajano had a valid defense
against the complaint filed against them, and this justified a
relaxation of the procedural rules to allow full hearing on the
substantive issues raised. In the instant case, by contrast,
the petitioner must just the same fail on the merits even if the
default orders were to be lifted. As the respondent Court
observed, "Nothing would be gained by having the order of
default set aside considering the appellant has no valid
defense in its favor." 3
The petitioner's claim that the insurance covered only the
building and not the elevators is absurd, to say the least.
This Court has little patience with puerile arguments that
affront common sense, let alone basic legal principles with
which even law students are familiar. The circumstance that
the building insured is seven stories high and so had to be
provided with elevators-a legal requirement known to the
petitioner as an insurance company-makes its contention all
the more ridiculous. 
No less preposterous is the petitioner's claim that the
elevators were insured after the occurrence of the fire, a
case of shutting the barn door after the horse had escaped,
so to speak.4 This pretense merits scant attention. Equally
undeserving of serious consideration is its submission that
the elevators were not damaged by the fire, against the
report of The arson investigators of the INP5 and, indeed, its
own expressed admission in its answer 6 where it affirmed
that the fire "damaged or destroyed a portion of the 7th floor
of the insured building and more particularly a Hitachi
elevator control panel." 7
There is no reason to disturb the factual findings of the lower
court, as affirmed by the Intermediate Appellate Court, that
the heat and moisture caused by the fire damaged although
they did not actually burn the elevators. Neither is this Court
justified in reversing their determination, also factual, of the
value of the loss sustained by the private respondent in the
amount of P508,867.00.  event of loss, whether total or partial, it
The only remaining question to be settled is the amount of
the indemnity due to the private respondent under its
insurance contract with the petitioner. This will require an
examination of this contract, Policy No. RY/F-082, as
renewed, by virtue of which the petitioner insured the private
respondent's building against fire for P2,500,000.00. 8
The petitioner argues that since at the time of the fire the
building insured was worth P5,800,000.00, the private
respondent should be considered its own insurer for the
15
difference between that amount and the face value of the
policy and should share pro rata in the loss sustained.
Accordingly, the private respondent is entitled to an
indemnity of only P67,629.31, the rest of the loss to be
shouldered by it alone. In support of this contention, the
petitioner cites Condition 17 of the policy, which provides: 
If the property hereby insured shall, at
the breaking out of any fire, be
collectively of greater value than the
sum insured thereon then the insured
shall be considered as being his own
insurer for the difference, and shall bear
a ratable proportion of the loss
accordingly. Every item, if more than
one, of the policy shall be separately
subject to this condition. 
However, there is no evidence on record that the building
was worth P5,800,000.00 at the time of the loss; only the
petitioner says so and it does not back up its self-serving
estimate with any independent corroboration. On the
contrary, the building was insured at P2,500,000.00, and this
must be considered, by agreement of the insurer and the
insured, the actual value of the property insured on the day
the fire occurred. This valuation becomes even more
believable if it is remembered that at the time the building
was burned it was still under construction and not yet
completed. 
The Court notes that Policy RY/F-082 is an open policy and
is subject to the express condition that:  G.R. No. L-28501 September 30, 1982
Open Policy  PEDRO
This is an open policy as defined in
Section 57 of the Insurance Act. In the
is understood that the amount of the loss
shall be subject to appraisal and the
liability of the company, if established,
shall be limited to the actual loss,
subject to the applicable terms,
conditions, warranties and clauses of
this Policy, and in no case shall exceed
the amount of the policy. 
As defined in the aforestated provision, which is now Section
60 of the Insurance Code, "an open policy is one in which
the value of the thing insured is not agreed upon but is left to
be ascertained in case of loss. " This means that the actual
loss, as determined, will represent the total indemnity due
the insured from the insurer except only that the total
indemnity shall not exceed the face value of the policy. 
The actual loss has been ascertained in this case and, to
repeat, this Court will respect such factual determination in
the absence of proof that it was arrived at arbitrarily. There is
no such showing. Hence, applying the open policy clause as
expressly agreed upon by the parties in their contract, we
hold that the private respondent is entitled to the payment of
indemnity under the said contract in the total amount of
P508,867.00.
The refusal of its vice-president to receive the private
respondent's complaint, as reported in the sheriff's return,
was the first indication of the petitioner's intention to prolong
this case and postpone the discharge of its obligation to the
private respondent under this agreement. That intention was
revealed further in its subsequent acts-or inaction-which
indeed enabled it to avoid payment for more than five years
from the filing of the claim against it in 1980. The petitioner
has temporized long enough to avoid its legitimate
responsibility; the delay must and does end now. 
WHEREFORE, the appealed decision is affirmed in full, with
costs against the petitioner. 
SO ORDERED.
ARCE, plaintiff-appellee, 
vs.
THE CAPITAL INSURANCE & SURETY CO.,
INC., defendant-appellant.
ABAD SANTOS, J.:
In Civil Case No. 66466 of the Court of First Instance of
Manila, the Capital Insurance and Surety Co., Inc.,
(COMPANY) was ordered to pay Pedro Arce (INSURED) the
proceeds of a fire insurance policy. Not satisfied with the
decision, the company appealed to this Court on questions of
law. 
The INSURED was the owner of a residential house in
Tondo, Manila, which had been insured with the COMPANY
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
since 1961 under Fire Policy No. 24204. On November 27,
1965, the COMPANY sent to the INSURED Renewal
Certificate No. 47302 to cover the period December 5, 1965
to December 5, 1966. The COMPANY also requested
payment of the corresponding premium in the amount of P
38.10.  can not avoid the obligation of paying
Anticipating that the premium could not be paid on time, the
INSURED, thru his wife, promised to pay it on January 4,
1966. The COMPANY accepted the promise but the
premium was not paid on January 4, 1966. On January 8,
1966, the house of the INSURED was totally destroyed by
fire.  to Sec. 72 has radically changed the legal regime in that
On January 10, 1966, INSURED's wife presented a claim for
indemnity to the COMPANY. She was told that no indemnity
was due because the premium on the policy was not paid.
Nonetheless the COMPANY tendered a check for P300.00
as financial aid which was received by the INSURED's
daughter, Evelina R. Arce. The voucher for the check which
Evelina signed stated that it was "in full settlement (ex gratia)
of the fire loss under Claim No. F-554 Policy No. F-24202."
Thereafter the INSURED and his wife went to the office of
the COMPANY to have his signature on the check Identified
preparatory to encashment. At that time the COMPANY
reiterated that the check was given "not as an obligation, but
as a concession" because the renewal premium had not
been paid, The INSURED cashed the check but then sued
the COMPANY on the policy.  supplied.) (p. 11, Appellant's Brief.)
The court a quo held that since the COMPANY could have
demanded payment of the premium, mutuality of obligation
requires that it should also be liable on its policy. The court a
quo also held that the INSURED was not bound by the
signature of Evelina on the check voucher because he did
not authorize her to sign the waiver. 
The appeal is impressed with merit.  only
The trial court cited Capital Insurance and Surety Co., Inc.
vs. Delgado, L-18567, Sept. 30, 1963, 9 SCRA 177, to
support its first proposition. In that case, this Court said:  APPEALS, respondents.
On the other hand, the preponderance
of the evidence shows that appellee
issued fire insurance policy No. C-1137
in favor of appellants covering a certain
property belonging to the latter located
in Cebu City; that appellants failed to
pay a balance of P583.95 on the
16
premium charges due, notwithstanding the INSURED was given a grace period to pay the premium
demands made upon them. As with the but the period having expired with no payment made, he
issuance of the policy to appellants the cannot insist that the COMPANY is nonetheless obligated to
same became effective and binding him. 
upon the contracting parties, the latter
It is to be noted that Delgado was decided in the light of the
the premiums agreed upon. In fact,
Insurance Act before Sec. 72 was amended by the addition
appellant Mario Delgado, in a letter
of the underscored portion, supra, Prior to the amendment,
marked in the record as Exhibit G,
an insurance contract was effective even if the premium had
expressly admitted his unpaid account
not been paid so that an insurer was obligated to pay
for premiums and asked for an
indemnity in case of loss and correlatively he had also the
extension of time to pay the same. It is
right to sue for payment of the premium. But the amendment
clear from the foregoing that appellants
are under obligation to pay the amount
unless the premium is paid there is no insurance. 
sued upon. (At p. 180.) 
With the foregoing, it is not necessary to dwell at length on
Upon the other hand, Sec. 72 of the Insurance Act, as
the trial court's second proposition that the INSURED had
amended by R.A. No. 3540 reads: 
not authorized his daughter Evelina to make a waiver
because the INSURED had nothing to waive; his policy
SEC. 72. An insurer is entitled to ceased to have effect when he failed to pay the premium. 
payment of premium as soon as the
thing insured is exposed to the perils
We commiserate with the INSURED. We are wen aware that
insured against, unless there is clear
many insurance companies have fallen into the
agreement to grant credit extension for
condemnable practice of collecting premiums promptly but
the premium due. No policy issued by
resort to all kinds of excuses to deny or delay payment of just
an insurance company is valid and
claims. Unhappily the instant case is one where the insurer
binding unless and until the premium
has the law on its side. 
thereof has been paid " (Italics
 
WHEREFORE, the decision of the court a quo is reversed;
the appellee's complaint is dismissed. No special
Morever, the parties in this case had stipulated: 
pronouncement as to costs. 
IT IS HEREBY DECLARED AND
SO ORDERED.
AGREED that not. withstanding anything
to the contrary contained in the within
policy, this insurance will be deemed G.R. No. L-22375 July 18, 1975
valid and binding upon the Company
when the premium and
THE CAPITAL INSURANCE & SURETY CO.,
documentary stamps therefor have
INC., petitioner, 
actually been paid in full and duly
vs.
acknowledged in an official receipt
PLASTIC ERA CO., INC., AND COURT OF
signed by an authorized
official/representative of the Company, "
(pp. 45-46, Record on Appeal.) 
MARTIN, J.:
It is obvious from both the Insurance Act, as amended, and
the stipulation of the parties that time is of the essence in Petition for review of a decision of the Court of Appeals
respect of the payment of the insurance premium so that if it affirming the decision of the Court of First Instance of Manila
is not paid the contract does not take effect unless there is in Civil Case No. 47934 entitled "Plastic Era Manufacturing
still another stipulation to the contrary. In the instant case, Co., Inc. versus The Capital Insurance and Surety Co., Inc."
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
On December 17, 1960, petitioner Capital Insurance &
Surety Co., Inc. (hereinafter referred to as Capital Insurance)
delivered to the respondent Plastic Era Manufacturing Co.,
Inc., (hereinafter referred to as Plastic Era) its open Fire
Policy No. 227601 wherein the former undertook to insure the
latter's building, equipments, raw materials, products and
accessories located at Sheridan Street, Mandaluyong, Rizal.
The policy expressly provides that if the property insured
would be destroyed or damaged by fire after the payment of
the premiums, at anytime between the 15th day of December
1960 and one o'clock in the afternoon of the 15th day of
December 1961, the insurance company shall make good all
such loss or damage in an amount not exceeding
P100,000.00. When the policy was delivered, Plastic Era
failed to pay the corresponding insurance premium.
However, through its duly authorized representative, it
executed the following acknowledgment receipt:
This acknowledged receipt of Fire
Policy) NO. 22760 Premium
x x x x x) (I promise to pay)
(P2,220.00) (has been
THIRTY DAYS AFTER on effective date
---------------------
(Date)
On January 8, 1961, in partial payment of the insurance
premium, Plastic Era delivered to Capital Insurance, a
check2 for the amount of P1,000.00 postdated January 16,
1961 payable to the order of the latter and drawn against the
Bank of America. However, Capital Insurance tried to deposit
the check only on February 20, 1961 and the same was
dishonored by the bank for lack of funds. The records show
that as of January 19, 1961 Plastic Era had a balance of
P1,193.41 with the Bank of America.
On January 18, 1961 or two days after the insurance
premium became due, at about 4:00 to 5:00 o'clock in the
morning, the property insured by Plastic Era was destroyed
by fire. In due time, the latter notified Capital Insurance of the
loss of the insured property by fire3 and accordingly filed its
claim for indemnity thru the Manila Adjustment
Company.4 The loss and/or damage suffered by Plastic Era
was estimated by the Manila Adjustment Company to be
P283,875. However, according to the records the same
property has been insured by Plastic Era with the Philamgen
Insurance Company for P200,000.00.
In less than a month Plastic Era demanded from Capital
Insurance the payment of the sum of P100,000.00 as
indemnity for the loss of the insured property under Policy
17
No. 22760 but the latter refused for the reason that, among
others, Plastic Era failed to pay the insurance premium.
On August 25, 1961, Plastic Era filed its complaint against
Capital Insurance for the recovery of the sum of P100,000.00
plus P25,000.00 for attorney's fees and P20,000.00 for
additional expenses. Capital Insurance filed a counterclaim
of P25,000.00 as and for attorney's fees.
On November 15, 1961, the trial court rendered judgment,
the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered in
favor of the plaintiff and against the
defendant for the sum of P88,325.63
with interest at the legal rate from the
filing of the complaint and to pay the
costs.
From said decision, Capital Insurance appealed to the Court
paid)
of Appeals.
On December 5, 1963, the Court of Appeals rendered its
decision affirming that of the trial court. Hence, this petition
for review by certiorari to this Court.
Assailing the decision of the Court of Appeals petitioner
assigns the following errors, to wit:
1. THE COURT OF APPEALS ERRED
IN SENTENCING PETITIONER TO PAY
PLASTIC ERA THE SUM OF
P88,325.63 PLUS INTEREST, AND
COST OF SUIT, ALTHOUGH PLASTIC
ERA NEVER PAID PETITIONER THE
INSURANCE PREMIUM OF P2,220.88.
2. THE COURT OF APPEALS ERRED
IN HOLDING THAT PETITIONER
SHOULD HAVE INSTITUTED AN
ACTION FOR RESCISSION OF THE
INSURANCE CONTRACT ENTERED
INTO BETWEEN IT AND PLASTIC ERA
BEFORE PETITIONER COULD BE
RELIEVED OF RESPONSIBILITY
UNDER ITS FIRE INSURANCE
POLICY.
3. WE HAVE SHOWN ABOVE THAT
PLASTIC ERA'S ACTION WAS
UNWARRANTED AND THAT THE
PETITIONER SHOULD HAVE BEEN
ABSOLVED FROM THE COMPLAINT,
AND CONSEQUENTLY, THE LOWER
COURT SHOULD HAVE AWARDED
PETITIONER A REASONABLE SUM
AND AS ATTORNEY'S FEES
P25,000.00.
The pivotal issue in this petition is whether or not a contract
of insurance has been duly perfected between the petitioner,
Capital Insurance, and respondent Plastic Era. Necessarily,
the issue calls for a correct interpretation of the insurance
policy which states:
This Policy of Insurance Witnesseth
That in consideration of PLASTIC ERA
MANUFACTURING COMPANY, INC.
hereinafter called the Insured, paying to
the Capital Insurance & Surety Co., Inc.,
hereinafter called the Company, the sum
of PESOS TWO THOUSAND ONE
HUNDRED EIGHTY EIGHT the
premium for the first period hereinafter
mentioned, for insuring against Loss or
Damage by only Fire or Lightning, as
hereinafter appears, the Property
hereinafter described and contained, or
described herein and not elsewhere, in
the several sums following namely:
PESOS ONE HUNDRED THOUSAND
ONLY, PHILIPPINE CURRENCY; ...
THE COMPANY HEREBY AGREES
with the Insured but subject to the terms
and conditions endorsed or otherwise
expressed hereon, which are to be taken
as part of this Policy), that if the Property
described, or any part thereof, shall be
destroyed or damaged by Fire or
Lightning after payment of the
Premiums, at anytime between the 15th
day of December One Thousand Nine
Hundred and Sixty and 1 'clock in the
afternoon of the 15th day of December
One Thousand Nine Hundred and Sixty-
One of the last day of any subsequent
period in respect of which the insured, or
a successor in interest to whom the
insurance is by an endorsement hereon
declared to be or is otherwise continued,
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
shall pay to the Company and the
Company shall accept the sum required
for the renewal of this Policy, the
Company will pay or make good all such
loss or Damage, to an amount not
exceeding during any one period of the
insurance in respect of the several
matters specified, the sum; set opposite
thereto respectively, and not exceeding
the whole sum of PESOS, ONE
HUNDRED THOUSAND ONLY, PHIL.
CUR....
In clear and unequivocal terms the insurance policy provides
that it is only upon payment of the premiums by Plastic Era
that Capital Insurance agrees to insure the properties of the
former against loss or damage in an amount not exceeding
P100,000.00.
The crux of the problem then is whether at the time the
insurance policy was delivered to Plastic Era on December
17, 1960, the latter was able to pay the stipulated premium. It
appears on record that on the day the insurance policy was
delivered, Plastic Era did not pay the Capital Insurance, but
instead executed an acknowledgment receipt of Policy No.
22760. In said receipt Plastic Era promised to pay the
premium within thirty (30) days from the effectivity date of the
policy on December 17, 1960 and Capital Insurance
accepted it. What then is the effect of accepting such
acknowledgment receipt from the Plastic Era? Did the
Capital Insurance mean to agree to make good its
undertaking under the policy if the premium could be paid on
or before January 16, 1961? And what would be the effect of
the delivery to Capital Insurance on January 8, 1961 of a
postdated check (January 16, 1961) in the amount of
P1,000.00, payable to the order of the latter? Could not this
have been considered a valid payment of the insurance
premium? Pursuant to Article 1249 of the New Civil Code:
xxx xxx xxx
The delivery of promissory notes
payable to order, or bills of exchange or
other mercantile documents shall
produce the effect of payment only when
they have been cashed, or when
through the fault of the creditor they
have been impaired.
xxx xxx xxx
18
In the meantime, the action derived from
the original obligation shall be held in
abeyance.
Under this provision the mere delivery of a bill of exchange in
payment of a debt does not immediately effect payment. It
simply suspends the action arising from the original
obligation in satisfaction of which it was delivered, until
payment is accomplished either actually or
presumptively.5 Tender of draft or check in order to effect
payment that would extinguish the debtor's liability should be
actually cashed.6 If the delivery of the check of Plastic Era to
Capital Insurance were to be viewed in the light of the
foregoing, no payment of the premium had been effected, for
it is only when the check is cashed that it is said to effect
payment.
Significantly, in the case before Us the Capital Insurance
accepted the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date of
policy. By so doing, it has implicitly agreed to modify the
tenor of the insurance policy and in effect, waived the
provision therein that it would only pay for the loss or
damage in case the same occurs after the payment of the
premium. Considering that the insurance policy is silent as to
the mode of payment, Capital Insurance is deemed to have
accepted the promissory note in payment of the premium.
This rendered the policy immediately operative on the date it
was delivered. The view taken in most cases in the United
States:
... is that although one of conditions of
an insurance policy is that "it shall not be
valid or binding until the first premium is
paid", if it is silent as to the mode of
payment, promissory notes received by
the company must be deemed to have
been accepted in payment of the
premium. In other words, a requirement
for the payment of the first or initial
premium in advance or actual cash may
be waived by acceptance of a
promissory note ...7
Precisely, this was what actually happened when the Capital
Insurance accepted the acknowledgment receipt of the
Plastic Era promising to pay the insurance premium within
thirty (30) days from December 17, 1960. Hence, when the
damage or loss of the insured property occurred, the
insurance policy was in full force and effect. The fact that the
check issued by Plastic Era in partial payment of the
promissory note was later on dishonored did not in any way
operate as a forfeiture of its rights under the policy, there
being no express stipulation therein to that effect.
In the absence of express agreement or
stipulation to that effect in the policy, the
non-payment at maturity of a note given
for and accepted as premium on a policy
does not operate to forfeit the rights of
the insured even though the note is
given for an initial premium, nor does the
fact that the collection of the note had
been enjoined by the insured in any way
affect the policy.8
... If the check is accepted as payment
of the premium even though it turns out
to be worthless, there is payment which
will prevent forfeiture. 9 
By accepting its promise to pay the insurance premium
within thirty (30) days from the effectivity date of the policy —
December 17, 1960 Capital Insurance had in effect extended
credit to Plastic Era. The payment of the premium on the
insurance policy therefore became an independent obligation
the non-fulfillment of which would entitle Capital Insurance to
recover. It could just deduct the premium due and unpaid
upon the satisfaction of the loss under the policy. 10 It did not
have the right to cancel the policy for nonpayment of the
premium except by putting Plastic Era in default and giving it
personal notice to that effect. This Capital Insurance failed to
do.
... Where credit is given by an insurance
company for the payment of the
premium it has no right to cancel the
policy for nonpayment except by putting
the insured in default and giving him
personal notice.... 11
On the contrary Capital Insurance had accepted a check for
P1,000.00 from Plastic Era in partial payment of the premium
on the insurance policy. Although the check was due for
payment on January 16, 1961 and Plastic Era had sufficient
funds to cover it as of January 19, 1961, Capital Insurance
decided to hold the same for thirty-five (35) days before
presenting it for payment. Having held the check for such an
unreasonable period of time, Capital Insurance was
estopped from claiming a forfeiture of its policy for non-
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
payment even if the check had been dishonored
later.1äwphï1.ñët  complaint, dated July 22, 1974, as follows:  finding that the evidence on the negligence of defendant
Where the check is held for an
unreasonable time before presenting it
for payment, the insurer may be held
estopped from claiming a forfeiture if the
check is dishonored. 12
Finally, it is submitted by petitioner that:
We are here concerned with a case of
reciprocal obligations, and respondent
having failed to comply with its obligation
to pay the insurance premium due on
the policy within thirty days from
December 17, 1960, petitioner was
relieved of its obligation to pay anything
under the policy, without the necessity of
first instituting an action for rescission of
the contract of insurance entered into by
the parties.
But precisely in this case, Plastic Era has complied with its
obligation to pay the insurance premium and therefore
Capital Insurance is obliged to make good its undertaking to
Plastic Era.
WHEREFORE, finding no reversible error in the decision
appealed from, We hereby affirm the same in toto. Costs
against the petitioner.
SO ORDERED.
G.R. No. L-44588 May 9, 1989
LAURA VELASCO and GRETA ACOSTA, petitioners,  insured against third party liability for P20,000.00 with private
vs.
HON. SERGIO A. F. APOSTOL and MAHARLIKA
INSURANCE CO., INC., respondents. 
REGALADO, J.:
Petitioners Laura Velasco and Greta Acosta were the
plaintiffs in Civil Case No. Q-19118 the former Court of First
Instance of Rizal, Branch XVI, of which public respondent
Hon. Sergio A. F. Apostol was the presiding judge. The case
19
was an offshoot of an incident adequately alleged in their The trial court rendered judgment in favor of the plaintiff
Dominador Santos was uncontroverted and the proximate
cause of the accident was his negligence. 5 Defendants
That on November 27, 1973, at about
Dominador Santos, Alice Artuz, and Norberto Santos were
2:30 p.m. plaintiffs were riding in their
adjudged jointly and severally liable to petitioners for the
Mercury car, with Plate No. 44-43 (H-
sums of Pl 7,061.95 for the repair of their car, P17,000.00 for
Manila-73), owned by plaintiff Laura
their medical expenses P10,000.00 as moral damages and
Velasco, and driven by their driver
P10,000.00 as attorney's fees. 6 However, Maharlika
Restitute Guarra, along Quezon
Insurance Co. was exonerated on the ground that the policy
Boulevard near the corner of Speaker
was not in force for failure of the therein defendants to pay
Perez Street, Quezon City, toward the
the initial premium and for their concealment of a material
direction of Manila, when, before
fact. 
reaching said corner, an N/S taxicab
driven by defendant Dominador Santos
and with Plate No. 75-25L (TX QC-73), From the decision of the court a quo, petitioners elevated the
registered in the name of defendants case to this Court by a petition for review on certiorari, with
Alice Artuz, c/o Norberto Santos, the averment that only questions of law are involved. 
crossed the center island towards their
direction, and finally collided with their
Petitioners fault the respondent-judge for considering private
car at the left front part, and thereafter,
respondent's defense of late payment of premium when,
the said taxicab tried to return to its
according to them, "the same was waived at the pre-
original lane, but was unable to climb the
trial" 7 hence private respondent's evidence of late payment
island, and instead, backtracked, hitting
should be disregarded supposedly because, as We
again plaintiffs' car in the left near
understand petitioners' argument, private respondent had
portion, causing the latter's back portion
thereby admitted that such fact was not in issue. They
to turn toward the center hitting a
theorize that what was stipulated in the pre-trial order "does
jeepney on its right, which was travelling
not include the issue on whether defendant Maharlika
along their side going toward Manila
Insurance Co., Inc. is liable under the insurance policy, even
also; 1
as the premium was paid after the accident in question." 8
and amply substantiated in detail at the trial. 2
The records show that at the pre-trial conference the issues
stipulated by the parties for trial were the following: 
Originally sued as defendants were Dominador Santos, Alice
Artuz, and Norberto Santos, with plaintiffs claiming actual,
Whether it was the driver of the plaintiffs'
moral and exemplary damages plus attorney's fees. After an
car or the driver of the defendants' car
answer was filed by said defendants, private respondent
who was negligent. 
Maharlika Insurance Co., Inc. was impleaded as a defendant
in an amended complaint filed by the petitioner on April 4,
1975, with an allegation that the N/S taxicab involved was Whether defendant Maharlika Insurance
Co. Inc. is liable under the insurance
respondent at the time of the accident. 3 policy on account of the negligence of
defendant Dominador Santos. 9
In its answer to the amended complaint, respondent
Maharlika Insurance Co., Inc. claimed that there was no Petitioners' position is bereft of merit. We have carefully
cause of action against it because at the time of the accident, examined the pre-trial order but We fail to discern any
the alleged insurance policy was not in, force due to non- intimation or semblance of a waiver or an admission on the
payment of the premium thereon. It further averred that even part of Maharlika Insurance Co., Inc. Although there is no
if the taxicab had been insured, the complaint would still be express statement as to the fact of late payment, this is
premature since the policy provides that the insurer would be necessarily deemed included in or ineluctably inferred from
liable only when the insured becomes legally liable. 4 the issue of whether the company is liable under the
insurance policy it had allegedly issued for the vehicle
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
involved and on which petitioners seek to recover. A pre-trial
order is not meant to be a detailed catalogue of each and
every issue that is to be or may be taken up during the trial.
Issues that are impliedly included therein or may be inferable
therefrom by necessary implication are as much integral
parts of the pre-trial order as those that are expressly
stipulated.  been paid. 13
In fact, it would be absurd and inexplicable for the
respondent company to knowingly disregard or deliberately
abandon the issue of non-payment of the premium on the
policy considering that it is the very core of its defense.
Correspondingly, We cannot but perceive here an
undesirable resort to technicalities to evade an issue
determinative of a defense duly averred. 
Furthermore, as private respondent correctly points out,
evidence to prove such late payment was introduced without
any objection by the adverse party. 10 This lack of objection
amounts to an implied consent conferring jurisdiction on the
court to try said issue. 11
Noteworthy, too is petitioners' vacillation on this particular
score. In their reply to respondents' comment, petitioners
categorically stated that respondents' point regarding the
lack of objection to the evidence is well taken, hence they do
not insist on this ground to review respondent court's
decision. 12 However, in their amended reply, they reverted to
their original position that it was a mistake for the trial court
to have considered the defense of lack of payment of
premium. At any rate, We consider that matter as duly
disposed of by the preceding discussion.  There is no need to elaborate on the finding of the lower
Digressing from the procedural aspects of this case, We now
consider petitioners' curative assertion that private
respondent had agreed to grant the then prospective insured
a credit extension for the premium due. It should be noted at
the outset that this controversy arose under the aegis of the
old insurance law, Act No. 2427, as amended. The accident
occurred on November 27, 1973 while the complaint by
reason thereof was filed on July 20, 1974, both before
effectivity on December 18, 1974 of Presidential Decree No.
612, the subsequent insurance law which repealed its
predecessor. 
The former insurance law, which applies to the case under
consideration, provided that: 
An insurer is entitled to the payment of
premium as soon as the thing insured is
20
exposed to the peril insured against,
unless there is clear agreement to grant
the insured credit extension of the
premium due. No policy issued by an
insurance company is valid and binding
unless and until the premium thereof has
Consequently, the insurance policy in question would be
valid and binding notwithstanding the non-payment of the
premium if there was a clear agreement to grant to the
insured credit extension. Such agreement may be express or
implied. 
Petitioners quote and rely on the following as authority for
their cause: 
A condition requiring pre-payment of the
premium is waived by a parol agreement
to that effect, acceptance of the
premium after delivery of the policy, the
unconditional delivery of the policy, the
giving of credit for the premiums, ... or
any other circumstances showing that
pre-payment was not intended to be
insisted upon, as where there are any
words or acts from which a reasonable
inference may be drawn that the insurer
does not stand upon its rights to demand
pre-payment. (Couch on Insurance, 2d,
Vol. 1, pp. 402-403. ) 14
As earlier stated, the accident for which respondent
insurance company is sought to be held liable occurred on
November 27, 1973 while the initial premium was paid only
on December 11, 1973. 
Petitioners maintain that in spite of this late payment, the
policy is nevertheless binding because there was an implied
agreement to grant a credit extension so as to make the
policy effective. To them, the subsequent acceptance of the
premium and delivery of the policy estops the respondent
company from asserting that the policy is ineffective. 15
We see no cogent proof of any such implied agreement. The
purported nexus between the delivery of the policy and the
grant of credit extension is too tenuous to support the
conclusion for which petitioners contend. The delivery of the
policy made on March 28, 1974 and only because the
premium was had been paid, in fact, more than three months
before such delivery. 16 As found by the court below, said
payment was accepted by the insurer without any knowledge
that the risk insured against had already occurred since such
fact was concealed by the insured and was not revealed to
the insurer. 17 Thus, the delivery of the policy was far from
being unconditional. Had there really been a credit
extension, the insured would not have had any apprehension
or hesitation to inform the respondent insurance company at
the time of or before the payment of the premium that an
accident for which the insurer may be held liable had already
happened. In fact, there is authority to hold that under such
circumstances notice alone is necessary and the insured
need not pay the premium because whatever premium may
have been due may already be deducted upon the
satisfaction of the loss under the policy. 18
Aside from the supposed unconditional delivery of the policy,
which has been demonstrated to be baseless, petitioners
failed to point out "any other circumstances showing that
prepayment of premium was not intended to be insisted
upon." They have thus failed to discharge the burden of
proving their allegation of the existence of the purported
credit extension agreement. Indubitably their insurance claim
must fail. 
It may not be amiss to parenthetically mention in this regard
that, in the present law, Section 77 of the Insurance Code of
1978 19 has deleted the clause "unless there is clear
agreement to grant the insured credit extension of the
premium due" which was then involved in this controversy. 
court that there was concealment by therein defendants of a
material fact, although legal effects of pertinence to this case
could be drawn therefrom. The fact withheld could not in any
event have influenced the respondent company in entering
into the supposed contract or in estimating the character of
the risk or in fixing the rate premium, for the simple reason
that no such contract existed between the defendants and
the company at the time of the accident. Accordingly, there
was nothing to rescind at that point in time. What should be
apparent from such actuations of therein defendants,
however, is the presence of bad faith on their part, a
reprehensible disregard of the principle that insurance
contracts are uberrimae fidae and demand the most
abundant good faith. 20
WHEREFORE, finding no reversible error, the judgment
appealed from is hereby AFFIRMED. 
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
SO ORDERED.
G.R. No. 83122 October 19, 1990
ARTURO P. VALENZUELA and HOSPITALITA N.
VALENZUELA, petitioners,  reluctance that I have to decline upon request to signify my
vs.
THE HONORABLE COURT OF APPEALS, BIENVENIDO
M. ARAGON, ROBERT E. PARNELL, CARLOS K.
CATOLICO and THE PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., respondents.
GUTIERREZ, JR., J.:
This is a petition for review of the January 29, 1988 decision
of the Court of Appeals and the April 27, 1988 resolution
denying the petitioners' motion for reconsideration, which
decision and resolution reversed the decision dated June
23,1986 of the Court of First Instance of Manila, Branch 34 in
Civil Case No. 121126 upholding the petitioners' causes of
action and granting all the reliefs prayed for in their complaint
against private respondents.
The antecedent facts of the case are as follows:
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a
General Agent of private respondent Philippine American
General Insurance Company, Inc. (Philamgen for short)
since 1965. As such, he was authorized to solicit and sell in
behalf of Philamgen all kinds of non-life insurance, and in
consideration of services rendered was entitled to receive
the full agent's commission of 32.5% from Philamgen under
the scheduled commission rates (Exhibits "A" and "1"). From
1973 to 1975, Valenzuela solicited marine insurance from
one of his clients, the Delta Motors, Inc. (Division of
Electronics Airconditioning and Refrigeration) in the amount
of P4.4 Million from which he was entitled to a commission of
32% (Exhibit "B"). However, Valenzuela did not receive his
full commission which amounted to P1.6 Million from the
P4.4 Million insurance coverage of the Delta Motors. During
the period 1976 to 1978, premium payments amounting to
P1,946,886.00 were paid directly to Philamgen and
Valenzuela's commission to which he is entitled amounted to
P632,737.00.
In 1977, Philamgen started to become interested in and
expressed its intent to share in the commission due
Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis
(Exhibit "C"). Valenzuela refused (Exhibit "D").
21
On February 8, 1978 Philamgen and its President, General Agency Agreement as their
Bienvenido M. Aragon insisted on the sharing of the basis for terminating plaintiff Arturo P.
commission with Valenzuela (Exhibit E). This was followed Valenzuela as one of their General
by another sharing proposal dated June 1, 1978. On June Agents.
16,1978, Valenzuela firmly reiterated his objection to the
proposals of respondents stating that: "It is with great
That defendants' position could have
been justified had the termination of
conformity to your alternative proposal regarding the
plaintiff Arturo P. Valenzuela was (sic)
payment of the commission due me. However, I have no
based solely on the provisions of the
choice for to do otherwise would be violative of the Agency
Civil Code and the conditions of the
Agreement executed between our goodselves." (Exhibit B-1)
General Agency Agreement. But the
records will show that the principal
Because of the refusal of Valenzuela, Philamgen and its cause of the termination of the plaintiff
officers, namely: Bienvenido Aragon, Carlos Catolico and as General Agent of defendant
Robert E. Parnell took drastic action against Valenzuela. PHILAMGEN was his refusal to share
They: (a) reversed the commission due him by not crediting his Delta commission.
in his account the commission earned from the Delta Motors,
Inc. insurance (Exhibit "J" and "2"); (b) placed agency
That it should be noted that there were
transactions on a cash and carry basis; (c) threatened the
several attempts made by defendant
cancellation of policies issued by his agency (Exhibits "H" to
Bienvenido M. Aragon to share with the
"H-2"); and (d) started to leak out news that Valenzuela has
Delta commission of plaintiff Arturo P.
a substantial account with Philamgen. All of these acts
Valenzuela. He had persistently pursued
resulted in the decline of his business as insurance agent
the sharing scheme to the point of
(Exhibits "N", "O", "K" and "K-8"). Then on December 27,
terminating plaintiff Arturo P.
1978, Philamgen terminated the General Agency Agreement
Valenzuela, and to make matters worse,
of Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated
defendants made it appear that plaintiff
June 23, 1986, Civil Case No. 121126, Annex I, Petition).
Arturo P. Valenzuela had substantial
accounts with defendant PHILAMGEN.
The petitioners sought relief by filing the complaint against
the private respondents in the court a quo (Complaint of
Not only that, defendants have also
January 24, 1979, Annex "F" Petition). After due
started (a) to treat separately the Delta
proceedings, the trial court found:
Commission of plaintiff Arturo P.
Valenzuela, (b) to reverse the Delta
xxx xxx xxx commission due plaintiff Arturo P.
Valenzuela by not crediting or applying
said commission earned to the account
Defendants tried to justify the
of plaintiff Arturo P. Valenzuela, (c)
termination of plaintiff Arturo P.
placed plaintiff Arturo P. Valenzuela's
Valenzuela as one of defendant
agency transactions on a "cash and
PHILAMGEN's General Agent by
carry basis", (d) sending threats to
making it appear that plaintiff Arturo P.
cancel existing policies issued by
Valenzuela has a substantial account
plaintiff Arturo P. Valenzuela's agency,
with defendant PHILAMGEN particularly
(e) to divert plaintiff Arturo P.
Delta Motors, Inc.'s Account, thereby
Valenzuela's insurance business to
prejudicing defendant PHILAMGEN's
other agencies, and (f) to spread wild
interest (Exhibits 6,"11","11- "12-
and malicious rumors that plaintiff Arturo
A"and"13-A").
P. Valenzuela has substantial account
with defendant PHILAMGEN to force
Defendants also invoked the provisions plaintiff Arturo P. Valenzuela into
of the Civil Code of the Philippines agreeing with the sharing of his Delta
(Article 1868) and the provisions of the
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
commission." (pp. 9-10, Decision, Annex
1, Petition).
xxx xxx xxx
These acts of harrassment done by
defendants on plaintiff Arturo P.
Valenzuela to force him to agree to the
sharing of his Delta commission, which
culminated in the termination of plaintiff
Arturo P. Valenzuela as one of
defendant PHILAMGEN's General
Agent, do not justify said termination of
the General Agency Agreement entered
into by defendant PHILAMGEN and
plaintiff Arturo P. Valenzuela.
That since defendants are not justified in
the termination of plaintiff Arturo P.
Valenzuela as one of their General
Agents, defendants shall be liable for the
resulting damage and loss of business
of plaintiff Arturo P. Valenzuela. (Arts.
2199/2200, Civil Code of the
Philippines). (Ibid, p. 11)
The court accordingly rendered judgment, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiffs and
against defendants ordering the latter to
reinstate plaintiff Arturo P. Valenzuela as
its General Agent, and to pay plaintiffs,
jointly and severally, the following:
1. The amount of five hundred twenty-
one thousand nine hundred sixty four
and 16/100 pesos (P521,964.16)
representing plaintiff Arturo P.
Valenzuela's Delta Commission with
interest at the legal rate from the time of
the filing of the complaint, which amount
shall be adjusted in accordance with
Article 1250 of the Civil Code of the
Philippines;
2. The amount of seventy-five thousand
pesos (P75,000.00) per month as
22
compensatory damages from 1980 until
such time that defendant Philamgen
shall reinstate plaintiff Arturo P.
Valenzuela as one of its general agents;
3. The amount of three hundred fifty
thousand pesos (P350,000.00) for each
plaintiff as moral damages;
4. The amount of seventy-five thousand
pesos (P75,000.00) as and for attorney's
fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of the trial
court, Bienvenido Aragon, Robert E.
Parnell, Carlos K. Catolico and
PHILAMGEN respondents herein, and
defendants-appellants below, interposed
an appeal on the following:
ASSIGNMENT OF ERRORS
I ERRED IN AWARDING DAMAGES IN
THE LOWER COURT ERRED IN
HOLDING THAT PLAINTIFF ARTURO
P. VALENZUELA HAD NO
OUTSTANDING ACCOUNT WITH
DEFENDANT PHILAMGEN AT THE
TIME OF THE TERMINATION OF THE
AGENCY.
II
THE LOWER COURT ERRED IN
HOLDING THAT PLAINTIFF ARTURO
P. VALENZUELA IS ENTITLED TO THE
FULL COMMISSION OF 32.5% ON
THE DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN
HOLDING THAT THE TERMINATION
OF PLAINTIFF ARTURO P.
VALENZUELA WAS NOT JUSTIFIED
AND THAT CONSEQUENTLY
DEFENDANTS ARE LIABLE FOR
ACTUAL AND MORAL DAMAGES,
ATTORNEYS FEES AND COSTS.
IV
ASSUMING ARGUENDO THAT THE
AWARD OF DAMAGES AGAINST
DEFENDANT PHILAMGEN WAS
PROPER, THE LOWER COURT
ERRED IN AWARDING DAMAGES
EVEN AGAINST THE INDIVIDUAL
DEFENDANTS WHO ARE MERE
CORPORATE AGENTS ACTING
WITHIN THE SCOPE OF THEIR
AUTHORITY.
V
ASSUMING ARGUENDO THAT THE
AWARD OF DAMAGES IN FAVOR OF
PLAINTIFF ARTURO P. VALENZUELA
WAS PROPER, THE LOWER COURT
FAVOR OF HOSPITALITA
VALENZUELA, WHO, NOT BEING THE
REAL PARTY IN INTEREST IS NOT TO
OBTAIN RELIEF.
On January 29, 1988, respondent Court of Appeals
promulgated its decision in the appealed case. The
dispositive portion of the decision reads:
WHEREFORE, the decision appealed
from is hereby modified accordingly and
judgment is hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to pay
defendant-appellant Philamgen the sum
of one million nine hundred thirty two
thousand five hundred thirty-two pesos
and seventeen centavos
(P1,902,532.17), with legal interest
thereon from the date of finality of this
judgment until fully paid.
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
2. Both plaintiff-appellees to pay jointly
and severally defendants-appellants the
sum of fifty thousand pesos
(P50,000.00) as and by way of
attorney's fees.
No pronouncement is made as to costs.
(p. 44, Rollo)
There is in this instance irreconcilable divergence in the
findings and conclusions of the Court of Appeals, vis-a-
visthose of the trial court particularly on the pivotal issue
whether or not Philamgen and/or its officers can be held
liable for damages due to the termination of the General
Agency Agreement it entered into with the petitioners. In its
questioned decision the Court of Appeals observed that:
In any event the principal's power to
revoke an agency at will is so pervasive,
that the Supreme Court has consistently
held that termination may be effected
even if the principal acts in bad faith,
subject only to the principal's liability for
damages (Danon v. Antonio A. Brimo &
Co., 42 Phil. 133; Reyes v. Mosqueda,
53 O.G. 2158 and Infante V. Cunanan,
93 Phil. 691, cited in Paras, Vol. V, Civil
Code of the Philippines Annotated
[1986] 696).
The lower court, however, thought the
termination of Valenzuela as General
Agent improper because the record will
show the principal cause of the
termination of the plaintiff as General
Agent of defendant Philamgen was his
refusal to share his Delta commission.
(Decision, p. 9; p. 13, Rollo, 41)
Because of the conflicting conclusions, this Court deemed it
necessary in the interest of substantial justice to scrutinize
the evidence and records of the cases. While it is an
established principle that the factual findings of the Court of
Appeals are final and may not be reviewed on appeal to this
Court, there are however certain exceptions to the rule which
this Court has recognized and accepted, among which, are
when the judgment is based on a misapprehension of facts
and when the findings of the appellate court, are contrary to
those of the trial court (Manlapaz v. Court of Appeals, 147
SCRA 236 [1987]); Guita v. Court of Appeals, 139 SCRA 576
23
[1986]). Where the findings of the Court of Appeals and the
trial court are contrary to each other, this Court may
scrutinize the evidence on record (Cruz v. Court of Appeals,
129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156
SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]).
When the conclusion of the Court of Appeals is grounded
entirely on speculation, surmises or conjectures, or when the
inference made is manifestly mistaken, absurd or impossible,
or when there is grave abuse of discretion, or when the
judgment is based on a misapprehension of facts, and when
the findings of facts are conflict the exception also applies
(Malaysian Airline System Bernad v. Court of Appeals, 156
SCRA 321 [1987]).
After a painstaking review of the entire records of the case
and the findings of facts of both the court a quo and
respondent appellate court, we are constrained to affirm the
trial court's findings and rule for the petitioners.
We agree with the court a quo that the principal cause of the
termination of Valenzuela as General Agent of Philamgen
arose from his refusal to share his Delta commission. The
records sustain the conclusions of the trial court on the
apparent bad faith of the private respondents in terminating
the General Agency Agreement of petitioners. It is axiomatic
that the findings of fact of a trial judge are entitled to great
weight (People v. Atanacio, 128 SCRA 22 [1984]) and should
not be disturbed on appeal unless for strong and cogent
reasons, because the trial court is in a better position to
examine the evidence as well as to observe the demeanor of
the witnesses while testifying (Chase v. Buencamino, Sr.,
136 SCRA 365 [1985]; People v. Pimentel, 147 SCRA 25
[1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147
SCRA 82 [1987]). In the case at bar, the records show that
the findings and conclusions of the trial court are supported
by substantial evidence and there appears to be no cogent
reason to disturb them (Mendoza v. Court of Appeals. 156
SCRA 597 [1987]).
As early as September 30,1977, Philamgen told the
petitioners of its desire to share the Delta Commission with
them. It stated that should Delta back out from the
agreement, the petitioners would be charged interests
through a reduced commission after full payment by Delta.
On January 23, 1978 Philamgen proposed reducing the
petitioners' commissions by 50% thus giving them an agent's
commission of 16.25%. On February 8, 1978, Philamgen
insisted on the reduction scheme followed on June 1, 1978
by still another insistence on reducing commissions and
proposing two alternative schemes for reduction. There were
other pressures. Demands to settle accounts, to confer and
thresh out differences regarding the petitioners' income and
the threat to terminate the agency followed. The petitioners
were told that the Delta commissions would not be credited
to their account (Exhibit "J"). They were informed that the
Valenzuela agency would be placed on a cash and carry
basis thus removing the 60-day credit for premiums due.
(TSN., March 26, 1979, pp. 54-57). Existing policies were
threatened to be cancelled (Exhibits "H" and "14"; TSN.,
March 26, 1979, pp. 29-30). The Valenzuela business was
threatened with diversion to other agencies. (Exhibit "NNN").
Rumors were also spread about alleged accounts of the
Valenzuela agency (TSN., January 25, 1980, p. 41). The
petitioners consistently opposed the pressures to hand over
the agency or half of their commissions and for a treatment
of the Delta account distinct from other accounts. The
pressures and demands, however, continued until the
agency agreement itself was finally terminated.
It is also evident from the records that the agency involving
petitioner and private respondent is one "coupled with an
interest," and, therefore, should not be freely revocable at
the unilateral will of the latter.
In the insurance business in the Philippines, the most difficult
and frustrating period is the solicitation and persuasion of the
prospective clients to buy insurance policies. Normally,
agents would encounter much embarrassment, difficulties,
and oftentimes frustrations in the solicitation and
procurement of the insurance policies. To sell policies, an
agent exerts great effort, patience, perseverance, ingenuity,
tact, imagination, time and money. In the case of Valenzuela,
he was able to build up an Agency from scratch in 1965 to a
highly productive enterprise with gross billings of about Two
Million Five Hundred Thousand Pesos (P2,500,000.00)
premiums per annum. The records sustain the finding that
the private respondent started to covet a share of the
insurance business that Valenzuela had built up, developed
and nurtured to profitability through over thirteen (13) years
of patient work and perseverance. When Valenzuela refused
to share his commission in the Delta account, the boom
suddenly fell on him.
The private respondents by the simple expedient of
terminating the General Agency Agreement appropriated the
entire insurance business of Valenzuela. With the
termination of the General Agency Agreement, Valenzuela
would no longer be entitled to commission on the renewal of
insurance policies of clients sourced from his agency. Worse,
despite the termination of the agency, Philamgen continued
to hold Valenzuela jointly and severally liable with the
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
insured for unpaid premiums. Under these circumstances, it
is clear that Valenzuela had an interest in the continuation of
the agency when it was unceremoniously terminated not only
because of the commissions he should continue to receive
from the insurance business he has solicited and procured
but also for the fact that by the very acts of the respondents,
he was made liable to Philamgen in the event the insured fail
to pay the premiums due. They are estopped by their own
positive averments and claims for damages. Therefore, the
respondents cannot state that the agency relationship
between Valenzuela and Philamgen is not coupled with
interest. "There may be cases in which an agent has been
induced to assume a responsibility or incur a liability, in
reliance upon the continuance of the authority under such
circumstances that, if the authority be withdrawn, the agent
will be exposed to personal loss or liability" (See MEC 569 p.
406).
Furthermore, there is an exception to the principle that an
agency is revocable at will and that is when the agency has
been given not only for the interest of the principal but for the
interest of third persons or for the mutual interest of the
principal and the agent. In these cases, it is evident that the
agency ceases to be freely revocable by the sole will of the
principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV
p. 350). The following citations are apropos:
The principal may not defeat the agent's
right to indemnification by a termination
of the contract of agency (Erskine v.
Chevrolet Motors Co. 185 NC 479, 117
SE 706, 32 ALR 196).
Where the principal terminates or
repudiates the agent's employment in
violation of the contract of employment
and without cause ... the agent is
entitled to receive either the amount of
net losses caused and gains prevented
by the breach, or the reasonable value
of the services rendered. Thus, the
agent is entitled to prospective profits
which he would have made except for
such wrongful termination provided that
such profits are not conjectural, or
speculative but are capable of
determination upon some fairly reliable
basis. And a principal's revocation of the
agency agreement made to avoid
payment of compensation for a result
which he has actually accomplished
24
(Hildendorf v. Hague, 293 NW 2d 272; liable. We find no factual and legal basis for the award.
Newhall v. Journal Printing Co., 105 Under Section 77 of the Insurance Code, the remedy for the
Minn 44,117 NW 228; Gaylen Machinery non-payment of premiums is to put an end to and render the
Corp. v. Pitman-Moore Co. [C.A. 2 NY] insurance policy not binding —
273 F 2d 340)
Sec. 77 ... [N]otwithstanding any
If a principal violates a contractual or agreement to the contrary, no policy or
quasi-contractual duty which he owes contract of insurance is valid and binding
his agent, the agent may as a rule bring unless and until the premiums thereof
an appropriate action for the breach of have been paid except in the case of a
that duty. The agent may in a proper life or industrial life policy whenever the
case maintain an action at law for grace period provision applies (P.D. 612,
compensation or damages ... A as amended otherwise known as the
wrongfully discharged agent has a right Insurance Code of 1974)
of action for damages and in such action
the measure and element of damages
In Philippine Phoenix Surety and Insurance, Inc. v.
are controlled generally by the rules
Woodworks, Inc. (92 SCRA 419 [1979]) we held that the
governing any other action for the
non-payment of premium does not merely suspend but puts
employer's breach of an employment
an end to an insurance contract since the time of the
contract. (Riggs v. Lindsay, 11 US 500,
payment is peculiarly of the essence of the contract. And
3L Ed 419; Tiffin Glass Co. v. Stoehr, 54
in Arce v. The Capital Insurance and Surety Co. Inc. (117
Ohio 157, 43 NE 2798)
SCRA 63, [1982]), we reiterated the rule that unless premium
is paid, an insurance contract does not take effect. Thus:
At any rate, the question of whether or not the agency
agreement is coupled with interest is helpful to the
It is to be noted that Delgado (Capital
petitioners' cause but is not the primary and compelling
Insurance & Surety Co., Inc. v. Delgado,
reason. For the pivotal factor rendering Philamgen and the
9 SCRA 177 [1963] was decided in the
other private respondents liable in damages is that the
light of the Insurance Act before Sec. 72
termination by them of the General Agency Agreement was
was amended by the underscored
tainted with bad faith. Hence, if a principal acts in bad faith
portion. Supra. Prior to the Amendment,
and with abuse of right in terminating the agency, then he is
an insurance contract was effective even
liable in damages. This is in accordance with the precepts in
if the premium had not been paid so that
Human Relations enshrined in our Civil Code that "every
an insurer was obligated to pay
person must in the exercise of his rights and in the
indemnity in case of loss and
performance of his duties act with justice, give every one his
correlatively he had also the right to sue
due, and observe honesty and good faith: (Art. 19, Civil
for payment of the premium. But the
Code), and every person who, contrary to law, wilfully or
amendment to Sec. 72 has radically
negligently causes damages to another, shall indemnify the
changed the legal regime in that unless
latter for the same (Art. 20, id). "Any person who wilfully
the premium is paid there is no
causes loss or injury to another in a manner contrary to
insurance. " (Arce v. Capitol Insurance
morals, good customs and public policy shall compensate
and Surety Co., Inc., 117 SCRA 66;
the latter for the damages" (Art. 21, id.).
Emphasis supplied)
As to the issue of whether or not the petitioners are liable to
In Philippine Phoenix Surety case, we held:
Philamgen for the unpaid and uncollected premiums which
the respondent court ordered Valenzuela to pay Philamgen
the amount of One Million Nine Hundred Thirty-Two Moreover, an insurer cannot treat a
Thousand Five Hundred Thirty-Two and 17/100 Pesos contract as valid for the purpose of
(P1,932,532,17) with legal interest thereon until fully paid collecting premiums and invalid for the
(Decision-January 20, 1988, p. 16; Petition, Annex "A"), we purpose of indemnity. (Citing Insurance
rule that the respondent court erred in holding Valenzuela Law and Practice by John Alan
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
Appleman, Vol. 15, p. 331; Emphasis
supplied)
The foregoing findings are buttressed by
Section 776 of the insurance Code
(Presidential Decree No. 612,
promulgated on December 18, 1974),
which now provides that no contract of
Insurance by an insurance company is
valid and binding unless and until the
premium thereof has been paid,
notwithstanding any agreement to the
contrary (Ibid., 92 SCRA 425)
Perforce, since admittedly the premiums have not been paid,
the policies issued have lapsed. The insurance coverage did
not go into effect or did not continue and the obligation of
Philamgen as insurer ceased. Hence, for Philamgen which
had no more liability under the lapsed and inexistent policies
to demand, much less sue Valenzuela for the unpaid
premiums would be the height of injustice and unfair dealing.
In this instance, with the lapsing of the policies through the
nonpayment of premiums by the insured there were no more
insurance contracts to speak of. As this Court held in
the Philippine Phoenix Surety case, supra "the non-payment
of premiums does not merely suspend but puts an end to an
insurance contract since the time of the payment is peculiarly
of the essence of the contract."
The respondent appellate court also seriously erred in
according undue reliance to the report of Banaria and
Banaria and Company, auditors, that as of December 31,
1978, Valenzuela owed Philamgen P1,528,698.40. This audit
report of Banaria was commissioned by Philamgen after
Valenzuela was almost through with the presentation of his
evidence. In essence, the Banaria report started with an
unconfirmed and unaudited beginning balance of account of
P1,758,185.43 as of August 20, 1976. But even with that
unaudited and unconfirmed beginning balance of
P1,758,185.43, Banaria still came up with the amount of
P3,865.49 as Valenzuela's balance as of December 1978
with Philamgen (Exh. "38-A-3"). In fact, as of December 31,
1976, and December 31, 1977, Valenzuela had no unpaid
account with Philamgen (Ref: Annexes "D", "D-1", "E",
Petitioner's Memorandum). But even disregarding these
annexes which are records of Philamgen and addressed to
Valenzuela in due course of business, the facts show that as
of July 1977, the beginning balance of Valenzuela's account
with Philamgen amounted to P744,159.80. This was
confirmed by Philamgen itself not only once but four (4)
times on different occasions, as shown by the records.
25
On April 3,1978, Philamgen sent Valenzuela a statement of
account with a beginning balance of P744,159-80 as of July
1977.
On May 23, 1978, another statement of account with exactly
the same beginning balance was sent to Valenzuela.
On November 17, 1978, Philamgen sent still another
statement of account with P744,159.80 as the beginning
balance.
And on December 20, 1978, a statement of account with
exactly the same figure was sent to Valenzuela.
It was only after the filing of the complaint that a radically
different statement of accounts surfaced in court. Certainly,
Philamgen's own statements made by its own accountants
over a long period of time and covering examinations made
on four different occasions must prevail over unconfirmed
and unaudited statements made to support a position made
in the course of defending against a lawsuit.
It is not correct to say that Valenzuela should have presented
its own records to refute the unconfirmed and unaudited
finding of the Banaria auditor. The records of Philamgen
itself are the best refutation against figures made as an
afterthought in the course of litigation. Moreover, Valenzuela
asked for a meeting where the figures would be reconciled.
Philamgen refused to meet with him and, instead, terminated
the agency agreement.
After off-setting the amount of P744,159.80, beginning
balance as of July 1977, by way of credits representing the
commission due from Delta and other accounts, Valenzuela
had overpaid Philamgen the amount of P530,040.37 as of
November 30, 1978. Philamgen cannot later be heard to
complain that it committed a mistake in its computation. The
alleged error may be given credence if committed only once.
But as earlier stated, the reconciliation of accounts was
arrived at four (4) times on different occasions where
Philamgen was duly represented by its account executives.
On the basis of these admissions and representations,
Philamgen cannot later on assume a different posture and
claim that it was mistaken in its representation with respect
to the correct beginning balance as of July 1977 amounting
to P744,159.80. The Banaria audit report commissioned by
Philamgen is unreliable since its results are admittedly based
on an unconfirmed and unaudited beginning balance of
P1,758,185.43 as of August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an audit of
accounts of plaintiff Arturo P. Valenzuela
after the controversy has started. In fact,
after hearing plaintiffs have already
rested their case.
The results of said audit were presented
in Court to show plaintiff Arturo P.
Valenzuela's accountability to defendant
PHILAMGEN. However, the auditor,
when presented as witness in this case
testified that the beginning balance of
their audit report was based on an
unaudited amount of P1,758,185.43
(Exhibit 46-A) as of August 20, 1976,
which was unverified and merely
supplied by the officers of defendant
PHILAMGEN.
Even defendants very own Exhibit 38- A-
3, showed that plaintiff Arturo P.
Valenzuela's balance as of 1978
amounted to only P3,865.59, not
P826,128.46 as stated in defendant
Bienvenido M. Aragon's letter dated
December 20,1978 (Exhibit 14) or
P1,528,698.40 as reflected in
defendant's Exhibit 46 (Audit Report of
Banaria dated December 24, 1980).
These glaring discrepancy (sic) in the
accountability of plaintiff Arturo P.
Valenzuela to defendant PHILAMGEN
only lends credence to the claim of
plaintiff Arturo P. Valenzuela that he has
no outstanding account with defendant
PHILAMGEN when the latter, thru
defendant Bienvenido M. Aragon,
terminated the General Agency
Agreement entered into by plaintiff
(Exhibit A) effective January 31, 1979
(see Exhibits "2" and "2-A"). Plaintiff
Arturo P. Valenzuela has shown that as
of October 31, 1978, he has overpaid
defendant PHILAMGEN in the amount of
P53,040.37 (Exhibit "EEE", which
computation was based on defendant
PHILAMGEN's balance of P744,159.80
furnished on several occasions to
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
plaintiff Arturo P. Valenzuela by
defendant PHILAMGEN (Exhibits H-1,
VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ
and , ZZ-2).
Prescinding from the foregoing, and considering that the
private respondents terminated Valenzuela with
evident mala fide it necessarily follows that the former are
liable in damages. Respondent Philamgen has been
appropriating for itself all these years the gross billings and
income that it unceremoniously took away from the
petitioners. The preponderance of the authorities sustain the
preposition that a principal can be held liable for damages in
cases of unjust termination of agency. In Danon v. Brimo, 42
Phil. 133 [1921]), this Court ruled that where no time for the
continuance of the contract is fixed by its terms, either party
is at liberty to terminate it at will, subject only to the ordinary
requirements of good faith. The right of the principal to
terminate his authority is absolute and unrestricted, except
only that he may not do so in bad faith.
The trial court in its decision awarded to Valenzuela the
amount of Seventy Five Thousand Pesos (P75,000,00) per
month as compensatory damages from June 1980 until its
decision becomes final and executory. This award is justified
in the light of the evidence extant on record (Exhibits "N", "N-
10", "0", "0-1", "P" and "P-1") showing that the average gross
premium collection monthly of Valenzuela over a period of
four (4) months from December 1978 to February 1979,
amounted to over P300,000.00 from which he is entitled to a
commission of P100,000.00 more or less per month.
Moreover, his annual sales production amounted to
P2,500,000.00 from where he was given 32.5%
commissions. Under Article 2200 of the new Civil Code,
"indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which
the obligee failed to obtain."
The circumstances of the case, however, require that the
contractual relationship between the parties shall be
terminated upon the satisfaction of the judgment. No more
claims arising from or as a result of the agency shall be
entertained by the courts after that date.
ACCORDINGLY, the petition is GRANTED. The impugned
decision of January 29, 1988 and resolution of April 27, 1988
of respondent court are hereby SET ASIDE. The decision of
the trial court dated January 23, 1986 in Civil Case No.
121126 is REINSTATED with the MODIFICATIONS that the
amount of FIVE HUNDRED TWENTY ONE THOUSAND
NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS
26
(P521,964.16) representing the petitioners Delta commission
shall earn only legal interests without any adjustments under
Article 1250 of the Civil Code and that the contractual
relationship between Arturo P. Valenzuela and Philippine
American General Insurance Company shall be deemed
terminated upon the satisfaction of the judgment as modified.
SO ORDERED.
G.R. No. L-22684             August 31, 1967
PHILIPPINE PHOENIX SURETY & INSURANCE,
INC., plaintiff-appellee, 
vs.
WOODWORKS, INC., defendant-appellant.
DIZON, J.:
Appeal upon a question of law taken by Woodworks, Inc.
from the judgment of the Court of First Instance of Manila in
Civil Case No. 50710 "ordering the defendant, Woodworks,
Inc. to pay to the plaintiff, Philippine Phoenix Surety &
Insurance, Inc., the sum of P3,522.09 with interest thereon at
the legal rate of 6% per annum from the date of the filing of
the complaint until fully paid, and costs of the suit."
Appellee Philippine Phoenix Surety & Insurance Co., Inc.
commenced this action in the Municipal Court of Manila to
recover from appellant Woodworks, Inc. the sum of
P3,522.09, representing the unpaid balance of the premiums
on a fire insurance policy issued by appellee in favor of
appellant for a term of one year from April 1, 1960 to April 1,
1961. From an adverse decision of said court, Woodworks,
Inc. appealed to the Court of First Instance of Manila (Civil
Case No. 50710) where the parties submitted the following
stipulation of facts, on the basis of which the appealed
decision was rendered:
That plaintiff and defendant are both corporations
duly organized and existing under and by virtue of
the laws of the Philippines;
That on April 1, 1960, plaintiff issued to defendant
Fire Policy No. 9652 for the amount of
P300,000.00, under the terms and conditions
therein set forth in said policy a copy of which is
hereto attached and made a part hereof as Annex
"A";
That the premiums of said policy as stated in
Annex "A" amounted to P6,051.95; the margin fee
pursuant to the adopted plan as an implementation
of Republic Act 2609 amounted to P363.72, copy
of said adopted plan is hereto attached as Annex
"B" and made a part hereof, the documentary
stamps attached to the policy was P96.42;
That the defendant paid P3,000.00 on September
22, 1960 under official receipt No. 30245 of
plaintiff;
That plaintiff made several demands on defendant
to pay the amount of P3,522.09.1äwphï1.ñët
In the present appeal, appellant claims that the court a
quo committed the following errors:
I. The lower court erred in stating that in fire
insurance policies the risk attached upon the
issuance and delivery of the policy to the insured. 
II. The lower court erred in deciding that in a
perfected contract of insurance non-payment of
premium does not cancel the policy. 
III. The lower court erred in deciding that the
premium in the policy was still collectible when the
complaint was filed. 
IV. The lower court erred in deciding that a partial
payment of the premium made the policy effective
during the whole period of the policy.
It is clear from the foregoing that on April 1, 1960 Fire
Insurance Policy No. 9652 was issued by appellee and
delivered to appellant, and that on September 22 of the
same year, the latter paid to the former the sum of P3,000.00
on account of the total premium of P6,051.95 due thereon.
There is, consequently, no doubt at all that, as between the
insurer and the insured, there was not only a perfected
contract of insurance but a partially performed one as far as
the payment of the agreed premium was concerned.
Thereafter the obligation of the insurer to pay the insured the
amount for which the policy was issued in case the
conditions therefor had been complied with, arose and
became binding upon it, while the obligation of the insured to
pay the remainder of the total amount of the premium due
became demandable. 
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
We can not agree with appellant's theory that non-payment
by it of the premium due, produced the cancellation of the
contract of insurance. Such theory would place exclusively in
the hands of one of the contracting parties the right to decide
whether the contract should stand or not. Rather the correct
view would seem to be this: as the contract had become
perfected, the parties could demand from each other the
performance of whatever obligations they had assumed. In
the case of the insurer, it is obvious that it had the right to
demand from the insured the completion of the payment of
the premium due or sue for the rescission of the contract. As
it chose to demand specific performance of the insured's
obligation to pay the balance of the premium, the latter's duty
to pay is indeed indubitable.
Having thus resolved that the fourth and last assignment of
error submitted in appellant's brief is without merit, the first
three assignments of error must likewise be overruled as
lacking in merit.
Wherefore, the appealed decision being in accordance with
law and the evidence, the same is hereby affirmed, with
costs.
G.R. No. 107062 February 21, 1994
PHILIPPINE PRYCE ASSURANCE
CORPORATION, petitioner, 
vs.
THE COURT OF APPEALS, (Fourteenth Division) and
GEGROCO, INC., respondents.
NOCON, J.:
Two purely technical, yet mandatory, rules of procedure
frustrated petitioner's bid to get a favorable decision from the
Regional Trial Court and then again in the Court of
Appeals. 1 These are non-appearance during the pre-trial
despite due notice, and non-payment of docket fees upon
filing of its third-party complaint. Just how strict should these
rules be applied is a crucial issue in this present dispute.
Petitioner, Interworld Assurance Corporation (the company
now carries the corporate name Philippine Pryce Assurance
Corporation), was the butt of the complaint for collection of
sum of money, filed on May 13, 1988 by respondent,
Gegroco, Inc. before the Makati Regional Trial Court, Branch
138. The complaint alleged that petitioner issued two surety
bonds (No. 0029, dated July 24, 1987 and No. 0037, dated
27
October 7, 1987) in behalf of its principal Sagum General
Merchandise for FIVE HUNDRED THOUSAND
(P500,000.00) PESOS and ONE MILLION (1,000,000.00)
PESOS, respectively.
On June 16, 1988, summons, together with the copy of the
complaint, was served on petitioner. Within the reglementary
period, two successive motions were filed by petitioner
praying for a total of thirty (30) days extention within which to
file a responsible pleading.
In its Answer, dated July 29, 1988, but filed only on August 4,
1988, petitioner admitted having executed the said bonds,
but denied liability because allegedly 1) the checks which
were to pay for the premiums bounced and were dishonored
hence there is no contract to speak of between petitioner and
its supposed principal; and 2) that the bonds were merely to
guarantee payment of its principal's obligation, thus,
excussion is necessary. After the issues had been joined, the
case was set for pre-trial conference on September 29,
1988. the petitioner received its notice on September 9,
1988, while the notice addressed to its counsel was returned
to the trial court with the notation "Return to Sender,
Unclaimed." 2
On the scheduled date for pre-trial conference, only the
counsel for petitioner appeared while both the representative
of respondent and its counsel were present. The counsel for
petitioner manifested that he was unable to contract the
Vice-President for operations of petitioner, although his client
intended to file a third party complaint against its principal.
Hence, the pre-trial was re-set to October 14, 1988. 3
On October 14, 1988, petitioner filed a "Motion with Leave to
Admit Third-Party Complaint" with the Third-Party Complaint
attached. On this same day, in the presence of the
representative for both petitioner and respondent and their
counsel, the pre-trial conference was re-set to December 1,
1988. Meanwhile on November 29, 1988, the court admitted
the Third Party Complaint and ordered service of summons
on third party defendants. 4
On scheduled conference in December, petitioner and its
counsel did not appear notwithstanding their notice in open
court. 5 The pre-trial was nevertheless re-set to February 1,
1989. However, when the case was called for pre-trial
conference on February 1, 1989, petitioner was again nor
presented by its officer or its counsel, despite being duly
notified. Hence, upon motion of respondent, petitioner was
considered as in default and respondent was allowed to
present evidence ex-parte, which was calendared on
February 24, 1989. 6 Petitioner received a copy of the Order
of Default and a copy of the Order setting the reception of
respondent's evidence ex-parte, both dated February 1,
1989, on February 16, 1989. 7
On March 6, 1989, a decision was rendered by the trial court,
the dispositive portion reads:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant Interworld
Assurance Corporation to pay the
amount of P1,500,000.00 representing
the principal of the amount due, plus
legal interest thereon from April 7, 1988,
until date of payment; and P20,000.00
as and for attorney's fees. 8
Petitioner's "Motion for Reconsideration and New Trial" dated
April 17, 1989, having been denied it elevated its case to the
Court of Appeals which however, affirmed the decision of the
trial court as well as the latter's order denying petitioner's
motion for reconsideration.
Before us, petitioner assigns as errors the following:
I. The respondent Court of Appeals
gravely erred in declaring that the case
was already ripe for pre-trial conference
when the trial court set it for the holding
thereof.
II. The respondent Court of Appeals
gravely erred in affirming the decision of
the trial court by relying on the ruling laid
down by this Honorable Court in the
case of Manchester Development
Corporation v. Court of Appeals, 149
SCRA 562, and disregarding the
doctrine laid down in the case of Sun
Insurance Office, Ltd. (SIOL) v.
Asuncion, 170 SCRA 274.
III. The respondent Court of Appeals
gravely erred in declaring that it would
be useless and a waste of time to
remand the case for further proceedings
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
as defendant-appellant has no
meritorious defense.
We do not find any reversible error in the conclusion reached
by the court a quo.
Relying on Section 1, Rule 20 of the Rules of court, petitioner
argues that since the last pleading, which was supposed to
be the third-party defendant's answer has not been filed, the
case is not yet ripe for pre-trial. This argument must fail on
three points. First, the trial court asserted, and we agree, that
no answer to the third party complaint is forthcoming as
petitioner never initiated the service of summons on the third
party defendant. The court further said:
. . . Defendant's claim that it was not
aware of the Order admitting the third-
party complaint is preposterous. Sec. 8,
Rule 13 of the Rules, provides:
Completeness of service — . . . Service by registered mail is
complete upon actual receipt by the addressee, but if he fails
to claim his mail from the post office within five (5) days from
the date of first notice of the postmaster, service shall take
effect at the expiration of such time. 9
Moreover, we observed that all copies of notices and orders
issued by the court for petitioner's counsel were returned
with the notation "Return to Sender, Unclaimed." Yet when
he chose to, he would appear in court despite supposed lack
of notice.
Second, in the regular course of events, the third-party
defendant's answer would have been regarded as the last
pleading referred to in Sec. 1, Rule 20. However, petitioner
cannot just disregard the court's order to be present during
the pre-trial and give a flimsy excuse, such as that the
answer has yet to be filed.
The pre-trial is mandatory in any action, the main objective
being to simplify, abbreviate and expedite trial, if not to fully
dispense with it. Hence, consistent with its mandatory
character the Rules oblige not only the lawyers but the
parties as well to appear for this purpose before the
Court 10 and when a party fails to appear at a pre-trial
conference he may be non-suited or considered as in
default. 11
28
Records show that even at the very start, petitioner could
have been declared as in default since it was not properly
presented during the first scheduled pre-trial on September
29, 1988. Nothing in the record is attached which would
show that petitioner's counsel had a special authority to act
in behalf of his client other than as its lawyer.
We have said that in those instances where a party may not
himself be present at the pre-trial, and another person
substitutes for him, or his lawyer undertakes to appear not
only as an attorney but in substitution of the client's person, it
is imperative for that representative or the lawyer to have
"special authority" to enter into agreements which otherwise
only the client has the capacity to make. 12
Third, the court of Appeals properly considered the third-
party complaint as a mere scrap of paper due to petitioner's
failure to pay the requisite docket fees. Said the court a quo:
A third-party complaint is one of the
pleadings for which Clerks of court of
Regional Trial Courts are mandated to
collect docket fees pursuant to Section
5, Rule 141 of the Rules of Court. The
record is bereft of any showing tha(t) the
appellant paid the corresponding docket
fees on its third-party complaint. Unless
and until the corresponding docket fees
are paid, the trial court would not acquire
jurisdiction over the third-party complaint
(Manchester Development Corporation
vs. Court of Appeals, 149 SCRA 562).
The third-party complaint was thus
reduced to a mere scrap of paper not
worthy of the trial court's attention.
Hence, the trial court can and correctly
set the case for pre-trial on the basis of
the complaint, the answer and the
answer to the counterclaim.13
It is really irrelevant in the instant case whether the ruling in
Sun Insurance Office, Ltd. (SIOL) v. Asuncion 14 or that in
Manchester Development Corp. v. C.A. 15 was applied. Sun
Insurance and Manchester are mere reiteration of old
jurisprudential pronouncements on the effect of non-payment
of docket fees. 16 In previous cases, we have consistently
ruled that the court cannot acquire jurisdiction over the
subject matter of a case, unless the docket fees are paid.
Moreover, the principle laid down in Manchester could have
very well been applied in Sun Insurance. We then said:
The principle in Manchester [Manchester
Development Corp. v. C.A., 149 SCRA
562 (1987)] could very well be applied in
the present case. The pattern and the
intent to defraud the government of the
docket fee due it is obvious not only in
the filing of the original complaint but
also in the filing of the second amended
complaint.
xxx xxx xxx
In the present case, a more liberal
interpretation of the rules is called for
considering that, unlike Manchester,
private respondent demonstrated his
willingness to abide by the rules by
paying the additional docket fees as
required. The promulgation of the
decision in Manchester must have had
that sobering influence on private
respondent who thus paid the additional
docket fee as ordered by the respondent
court. It triggered his change of stance
by manifesting his willingness to pay
such additional docket fees as may be
ordered. 17
Thus, we laid down the rules as follows:
1. It is not simply the filing of the
complaint or appropriate initiatory
pleading, but the payment of the
prescribed docket fee, that vests a trial
court with jurisdiction over the subject-
matter or nature of the action. Where the
filing of the initiatory pleading is not
accompanied by payment of the docket
fee, the court may allow payment of the
fee within a reasonable time, but in no
case beyond the applicable prescriptive
or reglamentary period.
2. The same rule applies to permissive
counterclaims, third-party claims and
similar pleadings, which shall not be
considered filed until and unless the
INSURANCE – PART THREE: NON-LIFE INSURANCE CASES
Cases
filing fee prescribed therefor is paid. The
court may also allow payment of said fee
within a prescriptive or reglementary
period.
3. Where the trial court acquires
jurisdiction over a claim by the filing of
the appropriate pleading and payment of
the prescribed filing fee, but
subsequently, the judgment awards a
claim nor specified in the pleading, or if
specified the same has not been left for
determination by the court, the additional
filing fee therefor shall constitute a lien
on the judgment. It shall be the
responsibility of the clerk of court or his
duly authorized deputy to enforce said
lien and assess and collect the
additional 
fee. 18
It should be remembered that both in Manchester and Sun
Insurance plaintiffs therein paid docket fees upon filing of
their respective pleadings, although the amount tendered
were found to be insufficient considering the amounts of the
reliefs sought in their complaints. In the present case,
petitioner did not and never attempted to pay the requisite
docket fee. Neither is there any showing that petitioner even
manifested to be given time to pay the requisite docket fee,
as in fact it was not present during the scheduled pre-trial on
December 1, 1988 and then again on February 1, 1989.
Perforce, it is as if the third-party complaint was never filed.
Finally, there is reason to believe that partitioner does not
really have a good defense. Petitioner hinges its defense on
two arguments, namely: a) that the checks issued by its
principal which were supposed to pay for the premiums,
bounced, hence there is no contract of surety to speak of;
and 2) that as early as 1986 and covering the time of the
Surety Bond, Interworld Assurance Company (now Phil.
Pryce) was not yet authorized by the insurance Commission
to issue such bonds.
The Insurance Code states that:
Sec. 177. The surety is entitled to
payment of the premium as soon as the
contract of suretyship or bond is
perfected and delivered to the obligor.
No contract of suretyship or bonding
29
shall be valid and binding unless and On the other hand, petitioner's defense that it did not have
until the premium therefor has been authority to issue a Surety Bond when it did is an admission
paid, except where the obligee has of fraud committed against respondent. No person can claim
accepted the bond, in which case the benefit from the wrong he himself committed. A
bond becomes valid and representation made is rendered conclusive upon the person
enforceable irrespective of whether or making it and cannot be denied or disproved as against the
not the premium has been paid by the person relying thereon. 22
obligor to the surety. . . . (emphasis
added)
WHEREFORE, in view of the foregoing, the decision of the
Court of Appeals dismissing the petition before them and
The above provision outrightly negates petitioner's first affirming the decision of the trial court and its order denying
defense. In a desperate attempt to escape liability, petitioner petitioner's Motion for Reconsideration are hereby
further asserts that the above provision is not applicable AFFIRMED. The present petition is DISMISSED for lack of
because the respondent allegedly had not accepted the merit.
surety bond, hence could not have delivered the goods to
Sagum Enterprises. This statement clearly intends to muddle
SO ORDERED.
the facts as found by the trial court and which are on record.
In the first place, petitioner, in its answer, admitted to have
issued the bonds subject matter of the original
action. 19Secondly, the testimony of Mr. Leonardo T.
Guzman, witness for the respondent, reveals the following:
Q. What are the conditions and terms of sales you extended
to Sagum General Merchandise?
A. First, we required him to submit to us Surety Bond to
guaranty payment of the spare parts to be purchased. Then
we sell to them on 90 days credit. Also, we required them to
issue post-dated checks.
Q. Did Sagum General merchandise comply with your surety
bond requirement?
A. Yes. They submitted to us and which we have accepted
two surety bonds.
Q Will you please present to us the aforesaid surety bonds?
A. Interworld Assurance Corp. Surety Bond No. 0029 for
P500,000 dated July 24, 1987 and Interworld Assurance
Corp. Surety Bond No. 0037 for P1,000.000 dated October
7, 1987. 20
Likewise attached to the record are exhibits C to C-
18 21 consisting of delivery invoices addressed to Sagum
General Merchandise proving that parts were purchased,
delivered and received.