1.

sec 2

Jaime T. Gaisano Vs. Development Insurance and Surety Corporation

G.R. No. 190702

February 27, 2017

Facts:

Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number
GTJ-777 (vehicle), while respondent is a domestic corporation engaged in the
insurance business. On September 27, 1996, respondent issued a comprehensive
commercial vehicle policy to petitioner in the amount of Pl,500,000.00 over the
vehicle for a period of one year commencing on September 27, 1996 up to
September 27, 1997. Respondent also issued two other commercial vehicle policies
to petitioner covering two other motor vehicles for the same period. To collect the
premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's
company, Noah's Ark

Merchandising (Noah's Ark). Noah's Ark immediately processed the payments and
issued a Far East Bank check dated September 27, 1996 payable to Trans-Pacific on
the same day. The check bearing the amount of Pl40,893.50 represents payment
for the three insurance policies, with P55,620.60 for the premium and other
charges over the vehicle. However, nobody from Trans-Pacific picked up the check
that day (September 27) because its president and general manager, Rolando
Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark that its
messenger would get the check the next day, September 28. In the evening of
September 27, 1996, while under the official custody of Noah's Ark marketing
manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle
was stolen in the vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing
reported the loss to the Philippine National Police Traffic Management Command at
Camp Crame in Quezon City. Despite search and retrieval efforts, the vehicle was
not recovered. Oblivious of the incident, Trans-Pacific picked up the check the next
day, September 28. It issued an official receipt numbered 124713 dated September
28, 1996, acknowledging the receipt of P55,620.60 for the premium and other
charges over the vehicle. The check issued to Trans Pacific for Pl40,893.50 was
deposited with Metrobank for encashment on October 1, 1996.

Issue:

Whether there is a binding insurance contract between petitioner and respondent.

Ruling:

The court deny the petition. Insurance is a contract whereby one undertakes
for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. Just like any other contract, it
requires a cause or consideration. The consideration is the premium, which must be
paid at the time and in the way and manner specified in the policy. If not so paid,
the policy will lapse and be forfeited by its own terms. The law, however, limits the
parties' autonomy as to when payment of premium may be made for the contract
to take effect. The general rule in insurance laws is that unless the premium
is paid, the insurance policy is not valid and binding.

Section 77 of the Insurance Code, applicable at the time of the issuance of the
policy, provides: Sec. 77. An insurer is entitled to payment of the premium
as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and
until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.
1. sec 2 G.R. No. 190702

JAIME T. GAISANO, Petitioner
vs.
DEVELOPMENT INSURANCE AND SURETY CORPORATION, Respondent

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari1 seeking to nullify the Court of Appeals'

(CA) September 11, 2009 Decision2 and November 24, 2009 Resolution3 in CA-G.R.
CV No. 81225. The CA reversed the September 24, 2003 Decision 4 of the Regional
Trial Court (RTC) in Civil Case No. 97-85464. The RTC granted Jaime T. Gaisano's
(petitioner) claim on the proceeds of the comprehensive commercial vehicle policy
issued by Development Insurance and Surety Corporation (respondent), viz.:

IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the
defendant-appellant ordered to pay the plaintiff-appellee the sum of ₱55,620.60
with interest at 6 percent per annum from the date of the denial of the claim on
October 9, 1996 until payment.

SO ORDERED.5

The facts are undisputed. Petitioner was the registered owner of a 1992 Mitsubishi
Montero with plate number GTJ-777 (vehicle), while respondent is a domestic
corporation engaged in the insurance business. 6 On September 27, 1996,
respondent issued a comprehensive commercial vehicle policy 7 to petitioner in the
amount of ₱1,500,000.00 over the vehicle for a period of one year commencing on
September 27, 1996 up to September 27, 1997. 8 Respondent also issued two other
commercial vehicle policies to petitioner covering two other motor vehicles for the
same period.9

To collect the premiums and other charges on the policies, respondent's

agent, Trans-Pacific Underwriters Agency (Trans-Pacific), issued a statement of
account to petitioner's company, Noah's Ark Merchandising (Noah's Ark). 10 Noah's
Ark immediately processed the payments and issued a Far East Bank check dated
September 27, 1996 payable to Trans-Pacific on the same day. 11 The check bearing
the amount of ₱140,893.50 represents payment for the three insurance policies,
with ₱55,620.60 for the premium and other charges over the vehicle. 12 However,
nobody from Trans-Pacific picked up the check that day (September 27) because its
president and general manager, Rolando Herradura, was celebrating his birthday.
Trans-Pacific informed Noah's Ark that its messenger would get the check the next
day, September 28.13

In the evening of September 27, 1996, while under the official custody of Noah's
Ark marketing manager Achilles Pacquing (Pacquing) as a service company vehicle,
the vehicle was stolen in the vicinity of SM Megamall at Ortigas, Mandaluyong City.
Pacquing reported the loss to the Philippine National Police Traffic
Management Command at Camp Crame in Quezon City. 14 Despite search
and retrieval efforts, the vehicle was not recovered.15

Oblivious of the incident, Trans-Pacific picked up the check the next day,
September 28. It issued an official receipt numbered 124713 dated September 28,
1996, acknowledging the receipt of ₱55,620.60 for the premium and other charges
over the vehicle.16 The check issued to Trans-Pacific for ₱140,893.50 was deposited
with Metrobank for encashment on October 1, 1996. 17

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter,

petitioner reported the loss and filed a claim with respondent for the insurance
proceeds of ₱1,500,000.00.18 After investigation, respondent denied
petitioner's claim on the ground that there was no insurance
contract.19 Petitioner, through counsel, sent a final demand on July 7,
1997.20 Respondent, however, refused to pay the insurance proceeds or return the
premium paid on the vehicle.

On October 9, 1997, petitioner filed a complaint for collection of sum of money and
damages21 with the RTC where it sought . to collect the insurance proceeds
from respondent. In its Answer,22 respondent asserted that the non-
payment of the premium rendered the policy ineffective. The premium was
received by the respondent only on October 2, 1996, and there was no known
loss covered by the policy to which the payment could be applied. 23

In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner.
It considered the premium paid as of September 27, even if the check was
received only on September 28 because (1) respondent's agent, Trans-
Pacific, acknowledged payment of the premium on that date, September
27, and (2) the check that petitioner issued was honored by respondent in
acknowledgment of the authority of the agent to receive it. 25 Instead of
returning the premium, respondent sent a checklist of requirements to petitioner
and assigned an underwriter to investigate the claim. 26 The RTC ruled that it
would be unjust and inequitable not to allow a recovery on the policy while
allowing respondent to retain the premium paid. 27 Thus, petitioner was
awarded an indemnity of ₱l,500,000.00 and attorney's fees of ₱50,000.00. 28

After respondent's motion for reconsideration was denied, 29 it filed a Notice of
Appeal.30 Records were forwarded to the CA.31

The CA granted respondent's appeal. 32 The CA upheld respondent's position

that an insurance contract becomes valid and binding only after the
premium is paid pursuant to Section 77 of the Insurance Code (Presidential
Decree No. 612, as amended by Republic Act No. 10607). 33 It found that the
premium was not yet paid at the time of the loss on September 27, but only a day
after or on September 28, 1996, when the check was picked up by Trans-
Pacific.34 It also found that none of the exceptions to Section 77 obtains in this
case.35 Nevertheless, the CA ordered respondent to return the premium it received
in the amount of ₱55,620.60, with interest at the rate of 6% per annum  from the
date of the denial of the claim on October 9, 1996 until payment. 36

Hence petitioner filed this petition. He argues that there was a valid and binding
insurance contract between him and respondent. 37 He submits that it comes within
the exceptions to the rule in Section 77 of the Insurance Code that no contract of
insurance becomes binding unless and until the premium thereof has been paid.
The prohibitive tenor of Section 77 does not apply because the parties stipulated for
the payment of premiums. 38The parties intended the contract of insurance to be
immediately effective upon issuance, despite non-payment of the premium,
because respondent trusted petitioner.39 He adds that respondent waived its right to
a pre-payment in full of the terms of the policy, and is in estoppel. 40

Petitioner also argues that assuming he is not entitled to recover insurance

proceeds, but only to the return of the premiums paid, then he should be able to
recover the full amount of ₱140,893.50, and not merely ₱55,620.60. 41 The
insurance policy covered three vehicles yet respondent's intention was merely to
disregard the contract for only the lost vehicle.42 According to petitioner, the
principle of mutuality of contracts is violated, at his expense, if respondent is
allowed to be excused from performance on the insurance contract only for one
vehicle, but not as to the two others, just because no loss is suffered as to the two.
To allow this "would be to place exclusively in the hands of one of the contracting
parties the right to decide whether the contract should stand or not x xx. " 43

For failure of respondent to file its comment to the petition, we declared respondent
to have waived its right to file a comment in our June 15, 2011 Resolution. 44

The lone issue here is whether there is a binding insurance contract between
petitioner and respondent.
II

We deny the petition.

Insurance is a contract whereby one undertakes for a consideration to indemnify

another against loss, damage or liability arising from an unknown or contingent
event.45 Just like any other contract, it requires a cause or consideration. The
consideration is the premium, which must be paid at the time and in the way and
manner specified in the policy.46 If not so paid, the policy will lapse and be forfeited
by its own terms.47

The law, however, limits the parties' autonomy as to when payment of premium
may be made for the contract to take effect. The general rule in insurance laws is
that unless the premium is paid, the insurance policy is not valid and
binding.48 Section 77 of the Insurance Code, applicable at the time of the issuance
of the policy, provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the

thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.

In Tibay v. Court of Appeals, 49 we emphasized the importance of this rule. We

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

In the desire to safeguard the interest of the assured, it must not be ignored that
the contract of insurance is primarily a risk-distributing device, a mechanism by
which all members of a group exposed to a particular risk contribute premiums to
an insurer. From these contributory funds are paid whatever losses occur due to
exposure to the peril insured against. Each party therefore takes a risk: the insurer,
that of being compelled upon the happening of the contingency to pay the entire
sum agreed upon, and the insured, that of parting with the amount required as
premium. without receiving anything therefor in case the contingency does not
happen. To ensure payment for these losses, the law mandates all
insurance companies to maintain a legal reserve fund in favor of those
claiming under their policies. It should be understood that the integrity of this
fund cannot be secured and maintained if by judicial fiat partial offerings of
premiums were to be construed as a legal nexus between the applicant and the
insurer despite an express agreement to the contrary. For what could prevent the
insurance applicant from deliberately or willfully holding back full premium payment
and wait for the risk insured against to transpire and then conveniently pass on the
balance of the premium to be deducted from the proceeds of the insurance? x xx

xxx

And so it must be. For it cannot be disputed that premium is the elixir vitae  of the
insurance business because by law the insurer must maintain a legal reserve
fund to meet its contingent obligations to the public, hence, the imperative
need for its prompt payment and full satisfaction. It must be emphasized here
that all actuarial calculations and various tabulations of probabilities of losses under
the risks insured against are based on the sound hypothesis of prompt payment of
premiums. Upon this bedrock insurance firms are enabled to offer the assurance of
security to the public at favorable rates. x x x50 (Citations omitted.)
Here, there is no dispute that the check was delivered to and was accepted by
respondent's agent, Trans-Pacific, only on September 28, 1996. No payment of
premium had thus been made at the time of the loss of the vehicle on September
27, 1996. While petitioner claims that Trans-Pacific was informed that the check
was ready for pick-up on September 27, 1996, the notice of the availability of
the check, by itself, does not produce the effect of payment of the
premium. Trans-Pacific could not be considered in delay in accepting the check
because when it informed petitioner that it will only be able to pick-up the check
the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to
do so. Thus, at the time of loss, there was no payment of premium yet to
make the insurance policy effective.

There are, of course, exceptions to the rule that no insurance contract takes effect
unless premium is paid. In UCPB General Insurance Co., Inc. v. MasaganaTelamart,
Inc.,51 we said:

It can be seen at once that Section 77 does not restate the portion of Section 72
expressly permitting an agreement to extend the period to pay the premium. But
are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life
or industrial life policy whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the

receipt of premium is conclusive evidence of its payment, so far as to make
the policy binding, notwithstanding any stipulation therein that it shall not
be binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs.
Court of Appeals, wherein we ruled that Section 77 may not apply if the parties
have agreed to the payment in installments of the premium and partial
payment has been made at the time of loss. We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid
on installments. The records clearly show that the petitioners and private
respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance
contract entered into in 1982 was renewed in 1983, then in 1984. In those three
years, the insurer accepted all the installment payments. Such acceptance of
payments speaks loudly of the insurer's intention to honor the policies it issued to
petitioner. Certainly, basic principles of equity and fairness would not allow the
insurer to continue collecting and accepting the premiums, although paid on
installments, and later deny liability on the lame excuse that the premiums were
not prepaid in full.

Not only that. In Tuscany,  we also quoted with approval the following
pronouncement of the Court of Appeals in its Resolution denying the motion for
reconsideration of its decision:

While the import of Section 77 is that prepayment of premiums is strictly

required as a condition to the validity of the contract, We are not prepared
to rule that the request to make installment payments duly approved by
the insurer would prevent the entire contract of insurance from going into
effect despite payment and acceptance of the initial premium or first
installment. Section 78 of the Insurance Code in effect allows waiver by the
insurer of the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment so far as
to make the policy binding despite the fact that premium is actually unpaid. Section
77 merely precludes the parties from stipulating that the policy is valid
even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary
to morals, good customs, public order or public policy (De Leon, The Insurance
Code, p. 175). So is an understanding to allow insured to pay premiums in
installments not so prescribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court of

Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the
insurer may grant credit extension for the payment of the premium. This
simply means that if the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before the expiration of the
tem1, recovery on the policy should be allowed even though the premium
is paid after the loss but within the credit term.

xxx

Finally in the instant case, it would be unjust and inequitable if recovery on the
policy would not be permitted against Petitioner, which had consistently granted a
60- to 90-day credit term for the payment of premiums despite its full awareness of
Section 77. Estoppel bars it from taking refuge under said Section, since
Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.52 (Citations omitted.)

In UCPB General Insurance Co., Inc.,  we summarized the exceptions as

follows: (1) in case of life or industrial life policy, whenever the grace
period provision applies, as expressly provided by Section 77 itself; (2)
where the insurer acknowledged in the policy or contract of insurance
itself the receipt of premium, even if premium has not been actually paid,
as expressly provided by Section 78 itself; (3) where the parties agreed
that premium payment shall be in installments and partial payment has
been made at the time of loss, as held in Makati Tuscany Condominium
Corp. v. Court of Appeals; 53(4) where the insurer granted the insured a
credit term for the payment of the premium, and loss occurs before the
expiration of the term, as held in Makati Tuscany Condominium Corp.;  and
(5) where the insurer is in estoppel  as when it has consistently granted a
60 to 90-day credit term for the payment of premiums.

The insurance policy in question does not fall under the first to third exceptions laid
out in UCPB General Insurance Co., Inc.: (1) the policy is not a life or industrial life
policy; (2) the policy does not contain an acknowledgment of the receipt of
premium but merely a statement of account on its face; 54 and (3) no payment of an
installment was made at the time of loss on September 27.

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

We do not agree with petitioner.

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

We cannot sustain petitioner's claim that the parties agreed that the insurance
contract is immediately effective upon issuance despite nonpayment of the
premiums.1âwphi1 Even if there is a waiver of pre-payment of premiums, that in
itself does not become an exception to Section 77, unless the insured clearly gave a
credit term or extension. This is the clear import of the fourth exception in
the UCPB General Insurance Co., Inc.  To rule otherwise would render nugatory the
requirement in Section 77 that "[n]otwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, x xx." Moreover, the
policy itself states:

WHEREAS THE INSURED, by his corresponding proposal and declaration, and which
shall be the basis of this Contract and deemed incorporated herein, has applied to
the company for the insurance hereinafter contained, subject to the payment of the
Premium as consideration for such insurance.57 (Emphasis supplied.)

The policy states that the insured's application for the insurance is subject to the
payment of the premium.1âwphi1 There is no waiver of pre-payment, in full or in
installment, of the premiums under the policy. Consequently, respondent cannot be
placed in estoppel.

Thus, we find that petitioner is not entitled to the insurance proceeds because no
insurance policy became effective for lack of premium payment.

The consequence of this declaration is that petitioner is entitled to a return of the

premium paid for the vehicle in the amount of ₱55,620.60 under the principle of
unjust enrichment. There is unjust enrichment when a person unjustly retains a
benefit to the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and good
conscience.58 Petitioner cannot claim the full amount of ₱140,893.50, which includes
the payment of premiums for the two other vehicles. These two policies are not
affected by our ruling on the policy subject of this case because they were issued as
separate and independent contracts of insurance. 59 We, however, find that the
award shall earn legal interest of 6% from the time of extra judicial demand on July
7, 1997.60

WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated

September 11, 2009 and the Resolution dated November 24, 2009
are AFFIRMED with the MODIFICATION that respondent should return the
amount of P55,620.60 with the legal interest computed at the rate of 6% per
annum  reckoned from July 7, 1997 until finality of this judgment. Thereafter, the
total amount shall earn interest at the rate of 6% per annum  from the finality of
this judgment until its full satisfaction.

SO ORDERED.
2 sec 2 par 2

G.R. No. 188539               March 12, 2014

MARIANO LIM, Petitioner,
vs.
SECURITY BANK CORPORATION,* Respondent.

DECISION

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of
Court praying that the Decision 1 of the Court of Appeals (CA), promulgated on July
30, 2008, and the Resolution2 dated June 1, 2009, denying petitioner's motion for
reconsideration thereof, be reversed and set aside.

Petitioner executed a Continuing Suretyship in favor of respondent to secure "any

and all types of credit accommodation that may be granted by the bank hereinto
and hereinafter" in favor of Raul Arroyo for the amount of ₱2,000,000.00 which is
covered by a Credit Agreement/Promissory Note.3 Said promissory note stated that
the interest on the loan shall be 19% per annum, compounded monthly, for the
first 30 days from the date thereof, and if the note is not fully paid when due, an
additional penalty of 2% per month of the total outstanding principal and interest
due and unpaid, shall be imposed.

In turn, the Continuing Suretyship4 executed by petitioner stipulated that:

3. Liability of the Surety. - The liability of the Surety is solidary and not
contingent upon the pursuit of the Bank of whatever remedies it may have against
the Debtor or the collaterals/liens it may possess. If any of the Guaranteed
Obligations is not paid or performed on due date (at stated maturity or by
acceleration), the Surety shall, without need for any notice, demand or any other
act or deed, immediately become liable therefor and the Surety shall pay and
perform the same.5

Guaranteed Obligations are defined in the same document as follows:

a) "Guaranteed Obligations" - the obligations of the Debtor arising from all credit
accommodations extended by the Bank to the Debtor, including increases,
renewals, roll-overs, extensions, restructurings, amendments or novations thereof,
as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank,
as appears in the accounts, books and records of the Bank, whether direct or
indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of
its rights, powers and remedies under the Credit Instruments as defined
hereinbelow.6

The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner
received a Notice of Final Demand dated August 2, 2001, informing him that he was
liable to pay the loan obtained by Raul and Edwina Arroyo, including the interests
and penalty fees amounting to ₱7,703,185.54, and demanding payment thereof.
For failure of petitioner to comply with said demand, respondent filed a complaint
for collection of sum of money against him and the Arroyo spouses. Since the
Arroyo spouses can no longer be located, summons was not served on them,
hence, only petitioner actively participated in the case.

After trial, the Regional Trial Court of Davao (RTC) rendered judgment against
petitioner.7 The dispositive portion of the RTC Decision reads as follows:

Wherefore, judgment is hereby rendered ordering defendant Lim to pay the

following sums.

1. The principal sum of two million pesos plus nineteen percent interest of
the outstanding principal interest due and unpaid to be computed from
 January 28, 1997 until fully paid, plus two percent interest per month as
penalty to be computed from February 28, 1997 until fully paid.

2. Four hundred thousand pesos as attorney's fees.

3. Thirty thousand pesos as litigation expenses.

SO ORDERED.8

Petitioner appealed to the CA, but the appellate court, in its Decision dated July 30,
2008, affirmed the RTC judgment with the modification that interest be computed
from August 1, 1997; the penalty should start only from August 28, 1997; the
award of attorney's fees is set at 10% of the total amount due; and the award for
litigation expenses increased to ₱92,321.10.9

Petitioner's motion for reconsideration of the CA Decision was denied per Resolution
dated June 1, 2009.

Petitioner then elevated the matter to this Court via a petition for review on
certiorari, where the main issue is whether petitioner may validly be held liable for
the principal debtor's loan obtained six months after the execution of the
Continuing Suretyship.

The other issues, such as the proper computation of the total indebtedness and the
amount of litigation expenses are factual matters that had been satisfactorily
addressed by the CA, to wit: (1) the CA ruled that respondent should
recompute the total amount due, since the proceeds from the foreclosure
of the real estate and chattel mortgages were deducted only on June 20,
2001, when the public auctions were conducted on August 26, 1998 and
September 7, 1999, respectively, thus, the amount of the proceeds from
the foreclosure of the mortgaged properties should have been deducted
from the amount of indebtedness on the date the public auction was held;
and (2) the CA likewise pointed out that as can be seen from the Legal
Fees Form,10 the litigation expense incurred by respondent was
₱92,321.10, the amount it paid as filing fee. It is hornbook principle that
this Court is not a trier of facts, hence, such issues will not be revisited by this
Court in the present petition. With regard to the propriety of making petitioner a
hostile witness, respondent is correct that the issue cannot be raised for the first
time on appeal. Thus, the Court will no longer address these issues which had been
improperly raised in this petition for review on certiorari.

The main issue deserves scant consideration, but the matter of the award of
attorney's fees deserves reexamination.

The nature of a suretyship is elucidated in Philippine Charter Insurance

Corporation v. Petroleum Distributors & Service Corporation11 in this wise:

A contract of suretyship is an agreement whereby a party, called the

surety, guarantees the performance by another party, called the principal
or obligor, of an obligation or undertaking in favor of another party, called
the obligee. Although the contract of a surety is secondary only to a valid
principal obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom. This was explained in
the case of Stronghold Insurance Company, Inc. v. Republic-Asahi Glass
Corporation, where it was written:

The surety's obligation is not an original and direct one for the
performance of his own act, but merely accessory or collateral to the
obligation contracted by the principal. Nevertheless, although the contract of a
surety is in essence secondary only to a valid principal obligation, his liability to
the creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal.
x xxx

Thus, suretyship arises upon the solidary binding of a person deemed the surety
with the principal debtor for the purpose of fulfilling an obligation. A surety is
considered in law as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter, and their
liabilities are interwoven as to be inseparable. x x x.12

In this case, what petitioner executed was a Continuing Suretyship, which the Court
described in Saludo, Jr. v. Security Bank Corporation 13 as follows:

The essence of a continuing surety has been highlighted in the case of Totanes v.
China Banking Corporation in this wise:

Comprehensive or continuing surety agreements are, in fact, quite commonplace in

present day financial and commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with a particular company,
normally requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the principal
places itself in a position to enter into the projected series of transactions
with its creditor; with such suretyship agreement, there would be no need to
execute a separate surety contract or bond for each financing or credit
accommodation extended to the principal debtor.14

The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are
very clear.1It states that petitioner, as surety, shall, without need for any notice,
demand or any other act or deed, immediately become liable and shall pay "all
credit accommodations extended by the Bank to the Debtor, including increases,
renewals, roll-overs, extensions, restructurings, amendments or novations thereof,
as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank,
as appears in the accounts, books and records of the Bank, whether direct or
indirect, and

(ii) any and all expenses which the Bank may incur in enforcing any of its rights,
powers and remedies under the Credit Instruments as defined hereinbelow." 15 Such
stipulations are valid and legal and constitute the law between the parties,
as Article 2053 of the Civil Code provides that "[a] guaranty may also be
given as security for future debts, the amount of which is not yet known; x
xx." Thus, petitioner is unequivocally bound by the terms of the Continuing
Suretyship. There can be no cavil then that petitioner is liable for the principal of
the loan, together with the interest and penalties due thereon, even if said loan was
obtained by the principal debtor even after the date of execution of the Continuing
Suretyship.

With regard to the award of attorney's fees, it should be noted that Article 2208 of
the Civil Code does not prohibit recovery of attorney's fees if there is a stipulation
in the contract for payment of the same. Thus, in Asian Construction and
Development Corporation v. Cathay Pacific Steel Corporation (CAPASCO), 16 the
Court, citing Titan Construction Corporation v. Uni-Field Enterprises,
Inc.,17 expounded as follows:

The law allows a party to recover attorney's fees under a written

agreement. In Barons Marketing Corporation v. Court of Appeals, the Court ruled
that:

[T]he attorney's fees here are in the nature of liquidated damages and the
stipulation therefor is aptly called a penal clause. It has been said that so long as
such stipulation does not contravene law, morals, or public order, it is strictly
binding upon defendant. The attorney's fees so provided are awarded in favor of
the litigant, not his counsel.

On the other hand, the law also allows parties to a contract to stipulate on
liquidated damages to be paid in case of breach. A stipulation on liquidated
damages is a penalty clause where the obligor assumes a greater liability
in case of breach of an obligation. The obligor is bound to pay the
stipulated amount without need for proof on the existence and on the
measure of damages caused by the breach.18

However, even if such attorney's fees are allowed by law, the courts still
have the power to reduce the same if it is unreasonable. In Trade &
Investment Corporation of the Philippines v. Roblett Industrial Construction
Corp.,19 the Court equitably reduced the amount of attorney's fees to be paid since
interests and penalties had ballooned to thrice as much as the principal debt. That
is also the case here. The award of attorney's fees amounting to ten percent (10%)
of the principal debt, plus interest and penalty charges, would definitely exceed the
principal amount; thus, making the attorney's fees manifestly exorbitant. Hence,
we reduce the amount of attorney's fees to ten percent (10%) of the principal debt
only.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of

Appeals, dated July 30, 2008, in CA-G.R. CV No. 00462, is AFFIRMED with
MODIFICATION in that the award of attorney's fees is reduced to ten percent (10%)
of the principal debt only.

SO ORDERED.

2 sec 2 par 2
CASE DIGEST: MARIANO LIM, Petitioner, v. SECURITY CORPORATION,
Respondent.

FACTS: Petitioner executed a Continuing Suretyship in favor of respondent to

secure ny and all types of credit accommodation that may be granted by the bank
hereinto and hereinafterinfavor of Raul Arroyo for the amount of P2,000,000.00
which is covered by a Credit Agreement/Promissory Note. The promissory note
contained a stipulation that the interest on the loan shall be 19% per annum,
compounded monthly, for the first 30 days from the date thereof, and if the note is
not fully paid when due, an additional penalty of 2% per month of the total
outstanding principal and interest due and unpaid, shall be imposed.

Debtor Raul Arroyo defaulted on his loan obligation. Petitioner, thereafter, received
a Notice of Final Demand dated August 2, 2001, informing him that he was liable to
pay the loan obtained by Raul and Edwina Arroyo, including the interests and
penalty fees amounting to P7,703,185.54, and demanding payment thereof.
Petitioner failed to comply with said demand, hence, respondent filed a complaint
for collection of sum of money against him and the Arroyo spouses. The Arroyo
spouses can no longer be located and summons was not served on them, hence,
only the petitioner actively participated in the case.

The Regional Trial Court of Davao (RTC) rendered judgment against petitioner.
Upon appeal to the CA, the Court affirmed the decision of the RTC. Hence, the
present petition for review on certiorari.
ISSUE: May petitioner validly be held liable for the principal debtor's loan
obtained six months after the execution of the Continuing Suretyship?

HELD: A contract of suretyship is an agreement whereby a party, called the surety,

guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of another party, called the obligee. The case of
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, G.R. No.
147561 citing Garcia v. Court of Appeals, enunciated that although the contract
of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to be direct,
primary and absolute; in other words, he is directly and equally bound with
the principal.

Clear and unequivocal are the terms of the Continuing Suretyship executed
by petitioner. It states that petitioner, as surety, shall, without need for
any notice, demand or any other act or deed, immediately become liable
and shall pay all credit accommodations extended by the Bank to the
Debtor, including increases, renewals, roll-overs, extensions,
restructurings, amendments or novations thereof, as well as (i) all
obligations of the Debtor presently or hereafter owing to the Bank, as
appears in the accounts, books and records of the Bank, whether direct or
indirect, and (ii) any and all expenses which the Bank may incur in
enforcing any of its rights, powers and remedies under the Credit
Instruments as defined hereinbelow.

The foregoing stipulations are valid and legal and, therefore, constitute as law
between the parties. Under Article 2053 of the Civil Code, guaranty may also be
given as security for future debts, the amount of which is not yet known; x
xx.Thus, petitioner is unequivocally bound by the terms of the Continuing
Suretyship. There can be no cavil then that petitioner is liable for the principal of
the loan, together with the interest and penalties due thereon, even if said loan was
obtained by the principal debtor even after the date of execution  of the Continuing
Suretyship. PARTIALLY GRANTED.

3. G.R. No. 154514. July 28, 2005

WHITE GOLD MARINE SERVICES, INC., Petitioners,

vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP
MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.

DECISION

This petition for review assails the Decision1 dated July 30, 2002 of the Court of
Appeals in CA-G.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of
the Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that
there was no violation of the Insurance Code and the respondents do not need
license as insurer and insurance agent/broker.

The facts are undisputed.

White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and
Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of
Entry and Acceptance.3 Pioneer also issued receipts evidencing payments for the
coverage. When White Gold failed to fully pay its accounts, Steamship
Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the latter’s unpaid balance. White Gold on the other hand, filed a
complaint before the Insurance Commission claiming that Steamship Mutual
violated Sections 1864 and 1875 of the Insurance Code, while Pioneer violated
Sections 299,6 3007 and 3018 in relation to Sections 302 and 303, thereof.

The Insurance Commission dismissed the complaint. It said that there was no need
for Steamship Mutual to secure a license because it was not engaged in the
insurance business. It explained that Steamship Mutual was a Protection and
Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license
as insurance agent and/or a broker for Steamship Mutual because Steamship
Mutual was not engaged in the insurance business. Moreover, Pioneer was already
licensed, hence, a separate license solely as agent/broker of Steamship Mutual was
already superfluous.

The Court of Appeals affirmed the decision of the Insurance Commissioner. In its
decision, the appellate court distinguished between P & I Clubs vis-à-
vis conventional insurance. The appellate court also held that Pioneer merely acted
as a collection agent of Steamship Mutual.

In this petition, petitioner assigns the following errors allegedly committed by the
appellate court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT
DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . .
ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN
INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS
IN THE PHILIPPINES.

SECOND ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.

THIRD ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED
NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER
OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR

THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT

PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF
RESPONDENT PIONEER.9

Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club,
engaged in the insurance business in the Philippines? (2) Does Pioneer need a
license as an insurance agent/broker for Steamship Mutual?

The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits
it does not have a license to do business in the Philippines although Pioneer is its
resident agent. This relationship is reflected in the certifications issued by the
Insurance Commission.

Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung
Maritime Co., Ltd. v. Court of Appeals 10 as "an association composed of
shipowners in general who band together for the specific purpose of
providing insurance cover on a mutual basis against liabilities incidental to
shipowning that the members incur in favor of third parties." It stresses that
as a P & I Club, Steamship Mutual’s primary purpose is to solicit and provide
protection and indemnity coverage and for this purpose, it has engaged the
services of Pioneer to act as its agent.

Respondents contend that although Steamship Mutual is a P & I Club, it is not

engaged in the insurance business in the Philippines. It is merely an association of
vessel owners who have come together to provide mutual protection against
liabilities incidental to shipowning.11 Respondents aver Hyopsung is inapplicable in
this case because the issue in Hyopsung was the jurisdiction of the court
over Hyopsung.

Is Steamship Mutual engaged in the insurance business?

Section 2(2) of the Insurance Code enumerates what constitutes "doing an

insurance business" or "transacting an insurance business". These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity of
the surety;

(c) doing any kind of business, including a reinsurance business, specifically

recognized as constituting the doing of an insurance business within the meaning of
this Code;

(d) doing or proposing to do any business in substance equivalent to any of the

foregoing in a manner designed to evade the provisions of this Code.

...

The same provision also provides, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no
separate or direct consideration is received therefor, shall not preclude the
existence of an insurance business.12

The test to determine if a contract is an insurance contract or not, depends on

the nature of the promise, the act required to be performed, and the exact
nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by
what it is called.13

Basically, an insurance contract is a contract of indemnity. In it, one

undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.14

In particular, a marine insurance undertakes to indemnify the assured

against marine losses, such as the losses incident to a marine
adventure.15 Section 9916 of the Insurance Code enumerates the coverage of
marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where

the members are both the insurer and insured. In it, the members all
contribute, by a system of premiums or assessments, to the creation of a fund from
which all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. 17 Additionally, mutual insurance
associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.18

A P & I Club is "a form of insurance against third party liability, where the

third party is anyone other than the P & I Club and the members." 19 By
definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without
the requisite certificate of authority mandated by Section 187 20 of the Insurance
Code. It maintains a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. We note that Steamship Mutual even renewed its P &
I Club cover until it was cancelled due to non-payment of the calls. Thus, to
continue doing business here, Steamship Mutual or through its agent
Pioneer, must secure a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the

State is necessary. Thus, no insurer or insurance company is allowed to engage in
the insurance business without a license or a certificate of authority from
the Insurance Commission.21

Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of

registration22 issued by the Insurance Commission. It has been licensed to do or
transact insurance business by virtue of the certificate of authority 23 issued by the
same agency. However, a Certification from the Commission states that
Pioneer does not have a separate license to be an agent/broker of
Steamship Mutual.24

Although Pioneer is already licensed as an insurance company, it needs a

separate license to act as insurance agent for Steamship Mutual. Section
299 of the Insurance Code clearly states:

SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the

solicitation or procurement of applications for insurance, or receive for services in
obtaining insurance, any commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof, without first
procuring a license so to act from the Commissioner, which must be renewed
annually on the first day of January, or within six months thereafter. . .

Finally, White Gold seeks revocation of Pioneer’s certificate of authority and

removal of its directors and officers. Regrettably, we are not the forum for these
issues.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30,
2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the
Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual
Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety
Corporation are ORDERED to obtain licenses and to secure proper
authorizations to do business as insurer and insurance agent, respectively.
The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and
removal of its directors and officers, is DENIED. Costs against respondents.

SO ORDERED.

Footnotes

1
 Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with
Associate Justices Candido V. Rivera, and Sergio L. Pestaño concurring. 4 SEC.
186. No person, partnership, or association of persons shall transact any
insurance business in the Philippines except as agent of a person or
corporation authorized to do the business of insurance in the Philippines,
unless possessed of the capital and assets required of an insurance
corporation doing the same kind of business in the Philippines and invested in
the same manner; nor unless the Commissioner shall have granted to him or
them a certificate to the effect that he or they have complied with all the
provisions of law which an insurance corporation doing business in the
Philippines is required to observe.

Every person, partnership, or association receiving any such certificate of

authority shall be subject to the insurance laws of the Philippines and to the
jurisdiction and supervision of the Commissioner in the same manner as if an
insurance corporation authorized by the laws of the Philippines to engage in
the business of insurance specified in the certificate.

5
 SEC. 187. No Insurance Company shall transact any insurance business in
the Philippines until after it shall have obtained a certificate of authority for
that purpose from the Commissioner upon application therefor and payment
by the company concerned of the fees hereinafter prescribed.. . .

6
 SEC. 299. No insurance company doing business in the Philippines, nor any
agent thereof, shall pay any commission or other compensation to any
person for services in obtaining insurance, unless such person shall have first
procured from the Commissioner a license to act as an insurance agent of
such company or as an insurance broker as hereinafter provided.
 No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for
services in obtaining insurance, any commission or other compensation from
any insurance company doing business in the Philippines or any agent
thereof, without first procuring a license so to act from the
Commissioner, . . .

7
 SEC. 300. Any person who for compensation solicits or obtains insurance on
behalf of any insurance company or transmits for a person other than himself
an application for a policy or contract of insurance to or from such company
or offers or assumes to act in the negotiating of such insurance shall be an
insurance agent within the intent of this section and shall thereby become
liable to all the duties, requirements, liabilities and penalties to which an
insurance agent is subject.

8
 SEC. 301. Any person who for any compensation, commission or other
thing of value acts or aids in any manner in soliciting, negotiating or
procuring the making of any insurance contract or in placing risk or taking
out insurance, on behalf of an insured other than himself, shall be an
insurance broker within the intent of this Code, and shall thereby become
liable to all the duties, requirements, liabilities and penalties to which an
insurance broker is subject.

16
 SEC. 99. Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise,

effects, disbursements, profits, moneys, securities, choses in action,
evidences of debt, valuable papers, bottomry, and respondentia interests and
all other kinds of property and interests therein, in respect to, appertaining
to or in connection with any and all risks or perils of navigation, transit or
transportation, or while being assembled, packed, crated, baled, compressed
or similarly prepared for shipment or while awaiting shipment, or during any
delays, storage, trasshipment, or reshipment incident thereto, including war
risks, marine builder’s risks, and all personal property floater risks.

(b) Person or property in connection with or appertaining to a marine, inland

marine, transit or transportation insurance, including liability for loss of or
damage arising out of or in connection with the construction, repair,
operation, maintenance or use of the subject matter of such insurance (but
not including life insurance or surety bonds nor insurance against loss by
reason of bodily injury to any person arising out of the ownership,
maintenance, or use of automobiles).

(c) Precious stones, jewels, jewelry, precious metals, whether in course of

transportation or otherwise.

(d) Bridges, tunnels and other instrumentalities of transportation and

communication (excluding buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers, wharves, docks and slips, and
other aids to navigation and transportation, including dry docks and marine
railways, dams and appurtenant facilities for the control of waterways.

(2) "Marine protection and indemnity insurance," meaning insurance against,

or against legal liability of the insured for loss, damage, or expense incident
to ownership, operation, chartering, maintenance, use, repair, or
construction of any vessel, craft or instrumentality in use in ocean or inland
waterways, including liability of the insured for personal injury, illness or
death or for loss of or damage to the property of another person.

3 White Gold v Pioneer G.R. No. 154514. July 28, 2005

J. Quisimbing
Facts:
White Gold procured a protection and indemnity coverage for its vessels from The
Steamship Mutual through Pioneer Insurance and Surety Corporation.  White Gold
was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts. 
When White Gold failed to fully pay its accounts, Steamship Mutual refused to
renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the unpaid balance.  White Gold on the other hand, filed a
complaint before the Insurance Commission claiming that Steamship Mutual and
Pioneer violated provisions of the Insurance Code.
The Insurance Commission dismissed the complaint.  It said that there was no need
for Steamship Mutual to secure a license because it was not engaged in the
insurance business and that it was a P & I club. Pioneer was not required to obtain
another license as insurance agent because Steamship Mutual was not engaged in
the insurance business. 
The Court of Appeals affirmed the decision of the Insurance Commissioner.  In its
decision, the appellate court distinguished between P & I Clubs vis-à-vis
conventional insurance.  The appellate court also held that Pioneer merely acted as
a collection agent of Steamship Mutual.
Hence this petition by White Gold.

Issues:
1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in the
Philippines?
2. Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Held:  Yes. Petition granted.

Ratio:
White Gold insists that Steamship Mutual as a P & I Club is engaged in the
insurance business.  To buttress its assertion, it cites the definition as
“an association composed of shipowners in general who band together for the
specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third parties.” 

They argued that Steamship Mutual’s primary purpose is to solicit and provide
protection and indemnity coverage and for this purpose, it has engaged the services
of Pioneer to act as its agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is
not engaged in the insurance business in the Philippines.  It is merely
an association of vessel owners who have come together to provide mutual
protection against liabilities incidental to shipowning.

Is Steamship Mutual engaged in the insurance business?

A P & I Club is “a form of insurance against third party liability, where the third
party is anyone other than the P & I Club and the members.” By definition then,
Steamship Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without
the requisite certificate of authority mandated by Section 187 of the Insurance
Code.  It maintains a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf.  Steamship Mutual even renewed its P & I Club cover
until it was cancelled due to non-payment of the calls.  Thus, to continue doing
business here, Steamship Mutual or through its agent Pioneer, must secure
a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the State is

necessary.  Thus, no insurer or insurance company is allowed to engage in the
insurance business without a license or a certificate of authority from the Insurance
Commission.
2. Pioneer is the resident agent of Steamship Mutual as evidenced by
the certificate of registration issued by the Insurance Commission.  It has been
licensed to do or transact insurance business by virtue of the certificate of authority
issued by the same agency.  However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker of Steamship
Mutual.
Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual.  Section 299 of
the Insurance Code clearly states:
SEC. 299 No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for services in
obtaining insurance, any commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof, without first
procuring a license so to act from the Commissioner…

5. sec 7 G.R. No. L-2294             May 25, 1951

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

PARAS, C.J.:

On October 1, 1941, the respondent corporation, ChristernHuenefeld, & Co., Inc.,

after payment of corresponding premium, obtained from the petitioner ,Filipinas
Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering
merchandise contained in a building located at No. 711 Roman Street, Binondo
Manila. On February 27, 1942, or during the Japanese military occupation, the
building and insured merchandise were burned. In due time the respondent
submitted to the petitioner its claim under the policy. The salvage goods were sold
at public auction and, after deducting their value, the total loss suffered by the
respondent was fixed at P92,650. The petitioner refused to pay the claim on the
ground that the policy in favor of the respondent had ceased to be in force on the
date the United States declared war against Germany, the respondent Corporation
(though organized under and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The
petitioner, however, in pursuance of the order of the Director of Bureau of
Financing, Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of
Manila for the purpose of recovering from the respondent the sum of P92,650
above mentioned. The theory of the petitioner is that the insured merchandise were
burned up after the policy issued in 1941 in favor of the respondent corporation has
ceased to be effective because of the outbreak of the war between the United
States and Germany on December 10, 1941, and that the payment made by the
petitioner to the respondent corporation during the Japanese military occupation
was under pressure. After trial, the Court of First Instance of Manila dismissed the
action without pronouncement as to costs. Upon appeal to the Court of Appeals, the
judgment of the Court of First Instance of Manila was affirmed, with costs. The case
is now before us on appeal by certiorari from the decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against
Germany, relying on English and American cases which held that a corporation is a
citizen of the country or state by and under the laws of which it was created or
organized. It rejected the theory that nationality of private corporation is determine
by the character or citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation

were German subjects. This being so, we have to rule that said respondent became
an enemy corporation upon the outbreak of the war between the United States and
Germany. The English and American cases relied upon by the Court of Appeals have
lost their force in view of the latest decision of the Supreme Court of the United
States in Clark vs. UeberseeFinanzKorporation, decided on December 8, 1947, 92
Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test has been
adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the
Second International Conference of the Legal Profession held at the Hague
(Netherlands) in August. 1948 the following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations

has been discussion in many countries, belligerent and neutral. A corporation
was subject to enemy legislation when it was controlled by enemies, namely
managed under the influence of individuals or corporations, themselves
considered as enemies. It was the English courts which first the  Daimler case
applied this new concept of "piercing the corporate veil," which was adopted
by the peace of Treaties of 1919 and the Mixed Arbitral established after the
First World War.

The United States of America did not adopt the control test during the First
World War. Courts refused to recognized the concept whereby American-
registered corporations could be considered as enemies and thus subject to
domestic legislation and administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and
other enemy interests were cloaked by domestic corporation structure. It was
not only by legal ownership of shares that a material influence could be
exercised on the management of the corporation but also by long term loans
and other factual situations. For that reason, legislation on enemy property
enacted in various countries during World War II adopted by statutory
provisions to the control test and determined, to various degrees, the
incidents of control. Court decisions were rendered on the basis of such
newly enacted statutory provisions in determining enemy character of
domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy
Act during the last war, include as did other legislations the applications of
the control test and again, as in World War I, courts refused to apply this
concept whereby the enemy character of an American or neutral-registered
corporation is determined by the enemy nationality of the controlling
stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and

other administrative practice in the treatment of foreign-owned property in
the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control test.
Court decisions sanctioned such administrative practice enacted under the
First War Powers Act of 1941, and more recently, on December 8, 1947, the
Supreme Court of the United States definitely approved of the control theory.
In Clark vs. UeberseeFinanzKorporation, A. G., dealing with a Swiss
corporation allegedly controlled by German interest, the Court: "The property
of all foreign interest was placed within the reach of the vesting power (of
the Alien Property Custodian) not to appropriate friendly or neutral assets but
to reach enemy interest which masqueraded under those innocent fronts. . . .
The power of seizure and vesting was extended to all property of any foreign
country or national so that no innocent appearing device could become a
Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in
support of the appealed decision. However, we may add that, in Haw Pia vs. China
Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China
Banking Corporation came within the meaning of the word "enemy" as used in the
Trading with the Enemy Acts of civilized countries not only because it was
incorporated under the laws of an enemy country but because it was controlled by
enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides
that "anyone except a public enemy may be insured." It stands to reason that an
insurance policy ceases to be allowable as soon as an insured becomes a public
enemy.

Effect of war, generally. — All intercourse between citizens of belligerent

powers which is inconsistent with a state of war is prohibited by the law of
nations. Such prohibition includes all negotiations, commerce, or trading with
the enemy; all acts which will increase, or tend to increase, its income or
resources; all acts of voluntary submission to it; or receiving its protection;
also all acts concerning the transmission of money or goods; and all
contracts relating thereto are thereby nullified. It further prohibits insurance
upon trade with or by the enemy, upon the life or lives of aliens engaged in
service with the enemy; this for the reason that the subjects of one country
cannot be permitted to lend their assistance to protect by insurance the
commerce or property of belligerent, alien subjects, or to do anything
detrimental too their country's interest. The purpose of war is to cripple the
power and exhaust the resources of the enemy, and it is inconsistent that
one country should destroy its enemy's property and repay in insurance the
value of what has been so destroyed, or that it should in such manner
increase the resources of the enemy, or render it aid, and the
commencement of war determines, for like reasons, all trading intercourse
with the enemy, which prior thereto may have been lawful. All individuals
therefore, who compose the belligerent powers, exist, as to each other, in a
state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law,
pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year,
or for some other specified term it is plain that when the parties become
alien enemies, the contractual tie is broken and the contractual rights of the
parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p.
112.)

The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner (a
Philippine corporation) had ceased to be valid and enforcible, and since the insured
goods were burned after December 10, 1941, and during the war, the respondent
was not entitled to any indemnity under said policy from the petitioner. However,
elementary rules of justice (in the absence of specific provision in the Insurance
Law) require that the premium paid by the respondent for the period covered by its
policy from December 11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the
question of whether the policy in question became null and void upon the
declaration of war between the United States and Germany on December 10, 1941,
and its judgment in favor of the respondent corporation was predicated on its
conclusion that the policy did not cease to be in force. The Court of Appeals
necessarily assumed that, even if the payment by the petitioner to the respondent
was involuntary, its action is not tenable in view of the ruling on the validity of the
policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted
to by the appellee was not unjust but the exercise of its lawful right to claim for and
received the payment of the insurance policy," and that the ruling of the Bureau of
Financing to the effect that "the appellee was entitled to payment from the
appellant was, well founded." Factually, there can be no doubt that the Director of
the Bureau of Financing, in ordering the petitioner to pay the claim of the
respondent, merely obeyed the instruction of the Japanese Military Administration,
as may be seen from the following: "In view of the findings and conclusion of this
office contained in its decision on Administrative Case dated February 9, 1943 copy
of which was sent to your office and the concurrence therein of the Financial
Department of the Japanese Military Administration, and following the instruction of
said authority, you are hereby ordered to pay the claim of Messrs. Christern,
Huenefeld& Co., Inc. The payment of said claim, however, should be made by
means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent
under the circumstances on this case. However, the petitioner will be entitled to
recover only the equivalent, in actual Philippines currency of P92,650 paid on April
19, 1943, in accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent

corporation is ordered to pay to the petitioner the sum of P77,208.33, Philippine
currency, less the amount of the premium, in Philippine currency, that should be
returned by the petitioner for the unexpired term of the policy in question,
beginning December 11, 1941. Without costs. So ordered.

5. sec 7
Filipinas v Christern G.R. No. L-2294 May 25, 1951

Facts:
Christern obtained from Filipinas a fire insurance policy of P1000,000, covering
merchandise contained in a building located at Binondo. During the Japanese
military occupation, the building and insured merchandise were burned. The
respondent its claim under the policy. The total loss suffered by the respondent was
fixed at P92,650.
The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the U.S. declared war on
Germany with the respondent Corporation being controlled by German subjects and
the petitioner being a company under American jurisdiction (though organized by
Philippine laws) when the policy was issued on October 1, 1941. The petitioner,
however, paid to the respondent the sum of P92,650 on April 19, 1943 under
orders from the military government.
The insurer filed for a suit to recover the sum. The contention was that the policy
ceased to be effective because of the outbreak of the war and that the payment
made by the petitioner to the respondent corporation during the Japanese military
occupation was under pressure.
The tiral and the appellate courts dismissed the action. The Court of Appeals
claimed that a corporation is a citizen of the country or state by and under the laws
of which it was created or organized. Hence this appeal.

Issue: Whether the policy in question became null and void upon the declaration of
war

Held: Yes. Petition granted.

Ratio:
The majority of the stockholders of the respondent corporation were German
subjects. The respondent became an enemy corporation upon the outbreak of the
war. The English and American cases relied upon by the Court of Appeals have lost
their force in view of the latest decision of the Supreme Court of the United States
in Clark vs. UeberseeFinanzKorporation where the controls test has been adopted.
Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United
States allowed to large degree the determination of enemy interest in domestic
corporations and thus the application of the control test. In Clark vs. Uebersee, the
court held that “The property of all foreign interest was placed within the reach of
the vesting power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those
innocent fronts. . . . The power of seizure and vesting was extended to all property
of any foreign country or national so that no innocent appearing device could
become a Trojan horse.”
The Philippine Insurance Law states that “anyone except a public enemy may be
insured.” It stands to reason that an insurance policy ceases to be allowable as
soon as an insured becomes a public enemy.
“All individuals therefore, who compose the belligerent powers, exist, as to each
other, in a state of utter exclusion, and are public enemies.”
Vance- “In the case of an ordinary fire policy, which grants insurance only from
year, or for some other specified term it is plain that when the parties become
alien enemies, the contractual tie is broken and the contractual rights of the
parties, so far as not vested, are lost.”
The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner had
ceased to be valid and enforceable, and since the insured goods were burned after
December 10, 1941, and during the war, the respondent was not entitled to any
indemnity under said policy from the petitioner. The premium must be returned for
the sake of justice.
It results that the petitioner is entitled to recover the indemnity paid. However, the
petitioner will be entitled to recover only the equivalent of P92,650 paid on April 19,
1943.

6 sec 9 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 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. 4

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.1âwphi1.nêt

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:

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

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
...

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
alteriusdetrimenio 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
MedardaLeuterio.

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.1âwphi1.nêt

SO ORDERED.

6. sec 8 Great Pacific Life Assurance Corp. V. CA (1999)

 G.R.No. 113899  October 13, 1999

Lessons Applicable: 

 Credit in Life and Health Insurance (Insurance)

 Mortgagor (Insurance)
Laws Applicable: Sec. 8 of Insurance Code

FACTS:

 A contract of group life insurance was executed between Great Pacific Life
Assurance Corporation Grepalife) and Development Bank of the Philippines
(DBP)
 Grepalife agreed to insure the lives of eligible housing loan mortgagors
of DBP
 November 11, 1983: Dr. Wilfredo Leuterio, a physician and a housing debtor
of DBP applied for membership in the group life insurance plan
 Dr.Leuterio answered questions concerning his health condition as
follows:

 “7.  Have you ever had, or consulted, a physician for a heart condition, high
blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other
physical impairment?

Answer:  No.  If so give details ___________.

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

Answer:  [ x ] Yes [    ] No.”[4]

 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 P86,200
 August 6, 1984: Dr.Leuterio died due to “massive cerebral hemorrhage.” 
 DBP submitted a death claim to Grepalife
 Grepalife denied the claim alleging that Dr.Leuterio was not
physically healthy when he applied
 RTC: Favored Medarda V. Leuterio (widow) and held Grepalife (insurer) liable
to pay DBP (creditor of the insured Dr. Wilfredo Leuterio)
 CA sustained
ISSUE: 

1. W/N DBP has insurable interest as creditor - YES

2. W/N Grepalife should be held liable - YES

HELD: 

. YES

 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
 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.”

 The insured Dr. Wilfredo Leuterio did not cede to the mortgagee all his rights
or interests in the insurance. When Grepalife denied payment, DBP collected the
debt from the mortgagor and took the necessary action of foreclosure on the
residential lot of Dr. Wilfredo Leuterio
 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
2. YES

 medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy
 widow who was not even sure if the medicines taken by Dr.Leuterio were for
hypertension
 Grepalife failed to establish that there was concealment made by the insured,
hence, it cannot refuse payment of the claim
 fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract.  Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer
 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.
 DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor’s
outstanding loan
 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 alteriusdetrimenio protest).  Hence, it cannot
collect the insurance proceeds, after it already foreclosed on the mortgage

ISSUE:
 
1. who is the proper party to bring the suit, the widow or the mortgagee (DBP)?
 
2. WON there was concealment as to justify Grepalife’s non-payment of the
insurance proceeds
 
HELD: petition denied
 
1. 1.        WIDOW
 

To resolve the issue, we must consider the insurable interest in mortgaged

properties and the parties to this type of contract.

 The rationale of a group insurance policy of mortgagors, otherwise known as the

“mortgage redemption insurance,” is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into
such form of contract so that in the event of the unexpected demise of the
mortgagor during the subsistence of the mortgage contract, the proceeds from such
insurance will be applied to the payment of the mortgage debt, thereby relieving
the heirs of the mortgagor from paying the obligation.  In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of
death; the mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. Consequently, where the
mortgagor pays the insurance premium under the group insurance policy, making
the loss payable to the mortgagee, the insurance is on the mortgagor’s interest,
and the mortgagor continues to be a party to the contract. In this type of policy
insurance, the mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract.

Sec. 8 of the Insurance Code provides:

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

the mortgagee is simply an appointee of the insurance fund, such loss-payable

clause does not make the mortgagee a party to the contract.

Sec. 8 of the Insurance Code provides:

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

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

And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such
person may recover it whatever the insured might have recovered, 14 the widow of
the decedent Dr.Leuterio may file the suit against the insurer, Grepalife.
2. 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.

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

On the contrary the medical findings were not conclusive because Dr. Mejia did not
conduct an autopsy on the body of the decedent. Hence, the statement of the
physician was properly considered by the trial court as hearsay.

The CA’s stand is that contrary to appellant’s allegations, there was no sufficient
proof that the insured had suffered from hypertension.

 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. Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer. In the case at bar, the
petitioner failed to clearly and satisfactorily establish its defense, and is therefore
liable to pay the proceeds of the insurance.

 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.  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.  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.”

However, we noted that the CA  decision was promulgated in 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 alteriusdetrimenio protest). Hence, it cannot
collect the insurance proceeds, after it already foreclosed on the mortgage. The
proceeds now rightly belong to Leuterio’s heirs represented by his widow.
Share this:
7 sec 9

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 decision 1 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-14622 2 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 of private respondent.
This is shown by Premium Invoices nos. 46632 and 46630. (Annexes
M and N). In both invoices, Tesing Textiles is indicated to be only the
mortgagee of the goods insured but the party to which they were
issued were the "DISCOUNT MART (MR. ARMANDO GEAGONIA)."

In is clear that it was the private respondent [petitioner herein] who

took out the policies on the same property subject of the insurance
with petitioner. Hence, in failing to disclose the existence of these
 insurances private respondent violated Condition No. 3 of Fire Policy
No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the

provisions insurances is belied by his letter to petitioner [of 18 January
1991. The body of the letter reads as follows;]

Please be informed that I have no knowledge of the

provision requiring me to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your
representative did not mention about said requirement at
the time he was convincing me to insure with you. If he
only die or even inquired if I had other existing policies
covering my establishment, I would have told him so. You
will note that at the time he talked to me until I decided
to insure with your company the two policies
aforementioned were already in effect. Therefore I would
have no reason to withhold such information and I would
have desisted to part with my hard earned peso to pay
the insurance premiums [if] I know I could not recover
anything.

Sir, I am only an ordinary businessman interested in

protecting my investments. The actual value of my stocks
damaged by the fire was estimated by the Police
Department to be P1,000,000.00 (Please see xerox copy
of Police Report Annex "A"). My Income Statement as of
December 31, 1989 or five months before the fire, shows
my merchandise inventory was already some
P595,455.75. . . . These will support my claim that the
amount claimed under the three policies are much below
the value of my stocks lost.

The letter contradicts private respondent's pretension that he did not

know that there were other insurances taken on the stock-in-trade and
seriously puts in question his credibility.

His motion to reconsider the adverse decision having been denied, the petitioner
filed the instant petition. He contends therein that the Court of Appeals acted with
grave abuse of discretion amounting to lack or excess of jurisdiction:

A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE

INSURANCE COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH
THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE
DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE
COURTS;

B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE

NOT PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND

C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER

HEREIN AGAINST THE PRIVATE RESPONDENT.

The chief issues that crop up from the first and third grounds are (a) whether the
petitioner had prior knowledge of the two insurance policies issued by the PFIC
when he obtained the fire insurance policy from the private respondent, thereby,
for not disclosing such fact, violating Condition 3 of the policy, and (b) if he had,
whether he is precluded from recovering therefrom.

The second ground, which is based on the Court of Appeals' reliance on the
petitioner's letter of reconsideration of 18 January 1991, is without merit. The
petitioner claims that the said letter was not offered in evidence and thus should
not have been considered in deciding the case. However, as correctly pointed out
by the Court of Appeals, a copy of this letter was attached 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
16
policy.   However, in order to constitute a violation, the other insurance must be
upon same subject matter, the same interest therein, and the same risk. 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.

7 Geagonia v CA G.R. No. 114427 February 6, 1995 

Facts: 

Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for
P100,000.00. The 1 year policy and covered thestock trading of dry goods. The
policy noted the requirement that "3. The insured shall give notice to the Company
of any insurance or insurances already effected, or which may subsequently be
effected, covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless 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." The petitioners’ stocks were destroyed by fire. He
then filed a claim which was subsequently denied because the petitioner’s stocks
were covered by two other fire insurance policies for Php 200,000 issued by PFIC.
The basis of the private respondent's denial was the petitioner's alleged violation of
Condition 3 of the policy. Geagonia then filed a complaint against the private
respondent in the Insurance Commission for the recovery of P100,000.00 under fire
insurance policy and damages. He claimed that he knew the existence of the other
two policies. But, he said that he had no knowledge of the provision in the private
respondent's policy requiring him to inform it of the prior policies and this

requirement was not mentioned to him by the private respondent's agent. 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 w/c procured the PFIC policies w/o
informing him or securing his consent; and that Cebu Tesing Textile, as his creditor,
had insurable interest on the stocks. The Insurance Commission then ordered the
respondent company to pay complainant the sum of P100,000.00 with interest and
attorney’s fees. CA reversed the decision of the Insurance Commission because it
found that the petitioner knew of the existence of the two other policies issued by
the PFIC.

Issues:

1. WON the petitioner had not disclosed the two insurance policies when he
obtained the fire insurance and thereby violated Condition 3 of the policy.

2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

Ratio:

1. The court agreed with the CA 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.

2. 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. With these principles in mind,
Condition 3 of the subject policy is not totally free from ambiguity and must 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. 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.
8 G.R. No. 23703           September 28, 1925

HILARIO GERCIO, plaintiff-appellee,
vs.
SUN LIFE ASSURANCE OF CANADA, ET AL., defendants.
SUN LIFE ASSURANCE OF CANADA, appellant.

The question of first impression in the law of life insurance to be here decided is
whether the insured — the husband — has the power to change the beneficiary —
the former wife — and to name instead his actual wife, where the insured and the
beneficiary have been divorced and where the policy of insurance does not
expressly reserve to the insured the right to change the beneficiary. Although the
authorities have been exhausted, no legal situation exactly like the one before us
has been encountered.

HilarioGercio, the insured, is the plaintiff. The Sun Life Assurance Co. of Canada,
the insurer, and Andrea Zialcita, the beneficiary, are the defendants. The complaint
is in the nature of mandamus. Its purpose is to compel the defendant Sun Life
Assurance Co. of Canada to change the beneficiary in the policy issued by the
defendant company on the life of the plaintiff HilarioGercio, with one Andrea Zialcita
as beneficiary.

A default judgment was taken in the lower court against the defendant Andrea
Zialcita. The other defendant, the Sun Life Assurance Co. of Canada, first demurred
to the complaint and when the demurrer was overruled, filed an answer in the
nature of a general denial. The case was then submitted for decision on an agreed
statement of facts. The judgment of the trial court was in favor of the plaintiff
without costs, and ordered the defendant company to eliminate from the insurance
policy the name of Andrea Zialcita as beneficiary and to substitute therefor such
name as the plaintiff might furnish to the defendant for that purpose.

The Sun Life Assurance Co. of Canada has appealed and has assigned three errors
alleged to have been committed by the lower court. The appellee has countered
with a motion which asks the court to dismiss the appeal of the defendant Sun Life
Assurance Co. of Canada, with costs.

As the motion presented by the appellee and the first two errors assigned by the
appellant are preliminary in nature, we will pass upon the first. Appellee argues that
the "substantial defendant" was Andrea Zialcita, and that since she was adjudged in
default, the Sun Life Assurance Co. of Canada has no interest in the appeal. It will
be noticed, however, that the complaint prays for affirmative relief against the
insurance company. It will be noticed further that it is stipulated that the insurance
company has persistently refused to change the beneficiary as desired by the
plaintiff. As the rights of Andrea Zialcita in the policy are rights which are
enforceable by her only against the insurance company, the defendant insurance
company will only be fully protected if the question at issue is conclusively
determined. Accordingly, we have decided not to accede to the motion of the
appellee and not to order the dismissal of the appeal of the appellant.

This brings us to the main issue. Before, however, discussing its legal aspects, it is
advisable to have before us the essential facts. As they are stipulated, this part of
the decision can easily be accomplished.

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy
No. 161481 on the life of HilarioGercio. The policy was what is known as a twenty-
year endowment policy. By its terms, the insurance company agreed to insure the
life of HilarioGercio for the sum of P/2,000, to be paid him on February 1, 1930, or
if the insured should die before said date, then to his wife, Mrs. Andrea Zialcita,
should she survive him; otherwise to the executors, administrators, or assigns of
the insured. The policy also contained a schedule of reserves, amounts in cash,
paid-up policies, and renewed insurance, guaranteed. The policy did not include any
provision reserving to the insured the right to change the beneficiary.
On the date the policy was issued, Andrea Zialcita was the lawful wife of
HilarioGercio. Towards the end of the year 1919, she was convicted of the crime of
adultery. On September 4, 1920, a decree of divorce was issued in civil case no.
17955, which had the effect of completely dissolving the bonds of matrimony
contracted by HilarioGercio and Andrea Zialcita.

On March 4, 1922, HilarioGercio formally notified the Sun Life Assurance Co. of
Canada that he had revoked his donation in favor of Andrea Zialcita, and that he
had designated in her stead his present wife, Adela Garcia de Gercio, as the
beneficiary of the policy. Gercio requested the insurance company to eliminate
Andrea Zialcita as beneficiary. This, the insurance company has refused and still
refuses to do.

With all of these introductory matters disposed of and with the legal question to the
forefront, it becomes our first duty to determine what law should be applied to the
facts. In this connection, it should be remembered that the insurance policy was
taken out in 1910, that the Insurance Act. No. 2427, became effective in 1914, and
that the effort to change the beneficiary was made in 1922. Should the provisions
of the Code of Commerce and the Civil Code in force in 1910, or the provisions of
the Insurance Act now in force, or the general principles of law, guide the court in
its decision?

On the supposition, first, that the Code of Commerce is applicable, yet there can be
found in it no provision either permitting or prohibiting the insured to change the
beneficiary.

On the supposition, next, that the Civil Code regulates insurance contracts, it would
be most difficult, if indeed it is practicable, to test a life insurance policy by its
provisions. Should the insurance contract, whereby the husband names the wife as
the beneficiary, be denominated a donation inter vivos, a donation causa mortis, a
contract in favor of a third person, or an aleatory contract? The subject is further
complicated by the fact that if an insurance contract should be considered a
donation, a husband may then never insure his life in favor of his wife and vice
versa, inasmuch as article 1334 prohibits all donations between spouses during
marriage. It would seem, therefore, that this court was right when in the case
of Del Val vs. Del Val ([1915]), 29 Phil., 534), it declined to consider the proceeds
of the insurance policy as a donation or gift, saying "the contract of life insurance is
a special contract and the destination of the proceeds thereof is determined by
special laws which deal exclusively with that subject. The Civil Code has no
provisions which relate directly and specifically to life-insurance contracts or to the
destination of life-insurance proceeds. . . ." Some satisfaction is gathered from the
perplexities of the Louisiana Supreme Court, a civil law jurisdiction, where the
jurists have disagreed as to the classification of the insurance contract, but have
agreed in their conclusions as will hereafter see. (Re Succession of Leone Desforges
[1914], 52 L.R.A. [N.S.], 689; Lambert vs Penn Mutual Life Insurance Company of
Philadelphia and L'Hote& Co. [1898], 50 La. Ann., 1027.)

On the further supposition that the Insurance Act applies, it will be found that in
this Law, there is likewise no provision either permitting or prohibiting the insured
to change the beneficiary.

We must perforce conclude that whether the case be considered as of 1910, or

1914, or 1922, and whether the case be considered in the light of the Code of
Commerce, the Civil Code, or the Insurance Act, the deficiencies in the law will
have to be supplemented by the general principles prevailing on the subject. To
that end, we have gathered the rules which follow from the best considered
American authorities. In adopting these rules, we do so with the purpose of having
the Philippine Law of Insurance conform as nearly as possible to the modern Law of
Insurance as found in the United States proper.

The wife has an insurable interest in the life of her husband. The beneficiary has an
absolute vested interest in the policy from the date of its issuance and delivery. So
when a policy of life insurance is taken out by the husband in which the wife is
named as beneficiary, she has a subsisting interest in the policy. And this applies to
a policy to which there are attached the incidents of a loan value, cash surrender
value, an automatic extension by premiums paid, and to an endowment policy, as
well as to an ordinary life insurance policy. If the husband wishes to retain to
himself the control and ownership of the policy he may so provide in the policy. But
if the policy contains no provision authorizing a change of beneficiary without the
beneficiary's consent, the insured cannot make such change. Accordingly, it is held
that a life insurance policy of a husband made payable to the wife as beneficiary, is
the separate property of the beneficiary and beyond the control of the husband.

As to the effect produced by the divorce, the Philippine Divorce Law, Act No. 2710,
merely provides in section 9 that the decree of divorce shall dissolve the community
property as soon as such decree becomes final. Unlike the statutes of a few
jurisdictions, there is no provision in the Philippine Law permitting the beneficiary in
a policy for the benefit of the wife of the husband to be changed after a divorce. It
must follow, therefore, in the absence of a statute to the contrary, that if a policy is
taken out upon a husband's life the wife is named as beneficiary therein, a
subsequent divorce does not destroy her rights under the policy.

These are some of the pertinent principles of the Law of Insurance. To reinforce
them, we would, even at the expense of clogging the decision with unnecessary
citation of authority, bring to notice certain decisions which seem to us to have
controlling influence.

To begin with, it is said that our Insurance Act is mostly taken from the statute of
California. It should prove of interest, therefore, to know the stand taken by the
Supreme Court of that State. A California decision oft cited in the Cyclopedias
is Yore vs. Booth ([1895]), 110 Cal., 238; 52 Am. St. Rep., 81), in which we find
the following:

. . . It seems to be the settled doctrine, with but slight dissent in the

courts of this country, that a person who procures a policy upon his
own life, payable to a designated beneficiary, although he pays the
premiums himself, and keeps the policy in his exclusive possession,
has no power to change the beneficiary, unless the policy itself, or the
charter of the insurance company, so provides. In policy, although he
has parted with nothing, and is simply the object of another's bounty,
has acquired a vested and irrevocable interest in the policy, which he
may keep alive for his own benefit by paying the premiums or
assessments if the person who effected the insurance fails or refuses
to do so.

As carrying great weight, there should also be taken into account two decisions
coming from the Supreme Court of the United States. The first of these decisions,
in point of time, is Connecticut Mutual Life Insurance Company vs
Schaefer ([1877]), 94 U.S., 457). There, Mr. Justice Bradley, delivering the opinion
of the court, in part said:

This was an action on a policy of the court, in part said: July 25, 1868,
on the joint lives of George F. and Francisca Schaefer, then husband
and wife, payable to the survivor on the death of either. In January,
1870, they were divorced, and alimony was decreed and paid to the
wife, and there was never any issue of the marriage. They both
subsequently married again, after which, in February, 1871, George F.
Schaefer died. This action was brought by Francisca, the survivor.

xxx           xxx           xxx

The other point, relating to the alleged cessation of insurable interest

by reason of the divorce of the parties, is entitled to more serious
consideration, although we have very little difficulty in disposing of it.
 It will be proper, in the first place, to ascertain what is an insurable
interest. It is generally agreed that mere wager policies, that is,
policies in which the insured party has no interest in its loss or
destruction, are void, as against public policy. . . . But precisely what
interest is necessary, in order to take a policy out of the category of
mere wager, has been the subject of much discussion. In marine and
fire insurance the difficulty is not so great, because there insurance is
considered as strictly an indemnity. But in life insurance the loss can
seldom be measured by pecuniary values. Still, an interest of some
sort in the insured life must exist. A man cannot take out insurance on
the life of a total stranger, nor on that of one who is not so connected
with him as to make the continuance of the life a matter of some real
interest to him.

It is well settled that a man has an insurable interest in his own life
and in that of his wife and children; a woman in the life of her
husband; and the creditor in the life of his debtor. Indeed it may be
said generally that any reasonable expectation of pecuniary benefit or
advantage from the continued life of another creates an insurable
interest in such life. And there is no doubt that a man may effect an
insurance on his own life for the benefit of a relative or fried; or two or
more persons, on their joint lives, for the benefit of the survivor or
survivors. The old tontines were based substantially on this principle,
and their validity has never been called in question.

xxx           xxx           xxx

The policy in question might, in our opinion, be sustained as a joint

insurance, without reference to any other interest, or to the question
whether the cessation of interest avoids a policy good at its inception.
We do not hesitate to say, however, that a policy taken out in good
faith and valid at its inception, is not avoided by the cessation of the
insurable interest, unless such be the necessary effect of the
provisions of the policy itself. . . .

. . . .In our judgment of life policy, originally valid, does not cease to
be so by the cessation of the assured party's interest in the life
insured.

Another controlling decision of the United States Supreme Court is that of

the Central National Bank of Washington City vs. Hume ([1888], 128 U.S., 134).
Therein, Mr. Chief Justice Fuller, as the organ of the court, announced the following
doctrines:

We think it cannot be doubted that in the instance of contracts of

insurance with a wife or children, or both, upon their insurable interest
in the life of the husband or father, the latter, while they are living,
can exercise no power of disposition over the same without their
consent, nor has he any interest therein of which he can avail himself;
nor upon his death have his personal representatives or his creditors
any interest in the proceeds of such contracts, which belong to the
beneficiaries to whom they are payable.

It is indeed the general rule that a policy, and the money to become
due under it, belong, the moment it is issued, to the person or persons
named in it as the beneficiary or beneficiaries, and that there is no
power in the person procuring the insurance, by any act of his, by
deed or by will, to transfer to any other person the interest of the
person named.

A jurisdiction which found itself in somewhat the same situation as the Philippines,
because of having to reconcile the civil law with the more modern principles of
insurance, is Louisiana. In a case coming before the Federal Courts, In re Dreuil&
Co. ([1915]), 221 Fed., 796), the facts were that an endowment insurance policy
provided for payment of the amount thereof at the expiration of twenty years to the
insured, or his executors, administrators, or assigns, with the proviso that, if the
insured die within such period, payment was to be made to his wife if she survive
him. It was held that the wife has a vested interest in the policy, of which she
cannot be deprived without her consent. Foster, District Judge, announced:

In so far as the law of Louisiana is concerned, it may also be

considered settled that where a policy is of the semitontine variety, as
in this case, the beneficiary has a vested right in the policy, of which
she cannot be deprived without her consent. (Lambert vs Penn Mutual
Life Ins. Co., 50 La. Ann., 1027; 24 South., 16.) (See in same
connection a leading decision of the Louisiana Supreme Court, Re
Succession of LeonceDesforges, [1914], 52 L.R.A. [N.S.], 689.)

Some question has arisen as to the power of the insured to destroy the vested
interest of the beneficiary in the policy. That point is well covered in the case
of Entwistle vs. Travelers Insurance Company ([1902], 202 Pa. St., 141). To quote:

. . . The interest of the wife was wholly contingent upon her surviving
her husband, and she could convey no greater interest in the policy
than she herself had. The interest of the children of the insured, which
was created for them by the contract when the policy was issued;
vested in them at the same time that the interest of the wife became
vested in her. Both interests were contingent. If the wife die before the
insured, she will take nothing under the policy. If the insured should
die before the wife, then the children take nothing under the policy.
We see no reason to discriminate between the wife and the children.
They are all payees, under the policy, and together constitute the
assured.

The contingency which will determine whether the wife, or the children
as a class will take the proceeds, has not as yet happened; all the
beneficiaries are living, and nothing has occurred by which the rights
of the parties are in any way changed. The provision that the policy
may be converted into cash at the option of the holder does not
change the relative rights of the parties. We agree entirely with the
suggestion that "holder" or "holders", as used in this connection,
means those who in law are the owners of the policy, and are entitled
to the rights and benefits which may accrue under it; in other words,
all the beneficiaries; in the present case, not only the wife, by the
children of the insured. If for any reason, prudence required the
conversion of the policy into cash, a guardian would have no special
difficulty in reasonable protecting the interest of his wards. But
however that may be, it is manifest that the option can only be
exercised by those having the full legal interest in the policy, or by
their assignee. Neither the husband, nor the wife, nor both together
had power to destroy the vested interest of the children in the policy.

The case most nearly on all fours with the one at bar is that of Wallace vs Mutual
Benefit Life Insurance Co. ([1906], 97 Minn., 27; 3 L.R.A. [N.S.], 478). The opinion
there delivered also invokes added interest when it is noted that it was written by
Mr. Justice Elliott, the author of a text on insurance, later a member of this court.
In the Minnesota case cited, one Wallace effected a "twenty-year endowment"
policy of insurance on his life, payable in the event of his death within twenty years
to Emma G. Wallace, his wife, but, if he lived, to himself at the end of twenty years.
If Wallace died before the death of his wife, within the twenty years, the policy was
payable to the personal representatives of the insured. During the pendency of
divorce proceedings, the parties signed a contract by which Wallace agreed that, if
a divorce was granted to Mrs. Wallace, the court might award her certain specified
property as alimony, and Mrs. Wallace agreed to relinquish all claim to any property
arising out of the relation of husband and wife. The divorce was granted. An action
was brought by Wallace to compel Mrs. Wallace to relinquish her interest in the
insurance policy. Mr. Justice Elliott said:

As soon as the policy was issued Mrs. Wallace acquired a vested

interest therein, of which she could not be deprived without her
consent, except under the terms of the contract with the insurance
company. No right to change the beneficiary was reserved. Her
interest in the policy was her individual property, subject to be
divested only by her death, the lapse of time, or by the failure of the
insured to pay the premiums. She could keep the policy alive by
paying the premiums, if the insured did not do so. It was contingent
upon these events, but it was free from the control of her husband. He
had no interest in her property in this policy, contingent or otherwise.
Her interest was free from any claim on the part of the insured or his
creditors. He could deprive her of her interest absolutely in but one
way, by living more than twenty years. We are unable to see how the
plaintiff's interest in the policy was primary or superior to that of the
husband. Both interests were contingent, but they were entirely
separate and distinct, the one from the other. The wife's interest was
not affected by the decree of court which dissolved the marriage
contract between the parties. It remains her separate property, after
the divorce as before. . .

. . . . The fact that she was his wife at the time the policy was issued
may have been, and undoubtedly was, the reason why she was named
as beneficiary in the event of his death. But her property interest in
the policy after it was issued did not in any reasonable sense arise out
of the marriage relation.

Somewhat the same question came before the Supreme Court of Kansas in the
leading case of Filley vs. Illinois Life Insurance Company ([1914]), 91 Kansas, 220;
L.R.A. [1915 D], 130). It was held, following consideration extending to two
motions for rehearing, as follows:

The benefit accruing from a policy of life insurance upon the life of a
married man, payable upon his death to his wife, naming her, is
payable to the surviving beneficiary named, although she may have
years thereafter secured a divorce from her husband, and he was
thereafter again married to one who sustained the relation of wife to
him at the time of his death.

The rights of a beneficiary in an ordinary life insurance policy become

vested upon the issuance of the policy, and can thereafter, during the
life of the beneficiary, be defeated only as provided by the terms of
the policy.

If space permitted, the following corroborative authority could also be taken into
account: Joyce, The Law of Insurance, second edition, vol. 2, pp. 1649 et seq.;
37 Corpus Juris, pp. 394 et seq.; 14 R.C.L., pp. 1376 et seq.; Green vs.
Green ([1912], 147 Ky., 608; 39 L.R.A. [N.S.], 370); Washington Life Insurance
Co. vs. Berwald ([1903], 97 Tex., 111); Begley vs. Miller ([1907]), 137 Ill., App.,
278); Blum vs. New York L. Ins. Co. ([1906], 197 Mo., 513; 8 L.R.A. [N.S.],
923; Union Central Life Ins. Co. vs. Buxer ([1900], 62 Ohio St., 385; 49 L.R.A.,
737); Griffith vs. New York Life Ins. Co. ([1894], 101 Cal., 627; 40 Am. St. Rep.,
96); Preston vs. Conn. Mut. L. Ins. Co. of Hartford ([1902]); 95 Md., 101); Snyder
vs. Supreme Ruler of Fraternal Mystic Circle ([1909], 122 Tenn. 248; 45 L.R.A.
[N.S.], 209); Lloyd vs. Royal Union Mut. L. Ins. Co. ([1917], 245 Fed.,
162); Phoenix Mut. L. Ins. Co. vs. Dunham ([1878], 46 Conn., 79; 33 Am. Rep.,
14); McKee vs. Phoenix Ins. Co. ([1859], 28 Mo., 383; 75 Am. Rep.,
129); Supreme Council American Legion of Honor vs. Smith and Smith ([1889], 45
N.J. Eq., 466); Overhiser vs. Overhiser ([1900], 63 Ohio St., 77; 81 Am. St. Rep.,
612; 50 L.R.A., 552); Condon vs. New York Life Insurance Co. ([1918], 183 Iowa,
658); with which compare Foster vs. Gile ([1880], 50 Wis., 603) and Hatch vs.
Hatch ([1904], 35 Tex. Civ. App., 373).
On the admitted facts and the authorities supporting the nearly universally
accepted principles of insurance, we are irresistibly led to the conclusion that the
question at issue must be answered in the negative.

The judgment appealed from will be reversed and the complaint ordered dismissed
as to the appellant, without special pronouncement as to the costs in either
instance. So ordered.

Separate Opinions

JOHNSON, J., concurring in the result.

I agree with the majority of the court, that the judgment of the lower court should
be revoked, but for a different reason. In my judgment, the question presented by
the plaintiff is purely an academic one. The purpose of the petition is to have
declared the rights of certain persons in an insurance policy

which is not yet due and payable. It may never become due and payable. The
premiums may not be paid, thereby rendering the contract of insurance of non
effect, and many other things may occur, before the policy becomes due, which
would render it non effective. The plaintiff and the other parties who are claiming
an interest in said policy should wait until there is something due them under the
same. For the courts to declare now who are the persons entitled to receive the
amounts due, if they ever become due and payable, is impossible, for the reason
that nothing may ever become payable under the contract of insurance, and for
many reasons such persons may never have a right to receive anything when the
policy does become due and payable. In my judgment, the action is premature and
should have been dismissed.

8 sec 10 GERCIO V SUN LIFE ASSURANCE G.R. No. 23703 FACTS:

On January 29, 1910, the Sun Life Assurance issued an insurance policy on the life
of HilarioGercio. The policy was what is known as a twenty-year endowment policy.
By its terms, the insurance company agreed to insure the life of Gercio for the sum
of P/2,000, to be paid him on February 1, 1930, or if the insured should die before
said date, then to his wife, Andrea Zialcita, should she survive him; otherwise to
the executors, administrators, or assigns of the insured. At the end of 1919, she
was convicted of the crime of adultery. On September 4, 1920, a decree of divorce
was issued. Gercio formally notified the Sun Life Assurance that he had revoked his
donation in favor of Andrea Zialcita, and that he had designated in her stead his
present wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio
requested the insurance company to eliminate Andrea Zialcita as beneficiary. This,
the insurance company has refused and still refuses to do. A default judgment was
taken in the lower court against the defendant Andrea Zialcita. The judgment of the
trial court was in favor of the plaintiff, and ordered the defendant company to
eliminate from the insurance policy Andrea Zialcita as beneficiary and to substitute
Adela Garcia de Gercio therefor.

ISSUE: WON the insured may change the beneficiary in the insurance policy.

HELD: No. The Code of Commerce is applicable, yet there can be found in it no
provision either permitting or prohibiting the insured to change the beneficiary. The
Civil Code has no provisions which relate directly and specifically to life-insurance
contracts or to the destination of lifeinsurance proceeds. The Insurance Act applies,
it will be found that in this Law, there is likewise no provision either permitting or
prohibiting the insured to change the beneficiary. To that end, we have gathered
the rules which follow from the best considered American authorities. In adopting
these rules, we do so with the purpose of having the Philippine Law of Insurance
conform as nearly as possible to the modern Law of Insurance as found in the
United States proper. The wife has an insurable interest in the life of her husband.
The beneficiary has an absolute vested interest in the policy from the date of its
issuance and delivery. So when a policy of life insurance is taken out by the
husband in which the wife is named as beneficiary, she has a subsisting interest in
the policy. If the husband wishes to retain to himself the control and ownership of
the policy he may so provide in the policy. But if the policy contains no provision
authorizing a change of beneficiary without the beneficiary's consent, the insured
cannot make such change. As to the effect produced by the divorce, the Philippine
Divorce Law, Act No. 2710, merely provides in section 9 that the decree of divorce
shall dissolve the community property as soon as such decree becomes final. Unlike
the statutes of a few jurisdictions, there is no provision in the Philippine Law
permitting the beneficiary in a policy for the benefit of the wife of the husband to be
changed after a divorce. It must follow, therefore, in the absence of a statute to the
contrary, that if a policy is taken out upon a husband's life the wife is named as
beneficiary therein, a subsequent divorce does not destroy her rights under the
policy

9. sec 13 G.R. No. 147839             June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

DECISION

Before the Court is a petition for review on certiorari of the Decision 1 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

x xxx

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 reconsideration 12 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)

x xxx

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 xx

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.

9 Insurance Case Digest: Gaisano Cagayan, Inc. V. Insurance Company Of

North America (2006)

G.R. No. 147839             June 8, 2006

Lessons Applicable: Existing Interest (Insurance)

Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section
13 of Insurance Code

FACTS:

 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue

Jeans. while Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products
bearing trademarks owned by Levi Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of North
America fire insurance policies for their book debt endorsements related to their
ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines which are
unpaid 45 days after the time of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City,
owned by Gaisano Cagayan, Inc., containing the ready-made clothing materials
sold and delivered by IMC and LSPI was consumed by fire. 
 February 4, 1992: Insurance Company of North America filed a complaint for
damages against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their
claims under their respective fire insurance policies which it paid thus it was
subrogated to their rights
 Gaisano Cagayan, Inc: not be held liable because it was destroyed due
to fortuities event or force majeure
 RTC: IMC and LSPI retained ownership of the delivered goods until fully paid,
it must bear the loss (res perit domino)
 CA: Reversed - sales invoices is an exception under Article 1504 (1) of the
Civil Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against Gaisano
Cagayan for the debt that was isnured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

 insurance policy is clear that the subject of the insurance is the book debts
and NOT goods sold and delivered to the customers and dealers of the insured
 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;

 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
 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. 
 Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.
 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
 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
 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
- obligation is pecuniary in nature
 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
 Article 1263 of the Civil Code in an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not extinguish  the
obligation (Genus nunquanperit)
 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
 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. 
 As to LSPI, no subrogation receipt was offered in evidence. 
 Failure to substantiate the claim of subrogation is fatal to petitioner's
case for recovery of the amount of P535,613

10 sec 14 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 ChargeursReunis 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 DesChargeursReunis 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 DesChargeursReunis 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.

10 sec 14 Filipino Merchants Insurance v CA G.R. No. 85141 Nov 28, 1989
Facts:
Choa insured 600 tons of fishmeal for the sum of P267,653.59 from Bangkok,
Thailand to Manila against all risks under warehouse to warehouse terms. What was
imported in the SS Bougainville was 59.940 metric tons at $395.42 a ton. The
cargo was unloaded from the ship and 227 bags were found to be in bad condition
by the arrastre.

Choa made a formal claim against the defendant Filipino Merchants Insurance
Company for P51,568.62 He also presented a claim against the ship,  but the
defendant Filipino Merchants Insurance Company refused to pay the claim. The
plaintiff brought an action against the company and presented a third party
complaint against the vessel and the arrastre contractor.

The court below, after trial on the merits, rendered judgment in favor of private
respondent, for the sum of P51,568.62 with interest at legal rate.

The common carrier, Compagnie, was ordered to pay as a joint debtor.

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. The AC made Filipino Merchants pay but absolved
the common carrier, Compagnie. Hence this petition.

Issues:

1. WON the "all risks" clause of the marine insurance policy 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.

2. WON                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.

Held: No. No. Petition denied.

Ratio:

1. 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.“

An "all risks policy" should be read literally as meaning all risks whatsoever and
covering all losses by an accidental cause of any kind. “Accident” is construed by
the courts in their ordinary and common acceptance.

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.
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.  

Institute Cargo Clauses 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. The burden then shifts to the insurer
to show the exception to the coverage. This 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.

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.

2. Section 13 of the Insurance Code- anyone has an insurable interest in property

who derives a benefit from its existence or would suffer loss from its destruction

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.

Choa, as vendee/consignee of the goods in transit, has such existing interest as

may be the subject of a valid contract of insurance. His interest over the goods is
based on the perfected contract of sale. 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 conditions have been performed.

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, for the purpose of transmission to the buyer is
deemed to be a delivery of the goods to the buyer. 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.

11 sec 15 G.R. No. 184300               July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER
SERVICES, INC., Respondents.

DECISION

Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan
Insurance Co., lnc. (Malayan) assailing the Decision 1 dated February 29, 2008 and
Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No.
71204 which affirmed with modification the decision of the Regional Trial Court
(RTC), Branch 38 of Manila.

Antecedent Facts

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder
Services, Inc. (Reputable) had been annually executing a contract of carriage,
whereby the latter undertook to transport and deliver the former’s products to its
customers, dealers or salesmen.3

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine
Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to
secure its interest over its own products. Philippines First thereby insured Wyeth’s
nutritional, pharmaceutical and other products usual or incidental to the insured’s
business while the same were being transported or shipped in the Philippines. The
policy covers all risks of direct physical loss or damage from any external cause, if
by land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with

Reputable. It turned out, however, that the contract was not signed by Wyeth’s
representative/s.4 Nevertheless, it was admittedly signed by Reputable’s
representatives, the terms thereof faithfully observed by the parties and, as
previously stated, the same contract of carriage had been annually executed by the
parties every year since 1989.5

Under the contract, Reputable undertook to answer for "all risks with respect to the
goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or
damage of the goods/products due to any and all causes whatsoever, including
theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while
the goods/products are in transit and until actual delivery to the customers,
salesmen, and dealers of the COMPANY".6

The contract also required Reputable to secure an insurance policy on Wyeth’s

goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance
Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy,
Reputable received from Wyeth 1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis,
Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products
was hijacked by about 10 armed men. They threatened to kill the truck driver and
two of his helpers should they refuse to turn over the truck and its contents to the
said highway robbers. The hijacked truck was recovered two weeks later without its
cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and
pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines
First then demanded reimbursement from Reputable, having been subrogated to
the rights of Wyeth by virtue of the payment. The latter, however, ignored the
demand.

Consequently, Philippines First instituted an action for sum of money against

Reputable on August 12, 1996. 8 In its complaint, Philippines First stated that
Reputable is a "private corporation engaged in the business of a common carrier."
In its answer,9 Reputable claimed that it is a private carrier. It also claimed that it
cannot be made liable under the contract of carriage with Wyeth since the contract
was not signed by Wyeth’s representative and that the cause of the loss was force
majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to

collect the amount covered in the SR Policy. According to Reputable, "it was validly
insured with Malayan for P1,000,000.00 with respect to the lost products under the
latter’s Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February
1, 1995" and that the SR Policy covered the risk of robbery or hijacking. 10

Disclaiming any liability, Malayan argued, among others, that under Section 5 of
the SR Policy, the insurance does not cover any loss or damage to property which
at the time of the happening of such loss or damage is insured by any marine policy
and that the SR Policy expressly excluded third-party liability.

After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines
First for the amount of indemnity it paid to Wyeth, among others. In turn, Malayan
was found by the RTC to be liable to Reputable to the extent of the policy coverage.
The dispositive portion of the RTC decision provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding

[Reputable] liable for the loss of the Wyeth products and orders it to pay Philippines
First the following:

1. the amount of P2,133,257.00 representing the amount paid by Philippines

First to Wyeth for the loss of the products in question;

2. the amount of P15,650.00 representing the adjustment fees paid by

Philippines First to hired adjusters/surveyors;

3. the amount of P50,000.00 as attorney’s fees; and

4. the costs of suit.

On the third-party Complaint, judgment is hereby rendered finding

Malayan liable to indemnify [Reputable] the following:

1. the amount of P1,000,000.00 representing the proceeds of the insurance

policy;

2. the amount of P50,000.00 as attorney’s fees; and

3. the costs of suit.

SO ORDERED.12

Dissatisfied, both Reputable and Malayan filed their respective appeals from the
RTC decision.

Reputable asserted that the RTC erred in holding that its contract of carriage with
Wyeth was binding despite Wyeth’s failure to sign the same. Reputable further
contended that the provisions of the contract are unreasonable, unjust, and
contrary to law and public policy.

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

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

Malayan argued that inasmuch as there was already a marine policy issued by
Philippines First securing the same subject matter against loss and that since the
monetary coverage/value of the Marine Policy is more than enough to indemnify the
hijacked cargo, Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the
alternative, it prayed that it be held liable for no more than P468,766.70, its alleged
pro-rata share of the loss based on the amount covered by the policy, subject to
the provision of Section 12 of the SR Policy, which states:

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

On February 29, 2008, the CA rendered the assailed decision sustaining the ruling
of the RTC, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September

2000, as modified in the Order dated 21 July 2001, is AFFIRMED with
MODIFICATION in that the award of attorney’s fees in favor of Reputable is
DELETED.

SO ORDERED.13

The CA ruled, among others, that: (1) Reputable is estopped from assailing the
validity of the contract of carriage on the ground of lack of signature of Wyeth’s
representative/s; (2) Reputable is liable under the contract for the value of the
goods even if the same was lost due to fortuitous event; and (3) Section 12 of the
SR Policy prevails over Section 5, it being the latter provision; however, since the
ratable proportion provision of Section 12 applies only in case of double insurance,
which is not present, then it should not be applied and Malayan should be held
liable for the full amount of the policy coverage, that is, P1,000,000.00. 14

On March 14, 2008, Malayan moved for reconsideration of the assailed decision but
it was denied by the CA in its Resolution dated August 28, 2008. 15

Hence, this petition.

Malayan insists that the CA failed to properly resolve the issue on the "statutory
limitations on the liability of common carriers" and the "difference between an
‘other insurance clause’ and an ‘over insurance clause’."

Malayan also contends that the CA erred when it held that Reputable is a private
carrier and should be bound by the contractual stipulations in the contract of
carriage. This argument is based on its assertion that Philippines First judicially
admitted in its complaint that Reputable is a common carrier and as such,
Reputable should not be held liable pursuant to Article 1745(6) of the Civil
Code.16 Necessarily, if Reputable is not liable for the loss, then there is no reason to
hold Malayan liable to Reputable.

Further, Malayan posits that there resulted in an impairment of contract when the
CA failed to apply the express provisions of Section 5 (referred to by Malayan as
over insurance clause) and Section 12 (referred to by Malayan as other insurance
clause) of its SR Policy as these provisions could have been read together there
being no actual conflict between them.

Reputable, meanwhile, contends that it is exempt from liability for acts committed
by thieves/robbers who act with grave or irresistible threat whether it is a common
carrier or a private/special carrier. It, however, maintains the correctness of the CA
ruling that Malayan is liable to Philippines First for the full amount of its policy
coverage and not merely a ratable portion thereof under Section 12 of the SR
Policy.

Finally, Philippines First contends that the factual finding that Reputable is a private
carrier should be accorded the highest degree of respect and must be considered
conclusive between the parties, and that a review of such finding by the Court is
not warranted under the circumstances. As to its alleged judicial admission that
Reputable is a common carrier, Philippines First proffered the declaration made by
Reputable that it is a private carrier. Said declaration was allegedly reiterated by
Reputable in its third party complaint, which in turn was duly admitted by Malayan
in its answer to the said third-party complaint. In addition, Reputable even
presented evidence to prove that it is a private carrier.

As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First

reiterated the ruling of the CA. Philippines First, however, prayed for a slight
modification of the assailed decision, praying that Reputable and Malayan be
rendered solidarily liable to it in the amount of P998,000.00, which represents the
balance from the P1,000.000.00 coverage of the SR Policy after deducting
P2,000.00 under Section 10 of the said SR Policy. 17

Issues

The liability of Malayan under the SR Policy hinges on the following issues for
resolution:

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations in its contract of

carriage with Wyeth, such that it should be liable for any risk of loss or
damage, for any cause whatsoever, including that due to theft or robbery
and other force majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and

Section 12 of the SR Policy; and

4) Whether Reputable should be held solidarily liable with Malayan for the
amount of P998,000.00 due to Philippines First.

The Court’s Ruling

On the first issue – Reputable is a private carrier.

The Court agrees with the RTC and CA that Reputable is a private carrier. Well-
entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and considered conclusive between the parties, save for certain exceptional
and meritorious circumstances, none of which are present in this case. 18

Malayan relies on the alleged judicial admission of Philippines First in its complaint
that Reputable is a common carrier. 19 Invoking Section 4, Rule 129 of the Rules on
Evidence that "an admission verbal or written, made by a party in the course of the
proceeding in the same case, does not require proof," it is Malayan’s position that
the RTC and CA should have ruled that

Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the

Civil Code, the liability of Reputable for the loss of Wyeth’s goods should be
dispensed with, or at least diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not
require proof, and need not be offered to be considered by the court. "The court,
for the proper decision of the case, may and should consider, without the
introduction of evidence, the facts admitted by the parties." 20 The rule on judicial
admission, however, also states that such allegation, statement, or admission is
conclusive as against the pleader,21 and that the facts alleged in the complaint are
deemed admissions of the plaintiff and binding upon him. 22 In this case, the pleader
or the plaintiff who alleged that Reputable is a common carrier was Philippines First.
It cannot, by any stretch of imagination, be made conclusive as against Reputable
whose nature of business is in question.

It should be stressed that Philippines First is not privy to the SR Policy between
Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth to collect
from Reputable under the terms of the contract of carriage. Philippines First is not
in any position to make any admission, much more a definitive pronouncement, as
to the nature of Reputable’s business and there appears no other connection
between Philippines First and Reputable which suggests mutual familiarity between
them.

Moreover, records show that the alleged judicial admission of Philippines First was
essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its
answer that it is actually a private or special carrier. 23 In addition, Reputable stated
in paragraph 2 of its third-party complaint that it is "a private carrier engaged in
the carriage of goods."24 Such allegation was, in turn, admitted by Malayan in
paragraph 2 of its answer to the third-party complaint. 25 There is also nothing in the
records which show that Philippines First persistently maintained its stance that
Reputable is a common carrier or that it even contested or proved otherwise
Reputable’s position that it is a private or special carrier.

Hence, in the face of Reputable’s contrary admission as to the nature of its own
business, what was stated by Philippines First in its complaint is reduced to nothing
more than mere allegation, which must be proved for it to be given any weight or
value. The settled rule is that mere allegation is not proof. 26

More importantly, the finding of the RTC and CA that Reputable is a special or
private carrier is warranted by the evidence on record, primarily, the unrebutted
testimony of Reputable’s Vice President and General Manager, Mr. William
AngLianSuan, who expressly stated in open court that Reputable serves only one
customer, Wyeth.27

Under Article 1732 of the Civil Code, common carriers are persons, corporations,
firms, or associations engaged in the business of carrying or transporting passenger
or goods, or both by land, water or air for compensation, offering their services to
the public. On the other hand, a private carrier is one wherein the carriage is
generally undertaken by special agreement and it does not hold itself out to carry
goods for the general public. 28 A common carrier becomes a private carrier when it
undertakes to carry a special cargo or chartered to a special person only. 29 For all
intents and purposes, therefore, Reputable operated as a private/special carrier
with regard to its contract of carriage with Wyeth.

On the second issue – Reputable is bound by the terms of the contract of carriage.

The extent of a private carrier’s obligation is dictated by the stipulations of a

contract it entered into, provided its stipulations, clauses, terms and conditions are
not contrary to law, morals, good customs, public order, or public policy. "The Civil
Code provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier. Public policy governing common carriers has
no force where the public at large is not involved."30

Thus, being a private carrier, the extent of Reputable’s liability is fully governed by
the stipulations of the contract of carriage, one of which is that it shall be liable to
Wyeth for the loss of the goods/products due to any and all causes whatsoever,
including theft, robbery and other force majeure while the goods/products are in
transit and until actual delivery to Wyeth’s customers, salesmen and dealers. 31

On the third issue – other insurance vis-à-vis over insurance.

Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to

Section 12 as a "modified ‘other insurance’ clause". 32 In rendering inapplicable said
provisions in the SR Policy, the CA ruled in this wise:

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

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

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

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

Malayan’s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance"
and "double insurance"), one akin to Condition No. 3 in issue in Geagonia v.
CA,35 which validity was upheld by the Court as a warranty that no other insurance
exists. The Court ruled that Condition No. 3 36 is a condition which is not proscribed
by law as its incorporation in the policy is allowed by Section 75 of the Insurance
Code. It was also the Court’s finding that unlike the other insurance clauses,
Condition No. 3 does not absolutely declare void any violation thereof but 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."

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

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More
particularly, it covers the situation where there is over insurance due to double
insurance. In such case, Section 15 provides that Malayan shall "not be liable to
pay or contribute more than its ratable proportion of such loss or damage." This is
in accord with the principle of contribution provided under Section 94(e) of the
Insurance Code,37 which states that "where the insured is over insured by double
insurance, each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is liable
under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance.
The pivotal question that now arises is whether there is double insurance in this
case such that either Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance

exists where the same person is insured by several insurers separately in respect to
the same subject and interest. The requisites in order for double insurance to arise
are as follows:38

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

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

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

The interest of Wyeth over the property subject matter of both insurance contracts
is also different and distinct from that of Reputable’s. The policy issued by
Philippines First was in consideration of the legal and/or equitable interest of Wyeth
over its own goods. On the other hand, what was issued by Malayan to Reputable
was over the latter’s insurable interest over the safety of the goods, which may
become the basis of the latter’s liability in case of loss or damage to the property
and falls within the contemplation of Section 15 of the Insurance Code. 39

Therefore, even though the two concerned insurance policies were issued over the
same goods and cover the same risk, there arises no double insurance since they
were issued to two different persons/entities having distinct insurable interests.
Necessarily, over insurance by double insurance cannot likewise exist. Hence, as
correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy
can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the
controversial provisions of the SR Policy against Malayan.1âwphi1 This is in keeping
with the rule that:

"Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the
insured and strictly against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to preclude the
insurer from noncompliance with its obligations." 40

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work
injustice to Reputable which, despite paying premiums for a P1,000,000.00
insurance coverage, would not be entitled to recover said amount for the simple
reason that the same property is covered by another insurance policy, a policy to
which it was not a party to and much less, from which it did not stand to benefit. x
x x41

On the fourth issue – Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law
so provides or when the nature of the obligation so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the Court ruled
that:

Where the insurance contract provides for indemnity against liability to third
persons, the liability of the insurer is direct and such third persons can directly sue
the insurer. The direct liability of the insurer under indemnity contracts against
third party[- ]liability does not mean, however, that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault, since they
are being held liable under different obligations. The liability of the insured carrier
or vehicle owner is based on tort, in accordance with the provisions of the Civil
Code; while that of the insurer arises from contract, particularly, the insurance
policy:43 (Citation omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from
different obligations- Malayan's is based on the SR Policy while Reputable's is based
on the contract of carriage.

All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated

February 29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in
CA-G.R. CV No. 71204 are hereby AFFIRMED.

Cost against petitioner Malayan Insurance Co., Inc.

SO ORDERED.
11. Filipino Merchants Insurance v. Court of Appeals

G.R. No. 85141, 28 November 1989, 179 SCRA 638

FACTS:

In 1976, private respondent insured its shipment with petitioner insurance company
for the sum of P267,653.59 for the goods described as 60 metric tons of fishmeal in
new gunny bags of 90 kilos each from Thailand to Manila against all risks under
warehouse to warehouse terms.
The fishmeal in 666 new gunny bags were unloaded from the ship at Manila unto
the arrastre contractor E. Razon, Inc. and defendant’s surveyor ascertained and
certified that 227 bags were in bad order condition as jointly surveyed by the ship’s
agent and the arrastre contractor.
Consequently, the private respondent made a formal claim against the petitioner
Filipino Merchants Insurance Company for P51,568.62. A formal claim statement
was also presented by the private respondent against the vessel, but the petitioner
Filipino Merchants Insurance Company refused to pay the claim.
Later, the court rendered judgment in favor of private respondent.
On appeal, the respondent court affirmed the decision of the lower court.
A motion for reconsideration of the aforesaid decision was denied, hence this
petition.

ISSUE:

Whether or not the insurer is liable under an “all risks” policy.

RULING:

Yes.
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. However, the SC ruled that the above contention is untenable.

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. 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.

12 & 13 for sec 17 & 18 G.R. No. 124520 August 18, 1997

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., petitioners,
vs.
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to
set aside a decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
contract with private respondent CKS Development Corporation (hereinafter CKS),
as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. . . . The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent
of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . .1

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses
insured against loss by fire the merchandise inside the leased premises for Five
Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter
United) without the written consent of private respondent CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased
premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without
its consent), it wrote the insurer (United) a demand letter asking that the proceeds
of the insurance contract (between the Cha spouses and United) be paid directly to
CKS, based on its lease contract with the Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha
spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a

decision * ordering therein defendant United to pay CKS the amount of
P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary
damages, P20,000.00 as attorney's fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a

decision ** dated 11 January 1996, affirming the trial court decision, deleting
however the awards for exemplary damages and attorney's fees. A motion for
reconsideration by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court
of Appeals:

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT

THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR
BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE

CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND
THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN
FAVOR OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF

AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID
POLICY IN CONTRAVENTION OF THE INSURANCE LAW

IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF

AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID
FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY
DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. 2

The core issue to be resolved in this case is whether or not the aforequoted
paragraph 18 of the lease contract entered into between CKS and the Cha spouses
is valid insofar as it provides that any fire insurance policy obtained by the lessee
(Cha spouses) over their merchandise inside the leased premises is deemed
assigned or transferred to the lessor (CKS) if said policy is obtained without the
prior written consent of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a
contract cannot be contrary to law, morals, good customs, public order or public
policy.3

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable

except for the benefit of some person having an insurable interest in the
property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-
spouses over their merchandise is primarily a contract of indemnity. Insurable
interest in the property insured must exist at the time the insurance takes effect
and at the time the loss occurs. 4 The basis of such requirement of insurable interest
in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and
collecting the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void under Section 25 of the
Insurance Code, which provides:

Sec. 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the
goods and merchandise inside the leased premises under the provisions of Section
17 of the Insurance Code which provide:

Sec. 17. The measure of an insurable interest in property is the extent to

which the insured might be damnified by loss of injury thereof.

Therefore, respondent CKS cannot, under the Insurance Code — a special law — be
validly a beneficiary of the fire insurance policy taken by the petitioner-spouses
over their merchandise. This insurable interest over said merchandise remains with
the insured, the Cha spouses. The automatic assignment of the policy to CKS under
the provision of the lease contract previously quoted is void for being contrary to
law and/or public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The
insurer (United) cannot be compelled to pay the proceeds of the fire insurance
policy to a person (CKS) who has no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that the
Cha spouses obtained a fire insurance policy over their own merchandise, without
the consent of CKS, is a separate and distinct issue which we do not resolve in this
case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET
ASIDE and a new decision is hereby entered, awarding the proceeds of the fire
insurance policy to petitioners Nilo Cha and Stella Uy-Cha.

SO ORDERED.

12 & 14 FACTS: Petitioner-spouses, as lessess, entered into a lease contract with

private respondent CKS Development Corporation (CKS), as lessor. One of the
stipulations of the one (1) year lease contract states:
18. x xx. The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the LESSOR. If
the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then
the policy is deemed assigned and transferred to the LESSOR for its own benefit; x
x x1chanroblesvirtuallawlibrary
Notwithstanding the above stipulation in the lease contract, the  spouses insured
against loss by fire their merchandise inside the leased premises for 500K with the
United Insurance Co., Inc. (United) without the written consent of private
respondents CKS.

On the day that the lease contract was to expire, fire broke out inside the leased
premises.
When CKS learned of the insurance earlier procured by the spouses (without its
consent), it wrote the United a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly to CKS,
based on its lease contract with Cha spouses.

United refused to pay CKS. Hence, the latter filed a complaint against the spouses
and United.

The RTC rendered a decision ordering United to pay CKS . the CA affirmed the trial
court decision. MR denied, hence this petition

ISSUE: WON the aforequoted paragraph 18 of the lease contract entered into

between CKS and the spouses is valid insofar as it provides that any fire insurance
policy obtained by the spouses is deemed assigned or transferred to the CKS if said
policy is obtained without the prior written of the latter.
HELD: NO; the provision is void, as against public policy
It is basic in the law on contracts that the stipulations contained in a contract
cannot be contrary to law, morals, good customs, public order or public policy.

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except

for the benefit of some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-
spouses over their merchandise is primarily a contract of indemnity. Insurable
interest in the property insured must exist at the time the insurance takes effect
and at the time the loss occurs. The basis of such requirement of insurable interest
in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and
collecting the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void under Section 25 of the
Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss,

whether the person insured has or has not any interest in the property insured, or
that the policy shall be received as proof of such interest, and every policy executed
by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the
goods and merchandise inside the leased premises under the provisions of Section
17 of the Insurance Code which provide.

Section 17. The measure of an insurable interest in property is the extent to which
the insured might be damnified by loss of injury thereof.”

United) cannot be compelled to pay the proceeds of the fire insurance policy to a
person (CKS) who has no insurable interest in the property insured

The liability of the spouses to CKS for violating their lease contract in that Cha
spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this
case.

ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the
stipulation
HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

 Sec. 18.  No contract or policy of insurance on property shall be enforceable

except for the benefit of some person having an insurable interest in the
property insured
 A non-life insurance policy such as the fire insurance policy taken by
petitioner-spouses over their merchandise is primarily a contract of indemnity. 
Insurable interest in the property insured must exist a t the time the insurance
takes effect and at the time the loss occurs.  The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent
a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the
property.  In such a case, the contract of insurance is a mere wager which is
void under Section 25 of the Insurance Code.
 SECTION 25.  Every stipulation in a policy of Insurance for the payment of
loss, whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and every
policy executed by way of gaming or wagering, is void
 Section 17.  The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof
 The automatic assignment of the policy to CKS under the provision of the
lease contract previously quoted is void for being contrary to law and/or public
policy.  The proceeds of the fire insurance policy thus rightfully belong to the
spouses.  The liability of the Cha spouses to CKS for violating their lease
contract in that Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct issue which
we do not resolve in this case.

14 sec 9 G.R. No. 183526               August 25, 2009

VIOLETA R. LALICAN, Petitioner,
vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY
THE PRESIDENT VICENTE R. AVILON, Respondent.

DECISION

CHICO-NAZARIO, J.:

Challenged in this Petition for Review on Certiorari 1 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 Reinstatement 9 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’sfavor, 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).

x xxx

The New Lexicon Webster’s Dictionary defines ambiguity as the "quality of having
more than one meaning" and "an idea, statement or expression capable of being
understood in more than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237
(1994), the Supreme Court stated that[:]

"Any ambiguity in a contract, whose terms are susceptible of different

interpretations as a result thereby, must be read and construed against the party
who drafted it on the assumption that it could have been avoided by the exercise of
a little care."

In the instant case, the dispute arises from the afore-quoted provisions written on
the face of the second application for reinstatement. Examining the said provisions,
the court finds the same clearly written in terms that are simple enough to admit of
only one interpretation. They are clearly not ambiguous, equivocal or uncertain that
would need further construction. The same are written on the very face of the
application just above the space where [Eulogio] signed his name. It is
inconceivable that he signed it without reading and understanding its
import.1avvphi1

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written
in simple and clear layman’s language, rendering it free from any ambiguity that
would require a legal interpretation or construction. Thus, the court believes that
[Eulogio] was well aware that when he filed the said application for reinstatement,
his lapsed policy was not automatically reinstated and that its approval was subject
to certain conditions. Nowhere in the policy or in the application for reinstatement
was it ever mentioned that the payment of premiums would have the effect of an
automatic and immediate renewal of the lapsed policy. Instead, what was clearly
stated in the application for reinstatement is that pending approval thereof, the
premiums paid would be treated as a "deposit only and shall not bind the company
until this application is finally approved during my/our" lifetime and good health[.]"

Again, the court finds nothing in the aforesaid provisions that would even suggest
an ambiguity either in the words used or in the manner they were written. [Violeta]
did not present any proof that [Eulogio] was not conversant with the English
language. Hence, his having personally signed the application for reinstatement[,]
which consisted only of one page, could only mean that he has read its contents
and that he understood them. x xx

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 Reconsideration 21 of the afore-
mentioned RTC Decision. Insular Life opposed 22 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 Order 23 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 Reply 24 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 xx [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 days 30 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.

13 Lalican vs The Insular Life Assurance Company Limited

G.R. No. 183526  August 25, 2009

Facts: 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, which contained a 20-Year Endowment
Variable Income Package Flexi Plan worth P500,000.00, with two riders valued at P
500,000.00 each. Thus, the value of the policy amounted to P1,500,000.00. Violeta
was named as the primary beneficiary. P 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.  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
Reinstatement of Policy No. 9011992, together with the amount of P 8,062.00 to
pay for the premium due on 24 January 1998. In a letter dated 17 July 1998,
Insular Life notified Eulogio that his Application for Reinstatement could not be fully
processed because, although he already deposited P8,062.00 as payment for the 24
January 1998 premium, he left unpaid the overdue interest thereon amounting to
P322.48. 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 Malaluans house and
submitted a second Application for Reinstatement of Policy No. 9011992, including
the amount of P17,500.00, 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 Eulogios 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.

Issue: Whether or not Eulogio had an existing insurable interest in his own life until
the day of his death in order to have the insurance policy validly reinstated.

Held: No. 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. The existence of an insurable interest gives
a person the legal right to insure the subject matter of the policy of insurance.
Section 10 of the Insurance Code indeed provides that every person has an
insurable interest in his own life. 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.

In the instant case, Eulogios 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 Eulogios
lifetime and good health.

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.

Malaluan did not have the authority to approve Eulogios Application for
Reinstatement. Malaluan still had to turn over to Insular Life Eulogios Application
for Reinstatement and accompanying deposits, for processing and approval by the
latter.

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.
14 sec 23 G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,

vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.

QUISUMBING, J.:

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 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. 4

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.1âwphi1.nêt

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:

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

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 xxxxxx

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
alteriusdetrimenio 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
MedardaLeuterio.

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.1âwphi1.nêt

SO ORDERED.
14 Great Pacific v CA G.R. No. 113899. October 13, 1999

Facts:

A contract of group life insurance was executed between petitioner Great Pacific
and Development Bank Grepalife agreed to insure the lives of eligible housing loan
mortgagors of DBP.

Wilfredo Leuterio, a physician and a housing debtor of DBP, applied for membership

in the group life insurance plan.  In an application form,
Dr.Leuterio answered questions concerning his health condition as follows:

“7.  Have you ever had, or consulted, a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment?

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

Grepalife issued a coverage to the value of P86,200.00 pesos.

Dr.Leuterio died due to “massive cerebral hemorrhage.” DBP submitted a death

claim to Grepalife.  Grepalife denied the claim alleging that Dr.Leuterio was not
physically healthy when he applied for an insurance coverage.  Grepalife insisted
that Dr.Leuterio did not disclose he had been suffering from hypertension, which
caused his death.  Allegedly, such non-disclosure constituted concealment that
justified the denial of the claim.

The widow, respondent Medarda V. Leuterio, filed against Grepalife.

The trial court rendered a decision in favor of respondent widow and against
Grepalife.  The Court of Appeals sustained the trial court’s decision. 

Issues:

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.

Held: No to all three. Petition dismissed.

Ratio:

1. 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.
The insured private respondent did not cede to the mortgagee all his rights or
interests in the insurance, the policy stating that:  “In the event of the debtor’s
death before his indebtedness with the Creditor [DBP] shall have been fully paid, an
amount to pay the outstanding indebtedness shall first be paid to the creditor and
the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor.” When DBP’s claim was denied, it collected the debt from
the mortgagor and took the necessary action of foreclosure on the residential lot of
private respondent.

Gonzales vs. Yek Tong Lin- Insured, being the person with whom the contract was
made, is primarily the proper person to bring suit thereon.  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. 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.

2. The medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent.  The medical certificate stated that
hypertension was “the possible cause of death.” Hence, the statement of the
physician was properly considered by the trial court as hearsay.

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.

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. 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.

3. A life insurance policy is a valued policy. Unless the interest of a person insured
is susceptible of exact pecuniary measurement, the measure of indemnity under a
policy of insurance upon life or health is the sum fixed in the policy. The mortgagor
paid the premium according to the coverage of his insurance.

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.

DBP foreclosed one of the deceased person’s lots to satisfy the mortgage. Hence,
the insurance proceeds shall inure to the benefit of the heirs of the deceased person
or his beneficiaries.