Petitioner Vs Vs Respondent Ramirez & Ortigas Ewald Huenefeld

SECOND DIVISION
[G.R. No. L-2294. May 25, 1951.]
FILIPINAS COMPAÑIA DE SEGUROS , petitioner, vs . CHRISTERN,

HUENEFELD & CO., INC. , respondent.
Ramirez & Ortigas for petitioner.

Ewald Huenefeld for respondent.
SYLLABUS
1. CORPORATIONS; NATIONALITY OF PRIVATE CORPORATION; CONTROL TEST.

— The nationality of a private corporation is determined by the character or citizenship
of its controlling stockholders.
2. ID.; ID.; ID.; INTERNATIONAL LAW; EFFECT OF WAR. — Where majority of the
stockholders of a corporation were German subjects, the corporation became an
enemy corporation upon the outbreak of the war between the United States and
Germany.
3. INSURANCE; TERMINATION OF POLICY OF PUBLIC ENEMY. — As the
Philippine Insurance Law (Act No. 2427, as amended), in its section 8, provides that
"anyone except a public enemy may be insured," an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.
4. ID.; ID.; RETURN OF PREMIUMS UPON TERMINATION OF POLICY BY REASON
OF WAR. — Where an insurance policy ceases to be effective by reason of war, which
has made the insured an enemy, the premiums paid for the period covered by the policy
from the date war is declared, should be returned.
DECISION
PARAS , C. J : p
On October 1, 1941, the respondent corporation, Christern, Huenefeld & Co., Inc.,
after payment of corresponding premium, obtained from the petitioner, Filipinas Cia. de
Seguros, re policy No. 29333 in the sum of P100,000, 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 salvaged goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was xed 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
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the laws of the Philippines) being controlled by 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 the 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 led 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
after the policy issued in 1941 in favor of the respondent corporation had 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 af rmed, 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 the nationality of a private corporation is
determined 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. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law.
Ed. Advance Opinions, No. 4, pp. 148-153, in which the control test has been adopted.
In "Enemy Corporations" 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 discussed in many countries, belligerent and neutral. A corporation was
subject to enemy legislation when it was controlled by enemies, namely managed
under the in uence of individuals or corporations themselves considered as
enemies. It was the English courts which rst in the Daimler case applied this new
concept of "piercing the corporate veil', which was adopted by the Peace Treaties
of 1919 and the Mixed Arbitral Tribunals 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 recognize 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 in uence 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 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 application 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 a large degree the determination of enemy interests 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 de nitely approved of the control theory. In Clark vs.
Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly
controlled by German interests, the Court said: '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
interests 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) 229, we already held that the 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 of receiving its protection; also, all acts
concerning the transmission of money or goods; and all contracts relating thereto
are thereby nulli ed. It further prohibits insurance upon trade with or by the
enemy, and 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 to 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
insurances 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 re policy, which grants insurance only from
year to year, or for some other speci ed 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 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. However, elementary
rules of justice (in the absence of speci c 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 receive 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 instructions of the Japanese Military
Administration, as may be seen from the following: "In view of the ndings and
conclusion of this of ce contained in its decision on Administrative Case dated
February 9, 1943 copy of which was sent to your of ce and the concurrence therein of
the Financial Department of the Japanese Military Administration, and following the
instructions 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." (Italics supplied.).
It results that the petitioner is entitled to recover what was paid to the
respondent under the circumstances of this case. However, the petitioner will be
entitled to recover only the equivalent, in actual Philippine 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 P77,208.39, 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.
Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ.,
concur.
Footnotes
* 80 Phil., 604.
SECOND DIVISION
[G.R. No. 156167. May 16, 2005.]
GULF RESORTS, INC. , petitioner, vs . PHILIPPINE CHARTER

INSURANCE CORPORATION , respondent.
DECISION
PUNO , J : p
Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of
Court by petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER
INSURANCE CORPORATION. Petitioner assails the appellate court decision 1 which
dismissed its two appeals and affirmed the judgment of the trial court.
For review are the warring interpretations of petitioner and respondent on the scope
of the insurance company's liability for earthquake damage to petitioner's properties.
Petitioner avers that, pursuant to its earthquake shock endorsement rider, Insurance Policy
No. 31944 covers all damages to the properties within its resort caused by earthquake.
Respondent contends that the rider limits its liability for loss to the two swimming pools
of petitioner.
The facts as established by the court a quo, and a rmed by the appellate court are
as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and
had its properties in said resort insured originally with the American Home
Assurance Company (AHAC-AIU). In the rst four insurance policies issued by
AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and
"F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of loss from earthquake
shock was extended only to plaintiff's two swimming pools, thus, "earthquake
shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming pools
only (Exhs. "C-1"; 'D-1", "E" and "F-1"). "Item 5" in those policies referred to the two
(2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequently
AHAC(AIU) issued in plaintiff's favor Policy No. 206-4182383-0 covering the
period March 14, 1988 to March 14, 1989 (Exhs. "G" also "G-1") and in said policy
the earthquake endorsement clause as indicated in Exhibits "C-1", "D-1", Exhibits
"E" and "F-1" was deleted and the entry under Endorsements/Warranties at the
time of issue read that plaintiff renewed its policy with AHAC (AIU) for the period
of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. "H")
which carried the entry under "Endorsement/Warranties at Time of Issue", which
read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the amount of
P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof,
computed as follows: EDCcaS
Item P7,691,000.00 — on the Clubhouse only

@ .392%;

1,500,000.00 — on the furniture, etc.
contained in the building
above-mentioned@ .490%;
393,000.00 — on the two swimming

pools, only (against the
peril of earthquake
shock only) @ 0.100%
116,600.00 — other buildings include

as follows:
a) Tilter House — P19,800.00-0.551%
b) Power House — P41,000.00-0.551%
c) House Shed — P55,000.00-0.540%

P100,000.00 for furniture, fixtures,
lines air-con and
operating equipment
that plaintiff agreed to insure with defendant the properties covered by

AHAC (AIU) Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording
and rates in said policy be copied in the policy to be issued by defendant; that
defendant issued Policy No. 31944 to plaintiff covering the period of March 14,
1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92
(Exh. "I"); that in the computation of the premium, defendant's Policy No. 31944
(Exh. "I"), which is the policy in question, contained on the right-hand upper
portion of page 7 thereof, the following:
Rate-Various
Premium — P37,420.60 F/L

2,061.52 - Typhoon
1,030.76 - EC
393.00 - ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;
that the above break-down of premiums shows that plaintiff paid only
P393.00 as premium against earthquake shock (ES); that in all the six insurance
policies (Exhs. "C", "D", "E", "F", "G" and "H"), the premium against the peril of
earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-
1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs.
"C", "D", "E", "F", "G" and "H") and in Policy No. 31944 issued by defendant, the
shock endorsement provide(sic):
In consideration of the payment by the insured to the company of
the sum included additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this policy due
to the contrary, that this insurance covers loss or damage to shock to any
of the property insured by this Policy occasioned by or through or in
consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and
"7-C"); cDCaTS
that in Exhibit "7-C" the word "included" above the underlined portion was
deleted; that on July 16, 1990 an earthquake struck Central Luzon and Northern
Luzon and plaintiff's properties covered by Policy No. 31944 issued by defendant,
including the two swimming pools in its Agoo Playa Resort were damaged. 2
After the earthquake, petitioner advised respondent that it would be making a claim
under its Insurance Policy No. 31944 for damages on its properties. Respondent
instructed petitioner to le a formal claim, then assigned the investigation of the claim to
an independent claims adjuster, Bayne Adjusters and Surveyors, Inc. 3 On July 30, 1990,
respondent, through its adjuster, requested petitioner to submit various documents in
support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its
Vice-President A.R. de Leon, 4 rendered a preliminary report 5 nding extensive damage
caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon
stated that "except for the swimming pools, all affected items have no coverage for
earthquake shocks." 6 On August 11, 1990, petitioner led its formal demand 7 for
settlement of the damage to all its properties in the Agoo Playa Resort. On August 23,
1990, respondent denied petitioner's claim on the ground that its insurance policy only
afforded earthquake shock coverage to the two swimming pools of the resort. 8 Petitioner
and respondent failed to arrive at a settlement. 9 Thus, on January 24, 1991, petitioner led
a complaint 1 0 with the regional trial court of Pasig praying for the payment of the
following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured
properties, with interest thereon, as computed under par. 29 of the policy
(Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained
by plaintiff on account of defendant's refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;

4.) The sum of P500,000.00 by way of attorney's fees and expenses of litigation;
5.) Costs. 1 1
Respondent led its Answer with Special and A rmative Defenses with Compulsory
Counterclaims. 1 2
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of
P393.00 against the peril of earthquake shock, the same premium it paid against
earthquake shock only on the two swimming pools in all the policies issued by
AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must
consequently agree with the position of defendant that the endorsement rider
(Exhibit "7-C") means that only the two swimming pools were insured against
earthquake shock. CSTHca

Plaintiff correctly points out that a policy of insurance is a contract of
adhesion hence, where the language used in an insurance contract or application
is such as to create ambiguity the same should be resolved against the party
responsible therefor, i.e., the insurance company which prepared the contract. To
the mind of [the] Court, the language used in the policy in litigation is clear and
unambiguous hence there is no need for interpretation or construction but only
application of the provisions therein.
From the above observations the Court nds that only the two (2)
swimming pools had earthquake shock coverage and were heavily damaged by
the earthquake which struck on July 16, 1990. Defendant having admitted that
the damage to the swimming pools was appraised by defendant's adjuster at
P386,000.00, defendant must, by virtue of the contract of insurance, pay plaintiff
said amount.
Because it is the nding of the Court as stated in the immediately

preceding paragraph that defendant is liable only for the damage caused to the
two (2) swimming pools and that defendant has made known to plaintiff its
willingness and readiness to settle said liability, there is no basis for the grant of
the other damages prayed for by plaintiff. As to the counterclaims of defendant,
the Court does not agree that the action led by plaintiff is baseless and highly
speculative since such action is a lawful exercise of the plaintiff's right to come to
Court in the honest belief that their Complaint is meritorious. The prayer, therefore,
of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs

the sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00)
representing damage to the two (2) swimming pools, with interest at 6% per
annum from the date of the ling of the Complaint until defendant's obligation to
plaintiff is fully paid.
No pronouncement as to costs. 1 3
Petitioner's Motion for Reconsideration was denied. Thus, petitioner led an appeal
with the Court of Appeals based on the following assigned errors: 1 4
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT
CAN ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER
ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE
CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE
ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY
16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT'S

RIGHT TO RECOVER UNDER DEFENDANT-APPELLEE'S POLICY (NO. 31944; EXH
"I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED
FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE
ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990. cHSIAC
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-

APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST
COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand, respondent led a partial appeal, assailing the lower court's
failure to award it attorney's fees and damages on its compulsory counterclaim.
After review, the appellate court a rmed the decision of the trial court and ruled,
thus:
However, after carefully perusing the documentary evidence of both
parties, We are not convinced that the last two (2) insurance contracts (Exhs. "G"
and "H"), which the plaintiff-appellant had with AHAC (AIU) and upon which the
subject insurance contract with Philippine Charter Insurance Corporation is said
to have been based and copied (Exh. "I"), covered an extended earthquake shock
insurance on all the insured properties.
xxx xxx xxx

We also nd that the Court a quo was correct in not granting the plaintiff-
appellant's prayer for the imposition of interest — 24% on the insurance claim and
6% on loss of income allegedly amounting to P4,280,000.00. Since the defendant-
appellant has expressed its willingness to pay the damage caused on the two (2)
swimming pools, as the Court a quo and this Court correctly found it to be liable
only, it then cannot be said that it was in default and therefore liable for interest.
Coming to the defendant-appellant's prayer for an attorney's fees, long-

standing is the rule that the award thereof is subject to the sound discretion of the
court. Thus, if such discretion is well-exercised, it will not be disturbed on appeal
(Castro et al. v. CA, et al ., G.R. No. 115838, July 18, 2002). Moreover, being the
award thereof an exception rather than a rule, it is necessary for the court to make
ndings of facts and law that would bring the case within the exception and
justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay
and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002).
Therefore, holding that the plaintiff-appellant's action is not baseless and highly
speculative, We find that the Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby
DISMISSED and judgment of the Trial Court hereby AFFIRMED in toto. No costs.
15
Petitioner filed the present petition raising the following issues: 1 6

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER
RESPONDENT'S INSURANCE POLICY NO. 31944, ONLY THE TWO (2)
SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE
SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER'S

PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE
CLAIMED, ATTORNEY'S FEES AND EXPENSES OF LITIGATION. SDHETI
Petitioner contends:
First, that the policy's earthquake shock endorsement clearly covers all of the
properties insured and not only the swimming pools. It used the words "any property
insured by this policy," and it should be interpreted as all inclusive.
Second, the unquali ed and unrestricted nature of the earthquake shock
endorsement is con rmed in the body of the insurance policy itself, which states that it is "
[s]ubject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt.,
Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term
Policies." 1 7
Third, that the quali cation referring to the two swimming pools had already been
deleted in the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent
omission when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over
the wording of the insurance policy, because the rider is the more deliberate expression of
the agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in
favor of petitioner and against respondent. It was respondent which caused the ambiguity
when it made the policy in issue.
Eighth, the quali cation of the endorsement limiting the earthquake shock
endorsement should be interpreted as a caveat on the standard re insurance policy, such
as to remove the two swimming pools from the coverage for the risk of re. It should not
be used to limit the respondent's liability for earthquake shock to the two swimming pools
only.
Ninth, there is no basis for the appellate court to hold that the additional premium
was not paid under the extended coverage. The premium for the earthquake shock
coverage was already included in the premium paid for the policy.
Tenth, the parties' contemporaneous and subsequent acts show that they intended
to extend earthquake shock coverage to all insured properties. When it secured an
insurance policy from respondent, petitioner told respondent that it wanted an exact
replica of its latest insurance policy from American Home Assurance Company (AHAC-
AIU), which covered all the resort's properties for earthquake shock damage and
respondent agreed. After the July 16, 1990 earthquake, respondent assured petitioner that
it was covered for earthquake shock. Respondent's insurance adjuster, Bayne Adjusters
and Surveyors, Inc., likewise requested petitioner to submit the necessary documents for
its building claims and other repair costs. Thus, under the doctrine of equitable estoppel, it
cannot deny that the insurance policy it issued to petitioner covered all of the properties
within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari under
Rule 45 of the Revised Rules of Court as its remedy, and there is no need for calibration of
the evidence in order to establish the facts upon which this petition is based. cDCSTA
On the other hand, respondent made the following counter arguments: 1 8

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly
extended coverage against earthquake shock to petitioner's insured properties other than
on the two swimming pools. Petitioner admitted that from 1984 to 1988, only the two
swimming pools were insured against earthquake shock. From 1988 until 1990, the
provisions in its policy were practically identical to its earlier policies, and there was no
increase in the premium paid. AHAC-AIU, in a letter 1 9 by its representative Manuel C.
Quijano, categorically stated that its previous policy, from which respondent's policy was
copied, covered only earthquake shock for the two swimming pools.
Second, petitioner's payment of additional premium in the amount of P393.00
shows that the policy only covered earthquake shock damage on the two swimming pools.
The amount was the same amount paid by petitioner for earthquake shock coverage on
the two swimming pools from 1990-1991. No additional premium was paid to warrant
coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the
earthquake shock coverage to all of petitioner's properties. As per its agreement with
petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner.
Although the first five policies contained the said qualification in their rider's title, in the last
two policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III,
stated that such deletion was a mere inadvertence. This inadvertence did not make the
policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title
was merely enumerated. Any ambiguity in the policy can be easily resolved by looking at
the other provisions, specially the enumeration of the items insured, where only the two
swimming pools were noted as covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through
1988, the phrase "Item 5 — P393,000.00 — on the two swimming pools only (against the
peril of earthquake shock only)" meant that only the swimming pools were insured for
earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990,
the only difference being the designation of the two swimming pools as "Item 3."
Fifth, in order for the earthquake shock endorsement to be effective, premiums
must be paid for all the properties covered. In all of its seven insurance policies, petitioner
only paid P393.00 as premium for coverage of the swimming pools against earthquake
shock. No other premium was paid for earthquake shock coverage on the other
properties. In addition, the use of the quali er "ANY" instead of "ALL" to describe the
property covered was done deliberately to enable the parties to specify the properties
included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its
properties must be included in the earthquake shock coverage. Petitioner's own evidence
shows that it only required respondent to follow the exact provisions of its previous policy
from AHAC-AIU. Respondent complied with this requirement. Respondent's only deviation
from the agreement was when it modi ed the provisions regarding the replacement cost
endorsement. With regard to the issue under litigation, the riders of the old policy and the
policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as would
estop it from maintaining that only the two swimming pools were covered for earthquake
shock. The adjuster's letter notifying petitioner to present certain documents for its
building claims and repair costs was given to petitioner before the adjuster knew the full
coverage of its policy. cDTSHE
Petitioner anchors its claims on AHAC-AIU's inadvertent deletion of the phrase "Item
5 Only" after the descriptive name or title of the Earthquake Shock Endorsement. However,
the words of the policy re ect the parties' clear intention to limit earthquake shock
coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It
did not object to any de ciency nor did it institute any action to reform the policy. The
policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorney's fees and
litigation expenses. Since respondent was willing and able to pay for the damage caused
on the two swimming pools, it cannot be considered to be in default, and therefore, it is not
liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of the
case at bar.
First, in the designation of location of risk, only the two swimming pools were
specified as included, viz:
ITEM 3 — 393,000.00 — On the two (2) swimming pools only (against the
peril of earthquake shock only) 2 0
Second, under the breakdown for premium payments, 2 1 it was stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx xxx xxx
3 393,000.00 0.100%-E/S 393.00 2 2
Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or
through or in consequence, directly or indirectly of any of the following
occurrences, namely: —
(a) Earthquake, volcanic eruption or other convulsion of nature. 2 3
Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To
Include the Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE
SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A
DISCOUNT OF 5% OR 7 1/2% OF THE NET PREMIUM . . . POLICY HEREBY
UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED . . .
AND TO PAY THE PREMIUM. CIAacS
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum
of P. . . . . . . . . . . . . . . . . additional premium the Company agrees, notwithstanding
what is stated in the printed conditions of this Policy to the contrary, that this
insurance covers loss or damage (including loss or damage by re) to any of the
property insured by this Policy occasioned by or through or in consequence of
Earthquake.
Provided always that all the conditions of this Policy shall apply (except in
so far as they may be hereby expressly varied) and that any reference therein to
loss or damage by re should be deemed to apply also to loss or damage
occasioned by or through or in consequence of Earthquake. 2 4
Petitioner contends that pursuant to this rider, no quali cations were placed on the
scope of the earthquake shock coverage. Thus, the policy extended earthquake shock
coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other. 2 5 All its parts are re ective of the true intent of
the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be
segregated and then made to control; neither do particular words or phrases necessarily
determine its character. Petitioner cannot focus on the earthquake shock endorsement to
the exclusion of the other provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend earthquake shock
coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear
intent of the parties to extend earthquake shock coverage only to the two swimming
pools. Section 2(1) of the Insurance Code de nes a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. Thus, an insurance contract exists
where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium .
2 6 (Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to

indemnify the insured against a specified peril. 2 7 In fire, casualty, and marine insurance, the
premium payable becomes a debt as soon as the risk attaches. 2 8 In the subject policy, no
premium payments were made with regard to earthquake shock coverage, except on the
two swimming pools. There is no mention of any premium payable for the other resort
properties with regard to earthquake shock. This is consistent with the history of
petitioner's previous insurance policies from AHAC-AIU. As borne out by petitioner's
witnesses: HCEaDI
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,

1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your
insurance policy during the period from March 4, 1984 to March 4, 1985
the coverage on earthquake shock was limited to the two swimming pools
only?
A. Yes, sir. It is limited to the two swimming pools, speci cally shown in the
warranty, there is a provision here that it was only for item 5.
Q. More speci cally Item 5 states the amount of P393,000.00 corresponding to

the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,
1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally
arrange for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?

A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are
concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of
course subject to your instruction, is that not correct?
A. Yes, sir. The nal action is still with us although they can recommend what
insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March
14, 1989, did you give written instruction to Forte Insurance Agency
advising it that the earthquake shock coverage must extend to all
properties of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral
instruction to that effect of extending the coverage on (sic) the other
properties of the company.
Q. And that instruction, according to you, was very important because in April
1987 there was an earthquake tremor in La Union?
A. Yes, sir. TcIHDa
Q. And you wanted to protect all your properties against similar tremors in the
[future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the
provisions with respect to your instructions that all properties must be
covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit "G"?
Atty. Mejia:
Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools
only, I was contented already that the previous limitation pertaining to the
two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to: Other
Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended
Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long Term
Policies" 2 9 to the insurance policy as proof of the intent of the parties to extend the
coverage for earthquake shock. However, this phrase is merely an enumeration of the
descriptive titles of the riders, clauses, warranties or endorsements to which the policy is
subject, as required under Section 50, paragraph 2 of the Insurance Code.
We also hold that no signi cance can be placed on the deletion of the quali cation
limiting the coverage to the two swimming pools. The earthquake shock endorsement
cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter for
AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III 3 0
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been

previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did
you have occasion to review of (sic) these six (6) policies issued by your
company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach ( sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to
you is, on the basis on (sic) the wordings indicated in Exhibits C to H
respectively what was the extent of the coverage [against] the peril of
earthquake shock as provided for in each of the six (6) policies? ADaSET
xxx xxx xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as
provided for in each of the six (6) policies extend to the two (2) swimming
pools only?
WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock

Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake
Shock Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone basis.

For swimming pools we do cover earthquake shock. For building we
covered it for full earthquake coverage which includes earthquake shock. . .
COURT:
As far as earthquake shock endorsement you do not have a speci c coverage for
other things other than swimming pool? You are covering building? They
are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building or
another we can issue earthquake shock solely but that the moment I see
this, the thing that comes to my mind is either insuring a swimming pool,
foundations, they are normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992
pp. 23-25
Q. Plaintiff's witness, Mr. Mantohac testi ed and he alleged that only Exhibits C,
D, E and F inclusive [remained] its coverage against earthquake shock to
two (2) swimming pools only but that Exhibits G and H respectively entend
the coverage against earthquake shock to all the properties indicated in the
respective schedules attached to said policies, what can you say about
that testimony of plaintiff's witness? aSADIC
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the
other half of it. I assure you that this one covers the two swimming pools
with respect to earthquake shock endorsement. Based on it, if we are going
to look at the premium there has been no change with respect to the rates.
Everytime (sic) there is a renewal if the intention of the insurer was to
include the earthquake shock, I think there is a substantial increase in the
premium. We are not only going to consider the two (2) swimming pools of
the other as stated in the policy. As I see, there is no increase in the amount
of the premium. I must say that the coverage was not broaden (sic) to
include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are
going to do some computation based on the rates you will arrive at the
same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III

TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire insurance?
WITNESS:
No, we don't, sir.

Q. That is why the phrase "earthquake shock to the two (2) swimming pools only"
was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which you
have pointed to during your direct-examination, the phrase "Item no. 5 only"
meaning to (sic) the two (2) swimming pools was deleted from the policies
issued by AIU, is it not?
xxx xxx xxx
ATTY. ANDRES:
As an insurance executive will you not attach any signi cance to the deletion of
the qualifying phrase for the policies? SaHcAC
WITNESS:
My answer to that would be, the deletion of that particular phrase is inadvertent.
Being a company underwriter, we do not cover. . it was inadvertent because
of the previous policies that we have issued with no speci c attachments,
premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioner's contention that respondent's contemporaneous

and subsequent acts to the issuance of the insurance policy falsely gave the petitioner
assurance that the coverage of the earthquake shock endorsement included all its
properties in the resort. Respondent only insured the properties as intended by the
petitioner. Petitioner's own witness testified to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly
did you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of
procuring the policy from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same
provisions as this American Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that
they will be charging will be limited to this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992

pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
provisions and scope of coverage of Exhibits "I" and "H" sometime in the
third week of March, 1990 or thereabout?
A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the
policy wordings as well as scope of coverage of Exhibits "I" and "H"
respectively? IHaECA
A. No, sir, I did not discover any difference inasmuch ( sic) as I was assured
already that the policy wordings and rates were copied from the insurance
policy I sent them but it was only when this case erupted that we
discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit "I" and those
indicated in Exhibit "H" respectively?
A. With regard to the wordings I did not notice any difference because it was
exactly the same P393,000.00 on the two (2) swimming pools only against
the peril of earthquake shock which I understood before that this provision
will have to be placed here because this particular provision under the peril
of earthquake shock only is requested because this is an insurance policy
and therefore cannot be insured against fire, so this has to be placed.
The verbal assurances allegedly given by respondent's representative Atty. Umlas

were not proved. Atty. Umlas categorically denied having given such assurances.

Finally, petitioner puts much stress on the letter of respondent's independent claims
adjuster, Bayne Adjusters and Surveyors, Inc. But as testi ed to by the representative of
Bayne Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe
that the endorsement for earthquake shock covered properties other than the two
swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and
Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the
extent of coverage of the policy issued by Philippine Charter Insurance
Corporation?
A. I remember that when I returned to the o ce after the inspection, I got a

photocopy of the insurance coverage policy and it was indicated under
Item 3 speci cally that the coverage is only for earthquake shock. Then, I
remember I had a talk with Atty. Umlas ( sic), and I relayed to him what I
had found out in the policy and he con rmed to me indeed only Item 3
which were the two swimming pools have coverage for earthquake shock.
xxx xxx xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that
except for the swimming pools all affected items have no coverage for
earthquake shock?
xxx xxx xxx

A. I based my statement on my ndings, because upon my examination of the
policy I found out that under Item 3 it was speci c on the wordings that on
the two swimming pools only, then enclosed in parenthesis (against the
peril[s] of earthquake shock only), and secondly, when I examined the
summary of premium payment only Item 3 which refers to the swimming
pools have a computation for premium payment for earthquake shock and
all the other items have no computation for payment of premiums. TAcDHS
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner
cannot rely on the general rule that insurance contracts are contracts of adhesion which
should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it. 3 1 A contract of adhesion is one wherein a party,
usually a corporation, prepares the stipulations in the contract, while the other party merely
a xes his signature or his "adhesion" thereto. Through the years, the courts have held that
in these type of contracts, the parties do not bargain on equal footing, the weaker party's
participation being reduced to the alternative to take it or leave it. Thus, these contracts
are viewed as traps for the weaker party whom the courts of justice must protect. 3 2
Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in
favor of the insured. 3 3
The case law will show that this Court will only rule out blind adherence to terms
where facts and circumstances will show that they are basically one-sided. 3 4 Thus, we
have called on lower courts to remain careful in scrutinizing the factual circumstances
behind each case to determine the e cacy of the claims of contending parties. In
Development Bank of the Philippines v. National Merchandising Corporation, et al ., 3 5 the
parties, who were acute businessmen of experience, were presumed to have assented to
the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar.
Petitioner cannot claim it did not know the provisions of the policy. From the inception of
the policy, petitioner had required the respondent to copy verbatim the provisions and
terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo
Mantohac, a direct participant in securing the insurance policy of petitioner, is re ective of
petitioner's knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC 3 6

TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas ( sic) what kind of policy you would want for
those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine
Charter Insurance Corporation as long as it will follow the same or exact
provisions of the previous insurance policy we had with American Home
Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you
wanted in the American Home Insurance policy are to be incorporated in
the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I

speci cally told him that the policy and wordings shall be copied from the
AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU
Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there
was variance in some terms, speci cally in the replacement cost endorsement, but the
principal provisions of the policy remained essentially similar to AHAC-AIU's policy.
Consequently, we cannot apply the " ne print" or "contract of adhesion" rule in this case as
the parties' intent to limit the coverage of the policy to the two swimming pools only is not
ambiguous. 3 7
IN VIEW WHEREOF, the judgment of the Court of Appeals is a rmed. The petition
for certiorari is dismissed. No costs. cIEHAC
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga and Chico-Nazario, JJ., concur.
Footnotes

1. The decision was penned by Justice Jose L. Sabio, Jr., of the 10th Division of the Court of
Appeals.
2. Rollo, pp. 10-12.

3. Original Records, p. 50.
4. Vice-President for the Fire, Engineering and Allied Claims Division.

5. Original Records, pp. 44-48.
7. Id., p. 49.
8. Id., p. 50.
9. Id., pp. 50-54.
10. Id., pp. 1-7.

11. Id., pp. 6-7.

14. CA Rollo, p. 42.
15. CA Rollo, pp. 184-186.

16. Rollo, p. 402.
17. Rollo, pp. 408-409.

18. Rollo, pp. 348-395.
19. Exhibit "9."


23. Rollo, p. 70.
25. Ruiz v. Sheriff of Manila , 34 SCRA 83 (1970); National Union Fire Insurance Company of
Pittsburg v. Stolt-Nielsen Philippines, Inc., 184 SCRA 682 (1990).
26. See Vance, pp. 1-2, cited in Agbayani, Commercial Laws of the Philippines, vol. 2, (1986), p.
6; Philamcare Health Systems, Inc. v. Court of Appeals, 379 SCRA 356 (2002).
27. 43 Am. Jur. 2d 878.

28. De Leon, Hector S., The Insurance Code of the Philippines (1992), p. 194.
29. Exhibits "I" and "I-2."

30. The underwriter for Phil-American Insurance Corporation (formerly AIU) who reviewed the
Agoo Playa Resort insurance policies.
31. Western Guaranty Corporation v. Court of Appeals , 187 SCRA 652 (1990); Verendia v. Court
of Appeals, 217 SCRA 417 (1993).
32. Philippine National Bank v. Court of Appeals, 196 SCRA 536 (1991).
33. Verendia v. Court of Appeals , 217 SCRA 417 (1993); New Life Enterprises v. Court of
Appeals, 207 SCRA 669 (1992); Sun Insurance O ce, Ltd. v. Court of Appeals , 211 SCRA
554 (1992).
34. Pan American World Airways, Inc. v. Rapadas , 209 SCRA 67 (1992); BPI Credit Corporation
v. Court of Appeals , 204 SCRA 601 (1991); Serra v. Court of Appeals , 229 SCRA 60
(1994).
35. 40 SCRA 624 (1971).
36. Testimony of the vice president for corporate affairs and corporate secretary of petitioner,
TSN, September 23, 1991.
37. Sweet Lines, Inc. v. Teves , 83 SCRA 361 (1978); Tan v. Court of Appeals , 174 SCRA 403
(1989).

FIRST DIVISION
[G.R. No. 154514. July 28, 2005.]
WHITE GOLD MARINE SERVICES, INC. , petitioner, vs . PIONEER

INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP
MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD. ,
respondents.
Marlito I. Villanueva Law Office for petitioner.

Borja Medialdea Bello Guevarra & Gerodias for respondent.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; WHAT CONSTITUTES "DOING AN
INSURANCE BUSINESS" OR "TRANSACTING AN 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,
speci cally 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 pro t 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.
2. ID.; ID.; TEST TO DETERMINE IF A CONTRACT IS AN INSURANCE CONTRACT
OR NOT. — 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.
3. ID.; ID.; AN INSURANCE CONTRACT; A CONTRACT OF INDEMNITY. —
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.
4. ID.; ID.; MUTUAL INSURANCE COMPANY; ELUCIDATED. — 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 pro ts
are divided among themselves, in proportion to their interest. Additionally, mutual
insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.
5. ID.; ID.; INSURANCE CONTRACT; REGULATION BY THE STATE IS NECESSARY.
— 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.
DECISION
QUISUMBING , J : p
This petition for review assails the Decision 1 dated July 30, 2002 of the Court of
Appeals in CA.-G.R. SP No. 60144, a rming the Decision 2 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 Certi cate 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 led a case against White Gold for collection of sum of
money to recover the latter's unpaid balance. White Gold on the other hand, led a
complaint before the Insurance Commission claiming that Steamship Mutual violated
Sections 186 4 and 187 5 of the Insurance Code, while Pioneer violated Sections 299, 6
300 7 and 301 8 in relation to Sections 302 and 303, thereof. STaCIA
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 a rmed 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 re ected in the certi cations issued by the Insurance
Commission. ECcTaS
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the de nition of a P & I Club in Hyopsung
Maritime Co., Ltd. v. Court of Appeals 1 0 as "an association composed of shipowners in
general who band together for the speci c 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. 1 1 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.
xxx xxx xxx
The same provision also provides, the fact that no pro t 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. 1 2
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. 1 3
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. 1 4
In particular, a marine insurance undertakes to indemnify the assured against marine
losses, such as the losses incident to a marine adventure. 1 5 Section 99 1 6 of the Insurance
Code enumerates the coverage of marine insurance. HEacDA
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 pro ts are divided among themselves, in proportion to their
interest. 1 7 Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs. 1 8
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." 1 9 By de nition 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 certi cate of authority mandated by Section 187 2 0 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. AEaSTC
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 1
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certi cate of
registration 2 2 issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certi cate of authority 2 3 issued by the same agency.
However, a Certi cation from the Commission states that Pioneer does not have a
separate license to be an agent/broker of Steamship Mutual. 2 4
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 rst
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 certi cate 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 a rming 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
Certi cate of Authority and removal of its directors and o cers, is DENIED. Costs against
respondents.
SO ORDERED.
Davide, Jr., C.J., Ynares-Santiago, Carpio and Azcuna, JJ., concur.
Footnotes
1. Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate
Justices Candido V. Rivera, and Sergio L. Pestaño concurring.
2. CA Rollo, pp. 43-51.
3. Id. at 103.
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.
xxx xxx xxx

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.
9. Rollo, pp. 144-145.
10. No. L-77369, 31 August 1988, 165 SCRA 258, 260.
11. Rollo, p. 176.
12. THE INSURANCE CODE OF THE PHILIPPINES, Section 2(2).
13. 43 AM JUR. 2d Insurance Sec. 4 (1982).
14. RUFUS B. RODRIGUEZ, THE INSURANCE CODE OF THE PHILIPPINES ANNOTATED 4
(4th ed., 1999), citing BUIST M. ANDERSON, VANCE ON INSURANCE 83 (3 rd ed., 1951).
15. EDUARDO F. HERNANDEZ AND ANTERO A. PEÑASALES, PHILIPPINE ADMIRALTY AND
MARITIME LAW 612 (1st ed., 1987).
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, transshipment, 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.
17. Supra, note 13 at Sec. 65.

18. HOWARD BENNETT, THE LAW OF MARINE INSURANCE 236 (1996).
19. Supra, note 15 at 733.
20. Supra, note 5.
21. Supra, note 12 at Sec. 187.
22. CA Rollo, p. 154.
23. Id. at 153.
24. Id, at 112. Certification issued by the Insurance Commission which certified that
Pioneer is not a registered broker for any foreign corporation.

SECOND DIVISION
[G.R. No. 113899. October 13, 1999.]
GREAT PACIFIC LIFE ASSURANCE CORP. , petitioner, vs . COURT OF

APPEALS AND MEDARDA V. LEUTERIO , respondents.
GA Fortun & Associates for petitioner.

Noel S. Beja for private respondent.
SYNOPSIS
This is a petition for review under Rule 45 of the Rules of Court, assailing the
decision and resolution of the Court of Appeals dated May 17, 1994 and January 4, 1994,
respectively, in CA G.R. CV No. 18341. The appellate court a rmed in toto the judgment of
the Regional Trial Court of Misamis Oriental in an insurance claim led by private
respondent against Great Pacific Life Assurance Co.
The Supreme Court found the petition not meritorious. Contrary to petitioner's
allegations, there was no su cient 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 petitioner had not proven nor produced
any witness who could attest to Dr. Leuterio's medical history. Clearly, it had failed to
establish that there was concealment made by the insured, hence it cannot refuse payment
of the claim.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; MORTGAGE REDEMPTION INSURANCE;

RATIONALE. — 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.
2. ID.; ID.; ID.; INSURED MAY BE REGARDED AS REAL PARTY IN INTEREST,
ALTHOUGH HE HAS ASSIGNED THE POLICY FOR PURPOSE OF COLLECTION, OR HAS
ASSIGNED AS COLLATERAL SECURITY ANY JUDGMENT HE MAY OBTAIN. — The insured
private respondent did not cede to the mortgagee all his rights or interests in the
CD Technologies Asia, Inc. 2018 cdasiaonline.com
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 rst be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the bene ciary/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. In Gonzales La O vs. Yek Tong Lin Fire & Marine
Ins. Co. 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 bene t 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
bene t of the mortgagee and is made payable to him, yet the mortgagor may sue thereon
in his own name, especially where the mortgagee's interest is less than the full amount
recoverable under the policy, . . . 'And in volume 33, page 82, of the same work, we read the
following: `Insured may be regarded as the real party in interest, although he has assigned
the policy for the purpose of collection, or has assigned as collateral security any
judgment he may obtain." And since a policy of insurance upon life or health may pass by
transfer, will or succession to any person, whether he has an insurable interest or not, and
such person may recover it whatever the insured might have recovered, the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
3. ID.; ID.; ID.; FRAUDULENT INTENT ON THE PART OF THE INSURED MUST BE
ESTABLISHED TO ENTITLE THE INSURER TO RESCIND THE CONTRACT. — 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 for any of the enumerated ailments, including
hypertension; when he died the attending physician had certi ed in the death certi cate
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 su cient 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 a rmative 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.
DECISION
QUISUMBING , J : p
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 a rmed in toto the judgment of the Misamis
Oriental Regional Trial Court, Branch 18, in an insurance claim led by private respondent
against Great Paci c Life Assurance Co. The dispositive portion of the trial court's
decision reads: cdphil
"WHEREFORE, judgment is rendered adjudging the defendant GREAT

PACIFIC LIFE ASSURANCE CORPORATION as insurer under its Group policy No. G-
1907, in relation to Certi cation 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: cdtai
A contract of group life insurance was executed between petitioner Great Paci c
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 cda
On November 15, 1983, Grepalife issued Certi cate No. B-18558, as insurance
coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to
eighty-six thousand, two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage."
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he
had been suffering from hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V.
Leuterio, led a complaint with the Regional Trial Court of Misamis Oriental, Branch 18,
against Grepalife for "Speci c Performance with Damages." 5 During the trial, Dr. Hernando
Mejia, who issued the death certi cate, was called to testify. Dr. Mejia's ndings, 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. cdtai
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. dctai
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
bene ciary in a group life insurance contract from a complaint led by the
widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not nding 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 a rmed 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. prcd
To resolve the issue, we must consider the insurable interest in mortgaged

properties and the parties to this type of contract. The rationale of a group insurance
policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a
device for the protection of both the mortgagee and the mortgagor. On the part of the
mortgagee, it has to enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment of the mortgage debt, thereby relieving
the heirs of the mortgagor from paying the obligation. 7 In a similar vein, ample protection
is given to the mortgagor under such a concept so that in the event of death; the mortgage
obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. 8 Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss payable to the mortgagee, the
insurance is on the mortgagor's interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply an appointee of the
insurance fund, such loss-payable clause does not make the mortgagee a party to the
contract. 9
Section 8 of the Insurance Code provides:
"Unless the policy provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who does not cease to be a
party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is
in the hands of the mortgagee, but any act which, under the contract of insurance,
is to be performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor." prcd
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 rst be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the bene ciary/ies designated by the debtor."
1 0 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. 1 1 I n Gonzales La O vs. Yek Tong Lin Fire &
Marine Ins. Co. 1 2 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 bene t 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 bene t 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." 1 3 Cdpr
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 ndings 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 con nement. 1 6 Dr.
Leuterio's death certi cate 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. cdtai
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 certi ed in the death certi cate 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 su cient proof that the
insured had suffered from hypertension. Aside from the statement of the
insured's widow who was not even sure if the medicines taken by Dr. Leuterio
were for hypertension, the appellant had not proven nor produced any witness
who could attest to Dr. Leuterio's medical history. . .
xxx xxx xxx
Appellant insurance company had failed to establish that there was
concealment made by the insured, hence, it cannot refuse payment of the claim."
17 prcd
The fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract. 1 8 Misrepresentation as a defense of the insurer to avoid
liability is an a rmative defense and the duty to establish such defense by satisfactory
and convincing evidence rests upon the insurer. 1 9 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 speci c performance should be dismissed. Petitioner's
claim is without merit. A life insurance policy is a valued policy. 2 0 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 xed in the policy. 2 1 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 bene t in the amount of P86,200.00
shall be paid. cda
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
rst be paid to the Creditor and the balance of the Sum Assured, if there is any
shall then be paid to the bene ciary/ies designated by the debtor." 2 2 (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 bene t of the heirs of the
deceased person or his bene ciaries. Equity dictates that DBP should not unjustly enrich
itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot
collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds
now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private
respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the
Court of Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner
is ORDERED to pay the insurance proceeds amounting to Eighty-six thousand, two hundred
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon
presentation of proof of prior settlement of mortgagor's indebtedness to Development
Bank of the Philippines. Costs against petitioner. LLjur
SO ORDERED.
Mendoza, Buena and De Leon Jr., JJ., concur.
Bellosillo, J., is on official leave.
Footnotes
1. Rollo, pp. 36-42.
2. Id. at 44.
3. Id. at 36.
4. Id. at 37.
5. Civil Case 10788.
6. Rollo, pp. 18-19.
7. Serrano vs. Court of Appeals, 130 SCRA 327, 335 (1984).
8. Ibid.
9. 43 Am Jur 2d, Insurance Section 766; citing Hill vs. International Indem. Co. 116 Kan 109,
225 P 1056, 38 ALR 362.
10. Rollo, p. 12.
11. Id. at 180.
12. 55 Phil. 386 (1930), citing Corpus Juris, volume 26 pages 483 et seq.
13. Id. at 391, citing Corpus Juris, volume 26 pages 483 at seq.
14. Section 181, Philippine Insurance Code.
15. Argente vs. West Coast Life Insurance Co., 51 Phil. 725, 731 (1928). Section 26,
Philippine Insurance Code. — A neglect to communicate that which a party knows and
ought to communicate is called a concealment.
16. Rollo, p. 40.
17. Id. at 39-40.
18. Ng Gan Zee vs. Asian Crusader Life Assurance Corp, 122 SCRA 461, 466 (1983)
19. Ibid.
20. Third Edition, Lohel A. Martirez, Philippine Insurance Code Annotated, p. 380, citing
Belvin vs. Connecticut Mutual Life Ins., 23 Comm. 244.
21. Section 183. Philippine Insurance Code.
22. Rollo, p. 12.

FIRST DIVISION
[G.R. No. 114427. February 6, 1995.]
ARMANDO GEAGONIA , petitioner, v s . COURT OF APPEALS and

COUNTRY BANKERS INSURANCE CORPORATION , respondents.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; "OTHER INSURANCE" CLAUSE AS A

CONDITION; ALLOWED TO PREVENT AN INCREASE IN THE MORAL HAZARD. — 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 ndings of fact by the Court of Appeals are
conclusive and binding upon this Court. 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 nor proscribed by law. Its incorporation in the policy is
allowed by Section 75 of the Insurance Code which provides that "[a] policy may declare
that a violation of speci ed 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 re insurance policies and is intended to prevent an increase in the
moral hazard. It is commonly known as the additional or "other insurance" clause and has
been upheld as valid and as a warranty that no other insurance exists. Its violation would
thus avoid the policy. However, in order to constitute a violation, the other insurance must
be upon the same subject matter, the same interest therein, and the same risk.
2. ID.; ID.; ID.; CONCEPT; GENERAL INSURANCE AND SURETY CORP. v. NG HUA
(106 PHIL. 1117); NOT APPLICABLE IN CASE AT BAR. — It must, however, be underscored
that unlike the "other insurance" clauses involved in General Insurance and Surety Corp. v.
Ng Hua (106 Phil. 1117 [1960]) or in Pioneer Insurance & Surety Corp. vs. Yap, (61 SCRA
426 [1974]) which read: "The insured shall give notice to the company of any insurance
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 bene ts under this Policy shall be forfeited." or in
the 1930 case of Santa Ana vs. Commercial Union Assurance Co. (55 Phil 329, 334 [1930])
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 damage is not more than P200,000.00."
3. ID.; ID.; CONTRACT THEREOF MUST BE LIBERALLY CONSTRUED. — 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 bene ts 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 nding a waiver for such
forfeiture. 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 bene ts they are inserted, and most favorably toward those against whom they are
intended to operate. The reason for this is that, except for riders which may later be
inserted, the insured sees the contract already in its nal 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.
4. ID.; ID.; INSURABLE INTEREST; EXTENT THEREOF BY MORTGAGEE AND
MORTGAGOR; RULE. — As to a mortgaged property, the mortgagor and the mortgagee
have each an independent insurable interest therein and both interests may be covered by
one policy, or each may take out a separate policy covering his interest, either at the same
or at separate times. 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. 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. Thus, separate insurances covering different insurable interests may be obtained
by the mortgagor and the mortgagee.
5. ID.; ID.; RULE WHEN A MORTGAGOR OBTAINED THEREOF FOR THE BENEFIT
OF THE MORTGAGEE. — A mortgagor may, however, take out insurance for the bene t of
the mortgagee, which is the usual practice. The mortgagee may be made the bene cial
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 bene t, in which case the
mortgagee acquires an equitable lien upon the proceeds. 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 bene ciary under the contract, and recognized as such by the
insurer but not made a party to the contract itself. Hence, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee. This kind of policy covers only
such interest as the mortgagee has at the issuing of the policy. 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. 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 a policy on the assurance that it insures him, the policy is in fact in the form
used to insure a mortgagor with loss payable clause.
6. ID.; ID.; DOUBLE INSURANCE; DOES NOT EXIST WHEN TWO (2) POLICIES DO
NOT COVER THE SAME INTEREST; CASE AT BAR. — 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 rst 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 to
P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale
behind the incorporation of "other insurance" clause in re policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a property owner obtains
insurance 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.
DECISION
DAVIDE, JR. , J : p
For 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 re 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." cdasia
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 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 bene ts
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." cdasia
On 27 May 1990, re 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 stocks-in-trade
were completely destroyed prompting him to le 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 re 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:
"MORTGAGEE: 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 led a complaint 5 against the private respondent with the
Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under re
insurance policy No. F-14622 and for attorney's fees and costs of litigation. He
attached as Annex "M" 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 re 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 so 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 speci cally 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 re 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
ndings were based on the petitioner's testimony that he came to know of the PFIC
policies only when he led 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: cdasia
"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 led until fully satis ed 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, 1 0 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, 1 1 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
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
insurances 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).'
It 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. 14622. . . .
Indeed private respondent's allegation of lack of knowledge of the previous
insurances is belied by his letter to petitioner [of 18 January 1991. The body of
the letter reads as follows:] cdasia
xxx xxx xxx
'Please be informed that I have no knowledge of the provision

requiring me to inform your o ce 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
did 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 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 re 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 ve months before the re, shows my merchandise inventory
was already some P595,455,75. . . . These will support my claim that the
amount under the three policies are much below the value of my stocks
lost.
xxx xxx xxx
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." cdasia
His motion to reconsider the adverse decision having been denied, the petitioner
led the instant petition. He contends therein that the Court of Appeals acted with
grave abuse of discretion amounting to lack of 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 rst and third grounds are (a) whether the
petitioner had prior knowledge of the two insurance policies issued by the PFIC when
he obtained the re 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. 3340 as Annex "M" thereof and made an integral part of the complaint. 1 2 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. 1 3
As to the rst 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 ndings of fact constitute an exception to the
general rule that in petitions for review under Rule 45, only questions of law are involved
and ndings 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. cdasia
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 1 5 which provides that "[a] policy may declare that a violation of
speci ed 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 re insurance policies and is intended to prevent an increase in the moral
hazard. It is commonly known as the additional or "other insurance" clause and has
been upheld as valid and as a warranty that no other insurance exists. Its violation
would thus avoid the policy. 1 6 However, in order to constitute a violation, the other
insurance must be upon the same subject matter, the same interest therein, and the
same risk. 1 7
As to a mortgaged property, the mortgagor and the mortgagee have each an
independent insurable interest therein and both interests may be covered by one policy,
or each may take out a separate policy covering his interest, either at the same or at
separate times. 1 8 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. 1 9 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 the amount of the debt, not exceeding the value of the
mortgaged property. 2 0 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 bene t of the mortgagee,
which is the usual practice. The mortgagee may be made the bene cial 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 bene t, in
which case the mortgagee acquires an equitable lien upon the proceeds. 2 1
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 bene ciary under the
contract, and recognized as such by the insurer but not made a party to the contract
itself. Hence, any act of the mortgagor which defeats his right will also defeat the right
of the mortgagee. 2 2 This kind of policy covers only such interest as the mortgagee has
at the issuing of the policy. 2 3
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. 2 4 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 a policy on the
assurance that it insures him, the policy is in fact in the form used to insure a
mortgagor with loss payable clause. 2 5
The re insurance policies issued by the PFIC name the petitioner as the assured
and contain a mortgage clause which reads: cdasia
"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as

their interest may appear subject to the terms of the 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 2 6 or in Pioneer Insurance &
Surety Corp. vs. Yap, 2 7 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. 2 8 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." cdasia
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 bene ts 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 nding a waiver for such forfeiture. 2 9 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 bene ts they are
inserted, and most favorably toward those against whom they are intended to operate.
3 0 The reason for this is that, except for riders which may later be inserted, the insured
sees the contract already in its nal 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. 3 1
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 rst 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. cdasia
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 re 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. 3 2
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.
Padilla, Bellosillo, Quiason and Kapunan, JJ ., concur.
Footnotes
1. Annex "A" of Petition; Rollo, 18-26. Per Associate Justice Vicente V. Mendoza, concurred
in by Associate Justices Jesus M. Elbinias and Lourdes K. Tayao-Jaguros.
2. Exhibit "1"; Original Records (OR) (CA-G.R. SP No. 31916), 34.
3. Exhibit "4"; Annex "C" of Petition; OR (CA-G.R. SP No. 31916), 27.
4. Exhibits "2" and "3"; Annexes "F" and "G", Id.; Id., 45-46.
5. Annex "E," Id.; Rollo, 38.

6. Annex "L," Id.; OR (CA-G.R. SP No. 31916), 66.
7. Annex "E" of Petition; Rollo, 43.
8. Annex "D," Id.; Id., 32.
9. Annex "G," Id.; Id., 47.
10. Annex "H" of Petition; Rollo, 52.

11. Annex "A," Id.; Id., 18.
12. It is specifically referred to in paragraph 7 of the complaint. Rollo, 40.
13. Philippine Bank of Communications vs. Court of Appeals, 195 SCRA 567 [1991].
14. Tolentino vs. De Jesus, 56 SCRA 167 [1974]; Remalante vs. Tibe, 158 SCRA 138 [1988].
15. P.D. No. 1460.
16. MARIA CLARA L. CAMPOS, Insurance 128 (1983 ed.) citing General Insurance & Surety
Corp. vs. Ng Hua, 106 Phil. 1117 [1960]; Pioneer Insurance & Surety Corp. vs. Yap, 61
SCRA 426 [1974]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47
SCRA 271 [1972].
17. Id., JOHN F. DOBBYN, Insurance Law in a Nutshell 204 (2d ed. 1989).
18. 3 COUCH on Insurance 2d § 24:68 (1960 ed.).
19. Id., § 24:69.
20. Id., § 24:72.
21. WILLIAM R. VANCE, Handbook on the Law on Insurance 773-774 (3d ed., 1951).
22. Id., 775.
23. COUCH, op. cit., § 24:72.
24. VANCE, op. cit., 775.
25. COUCH, op. cit., § 23:36.
26. Supra note 16.
27. Supra note 16.
28. 55 Phil. 329, 334 [1930].
29. 2 TEODORICO C. MARTIN, Commentaries and Jurisprudence on the Philippine
Commercial Laws 143 (1986 rev. ed.).
30. Trinidad vs. Orient Protective Assurance Association, 67 Phil. 181 [1939].
31. CAMPOS, op. cit., 12.
32. Pioneer Insurance and Surety Corp. vs. Yap, supra note 16.

SECOND DIVISION
[G.R. No. L-7667. November 28, 1955.]
CHERIE PALILEO , plaintiff-appellee, vs . BEATRIZ COSIO , defendant-

appellant.
Claro M. Recto for appellant.

Bengson, Villegas, Jr. & Villar for appellee.
SYLLABUS
1. PLEADING AND PRACTICE; JUDGMENT; SETTING ASIDE JUDGMENT ON

GROUND OF MISTAKE OR EXCUSABLE NEGLIGENCE IS DISCRETIONARY UPON
COURT; CASE AT BAR. — The granting of a motion to set aside a judgment or order on
the ground of mistake or excusable negligence is addressed to the sound discretion of
the court (See Combs vs. Santos, 24 Phil., 446; Daipan vs. Sigabu, 25 Phil., 184). And an
order issued in the exercise of such discretion is ordinarily not to be disturbed unless it
is shown that the court has abused such discretion. (See Tell vs. Tell, 48 Phil., 70;
Macke vs Camps, 5 Phil., 185; Calvo vs. De Gutierez, 4 Phil., 203; Manzanares vs.
Moreta, 38 Phil., 821; Sava vs. Palacio & Leuterio, 90 Phil., 731.) Where, as in the present
case, counsel for defendant was given almost one month notice before the sale date
set for trial, and upon counsel's failure to appear threat, the trial court received the
evidence of the plaintiff and granted the relief prayed for, the trial court did not abuse
its discretion in refusing to reopen the case to give defendant an opportunity to present
their evidence.
2. INSURANCE; WHERE MORTGAGED PROPERTY WAS INSURED BY
MORTGAGEE IN HIS OWN NAME; EFFECT OF. — Where a mortgagee, indecently of the
mortgagor, insures the mortgaged property in his own name and for his own interest,
he is entitled to the insurance proceeds in case of loss, but in such case , he is not
allowed to retain his claim against the mortgagor, but is passed by subrogation to the
insurer to the extent of the money paid. (Vance on Insurance, 2d ed., p. 654.)
DECISION
BAUTISTA ANGELO , J : p
Plaintiff led a complaint against defendant in the Court of First Instance of

Manila praying that (1) the transaction entered into between them on December 18,
1951 be declared as one of loan, and the document executed covering the transaction
as one of equitable mortgage to secure the payment of said loan; (2) the defendant be
ordered to credit to the plaintiff with the necessary amount from the sum received by
the defendant from the Associated Insurance & Surety Co., Inc. and to apply the same
to the payment of plaintiff's obligation thus considering it as fully paid; and (3) the
defendant be ordered to pay to plaintiff the difference between the alleged
indebtedness of plaintiff and the sum received by defendant from the aforementioned
insurance company, plus the sum allegedly paid to defendant as interest on the alleged
indebtedness.
On December 19, 1952, defendant led her answer setting up as special defense
that the transaction entered into between the plaintiff and defendant is one of sale with
option to repurchase but that the period for repurchase had expired without plaintiff
having returned the price agreed upon as a result of which the ownership of the
property had become consolidated in the defendant. Defendant also set up certain
counterclaims which involve a total amount of P4,900.
On April 7, 1953, the case was set for trial on the merits, but because of several
postponements asked by the parties, the same has to be set anew for trial on January
12, 1954. On this date, neither the defendant nor her counsel appeared, even if the latter
had been noti ed of the postponement almost a month earlier, and so the court
received the evidence of the plaintiff. On January 18, 1954, the court, having in view the
evidence presented, rendered judgment granting the relief prayed for in the complaint.
On February 2, 1954, the original counsel for the defendant was substituted and
the new counsel immediately moved that the judgment be set aside on the ground that,
due to mistake or excusable negligence, defendant was unable to present her evidence
and the decision was contrary to law, and this motion having been denied, defendant
took the present appeal.
The important issue to be determined in this appeal is whether the lower court
committed a grave abuse of discretion in not reopening the case to give defendant an
opportunity to present her evidence considering that the failure of her original counsel
to appear was due to mistake or excusable negligence which ordinary prudence could
not have guarded against.
The original counsel of defendant was Atty. Leon Ma. Guerrero. As early as
February 11, 1953, said counsel showed interest in the early disposal of this case by
moving the court to have it set for trial. The rst date set was April 7, 1953, but no
hearing was had on that date because plaintiff had moved to postpone it. The case was
next set for hearing on April 28, 1953, but on motion again of plaintiff, the hearing was
transferred to November 6, 1953. Then, upon petition of defendant, the trial had to be
moved to December 15, 1953, and because Atty. Guerrero could not appear on said
date because of a case he had in Cebu City, the hearing was postponed to January 18,
1954.
And on January 4, 1954, or nineteen days after receiving the notice of hearing,
Atty. Guerrero was appointed Undersecretary of Foreign Affairs. It is now contended
that the appointment was so sudden and unexpected that Atty. Guerrero, after taking
his oath, was unable to wind up his private cases or make any preparation at all. It is
averred that "The days that followed his appointment were very busy days for
defendant's former counsel. There was an immediate need for clearing the backlog of
o cial business, including the reorganization of the Department of Foreign Affairs and
our Foreign Service, and more importantly, he had to assist the Secretary of Foreign
Affairs in negotiations of national importance like the Japanese reparations, and the
revision of the trade agreement with the United States, that, Atty. Guerrero had to work
as much as fourteen hours daily . . . Because of all these unavoidable confusion that
followed in the wake of Atty. Guerrero's sudden and unexpected appointment, the trial
of this case scheduled for January 18, 1954 escaped his memory, and consequently,
Atty. Guerrero and the defendant were unable to appear when the case was called for
trial." These reasons, — it is intimated, — constitute excusable negligence which
ordinary prudence could not have guarded against and should have been considered by
the trial court as su cient justi cation to grant the petition of defendant for a
rehearing.
It is a well-settled rule that the granting of a motion to set aside a judgment or
order on the ground of mistake or excusable negligence is addressed to the sound
discretion of the court (See Coombs vs. Santos, 24 Phil., 446; Daipan vs. Sigabu, 25
Phil., 184). And an order issued in the exercise of such discretion is ordinarily not to be
disturbed unless it is shown that the court has gravely abused such discretion. (See Tell
vs. Tell, 48 Phil., 70; Macke vs. Camps, 5 Phil., 185; Calvo vs. De Gutierrez, 4 Phil., 203;
Manzanares vs. Moreta, 38 Phil., 821; Salva vs. Palacio and Leuterio, 90 Phil., 731.) In
denying the motion for reopening the trial court said: "After going over the same
arguments, this Court is of the opinion, and so holds that the decision of this Court of
January 18, 1954 should not be disturbed." Considering the stature, ability and
experience of counsel Leon Ma. Guerrero, and the fact that he was given almost one
month notice before the date set for trial, we are persuaded to conclude that the trial
court did not abuse its discretion in refusing to reconsider its decision.
Coming now to the merits of the case, we note that the lower court made the
following ndings: On December 18, 1951, plaintiff obtained from defendant a loan in
the sum of P12,000 subject to the following conditions: (a) that plaintiff shall pay to
defendant an interest in the amount of P250 a month; (b ) that defendant shall deduct
from the loan certain obligations of plaintiff to third persons amounting to P4,550, plus
the sum of P250 as interest for the rst month; and (c) that after making the above
deductions, defendant shall deliver to plaintiff only the balance of the loan of P12,000.
Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a
total of P2,250.00 corresponding to nine months from December 18, 1951, on the
basis of P250.00 a month, which is more than the maximum interest authorized by law.
To secure the payment of the aforesaid loan, defendant required plaintiff to sign a
document known as "Conditional Sale of Residential Building", purporting to convey to
defendant, with right to repurchase, a two-story building of strong materials belonging
to plaintiff. This document did not express the true intention of the parties which was
merely to place said property as security for the payment of the loan.
After the execution of the aforesaid document, defendant insured the building
against re with the Associated Insurance & Surety Co., Inc. for the sum of P15,000, the
insurance policy having been issued in the name of defendant. The building was partly
destroyed by re and, after proper demand, defendant collected from the insurance
company an indemnity of P13,107.00 Plaintiff demanded from defendant that she be
credited with the necessary amount to pay her obligation out of the insurance proceeds
but defendant refused to do so. And on the strength of these facts, the court rendered
decision the dispositive part of which reads as follows:
"Wherefore, judgment is hereby rendered declaring the transaction had
between plaintiff and defendant, as shown in Exhibit A, an equitable mortgage to
secure the payment of the sum of P12,000 loaned by the defendant to plaintiff;
ordering the defendant to credit the sum of P13,107 received by the defendant
from the Associated Insurance & Surety Co., Inc. to the payment of plaintiff's
obligation in the sum of P12,000.00 as stated in the complaint, thus considering
the agreement of December 18, 1951 between the herein plaintiff and defendant
completely paid and leaving still a balance in the sum of P1,107 from the
insurance collected by defendant; that as plaintiff had paid to the defendant the
sum of P2,250.00 for nine months as interest on the sum of P12,000 loaned to
plaintiff and the legal interest allowed by law in this transaction does not exceed
12 per cent per annum, or the sum of P1,440 for one year, so the herein plaintiff
and overpaid the sum of P810 to the defendant, which this Court hereby likewise
orders the said defendant to refund to herein plaintiff, plus the balance of P1,107
representing the difference of the sum loan of P12,000 and the collected
insurance of P13,107 from the insurance company above mentioned to which the
herein plaintiff is entitled to receive, and to pay the costs."
The question that now arises is: Is the trial court justi ed in considering the
obligation of plaintiff fully compensated by the insurance amount and in ordering
defendant to refund to plaintiff the sum of P1,107 representing the difference of the
loan of P12,000 and the sum of P13,107 collected by said defendant from the
insurance company notwithstanding the fact that it was not proven that the insurance
was taken for the benefit of the mortgagor?
It is our opinion that on this score the court is in error for its ruling runs counter
to the rule governing an insurance taken by a mortgagee independently of the
mortgagor. The rule is that "where a mortgagee, independently of the mortgagor,
insures the mortgaged property in his own name and for his own interest, he is entitled
to the insurance proceeds in case of loss, but in such case, he is not allowed to retain
his claim against the mortgagor, but is passed by subrogation to the insurer to the
extent of the money paid." (Vance on Insurance, 2d ed., p. 654) Or, stated in another
way, "the mortgagee may insure his interest in the property independently of the
mortgagor. In that event, upon the destruction of the property the insurance money
paid to the mortgagee will not inure to the bene t of the mortgagor, and the amount
due under the mortgage debt remains unchanged. The mortgagee, however, is not
allowed to retain his claim against the mortgagor, but it passes by subrogation to the
insurer, to the extent of the insurance money paid." (Vance on Insurance, 3rd ed., pp.
772-773) This is the same rule upheld by this Court in a case that arose in this
jurisdiction. In the case mentioned, an insurance contract was taken out by the
mortgagee upon his own interest, it being stipulated that the proceeds would be paid
to him only and when the case came up for decision, this Court held that the mortgagee,
in case of loss, may only recover upon the policy to the extent of his credit at the time
of the loss. It was declared that the mortgaged had no right of action against the
mortgagee on the policy. (San Miguel Brewery vs. Law Union, 40 Phil., 674.)
It is true that there are authorities which hold that "if a mortgagee procures
insurance on his separate interest at his own expense and for his own bene t, without
any agreement with the mortgagor with respect thereto, the mortgagor has no interest
in the policy, and is not entitled to have the insurance proceeds applied in reduction of
the mortgage debt" (19 R. C. L., p. 405), and that, furthermore, the mortgagee "has still a
right to recover his whole debt of the mortgagor." (King vs. State Mut. F. Ins. Co., 7
Cush. 1; Suffolk F. Ins. Co. vs. Boyden, 9 Allen, 123; See also Loomis vs. Eagle Life &
Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg. Co. vs. Weymouth & B. Mut. F.
Ins. Co., 135 Mass. 506; Foster vs. Equitable Mut. F. Ins. Co., 2 Gray 216.) But these
authorities merely represent the minority view (See case note, 3 Lawyers' Report
Annotated, new series, p. 79). "The general rule and the weight of authority is, that the
insurer is thereupon subrogated to the rights of the mortgagee under the mortgage.
This is put upon the analogy of the situation of the insurer to that of a surety." (Jones on
Mortgages, Vol. I, pp. 671-672.)
Considering the foregoing rules, it would appear that the lower court erred in
declaring that the proceeds of the insurance taken out by the defendant on the property
mortgaged inured to the bene t of the plaintiff and in ordering said defendant to deliver
to the plaintiff the difference between her indebtedness and the amount of insurance
received by the defendant, for, in the light of the majority rule we have above enunciated,
the correct solution should be that the proceeds of the insurance should be delivered to
the defendant but that her claim against the plaintiff should be considered assigned to
the insurance company who is deemed subrogated to the rights of the defendant to the
extent of the money paid as indemnity.
Consistent with the foregoing pronouncement, we therefore modify the judgment
of the lower court as follows: (1) the transaction had between the plaintiff and
defendant as shown in Exhibit A is merely an equitable mortgage intended to secure the
payment of the loan of P12,000; (2) that the proceeds of the insurance amounting to
P13,107.00 was properly collected by defendant who is not required to account for it
to the plaintiff; (3) that the collection of said insurance proceeds shall not be deemed
to have compensated the obligation of the plaintiff to the defendant, but bars the latter
from claiming its payment from the former; and (4) defendant shall pay to the plaintiff
the sum of P810.00 representing the overpayment made by plaintiff by way of interest
on the loan. No pronouncement as to costs.
Bengzon, Montemayor, Reyes, A., Jugo, Labrador, Concepcion and Reyes, J.B.L.,
JJ., concur.

Petitioner Vs Vs Respondent Ramirez & Ortigas Ewald Huenefeld

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SECOND DIVISION

[G.R. No. L-2294. May 25, 1951.]

FILIPINAS COMPAÑIA DE SEGUROS , petitioner, vs . CHRISTERN,

Ramirez & Ortigas for petitioner.

1. CORPORATIONS; NATIONALITY OF PRIVATE CORPORATION; CONTROL TEST.

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[G.R. No. 156167. May 16, 2005.]

GULF RESORTS, INC. , petitioner, vs . PHILIPPINE CHARTER

Item P7,691,000.00 — on the Clubhouse only

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393,000.00 — on the two swimming

116,600.00 — other buildings include

a) Tilter House — P19,800.00-0.551%

b) Power House — P41,000.00-0.551%

c) House Shed — P55,000.00-0.540%

that plaintiff agreed to insure with defendant the properties covered by

Premium — P37,420.60 F/L

Doc. Stamps 3,068.10

Prem. Tax 409.05

3.) The sum of P500,000.00, by way of exemplary damages;

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Because it is the nding of the Court as stated in the immediately

WHEREFORE, premises considered, defendant is ordered to pay plaintiffs

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT'S

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-

xxx xxx xxx

Coming to the defendant-appellant's prayer for an attorney's fees, long-

Petitioner filed the present petition raising the following issues: 1 6

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER'S

On the other hand, respondent made the following counter arguments: 1 8

xxx xxx xxx

3 393,000.00 0.100%-E/S 393.00 2 2

Third, Policy Condition No. 6 stated:

(a) Earthquake, volcanic eruption or other convulsion of nature. 2 3

An insurance premium is the consideration paid an insurer for undertaking to

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,

Q. More speci cally Item 5 states the amount of P393,000.00 corresponding to

Q. Is Forte Insurance Agency a department or division of your company?

TSN, August 11, 1992

We respectfully manifest that the same exhibits C to H inclusive have been

xxx xxx xxx

Because it says here in the policies, in the enumeration "Earthquake Shock

We do not normally cover earthquake shock endorsement on stand alone basis.

DIRECT EXAMINATION OF JUAN BARANDA III

They are the same, the premium rates?

CROSS-EXAMINATION OF JUAN BARANDA III

No, we don't, sir.

xxx xxx xxx

The Court also rejects petitioner's contention that respondent's contemporaneous

A. Yes, sir, to Exhibit "H".

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992

A. Yes, sir, about that time.

The verbal assurances allegedly given by respondent's representative Atty. Umlas

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A. I remember that when I returned to the o ce after the inspection, I got a

xxx xxx xxx

xxx xxx xxx

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC 3 6

A. When I examined the policy of the Philippine Charter Insurance Corporation I

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2. Rollo, pp. 10-12.

4. Vice-President for the Fire, Engineering and Allied Claims Division.

6. Original Records, p. 47.