G.R. No. 205206, March 16, 2016 15.
Written notice of claim shall be given to and filed at
BANK OF THE PHILIPPINE ISLANDS AND FGU
INSURANCE CORPORATION (PRESENTLY KNOWN
AS BPI/MS INSURANCE
CORPORATION), Petitioners, v. YOLANDA
LAINGO, Respondent.
The Case
This is a petition for review on certiorari1 assailing the
Decision dated 29 June 20122 and Resolution dated 11
December 20123 of the Court of Appeals in CA-G.R. CV
No. 01575.
On 20 July 1999, Rheozel Laingo (Rheozel), the son of
respondent Yolanda Laingo (Laingo), opened a
"Platinum 2-in-1 Savings and Insurance" account with
petitioner Bank of the Philippine Islands (BPI) in its
Claveria, Davao City branch. The Platinum 2-in-1
Savings and Insurance account is a savings account
where depositors are automatically covered by an
insurance policy against disability or death issued by
petitioner FGU Insurance Corporation (FGU Insurance),
now known as BPI/MS Insurance Corporation. BPI
issued Passbook No. 50298 to Rheozel corresponding to
Savings Account No. 2233-0251-11. A Personal Accident
Insurance Coverage Certificate No. 043549 was also
issued by FGU Insurance in the name of Rheozel with
Laingo as his named beneficiary.
On 25 September 2000, Rheozel died due to a vehicular
accident as evidenced by a Certificate of Death issued
by the Office of the Civil Registrar General of Tagum
City, Davao del Norte. Since Rheozel came from a
reputable and affluent family, the Daily Mirror headlined
the story in its newspaper on 26 September 2000.
On 27 September 2000, Laingo instructed the family's
personal secretary, Alice Torbanos (Alice) to go to BPI,
Claveria, Davao City branch and inquire about the
savings account of Rheozel. Laingo wanted to use the
money in the savings account for Rheozel's burial and
funeral expenses.
Alice went to BPI and talked to Jaime Ibe Rodriguez,
BPI's Branch Manager regarding Laingo's request. Due
to Laingo's credit standing and relationship with BPI, BPI
accommodated Laingo who was allowed to withdraw
P995,000 from the account of Rheozel. A certain Ms.
Laura Cabico, an employee of BPI, went to Rheozel's
wake at the Cosmopolitan Funeral Parlor to verify some
information from Alice and brought with her a number of
documents for Laingo to sign for the withdrawal of the
P995,000.
More than two years later or on 21 January 2003,
Rheozel's sister, Rhealyn Laingo-Concepcion, while
arranging Rheozel's personal things in his room at their
residence in Ecoland, Davao City, found the Personal
Accident Insurance Coverage Certificate No. 043549
issued by FGU Insurance. Rhealyn immediately
conveyed the information to Laingo.
Laingo sent two letters dated 11 September 2003 and 7
November 2003 to BPI and FGU Insurance requesting
them to process her claim as beneficiary of Rheozel's
insurance policy. On 19 February 2004, FGU Insurance
sent a reply-letter to Laingo denying her claim. FGU
Insurance stated that Laingo should have filed the claim
within three calendar months from the death of Rheozel
as required under Paragraph 15 of the Personal Accident
Certificate of Insurance which states:
chanRoblesvirtualLawlibrary
FGU Insurance Corporation within three calendar
months of death or disability.
On 20 February 2004, Laingo filed a Complaint4 for
Specific Performance with Damages and Attorney's Fees
with the Regional Trial Court of Davao City, Branch 16
(trial court) against BPI and FGU Insurance.
In a Decision5 dated 21 April 2008, the trial court
decided the case in favor of respondents. The trial court
ruled that the prescriptive period of 90 days shall
commence from the time of death of the insured and
not from the knowledge of the beneficiary. Since the
insurance claim was filed more than 90 days from the
death of the insured, the case must be dismissed. The
dispositive portion of the Decision states:
chanRoblesvirtualLawlibrary
PREMISES CONSIDERED, judgment is hereby rendered
dismissing both the complaint and the counterclaims.
SO ORDERED.6ChanRoblesVirtualawlibrary
Laingo filed an appeal with the Court of Appeals.
The Ruling of the Court of Appeals
In a Decision dated 29 June 2012, the Court of Appeals
reversed the ruling of the trial court. The Court of
Appeals ruled that Laingo could not be expected to do
an obligation which she did not know existed. The
appellate court added that Laingo was not a party to the
insurance contract entered into between Rheozel and
petitioners. Thus, she could not be bound by the 90-day
stipulation. The dispositive portion of the Decision
states:
chanRoblesvirtualLawlibrary
WHEREFORE, the Appeal is hereby GRANTED. The
Decision dated April 21, 2008 of the Regional Trial
Court, Branch 16, Davao City, is hereby REVERSED and
SET ASIDE.
Appellee Bank of the Philippine Islands and FGU
Insurance Corporation are DIRECTED to PAY jointly and
severally appellant Yolanda Laingo Actual Damages in
the amount of P44,438.75 and Attorney's Fees in the
amount of P200,000.00.
Appellee FGU Insurance Corporation is also DIRECTED
to PAY appellant the insurance proceeds of the Personal
Accident Insurance Coverage of Rheozel Laingo with
legal interest of six percent (6%) per annum reckoned
from February 20, 2004 until this Decision becomes
final. Thereafter, an interest of twelve percent
(12%) per annum shall be imposed until fully paid.
SO ORDERED.7ChanRoblesVirtualawlibrary
Petitioners filed a Motion for Reconsideration which was
denied by the appellate court in a Resolution dated 11
December 2012.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not
Laingo, as named beneficiary who had no knowledge of
the existence of the insurance contract, is bound by the
three calendar month deadline for filing a written notice
of claim upon the death of the insured.
The Court's Ruling
The petition lacks merit.

Petitioners contend that the words or language used in
the insurance contract, particularly under paragraph 15,
is clear and plain or readily understandable by any
reader which leaves no room for construction.
Petitioners also maintain that ignorance about the
insurance policy does not exempt respondent from
abiding by the deadline and petitioners cannot be
faulted for respondent's failure to comply.
Respondent, on the other hand, insists that the
insurance contract is ambiguous since there is no
provision indicating how the beneficiary is to be
informed of the three calendar month claim period.
Since petitioners did not notify her of the insurance
coverage of her son where she was named as
beneficiary in case of his death, then her lack of
knowledge made it impossible for her to fulfill the
condition set forth in the insurance contract.
In the present case, the source of controversy stems
from the alleged non-compliance with the written notice
of insurance claim to FGU Insurance within three
calendar months from the death of the insured as
specified in the insurance contract. Laingo contends that
as the named beneficiary entitled to the benefits of the
insurance claim she had no knowledge that Rheozel was
covered by an insurance policy against disability or
death issued by FGU Insurance that was attached to
Rheozel's savings account with BPI. Laingo argues that
she dealt with BPI after her son's death, when she was
allowed to withdraw funds from his savings account in
the amount of P995,000. However, BPI did not notify
her of the attached insurance policy. Thus, Laingo
attributes responsibility to BPI and FGU Insurance for
her failure to file the notice of insurance claim within
three months from her son's death.
We agree.
BPI offered a deposit savings account with life and
disability insurance coverage to its customers called the
Platinum 2-in-1 Savings and Insurance account. This
was a marketing strategy promoted by BPI in order to
entice customers to invest their money with the added
benefit of an insurance policy. Rheozel was one of those
who availed of this account, which not only included
banking convenience but also the promise of
compensation for loss or injury, to secure his family's
future.
As the main proponent of the 2-in-1 deposit account,
BPI tied up with its affiliate, FGU Insurance, as its
partner. Any customer interested to open a deposit
account under this 2-in-1 product, after submitting all
the required documents to BPI and obtaining BPI's
approval, will automatically be given insurance
coverage. Thus, BPI acted as agent of FGU Insurance
with respect to the insurance feature of its own
marketed product.
Under the law, an agent is one who binds himself to
render some service or to do something in
representation of another.8 In Doles v. Angeles,9 we
held that the basis of an agency is representation. The
question of whether an agency has been created is
ordinarily a question which may be established in the
same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one
of intention. Agency may even be implied from the
words and conduct of the parties and the circumstances
of the particular case. For an agency to arise, it is not
necessary that the principal personally encounter the
third person with whom the agent interacts. The law in
fact contemplates impersonal dealings where the
principal need not personally know or meet the third
person with whom the agent transacts: precisely, the
purpose of agency is to extend the personality of the
principal through the facility of the agent.
In this case, since the Platinum 2-in-1 Savings and
Insurance account was BPI's commercial product,
offering the insurance coverage for free for every
deposit account opened, Rheozel directly communicated
with BPI, the agent of FGU Insurance. BPI not only
facilitated the processing of the deposit account and the
collection of necessary documents but also the
necessary endorsement for the prompt approval of the
insurance coverage without any other action on
Rheozel's part. Rheozel did not interact with FGU
Insurance directly and every transaction was coursed
through BPI.
In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we
held that when an agency relationship is established,
the agent acts for the principal insofar as the world is
concerned. Consequently, the acts of the agent on
behalf of the principal within the scope of the delegated
authority have the same legal effect and consequence
as though the principal had been the one so acting in
the given situation.
BPI, as agent of FGU Insurance, had the primary
responsibility to ensure that the 2-in-1 account be
reasonably carried out with full disclosure to the parties
concerned, particularly the beneficiaries. Thus, it was
incumbent upon BPI to give proper notice of the
existence of the insurance coverage and the stipulation
in the insurance contract for filing a claim to Laingo, as
Rheozel's beneficiary, upon the latter's death.
Articles 1884 and 1887 of the Civil Code state:
chanRoblesvirtualLawlibrary
Art. 1884. The agent is bound by his acceptance to
carry out the agency and is liable for the damages
which, through his non-performance, the principal may
suffer.
He must also finish the business already begun on the
death of the principal, should delay entail any danger.
Art. 1887. In the execution of the agency, the agent
shall act in accordance with the instructions of the
principal.
In default, thereof, he shall do all that a good father of a
family would do, as required by the nature of the
business.
The provision is clear that an agent is bound to carry
out the agency. The relationship existing between
principal and agent is a fiduciary one, demanding
conditions of trust and confidence. It is the duty of the
agent to act in good faith for the advancement of the
interests of the principal. In this case, BPI had the
obligation to carry out the agency by informing the
beneficiary, who appeared before BPI to withdraw funds
of the insured who was BPI's depositor, not only of the
existence of the insurance contract but also the
accompanying terms and conditions of the insurance
policy in order for the beneficiary to be able to properly
and timely claim the benefit.
Upon Rheozel's death, which was properly
communicated to BPI by his mother Laingo, BPI, in turn,
should have fulfilled its duty, as agent of FGU
Insurance, of advising Laingo that there was an added
benefit of insurance coverage in Rheozel's savings
account. An insurance company has the duty to
communicate with the beneficiary upon receipt of notice
of the death of the insured. This notification is how a
good father of a family should have acted within the
scope of its business dealings with its clients. BPI is
expected not only to provide utmost customer
satisfaction in terms of its own products and services
but also to give assurance that its business concerns
with its partner entities are implemented accordingly.
There is a rationale in the contract of agency, which
flows from the "doctrine of representation," that notice
to the agent is notice to the principal,11 Here, BPI had
been informed of Rheozel's death by the latter's family.
Since BPI is the agent of FGU Insurance, then such
notice of death to BPI is considered as notice to FGU
Insurance as well. FGU Insurance cannot now justify the
denial of a beneficiary's insurance claim for being filed
out of time when notice of death had been
communicated to its agent within a few days after the
death of the depositor-insured. In short, there was
timely notice of Rheozel's death given to FGU Insurance
within three months from Rheozel's death as required
by the insurance company.
The records show that BPI had ample opportunity to
inform Laingo, whether verbally or in writing, regarding
the existence of the insurance policy attached to the
deposit account. First, Rheozel's death was headlined in
a daily major newspaper a day after his death. Second,
not only was Laingo, through her representative, able to
inquire about Rheozel's deposit account with BPI two
days after his death but she was also allowed by BPI's
Claveria, Davao City branch to withdraw from the funds
in order to help defray Rheozel's funeral and burial
expenses. Lastly, an employee of BPI visited Rheozel's
wake and submitted documents for Laingo to sign in
order to process the withdrawal request. These
circumstances show that despite being given many
opportunities to communicate with Laingo regarding the
existence of the insurance contract, BPI neglected to
carry out its duty.
Since BPI, as agent of FGU Insurance, fell short in
notifying Laingo of the existence of the insurance policy,
Laingo had no means to ascertain that she was entitled
to the insurance claim. It would be unfair for Laingo to
shoulder the burden of loss when BPI was remiss in its
duty to properly notify her that she was a beneficiary.
Thus, as correctly decided by the appellate court, BPI
and FGU Insurance shall bear the loss and must
compensate Laingo for the actual damages suffered by
her family plus attorney's fees. Likewise, FGU Insurance
has the obligation to pay the insurance proceeds of
Rheozel's personal accident insurance coverage to
Laingo, as Rheozel's named beneficiary.
WHEREFORE, we DENY the petition. We AFFIRM the
Decision dated 29 June 2012 and Resolution dated 11
December 2012 of the Court of Appeals in CA-G.R. CV
No. 01575.
SO ORDERED.
G.R. No. 183526               August 25, 2009
VIOLETA R. LALICAN, Petitioner,
vs.
THE INSULAR LIFE ASSURANCE COMPANY
LIMITED, AS REPRESENTED BY THE PRESIDENT
VICENTE R. AVILON, Respondent.
Challenged in this Petition for Review on
Certiorari1 under Rule 45 of the Rules of Court are the
Decision2 dated 30 August 2007 and the Orders dated
10 April 20083 and 3 July 20084 of the Regional Trial
Court (RTC) of Gapan City, Branch 34, in Civil Case No.
2177. In its assailed Decision, the RTC dismissed the
claim for death benefits filed by petitioner Violeta R.
Lalican (Violeta) against respondent Insular Life
Assurance Company Limited (Insular Life); while in its
questioned Orders dated 10 April 2008 and 3 July 2008,
respectively, the RTC declared the finality of the
aforesaid Decision and denied petitioner’s Notice of
Appeal.
The factual and procedural antecedents of the case, as
culled from the records, are as follows:
Violeta is the widow of the deceased Eulogio C. Lalican
(Eulogio).
During his lifetime, Eulogio applied for an insurance
policy with Insular Life. On 24 April 1997, Insular Life,
through Josephine Malaluan (Malaluan), its agent in
Gapan City, issued in favor of Eulogio Policy No.
9011992,5 which contained a 20-Year Endowment
Variable Income Package Flexi Plan worth
₱500,000.00,6 with two riders valued at ₱500,000.00
each.7 Thus, the value of the policy amounted to
₱1,500,000.00. Violeta was named as the primary
beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to
pay the premiums on a quarterly basis in the amount of
₱8,062.00, payable every 24 April, 24 July, 24 October
and 24 January of each year, until the end of the 20-
year period of the policy. According to the Policy
Contract, there was a grace period of 31 days for the
payment of each premium subsequent to the first. If
any premium was not paid on or before the due date,
the policy would be in default, and if the premium
remained unpaid until the end of the grace period, the
policy would automatically lapse and become void.8
Eulogio paid the premiums due on 24 July 1997 and 24
October 1997. However, he failed to pay the premium
due on 24 January 1998, even after the lapse of the
grace period of 31 days. Policy No. 9011992, therefore,
lapsed and became void.
Eulogio submitted to the Cabanatuan District Office of
Insular Life, through Malaluan, on 26 May 1998, an
Application for Reinstatement9 of Policy No. 9011992,
together with the amount of ₱8,062.00 to pay for the
premium due on 24 January 1998. In a letter10 dated 17
July 1998, Insular Life notified Eulogio that his
Application for Reinstatement could not be fully
processed because, although he already deposited
₱8,062.00 as payment for the 24 January 1998
premium, he left unpaid the overdue interest thereon
amounting to ₱322.48. Thus, Insular Life instructed
Eulogio to pay the amount of interest and to file another
application for reinstatement. Eulogio was likewise
advised by Malaluan to pay the premiums that
subsequently became due on 24 April 1998 and 24 July
1998, plus interest.
On 17 September 1998, Eulogio went to Malaluan’s
house and submitted a second Application for
Reinstatement11 of Policy No. 9011992, including the
amount of ₱17,500.00, representing payments for the
overdue interest on the premium for 24 January 1998,
and the premiums which became due on 24 April 1998
and 24 July 1998. As Malaluan was away on a business
errand, her husband received Eulogio’s second
Application for Reinstatement and issued a receipt for
the amount Eulogio deposited.
A while later, on the same day, 17 September 1998,
Eulogio died of cardio-respiratory arrest secondary to
electrocution.
Without knowing of Eulogio’s death, Malaluan forwarded
to the Insular Life Regional Office in the City of San
Fernando, on 18 September 1998, Eulogio’s second
Application for Reinstatement of Policy No. 9011992 and
₱17,500.00 deposit. However, Insular Life no longer
acted upon Eulogio’s second Application for
Reinstatement, as the former was informed on 21
September 1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a
claim for payment of the full proceeds of Policy No.
9011992.
In a letter12 dated 14 January 1999, Insular Life
informed Violeta that her claim could not be granted
since, at the time of Eulogio’s death, Policy No. 9011992
had already lapsed, and Eulogio failed to reinstate the
same. According to the Application for Reinstatement,
the policy would only be considered reinstated upon
approval of the application by Insular Life during the
applicant’s "lifetime and good health," and whatever
amount the applicant paid in connection thereto was
considered to be a deposit only until approval of said
application. Enclosed with the 14 January 1999 letter of
Insular Life to Violeta was DBP Check No. 0000309734,
for the amount of ₱25,417.00, drawn in Violeta’s favor,
representing the full refund of the payments made by
Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a
reconsideration of the disallowance of her claim. In a
letter13 dated 10 March 1999, Insular Life stated that it
could not find any reason to reconsider its decision
rejecting Violeta’s claim. Insular Life again tendered to
Violeta the above-mentioned check in the amount of
₱25,417.00.
Violeta returned the letter dated 10 March 1999 and the
check enclosed therein to the Cabanatuan District Office
of Insular Life. Violeta’s counsel subsequently sent a
letter14 dated 8 July 1999 to Insular Life, demanding
payment of the full proceeds of Policy No. 9011992. On
11 August 1999, Insular Life responded to the said
demand letter by agreeing to conduct a re-evaluation of
Violeta’s claim.
Without waiting for the result of the re-evaluation by
Insular Life, Violeta filed with the RTC, on 11 October
1999, a Complaint for Death Claim Benefit,15 which was
docketed as Civil Case No. 2177. Violeta alleged that
Insular Life engaged in unfair claim settlement practice
and deliberately failed to act with reasonable
promptness on her insurance claim. Violeta prayed that
Insular Life be ordered to pay her death claim benefits
on Policy No. 9011992, in the amount of ₱1,500,000.00,
plus interests, attorney’s fees, and cost of suit.
Insular Life filed with the RTC an Answer with
Counterclaim,16 asserting that Violeta’s Complaint had
no legal or factual bases. Insular Life maintained that
Policy No. 9011992, on which Violeta sought to recover,
was rendered void by the non-payment of the 24
January 1998 premium and non-compliance with the
requirements for the reinstatement of the same. By way
of counterclaim, Insular Life prayed that Violeta be
ordered to pay attorney’s fees and expenses of litigation
incurred by the former.
Violeta, in her Reply and Answer to Counterclaim,
asserted that the requirements for the reinstatement of
Policy No. 9011992 had been complied with and the
defenses put up by Insular Life were purely invented
and illusory.
After trial, the RTC rendered, on 30 August 2007, a
Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed
lapsed and Eulogio needed to have the same reinstated:
[The] arguments [of Insular Life] are not without basis.
When the premiums for April 24 and July 24, 1998 were
not paid by [Eulogio] even after the lapse of the 31-day
grace period, his insurance policy necessarily lapsed.
This is clear from the terms and conditions of the
contract between [Insular Life] and [Eulogio] which are
written in [the] Policy provisions of Policy No. 9011992
x x x.17
The RTC, taking into account the clear provisions of the
Policy Contract between Eulogio and Insular Life and the
Application for Reinstatement Eulogio subsequently
signed and submitted to Insular Life, held that Eulogio
was not able to fully comply with the requirements for
the reinstatement of Policy No. 9011992:
The well-settled rule is that a contract has the force of
law between the parties. In the instant case, the terms
of the insurance contract between [Eulogio] and [Insular
Life] were spelled out in the policy provisions of
Insurance Policy No. 9011992. There is likewise no
dispute that said insurance contract is by nature a
contract of adhesion[,] which is defined as "one in which
one of the contracting parties imposes a ready-made
form of contract which the other party may accept or
reject but cannot modify." (Polotan, Sr. vs. CA, 296
SCRA 247).
xxxx
The New Lexicon Webster’s Dictionary defines ambiguity
as the "quality of having more than one meaning" and
"an idea, statement or expression capable of being
understood in more than one sense." In Nacu vs. Court
of Appeals, 231 SCRA 237 (1994), the Supreme Court
stated that[:]
"Any ambiguity in a contract, whose terms are
susceptible of different interpretations as a result
thereby, must be read and construed against the party
who drafted it on the assumption that it could have
been avoided by the exercise of a little care."
In the instant case, the dispute arises from the afore-
quoted provisions written on the face of the second
application for reinstatement. Examining the said
provisions, the court finds the same clearly written in
terms that are simple enough to admit of only one
interpretation. They are clearly not ambiguous,
equivocal or uncertain that would need further
construction. The same are written on the very face of
the application just above the space where [Eulogio]
signed his name. It is inconceivable that he signed it
without reading and understanding its import.
Similarly, the provisions of the policy provisions (sic)
earlier mentioned are written in simple and clear
layman’s language, rendering it free from any ambiguity
that would require a legal interpretation or construction.
Thus, the court believes that [Eulogio] was well aware
that when he filed the said application for
reinstatement, his lapsed policy was not automatically
reinstated and that its approval was subject to certain
conditions. Nowhere in the policy or in the application
for reinstatement was it ever mentioned that the
payment of premiums would have the effect of an
automatic and immediate renewal of the lapsed policy.
Instead, what was clearly stated in the application for
reinstatement is that pending approval thereof, the
premiums paid would be treated as a "deposit only and
shall not bind the company until this application is
finally approved during my/our" lifetime and good
health[.]"
Again, the court finds nothing in the aforesaid provisions
that would even suggest an ambiguity either in the
words used or in the manner they were written.
[Violeta] did not present any proof that [Eulogio] was
not conversant with the English language. Hence, his
having personally signed the application for
reinstatement[,] which consisted only of one page,
could only mean that he has read its contents and that
he understood them. x x x
Therefore, consistent with the above Supreme Court
ruling and finding no ambiguity both in the policy
provisions of Policy No. 9011992 and in the application
for reinstatement subject of this case, the court finds no
merit in [Violeta’s] contention that the policy provision
stating that [the lapsed policy of Eulogio] should be
reinstated during his lifetime is ambiguous and should
be construed in his favor. It is true that [Eulogio]
submitted his application for reinstatement, together
with his premium and interest payments, to [Insular
Life] through its agent Josephine Malaluan in the
morning of September 17, 1998. Unfortunately, he died
in the afternoon of that same day. It was only on the
following day, September 18, 1998 that Ms. Malaluan
brought the said document to [the regional office of
Insular Life] in San Fernando, Pampanga for approval.
As correctly pointed out by [Insular Life] there was no
more application to approve because the applicant was
already dead and no insurance company would issue an
insurance policy to a dead person.18 (Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for
the loss of her husband, it cannot express the same by
interpreting the insurance agreement in her favor where
there is no need for such interpretation. It is conceded
that [Eulogio’s] payment of overdue premiums and
interest was received by [Insular Life] through its agent
Ms. Malaluan. It is also true that [the] application for
reinstatement was filed by [Eulogio] a day before his
death. However, there is nothing that would justify a
conclusion that such receipt amounted to an automatic
reinstatement of the policy that has already lapsed. The
evidence suggests clearly that no such automatic
renewal was contemplated in the contract between
[Eulogio] and [Insular Life]. Neither was it shown that
Ms. Malaluan was the officer authorized to approve the
application for reinstatement and that her receipt of the
documents submitted by [Eulogio] amounted to its
approval.19 (Emphasis ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and
finding that [Violeta] has failed to establish by
preponderance of evidence her cause of action against
the defendant, let this case be, as it is hereby
DISMISSED.20
On 14 September 2007, Violeta filed a Motion for
Reconsideration21 of the afore-mentioned RTC Decision.
Insular Life opposed22 the said motion, averring that the
arguments raised therein were merely a rehash of the
issues already considered and addressed by the RTC. In
an Order23 dated 8 November 2007, the RTC denied
Violeta’s Motion for Reconsideration, finding no cogent
and compelling reason to disturb its earlier findings. Per
the Registry Return Receipt on record, the 8 November
2007 Order of the RTC was received by Violeta on 3
December 2007.
In the interim, on 22 November 2007, Violeta filed with
the RTC a Reply24 to the Motion for Reconsideration,
wherein she reiterated the prayer in her Motion for
Reconsideration for the setting aside of the Decision
dated 30 August 2007. Despite already receiving on 3
December 2007, a copy of the RTC Order dated 8
November 2007, which denied her Motion for
Reconsideration, Violeta still filed with the RTC, on 26
February 2008, a Reply Extended Discussion elaborating
on the arguments she had previously made in her
Motion for Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order,25 declaring
that the Decision dated 30 August 2007 in Civil Case No.
2177 had already attained finality in view of Violeta’s
failure to file the appropriate notice of appeal within the
reglementary period. Thus, any further discussions on
the issues raised by Violeta in her Reply and Reply
Extended Discussion would be moot and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of
Appeal with Motion,26 praying that the Order dated 10
April 2008 be set aside and that she be allowed to file
an appeal with the Court of Appeals.
In an Order27 dated 3 July 2008, the RTC denied
Violeta’s Notice of Appeal with Motion given that the
Decision dated 30 August 2007 had long since attained
finality.
Violeta directly elevated her case to this Court via the
instant Petition for Review on Certiorari, raising the
following issues for consideration:
1. Whether or not the Decision of the court a
quo dated August 30, 2007, can still be
reviewed despite having allegedly attained
finality and despite the fact that the mode of
appeal that has been availed of by Violeta is
erroneous?
2. Whether or not the Regional Trial Court in its
original jurisdiction has decided the case on a
question of law not in accord with law and
applicable decisions of the Supreme Court?
Violeta insists that her former counsel committed an
honest mistake in filing a Reply, instead of a Notice of
Appeal of the RTC Decision dated 30 August 2007; and
in the computation of the reglementary period for
appealing the said judgment. Violeta claims that her
former counsel suffered from poor health, which rapidly
deteriorated from the first week of July 2008 until the
latter’s death just shortly after the filing of the instant
Petition on 8 August 2008. In light of these
circumstances, Violeta entreats this Court to admit and
give due course to her appeal even if the same was filed
out of time.
Violeta further posits that the Court should address the
question of law arising in this case involving the
interpretation of the second sentence of Section 19 of
the Insurance Code, which provides:
Section. 19. x x x [I]nterest in the life or health of a
person insured must exist when the insurance takes
effect, but need not exist thereafter or when the loss
occurs.
On the basis thereof, Violeta argues that Eulogio still
had insurable interest in his own life when he reinstated
Policy No. 9011992 just before he passed away on 17
September 1998. The RTC should have construed the
provisions of the Policy Contract and Application for
Reinstatement in favor of the insured Eulogio and
against the insurer Insular Life, and considered the
special circumstances of the case, to rule that Eulogio
had complied with the requisites for the reinstatement
of Policy No. 9011992 prior to his death, and that
Violeta is entitled to claim the proceeds of said policy as
the primary beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the
case to us via the instant Petition for Review on
Certiorari is not justified. Rule 41, Section 1 of the Rules
of Court,28 provides that no appeal may be taken from
an order disallowing or dismissing an appeal. In such a
case, the aggrieved party may file a Petition for
Certiorari under Rule 65 of the Rules of Court.29
Furthermore, the RTC Decision dated 30 August 2007,
assailed in this Petition, had long become final and
executory. Violeta filed a Motion for Reconsideration
thereof, but the RTC denied the same in an Order dated
8 November 2007. The records of the case reveal that
Violeta received a copy of the 8 November 2007 Order
on 3 December 2007. Thus, Violeta had 15 days30 from
said date of receipt, or until 18 December 2007, to file a
Notice of Appeal. Violeta filed a Notice of Appeal only on
20 May 2008, more than five months after receipt of the
RTC Order dated 8 November 2007 denying her Motion
for Reconsideration.
Violeta’s claim that her former counsel’s failure to file
the proper remedy within the reglementary period was
an honest mistake, attributable to the latter’s
deteriorating health, is unpersuasive.
Violeta merely made a general averment of her former
counsel’s poor health, lacking relevant details and
supporting evidence. By Violeta’s own admission, her
former counsel’s health rapidly deteriorated only by the
first week of July 2008. The events pertinent to Violeta’s
Notice of Appeal took place months before July 2008,
i.e., a copy of the RTC Order dated 8 November 2007,
denying Violeta’s Motion for Reconsideration of the
Decision dated 30 August 2007, was received on 3
December 2007; and Violeta’s Notice of Appeal was filed
on 20 May 2008. There is utter lack of proof to show
that Violeta’s former counsel was already suffering from
ill health during these times; or that the illness of
Violeta’s former counsel would have affected his
judgment and competence as a lawyer.
Moreover, the failure of her former counsel to file a
Notice of Appeal within the reglementary period binds
Violeta, which failure the latter cannot now disown on
the basis of her bare allegation and self-serving
pronouncement that the former was ill. A client is bound
by his counsel’s mistakes and negligence.31
The Court, therefore, finds no reversible error on the
part of the RTC in denying Violeta’s Notice of Appeal for
being filed beyond the reglementary period. Without an
appeal having been timely filed, the RTC Decision dated
30 August 2007 in Civil Case No. 2177 already became
final and executory.
A judgment becomes "final and executory" by operation
of law. Finality becomes a fact when the reglementary
period to appeal lapses and no appeal is perfected
within such period. As a consequence, no court (not
even this Court) can exercise appellate jurisdiction to
review a case or modify a decision that has become
final.32 When a final judgment is executory, it becomes
immutable and unalterable. It may no longer be
modified in any respect either by the court, which
rendered it or even by this Court. The doctrine is
founded on considerations of public policy and sound
practice that, at the risk of occasional errors, judgments
must become final at some definite point in time.33
The only recognized exceptions to the doctrine of
immutability and unalterability are the correction of
clerical errors, the so-called nunc pro tunc entries,
which cause no prejudice to any party, and void
judgments.34 The instant case does not fall under any of
these exceptions.
Even if the Court ignores the procedural lapses
committed herein, and proceeds to resolve the
substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition
involves a question of law, particularly, whether Eulogio
had an existing insurable interest in his own life until the
day of his death.
An insurable interest is one of the most basic and
essential requirements in an insurance contract. In
general, an insurable interest is that interest which a
person is deemed to have in the subject matter insured,
where he has a relation or connection with or concern in
it, such that the person will derive pecuniary benefit or
advantage from the preservation of the subject matter
insured and will suffer pecuniary loss or damage from
its destruction, termination, or injury by the happening
of the event insured against.35 The existence of an
insurable interest gives a person the legal right to insure
the subject matter of the policy of insurance.36 Section
10 of the Insurance Code indeed provides that every
person has an insurable interest in his own
life.37 Section 19 of the same code also states that an
interest in the life or health of a person insured must
exist when the insurance takes effect, but need not
exist thereafter or when the loss occurs.38
Upon more extensive study of the Petition, it becomes
evident that the matter of insurable interest is entirely
irrelevant in the case at bar. It is actually beyond
question that while Eulogio was still alive, he had an
insurable interest in his own life, which he did insure
under Policy No. 9011992. The real point of contention
herein is whether Eulogio was able to reinstate the
lapsed insurance policy on his life before his death on 17
September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the
erroneous declaration of the RTC in its 30 August 2007
Decision that Policy No. 9011992 lapsed because of
Eulogio’s non-payment of the premiums which became
due on 24 April 1998 and 24 July 1998. Policy No.
9011992 had lapsed and become void earlier, on 24
February 1998, upon the expiration of the 31-day grace
period for payment of the premium, which fell due on 24
January 1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact
beyond dispute. Eulogio’s filing of his first Application for
Reinstatement with Insular Life, through Malaluan, on
26 May 1998, constitutes an admission that Policy No.
9011992 had lapsed by then. Insular Life did not act on
Eulogio’s first Application for Reinstatement, since the
amount Eulogio simultaneously deposited was sufficient
to cover only the ₱8,062.00 overdue premium for 24
January 1998, but not the ₱322.48 overdue interests
thereon. On 17 September 1998, Eulogio submitted a
second Application for Reinstatement to Insular Life,
again through Malaluan, depositing at the same time
₱17,500.00, to cover payment for the overdue interest
on the premium for 24 January 1998, and the premiums
that had also become due on 24 April 1998 and 24 July
1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to
premium-paying status after it has been permitted to
lapse.39 Both the Policy Contract and the Application for
Reinstatement provide for specific conditions for the
reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life
identified the following conditions for reinstatement
should the policy lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three
years after it lapsed if the following conditions are met:
(1) the policy has not been surrendered for its cash
value or the period of extension as a term insurance has
not expired; (2) evidence of insurability satisfactory to
[Insular Life] is furnished; (3) overdue premiums are
paid with compound interest at a rate not exceeding
that which would have been applicable to said premium
and indebtedness in the policy years prior to
reinstatement; and (4) indebtedness which existed at
the time of lapsation is paid or renewed.40
Additional conditions for reinstatement of a lapsed policy
were stated in the Application for Reinstatement which
Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered
reinstated until this application is approved by the
Company during my/our lifetime and good health and
until all other Company requirements for the
reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be
made in connection with this application shall be
considered as deposit only and shall not bind the
Company until this application is finally approved by the
Company during my/our lifetime and good health. If this
application is disapproved, I/We also agree to accept
the refund of all payments made in connection herewith,
without interest, and to surrender the receipts for such
payment.41 (Emphases ours.)
In the instant case, Eulogio’s death rendered impossible
full compliance with the conditions for reinstatement of
Policy No. 9011992. True, Eulogio, before his death,
managed to file his Application for Reinstatement and
deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but
Policy No. 9011992 could only be considered reinstated
after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogio’s
lifetime and good health.
Relevant herein is the following pronouncement of the
Court in Andres v. The Crown Life Insurance
Company,42 citing McGuire v. The Manufacturer's Life
Insurance Co.43:
"The stipulation in a life insurance policy giving the
insured the privilege to reinstate it upon written
application does not give the insured absolute right to
such reinstatement by the mere filing of an application.
The insurer has the right to deny the reinstatement if it
is not satisfied as to the insurability of the insured and if
the latter does not pay all overdue premium and all
other indebtedness to the insurer. After the death of the
insured the insurance Company cannot be compelled to
entertain an application for reinstatement of the policy
because the conditions precedent to reinstatement can
no longer be determined and satisfied." (Emphases
ours.)
It does not matter that when he died, Eulogio’s
Application for Reinstatement and deposits for the
overdue premiums and interests were already with
Malaluan. Insular Life, through the Policy Contract,
expressly limits the power or authority of its insurance
agents, thus:
Our agents have no authority to make or modify this
contract, to extend the time limit for payment of
premiums, to waive any lapsation, forfeiture or any of
our rights or requirements, such powers being limited to
our president, vice-president or persons authorized by
the Board of Trustees and only in writing.44 (Emphasis
ours.)
Malaluan did not have the authority to approve Eulogio’s
Application for Reinstatement. Malaluan still had to turn
over to Insular Life Eulogio’s Application for
Reinstatement and accompanying deposits, for
processing and approval by the latter.
The Court agrees with the RTC that the conditions for
reinstatement under the Policy Contract and Application
for Reinstatement were written in clear and simple
language, which could not admit of any meaning or
interpretation other than those that they so obviously
embody. A construction in favor of the insured is not
called for, as there is no ambiguity in the said provisions
in the first place. The words thereof are clear,
unequivocal, and simple enough so as to preclude any
mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might
have failed to fully understand the import and meaning
of the provisions of his Policy Contract and/or
Application for Reinstatement, both of which he
voluntarily signed. While it is a cardinal principle of
insurance law that a policy or contract of insurance is to
be construed liberally in favor of the insured and strictly
as against the insurer company, yet, contracts of
insurance, like other contracts, are to be construed
according to the sense and meaning of the terms, which
the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense.45
Eulogio’s death, just hours after filing his Application for
Reinstatement and depositing his payment for overdue
premiums and interests with Malaluan, does not
constitute a special circumstance that can persuade this
Court to already consider Policy No. 9011992 reinstated.
Said circumstance cannot override the clear and express
provisions of the Policy Contract and Application for
Reinstatement, and operate to remove the prerogative
of Insular Life thereunder to approve or disapprove the
Application for Reinstatement. Even though the Court
commiserates with Violeta, as the tragic and fateful turn
of events leaves her practically empty-handed, the
Court cannot arbitrarily burden Insular Life with the
payment of proceeds on a lapsed insurance policy.
Justice and fairness must equally apply to all parties to
a case. Courts are not permitted to make contracts for
the parties. The function and duty of the courts consist
simply in enforcing and carrying out the contracts
actually made.46
Policy No. 9011992 remained lapsed and void, not
having been reinstated in accordance with the Policy
Contract and Application for Reinstatement before
Eulogio’s death. Violeta, therefore, cannot claim any
death benefits from Insular Life on the basis of Policy
No. 9011992; but she is entitled to receive the full
refund of the payments made by Eulogio thereon.
WHEREFORE, premises considered, the Court DENIES
the instant Petition for Review on Certiorari under Rule
45 of the Rules of Court. The Court AFFIRMS the Orders
dated 10 April 2008 and 3 July 2008 of the RTC of
Gapan City, Branch 34, in Civil Case No. 2177, denying
petitioner Violeta R. Lalican’s Notice of Appeal, on the
ground that the Decision dated 30 August 2007 subject
thereof, was already final and executory. No costs. SO
ORDERED.
[G.R. No. 113899. October 13, 1999.]
GREAT PACIFIC LIFE ASSURANCE
CORP., Petitioner, v. COURT OF APPEALS AND
MEDARDA V. LEUTERIO, Respondents.
This petition for review, under Rule 45 of the Rules of
Court, assails the Decision 1 dated May 17, 1993, of the
Court of Appeals and its Resolution 2 dated January 4,
1994 in CA-G.R. CV No. 18341. The appellate court
affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim
filed by private respondent against Great Pacific Life
Assurance Co. The dispositive portion of the trial court’s
decision reads:
"WHEREFORE, judgment is rendered adjudging the
defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy No. G-
1907, in relation to Certification B-18558 liable and
ordered to pay to the DEVELOPMENT BANK OF THE
PHILIPPINES as creditor of the insured Dr. Wilfredo
Leuterio, the amount of EIGHTY SIX THOUSAND TWO
HUNDRED PESOS (P86,200.00); dismissing the claims
for damages, attorney’s fees and litigation expenses in
the complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to
the plaintiffs, other than the widow-beneficiary, for lack
of cause of action." 3
The facts, as found by the Court of Appeals, are as
follows:
A contract of group life insurance was executed between
petitioner Great Pacific Life Assurance Corporation
(hereinafter Grepalife) and Development Bank of the
Philippines (hereinafter DBP). Grepalife agreed to insure
the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a
physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions
concerning his health condition as
follows:jgc:chanrobles.com.ph
"7. Have you ever had, or consulted, a physician for a
heart condition, high blood pressure, cancer, diabetes,
lung, kidney or stomach disorder or any other physical
impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good
health?
Answer: [ x ] Yes [ ] No."
4chanroblesvirtuallawlibrary:red
On November 15, 1983, Grepalife issued Certificate No.
B-18558, as insurance coverage of Dr. Leuterio, to the
extent of his DBP mortgage indebtedness amounting to
eighty-six thousand, two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to "massive
cerebral hemorrhage." Consequently, DBP submitted a
death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy
when he applied for an insurance coverage on
November 15, 1983. Grepalife insisted that Dr. Leuterio
did not disclose he had been suffering from
hypertension, which caused his death. Allegedly, such
non-disclosure constituted concealment that justified
the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio,
respondent Medarda V. Leuterio, filed a complaint with
the Regional Trial Court of Misamis Oriental, Branch 18,
against Grepalife for "Specific Performance with
Damages." 5 During the trial, Dr. Hernando Mejia, who
issued the death certificate, was called to testify. Dr.
Mejia’s findings, based partly from the information given
by the respondent widow, stated that Dr. Leuterio
complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr.
Leuterio was not autopsied, hence, other causes were
not ruled out.
On February 22, 1988, the trial court rendered a
decision in favor of respondent widow and against
Grepalife. On May 17, 1993, the Court of Appeals
sustained the trial court’s decision. Hence, the present
petition. Petitioners interposed the following assigned
errors:jgc:
"1. THE LOWER COURT ERRED IN HOLDING
DEFENDANT-APPELLANT LIABLE TO THE DEVELOPMENT
BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A
PARTY TO THE CASE FOR PAYMENT OF THE PROCEEDS
OF A MORTGAGE REDEMPTION INSURANCE ON THE
LIFE OF PLAINTIFF’S HUSBAND WILFREDO LEUTERIO
ONE OF ITS LOAN BORROWERS, INSTEAD OF
DISMISSING THE CASE AGAINST DEFENDANT-
APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE
OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE
CASE FOR WANT OF JURISDICTION OVER THE SUBJECT
OR NATURE OF THE ACTION AND OVER THE PERSON OF
THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING
DEFENDANT-APPELLANT TO PAY TO DBP THE AMOUNT
OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO
SHOW HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE
TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE
CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT
THERE WAS NO CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF WILFREDO LEUTERIO
IN HIS APPLICATION FOR MEMBERSHIP IN THE GROUP
LIFE INSURANCE PLAN BETWEEN DEFENDANT-
APPELLANT OF THE INSURANCE CLAIM ARISING FROM
THE DEATH OF WILFREDO LEUTERIO." 6
Synthesized below are the assigned errors for our
resolution:
1. Whether the Court of Appeals erred in holding
petitioner liable to DBP as beneficiary in a group life
insurance contract from a complaint filed by the widow
of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding
that Dr. Leuterio concealed that he had hypertension,
which would vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding
Grepalife liable in the amount of eighty six thousand,
two hundred (P86,200.00) pesos without proof of the
actual outstanding mortgage payable by the mortgagor
to DBP.
Petitioner alleges that the complaint was instituted by
the widow of Dr. Leuterio, not the real party in interest,
hence the trial court acquired no jurisdiction over the
case. It argues that when the Court of Appeals affirmed
the trial court’s judgment, Grepalife was held liable to
pay the proceeds of insurance contract in favor of DBP,
the indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable
interest in mortgaged properties and the parties to this
type of contract. The rationale of a group insurance
policy of mortgagors, otherwise known as the
"mortgage redemption insurance," is a device for the
protection of both the mortgagee and the mortgagor.
On the part of the mortgagee, it has to enter into such
form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying
the obligation. 7 In a similar vein, ample protection is
given to the mortgagor under such a concept so that in
the event of death; the mortgage obligation will be
extinguished by the application of the insurance
proceeds to the mortgage indebtedness. 8
Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the
loss payable to the mortgagee, the insurance is on the
mortgagor’s interest, and the mortgagor continues to be
a party to the contract. In this type of policy insurance,
the mortgagee is simply an appointee of the insurance
fund, such loss-payable clause does not make the
mortgagee a party to the contract. 9
Section 8 of the Insurance Code provides:
"Unless the policy provides, where a mortgagor of
property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will have
the same effect, although the property is in the hands of
the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the
same effect as if it had been performed by the
mortgagor." chanrobles.com : virtual law library
The insured private respondent did not cede to the
mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor’s
death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the
creditor and the balance of sum assured, if there is any,
shall then be paid to the beneficiary/ies designated by
the debtor." 10 When DBP submitted the insurance
claim against petitioner, the latter denied payment
thereof, interposing the defense of concealment
committed by the insured. Thereafter, DBP collected the
debt from the mortgagor and took the necessary action
of foreclosure on the residential lot of
private Respondent. 11 In Gonzales La O v. Yek Tong
Lin Fire & Marine Ins. Co. 12 we held:
"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 recoverable under the policy, . . . .’
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 the policy for the purpose of
collection, or has assigned as collateral security any
judgment he may obtain."
And since a policy of insurance upon life or health may
pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such
person may recover it whatever the insured might have
recovered, 14 the widow of the decedent Dr. Leuterio
may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged
concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner
contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death.
Concealment exists where the assured had knowledge
of a fact material to the risk, and honesty, good faith,
and fair dealing requires that he should communicate it
to the assured, but he designedly and intentionally
withholds the same. 15
Petitioner merely relied on the testimony of the
attending physician, Dr. Hernando Mejia, as supported
by the information given by the widow of the decedent.
Grepalife asserts that Dr. Mejia’s technical diagnosis of
the cause of death of Dr. Leuterio was a duly
documented hospital record, and that the widow’s
declaration that her husband had "possible hypertension
several years ago" should not be considered as hearsay,
but as part of res gestae.
On the contrary the medical findings were not
conclusive because Dr. Mejia did not conduct an autopsy
on the body of the decedent. As the attending physician,
Dr. Mejia stated that he had no knowledge of Dr.
Leuterio’s any previous hospital confinement. 16 Dr.
Leuterio’s death certificate stated that hypertension was
only "the possible cause of death." The private
respondent’s statement, as to the medical history of her
husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was
properly considered by the trial court as hearsay.
The question of whether there was concealment was
aptly answered by the appellate court, thus:
"The insured, Dr. Leuterio, had answered in his
insurance application that he was in good health and
that he had not consulted a doctor or any of the
enumerated ailments, including hypertension; when he
died the attending physician had certified in the death
certificate that the former died of cerebral hemorrhage,
probably secondary to hypertension. From this report,
the appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellant’s allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured’s
widow who was not even sure if the medicines taken by
Dr. Leuterio were for hypertension, the appellant had
not proven nor produced any witness who could attest
to Dr. Leuterio’s medical history. . .
x          x          x
Appellant insurance company had failed to establish that
there was concealment made by the insured, hence, it
cannot refuse payment of the claim.
The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract.
18 Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing
evidence rests upon the insurer. 19 In the case at bar,
the petitioner failed to clearly and satisfactorily establish
its defense, and is therefore liable to pay the proceeds
of the insurance.
And that brings us to the last point in the review of the
case at bar. Petitioner claims that there was no evidence
as to the amount of Dr. Leuterio’s outstanding
indebtedness to DBP at the time of the mortgagor’s
death. Hence, for private respondent’s failure to
establish the same, the action for specific performance
should be dismissed. Petitioner’s claim is without merit.
A life insurance policy is a valued policy. 20 Unless the
interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity
under a policy of insurance upon life or health is the
sum fixed in the policy. 21 The mortgagor paid the
premium according to the coverage of his insurance,
which states that:
"The policy states that upon receipt of due proof of the
Debtor’s death during the terms of this insurance, a
death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor’s death before his
indebtedness with the creditor shall have been fully
paid, an amount to pay the outstanding indebtedness
shall first be paid to the Creditor and the balance of the
Sum Assured, if there is any shall then be paid to the
beneficiary/ies designated by the debtor." 22 (Emphasis
omitted)
However, we noted that the Court of Appeals’ decision
was promulgated on May 17, 1993. In private
respondent’s memorandum, she states that DBP
foreclosed in 1995 their residential lot, in satisfaction of
mortgagor’s outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to
the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo
cum alterius detrimenio protest). Hence, it cannot
collect the insurance proceeds, after it already
foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterio’s heirs represented by his widow,
herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The
Decision and Resolution of the Court of Appeals in CA-
G.R. CV 18341 is AFFIRMED with MODIFICATION that
the petitioner is ORDERED to pay the insurance
proceeds amounting to Eighty-six thousand, two
hundred (P86,200.00) pesos to the heirs of the insured,
Dr. Wilfredo Leuterio (deceased), upon presentation of
proof of prior settlement of mortgagor’s indebtedness to
Development Bank of the Philippines. Costs against
petitioner. SO ORDERED.
G.R. No. 195728
PARAMOUNT LIFE & GENERAL INSURANCE
CORPORATION, Petitioner,
vs.
CHERRY T. CASTRO and GLENN ANTHONY T.
CASTRO, Respondents.
x-----------------------x
G.R. No. 211329
CHERRY T. CASTRO and GLENN ANTHONY T.
CASTRO, Petitioners,
vs.
PARAMOUNT LIFE & GENERAL INSURANCE
CORPORATION, Respondent
These Petitions for Review on Certiorari under Rule 45
of the Rules of Court originate from a Complaint1 for
Declaration of Nullity of Individual Insurance Contract
(Civil Case No. 09-5992). The Complaint was instituted
by Paramount Life and General Insurance Corporation
(Paramount) against Cherry T. Castro and Glenn
Anthony T. Castro (Castro’s) and filed before the
Regional Trial Court, Makati City, Branch 61 (RTC), on 2
July 2009.
The Petition3 docketed as G.R. No. 195728 assails the
Court of Appeals (CA) Decision4 dated 4 October 2010
and Resolution5 dated 21 February 2011 in CA-G.R. SP
No. 113972. The CA remanded the case to the RTC for
the admission of the Castro's Third-Party Complaint
against the Philippine Postal Savings Bank, Incorporated
(PPS BI). 6
On the other hand, the Petition 7 docketed as G.R. No.
211329 assails the Resolution8 of the RTC in Civil Case
No. 09-599 dated 11 February 2014. The trial court
ordered that the Motion to Dismiss filed by the
defendants (the Castro’s) be deemed expunged from
the records, as they had previously been declared to be
in default. Nonetheless, due to the protracted nature of
the proceedings, the RTC allowed the plaintiff no more
than two settings for the presentation of evidence.9
These Petitions have been consolidated as they involve
the same parties, arise from an identical set of facts,
and raise interrelated issues. 10 The Court resolves to
dispose of these cases jointly.
FACTS OF THE CASE
In 2004, the PPSBI applied for and obtained insurance
from Paramount, 11 which accordingly issued Group
Master Policy No. G-08612 effective 1 September 2004.
Under Section 20, Article IV of the said policy, "all death
benefits shall be payable to the creditor, PPSBI, as its
interest may appeal." 13
Meanwhile, Virgilio J. Castro (Virgilio) - Cherry's
husband and Glenn's father - obtained a housing loan
from the PPSBI in the amount of Pl .5 million. 14 PPSBI
required Virgilio to apply for a mortgage redemption
insurance (MRI) from Paramount to cover the loan. 15 In
his application for the said insurance policy, Virgilio
named Cherry and Glenn as beneficiaries. 16 Paramount
issued Certificate No. 041913 effective 12 March 2008 in
his favor, subject to the terms and conditions of Group
Master Policy No. G-086. 17
On 26 February 2009, Virgilio died of septic
shock. 18 Consequently, a claim was filed for death
benefits under the individual insurance coverage issued
under the group policy. 19 Paramount however denied
the claim, on the
ground of the failure of Virgilio to disclose material
information, or material concealment or
misrepresentation.20 It said that when Virgilio submitted
his insurance application on 12 March 2008, he made
some material misrepresentations by answering "no" to
questions on whether he had any adverse health history
and whether he had sought medical advice or
consultation concerning it. Paramount learned that in
2005, Virgilio had sought consultation in a private
hospital after complaining of a dull pain in his
lumbosacral area. 21 Because of the alleged material
concealment or misrepresentation, it declared Virgilio's
individual insurance certificate (No. 041913) rescinded,
null, and absolutely void from the very beginning.22
On 2 July 2009, Paramount filed a Complaint23 with the
RTC docketed as Civil Case No. 09-599. It prayed that
Application and Insurance Certificate No. 041913
covering the individual insurance of Virgilio be declared
null and void by reason of material concealment and
misrepresentation. It also prayed for attorney's fees and
exemplary damages.24
In their Answer with Counterclaim, 25 the Castro’s
argued that Virgilio had not made any material
misrepresentation. They contended that he had
submitted the necessary evidence of insurability to the
satisfaction of
Paramount. They further argued that by approving
Virgilio's application, Paramount was estopped from
raising the supposed misrepresentations. 26 The Castro’s
made a counterclaim for actual and exemplary
damages, as well
as attorney's fees, for the alleged breach of contract by
Paramount arising from its refusal to honor its obligation
as insurer of the Pl.5 million loan.27
STATEMENT OF THE CASES
G.R. No. 195728
On 29 October 2009, the Castros filed a motion28 to
include the PPSBI as an indispensible party-defendant.
The RTC thereafter denied the motion, reasoning that
Paramount's Complaint could be fully resolved without
the PPSBI's participation. 29
Consequently, the Castro’s filed a Motion for Leave to
File a Third Party-Complaint and to Admit Attached
Third-Party Complaint.30 They argued that due to the
death of Virgilio, and by virtue of Group Policy No. G-
086 in· relation to Certificate No. 041913, PPSBI
stepped into the shoes of Cherry and Glen under the
principle of "indemnity, subrogation, or any other
reliefs" found in Section 22, Rule 6 of the Rules of
Court.31 This motion was likewise denied, on the ground
that "what the defendants herein want is the
introduction of a controversy that is entirely foreign and
distinct from the main cause."32 The Castro’s Motion for
Reconsideration was again denied in a
Resolution33 dated 19 April 2010
On 13 May 2010, the Castro’s assailed the RTC
Resolutions through a Petition for Certiorari filed with
the CA.34 They likewise subsequently filed a Motion for
Leave of Court to File and to Admit Attached
Supplemental Petition for Review.35
In its Decision36 dated 4 October 2010, the CA partially
granted the Petition by allowing a third-party complaint
to be filed against the PPSBI. It ruled that the Castro’s
were freed from the obligation to pay the bank by virtue
of subrogation, as the latter would collect the loan
amount pursuant to the MRI issued by Paramount in
Virgilio's favor. 37 Paramount moved for reconsideration,
but the CA denied the motion through a
Resolution38 dated 21 February 2011.
On 11 April 2011, Paramount filed a Petition for Review
under Rule 45, arguing that the case could be fully
appreciated and resolved without involving the PPSBI as
a third-party defendant in Civil Case No. 09-599.39
G.R. No. 211329
Meanwhile, on 7 January 2014, the Castro’s filed a
Motion to Dismiss40 the Complaint on the ground of
failure to prosecute for an unreasonable length of time
without justifiable cause and to present evidence ex
parte pursuant to a court order. In a Resolution41 dated
11 February 2014, the RTC denied the motion. Owing to
its previous Order dated 26 May 2010, which declared
the Castro’s as in default for failure to attend the
pretrial, the RTC treated the Motion to Dismiss as a
mere scrap of paper and expunged it from the records.
The Castro’s come straight to this Court via a Petition
for Review42 under Rule 45, assailing the RTC Resolution
dated 11 February 2014.
THE ISSUES
1. Whether the CA erred in remanding the case to the R
TC for the admission of the Third-Party Complaint
against PPSBI
2. Whether the RTC erred in denying the Motion to
Dismiss filed by the Castro’s
THE COURT'S RULING
G.R. No. 195728
The Castro’s sought to implead the PPSBI as a third-
party defendant in the nullification case instituted by
Paramount. They theorized that by virtue of the death of
Virgilio and the mandate of the group insurance policy in
relation to his individual insurance policy, the PPSBI
stepped into the shoes of Cherry and Glenn. According
to the Castro’s, upon Virgilio's death, the obligation to
pay the third-party defendant (PPSBI) passed on to
Paramount by virtue of the Mortgage Redemption
Insurance,43 and not to them as Virgilio's heirs.
In Great Pacific Life Assurance Corp. v. Court of
Appeals,  44 we defined mortgage redemption insurance
as a device for the protection of both the mortgagee and
the mortgagor:
On the part of the mortgagee, it has to enter into such
form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance
will
be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying
the obligation. In a similar vein, ample protection is
given to the mortgagor under such a concept so that in
the event of death, the mortgage obligation will be
extinguished by the application of the insurance
proceeds to the mortgage indebtedness.45
In this case, the PPSBI, as the mortgagee-bank,
required Virgilio to obtain an MRI from Paramount to
cover his housing loan. The issuance of the MRI, as
evidenced by the Individual Insurance Certificate in
Virgilio's favor, was derived from the group insurance
policy issued by Paramount in favor of the PPSBI.
Paramount undertook to pay the PPSBI "the benefits in
accordance with the Insurance Schedule, upon receipt
and approval of due proof that the member has incurred
a loss for which benefits are payable."46
Paramount, in opposing the PPSBI's inclusion as a third-
party defendant, reasons that it is only seeking the
nullification of Virgilio's individual insurance certificate,
and not the group insurance policy forged between it
and the PPSBI. It concludes that the nullification action
it filed has nothing to do with the PPSBI.
We disagree.
Should Paramount succeed in having the individual
insurance certificate nullified, the PPSBI shall then
proceed against the Castro’s. This would contradict the
provisions of the group insurance policy that ensure the
direct payment by the insurer to the bank:
Notwithstanding the provision on Section 22 "No
Assignment" of Article IV Benefit Provisions, and in
accordance with provisions of Section 6 "Amendment of
this Policy" under Article II General Provisions of the
Group Policy, it is hereby agreed that all death
benefits shall be payable to the Creditor,
Philippine Postal Savings Bank as its interest may
appeal.47 (Emphasis supplied.)
In allowing the inclusion of the PPSBI as a third-party
defendant, the Court recognizes the inseparable interest
of the bank (as policyholder of the group policy) in the
validity of the individual insurance certificates issued by
Paramount. The PPSBI need not institute a separate
case, considering that its cause of action is intimately
related to that of Paramount as against the Castro’s.
The soundness of admitting a third-party complaint
hinges on causal connection between the claim of the
plaintiff in his complaint and a claim for contribution,
indemnity or other relief of the defendant against the
third-party defendant. 48 In this case, the Castro’s stand
to incur a bad debt to the PPSBI - the exact event that
is insured against by Group Master Policy No. G-086 - in
the event that Paramount succeeds in nullifying Virgilio's
Individual Insurance Certificate.
Paramount further argues that the propriety of a third-
party complaint rests on whether the possible third-
party defendant (in this case PPSBI) can raise the same
defenses that the third-party plaintiffs (the Castro’s)
have against the plaintiff. However, the Rules do not
limit the third-party defendant's options to such a
condition. Thus:
Section 13. Answer to third (fourth, etc.)-party
complaint.  – A third (fourth, etc.)-party defendant may
allege in his answer his defenses, counterclaims or
cross-claims, including such defenses that the third
(fourth, etc.)-party plaintiff may have against the
original plaintiffs claim. In proper cases, he may also
assert a counterclaim against the original plaintiff in
respect of the latter's claim against the third-party
plaintiff. 49
As seen above, the same defenses the third-party
plaintiff has against the original plaintiff are just some of
the allegations a third-party defendant may raise in its
answer. Section 13 even gives the third-party defendant
the prerogative to raise a counterclaim against the
original plaintiff in respect of the latter's original claim
against the defendant/third-party plaintiff.
In Firestone Tire & Rubber Co. of the Phil. v.
Tempongko,  50 We ruled that a defendant is permitted
to bring in a third-party defendant to litigate a separate
cause of action in respect of the plaintiffs claim against
a third party in the original and principal case. The
objective is to avoid circuitry of action and unnecessary
proliferation of lawsuits, as well as to expeditiously
dispose of the entire subject matter arising from one
particular set of facts, in one litigation.
The CA correctly ruled that to admit the Castro’s Third-
Party Complaint, in which they can assert against the
PPSBI an independent claim they would otherwise assert
in another action, would prevent multiplicity of
suits.51 Considering also that the original case from
which these. Present Petitions arose has not yet been
resolved, the Court deems it proper to have all the
parties air all their possible grievances in the original
case still pending with the RTC.
Finally, the Court resolves the legal issues allegedly
ignored by the CA, to wit: 1) whether legal grounds
exist for the inhibition of Judge Ruiz (the presiding
judge); and 2) whether the defendants were properly
declared
as in default for failure to appear at pretrial.
The first issue is unmeritorious. Counsel for the Castro’s
postulates that since six rulings of the judge are being
assailed for grave abuse of discretion, the judge should
inhibit himself.52 According to counsel, no judge shall sit
in any case if the latter's ruling is subject to review. The
Court reminds counsel that the rule contemplates a
scenario in which judges are tasked to review their own
decisions on appeal, not when their decisions are being
appealed to another tribunal.
With regard to the second issue, counsel apparently
confuses a declaration of default under Section 353 of
Rule 9 with the effect of failure to appear under Section
554 of Rule 18. Failure to file a responsive pleading
within the reglementary period is the sole ground for an
order of default under Rule 9.55 On the other hand,
under Rule 18, failure of the defendant to appear at the
pre-trial conference results in the plaintiff being allowed
to present evidence ex parte.  The difference is that a
declaration of default under Rule 9 allows the Court to
proceed to render judgment granting the claimant such
relief as his pleading may warrant; while the effect of
default under Rule 18 allows the plaintiff to present
evidence ex parte  and for the Court to render judgment
on the basis thereof. The lower com1 may have
declared defendants therein as  in default; however, it
did not issue an order of default, rather, it ordered the
plaintiff to present evidence ex parte in accordance with
the Rules. In any case, the Castro’s could have availed
themselves of appropriate legal remedies when the CA
failed to resolve the issue, but they did not. They cannot
now resurrect the issue through a Comment before this
Court.
G.R. No. 211329
As regards G.R. No. 211329, this Court finds that
outright denial of the Petition is warranted, pursuant to
our ruling in Rayos v. City of Manila.56 In that case, We
ruled that an order denying a motion to dismiss is
interlocutory and, hence, not appealable. 57 That ruling
was based on Section 1 (b), Rule 41 of the Rules of
Court, as amended, which provides:
SECTION 1. Subject of appeal. - An appeal may be
taken from a judgment or final order that completely
disposes of the case, or of a particular matter therein
when declared by these Rules to be appealable.
No appeal may be taken from:
xxxx
(b) An interlocutory order;
xxxx
In all the above instances where the judgment or final
order is not appealable, the aggrieved party may file an
appropriate special civil action under Rule 65.
In the present case, the RTC's denial of the Motion to
Dismiss was an interlocutory order, as it did not finally
dispose of the case. On the contrary; the denial paved
way for the case to proceed until final adjudication by
the trial court.
Upon denial of their Motion to Dismiss, the Castro’s
were not left without any recourse. In such a situation,
the aggrieved party's remedy is to file a special civil
action for certiorari under Rule 65 of the Rules of Court.
However, the aggrieved parties herein resorted to filing
a Petition for Review under Rule 45 before this Court.
Even if the present Petition is treated as one for
certiorari under Rule 65, it must still be dismissed for
violation of the principle of hierarchy of courts. This
well-settled principle dictates that petitioners should
have filed the Petition for Certiorari with the CA, and not
directly with this Court.
WHEREFORE, premises considered, the Petitions in
G.R. Nos. 195728 and 211329 are DENIED. SO
ORDERED.
G.R. No. 147839             June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH
AMERICA, Respondent.
Before the Court is a petition for review on certiorari of
the Decision1 dated October 11, 2000 of the Court of
Appeals (CA) in CA-G.R. CV No. 61848 which set aside
the Decision dated August 31, 1998 of the Regional Trial
Court, Branch 138, Makati (RTC) in Civil Case No. 92-
322 and upheld the causes of action for damages of
Insurance Company of North America (respondent)
against Gaisano Cagayan, Inc. (petitioner); and the CA
Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is
the local distributor of products bearing trademarks
owned by Levi Strauss & Co.. IMC and LSPI separately
obtained from respondent fire insurance policies with
book debt endorsements. The insurance policies provide
for coverage on "book debts in connection with ready-
made clothing materials which have been sold or
delivered to various customers and dealers of the
Insured anywhere in the Philippines."2 The policies
defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this
Policy."3 The policies also provide for the following
conditions:
1. Warranted that the Company shall not be
liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured
which are outstanding at the date of loss for a
period in excess of six (6) months from the date
of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to
the Company within twelve (12) days after the
close of every calendar month all amount
shown in their books of accounts as unpaid and
thus become receivable item from their
customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of
IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned by
petitioner, was consumed by fire. Included in the items
lost or destroyed in the fire were stocks of ready-made
clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for
damages against petitioner. It alleges that IMC and LSPI
filed with respondent their claims under their respective
fire insurance policies with book debt endorsements;
that as of February 25, 1991, the unpaid accounts of
petitioner on the sale and delivery of ready-made
clothing materials with IMC was P2,119,205.00 while
with LSPI it was P535,613.00; that respondent paid the
claims of IMC and LSPI and, by virtue thereof,
respondent was subrogated to their rights against
petitioner; that respondent made several demands for
payment upon petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995,
petitioner contends that it could not be held liable
because the property covered by the insurance policies
were destroyed due to fortuities event or force majeure;
that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed
by it since the loss was due to fire which it could not
prevent or foresee; that IMC and LSPI never
communicated to it that they insured their properties;
that it never consented to paying the claim of the
insured.6
At the pre-trial conference the parties failed to arrive at
an amicable settlement.7 Thus, trial on the merits
ensued.
On August 31, 1998, the RTC rendered its decision
dismissing respondent's complaint.8 It held that the fire
was purely accidental; that the cause of the fire was not
attributable to the negligence of the petitioner; that it
has not been established that petitioner is the debtor of
IMC and LSPI; that since the sales invoices state that "it
is further agreed that merely for purpose of securing the
payment of purchase price, the above-described
merchandise remains the property of the vendor until
the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the
loss.
Dissatisfied, petitioner appealed to the CA.9 On October
11, 2000, the CA rendered its decision setting aside the
decision of the RTC. The dispositive portion of the
decision reads:
WHEREFORE, in view of the foregoing, the appealed
decision is REVERSED and SET ASIDE and a new one is
entered ordering defendant-appellee Gaisano Cagayan,
Inc. to pay:
1. the amount of P2,119,205.60 representing
the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation,
plus legal interest from the time of demand
until fully paid;
2. the amount of P535,613.00 representing the
amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully
paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale,
being detailed statements of the nature, quantity and
cost of the thing sold; that loss of the goods in the fire
must be borne by petitioner since the proviso contained
in the sales invoices is an exception under Article 1504
(1) of the Civil Code, to the general rule that if the thing
is lost by a fortuitous event, the risk is borne by the
owner of the thing at the time the loss under the
principle of res perit domino; that petitioner's obligation
to IMC and LSPI is not the delivery of the lost goods but
the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is
considered a fortuitous event; that by subrogation, the
insurer has the right to go against petitioner; that,
being a fire insurance with book debt endorsements,
what was insured was the vendor's interest as a
creditor.11
Petitioner filed a motion for reconsideration12 but it was
denied by the CA in its Resolution dated April 11,
2001.13
Hence, the present petition for review on certiorari
anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER
CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL
RISK OVER THE SUBJECT GOODS IN THE INSTANT
CASE HAD TRANSFERRED TO PETITIONER UPON
DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS AUTOMATIC SUBROGATION UNDER ART.
2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the
insurance in the present case cannot be deemed to be
over credit since an insurance "on credit" belies not only
the nature of fire insurance but the express terms of the
policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the
insured goods to fire and not because of the non-
payment by petitioner of any obligation; that, even if
the insurance is deemed as one over credit, there was
no loss as the accounts were not yet due since no prior
demands were made by IMC and LSPI against petitioner
for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI
under the fire insurance policies.15
As to the second error, petitioner avers that despite
delivery of the goods, petitioner-buyer IMC and LSPI
assumed the risk of loss when they secured fire
insurance policies over the goods.
Concerning the third ground, petitioner submits that
there is no subrogation in favor of respondent as no
valid insurance could be maintained thereon by IMC and
LSPI since all risk had transferred to petitioner upon
delivery of the goods; that petitioner was not privy to
the insurance contract or the payment between
respondent and its insured nor was its consent or
approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent in
the obligation to pay, limiting its interest to keeping the
insured goods safe from fire.
For its part, respondent counters that while ownership
over the ready- made clothing materials was transferred
upon delivery to petitioner, IMC and LSPI have insurable
interest over said goods as creditors who stand to suffer
direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing
materials since it failed to overcome the presumption of
liability under Article 126516 of the Civil Code; that the
fire was caused through petitioner's negligence in failing
to provide stringent measures of caution, care and
maintenance on its property because electric wires do
not usually short circuit unless there are defects in their
installation or when there is lack of proper maintenance
and supervision of the property; that petitioner is guilty
of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to
respondent for contracted lawyer's fees, litigation
expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction
of this Court in cases brought before it from the CA is
limited to reviewing questions of law which involves no
examination of the probative value of the evidence
presented by the litigants or any of them.18 The
Supreme Court is not a trier of facts; it is not its
function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate
court are generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several
exceptions in which factual issues may be resolved by
this Court, such as: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when in making its findings the CA
went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial
court; (8) when the findings are conclusions without
citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in
the petitioner's main and reply briefs are not disputed
by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when
the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4),
(5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned
insurance policy. Petitioner claims that the CA erred in
construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since
such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are
plain and readily understood, there is no room for
construction.22 In this case, the questioned insurance
policies provide coverage for "book debts in connection
with ready-made clothing materials which have been
sold or delivered to various customers and dealers of
the Insured anywhere in the Philippines."23 ; and defined
book debts as the "unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of
the loss covered under this Policy."24 Nowhere is it
provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered
to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it
any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of
the contract.25 Thus, what were insured against were
the accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire, and
not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because
it expressly reserved ownership of the goods by
stipulating in the sales invoices that "[i]t is further
agreed that merely for purpose of securing the payment
of the purchase price the above described merchandise
remains the property of the vendor until the purchase
price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1),
Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain
at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or
not, except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such
delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure
that the buyer will pay its debt, the risk of loss is borne
by the buyer.27 Accordingly, petitioner bears the risk of
loss of the goods delivered.
IMC and LSPI did not lose complete interest over the
goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the
civil law concept of res perit domino, where ownership is
the basis for consideration of who bears the risk of loss,
in property insurance, one's interest is not determined
by concept of title, but whether insured has substantial
economic interest in the property.28
Section 13 of our Insurance Code defines insurable
interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
directly damnify the insured." Parenthetically, under
Section 14 of the same Code, an insurable interest in
property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out
of which the expectancy arises.
Therefore, an insurable interest in property does not
necessarily imply a property interest in, or a lien upon,
or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is requisite
to the existence of such an interest, it is sufficient that
the insured is so situated with reference to the property
that he would be liable to loss should it be injured or
destroyed by the peril against which it is
insured.29 Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer
loss from its destruction.30 Indeed, a vendor or seller
retains an insurable interest in the property sold so long
as he has any interest therein, in other words, so long
as he would suffer by its destruction, as where he has a
vendor's lien.31 In this case, the insurable interest of
IMC and LSPI pertain to the unpaid accounts appearing
in their Books of Account 45 days after the time of the
loss covered by the policies.
The next question is: Is petitioner liable for the unpaid
accounts?
Petitioner's argument that it is not liable because the
fire is a fortuitous event under Article 117432 of the Civil
Code is misplaced. As held earlier, petitioner bears the
loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this
case is not for loss of goods by fire but for petitioner's
accounts with IMC and LSPI that remained unpaid 45
days after the fire. Accordingly, petitioner's obligation is
for the payment of money. As correctly stated by the
CA, where the obligation consists in the payment of
money, the failure of the debtor to make the payment
even by reason of a fortuitous event shall not relieve
him of his liability.33 The rationale for this is that the rule
that an obligor should be held exempt from liability
when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding
him liable even in case of fortuitous event. It does not
apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation
to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the
obligation." If the obligation is generic in the sense that
the object thereof is designated merely by its class or
genus without any particular designation or physical
segregation from all others of the same class, the loss
or destruction of anything of the same kind even
without the debtor's fault and before he has incurred in
delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the
genus of a thing can never perish. Genus nunquan
perit.36 An obligation to pay money is generic; therefore,
it is not excused by fortuitous loss of any specific
property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was
negligent are matters immaterial to this case. What is
relevant here is whether it has been established that
petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately
established its claim. Exhibits "C" to "C-22"38 show that
petitioner has an outstanding account with IMC in the
amount of P2,119,205.00. Exhibit "E"39 is the check
voucher evidencing payment to IMC. Exhibit "F"40 is the
subrogation receipt executed by IMC in favor of
respondent upon receipt of the insurance proceeds. All
these documents have been properly identified,
presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish
not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle
the insurance claim. The right of subrogation accrues
simply upon payment by the insurance company of the
insurance claim.41 Respondent's action against petitioner
is squarely sanctioned by Article 2207 of the Civil Code
which provides:
Art. 2207. If the plaintiff's property has been insured,
and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance
company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has
violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient
evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit "F Levi Strauss",42 a letter
dated April 23, 1991 from petitioner's General Manager,
Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms
the loss of Levi's products in the amount of P535,613.00
in the fire that razed petitioner's building on February
25, 1991.
Moreover, there is no proof of full settlement of the
insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which LSPI
may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for
recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The
assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals
in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of
factual basis. No pronouncement as to costs. SO
ORDERED.
G.R. No. L-9401             March 30, 1915
ANTONINA LAMPANO, plaintiff-appellee,
vs.
PLACIDA A. JOSE, ET AL., defendants-appellants.
The defendant, Mariano R. Barretto, constructed a
house for the other defendant, Placida A. Jose, on land
described as No. 72, plot F. Estate of Nagtahan, district
of Sampaloc, city of Manila, for the agreed price of
P6,000. Subsequent thereto and on November 12,
1912, Placida A. Jose sold the house to the plaintiff,
Antonina Lampano, for the sum of P6,000. On March 22,
1913, the house was destroyed by fire. At the time of
the fire Antonina Lampano still owed Placida A. Jose the
sum of P2,000, evidenced by a promissory note, and
Placida A. Jose still owed Mariano R. Barretto on the
cost of the construction the sum of P2,000. After the
completion of the house and sometime before it was
destroyed, Mariano R. Barretto took out an insurance
policy upon it in his own name, with the consent of
Placida A. Jose, for the sum of P4,000. After its
destruction, he collected P3,600 from the insurance
company, having paid in premiums the sum of P301.50.
The plaintiff alleged in her complaint that there was a
verbal agreement between her and Placida A. Jose, at
the time of the purchase and sale of the house, to the
effect that the latter agreed to deliver to her the
insurance policy on the building; that she did not learn
that the policy was in the name of Barretto until after
the fire; and the neither Placida A. Jose nor Mariano R.
Barretto has any right to the insurance or to the money
received therefrom. She prayed for judgment against
each of them for the sum of P3,600, the amount of the
insurance collected.
To this complaint the defendant, Placida A. Jose,
answered, denying that she agreed to transfer the
policy of insurance to the plaintiff and alleging (a) that
the insurance was taken out and paid for by Barretto
before the sale of the house to the plaintiff; (b) that
Barretto did this because he had constructed the house
and she was owing him therefor; and (c) that the
insurance was entirely for the personal account and in
the exclusive interest of Barretto. In her cross-complaint
she asked for judgment against the plaintiff for the sum
of P2,000, the balance due on the purchase price.
Barretto answered, reciting the facts giving rise to his
taking out the insurance on the house and denying any
obligation to the plaintiff in connection therewith.
Judgment was entered against Barretto and in favor of
Placida A. Jose for the sum of P1,298.50, being the
difference between the amount collected by Barretto on
the insurance and the amount yet due him for the
construction of the house, including the premiums paid.
Judgment was also entered in favor of the defendant,
Placida A. Jose, against the plaintiff for the sum of
P2,000, being the balance of the purchase price of the
house. The plaintiff was authorized to offset this
judgment against her for P2,000 by the P2,000 which
the court declared had been paid the defendant, Placida
A. Jose, by Barretto out of the insurance money. A final
judgment was entered in favor of the plaintiff against
the defendant, Placida A. Jose, for the sum of
P1,298.50, being the amount of the judgment against
Barretto. From this judgment Barretto alone appealed.
The court found that there was no privity of contract
between the plaintiff and the defendant Barretto. In
consequence, no judgment was entered in favor of the
plaintiff against the defendant. The court decided the
respective rights of the two defendants to the insurance
money and entered judgment against Barretto and in
favor of Placida A. Jose for the sum of P1,298.50. This
was done upon the theory that the insurance policy was
held in trust for Placida A. Jose, and that any balance,
resulting after deducting the amount owing upon the
construction contract and paid for premiums, belonged
to her. Neither by the pleading nor upon the trial was
there any claim made by Placida A. Jose against
Barretto for the insurance money, nor for any
participation therein. Placida A. Jose's answer
specifically alleged that such insurance was for
Barretto's personal account and in his exclusive rights.
Her testimony is equally positive upon this point. She
says:
Q.       Was the house insured when you sold it
to Antonina Lampano? —
A.       It was insured by Mariano Barretto
because he is the one constructed that house.
Q.       Did you have any interest in that
insurance? —
A.       I was indebted to him and he insured the
house in his own name from 1911.
Q.       Did you have any right, interest or
participation in that insurance? —
A.       I have none.
Q.       Who was paying the premiums on that
insurance? —
A.       M. Barretto.
The result is that there was no controversy between the
defendants concerning this insurance, nor was any issue
presented which required an adjudication of their
respective rights thereto. So far as Barretto was
concerned, the only issue raised, either by the pleadings
or at the trial, was, Has the plaintiff any right to recover
from Barretto any portion of the insurance money?
The plaintiff sought to recover from Barretto all of the
P3,600, but she is now contented with a judgment
against Placida A. Jose for P1,298.50. Her right to
recover this amount of the insurance rests upon an
alleged verbal agreement between herself and Placida A.
Jose to the effect that the latter agreed, at the time of
the purchase and sale of the house, to transfer to her
the insurance policy, the policy being held in trust by
Barretto for the benefit of the Jose woman. The plaintiff
does not contend that Barretto participated in this sale,
or even had any knowledge of it, until sometime after it
was consummated. Placida A. Jose denies that she
agreed to transfer the policy to the plaintiff, and the
deed of purchase and sale makes no mention of such an
agreement. The policy is not mentioned in this
document, although it was agreed that the vendor
would transfer to the vendee all of the former's right,
title, and interest in the leasehold to the land upon
which the house was built. It would seem that if the
vendor agreed to transfer the policy, this agreement
would have been inserted in the document of purchase
and sale, the same as that with reference to the lease.
The trial court did not find that such an agreement
existed and we think the plaintiff has failed to establish
this verbal agreement.
If Barretto had an insurable interest in the house, he
could insure this interest for his sole protection. The
policy was in the name of Barretto alone. It was,
therefore, a personal contract between him and the
company and not a contract which ran with the
property. According to this personal contract the
insurance policy was payable to the insured without
regard to the nature and extent of his interest in the
property, provided that he had, as we have said, an
insurable interest at the time of the making of the
contract, and also at the time of the fire. Where
different persons have different interests in the same
property, the insurance taken by one in his own right
and in his own interest does not in any way insure to
the benefit of another. This is the general rule prevailing
in the United States and we find nothing different in this
jurisdiction. (19 Cyc., 883.)
In the case of Shadgett vs. Phillips and Crew Co.,
reported in 56 L. R. A., 461, Mrs. Shagett received a
piano as a gift from her husband and insured it. She
knew that it was the obligation of her husband to insure
he piano for the benefit of the vendor. The court held,
however, that the vendor (mortgagee) was not entitled
to the proceeds of the insurance as "there was no
undertaking on the part of Mrs. Shadgett to either
insure for complainant's benefit, or to assume her
husband's obligation to so insure, and mere knowledge
of that obligation did not impose it upon her."
The court further said: "The contract of insurance was
wholly between the defendant and the insurance
company, and was personal, in the sense that the
money agreed to be paid in case of loss was not to
stand in the place of the piano itself, but was a mere
indemnity against the loss of defendant's interest
therein. If her interest was small, on account of
incumbrances existing in favor of the complainant, that
fact was for the consideration only of the insurer and
defendant, for complaint has no concern with the
adjustment of the loss between them. We know of no
principle, either of law or equity, which would bind
defendant to carry out her donor's contract to insure, in
the absence of any agreement on her part to do so,
even though the property in her hands was subject to
complainant's rights therein as a conditional vendor."
The court further says: "A contract of insurance made
for the insurer's (insured) indemnity only, as where
there is no agreement, express or implied, that it shall
be for the benefit of a third person, does not attach to
or run with the title to the insured property on a
transfer thereof personal as between the insurer and the
insured. In such case strangers to the contract cannot
require in their own right any interest in the insurance
money, except through an assignment or some contract
with which they are connected."
In Vandergraf vs. Medlock (3 Porter, 389; 29 Am. Dec.,
256), it was held that the mortgage is not entitled to the
proceeds of an insurance policy procured by the
mortgages, there being no agreement that such
insurance should be effected by the latter for the benefit
of the former. The court says: "It is well settled that a
policy of insurance is a distinct independent contract
between the insured and insurers, and third person
have no right either in a court of equity, or in a court of
law, to the proceeds of it, unless there be some contract
or trust, expressed or implied, between the insured and
third persons."
In Burlingane vs. Goodspeed  (10 L. R. A., 495), the
court says that where a mortgage at his own expense
and without any agreement or understanding with he
mortgagor obtains insurance upon his interest as a
mortgage and collects the money from the insurer after
a loss, he is not bound to account for it to the
mortgagor.
In the case at bar Barretto assumed the responsibility
for the insurance. The premiums, as we have indicated,
were paid by him without any agreement or right to
recoup the amount paid therefor should no loss result to
the property. It would not, therefore, be in accordance
with t he law and his contractual obligations to compel
him to account for the insurance money, or any par
thereof, to the plaintiff, who assumed no risk whatever.
That Barretto had an insurable interest in the house, we
think there can be no question. He construed the
building, furnishing all the materials and supplies, and
insured it after it had been completed (pars. 3 and 5,
art. 1923, Civil Code; Manresa, Vol. 12, pp. 692-695;
citing decision of the supreme court of Spain of
December 30, 1896).
For the foregoing reasons the judgment appealed from,
in so far as it affects the appellant, is reversed and he is
absolved. Without costs. So ordered.
G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO.,
INC., petitioner,
vs.
COURT OF APPEALS and CHOA TIEK
SENG, respondents.
This is a review of the decision of the Court of Appeals,
promulgated on July 19,1988, the dispositive part of
which reads:
WHEREFORE, the judgment appealed
from is affirmed insofar as it orders
defendant Filipino Merchants Insurance
Company to pay the plaintiff the sum of
P51,568.62 with interest at legal rate
from the date of filing of the complaint,
and is modified with respect to the
third party complaint in that (1) third
party defendant E. Razon, Inc. is
ordered to reimburse third party
plaintiff the sum of P25,471.80 with
legal interest from the date of payment
until the date of reimbursement, and
(2) the third-party complaint against
third party defendant Compagnie
Maritime Des Chargeurs Reunis is
dismissed. 1
The facts as found by the trial court and adopted by the
Court of Appeals are as follows:
This is an action brought by the
consignee of the shipment of fishmeal
loaded on board the vessel SS
Bougainville and unloaded at the Port
of Manila on or about December 11,
1976 and seeks to recover from the
defendant insurance company the
 amount of P51,568.62 representing
damages to said shipment which has
been insured by the defendant
insurance company under Policy No. M-
2678. The defendant brought a third
party complaint against third party
defendants Compagnie Maritime Des
Chargeurs Reunis and/or E. Razon, Inc.
seeking judgment against the third
(sic) defendants in case Judgment is
rendered against the third party
plaintiff. It appears from the evidence
presented that in December 1976,
plaintiff insured said shipment with
defendant insurance company under
said cargo Policy No. M-2678 for the
sum of P267,653.59 for the goods
described as 600 metric tons of
fishmeal in new gunny bags of 90 kilos
each from Bangkok, Thailand to Manila
against all risks under warehouse to
warehouse terms. Actually, what was
imported was 59.940 metric tons not
600 tons at $395.42 a ton CNF Manila.
The fishmeal in 666 new gunny bags
were unloaded from the ship on
December 11, 1976 at Manila unto the
arrastre contractor E. Razon, Inc. and
defendant's surveyor ascertained and
certified that in such discharge 105
bags were in bad order condition as
jointly surveyed by the ship's agent and
the arrastre contractor. The condition
of the bad order was reflected in the
turn over survey report of Bad Order
cargoes Nos. 120320 to 120322, as
Exhibit C-4 consisting of three (3)
pages which are also Exhibits 4, 5 and
6- Razon. The cargo was also surveyed
by the arrastre contractor before
delivery of the cargo to the consignee
and the condition of the cargo on such
delivery was reflected in E. Razon's Bad
Order Certificate No. 14859, 14863 and
14869 covering a total of 227 bags in
bad order condition. Defendant's
surveyor has conducted a final and
detailed survey of the cargo in the
warehouse for which he prepared a
survey report Exhibit F with the
findings on the extent of shortage or
loss on the bad order bags totalling 227
bags amounting to 12,148 kilos, Exhibit
F-1. Based on said computation the
plaintiff made a formal claim against
the defendant Filipino Merchants
Insurance Company for P51,568.62
(Exhibit C) the computation of which
claim is contained therein. A formal
claim statement was also presented by
the plaintiff against the vessel dated
December 21, 1976, Exhibit B, but the
defendant Filipino Merchants Insurance
Company refused to pay the claim.
Consequently, the plaintiff brought an
action against said defendant as
adverted to above and defendant
presented a third party complaint
against the vessel and the arrastre
contractor. 2
The court below, after trial on the merits, rendered
judgment in favor of private respondent, the decretal
portion whereof reads:
WHEREFORE, on the main complaint,
judgment is hereby rendered in favor of
the plaintiff and against the defendant
Filipino Merchant's (sic) Insurance Co.,
ordering the defendants to pay the
plaintiff the following amount:
The sum of P51,568.62 with interest at
legal rate from the date of the filing of
the complaint;
On the third party complaint, the third
party defendant Compagnie Maritime
Des Chargeurs Reunis and third party
defendant E. Razon, Inc. are ordered to
pay to the third party plaintiff jointly
and severally reimbursement of the
amounts paid by the third party
plaintiff with legal interest from the
date of such payment until the date of
such reimbursement.
Without pronouncement as to costs.3
On appeal, the respondent court affirmed the decision of
the lower court insofar as the award on the complaint is
concerned and modified the same with regard to the
adjudication of the third-party complaint. A motion for
reconsideration of the aforesaid decision was denied,
hence this petition with the following assignment of
errors:
1. The Court of Appeals erred in its
interpretation and application of the "all
risks" clause of the marine insurance
policy when it held the petitioner liable
to the private respondent for the partial
loss of the cargo, notwithstanding the
clear absence of proof of some
fortuitous event, casualty, or accidental
cause to which the loss is attributable,
thereby contradicting the very
precedents cited by it in its decision as
well as a prior decision of the same
Division of the said court (then
composed of Justices Cacdac, Castro-
Bartolome, and Pronove);
2. The Court of Appeals erred in not
holding that the private respondent had
no insurable interest in the subject
cargo, hence, the marine insurance
policy taken out by private respondent
is null and void;
3. The Court of Appeals erred in not
holding that the private respondent was
guilty of fraud in not disclosing the fact,
it being bound out of utmost good faith
to do so, that it had no insurable
interest in the subject cargo, which
bars its recovery on the policy. 4
On the first assignment of error, petitioner contends
that an "all risks" marine policy has a technical meaning
in insurance in that before a claim can be compensable
it is essential that there must be "some fortuity, "
"casualty" or "accidental cause" to which the alleged
loss is attributable and the failure of herein private
respondent, upon whom lay the burden, to adduce
evidence showing that the alleged loss to the cargo in
question was due to a fortuitous event precludes his
right to recover from the insurance policy. We find said
contention untenable.
The "all risks clause" of the Institute Cargo Clauses read
as follows:
5. This insurance is against all risks of
loss or damage to the subject-matter
insured but shall in no case be deemed
to extend to cover loss, damage, or
expense proximately caused by delay
or inherent vice or nature of the
subject-matter insured. Claims
recoverable hereunder shall be payable
irrespective of percentage. 5
An "all risks policy" should be read literally as meaning
all risks whatsoever and covering all losses by an
accidental cause of any kind. The terms "accident" and
"accidental", as used in insurance contracts, have not
acquired any technical meaning. They are construed by
the courts in their ordinary and common acceptance.
Thus, the terms have been taken to mean that which
happens by chance or fortuitously, without intention and
design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place
without one's foresight or expectation; an event that
proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected. 6
The very nature of the term "all risks" must be given a
broad and comprehensive meaning as covering any loss
other than a willful and fraudulent act of the
insured. 7 This is pursuant to the very purpose of an "all
risks" insurance to give protection to the insured in
those cases where difficulties of logical explanation or
some mystery surround the loss or damage to
property. 8 An "all asks" policy has been evolved to
grant greater protection than that afforded by the
"perils clause," in order to assure that no loss can
happen through the incidence of a cause neither insured
against nor creating liability in the ship; it is written
against all losses, that is, attributable to external
causes. 9
The term "all risks" cannot be given a strained technical
meaning, the language of the clause under the Institute
Cargo Clauses being unequivocal and clear, to the effect
that it extends to all damages/losses suffered by the
insured cargo except (a) loss or damage or expense
proximately caused by delay, and (b) loss or damage or
expense proximately caused by the inherent vice or
nature of the subject matter insured.
Generally, the burden of proof is upon the insured to
show that a loss arose from a covered peril, but under
an "all risks" policy the burden is not on the insured to
prove the precise cause of loss or damage for which it
seeks compensation. The insured under an "all risks
insurance policy" has the initial burden of proving that
the cargo was in good condition when the policy
attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then
shifts to the insurer to show the exception to the
coverage. 10 As we held in Paris-Manila Perfumery Co.
vs. Phoenix Assurance Co., Ltd.  11 the basic rule is that
the insurance company has the burden of proving that
the loss is caused by the risk excepted and for want of
such proof, the company is liable.
Coverage under an "all risks" provision of a marine
insurance policy creates a special type of insurance
which extends coverage to risks not usually
contemplated and avoids putting upon the insured the
burden of establishing that the loss was due to the peril
falling within the policy's coverage; the insurer can
avoid coverage upon demonstrating that a specific
provision expressly excludes the loss from
coverage. 12 A marine insurance policy providing that
the insurance was to be "against all risks" must be
construed as creating a special insurance and extending
to other risks than are usually contemplated, and covers
all losses except such as arise from the fraud of the
insured. 13 The burden of the insured, therefore, is to
prove merely that the goods he transported have been
lost, destroyed or deteriorated. Thereafter, the burden
is shifted to the insurer to prove that the loss was due
to excepted perils. To impose on the insured the burden
of proving the precise cause of the loss or damage
would be inconsistent with the broad protective purpose
of "all risks" insurance.
In the present case, there being no showing that the
loss was caused by any of the excepted perils, the
insurer is liable under the policy. As aptly stated by the
respondent Court of Appeals, upon due consideration of
the authorities and jurisprudence it discussed —
... it is believed that in the absence of
any showing that the losses/damages
were caused by an excepted peril, i.e.
delay or the inherent vice or nature of
the subject matter insured, and there is
no such showing, the lower court did
not err in holding that the loss was
covered by the policy.
There is no evidence presented to show
that the condition of the gunny bags in
which the fishmeal was packed was
such that they could not hold their
contents in the course of the necessary
transit, much less any evidence that
the bags of cargo had burst as the
result of the weakness of the bags
themselves. Had there been such a
showing that spillage would have been
a certainty, there may have been good
reason to plead that there was no risk
covered by the policy (See Berk vs.
Style [1956] cited in Marine Insurance
Claims, Ibid, p. 125). Under an 'all
risks' policy, it was sufficient to show
that there was damage occasioned by
some accidental cause of any kind, and
there is no necessity to point to any
particular cause. 14
Contracts of insurance are contracts of indemnity upon
the terms and conditions specified in the policy. The
agreement has the force of law between the parties. The
terms of the policy constitute the measure of the
insurer's liability. If such terms are clear and
unambiguous, they must be taken and understood in
their plain, ordinary and popular sense.15
Anent the issue of insurable interest, we uphold the
ruling of the respondent court that private respondent,
as consignee of the goods in transit under an invoice
containing the terms under "C & F Manila," has insurable
interest in said goods.
Section 13 of the Insurance Code defines insurable
interest in property as every interest in property,
whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured.
In principle, anyone has an insurable interest in
property who derives a benefit from its existence or
would suffer loss from its destruction whether he has or
has not any title in, or lien upon or possession of the
property y. 16 Insurable interest in property may consist
in (a) an existing interest; (b) an inchoate interest
founded on an existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the
expectancy arises. 17
Herein private respondent, as vendee/consignee of the
goods in transit has such existing interest therein as
may be the subject of a valid contract of insurance. His
interest over the goods is based on the perfected
contract of sale. 18 The perfected contract of sale
between him and the shipper of the goods operates to
vest in him an equitable title even before delivery or
before be performed the conditions of the sale. 19 The
contract of shipment, whether under F.O.B., C.I.F., or C.
& F. as in this case, is immaterial in the determination
of whether the vendee has an insurable interest or not
in the goods in transit. The perfected contract of sale
even without delivery vests in the vendee an equitable
title, an existing interest over the goods sufficient to be
the subject of insurance.
Further, Article 1523 of the Civil Code provides that
where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the
buyer or not, for, the purpose of transmission to the
buyer is deemed to be a delivery of the goods to the
buyer, the exceptions to said rule not obtaining in the
present case. The Court has heretofore ruled that the
delivery of the goods on board the carrying vessels
partake of the nature of actual delivery since, from that
time, the foreign buyers assumed the risks of loss of the
goods and paid the insurance premium covering
them. 20
C & F contracts are shipment contracts. The term means
that the price fixed includes in a lump sum the cost of
the goods and freight to the named destination. 21 It
simply means that the seller must pay the costs and
freight necessary to bring the goods to the named
destination but the risk of loss or damage to the goods
is transferred from the seller to the buyer when the
goods pass the ship's rail in the port of shipment. 22
Moreover, the issue of lack of insurable interest was not
among the defenses averred in petitioners answer. It
was neither an issue agreed upon by the parties at the
pre-trial conference nor was it raised during the trial in
the court below. It is a settled rule that an issue which
has not been raised in the court a quo  cannot be raised
for the first time on appeal as it would be offensive to
the basic rules of fair play, justice and due
process. 23 This is but a permuted restatement of the
long settled rule that when a party deliberately adopts a
certain theory, and the case is tried and decided upon
that theory in the court below, he will not be permitted
to change his theory on appeal because, to permit him
to do so, would be unfair to the adverse party. 24
If despite the fundamental doctrines just stated, we
nevertheless decided to indite a disquisition on the issue
of insurable interest raised by petitioner, it was to put at
rest all doubts on the matter under the facts in this case
and also to dispose of petitioner's third assignment of
error which consequently needs no further discussion.
WHEREFORE, the instant petition is DENIED and the
assailed decision of the respondent Court of Appeals is
AFFIRMED in toto.
SO ORDERED.
ANG KA YU vs. PHOENIX ASSURANCE CO. LTD. 1 CAR
704 28 September 1961 FACTS: Ang Ka Yu, herein
petitioner, was engaged in the business of dyeing and
washing clothes. This would require his clients to deliver
and deposit to the petitioner such clothes that would
require his service. He acquired from Phoenix Assurance
Co. Ltd., herein respondent, a policy insuring the effects
of his business. When the clothes he had in his
possession were lost, Ang Ka Yu sought to recover from
Phoenix Assurance. However, the latter refused the
claim and denied liability on the ground that the
petitioner was a mere possessor of said items, and
therefore did not have any insurable interest to the
same.
ISSUE: Whether or not the petitioner, allegedly being a
mere possessor, has an insurable interest in the
property of concern.
HELD: Yes. A person to whom clothes are delivered for
dyeing or washing has insurable interest on such
clothes, because destruction of the textiles will mean
pecuniary loss to him as he will be deprived of the
compensation he would be entitled to for dyeing the
same, not to mention his pecuniary liability for labour
and expenses. A person who is interested in the safety
and preservation of materials in his possession
belonging to third parties because he stands either to
benefit from their continued existence or to be
prejudiced by their destruction, has an insurable interest
thereon which is not necessarily limited to the extent of
his liability to the owners thereof. A person having mere
right of possession of property may insure it to its full
value and in his own name, even when he is not
responsible for its safekeeping.
G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS
INSURANCE CORPORATION, respondents.
Four our review under Rule 45 of the Rules of Court is
the decision1 of the Court of Appeals in CA-G.R. SP No.
31916, entitled "Country Bankers Insurance Corporation
versus Armando Geagonia," reversing the decision of
the Insurance Commission in I.C. Case No. 3340 which
awarded the claim of petitioner Armando Geagonia
against private respondent Country Bankers Insurance
Corporation.
The petitioner is the owner of Norman's Mart located in
the public market of San Francisco, Agusan del Sur. On
22 December 1989, he obtained from the private
respondent fire insurance policy No. F-146222 for
P100,000.00. The period of the policy was from 22
December 1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of dry
goods such as RTW's for men and women wear and
other usual to assured's business."
The petitioner declared in the policy under the
subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00.
From 1989 to 1990, the petitioner had in his inventory
stocks amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc. P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
—————
P392,130.50
The policy contained the following condition:
3. The insured shall give notice to the
Company of any insurance or
insurances already affected, or which
may subsequently be effected, covering
any of the property or properties
consisting of stocks in trade, goods in
process and/or inventories only hereby
insured, and unless such notice be
given and the particulars of such
insurance or insurances be stated
therein or endorsed in this policy
pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company
before the occurrence of any loss or
damage, all benefits under this policy
shall be deemed forfeited, provided
however, that this condition shall not
apply when the total insurance or
insurances in force at the time of the
loss or damage is not more than
P200,000.00.
On 27 May 1990, fire of accidental origin broke out at
around 7:30 p.m. at the public market of San Francisco,
Agusan del Sur. The petitioner's insured stock-in-trade
were completely destroyed prompting him to file with
the private respondent a claim under the policy. On 28
December 1990, the private respondent denied the
claim because it found that at the time of the loss the
petitioner's stocks-in-trade were likewise covered by fire
insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the
Philippines First Insurance Co., Inc.
(hereinafter PFIC). 3 These policies indicate that the
insured was "Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be
payable to Messrs. Cebu Tesing
Textiles, Cebu City as their interest
may appear subject to the terms of this
policy. CO-INSURANCE DECLARED:
P100,000. — Phils. First CEB/F 24758.4
The basis of the private respondent's denial was the
petitioner's alleged violation of Condition 3 of the policy.
The petitioner then filed a complaint 5 against the
private respondent with the Insurance Commission
(Case No. 3340) for the recovery of P100,000.00 under
fire insurance policy No. F-14622 and for attorney's fees
and costs of litigation. He attached as Annex
"AM"6 thereof his letter of 18 January 1991 which asked
for the reconsideration of the denial. He admitted in the
said letter that at the time he obtained the private
respondent's fire insurance policy he knew that the two
policies issued by the PFIC were already in existence;
however, he had no knowledge of the provision in the
private respondent's policy requiring him to inform it of
the prior policies; this requirement was not mentioned
to him by the private respondent's agent; and had it
been mentioned, he would not have withheld such
information. He further asserted that the total of the
amounts claimed under the three policies was below the
actual value of his stocks at the time of loss, which was
P1,000,000.00.
In its answer,7 the private respondent specifically denied
the allegations in the complaint and set up as its
principal defense the violation of Condition 3 of the
policy.
In its decision of 21 June 1993,8 the Insurance
Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of
the two fire insurance policies obtained from the PFIC;
that it was Cebu Tesing Textiles which procured the
PFIC policies without informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor,
had insurable interest on the stocks. These findings
were based on the petitioner's testimony that he came
to know of the PFIC policies only when he filed his claim
with the private respondent and that Cebu Tesing
Textile obtained them and paid for their premiums
without informing him thereof. The Insurance
Commission then decreed:
WHEREFORE, judgment is hereby
rendered ordering the respondent
company to pay complainant the sum
of P100,000.00 with legal interest from
the time the complaint was filed until
fully satisfied plus the amount of
P10,000.00 as attorney's fees. With
costs. The compulsory counterclaim of
respondent is hereby dismissed.
Its motion for the reconsideration of the
decision 9 having been denied by the Insurance
Commission in its resolution of 20 August 1993, 10 the
private respondent appealed to the Court of Appeals by
way of a petition for review. The petition was docketed
as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of
Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of
the existence of the two other policies issued by the
PFIC. It said:
It is apparent from the face of Fire
Policy GA 28146/Fire Policy No. 28144
that the insurance was taken in the
name of private respondent [petitioner
herein]. The policy states that
"DISCOUNT MART (MR. ARMANDO
GEAGONIA, PROP)" was the assured
and that "TESING TEXTILES" [was]
only the mortgagee of the goods.
In addition, the premiums on both
policies were paid for by private
respondent, not by the Tesing Textiles
which is alleged to have taken out the
other insurance without the knowledge stocks damaged by the
of private respondent. This is shown by fire was estimated by
Premium Invoices nos. 46632 and the Police Department
46630. (Annexes M and N). In both to be P1,000,000.00
invoices, Tesing Textiles is indicated to (Please see xerox copy
be only the mortgagee of the goods of Police Report Annex
insured but the party to which they "A"). My Income
were issued were the "DISCOUNT MART Statement as of
(MR. ARMANDO GEAGONIA)." December 31, 1989 or
five months before the
In is clear that it was the private fire, shows my
respondent [petitioner herein] who merchandise inventory
took out the policies on the same was already some
property subject of the insurance with P595,455.75. . . .
petitioner. Hence, in failing to disclose These will support my
the existence of these insurances claim that the amount
private respondent violated Condition claimed under the
No. 3 of Fire Policy No. 1462. . . . three policies are
much below the value
of my stocks lost.
Indeed private respondent's allegation
of lack of knowledge of the provisions
insurances is belied by his letter to xxx xxx xxx
petitioner [of 18 January 1991. The
body of the letter reads as follows;] The letter contradicts private
respondent's pretension that he did not
xxx xxx xxx know that there were other insurances
taken on the stock-in-trade and
seriously puts in question his
Please be informed credibility.
that I have no
knowledge of the
provision requiring me His motion to reconsider the adverse decision having
to inform your office been denied, the petitioner filed the instant petition. He
about my contends therein that the Court of Appeals acted with
prior insurance under grave abuse of discretion amounting to lack or excess of
FGA-28146 and F-CEB- jurisdiction:
24758. Your
representative did not A — . . . WHEN IT REVERSED THE
mention about said FINDINGS OF FACTS OF THE
requirement at the INSURANCE COMMISSION, A QUASI-
time he was JUDICIAL BODY CHARGED WITH THE
convincing me to DUTY OF DETERMINING INSURANCE
insure with you. If he CLAIM AND WHOSE DECISION IS
only die or even ACCORDED RESPECT AND EVEN
inquired if I had other FINALITY BY THE COURTS;
existing policies
covering my B — . . . WHEN IT CONSIDERED AS
establishment, I would EVIDENCE MATTERS WHICH WERE NOT
have told him so. You PRESENTED AS EVIDENCE DURING THE
will note that at the HEARING OR TRIAL; AND
time he talked to me
until I decided to
insure with your C — . . . WHEN IT DISMISSED THE
company the two CLAIM OF THE PETITIONER HEREIN
policies AGAINST THE PRIVATE RESPONDENT.
aforementioned were
already in effect. The chief issues that crop up from the first and third
Therefore I would have grounds are (a) whether the petitioner had prior
no reason to withhold knowledge of the two insurance policies issued by the
such information and I PFIC when he obtained the fire insurance policy from
would have desisted to the private respondent, thereby, for not disclosing such
part with my hard fact, violating Condition 3 of the policy, and (b) if he
earned peso to pay the had, whether he is precluded from recovering
insurance premiums therefrom.
[if] I know I could not
recover anything. The second ground, which is based on the Court of
Appeals' reliance on the petitioner's letter of
Sir, I am only an reconsideration of 18 January 1991, is without merit.
ordinary businessman The petitioner claims that the said letter was not offered
interested in in evidence and thus should not have been considered in
protecting my deciding the case. However, as correctly pointed out by
investments. The the Court of Appeals, a copy of this letter was attached
actual value of my to the petitioner's complaint in I.C. Case No. 3440 as
Annex "M" thereof and made integral part of the
complaint. 12 It has attained the status of a judicial
admission and since its due execution and authenticity
was not denied by the other party, the petitioner is
bound by it even if it were not introduced as an
independent evidence. 13
As to the first issue, the Insurance Commission found
that the petitioner had no knowledge of the previous
two policies. The Court of Appeals disagreed and found
otherwise in view of the explicit admission by the
petitioner in his letter to the private respondent of 18
January 1991, which was quoted in the challenged
decision of the Court of Appeals. These divergent
findings of fact constitute an exception to the general
rule that in petitions for review under Rule 45, only
questions of law are involved and findings of fact by the
Court of Appeals are conclusive and binding upon this
Court. 14
We agree with the Court of Appeals that the petitioner
knew of the prior policies issued by the PFIC. His letter
of 18 January 1991 to the private respondent
conclusively proves this knowledge. His testimony to the
contrary before the Insurance Commissioner and which
the latter relied upon cannot prevail over a written
admission made ante litem motam. It was, indeed,
incredible that he did not know about the prior policies
since these policies were not new or original. Policy No.
GA-28144 was a renewal of Policy No. F-24758, while
Policy No. GA-28146 had been renewed twice, the
previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-
14622 is a condition which is not proscribed by law. Its
incorporation in the policy is allowed by Section 75 of
the Insurance Code 15 which provides that "[a] policy
may declare that a violation of specified provisions
thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy." Such a
condition is a provision which invariably appears in fire
insurance policies and is intended to prevent an increase
in the moral hazard. It is commonly known as the
additional or "other insurance" clause and has been
upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the
other insurance must be upon same subject matter, the
same interest therein, and the same risk.17
As to a mortgaged property, the mortgagor and the
mortgagee have each an independent insurable interest
therein and both interests may be one policy, or each
may take out a separate policy covering his interest,
either at the same or at separate times. 18 The
mortgagor's insurable interest covers the full value of
the mortgaged property, even though the mortgage
debt is equivalent to the full value of the property.19 The
mortgagee's insurable interest is to the extent of the
debt, since the property is relied upon as security
thereof, and in insuring he is not insuring the property
but his interest or lien thereon. His insurable interest
is prima facie the value mortgaged and extends only to
the amount of the debt, not exceeding the value of the
mortgaged property. 20 Thus, separate insurances
covering different insurable interests may be obtained
by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the
benefit of the mortgagee, which is the usual practice.
The mortgagee may be made the beneficial payee in
several ways. He may become the assignee of the policy
with the consent of the insurer; or the mere pledgee
without such consent; or the original policy may contain
a mortgage clause; or a rider making the policy payable
to the mortgagee "as his interest may appear" may be
attached; or a "standard mortgage clause," containing a
collateral independent contract between the mortgagee
and insurer, may be attached; or the policy, though by
its terms payable absolutely to the mortgagor, may
have been procured by a mortgagor under a contract
duty to insure for the mortgagee's benefit, in which case
the mortgagee acquires an equitable lien upon the
proceeds. 21
In the policy obtained by the mortgagor with loss
payable clause in favor of the mortgagee as his interest
may appear, the mortgagee is only a beneficiary under
the contract, and recognized as such by the insurer but
not made a party to the contract himself. Hence, any
act of the mortgagor which defeats his right will also
defeat the right of the mortgagee. 22 This kind of policy
covers only such interest as the mortgagee has at the
issuing of the policy.23
On the other hand, a mortgagee may also procure a
policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to
pay the premiums upon such insurance. 24 It has been
noted, however, that although the mortgagee is himself
the insured, as where he applies for a policy, fully
informs the authorized agent of his interest, pays the
premiums, and obtains on the assurance that it insures
him, the policy is in fact in the form used to insure a
mortgagor with loss payable clause. 25
The fire insurance policies issued by the PFIC name the
petitioner as the assured and contain a mortgage clause
which reads:
Loss, if any, shall be payable to
MESSRS. TESING TEXTILES, Cebu City
as their interest may appear subject to
the terms of this policy.
This is clearly a simple loss payable clause, not a
standard mortgage clause.
It must, however, be underscored that unlike the "other
insurance" clauses involved in General Insurance and
Surety Corp.  vs.  Ng Hua 26 or in Pioneer Insurance &
Surety Corp.  vs.  Yap, 27 which read:
The insured shall give notice to the
company of any insurance or
insurances already effected, or which
may subsequently be effected covering
any of the property hereby insured,
and unless such notice be given and
the particulars of such insurance or
insurances be stated in or endorsed on
this Policy by or on behalf of the
Company before the occurrence of any
loss or damage, all benefits under this
Policy shall be forfeited.
or in the 1930 case of Santa Ana
vs.  Commercial Union Assurance
Co. 28 which provided "that any outstanding
insurance upon the whole or a portion of the
objects thereby assured must be declared by
the insured in writing and he must cause the
company to add or insert it in the policy,
 without which such policy shall be null and void,
and the insured will not be entitled to indemnity
in case of loss," Condition 3 in the private
respondent's policy No. F-14622 does not
absolutely declare void any violation thereof. It
expressly provides that the condition "shall not
apply when the total insurance or insurances in
force at the time of the loss or damage is not
more than P200,000.00."
It is a cardinal rule on insurance that a policy or
insurance contract is to be interpreted liberally in favor
of the insured and strictly against the company, the
reason being, undoubtedly, to afford the greatest
protection which the insured was endeavoring to secure
when he applied for insurance. It is also a cardinal
principle of law that forfeitures are not favored and that
any construction which would result in the forfeiture of
the policy benefits for the person claiming thereunder,
will be avoided, if it is possible to construe the policy in
a manner which would permit recovery, as, for example,
by finding a waiver for such forfeiture. 29 Stated
differently, provisions, conditions or exceptions in
policies which tend to work a forfeiture of insurance
policies should be construed most strictly against those
for whose benefits they are inserted, and most favorably
toward those against whom they are intended to
operate. 30 The reason for this is that, except for riders
which may later be inserted, the insured sees the
contract already in its final form and has had no voice in
the selection or arrangement of the words employed
therein. On the other hand, the language of the contract
was carefully chosen and deliberated upon by experts
and legal advisers who had acted exclusively in the
interest of the insurers and the technical language
employed therein is rarely understood by ordinary
laymen. 31
With these principles in mind, we are of the opinion that
Condition 3 of the subject policy is not totally free from
ambiguity and must, perforce, be meticulously
analyzed. Such analysis leads us to conclude that (a)
the prohibition applies only to double insurance, and (b)
the nullity of the policy shall only be to the extent
exceeding P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the
condition referring to other insurance "covering any of
the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby
insured," and the portion regarding the insured's
declaration on the subheading CO-INSURANCE that the
co-insurer is Mercantile Insurance Co., Inc. in the sum
of P50,000.00. A double insurance exists where the
same person is insured by several insurers separately in
respect of the same subject and interest. As earlier
stated, the insurable interests of a mortgagor and a
mortgagee on the mortgaged property are distinct and
separate. Since the two policies of the PFIC do not cover
the same interest as that covered by the policy of the
private respondent, no double insurance exists. The
non-disclosure then of the former policies was not fatal
to the petitioner's right to recover on the private
respondent's policy.
Furthermore, by stating within Condition 3 itself that
such condition shall not apply if the total insurance in
force at the time of loss does not exceed P200,000.00,
the private respondent was amenable to assume a co-
insurer's liability up to a loss not exceeding
P200,000.00. What it had in mind was to discourage
over-insurance. Indeed, the rationale behind the
incorporation of "other insurance" clause in fire policies
is to prevent over-insurance and thus avert the
perpetration of fraud. When a property owner obtains
insurance policies from two or more insurers in a total
amount that exceeds the property's value, the insured
may have an inducement to destroy the property for the
purpose of collecting the insurance. The public as well
as the insurer is interested in preventing a situation in
which a fire would be profitable to the insured.32
WHEREFORE, the instant petition is hereby GRANTED.
The decision of the Court of Appeals in CA-G.R. SP No.
31916 is SET ASIDE and the decision of the Insurance
Commission in Case No. 3340 is REINSTATED.
Costs against private respondent Country Bankers
Insurance Corporation. SO ORDERED.
G.R. No. 113899 October 13, 1999
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V.
LEUTERIO, respondents.
This petition for review, under Rule 45 of the Rules of
Court, assails the Decision 1 dated May 17, 1993, of the
Court of Appeals and its Resolution 2 dated January 4,
1994 in CA-G.R. CV No. 18341. The appellate court
affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim
filed by private respondent against Great Pacific Life
Assurance Co. The dispositive portion of the trial court's
decision reads:
WHEREFORE, judgment is rendered
adjudging the defendant GREAT
PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its
Group policy No. G-1907, in relation to
Certification B-18558 liable and ordered
to pay to the DEVELOPMENT BANK OF
THE PHILIPPINES as creditor of the
insured Dr. Wilfredo Leuterio, the
amount of EIGHTY SIX THOUSAND
TWO HUNDRED PESOS (P86,200.00);
dismissing the claims for damages,
attorney's fees and litigation expenses
in the complaint and counterclaim, with
costs against the defendant and
dismissing the complaint in respect to
the plaintiffs, other than the widow-
beneficiary, for lack of cause of
action. 3
The facts, as found by the Court of Appeals, are as
follows:
A contract of group life insurance was executed between
petitioner Great Pacific Life Assurance Corporation
(hereinafter Grepalife) and Development Bank of the
Philippines (hereinafter DBP). Grepalife agreed to insure
the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a
physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions
concerning his health condition as follows:
7. Have you ever had,
or consulted, a
 physician for a heart LIFE OF PLAINTIFF'S
condition, high blood HUSBAND WILFREDO
pressure, cancer, LEUTERIO ONE OF ITS
diabetes, lung; kidney LOAN BORROWERS,
or stomach disorder or INSTEAD OF
any other physical DISMISSING THE
impairment? CASE AGAINST
DEFENDANT-
Answer:  No. If so give APPELLANT [Petitioner
details Grepalife] FOR LACK
_____________. OF CAUSE OF ACTION.

8. Are you now, to the 2. THE LOWER COURT

best of your ERRED IN NOT
knowledge, in good DISMISSING THE
health? CASE FOR WANT OF
JURISDICTION OVER
THE SUBJECT OR
Answer: [x] Yes [ ] NATURE OF THE
NO. 4 ACTION AND OVER
THE PERSON OF THE
On November 15, 1983, Grepalife issued Certificate No. DEFENDANT.
B-18558, as insurance coverage of Dr. Leuterio, to the
extent of his DBP mortgage indebtedness amounting to 3. THE LOWER COURT
eighty-six thousand, two hundred (P86,200.00) ERRED IN ORDERING
pesos.1âwphi1.nêt DEFENDANT-
APPELLANT TO PAY TO
On August 6, 1984, Dr. Leuterio died due to "massive DBP THE AMOUNT OF
cerebral hemorrhage." Consequently, DBP submitted a P86,200.00 IN THE
death claim to Grepalife. Grepalife denied the claim ABSENCE OF ANY
alleging that Dr. Leuterio was not physically healthy EVIDENCE TO SHOW
when he applied for an insurance coverage on HOW MUCH WAS THE
November 15, 1983. Grepalife insisted that Dr. Leuterio ACTUAL AMOUNT
did not disclose he had been suffering from PAYABLE TO DBP IN
hypertension, which caused his death. Allegedly, such ACCORDANCE WITH
non-disclosure constituted concealment that justified ITS GROUP
the denial of the claim. INSURANCE
CONTRACT WITH
On October 20, 1986, the widow of the late Dr. Leuterio, DEFENDANT-
APPELLANT.
respondent Medarda V. Leuterio, filed a complaint with
the Regional Trial Court of Misamis Oriental, Branch 18,
against Grepalife for "Specific Performance with 4. THE LOWER COURT
Damages." 5 During the trial, Dr. Hernando Mejia, who ERRED IN HOLDING
issued the death certificate, was called to testify. Dr. THAT THERE WAS NO
Mejia's findings, based partly from the information given CONCEALMENT OF
by the respondent widow, stated that Dr. Leuterio MATERIAL
complained of headaches presumably due to high blood INFORMATION ON THE
pressure. The inference was not conclusive because Dr. PART OF WILFREDO
Leuterio was not autopsied, hence, other causes were LEUTERIO IN HIS
not ruled out. APPLICATION FOR
MEMBERSHIP IN THE
On February 22, 1988, the trial court rendered a GROUP LIFE
INSURANCE PLAN
decision in favor of respondent widow and against
Grepalife. On May 17, 1993, the Court of Appeals BETWEEN
DEFENDANT-
sustained the trial court's decision. Hence, the present
petition. Petitioners interposed the following assigned APPELLANT OF THE
INSURANCE CLAIM
errors:
ARISING FROM THE
DEATH OF WILFREDO
1. THE LOWER COURT LEUTERIO. 6
ERRED IN HOLDING
DEFENDANT-
Synthesized below are the assigned errors for our
APPELLANT LIABLE TO
THE DEVELOPMENT resolution:
BANK OF THE
PHILIPPINES (DBP) 1. Whether the Court
WHICH IS NOT A of Appeals erred in
PARTY TO THE CASE holding petitioner
FOR PAYMENT OF THE liable to DBP as
PROCEEDS OF A beneficiary in a group
MORTGAGE life insurance contract
REDEMPTION from a complaint filed
INSURANCE ON THE
 by the widow of the
decedent/mortgagor?
2. Whether the Court
of Appeals erred in not
finding that Dr.
Leuterio concealed
that he had
hypertension, which
would vitiate the
insurance contract?
3. Whether the Court
of Appeals erred in
holding Grepalife liable
in the amount of
eighty six thousand,
two hundred
(P86,200.00) pesos
without proof of the
actual outstanding
mortgage payable by
the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by
the widow of Dr. Leuterio, not the real party in interest,
hence the trial court acquired no jurisdiction over the
case. It argues that when the Court of Appeals affirmed
the trial court's judgment, Grepalife was held liable to
pay the proceeds of insurance contract in favor of DBP,
the indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable
interest in mortgaged properties and the parties to this
type of contract. The rationale of a group insurance
policy of mortgagors, otherwise known as the
"mortgage redemption insurance," is a device for the
protection of both the mortgagee and the mortgagor.
On the part of the mortgagee, it has to enter into such
form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying
the obligation. 7 In a similar vein, ample protection is
given to the mortgagor under such a concept so that in
the event of death; the mortgage obligation will be
extinguished by the application of the insurance
proceeds to the mortgage indebtedness. 8 Consequently,
where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to
the mortgagee, the insurance is on the mortgagor's
interest, and the mortgagor continues to be a party to
the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund,
such loss-payable clause does not make the mortgagee
a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a
mortgagor of property effects insurance
in his own name providing that the loss
shall be payable to the mortgagee, or
assigns a policy of insurance to a
mortgagee, the insurance is deemed to
be upon the interest of the mortgagor,
who does not cease to be a party to the
original contract, and any act of his,
prior to the loss, which would otherwise
avoid the insurance, will have the same
effect, although the property is in the
hands of the mortgagee, but any act
which, under the contract of insurance,
is to be performed by the mortgagor,
may be performed by the mortgagee
therein named, with the same effect as
if it had been performed by the
mortgagor.
The insured private respondent did not cede to the
mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor's
death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the
creditor and the balance of sum assured, if there is any,
shall then be paid to the beneficiary/ies designated by
the debtor." 10 When DBP submitted the insurance claim
against petitioner, the latter denied payment thereof,
interposing the defense of concealment committed by
the insured. Thereafter, DBP collected the debt from the
mortgagor and took the necessary action of foreclosure
on the residential lot of private
respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire &
Marine Ins. Co. 12 we held:
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 recoverable under
the policy, * * *.
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 the policy for the purpose of
collection, or has assigned as collateral
security any judgment he may
obtain. 13
And since a policy of insurance upon life or health may
pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such
person may recover it whatever the insured might have
recovered, 14 the widow of the decedent Dr. Leuterio
may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged
concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner
contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death.
Concealment exists where the assured had knowledge
of a fact material to the risk, and honesty, good faith,
and fair dealing requires that he should communicate it
to the assured, but he designedly and intentionally
withholds the same. 15
Petitioner merely relied on the testimony of the
attending physician, Dr. Hernando Mejia, as supported
by the information given by the widow of the decedent.
Grepalife asserts that Dr. Mejia's technical diagnosis of
the cause of death of Dr. Leuterio was a duly
documented hospital record, and that the widow's
declaration that her husband had "possible hypertension
several years ago" should not be considered as hearsay,
but as part of res gestae.
On the contrary the medical findings were not
conclusive because Dr. Mejia did not conduct an autopsy
on the body of the decedent. As the attending physician,
Dr. Mejia stated that he had no knowledge of Dr.
Leuterio's any previous hospital confinement. 16 Dr.
Leuterio's death certificate stated that hypertension was
only "the possible cause of death." The private
respondent's statement, as to the medical history of her
husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was
properly considered by the trial court as hearsay.
The question of whether there was concealment was
aptly answered by the appellate court, thus:
The insured, Dr. Leuterio, had
answered in his insurance application
that he was in good health and that he
had not consulted a doctor or any of
the enumerated ailments, including
hypertension; when he died the
attending physician had certified in the
death certificate that the former died of
cerebral hemorrhage, probably
secondary to hypertension. From this
report, the appellant insurance
company refused to pay the insurance
claim. Appellant alleged that the
insured had concealed the fact that he
had hypertension.
Contrary to appellant's allegations,
there was no sufficient proof that the
insured had suffered from
hypertension. Aside from the statement
of the insured's widow who was not
even sure if the medicines taken by Dr.
Leuterio were for hypertension, the
appellant had not proven nor produced
any witness who could attest to Dr.
Leuterio's medical history . . .
xxx xxx xxx
Appellant insurance company had failed
to establish that there was concealment
made by the insured, hence, it cannot
refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the
contract.18 Misrepresentation as a defense of the insurer
to avoid liability is an affirmative defense and the duty
to establish such defense by satisfactory and convincing
evidence rests upon the insurer. 19 In the case at bar,
the petitioner failed to clearly and satisfactorily establish
its defense, and is therefore liable to pay the proceeds
of the insurance.1âwphi1.nêt
And that brings us to the last point in the review of the
case at bar. Petitioner claims that there was no evidence
as to the amount of Dr. Leuterio's outstanding
indebtedness to DBP at the time of the mortgagor's
death. Hence, for private respondent's failure to
establish the same, the action for specific performance
should be dismissed. Petitioner's claim is without merit.
A life insurance policy is a valued policy. 20 Unless the
interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity
under a policy of insurance upon life or health is the
sum fixed in the policy. 21 The mortgagor paid the
premium according to the coverage of his insurance,
which states that:
The policy states that upon receipt of
due proof of the Debtor's death during
the terms of this insurance, a death
benefit in the amount of P86,200.00
shall be paid.
In the event of the debtor's death
before his indebtedness with the
creditor shall have been fully paid, an
amount to pay the outstanding
indebtedness shall first be paid to the
Creditor and the balance of the Sum
Assured, if there is any shall then be
paid to the beneficiary/ies designated
by the debtor." 22 (Emphasis omitted)
However, we noted that the Court of Appeals' decision
was promulgated on May 17, 1993. In private
respondent's memorandum, she states that DBP
foreclosed in 1995 their residential lot, in satisfaction of
mortgagor's outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to
the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo
cum alterius detrimenio protest). Hence, it cannot
collect the insurance proceeds, after it already
foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterio's heirs represented by his widow,
herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The
Decision and Resolution of the Court of Appeals in CA-
G.R. CV 18341 is AFFIRMED with MODIFICATION that
the petitioner is ORDERED to pay the insurance
proceeds amounting to Eighty-six thousand, two
hundred (P86,200.00) pesos to the heirs of the insured,
Dr. Wilfredo Leuterio (deceased), upon presentation of
proof of prior settlement of mortgagor's indebtedness to
Development Bank of the Philippines. Costs against
petitioner.SO ORDERED.
G.R. No. L-14300             January 19, 1920
SAN MIGUEL BREWERY, ETC., plaintiff-appellee,
vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.) ET
AL., defendants-appellees.
HENRY HARDING, defendant-appellant.
This action was begun on October 8, 1917, in the Court
of First Instance of the city of Manila by the plaintiff, the
San Miguel Brewery, for the purpose of recovering upon
two policies of insurance underwritten respectively by
Law Union and Rock Insurance Company (Ltd.), and the
"Filipinas" Compania de Seguros, for the sum of P7,500
each, insuring certain property which has been
destroyed by fire. The plaintiff, the San Miguel Brewery,
is named as the party assured in the two policies
referred to, but it is alleged in the complaint that said
company was in reality interested in the property which
was the subject of insurance in the character of a
mortgage creditor only, and that the owner of said
property upon the date the policies were issued was one
D. P. Dunn who was later succeeded as owner by one
Henry Harding. Accordingly said Harding was made a
defendant, as a person interested in the subject of the
litigation.
The prayer of the complaint is that judgment be entered
in favor of the plaintiff against the two companies
named for the sum of P15,000, with interest and costs,
and further that upon satisfaction of the balance of
P4,505.30 due to the plaintiff upon the mortgage debt,
and upon the cancellation of the mortgage, the plaintiff
be absolved from liability to the defendants or any of
them. The peculiar form of the latter part of the prayer
is evidently due to the design of the plaintiff to lay a
foundation for Harding to recover the difference
between the plaintiff's credit and the amount for which
the property was insured. Accordingly, as was to be
expected, Harding answered, admitting the material
allegations of the complaint and claiming for himself the
right to recover the difference between the plaintiff's
mortgage credit and the face value of the policies. The
two insurance companies also answered, admitting in
effect their liability to the San Miguel Brewery to the
extent of its mortgage credit, but denying liability to
Harding on the ground that under the contracts of
insurance the liability of the insurance companies was
limited to the insurable interest of the plaintiff therein.
Soon after the action was begun the insurance
companies effected a settlement with the San Miguel
Brewery by paying the full amount of the credit claimed
by it, with the result that the litigation as between the
original plaintiff and the two insurance companies came
to an end, leaving the action to be prosecuted to final
judgement by the defendant Harding with respect to the
balance claimed to be due to him upon the policies.
Upon hearing the evidence the trial judge came to the
conclusion that Harding had no right of action whatever
against the companies and absolved them from liability
without special finding as to costs. From this decision
the said Henry Harding has appealed.
The two insurance companies who are named as
defendants do not dispute their liability to the San
Miguel Brewery, to the extent already stated, and the
only question here under discussion is that of the
liability of the insurance companies to Harding. It is
therefore necessary to take account of such facts only
as bear upon this aspect of the case.
In this connection it appears that on January 12, 1916,
D. P. Dunn, then the owner of the property to which the
insurance relates, mortgaged the same to the San
Miguel Brewery to secure a debt of P10,000. In the
contract of mortgage Dunn agreed to keep the property
insured at his expense to the full amount of its value in
companies to be selected by the Brewery Company and
authorized the latter in case of loss to receive the
proceeds of the insurance and to retain such part as
might be necessary to cover the mortgage debt. At the
same time, in order more conveniently to accomplish
the end in view, Dunn authorized and requested the
Brewery Company to effect said insurance itself.
Accordingly on the same date Antonio Brias, general
manager of the Brewery, made a verbal application to
the Law Union and Rock Insurance Company for
insurance to the extent of P15,000 upon said property.
In reply to a question of the company's agent as to
whether the Brewery was the owner of the property, he
stated that the company was interested only as a
mortgagee. No information was asked as to who was
the owner of the property, and no information upon this
point was given.
It seems that the insurance company to whom this
application was directed did not want to carry more than
one-half the risk. It therefore issued its own policy for
P7,500 and procured a policy in a like amount to be
issued by the "Filipinas" Compania de Seguros. Both
policies were issued in the name of the San Miguel
Brewery as the assured, and contained no reference to
any other interest in the property. Both policies contain
the usual clause requiring assignments to be approved
and noted on the policy. The premiums were paid by the
Brewery and charged to Dunn. A year later the policies
were renewed, without change, the renewal premiums
being paid by the Brewery, supposedly for the account
of the owner. In the month of March of the year 1917
Dunn sold the insured property to the defendant Henry
Harding, but not assignment of the insurance, or of the
insurance policies, was at any time made to him.
We agree with the trial court that no cause of action in
Henry Harding against the insurance companies is show.
He is not a party to the contracts of insurance and
cannot directly maintain an action thereon. (Uy Tam and
Uy Yet vs. Leonard, 30 Phil. Rep., 471.) His claim is
merely of an equitable and subsidiary nature and must
be made effective, if at all, through the San Miguel
Brewery in whose name the contracts are written. Now
the Brewery, as mortgagee of the insured property,
undoubtedly had an insurable interest therein; but it
could not, in any event, recover upon these policies an
amount in excess of its mortgage credit. In this
connection it will be remembered that Antonio Brias,
upon making application for the insurance, informed the
company with which the insurance was placed that the
Brewery was interested only as a mortgagee. It would,
therefore, be impossible for the Brewery mortgage on
the insured property.
This conclusion is not only deducible from the principles
governing the operation and effect of insurance
contracts in general but the point is clearly covered by
the express provisions of sections 16 and 50 of the
Insurance Act (Act No. 2427). In the first of the sections
cited, it is declared that "the measure of an insurable
interest in property is the extent to which the insured
might be damnified by loss or injury thereof" (sec. 16);
while in the other it is stated that "the insurance shall
be applied exclusively to the proper interest of the
person in whose name it is made unless otherwise
specified in the policy" (sec. 50).
These provisions would have been fatal to any attempt
at recovery even by D. P. Dunn, if the ownership of the
property had continued in him up to the time of the
loss; and as regards Harding, an additional insuperable
obstacle is found in the fact that the ownership of the
property had been charged, prior to the loss, without
any corresponding change having been effected in the
policy of insurance. In section 19 of the Insurance Act
we find it stated that "a change of interest in any part of
a thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the
insurance to an equivalent extent, until the interest in
the thing and the interest in the insurance are vested in
the same person." Again in section 55 it is declared that
"the mere transfer of a thing insured does not transfer
the policy, but suspends it until the same person
becomes the owner of both the policy and the thing
insured."
Undoubtedly these policies of insurance might have
been so framed as to have been "payable to the Sane
Miguel Brewery, mortgagee, as its interest may appear,
remainder to whomsoever, during the continuance of
the risk, may become the owner of the interest
insured." (Sec 54, Act No. 2427.) Such a clause would
have proved an intention to insure the entire interest in
the property, not merely the insurable interest of the
San Miguel Brewery, and would have shown exactly to
whom the money, in case of loss, should be paid. But
the policies are not so written.
It is easy to collect from the facts stated in the decision
of the trial judge, no less than from the testimony of
Brias, the manager of the San Miguel Brewery, that, as
the insurance was written up, the obligation of the
insurance companies was different from that
contemplated by Dunn, at whose request the insurance
was written, and Brias. In the contract of mortgage
Dunn had agreed, at his own expense, to insure the
mortgaged property for its full value and to indorse the
policies in such manner as to authorize the Brewery
Company to receive the proceeds in case of loss and to
retain such part thereof as might be necessary to satisfy
the remainder then due upon the mortgage debt.
Instead, however, of effecting the insurance himself
Dunn authorized and requested the Brewery Company
to procure insurance on the property in the amount of
P15,000 at Dunn's expense. The Brewery Company
undertook to carry this mandate into effect, and it of
course became its duty to procure insurance of the
character contemplated, that is, to have the policies so
written as to protect not only the insurable interest of
the Brewery, but also the owner. Brias seems to have
supposed that the policies as written had this effect, but
in this he was mistaken. It was certainly a hardship on
the owner to be required to pay the premiums upon
P15,000 of insurance when he was receiving no benefit
whatever except in protection to the extent of his
indebtedness to the Brewery. The blame for the
situation thus created rests, however, with the Brewery
rather than with the insurance companies, and there is
nothing in the record to indicate that the insurance
companies were requested to write insurance upon the
insurable interest of the owner or intended to make
themselves liable to that extent.
If during the negotiations which resulted in the writing
of this insurance, it had been agreed between the
contracting parties that the insurance should be so
written as to protect not only the interest of the
mortgagee but also the residuary interest of the owner,
and the policies had been, by inadvertence, ignorance,
or mistake written in the form in which they were
issued, a court would have the power to reform the
contracts and give effect to them in the sense in which
the parties intended to be bound. But in order to justify
this, it must be made clearly to appear that the minds of
the contracting parties did actually meet in agreement
and that they labored under some mutual error or
mistake in respect to the expression of their purpose.
Thus, in Bailey vs. American Central Insurance Co. (13
Fed., 250), it appeared that a mortgage desiring to
insure his own insurable interest only, correctly stated
his interest, and asked that the same be insured. The
insurance company agreed to accept the risk, but the
policy was issued in the name of the owner, because of
the mistaken belief of the company's agent that the law
required it to be so drawn. It was held that a court of
equity had the power, at the suit of the mortgage, to
reform the instrument and give judgment in his favor
for the loss thereunder, although it had been exactly as
it was. Said the court: "If the applicant correctly states
his interest and distinctly asks for an insurance thereon,
and the agent of the insurer agrees to comply with his
request, and assumes to decide upon the form of the
policy to be written for that purpose, and by mistake of
law adopts the wrong form, a court of equity will reform
the instrument so as to make it insurance upon the
interest named." (See also Fink vs. Queens Insurance
Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78
Iowa, 334; 16 Am. St. Rep., 443; Woodbury Savings
etc., Co., vs. Charter Oak Insurance Co., 31 Conn., 517;
Balen vs. Hanover Fire Insurance Co., 67 Mich., 179.)
Similarly, in cases where the mortgage is by mistake
described as owner, the court may grant reformation
and permit a recovery by the mortgage in his character
as such. (Dalton vs. Milwaukee etc. Insurance Co., 126
Iowa, 377; Spare vs. Home Mutual Insurance Co., 17
Fed., 568.) In Thompson vs. Phoenix Insurance Co.
(136 U.S., 287; 34 L. 3d., 408), it appeared that one
Kearney made application to an insurance company for
insurance on certain property in his hands as receiver
and it was understood between him and the company's
agent that, in case of loss, the proceeds of the policy
should accrue to him and his successors as receiver and
to others whom it might concern. However, the policy,
as issued, was so worded as to be payable only to him
as receiver. In an action brought on the policy by a
successor of Kearney, it was alleged that the making of
the contract in this form was due to inadvertence,
accident, and mistake upon the part of both Kearney
and the company.
Said the court:
If by inadvertence, accident, or mistake the
terms of the contract were not fully set forth in
the policy, the plaintiff is entitled to have it
reformed.
In another case the same court said:
We have before us a contract from which by mistake,
material stipulations have been omitted, whereby the
true intent and meaning of the parties are not fully or
accurately expressed. There was a definite concluded
agreement as to insurance, which, in point of time,
preceded the preparation and delivery of the policy, and
this is demonstrated by legal and exact evidence, which
removes all doubt as to the sense and undertaking of
the parties. In the agreement there has been a mutual
mistake, caused chiefly by that contracting party who
now seeks to limit the insurance to an interest in the
property less than that agreed to be insured. The
written agreement did not effect that which the parties
intended. That a court of equity can afford relief in such
a case, is, we think, well settled by the authorities.
(Smell vs. Atlantic, etc., Ins. Co., 98 U.S., 85, 89; 25 L.
ed., 52.)
But to justify the reformation of a contract, the proof
must be of the most satisfactory character, and it must
clearly appear that the contract failed to express the
real agreement between the parties. (Philippine Sugar
Estates Development Company vs. Government of the
Philippine Islands, 62 L. ed.,
1177, reversing Government of Philippine
Island vs. Philippine Sugar Estates Development Co., 30
Phil. Rep., 27.)
In the case now before us the proof is entirely
insufficient to authorize the application of the doctrine
state in the foregoing cases, for it is by means clear
from the testimony of Brias — and none other was
offered — that the parties intended for the policy to
cover the risk of the owner in addition to that of the
mortgagee. It results that the defendant Harding is not
entitled to relief in any aspect of the case.
The judgment is therefore affirmed, with costs against
the appellant. So ordered.
G.R. No. 168115              June 8, 2007
VICENTE ONG LIM SING, JR., petitioner,
vs.
FEB LEASING & FINANCE
CORPORATION, respondent.
This is a petition for review on certiorari assailing the
Decision1 dated March 15, 2005 and the
Resolution2 dated May 23, 2005 of the Court of Appeals
(CA) in CA-G.R. CV No. 77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation
(FEB) entered into a lease3 of equipment and motor
vehicles with JVL Food Products (JVL). On the same
date, Vicente Ong Lim Sing, Jr. (Lim) executed an
Individual Guaranty Agreement4 with FEB to guarantee
the prompt and faithful performance of the terms and
conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and
Acceptance Certificates5 over the equipment and motor
vehicles formed part of the agreement. Under the
contract, JVL was obliged to pay FEB an aggregate gross
monthly rental of One Hundred Seventy Thousand Four
Hundred Ninety-Four Pesos (₱170,494.00).
JVL defaulted in the payment of the monthly rentals. As
of July 31, 2000, the amount in arrears, including
penalty charges and insurance premiums, amounted to
Three Million Four Hundred Fourteen Thousand Four
Hundred Sixty-Eight and 75/100 Pesos (₱3,414,468.75).
On August 23, 2000, FEB sent a letter to JVL demanding
payment of the said amount. However, JVL failed to
pay.6
On December 6, 2000, FEB filed a Complaint7 with the
Regional Trial Court of Manila, docketed as Civil Case
No. 00-99451, for sum of money, damages, and
replevin against JVL, Lim, and John Doe.
In the Amended Answer,8 JVL and Lim admitted the
existence of the lease agreement but asserted that it is
in reality a sale of equipment on installment basis, with
FEB acting as the financier. JVL and Lim claimed that
this intention was apparent from the fact that they were
made to believe that when full payment was effected, a
Deed of Sale will be executed by FEB as vendor in favor
of JVL and Lim as vendees.9 FEB purportedly assured
them that documenting the transaction as a lease
agreement is just an industry practice and that the
proper documentation would be effected as soon as full
payment for every item was made. They also contended
that the lease agreement is a contract of adhesion and
should, therefore, be construed against the party who
prepared it, i.e., FEB.
In upholding JVL and Lim’s stance, the trial court
stressed the contradictory terms it found in the lease
agreement. The pertinent portions of the Decision dated
November 22, 2002 read:
A profound scrutiny of the provisions of the contract
which is a contract of adhesion at once exposed the use
of several contradictory terms. To name a few, in
Section 9 of the said contract – disclaiming warranty, it
is stated that the lessor is not the manufacturer nor the
latter’s agent and therefore does not guarantee any
feature or aspect of the object of the contract as to its
merchantability. Merchantability is a term applied in a
contract of sale of goods where conditions and
warranties are made to apply. Article 1547 of the Civil
Code provides that unless a contrary intention appears
an implied warranty on the part of the seller that he has
the right to sell and to pass ownership of the object is
furnished by law together with an implied warranty that
the thing shall be free from hidden faults or defects or
any charge or encumbrance not known to the buyer.
In an adhesion contract which is drafted and printed in
advance and parties are not given a real arms’ length
opportunity to transact, the Courts treat this kind of
contract strictly against their architects for the reason
that the party entering into this kind of contract has no
choice but to accept the terms and conditions found
therein even if he is not in accord therewith and for that
matter may not have understood all the terms and
stipulations prescribed thereat. Contracts of this
character are prepared unilaterally by the stronger party
with the best legal talents at its disposal. It is upon that
thought that the Courts are called upon to analyze
closely said contracts so that the weaker party could be
fully protected.
Another instance is when the alleged lessee was
required to insure the thing against loss, damage or
destruction.
In property insurance against loss or other accidental
causes, the assured must have an insurable interest, 32
Corpus Juris 1059.
xxxx
It has also been held that the test of insurable interest
in property is whether the assured has a right, title or
interest therein that he will be benefited by its
preservation and continued existence or suffer a direct
pecuniary loss from its destruction or injury by the peril
insured against. If the defendants were to be regarded
as only a lessee, logically the lessor who asserts
ownership will be the one directly benefited or injured
and therefore the lessee is not supposed to be the
assured as he has no insurable interest.
There is also an observation from the records that the
actual value of each object of the contract would be the
result after computing the monthly rentals by
multiplying the said rentals by the number of months
specified when the rentals ought to be paid.
Still another observation is the existence in the records
of a Deed of Absolute Sale by and between the same
parties, plaintiff and defendants which was an exhibit of
the defendant where the plaintiff sold to the same
defendants one unit 1995 Mitsubishi L-200 STRADA DC
PICK UP and in said Deed, The Court noticed that the
same terms as in the alleged lease were used in respect
to warranty, as well as liability in case of loss and other
conditions. This action of the plaintiff unequivocally
exhibited their real intention to execute the
corresponding Deed after the defendants have paid in
full and as heretofore discussed and for the sake of
emphasis the obscurity in the written contract cannot
favor the party who caused the obscurity.
Based on substantive Rules on Interpretation, if the
terms are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be
contrary to the evident intention of the parties, their
contemporaneous and subsequent acts shall be
principally considered. If the doubts are cast upon the
principal object of the contract in such a way that it
cannot be known what may have been the intention or
will of the parties, the contract shall be null and void.10
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on
installment there is no chattel mortgage on the thing
sold, but it appears amongst the Complaint’s prayer,
that the plaintiff elected to exact fulfillment of the
obligation.
For the vehicles returned, the plaintiff can only recover
the unpaid balance of the price because of the previous
payments made by the defendants for the reasonable
use of the units, specially so, as it appears, these
returned vehicles were sold at auction and that the
plaintiff can apply the proceeds to the balance.
However, with respect to the unreturned units and
machineries still in the possession of the defendants, it
is this Court’s view and so hold that the defendants are
liable therefore and accordingly are ordered jointly and
severally to pay the price thereof to the plaintiff
together with attorney’s fee and the costs of suit in the
sum of Php25,000.00.
SO ORDERED.11
On December 27, 2002, FEB filed its Notice of
Appeal.12 Accordingly, on January 17, 2003, the court
issued an Order13 elevating the entire records of the
case to the CA. FEB averred that the trial court erred:
A. When it ruled that the agreement between the
Parties-Litigants is one of sale of personal properties on
installment and not of lease;
B. When it ruled that the applicable law on the case is
Article 1484 (of the Civil Code) and not R.A. No. 8556;
C. When it ruled that the Plaintiff-Appellant can no
longer recover the unpaid balance of the price because
of the previous payments made by the defendants for
the reasonable use of the units;
D. When it failed to make a ruling or judgment on the
Joint and Solidary Liability of Vicente Ong Lim, Jr. to the
Plaintiff-Appellant.14
On March 15, 2005, the CA issued its
Decision15 declaring the transaction between the parties
as a financial lease agreement under Republic Act (R.A.)
No. 8556.16 The fallo of the assailed Decision reads:
WHEREFORE, the instant appeal is GRANTED and the
assailed Decision dated 22 November 2002 rendered by
the Regional Trial Court of Manila, Branch 49 in Civil
Case No. 00-99451 is REVERSED and SET ASIDE, and
a new judgment is hereby ENTERED ordering appellees
JVL Food Products and Vicente Ong Lim, Jr. to solidarily
pay appellant FEB Leasing and Finance Corporation the
amount of Three Million Four Hundred Fourteen
Thousand Four Hundred Sixty Eight Pesos and
75/100 (Php3,414,468.75), with interest at the rate
of twelve percent (12%) per annum starting from the
date of judicial demand on 06 December 2000, until full
payment thereof. Costs against appellees.
SO ORDERED.17
Lim filed the instant Petition for Review on Certiorari
under Rule 45
contending that:
I
The Honorable Court of Appeals erred when it failed to
consider that the undated complaint was filed by
Saturnino J. Galang, Jr., without any authority from
respondent’s Board of Directors and/or Secretary’s
Certificate.
II
The Honorable Court of Appeals erred when it failed to
strictly apply Section 7, Rule 18 of the 1997 Rules of
Civil Procedure and now Item 1, A(8) of A.M. No. 03-1-
09 SC (June 8, 2004).
III
The Honorable Court of Appeals erred in not dismissing
the appeal for failure of the respondent to file on time
its appellant’s brief and to separately rule on the
petitioner’s motion to dismiss.
IV
The Honorable Court of Appeals erred in finding that the
contract between the parties is one of a financial lease
and not of a contract of sale.
V
The Honorable Court of Appeals ERRED IN ruling that
the payments paid by the petitioner to the respondent
are "rentals" and not installments paid for the purchase
price of the subject motor vehicles, heavy machines and
equipment.
VI
The Honorable Court of Appeals erred in ruling that the
previous contract of sale involving the pick-up vehicle is
of no consequence.
VII
The Honorable Court of Appeals failed to take into
consideration that the contract of lease, a contract of
adhesion, concealed the true intention of the parties,
which is a contract of sale.
VIII
The Honorable Court of Appeals erred in ruling that the
petitioner is a lessee with insurable interest over the
subject personal properties.
IX
The Honorable Court of Appeals erred in construing the
intentions of the Court a quo in its usage of the term
merchantability.18
We affirm the ruling of the appellate court.
First, Lim can no longer question Galang’s authority as
FEB’s authorized representative in filing the suit against
Lim. Galang was the representative of FEB in the
proceedings before the trial court up to the appellate
court. Petitioner never placed in issue the validity of
Galang’s representation before the trial and appellate
courts. Issues raised for the first time on appeal are
barred by estoppel. Arguments not raised in the original
proceedings cannot be considered on review; otherwise,
it would violate basic principles of fair play.19
Second, there is no legal basis for Lim to question the
authority of the CA to go beyond the matters agreed
upon during the pre-trial conference, or in not
dismissing the appeal for failure of FEB to file its brief on
time, or in not ruling separately on the petitioner’s
motion to dismiss.
Courts have the prerogative to relax procedural rules of
even the most mandatory character, mindful of the duty
to reconcile both the need to speedily put an end to
litigation and the parties’ right to due process. In
numerous cases, this Court has allowed liberal
construction of the rules when to do so would serve the
demands of substantial justice and equity.20 In Aguam
v. Court of Appeals , the Court explained:
The court has the discretion to dismiss or not to dismiss
an appellant's appeal. It is a power conferred on the
court, not a duty. The "discretion must be a sound one,
to be exercised in accordance with the tenets of justice
and fair play, having in mind the circumstances
obtaining in each case." Technicalities, however, must
be avoided. The law abhors technicalities that impede
the cause of justice. The court's primary duty is to
render or dispense justice. "A litigation is not a game of
technicalities." "Lawsuits unlike duels are not to be won
by a rapier's thrust. Technicality, when it deserts its
proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant
consideration from courts." Litigations must be decided
on their merits and not on technicality. Every party
litigant must be afforded the amplest opportunity for the
proper and just determination of his cause, free from
the unacceptable plea of technicalities. Thus, dismissal
of appeals purely on technical grounds is frowned upon
where the policy of the court is to encourage hearings of
appeals on their merits and the rules of procedure ought
not to be applied in a very rigid, technical sense; rules
of procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent
course of action for the court to excuse a technical lapse
and afford the parties a review of the case on appeal to
attain the ends of justice rather than dispose of the case
on technicality and cause a grave injustice to the
parties, giving a false impression of speedy disposal of
cases while actually resulting in more delay, if not a
miscarriage of justice.21
Third, while we affirm that the subject lease agreement
is a contract of adhesion, such a contract is not void per
se. It is as binding as any ordinary contract. A party
who enters into an adhesion contract is free to reject
the stipulations entirely.22 If the terms thereof are
accepted without objection, then the contract serves as
the law between the parties.
In Section 23 of the lease contract, it was expressly
stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY
CLAUSE
23.1. The LESSOR and the LESSEE agree this
instrument constitute the entire agreement between
them, and that no representations have been made
other than as set forth herein. This Agreement shall not
be amended or altered in any manner, unless such
amendment be made in writing and signed by the
parties hereto.
Petitioner’s claim that the real intention of the parties
was a contract of sale of personal property on
installment basis is more likely a mere afterthought in
order to defeat the rights of the respondent.
The Lease Contract with corresponding Lease Schedules
with Delivery and Acceptance Certificates is, in point of
fact, a financial lease within the purview of R.A. No.
8556. Section 3(d) thereof defines "financial leasing" as:
[A] mode of extending credit through a non-cancelable
lease contract under which the lessor purchases or
acquires, at the instance of the lessee, machinery,
equipment, motor vehicles, appliances, business and
office machines, and other movable or immovable
property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize
at least seventy (70%) of the purchase price or
acquisition cost, including any incidental expenses and a
margin of profit over an obligatory period of not less
than two (2) years during which the lessee has the right
to hold and use the leased property with the right to
expense the lease rentals paid to the lessor and bears
the cost of repairs, maintenance, insurance and
preservation thereof, but with no obligation or option on
his part to purchase the leased property from the
owner-lessor at the end of the lease contract.
FEB leased the subject equipment and motor vehicles to
JVL in consideration of a monthly periodic payment of
₱170,494.00. The periodic payment by petitioner is
sufficient to amortize at least 70% of the purchase price
or acquisition cost of the said movables in accordance
with the Lease Schedules with Delivery and Acceptance
Certificates. "The basic purpose of a financial leasing
transaction is to enable the prospective buyer of
equipment, who is unable to pay for such equipment in
cash in one lump sum, to lease such equipment in the
meantime for his use, at a fixed rental sufficient to
amortize at least 70% of the acquisition cost (including
the expenses and a margin of profit for the financial
lessor) with the expectation that at the end of the lease
period the buyer/financial lessee will be able to pay any
remaining balance of the purchase price."23
The allegation of petitioner that the rent for the use of
each movable constitutes the value of the vehicle or
equipment leased is of no moment. The law on financial
lease does not prohibit such a circumstance and this
alone does not make the transaction between the
parties a sale of personal property on installment. In
fact, the value of the lease, usually constituting the
value or amount of the property involved, is a benefit
allowed by law to the lessor for the use of the property
by the lessee for the duration of the lease. It is
recognized that the value of these movables depreciates
through wear and tear upon use by the lessee. In
Beltran v. PAIC Finance Corporation,24 we stated that:
Generally speaking, a financing company is not a buyer
or seller of goods; it is not a trading company. Neither is
it an ordinary leasing company; it does not make its
profit by buying equipment and repeatedly leasing out
such equipment to different users thereof. But a
financial lease must be preceded by a purchase and sale
contract covering the equipment which becomes the
subject matter of the financial lease. The financial lessor
takes the role of the buyer of the equipment leased. And
so the formal or documentary tie between the seller and
the real buyer of the equipment, i.e., the financial
lessee, is apparently severed. In economic reality,
however, that relationship remains. The sale of the
equipment by the supplier thereof to the financial lessor
and the latter's legal ownership thereof are intended to
secure the repayment over time of the purchase price of
the equipment, plus financing charges, through the
payment of lease rentals; that legal title is the upfront
security held by the financial lessor, a security probably
superior in some instances to a chattel mortgagee's
lien.25
Fourth, the validity of Lease No. 27:95:20 between FEB
and JVL should be upheld. JVL entered into the lease
contract with full knowledge of its terms and conditions.
The contract was in force for more than four years.
Since its inception on March 9, 1995, JVL and Lim never
questioned its provisions. They only attacked the
validity of the contract after they were judicially made
to answer for their default in the payment of the agreed
rentals.
It is settled that the parties are free to agree to such
stipulations, clauses, terms, and conditions as they may
want to include in a contract. As long as such
agreements are not contrary to law, morals, good
customs, public policy, or public order, they shall have
the force of law between the parties.26 Contracting
parties may stipulate on terms and conditions as they
may see fit and these have the force of law between
them.27
The stipulation in Section 1428 of the lease contract, that
the equipment shall be insured at the cost and expense
of the lessee against loss, damage, or destruction from
fire, theft, accident, or other insurable risk for the full
term of the lease, is a binding and valid stipulation.
Petitioner, as a lessee, has an insurable interest in the
equipment and motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of an
insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof. It
cannot be denied that JVL will be directly damnified in
case of loss, damage, or destruction of any of the
properties leased.
Likewise, the stipulation in Section 9.1 of the lease
contract that the lessor does not warrant the
merchantability of the equipment is a valid stipulation.
Section 9.1 of the lease contract is stated as:
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT
THE LESSOR IS NOT THE MANUFACTURER OR SUPPLIER
OF THE EQUIPMENT NOR THE AGENT OF THE
MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE
HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE
EQUIPMENT AND THE SUPPLIER THEREOF AND THAT
THERE ARE NO WARRANTIES, CONDITIONS, TERMS,
REPRESENTATION OR INDUCEMENTS, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON
BEHALF OF THE LESSOR AS TO ANY FEATURE OR
ASPECT OF THE EQUIPMENT OR ANY PART THEREOF,
OR AS TO ITS FITNESS, SUITABILITY, CAPACITY,
CONDITION OR MERCHANTABILITY, NOR AS TO
WHETHER THE EQUIPMENT WILL MEET THE
REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS
OR CONTRACT WHICH PROVIDE FOR SPECIFIC
MACHINERY OR APPARATUS OR SPECIAL METHODS.29
In the financial lease agreement, FEB did not assume
responsibility as to the quality, merchantability, or
capacity of the equipment. This stipulation provides
that, in case of defect of any kind that will be found by
the lessee in any of the equipment, recourse should be
made to the manufacturer. "The financial lessor, being a
financing company, i.e., an extender of credit rather
than an ordinary equipment rental company, does not
extend a warranty of the fitness of the equipment for
any particular use. Thus, the financial lessee was
precisely in a position to enforce such warranty directly
against the supplier of the equipment and not against
the financial lessor. We find nothing contra legem or
contrary to public policy in such a contractual
arrangement."30
Fifth, petitioner further proffers the view that the real
intention of the parties was to enter into a contract of
sale on installment in the same manner that a previous
transaction between the parties over a 1995 Mitsubishi
L-200 Strada DC-Pick-Up was initially covered by an
agreement denominated as a lease and eventually
became the subject of a Deed of Absolute Sale.
We join the CA in rejecting this view because to allow
the transaction involving the pick-up to be read into the
terms of the lease agreement would expand the
coverage of the agreement, in violation of Article 1372
of the New Civil Code. 31 The lease contract subject of
the complaint speaks only of a lease. Any agreement
between the parties after the lease contract has ended
is a different transaction altogether and should not be
included as part of the lease. Furthermore, it is a
cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt as to
the intention of the contracting parties, the literal
meaning of its stipulations shall control. No amount of
extrinsic aid is necessary in order to determine the
parties' intent.32
WHEREFORE, in the light of all the foregoing, the
petition is DENIED. The Decision of the CA in CA-G.R.
CV No. 77498 dated March 15, 2005 and Resolution
dated May 23, 2005 are AFFIRMED. Costs against
petitioner. SO ORDERED.
G.R. No. L-7667           November 28, 1955
CHERIE PALILEO, plaintiff-appellee,
vs.
BEATRIZ COSIO, defendant-appellant.
Plaintiff filed a complaint against defendant in the Court
of First Instance of Manila praying that (1) the
transaction entered into between them on December
18, 1951 be declared as one of loan, and the document
executed covering the transaction as one of equitable
mortgage to secure the payment of said loan; (2) the
defendant be ordered to credit to the plaintiff with the
necessary amount from the sum received by the
defendant from the Associated Insurance & Surety Co.,
Inc. and to apply the same to the payment of plaintiff's
obligation thus considering it as fully paid; and (3) the
defendant be ordered to pay to plaintiff the difference
between the alleged indebtedness of plaintiff and the
sum received by defendant from the aforementioned
insurance company, plus the sum allegedly paid to
defendant as interest on the alleged indebtedness.
On December 19, 1952, defendant filed her answer
setting up as special defense that the transaction
entered into between the plaintiff and defendant is one
of sale with option to repurchase but that the period for
repurchase had expired without plaintiff having returned
the price agreed upon as a result of which the
ownership of the property had become consolidated in
the defendant. Defendant also set up certain
counterclaims which involve a total amount of P4,900.
On April 7, 1953, the case was set for trial on the
merits, but because of several postponements asked by
the parties, the same has to be set anew for trial on
January 12, 1954. On this date, neither the defendant
nor her counsel appeared, even if the latter had been
notified of the postponement almost a month earlier,
and so the court received the evidence of the plaintiff.
On January 18, 1954, the court, having in view the
evidence presented, rendered judgment granting the
relief prayed for in the complaint.
On February 2, 1954, the original counsel for the
defendant was substituted and the new counsel
immediately moved that the judgment be set aside on
the ground that, due to mistake or excusable
negligence, defendant was unable to present her
evidence and the decision was contrary to law, and this
motion having been denied, defendant took the present
appeal.
The important issue to be determined in this appeal is
whether the lower court committed a grave abuse of
discretion in not reopening the case to give defendant
an opportunity to present her evidence considering that
the failure of her original counsel to appear was due to
mistake or execusable negligence which ordinary
prudence could not have guarded against.
The original counsel of defendant was Atty. Leon Ma.
Guerrero. As early as February 11, 1953, said counsel
showed interest in the early disposal of this case by
moving the court to have it set for trial. The first date
set was April 7, 1953, but no hearing was had on that
date because plaintiff had moved to postpone it. The
case was next set for hearing on April 28, 1953, but on
motion again of plaintiff, the hearing was transferred to
November 6, 1953. Then, upon petition of defendant,
the trial had to be moved to December 15, 1953, and
because Atty. Guerrero could not appear on said date
because of a case he had in Cebu City, the hearing was
postponed to January 18, 1954.
And on January 4, 1954, or nineteen days after
receiving the notice of hearing, Atty. Guerrero was
appointed Undersecretary of Foreign Affairs. It is now
contended that the appointment was so sudden and
unexpected that Atty. Guerrero, after taking his oath,
was unable to wind up his private cases or make any
preparation at all. It is averred that "The days that
followed his appointment were very busy days for
defendant's former counsel. There was an immediate
need for clearing the backlog of official business,
including the reorganization of the Department of
Foreign Affairs and our Foreign Service, and more
importantly, he had to assist the Secretary of Foreign
Affairs in negotiations of national importance like the
Japanese reparations, and the revision of the trade
agreement with the United States, that, Atty. Guerrero
had to work as much as fourteen hours daily . . .
Because of all these unavoidable confusion that followed
in the wake of Atty. Guerrero's sudden and unexpected
appointment, the trial of this case scheduled for January
18, 1954 escaped his memory, and consequently, Atty.
Guerrero and the defendant were unable to appear
when the case was called for trial." These reasons, — it
is intimated, — constitute excusable negligence which
ordinary prudence could not have guarded against and
should have been considered by the trial court as
sufficient justification to grant the petition of defendant
for a rehearing.
It is a well-settled rule that the granting of a motion to
set aside a judgment or order on the ground of mistake
or excusable negligence is addressed to the sound
discretion of the court (see Coombs vs. Santos, 24 Phil.,
446; Daipan vs. Sigabu, 25, Phil., 184). And an order
issued in the exercise of such discretion is ordinarily not
to be disturbed unless it is shown that the court has
gravely abused such discretion. (See Tell vs. Tell, 48
Phil., 70; Macke vs. Camps, 5 Phil., 185; Calvo vs. De
Gutierrez, 4 Phil., 203; Manzanares vs. Moreta, 38 Phil.,
821; Salva vs. Palacio and Leuterio, 90 Phil., 731.) In
denying the motion for reopening the trial court said:
"After going over the same arguments, this Court is of
the opinion, and so holds that the decision of this Court
of January 18, 1954 should not be disturbed."
Considering the stature, ability and experience of
counsel Leon Ma. Guerrero, and the fact that he was
given almost one month notice before the date set for
trial, we are persuaded to conclude that the trial court
did not abuse its discretion in refusing to reconsider its
decision.
Coming now to the merits of the case, we note that the
lower court made the following findings: On December
18, 1951, plaintiff obtained from defendant a loan in the
sum of P12,000 subject to the following conditions: (a)
that plaintiff shall pay to defendant an interest in the
amount of P250 a month; (b) that defendant shall
deduct from the loan certain obligations of plaintiff to
third persons amounting to P4,550, plus the sum of
P250 as interest for the first month; and (c) that after
making the above deductions, defendant shall deliver to
plaintiff only the balance of the loan of P12,000.
Pursuant to their agreement, plaintiff paid to defendant
as interest on the loan a total of P2,250.00
corresponding to nine months from December 18, 1951,
on the basis of P250.00 a month, which is more than
the maximum interest authorized by law. To secure the
payment of the aforesaid loan, defendant required
plaintiff to sign a document known as "Conditional Sale
of Residential Building", purporting to convey to
defendant, with right to repurchase, a two-story building
of strong materials belonging to plaintiff. This document
did not express the true intention of the parties which
was merely to place said property as security for the
payment of the loan.
After the execution of the aforesaid document,
defendant insured the building against fire with the
Associated Insurance & Surety Co., Inc. for the sum of
P15,000, the insurance policy having been issued in the
name of defendant. The building was partly destroyed
by fire and, after proper demand, defendant collected
from the insurance company an indemnity of
P13,107.00. Plaintiff demanded from defendant that she
be credited with the necessary amount to pay her
obligation out of the insurance proceeds but defendant
refused to do so. And on the strength of these facts, the
court rendered decision the dispositive part of which
reads as follows:
Wherefore, judgment is hereby rendered
declaring the transaction had between plaintiff
and defendant, as shown in Exhibit A, an
equitable mortgage to secure the payment of
the sum of P12,000 loaned by the defendant to
plaintiff; ordering the defendant to credit the
sum of P13,107 received by the defendant from
the Associated Insurance & surety Co., Inc. to
the payment of plaintiff's obligation in the sum
of P12,000.00 as stated in the complaint, thus
considering the agreement of December 18,
1951 between the herein plaintiff and defendant
completely paid and leaving still a balance in
the sum of P1,107 from the insurance collected
by defendant; that as plaintiff had paid to the
defendant the sum of P2,250.00 for nine
months as interest on the sum of P12,000
loaned to plaintiff and the legal interest allowed
by law in this transaction does not exceed 12
per cent per annum, or the sum of P1,440 for
one year, so the herein plaintiff and overpaid
the sum of P810 to the defendant, which this
Court hereby likewise orders the said defendant
to refund to herein plaintiff, plus the balance of
P1,107 representing the difference of the sum
loan of P12,000 and the collected insurance of
P13,107 from the insurance company
abovementioned to which the herein plaintiff is
entitled to receive, and to pay the costs.
The question that now arises is: Is the trial court
justified in considering the obligation of plaintiff fully
compensated by the insurance amount and in ordering
defendant to refund to plaintiff the sum of P1,107
representing the difference of the loan of P12,000 and
the sum of P13,107 collected by said defendant from
the insurance company notwithstanding the fact that it
was not proven that the insurance was taken for the
benefit of the mortgagor?
Is is our opinion that on this score the court is in error
for its ruling runs counter to the rule governing an
insurance taken by a mortgagee independently of the
mortgagor. The rule is that "where a mortgagee,
independently of the mortgagor, insures the mortgaged
property in his own name and for his own interest, he is
entitled to the insurance proceeds in case of loss,  but in
such case, he is not allowed to retain his claim against
the mortgagor, but is passed by subrogation to the
insurer to the extent of the money paid." (Vance on
Insurance, 2d ed., p. 654)Or, stated in another way,
"the mortgagee may insure his interest in the property
independently of the mortgagor. In that event, upon the
destruction of the property the insurance money paid to
the mortgagee will not inure to the benefit of the
mortgagor, and the amount due under the mortgage
debt remains unchanged. The mortgagee, however,  is
not allowed to retain his claim against the
mortgagor, but it passes by subrogation to the insurer,
to the extent of the insurance money paid." (Vance on
Insurance, 3rd ed., pp. 772-773) This is the same rule
upheld by this Court in a case that arose in this
jurisdiction. In the case mentioned, an insurance
contract was taken out by the mortgagee upon his own
interest, it being stipulated that the proceeds would be
paid to him only and when the case came up for
decision, this Court held that the mortgagee, in case of
loss, may only recover upon the policy to the extent of
his credit at the time of the loss. It was declared that
the mortgaged had no right of action against the
mortgagee on the policy. (San Miguel Brewery vs. Law
Union, 40 Phil., 674.)
It is true that there are authorities which hold that "If a
mortgagee procures insurance on his separate interest
at his own expense and for his own benefit, without any
agreement with the mortgagor with respect thereto, the
mortgagor has no interest in the policy, and is not
entitled to have the insurance proceeds applied in
reduction of the mortgage debt" (19 R.C.L., p. 405),
and that, furthermore, the mortgagee "has still a right
to recover his whole debt of the mortgagor."
(King vs. State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F.
Ins. Co. vs. Boyden 9 Allen, 123; See also
Loomis vs. Eagle Life & Health Ins. Co., 6 Gray, 396;
Washington Mills Emery Mfg. Co. vs. Weymouth & B.
Mut. F. Ins. Co., 135 Mass. 506; Foster vs. Equitable
Mut. F. Ins. Co., 2 Gray 216.) But these authorities
merely represent the minority view (See case note, 3
Lawyers' Report Annotated, new series, p. 79). "The
general rule and the weight of authority is, that the
insurer is thereupon subrogated to the rights of the
mortgagee under the mortgage. This is put upon the
analogy of the situation of the insurer to that of a
surety." (Jones on Mortgages, Vol. I, pp. 671-672.)
Considering the foregoing rules, it would appear that the
lower court erred in declaring that the proceeds of the
insurance taken out by the defendant on the property
mortgaged inured to the benefit of the plaintiff and in
ordering said defendant to deliver to the plaintiff the
difference between her indebtedness and the amount of
insurance received by the defendant, for, in the light of
the majority rule we have above enunciated, the correct
solution should be that the proceeds of the insurance
should be delivered to the defendant but that her claim
against the plaintiff should be considered assigned to
the insurance company who is deemed subrogated to
the rights of the defendant to the extent of the money
paid as indemnity.
Consistent with the foregoing pronouncement, we
therefore modify the judgment of the lower court as
follows:(1) the transaction had between the plaintiff and
defendant as shown in Exhibit A is merely an equitable
mortgage intended to secure the payment of the loan of
P12,000;(2) that the proceeds of the insurance
amounting to P13,107.00 was properly collected by
defendant who is not required to account for it to the
plaintiff; (3) that the collection of said insurance
proceeds shall not be deemed to have compensated the
obligation of the plaintiff to the defendant, but bars the
latter from claiming its payment from the former; and
(4) defendant shall pay to the plaintiff the sum of
P810.00 representing the overpayment made by plaintiff
by way of interest on the loan. No pronouncement as to
costs.