I.

MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON. However, on December 11, 1989, the cargo was sold in Durban, South
COURT OF APPEALS and TKC MARKETING CORPORATION, respondents. Africa, for US$154.40 per metric ton or a total of P10,304,231.75 due to its
perishable nature which could no longer stand a voyage of twenty days to
DECISION Manila and another twenty days for the discharge thereof. On January 5,
1990, private respondent forthwith reduced its claim to US$448,806.09 (or
ROMERO, J.: its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per
$1.00) representing private respondent's loss after the proceeds of the sale
Assailed in this petition for review on certiorari is the decision of the Court
were deducted from the original claim of $916,886.66 or P20,184,159.55.
of Appeals in CA-G.R. No. 43023[1] which affirmed, with slight modification,
the decision of the Regional Trial Court of Cebu, Branch 15. Petitioner maintained its position that the arrest of the vessel by civil
authorities on a question of ownership was an excepted risk under the
Private respondent TKC Marketing Corp. was the owner/consignee of some
marine insurance policies. This prompted private respondent to file a
3,189.171 metric tons of soya bean meal which was loaded on board the
complaint for damages praying that aside from its claim, it be reimbursed
ship MV Al Kaziemah on or about September 8, 1989 for carriage from the
the amount of P128,770.88 as legal expenses and the interest it paid for
port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured
the loan it obtained to finance the shipment totalling P942,269.30. In
against the risk of loss by petitioner Malayan Insurance Corporation for
addition, private respondent asked for moral damages amounting
which it issued two (2) Marine Cargo Policy Nos. M/LP 97800305
to P200,000.00, exemplary damages amounting to P200,000.00 and
amounting to P18,986,902.45 and M/LP 97800306 amounting
attorney's fees equivalent to 30% of what will be awarded by the court.
to P1,195,005.45, both dated September 1989.
The lower court decided in favor of private respondent and required
While the vessel was docked in Durban, South Africa on September 11,
petitioner to pay, aside from the insurance claim, consequential and
1989 enroute to Manila, the civil authorities arrested and detained it
liquidated damages amounting to P1,024,233.88, exemplary damages
because of a lawsuit on a question of ownership and possession. As a
amounting to P100,000.00, reimbursement in the amount equivalent to
result, private respondent notified petitioner on October 4, 1989 of the
10% of whatever is recovered as attorney's fees as well as the costs of the
arrest of the vessel and made a formal claim for the amount of
suit. On private respondent's motion for reconsideration, petitioner was
US$916,886.66, representing the dollar equivalent on the policies, for non-
also required to further pay interest at the rate of 12% per annum on all
delivery of the cargo. Private respondent likewise sought the assistance of
amounts due and owing to the private respondent by virtue of the lower
petitioner on what to do with the cargo.
court decision counted from the inception of this case until the same is
Petitioner replied that the arrest of the vessel by civil authority was not a paid.
peril covered by the policies. Private respondent, accordingly, advised
On appeal, the Court of Appeals affirmed the decision of the lower court
petitioner that it might tranship the cargo and requested an extension of
stating that with the deletion of Clause 12 of the policies issued to private
the insurance coverage until actual transhipment, which extension was
respondent, the same became automatically covered under subsection 1.1
approved upon payment of additional premium. The insurance coverage
of Section 1 of the Institute War Clauses. The arrests, restraints or
was extended under the same terms and conditions embodied in the
detainments contemplated in the former clause were those effected by
original policies while in the process of making arrangements for the
political or executive acts. Losses occasioned by riot or ordinary judicial
transhipment of the cargo from Durban to Manila, covering the period
processes were not covered therein. In other words, arrest, restraint or
October 4-December 19, 1989.
detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules out
detention by ordinary legal processes. Hence, arrests by civil authorities,
such as what happened in the instant case, is an excepted risk under
Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However,
with the deletion of Clause 12 of the Institute Cargo Clause and the
consequent adoption or institution of the Institute War Clauses (Cargo),
the arrest and seizure by judicial processes which were excluded under the
former policy became one of the covered risks.
The appellate court added that the failure to deliver the consigned goods
in the port of destination is a loss compensable, not only under the
Institute War Clause but also under the Theft, Pilferage, and Non-delivery
Clause (TNPD) of the insurance policies, as read in relation to Section 130
of the Insurance Code and as held in Williams v. Cole.[2]
Furthermore, the appellate court contended that since the vessel was
prevented at an intermediate port from completing the voyage due to its
seizure by civil authorities, a peril insured against, the liability of petitioner
continued until the goods could have been transhipped. But due to the
perishable nature of the goods, it had to be promptly sold to minimize loss.
Accordingly, the sale of the goods being reasonable and justified, it should
not operate to discharge petitioner from its contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the
subject insurance policies.
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private
respondent's claim.
4. In giving undue reliance to the doctrine that insurance policies are
strictly construed against the insurer.
In assigning the first error, petitioner submits the following: (a) an arrest by
civil authority is not compensable since the term "arrest" refers to
"political or executive acts" and does not include a loss caused by riot or by
ordinary judicial process as in this case; (b) the deletion of the Free from
Capture or Seizure Clause would leave the assured covered solely for the
perils specified by the wording of the policy itself; (c) the rationale for the
exclusion of an arrest pursuant to judicial authorities is to eliminate
collusion between unscrupulous assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which
private respondent may have incurred was in the nature and form of
unrecovered acquisition value brought about by a voluntary sacrifice sale
and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim
was a result of its honest belief that the arrest of the vessel was not a
compensable risk under the policies issued. In fact, petitioner supported
private respondent by accommodating the latter's request for an extension
of the insurance coverage, notwithstanding that it was then under no legal
obligation to do so.
Private respondent, on the other hand, argued that when it appealed its
case to the Court of Appeals, petitioner did not raise as an issue the award
of exemplary damages. It cannot now, for the first time, raise the same
before this Court. Likewise, petitioner cannot submit for the first time on
appeal its argument that it was wrong for the Court of Appeals to have
ruled the way it did based on facts that would need inquiry into the
evidence. Even if inquiry into the facts were possible, such was not
necessary because the coverage as ruled upon by the Court of Appeals is
evident from the very terms of the policies.
It also argued that petitioner, being the sole author of the policies,
"arrests" should be strictly interpreted against it because the rule is that
any ambiguity is to be taken contra proferentum. Risk policies should be
construed reasonably and in a manner as to make effective the intentions
and expectations of the parties. It added that the policies clearly stipulate
that they cover the risks of non-delivery of an entire package and that it
was petitioner itself that invited and granted the extensions and collected
premiums thereon.
The resolution of this controversy hinges on the interpretation of the
"Perils" clause of the subject policies in relation to the excluded risks or
warranty specifically stated therein.
By way of a historical background, marine insurance developed as an all-
risk coverage, using the phrase "perils of the sea" to encompass the wide
and varied range of risks that were covered. [3] The subject policies contain
the "Perils" clause which is a standard form in any marine insurance policy.
Said clause reads:
"Touching the adventures which the said MALAYAN INSURANCE CO., are
content to bear, and to take upon them in this voyage; they are of the
Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters
of Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests, Restraints
and Detainments of all Kings, Princess and Peoples, of what Nation,
condition, or quality soever, Barratry of the Master and Mariners, and of all
other Perils, Losses, and Misfortunes, that have come to hurt, detriment,
or damage of the said goods and merchandise or any part thereof . AND in
case of any loss or misfortune it shall be lawful to the ASSURED, their
factors, servants and assigns, to sue, labour, and travel for, in and about
the defence, safeguards, and recovery of the said goods and merchandises,
and ship, & c., or any part thereof, without prejudice to this INSURANCE; to
the charges whereof the said COMPANY, will contribute according to the
rate and quantity of the sum herein INSURED. AND it is expressly declared
and agreed that no acts of the Insurer or Insured in recovering, saving, or
preserving the Property insured shall be considered as a Waiver, or
Acceptance of Abandonment. And it is agreed by the said COMPANY, that
this writing or Policy of INSURANCE shall be of as much Force and Effect as
the surest Writing or Policy of INSURANCE made in LONDON. And so the
said MALAYAN INSURANCE COMPANY, INC., are contented, and do hereby
promise and bind themselves, their Heirs, Executors, Goods and Chattel, to
the ASSURED, his or their Executors, Administrators, or Assigns, for the
true Performance of the Premises; confessing themselves paid the
Consideration due unto them for this INSURANCE at and after the rate
arranged." (Underscoring supplied)
The exception or limitation to the "Perils" clause and the "All other perils"
clause in the subject policies is specifically referred to as Clause 12 called
the "Free from Capture & Seizure Clause" or the F.C. & S. Clause which
reads, thus:
"Warranted free of capture, seizure, arrest, restraint or detainment, and
the consequences thereof or of any attempt thereat; also from the
consequences of hostilities and warlike operations, whether there be a
declaration of war or not; but this warranty shall not exclude collision,
contact with any fixed or floating object (other than a mine or torpedo),
stranding, heavy weather or fire unless caused directly (and independently
of the nature of the voyage or service which the vessel concerned or, in
the case of a collision, any other vessel involved therein is performing) by a
hostile act by or against a belligerent power and for the purpose of this
warranty 'power' includes any authorities maintaining naval, military or air
forces in association with power.
Further warranted free from the consequences of civil war, revolution,
insurrection, or civil strike arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current institute war clauses
shall be deemed to form part of this insurance." (Underscoring supplied)
However, the F. C. & S. Clause was deleted from the policies.
Consequently, the Institute War Clauses (Cargo) was deemed incorporated
which, in subsection 1.1 of Section 1, provides:
"1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by
the clause warranted free of capture, seizure, arrest, restraint or
detainment, and the consequences thereof of hostilities or warlike
operations, whether there be a declaration of war or not; but this warranty
shall not exclude collision, contact with any fixed or floating object (other
than a mine or torpedo), stranding, heavy weather or fire unless caused
directly (and independently of the nature on voyage or service which the
vessel concerned or, in the case of a collision any other vessel involved
therein is performing) by a hostile act by or against a belligerent power;
and for the purpose of this warranty 'power' includes any authority
maintaining naval, military or air forces in association with a power.
Further warranted free from the consequences of civil war, revolution,
rebellion, insurrection, or civil strike arising therefrom, or piracy."
According to petitioner, the automatic incorporation of subsection 1.1 of
section 1 of the Institute War Clauses (Cargo), among others, means that
any "capture, arrest, detention, etc." pertained exclusively to warlike
operations if this Court strictly construes the heading of the said Clauses.
However, it also claims that the parties intended to include arrests, etc.
even if it were not the result of hostilities or warlike operations. It further
claims that on the strength of jurisprudence on the matter, the term
"arrests" would only cover those arising from political or executive acts,
concluding that whether private respondent's claim is anchored on
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) or the F.C.
& S. Clause, the arrest of the vessel by judicial authorities is an excluded
risk.[4]
This Court cannot agree with petitioner's assertions, particularly when it
alleges that in the "Perils" Clause, it assumed the risk of arrest caused
solely by executive or political acts of the government of the seizing state
and thereby excludes "arrests" caused by ordinary legal processes, such as
in the instant case.
With the incorporation of subsection 1.1 of Section 1 of the Institute War
Clauses, however, this Court agrees with the Court of Appeals and the
private respondent that "arrest" caused by ordinary judicial process is
deemed included among the covered risks. This interpretation becomes
inevitable when subsection 1.1 of Section 1 of the Institute War Clauses
provided that "this insurance covers the risks excluded from the Standard
Form of English Marine Policy by the clause 'Warranted free of capture,
seizure, arrest, etc. x x x'" or the F.C. & S. Clause. Jurisprudentially,
"arrests" caused by ordinary judicial process is also a risk excluded from
the Standard Form of English Marine Policy by the F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by ordinary
judicial process is not included in the covered risk simply because the F.C.
& S. Clause under the Institute War Clauses can only be operative in case
of hostilities or warlike operations on account of its heading "Institute War
Clauses." This Court agrees with the Court of Appeals when it held that ". . .
Although the F.C. & S. Clause may have originally been inserted in marine
policies to protect against risks of war, (see generally G. Gilmore & C. Black,
The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation
in recent years to include seizure or detention by civil authorities seems
consistent with the general purposes of the clause, x x x"[5] In fact,
petitioner itself averred that subsection 1.1 of Section 1 of the Institute
War Clauses included "arrest" even if it were not a result of hostilities or
warlike operations.[6] In this regard, since what was also excluded in the
deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial
process, logically, such "arrest" would now become a covered risk under
subsection 1.1 of Section 1 of the Institute War Clauses, regardless of
whether or not said "arrest" by civil authorities occurred in a state of war.
Petitioner itself seems to be confused about the application of the F.C. & S.
Clause as well as that of subsection 1.1 of Section 1 of the Institute War
Clauses (Cargo). It stated that "the F.C. & S. Clause was "originally
incorporated in insurance policies to eliminate the risks of warlike
operations". It also averred that the F.C. & S. Clause applies even if there
be no war or warlike operations x x x"[7] In the same vein, it contended that
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo)
"pertained exclusively to warlike operations" and yet it also stated that
"the deletion of the F.C. & S. Clause and the consequent incorporation of
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to
include "arrest, etc. even if it were not a result of hostilities or warlike
operations."[8]
This Court cannot help the impression that petitioner is overly straining its
interpretation of the provisions of the policy in order to avoid being liable
for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it
only insures risks of "arrest" occasioned by executive or political acts of
government which is interpreted as not referring to those caused by
ordinary legal processes as contained in the "Perils" Clause; deletes the
F.C. & S. Clause which excludes risks of arrest occasioned by executive or
political acts of the government and naturally, also those caused by
ordinary legal processes; and, thereafter incorporates subsection 1.1 of
Section 1 of the Institute War Clauses which now includes in the coverage
risks of arrest due to executive or political acts of a government but then
still excludes "arrests" occasioned by ordinary legal processes when
subsection 1.1 of Section 1 of said Clauses should also have included therein should be resolved against the insurer; in other words, it should be
"arrests" previously excluded from the coverage of the F.C. & S. Clause. construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must
It has been held that a strained interpretation which is unnatural and be construed in such a way as to preclude the insurer from noncompliance
forced, as to lead to an absurd conclusion or to render the policy with its obligations.[19]
nonsensical, should, by all means, be avoided. [9] Likewise, it must be borne
in mind that such contracts are invariably prepared by the companies and In view of the foregoing, this Court sees no need to discuss the other issues
must be accepted by the insured in the form in which they are written. presented.
[10]
 Any construction of a marine policy rendering it void should be avoided.
[11]
 Such policies will, therefore, be construed strictly against the company WHEREFORE, the petition for review is DENIED and the decision of the
in order to avoid a forfeiture, unless no other result is possible from the Court of Appeals is AFFIRMED.
language used.[12]
SO ORDERED.
If a marine insurance company desires to limit or restrict the operation of
the general provisions of its contract by special proviso, exception, or
exemption, it should express such limitation in clear and unmistakable
language.[13] Obviously, the deletion of the F.C. & S. Clause and the
consequent incorporation of subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned
by ordinary judicial process was expressly indicated as an exception in the
subject policies, there would have been no controversy with respect to the
interpretation of the subject clauses.

Be that as it may, exceptions to the general coverage are construed most

strongly against the company.[14] Even an express exception in a policy is to
be construed against the underwriters by whom the policy is framed, and
for whose benefit the exception is introduced.[15]

An insurance contract should be so interpreted as to carry out the purpose

for which the parties entered into the contract which is, to insure against
risks of loss or damage to the goods. Such interpretation should result
from the natural and reasonable meaning of language in the policy.
[16]
 Where restrictive provisions are open to two interpretations, that which
is most favorable to the insured is adopted. [17]

Indemnity and liability insurance policies are construed in accordance with

the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. [18] A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
II. SIMEON DEL ROSARIO, plaintiff-appellee, vs. THE EQUITABLE
INSURANCE AND CASUALTY CO., INC., defendant-appellant.
PAREDES, J.:
On February 7, 1957, the defendant Equitable Insurance and Casualty Co.,
Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del
Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself
to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of
the insured. The pertinent provisions of the Policy, recite:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is effected solely through
violent, external, visible and accidental means, and which shall result,
independently of all other causes and within sixty (60) days from the
occurrence thereof, in the Death of the Insured, the Company shall pay the
amount set opposite such injury:
Section 1. Injury sustained other than those specified below
unless excepted hereinafter. . . . . . . .
Section 2. Injury sustained by the wrecking or disablement of a
railroad passenger car or street railway car in or on which the
Insured is travelling as a farepaying passenger. . . . . . . .
Section 3. Injury sustained by the burning of a church, theatre,
public library or municipal administration building while the Insured
is therein at the commencement of the fire. . . . . . . .
Section 4. Injury sustained by the wrecking or disablement of a
regular passenger elevator car in which the Insured is being
conveyed as a passenger (Elevator in mines excluded) P2,500.00
Part VI. Exceptions
This policy shall not cover disappearance of the Insured nor shall it cover
Death, Disability, Hospital fees, or Loss of Time, caused to the insured:
. . . (h) By drowning except as a consequence of the wrecking or
disablement in the Philippine waters of a passenger steam or motor vessel
in which the Insured is travelling as a farepaying passenger; . . . .
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h)
embodied in PART VI of the policy is hereby waived by the company, and
to form a part of the provision covered by the policy.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito
Bolero, while on board the motor launch "ISLAMA" together with 33
others, including his beneficiary in the Policy, Remedios Jayme, were
forced to jump off said launch on account of fire which broke out on said
P1,000.00
vessel, resulting in the death of drowning, of the insured and beneficiary in
the waters of Jolo. 1äwphï1.ñët
On April 13, 1957, Simeon del Rosario, father of the insured, and as the
P1,500.00 sole heir, filed a claim for payment with defendant company, and on
September 13, 1957, defendant company paid to him (plaintiff) the sum of
P1,000.00, pursuant to Section 1 of Part I of the policy. The receipt signed
by plaintiff reads —
P2,000.00 RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of
PESOS — ONE THOUSAND (P1,000.00) Philippine Currency, being
settlement in full for all claims and demands against said Company as a
result of an accident which occurred on February 26, 1957, insured under
out ACCIDENT Policy No. 7136, causing the death of the Assured.
In view of the foregoing, this policy is hereby surrendered and CANCELLED.
LOSS COMPUTATION
Amount of Insurance                 P1,000.00
__________
vvvvv
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote
defendant company acknowledging receipt by his client (plaintiff herein),
of the P1,000.00, but informing said company that said amount was not
the correct one. Atty. Francisco claimed —
The amount payable under the policy, I believe should be P1,500.00 under
the provision of Section 2, part 1 of the policy, based on the rule of  pari
materia as the death of the insured occurred under the circumstances
similar to that provided under the aforecited section.
Defendant company, upon receipt of the letter, referred the matter to the
Insurance Commissioner, who rendered an opinion that the liability of the
company was only P1,000.00, pursuant to Section 1, Part I of the Provisions
of the policy (Exh. F, or 3). Because of the above opinion, defendant
insurance company refused to pay more than P1,000.00. In the meantime,
Atty. Vicente Francisco, in a subsequent letter to the insurance company,
asked for P3,000.00 which the Company refused, to pay. Hence, a
complaint for the recovery of the balance of P2,000.00 more was instituted
with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for
it further sum of P10,000.00 as attorney's fees, expenses of litigation and
costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging
that the demand or claim is set forth in the complaint had already been
released, plaintiff having received the full amount due as appearing in
policy and as per opinion of the Insurance Commissioner. An opposition to
the motion to dismiss, was presented by plaintiff, and other pleadings
were subsequently file by the parties. On December 28, 1957, the trial
court deferred action on the motion to dismiss until termination of the trial
of the case, it appearing that the ground thereof was not indubitable. In
the Answer to the complaint, defendant company practically admitted all
the allegations therein, denying only those which stated that under the
policy its liability was P3,000.00.
On September 1, 1958, the trial court promulgated an Amended Decision,
the pertinent portions of which read —
xxx     xxx     xxx
Since the contemporaneous and subsequent acts of the parties show that
it was not their intention that the payment of P1,000.00 to the plaintiff and
the signing of the loss receipt exhibit "1" would be considered as releasing
the defendant completely from its liability on the policy in question, said
intention of the parties should prevail over the contents of the loss receipt
"1" (Articles 1370 and 1371, New Civil Code).
". . . . Under the terms of this policy, defendant company agreed to pay
P1,000.00 to P3,000.00 as indemnity for the death of the insured. The
insured died of drowning. Death by drowning is covered by the policy the
pertinent provisions of which reads as follows:
xxx     xxx     xxx
"Part I of the policy fixes specific amounts as indemnities in case of death
resulting from "bodily injury which is effected solely thru violence,
external, visible and accidental means" but, Part I of the Policy is not
applicable in case of death by drowning because death by drowning is not
one resulting from "bodily injury which is affected solely thru violent,
external, visible and accidental means" as "Bodily Injury" means a cut, a
bruise, or a wound and drowning is death due to suffocation and not to
any cut, bruise or wound."
xxx     xxx     xxx
Besides, on the face of the policy Exhibit "A" itself, death by drowning is a
ground for recovery apart from the bodily injury because death by bodily
injury is covered by Part I of the policy while death by drowning is covered
by Part VI thereof. But while the policy mentions specific amounts that
may be recovered for death for bodily injury, yet, there is not specific
amount mentioned in the policy for death thru drowning although the
latter is, under Part VI of the policy, a ground for recovery thereunder.
Since the defendant has bound itself to pay P1000.00 to P3,000.00 as
indemnity for the death of the insured but the policy does not positively
state any definite amount that may be recovered in case of death by
drowning, there is an ambiguity in this respect in the policy, which
ambiguity must be interpreted in favor of the insured and strictly against
the insurer so as to allow greater indemnity.
xxx     xxx     xxx
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had
already paid the amount of P1,000.00 to the plaintiff so that there still
remains a balance of P2,000.00 of the amount to which plaintiff is entitled
to recover under the policy Exhibit "A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and
expenses of litigation. However, since it is evident that the defendant had
not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot
award plaintiff's claim for attorney's fees and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside
its decision dated July 21, 1958 and hereby renders judgment, ordering the
defendant to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and
to pay the costs.
The above judgment was appealed to the Court of Appeals on three (3)
counts. Said Court, in a Resolution dated September 29, 1959, elevated the
case to this Court, stating that the genuine issue is purely legal in nature.
All the parties agree that indemnity has to be paid. The conflict centers on
how much should the indemnity be. We believe that under the proven
facts and circumstances, the findings and conclusions of the trial court, are
well taken, for they are supported by the generally accepted principles or
rulings on insurance, which enunciate that where there is an ambiguity
with respect to the terms and conditions of the policy, the same will be
resolved against the one responsible thereof. It should be recalled in this
connection, that generally, the insured, has little, if any, participation in the
preparation of the policy, together with the drafting of its terms and
Conditions. The interpretation of obscure stipulations in a contract should
not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in
the case at bar, is the insurance company.
. . . . And so it has been generally held that the "terms in an insurance
policy, which are ambiguous, equivocal or uncertain . . . are to be
construed strictly against, the insurer, and liberally in favor of the insured
so as to effect the dominant purpose of indemnity or payment to the
insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and
the reason for this rule is that the "insured usually has no voice in the
selection or arrangement of the words employed and that the language of
the contract is selected with great care and deliberation by expert and
legal advisers employed by, and acting exclusively in the interest of, the
insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al.,
G.R. No. L-8151, Dec. 16, 1955.
. . . . Where two interpretations, equally fair, of languages used in an
insurance policy may be made, that which allows the greater indemnity
will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So.
462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).
At any event, the policy under consideration, covers death or disability by
accidental means, and the appellant insurance company agreed to pay
P1,000.00 to P3,000.00. is indemnity for death of the insured.
In view of the conclusions reached, it would seem unnecessary to discuss
the other issues raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
III. FORTUNE INSURANCE AND SURETY CO., INC. vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review
on certiorari is whether the petitioner is liable under the Money, Security,
and Payroll Robbery policy it issued to the private respondent or whether
recovery thereunder is precluded under the general exceptions clause
thereof. Both the trial court and the Court of Appeals held that there
should be recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of
Makati, Metro Manila, by private respondent Producers Bank of the
Philippines (hereinafter Producers) against petitioner Fortune Insurance
and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the
sum of P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle while it was
in transit to transfer the money from its Pasay City Branch to its head office
in Makati. The case was docketed as Civil Case No. 1817 and assigned to
Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment
based on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance policy was
issued, the duplicate original of which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring cash
in the sum of P725,000.00 under the custody of its teller, Maribeth
Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas,
Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The
robbery took place while the armored car was traveling along Taft Avenue
in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de Vera,
escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was
assigned by PRC Management Systems with the plaintiff by virtue of an
Agreement executed on August 7, 1983, a duplicate original copy of which
is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc.
with the plaintiff by virtue of a contract of Security Service executed on
October 25, 1982, a duplicate original copy of which is hereto attached as
Exhibit "C";
5. After an investigation conducted by the Pasay police authorities, the
driver Magalong and guard Atiga were charged, together with Edelmer
Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D.
532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of
the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the aforesaid
persons with the said crime before Branch 112 of the Regional Trial Court
of Pasay City. A copy of the said information is hereto attached as Exhibit
"E." The case is still being tried as of this date;
7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as the loss
is excluded from the coverage of the insurance policy, attached hereto as
Exhibit "A," specifically under page 1 thereof, "General Exceptions" Section
(b), which is marked as Exhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
x x x           x x x          x x x
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction with
others. . . .
8. The plaintiff opposes the contention of the defendant and contends that
Atiga and Magalong are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers.
The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net amount of P540,000.00 as
liability under Policy No. 0207 (as mitigated by the P40,000.00 special
clause deduction and by the recovered sum of P145,000.00), with interest
thereon at the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for
attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to plaintiff. The
wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them.
Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such — in a context
which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver guard.
The finding is accordingly compelled that neither Magalong nor Atiga were
plaintiff's "employees" in avoidance of defendant's liability under the
policy, particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's
Pasay Branch to its Makati Head Office. Quite plainly — it was teller
Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the
case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994,
it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises
vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of
Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular
sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd.
vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation
is plain, ordinary and simple. No other interpretation is necessary. The
word "employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-
employee relationships insofar as the application/enforcement of said
Code is concerned must necessarily be inapplicable to an insurance
contract which defendant-appellant itself had formulated. Had it intended
to apply the Labor Code in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of
plaintiff-appellee bank because it has no power to hire or to dismiss said
driver and security guard under the contracts (Exhs. 8 and C) except only to
ask for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It
alleges that the trial court and the Court of Appeals erred in holding it
liable under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to its
head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver
to transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody
of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is
determined by law and being such, it cannot be the subject of agreement."
Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the
provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as
an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon
four standards: (1) the manner of selection and engagement of the
putative employee; (2) the mode of payment of wages; (3) the presence or
absence of a power to dismiss; and (4) the presence and absence of a
power to control the putative employee's conduct. Of the four, the right-
of-control test has been held to be the decisive factor. 6 It asserts that the
power of control over Magalong and Atiga was vested in and exercised by
Producers. Fortune further insists that PRC Management System and
Unicorn Security Services are but "labor-only" contractors under Article
106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-only" contracting
where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp. vs. NLRC 7 that
a finding that a contractor is a "labor-only" contractor is equivalent to a
finding that there is an employer-employee relationship between the
owner of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not
its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control
of their conduct. Producers argued that the rule in International Timber
Corp. is not applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a social
legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule
in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the
latter which assigned Magalong as the driver of Producers' armored car
and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of
P1,400.00 per driver to PRC Management Systems and not to Magalong, it
is clear that Magalong was not Producers' employee. As to Atiga,
Producers relies on the provision of its contract with Unicorn Security
Services which provides that the guards of the latter "are in no sense
employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and health
insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance
law. 9
It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the insured's
service and employment. 11 The purpose of the exception is to guard
against liability should the theft be committed by one having unrestricted
access to the property. 12 In such cases, the terms specifying the excluded
classes are to be given their meaning as understood in common
speech. 13 The terms "service" and "employment" are generally associated
with the idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity
therein should be resolved against the insurer, 15 or it should be construed
liberally in favor of the insured and strictly against the
insurer. 16 Limitations of liability should be regarded with extreme jealousy
and must be construed 
in such a way, as to preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the terms of the contract
are clear and unambiguous, there is no room for construction and such
terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the
policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
x x x           x x x          x x x
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction with
others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning
of the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to safely transfer the money to its head office, with Alampay to be
exclude and exempt from protection and coverage losses arising from responsible for its custody in transit; Magalong to drive the armored
dishonest, fraudulent, or criminal acts of persons granted or having vehicle which would carry the money; and Atiga to provide the needed
unrestricted access to Producers' money or payroll. When it used then the security for the money, the vehicle, and his two other companions. In
term "employee," it must have had in mind any person who qualifies as short, for these particular tasks, the three acted as agents of Producers. A
such as generally and universally understood, or jurisprudentially "representative" is defined as one who represents or stands in the place of
established in the light of the four standards in the determination of the another; one who represents others or another in a special capacity, as an
employer-employee relationship, 21 or as statutorily declared even in a agent, and is interchangeable with "agent." 23
limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of In view of the foregoing, Fortune is exempt from liability under the general
the party employing them and not of the party who supplied them to the exceptions clause of the insurance policy.
employer. 22
WHEREFORE , the instant petition is hereby GRANTED. The decision of the
Fortune claims that Producers' contracts with PRC Management Systems Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that
and Unicorn Security Services are "labor-only" contracts. of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817
are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
Producers, however, insists that by the express terms thereof, it is not the DISMISSED.
employer of Magalong. Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security Services that the drivers and No pronouncement as to costs.
the security guards each shall supply to Producers are not the latter's
employees, it may, in fact, be that it is because the contracts are, indeed, SO ORDERED.
"labor-only" contracts. Whether they are is, in the light of the criteria
provided for in Article 106 of the Labor Code, a question of fact. Since the
parties opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance policy, the
contracts with PRC Management Systems and Unicorn Security Services,
the complaint for violation of P.D. No. 532, and the information therefor
filed by the City Fiscal of Pasay City, there is a paucity of evidence as to
whether the contracts between Producers and PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn
Security Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's money
from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to
IV. Verendia vs CA
The two consolidated cases involved herein stemmed from the issuance
by Fidelity and Surety Insurance Company of the Philippines (Fidelity for
short) of its Fire Insurance Policy No. F-18876 effective between June 23,
1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential
building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the
amount of P385,000.00. Designated as beneficiary was the Monte de
Piedad & Savings Bank. Verendia also insured the same building with two
other companies, namely, The Country Bankers Insurance for P56,000.00
under Policy No. PDB-80-1913 expiring on May 12, 1981, and The
Development Insurance for P400,000.00 under Policy No. F-48867
expiring on June 30, 198l.
While the three fire insurance policies were in force, the insured property
was completely destroyed by fire on the early morning of December 28,
1980. Fidelity was accordingly informed of the loss and despite demands,
refused payment under its policy, thus prompting Verendia to file a
complaint with the then Court of First Instance of Quezon City, praying
for payment of P385,000.00, legal interest thereon, plus attorney's fees
and litigation expenses. The complaint was later amended to include
Monte de Piedad as an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the
policy was avoided by reason of over-insurance; that Verendia
maliciously represented that the building at the time of the fire was
leased under a contract executed on June 25, 1980 to a certain Roberto
Garcia, when actually it was a Marcelo Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo
A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses set up by
Fidelity, the trial court ruled that Paragraph 3 of the policy was also
violated by Verendia in that the insured failed to inform Fidelity of his
other insurance coverages with Country Bankers Insurance and
Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a
decision promulgated on March 31, 1986, (CA-G.R. No. CV No. 02895,
Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court
reversed for the following reasons: (a) there was no misrepresentation
concerning the lease for the contract was signed by Marcelo Garcia in the
name of Roberto Garcia; and (b) Paragraph 3 of the policy contract
requiring Verendia to give notice to Fidelity of other contracts of
insurance was waived by Fidelity as shown by its conduct in attempting
to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986,
but instead of directly filing a motion for reconsideration within 15 days
therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3
days within which to file a motion for reconsideration. The motion for
extension was not filed on April 19, 1986 which was the 15th day after
receipt of the decision because said 15th day was a Saturday and of
course, the following day was a Sunday (p. 14., Rollo  of G.R. No. 75605).
The motion for extension was granted by the appellate court on April 30,
1986 (p. 15. ibid.), but Fidelity had in the meantime filed its motion for
reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for
reconsideration on the ground that the motion for extension was filed
out of time because the 15th day from receipt of the decision which fell
on a Saturday was ignored by Fidelity, for indeed, so Verendia
contended, the Intermediate Appellate Court has personnel receiving
pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and
after a motion for reconsideration was similarly brushed aside on July 22,
1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605 was
initiated. Subsequently, or more specifically on October 21, 1986, the
appellate court denied Fidelity's motion for reconsideration and account
thereof. Fidelity filed on March 31, 1986, the petition for review
on certiorari now docketed as G.R. No. 76399. The two petitions, inter-
related as they are, were consolidated
(p. 54, Rollo  of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which
is the petition for review on certiorari, we must first determine whether
the decision of the appellate court may still be reviewed, or whether the
same is beyond further judicial scrutiny. Stated otherwise, before
anything else, inquiry must be made into the issue of whether Fidelity
could have legally asked for an extension of the 15-day reglementary
period for appealing or for moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already pronounced
the doctrine that the pendency of a motion for extension of time to
perfect an appeal does not suspend the running of the period sought to
be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]). To the same
effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160
[1948]) Bello vs. Fernando  (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA
1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not
expressly prohibit the filing of a motion for extension of time to file a
motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply divided
opinions on whether the period for appealing which also includes the
period for moving to reconsider may be extended. The matter was not
definitely settled until this Court issued its Resolution in Habaluyas
Enterprises, Inc. vs. Japson (142 SCRA [1986]), declaring that beginning
one month from the promulgation of the resolution on May 30, 1986 —
. . . the rule shall be strictly enforced that no motion for extension of time
to file a motion for new trial or reconsideration shall be filed . . . (at p.
212.)
In the instant case, the motion for extension was filed and granted before
June 30, 1986, although, of course, Verendia's motion to expunge the
motion for reconsideration was not finally disposed until July 22, 1986, or
after the dictum in Habaluyas had taken effect. Seemingly, therefore, the
filing of the motion for extension came before its formal proscription
under Habaluyas, for which reason we now turn our attention to G.R. No.
76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a)
whether or not the contract of lease submitted by Verendia to support
his claim on the fire insurance policy constitutes a false declaration which
would forfeit his benefits under Section 13 of the policy and (b) whether
or not, in submitting the subrogation receipt in evidence, Fidelity had in
effect agreed to settle Verendia's claim in the amount stated in said
receipt.1
Verging on the factual, the issue of the veracity or falsity of the lease
contract could have been better resolved by the appellate court for, in a
petition for review on certiorari  under Rule 45, the jurisdiction of this
Court is limited to the review of errors of law. The appellate court's
findings of fact are, therefore, conclusive upon this Court except in the
following cases: (1) when the conclusion is a finding grounded entirely on
speculation, surmises, or conjectures; (2) when the inference made is
manifestly absurd, mistaken, or impossible; (3) when there is grave abuse
of discretion in the appreciation of facts; (4) when the judgment is
premised on a misapprehension of facts; (5) when the findings of fact are
conflicting; and (6) when the Court of Appeals in making its findings went
beyond the issues of the case and the same are contrary to the admissions
of both appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA
433 [1991]). In view of the conflicting findings of the trial court and the
appellate court on important issues in these consolidated cases and it
appearing that the appellate court judgment is based on a
misapprehension of facts, this Court shall review the evidence on record.
The contract of lease upon which Verendia relies to support his claim for
insurance benefits, was entered into between him and one Robert Garcia,
married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days
after the effectivity of the insurance policy. When the rented residential
building was razed to the ground on December 28, 1980, it appears that
Robert Garcia (or Roberto Garcia) was still within the premises. However,
according to the investigation report prepared by Pat. Eleuterio M.
Buenviaje of the Antipolo police, the building appeared to have "no
occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic)
portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated
testimony that Marcelo Garcia, whom he considered as the real lessee,
was occupying the building when it was burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9, 1981
that an adjuster was able to locate him. Robert Garcia then executed an
affidavit before the National Intelligence and Security Authority (NISA) to
the effect that he was not the lessee of Verendia's house and that his
signature on the contract of lease was a complete forgery. Thus, on the
strength of these facts, the adjuster submitted a report dated December 4,
1981 recommending the denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert Garcia
who signed the lease contract. According to Verendia, it was signed by
Marcelo Garcia, cousin of Robert, who had been paying the rentals all the
while. Verendia, however, failed to explain why Marcelo had to sign his
cousin's name when he in fact was paying for the rent and why he
(Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions
on these proven facts appear, therefore, to have sufficient bases; Verendia
concocted the lease contract to deflect responsibility for the fire towards
an alleged "lessee", inflated the value of the property by the alleged
monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had
assessed the property's fair market value to be only P40,300.00, insured
the same property with two other insurance companies for a total
coverage of around P900,000, and created a dead-end for the adjuster by
the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between
the parties (Pacific Banking Corporation vs. Court of Appeals 168 SCRA 1
[1988]). Its terms and conditions constitute the measure of the insurer's
liability and compliance therewith is a condition precedent to the insured's
right to recovery from the insurer (Oriental Assurance Corporation vs.
Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros,
Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of
adhesion, an insurance contract should be liberally construed in favor of
the insured and strictly against the insurer company which usually
prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA
652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that
Verendia used a false lease contract to support his claim under Fire
Insurance Policy No. F-18876, the terms of the policy should be strictly
construed against the insured. Verendia failed to live by the terms of the
policy, specifically Section 13 thereof which is expressed in terms that are
clear and unambiguous, that all benefits under the policy shall be forfeited
"If the claim be in any respect fraudulent, or if any false declaration be
made or used in support thereof, or if any fraudulent means or devises are
used by the Insured or anyone acting in his behalf to obtain any benefit
under the policy". Verendia, having presented a false declaration to
support his claim for benefits in the form of a fraudulent lease contract, he
forfeited all benefits therein by virtue of Section 13 of the policy in the
absence of proof that Fidelity waived such provision (Pacific Banking
Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false
lease contract, Verendia, reprehensibly disregarded the principle that
insurance contracts are uberrimae fidae and demand the most abundant
good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation
receipt as evidence in court, Fidelity bound itself to a "mutual agreement"
to settle Verendia's claims in consideration of the amount of P142,685.77.
While the said receipt appears to have been a filled-up form of Fidelity, no
representative of Fidelity had signed it. It is even incomplete as the blank
spaces for a witness and his address are not filled up. More significantly,
the same receipt states that Verendia had received the aforesaid amount.
However, that Verendia had not received the amount stated therein, is
proven by the fact that Verendia himself filed the complaint for the full
amount of P385,000.00 stated in the policy. It might be that there had
been efforts to settle Verendia's claims, but surely, the subrogation receipt
by itself does not prove that a settlement had been arrived at and
enforced. Thus, to interpret Fidelity's presentation of the subrogation
receipt in evidence as indicative of its accession to its "terms" is not only
wanting in rational basis but would be substituting the will of the Court for
that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in
G.R. No. 76399 is GRANTED and the decision of the then Intermediate
Appellate Court under review is REVERSED and SET ASIDE and that of the
trial court is hereby REINSTATED and UPHELD.
SO ORDERED.
V. New Life Enterprises vs CA
This appeal by certiorari seeks the nullification of  the
decision  1 of respondent Court of Appeals in CA-G.R. CV No. 13866 which
reversed the decision of the Regional Trial Court, Branch LVII at
Lucena  City, jointly  deciding Civil Cases Nos. 6-84, 7-84 and 8-84 thereof
and consequently ordered the dismissal of the aforesaid actions filed by
herein petitioners.
The undisputed background of this case as found by  the court a quo  and
adopted by respondent court, being sustained by the evidence on record,
we hereby reproduce the same with approval. 2
The antecedents of this case show  that Julian Sy  and Jose Sy Bang have
formed a business partnership in the City of  Lucena. Under the business
name of New Life Enterprises, the partnership engaged in  the sale
of construction materials  at  its  place  of  business, a two storey building
situated at Iyam, Lucena  City. The facts show that Julian Sy insured the
stocks in  trade of New Life Enterpriseswith Western Guaranty Corporation,
Reliance Surety and Insurance. Co., Inc., and Equitable Insurance
Corporation.
On May  15,  1981,  Western  Guaranty Corporation
issued  Fire  Insurance  Policy No. 37201 in the amount of P350,000.00. This
policy was renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135  inthe amount of P300,000.00 (Renewed under
Renewal Certificate No. 41997) An additional
insurancewas  issued by  the same company  on
November 12, 1981 under  Fire  Insurance  Policy No. 71547 in the amount
of P700,000.00.
On  February  8,  1982,  Equitable  Insurance
Corporation  issued Fire Insurance Policy  No.  39328 in the amount of
P200,000.00.
Thus  when  the building  occupied  by the  New Life Enterprises
was gutted by  fire  at  about 2:00
o'clock inthe  morning  of  October 19, 1982, the stocks in the
trade inside said building  were insured against
fire inthe  total  amount of P1,550,000.00.
According  to  the certification issued  by the Headquarters, Philippine
Constabulary /Integrated National Police,
Camp Crame, the  cause  of  fire  was
electrical  in  nature.According to the  plaintiffs,
the  building and  the stocks  inside  were burned.
After  the fire, Julian Sy  wentto the  agent of
Reliance Insurance whom he asked  to  accompany  him to the
office of the  company sothat he can file
his claim.  He averred  that  in  support  of  his claim, he
submitted the  fire  clearance, the insurance policies  and inventory
of stocks. He further testified that  the three insurance companies are
sister companies, and  as a  matter of fact  when  he  was following-
up  his  claim with Equitable Insurance, the Claims Manager told him to go
first to Reliance Insurance  and if said company agrees  to  pay,  they would
also pay. The same treatment was given him by the  other  insurance
companies.  Ultimately, thethree  insurance  companies denied plaintiffs'
claim for payment.
In its letter  of  denial  dated March  9,  1983, (Exhibit "C" No.  8-
84) Western Guaranty Corporationthrough Claims  Manager  Bernard S.  R
azon told the plaintiff  that his claim "is
denied  for breach  of  policyconditions." Reliance Insurance purveyed the
same message in its letter dated November 23,
1982and signed  by Executive Vice-President  Mary Dee
Co  (Exhibit "C" No. 7-84)  which  said  that "plaintiff's
claim  is denied  for breach  of  policy conditions."
The  letter  of  denial  received by  the plaintiff fromEquitable Insurance
Corporation  (Exhibit "C" No. 6-84) was of the same tenor, as said letter
dated February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find  that  certain
policyconditions were  violated,  therefore, we regret,
we have to deny  your  claim, as  it  is hereby denied in its entirety."
In relation to the  case against  Reliance
Surety  and Insurance Company,  a certain Atty.  Serafin
D.Dator,  acting  in  behalf of the
plaintiff,  sent a  letter  dated February 13, 1983 (Exhibit "G-l" No 7-
84) toExecutive Vice-President Mary Dee Co asking  that  he
be informed as  to the  specific  policy conditions allegedly
violated by  the plaintiff.  In  her reply-letter dated March
30, 1983, Executive Vice-PresidentMary Dee Co informed Atty.
Dator that Julian Sy  violated Policy Condition No.
"3"  which  requires theinsured
to give  notice of any insurance or insurances already effected covering
the stocks in trade. 3
Because of the denial of their  claims for  payment  by the three
(3) insurance companies, petitioner filed  separate
civilactions against  the former before  the Regional  Trial
Court  of  Lucena City,  which  cases were  consolidated  for trial,
and  thereafter  the court  below  rendered  its  decision on December 19,
l986 with the following disposition:
WHEREFORE, judgment in the  above-entitled  cases is rendered in the
following manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the
plaintiff  New Life  Enterprises  and against the defendant Equitable
Insurance Corporation ordering  the latter  to  pay  the former the sum of
TwoHundred  Thousand  (P200,000.00) Pesos and
considering  that  payment  of  the claim  of  the insured  hasbeen unreasona
bly denied,  pursuant  to  Sec. 244  of  the Insurance Code, defendant is  fur
ther ordered  topay the  plaintiff attorney's fees in the amount of Twenty
Thousand (P20,000.00) Pesos. All sums ofmoney to be paid  by virtue
hereof  shall  bear interest  at  12% per annum  (pursuant
to Sec.  244 of theInsurance Code) from
February 14, 1983, (91st day from  November  16,
1982, when Sworn Statementof Fire Claim
was received  from the  insured)  until  they are fully paid;
2. In Civil Case No. 7-
84, judgment is  rendered  for the  plaintiff Julian Sy  and against
the  defendantReliance Surety  and Insurance Co.,
Inc.,  ordering the  latter to pay the  former  the sum
of P1,000,000.00(P300,000.00 under  Policy
No. 69135 and  P700,000.00 under  Policy No. 71547)
and  considering thatpayment  of  the claim  of  the
insured  has  been  unreasonably  denied, pursuant to
Sec.  244 of theInsurance Code, defendant is further ordered
to pay the  plaintiff the  amount of P100,000.00 as attorney's fees.
All sums of money to be  paid by  virtue  hereof shall
bear  interest at 12%  per annum (pursuant to Sec.
244  of  the Insurance Code) from  February  14, 1983,
(91st day from  November  16,
1982 when SwornStatement  of  Fire  Claim was received  from the
insured) until they are fully paid;
3. In Civil Case No.  8-84, judgment is rendered for
the  plaintiff New  Life Enterprises and  against thedefendant  Western  Gua
ranty  Corporation ordering the latter  to  pay  the sum of P350,000.00
to theConsolidated  Bank  and Trust Corporation,
Lucena  Branch,  Lucena City,  as stipulated on the
face ofPolicy  No.  37201,  and considering  that payment of the
aforementioned  sum  of  money has been
unreasonably denied,  pursuant  to  Sec. 244  of  the Insurance Code,
defendant is  further  ordered to pay the
plaintiff  attorney's  fees in the  amount of P35,000.00.
All sums of money to be paid by  virtue  hereof shall bear interest at
12%  per annum (pursuant to Sec. 244 of the Insurance
Code) from  February  5, 1982, (91st day from 1st week of November
1983 when insured  filed formal  claim for  full indemnity according to
adjuster Vetremar  Dela Merced)  until they are fully paid. 4
As  aforestated, respondent Court of  Appeals  reversed said  judgment  of
the trial court, hence this petition  the cruxwherein is whether or not
Conditions Nos. 3 and  27  of
the  insurance  contracts  were violated by  petitioners  thereby resulting in
their forfeiture  of  all the  benefits thereunder.
Condition  No.  3  of  said  insurance  policies, otherwise known as
the  "Other Insurance Clause," is  uniformly contained
in all  the aforestated insurance  contracts  of  herein  petitioners, as
follows:
3. The insured shall  give notice  to  the Company
of any insurance or insurances already effected, orwhich
may  subsequently be effected, covering any  of  the property or properties
consisting  of  stocks intrade,  goods in process
and/or  inventories  only  hereby  insured, and  unless
such notice  be  given  andthe  particulars  of  such
insurance or insurances be stated therein  or endorsed on this policy
pursuant to Section 50 of the Insurance
Code, by  or  on  behalf of the  Company
before  the occurrence of any loss  ordamage,  all benefits
under  this policy shall be deemed forfeited, provided  however, that this
condition shall  not apply when the total insurance or insurances in force
at the  time  of  loss or damage  not morethan P200,000.00. 5
Petitioners  admit that the  respective insurance policies
issued  by private respondents  did not  state or endorse thereon
the  other  insurance  coverage  obtained  or  subsequently effected on the
same stocks in trade for the loss of which compensation is  claimed by
petitioners.  6 The policy
issued  by respondent Western Guaranty Corporation(Western) did not
declare  respondent  Reliance  Surety and  Insurance  Co., Inc. (Reliance)  and
respondent Equitable Insurance Corporation  (Equitable) as  co-
insurers on the  same  stocks,
while Reliance's Policies covering the  samestocks did  not
likewise declare  Western  and Equitable as  such  co-insurers. It is
further admitted  by petitioners thatEquitable's  policy stated "nil" in the
space thereon requiring indication of any co-insurance although
there were  three (3) policies subsisting on the same stocks in trade
at the  time  of  the loss, namely, that of Western in
the  amount ofP350,000.00 and  two (2) policies of Reliance in the total
amount of P1,000,000.00. 7
In other words, the coverage  by other insurance or co-insurance effected
or subsequently  arranged  by petitioners were
neither  stated  nor endorsed in the policies of the three (3) private
respondents, warranting forfeiture of all benefits
thereunder if we are to follow the  express stipulation in the aforequoted
Policy Condition No. 3.
Petitioners contend that they are  not to be blamed for the omissions,
alleging  that  insurance  agent Leon  Alvarez (for Western) and Yap Kam
Chuan (for Reliance and  Equitable) knew about the existence of the
additional insurancecoverage and that they were not
informed about  the requirement  that such other or additional insurance
should bestated in the
policy, as  they have not  even read  policies.8 These contentions cannot
pass judicial muster.
The terms of the  contract  are  clear  and unambiguous.
The  insured is  specifically  required  to  disclose  to  the insurer any other
insurance and its particulars  which  he  may have effected on the
same subject matter.  The knowledge of such insurance
by  the insurer's agents,  even assuming  the acquisition thereof by the
former, is  not the  "notice" that would  estop the insurers from denying
the  claim. Besides, the so-called theory of imputed knowledge, that is,
knowledge of the agent is knowledge  of  the principal,  aside from  being
of dubious  applicability here  has  likewisebeen roundly
refuted by  respondent  court whose factual findings we find acceptable.
Thus,  it  points out  that  while petitioner Julian Sy
claimed  that  he  had informed insurance agent  Alvarez regarding the co-
insurance on the property, he contradicted
himself by  inexplicably  claiming  that  he  had not  read the terms of the
policies; that Yap Dam Chuan  could not  likewise have obtained such
knowledge for  the same reason,  aside from the fact that
the  insurance  with  Western  was  obtained  before those of
Reliance and  Equitable; and  that  theconclusion of
the  trial court  that  Reliance  and Equitable are "sister
companies" is  an  unfounded conjecture  drawnfrom  the mere fact that
Yap Kam Chuan was an  agent for  both  companies  which also had the
same insuranceclaims adjuster. Availment of the
services  of  the same agents  and adjusters  by different companies is a
commonpractice in the  insurance  business  and such facts
do not  warrant the  speculative  conclusion  of  the trial court.
Furthermore,  when  the words and  language  of  documents are clear and
plain or  readily understandable by  an ordinary reader thereof, there is
absolutely no room for interpretation  or construction
anymore.9 Courts  are  not allowed to make contracts
for  the parties; rather, they  will intervene
only when the  terms of the  policy  areambiguous, equivocal,
or uncertain.  10 The  parties must  abide  by the
terms  of  the contract because  such  termsconstitute  the
measure  of  the insurer's liability  and compliance therewith is a
condition  precedent  to  the insured'sright  of  recovery from the insurer.  11
While it is a cardinal principle  of  insurance  law  that  a policy or contract
of insurance is  to  be  construed  liberally
infavor of the  insured and  strictly  against the  insurer
company,  yet  contracts  of  insurance, like  other  contracts, are to be
construed according to the sense  and meaning of the terms which
the  parties themselves have used.  If  suchterms are clear and
unambiguous,  they must  be  taken and  understood in  their
plain, ordinary and popular sense. 12Moreover,
obligations  arising  from contracts have the  force of law between
the  contracting  parties and  should  becomplied with in good faith.  13
Petitioners should be aware of  the fact  that  a party  is not relieved of the
duty to exercise the ordinary care and
prudence that would  be  exacted in relation to other contracts. The
conformity of the insured to the terms of the
policy is  implied  from his failure to express  any disagreement with
what is  provided for.14 It may  be  true that themajority rule, as cited
by  petitioners,  is that injured
persons may  accept policies  without reading them, and that  this is not
negligence per se.  15 But, this is not without any exception.  It is and was
incumbent upon  petitioner Sy to read the insurance contracts, and this can
be reasonably expected of  him  considering that he has been a
businessman since 196516  and the contract concerns indemnity in case
of loss  in  his  money-making  trade  of  which important
consideration he could  not have been unaware  as it was pre-in case of
loss in his money-making trade of which important consideration he could
not have been unaware as it was precisely the reason for his procuring the
same.
We  reiterate our  pronouncement in Pioneer Insurance and Surety
Corporation vs. Yap: 17
...
And  considering the  terms of the  policy  which  required  the insured  to  d
eclare other insurances, thestatement  in  question must  be  deemed to b
e  a statement (warranty) binding on both  insurer and insured, that there
were no other insurance on the property. . . .
The  annotation then,  must be deemed
to be a  warranty  that  the property  was  not insured by any other policy.
Violation thereof entitled the  insurer  to rescind (Sec. 69, Insurance
Act).  Such misrepresentation is fatal in the light  of our views in Santa Ana
vs. Commercial Union Assurance Company, Ltd.,  55  Phil. 329.
The  materiality  of  non-disclosure of other insurance policies is not open
to doubt.
xxx xxx xxx
The obvious purpose  of the aforesaid requirement  in  the policy
is  to  prevent over-insurance and thus avert the perpetration of
fraud. The  public, as well as the insurer, is interested in preventing the
situation in  which  a fire would  be profitable to the  insured.  According to
Justice Story: "The insured has no  right to complain, for  he assents to
comply with all  the stipulations  on
his side,  in  order  to  entitlehimself to the
benefit  of  the contract, which, upon reason  or principle, he
has no right  to  ask  the court  to dispense with the
performance of his own  part of the agreement, and yet to
bind the  other  party to obligations,  which,  but  for those stipulations,
would not have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of
Appeals, et al., 18  we held:
It is not disputed that the  insured failed to reveal before the
loss  three  other  insurances.  As found by the Court
of Appeals, by  reason of said unrevealed insurances, the
insured  had been guilty of a
falsedeclaration;  a clear misrepresentation and a vital one because where
the  insured had  been  asked to reveal
but did  not,  that  was  deception. Otherwise stated, had the
insurer known  that  there  were many co-insurances, it could
have hesitated or plainly desisted from entering  into  such  contract.
Hence, theinsured  was  guilty of clear fraud (Rollo, p. 25).
Petitioner's  contention  that  the allegation of fraud is but
a  mere  inference or suspicion is  untenable. In fact,
concrete evidence of fraud or false declaration by
the  insured was furnished  by the petitioner itself when the facts
alleged  in  the policy under  clauses  "Co-Insurances  Declared"  and
"Other  InsuranceClause" are materially  different from the actual number
of co-insurances  taken over
the  subjectproperty.  Consequently,  "the whole foundation of the contract
fails, the risk does  not attach  and thepolicy never  becomes a  contract
between the parties." Representations  of  facts  are the
foundation ofthe contract and if the foundation does not
exist, the  superstructure  does
not  arise. Falsehood  in  suchrepresentations is  not shown to vary
or add  to  the contract, or to terminate a contract which has
oncebeen  made, but to show  that  no  contract  has ever
existed  (Tolentino, Commercial Laws of thePhilippines, p.
991,  Vol.  II,  8th  Ed.,) A  void  or  inexistent contract is one which has no
force  and effectfrom the very beginning, as if it had
never  been  entered  into, and which cannot be validated either bytime  or
by ratification (Tongoy  vs.  C.A.,  123 SCRA 99 (1983); Avila v. C.A., 145
SCRA, 1986).
As  the insurance policy against fire expressly required that notice should
be given by the  insured ofother insurance upon the  same property,
the  total  absence of such notice  nullifies the policy.
To further warrant  and justify  the forfeiture  of  the
benefits  under the  insurance  contracts  involved,  we  need
merely toturn to Policy  Condition No. 15 thereof, which reads in part:
15. . . . if  any  false declaration  be  made or used
in support thereof, . . .  all benefits  under this Policy shall be
forfeited . . . . 19
Additionally, insofar as  the liability  of  respondent
Reliance is  concerned, it is  not denied  that  the complaint for recovery
was filed in court by petitioners only on
January  31,  1984,  or  after more than one  (1)  year had
elapsedfrom petitioners'  receipt  of  the insurers' letter of
denial on November 29, 1982.  Policy Condition  No.  27  of their insurance
contract with Reliance provides:
27. Action or suit
clause. — If a  claim be made  and rejected and  an  action or suit  be  not c
ommenced
either in the  Insurance  Commission or any court  of  competent  jurisdictio
n of notice  of  such rejection,  orin case  of  arbitration  taking  place
as  provided herein,  within twelve (12)  months  after due
notice  of  theaward  made by  the arbitrator or arbitrators
or umpire, then the  claim shall for  all purposes be
deemedto have been abandoned  and shall not thereafter be recoverable
hereunder.  20
On this point, the trial court ruled:
. . . However, because  of  the peculiar circumstances of  this case,  we
hesitate
in concluding  thatplaintiff's  right to ventilate his claim  in  court has been 
barred by  reason of the  time  constraint provided  in  the insurance contra
ct. It is evident that after  the plaintiff  had received
the  letter  of  denial,  he  stillfound  it  necessary  to  be  informed  of  the spec
ific  causes  or  reasons for the denial of his claim,  reasonfor which his
lawyer, Atty. Dator deemed it wise to send  a
letter of inquiry to the  defendant  which  wasanswered  by
defendant's Executive Vice-President  in  a letter
dated  March 30, 1983, . . . .  Assuming,gratuitously,  that  the letter of Exec for  reconsideration as insisted by respondents.
utive  Vice-President Mary Dee Co dated March 30, 1983, was Suchwas clearly  not the  meaning  contemplated by  this Court.  The insura
received  by plaintiff on the  same  date,  the period of  limitation should nce policy in said case  providesthat the  insured should file his claim first,
start  to  run only from  said date in the spirit of fair play and equity. . . . 21 with the  carrier  and then with the insurer.
The  "final  rejection"being  referred to in said case is the rejection by the
We  have  perforce to reject this theory  of  the court below for being insurance company. 22
contrary to what we have heretofore declared:
Furthermore, assuming arguendo that petitioners felt the
It is  important  to  note  the principle  laid down legitimate need to be clarified  as to the  policy  condition violated, there
by  this Court  in  the case  of  Ang vs. Fulton Fire Insurance Co. (2 SCRA  945 was a considerable lapse of time from their receipt of the insurer's
[1961]) to wit: clarificatory letter dated March 30, 1983,  up to the time the complaint was
filed  in  court on January 31, 1984.  The one-
The  condition contained in an insurance policy that claims  must be pres year  prescriptive  period  was  yet
ented within one year to expire  on  November  29,  1983,  or  about eight  (8)  months from the
after  rejection  is not  merely  a procedural  requirement but an important  receipt of the  clarificatory  letter,  but  petitioners let the
matter essential to a prompt settlement of claims against insurance period lapse  without bringing their action  in  court.
companies as it demandsthat insurance suits  be  brought  by We  accordingly find  no  "peculiar  circumstances" sufficient to
the  insured while the  evidence  as to the relax  the enforcement  of  the one-year prescriptive period and
origin  andcause  of  destruction  have  not yet disappeared. we,  therefore, hold that petitioners' claim was definitely filed out of time.
In enunciating the  above-cited  principle, this Court had  definitely
settled the  rationale  for the necessityof bringing suits  against the  Insurer
within  one year  from the  rejection  of  the claim. The contention
ofthe respondents  that  the one-year prescriptive period  does
not  start to run  until  the petition  forreconsideration had  been  resolved 
by  the insurer, runs  counter to the  declared  purpose for  requiringthat  an
action  or  suit be filed  in  the Insurance
Commission  or  in  a court  of  competent
jurisdiction  fromthe denial of the  claim. To  uphold respondents'
contention would contradict and  defeat the very principle which this Court
had laid  down.  Moreover, it  can  easily be used  by insured persons as a
scheme or device to waste time
until any evidence which may  be  considered against  them is destroyed.

xxx xxx xxx

While in the Eagle Star case (96 Phil.  701),

this  Court uses the  phrase  "final  rejection",  the
samecannot  be  taken to mean  the rejection of a petition

VI. National Power Corp vs CA
This is a petition for review on certiorari seeking to set aside: (a) the
judgment of respondent Court of Appeals dated March 25, 1976 in CA-G.R.
No. 50112-R, entitled National Power Corporation, Plaintiff-Appellee vs.
The Philippine American Insurance Company, Inc. Defendant-
Appellant, which reversed the decision of the Court of First Instance of
Manila in Civil Case No. 70811 entitled "National Power Corporation v. Far
Eastern Electric, Inc., et al." and (b) respondent's Court's resolution dated
April 19, 1976 denying petitioner National Power Corporation's Motion for
Reconsideration (Petition, p. 13, Rollo).
The undisputed facts of this case are as follows:
The National Power Corporation (NPC) entered into a contract with the Far
Eastern Electric, Inc. (FFEI) on December 26, 1962 for the erection of the
Angat Balintawak 115-KW-3-Phase transmission lines for the Angat
Hydroelectric Project. FEEI agreed to complete the work within 120 days
from the signing of the contract, otherwise it would pay NPC P200.00 per
calendar day as liquidated damages, while NPC agreed to pay the sum of
P97,829.00 as consideration. On the other hand, Philippine American
General Insurance Co., Inc. (Philamgen) issued a surety bond in the amount
of P30,672.00 for the faithful performance of the undertaking by FEEI, as
required.
The condition of the bond reads:
The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC. under this bond will expire One (1) year from final Completion and
Acceptance and said bond will be cancelled 30 days after its expiration,
unless surety is notified of any existing obligation thereunder. (Exhibit 1-a)
in correlation with the provisions of the construction contract between
Petitioner and Far Eastern Electric, Inc. particularly the following provisions
of the Specifications. to wit:
1. Par. 1B-2l Release of Bond
1B-21 Release of Bond
The Contractor's performance bond will be released by the National Power
Corporation at the expiration of one (1) year from the completion and final
acceptance of the work, pursuant to the provisions of Act No. 3959, and
subject to the General Conditions of this contract. (Page 49, Printed Record
on Appeal); and
2. GP-19 of Specifications, which reads:
(a) Should the Contractor fail to complete the construction of the work as
herein specified and agreed upon, or if the work is abandoned, ... the
Corporation shall have the power to take over the work by giving notice in
writing to that effect to the Contractor and his sureties of its intention to
take over the construction work.
(b) ... It is expressly agreed that in the event the corporation takes over the
work from the Contractor, the latter and his bondsmen shall continue to be
liable under this contract for any expense in the completion of the work in
excess of the contract price and the bond filed by the Contractor shall be
answerable for the same and for any and all damages that the Corporation
may suffer as a result thereof. (pp. 76-78, Printed Record on Appeal)
FEEI started construction on December 26, 1962 but on May 30, 1963,
both FEEI and Philamgen wrote NPC requesting the assistance of the latter
to complete the project due to unavailability of the equipment of FEEI. The
work was abandoned on June 26, 1963, leaving the construction
unfinished. On July 19, 1963, in a joint letter, Philamgen and FEEI informed
NPC that FEEI was giving up the construction due to financial difficulties.
On the same date, NPC wrote Philamgen informing it of the withdrawal of
FEEI from the work and formally holding both FEEI and Philamgen liable for
the cost of the work to be completed as of July 20, 1962 plus damages.
The work was completed by NPC on September 30, 1963. On January 30,
1967 NPC notified Philamgen that FEEI had an outstanding obligation in the
amount of P75,019.85, exclusive of interest and damages, and demanded
the remittance of the amount of the surety bond the answer for the cost of
completion of the work. In reply, Philamgen requested for a detailed
statement of account, but after receipt of the same, Philamgen did not pay
as demanded but contended instead that its liability under the bond has
expired on September 20, 1964 and claimed that no notice of any
obligation of the surety was made within 30 days after its expiration.
(Record on Appeal, pp. 191-194; Rollo, pp. 62-64).
NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89
spent to complete the work abandoned; P144,000.00 as liquidated
damages and P20,000.00 as attorney's fees. Only Philamgen answered
while FEEI was declared in default.
The trial court rendered judgment in favor of NPC, the dispositive portion
of which reads:
WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to pay the
plaintiff the sum of P75,019.86 plus interest at the legal rate from
September 21, 1967 until fully paid. Out of said amount, both defendants,
Far Eastern Electric, Inc., and the Philippine American Insurance Company,
Inc., are ordered to pay, jointly and severally, the amount of P30,672.00
covered by Surety Bond No. 26268, dated December 26, 1962, plus
interest at the legal rate from September 21, 1967 until fully paid,
Both defendants are also ordered to pay plaintiff the sum of P3,000.00 as
attorney's fees and costs.
On appeal by Philamgen, the Court of Appeals reversed the lower court's
decision and dismissed the complaint.
Hence this petition.
Respondent Philamgen filed its comment on the petition on August 6, 1978
(Rollo, p. 62) in compliance with the resolution dated June 16, 1976 of the
First Division of this Court (Rollo, p. 52) while petitioner NPC filed its Reply
to the comment of respondent (Rollo, p. 76) as required in the resolution
of this Court of August 16, 1976, (Rollo, p. 70). In the resolution of
September 20, 1976, the petition for certiorari was given due course
(Rollo, p. 85). Petitioner's brief was filed on November 27, 1976 (Rollo, p.
97) while Philamgen failed to file brief within the required period and this
case was submitted for decision without respondent's brief in the
resolution of this Court of February 25. 1977) Rollo, p. 103).
In its brief, petitioner raised the following assignment of errors:
I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER
SHOULD HAVE GIVEN NOTICE TO PRIVATE RESPONDENT PHILAMGEN OF
ANY EXISTING OBLIGATION WITHIN 30 DAYS FROM EXPIRATION OF THE
BOND TO HOLD SAID SURETY LIABLE THEREUNDER, DESPITE PETITIONER'S
TAKING OVER OF THE WORK ABANDONED BY THE CONTRACTOR BEFORE
ITS COMPLETION.
II
ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL NOTIFY PRIVATE
RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION UNDER THE
BOND DESPITE THE TAKE-OVER OF WORK BY PETITIONER, RESPONDENT
COURT OF APPEALS NONETHELESS ERRED IN HOLDING THAT PETITIONER'S
LETTER DATED JULY 19, 1963 (EXH. E) TO PRIVATE RESPONDENT WAS NOT
SUFFICIENT COMPLIANCE WITH THE CONDITION OF THE BOND.
III
RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING PRIVATE
RESPONDENT PHILAMGEN FROM ITS LIABILITY UNDER THE BOND.
The decisive issue in this case is the correct interpretation and/or
application of the condition of the bond relative to its expiration, in
correlation with the provisions of the construction contract, the faithful
performance of which, said bond was issued to secure.
The bone of contention in this case is the compliance with the notice
requirement as a condition in order to hold the surety liable under the
bond.
Petitioner claims that it has already complied with such requirement by
virtue of its notice dated July 19, 1963 of abandonment of work by FEEI
and of its takeover to finish the construction, at the same time formally
holding both FEEI and Philamgen liable for the uncompleted work and interpreted in favor of its beneficiary. (Serrano v. Court of Appeals, 130
damages. It further argued that the notice required in the bond within 30 SCRA 327, July 16, 1984).
days after its expiration of any existing obligation, is applicable only in case
the contractor itself had completed the contract and not when the In the case at bar, it cannot be denied that the breach of contract in this
contractor failed to complete the work, from which arises the continued case, that is, the abandonment of the unfinished work of the transmission
liability of the surety under its bond as expressly provided for in the line of the petitioner by the contractor Far Eastern Electric, Inc. was within
contract. Petitioner's contention was sustained by the trial court. the effective date of the contract and the surety bond. Such abandonment
gave rise to the continuing liability of the bond as provided for in the
On the other hand, private respondent insists that petitioner's notice contract which is deemed incorporated in the surety bond executed for its
dated July 19, 1983 is not sufficient despite previous events that it had completion. To rule therefore that private respondent was not properly
knowledge of FEEI's failure to comply with the contract and claims that it notified would be gross error.
cannot be held liable under the bond without notice within thirty days
from the expiration of the bond, that there is a subsisting obligation. PREMISES CONSIDERED, the decision dated March 25, 1976 and the
Private respondent's contention is sustained by the Court of Appeals. resolution dated April 19, 1976 of the Court of Appeals are hereby SET
ASIDE, and a new one is hereby rendered reinstating the decision of the
The petition is impressed with merit. Court of First Instance of Manila in Civil Case No. 70811 entitled "National
Power Corporation v. Far Eastern Electric, Inc., et al."
As correctly assessed by the trial court, the evidence on record shows that
as early as May 30, 1963, Philamgen was duly informed of the failure of its SO ORDERED.
principal to comply with its undertaking. In fact, said notice of failure was
also signed by its Assistant Vice President. On July 19, 1963, when FEEI
informed NPC that it was abandoning the construction job, the latter
forthwith informed Philamgen of the fact on the same date. Moreover, on
August 1, 1963, the fact that Philamgen was seasonably notified, was even
bolstered by its request from NPC for information of the percentage
completed by the bond principal prior to the relinquishment of the job to
the latter and the reason for said relinquishment. (Record on Appeal, pp.
193-195). The 30-day notice adverted to in the surety bond applies to the
completion of the work by the contractor. This completion by the
contractor never materialized.

The surety bond must be read in its entirety and together with the contract
between NPC and the contractors. The provisions must be construed
together to arrive at their true meaning. Certain stipulations cannot be
segregated and then made to control.

Furthermore, it is well settled that contracts of insurance are to be

construed liberally in favor of the insured and strictly against the insurer.
Thus ambiguity in the words of an insurance contract should be

VII. Great Pacific Life Assurance Co. vs CA
The two above-entitled cases were ordered consolidated by the Resolution
of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the
petitioners in both cases seek similar relief, through these petitions for
certiorari by way of appeal, from the amended decision of respondent
Court of Appeals which affirmed in toto the decision of the Court of First
Instance of Cebu, ordering "the defendants (herein petitioners Great
Pacific Ligfe Assurance Company and Mondragon) jointly and severally to
pay plaintiff (herein private respondent Ngo Hing) the amount of
P50,000.00 with interest at 6% from the date of the filing of the complaint,
and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an
application with the Great Pacific Life Assurance Company (hereinafter
referred to as Pacific Life) for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go.
Said respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon
finally type-wrote the data on the application form which was signed by
private respondent Ngo Hing. The latter paid the annual premuim the sum
of P1,077.75 going over to the Company, but he reatined the amount of
P1,317.00 as his commission for being a duly authorized agebt of Pacific
Life. Upon the payment of the insurance premuim, the binding deposit
receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the
insurance application. Then on April 30, 1957, Mondragon received a letter
from Pacific Life disapproving the insurance application (Exhibit 3-M). The
letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but
Pacific Life can consider the same under the Juvenile Triple Action Plan,
and advised that if the offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing.
Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment insurance plan to
children, pointing out that since 1954 the customers, especially the
Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died
of influenza with complication of bronchopneumonia. Thereupon, private
respondent sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery of the same
before the Court of First Instance of Cebu, which rendered the adverse
decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit
receipt (Exhibit E) constituted a temporary contract of the life insurance in
question; and (2) whether private respondent Ngo Hing concealed the
state of health and physical condition of Helen Go, which rendered void
the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a
deposit is considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ...
and the insurance application, ON or PRIOR to the date of medical
examination ... said insurance shan be in force and in effect from the date
of such medical examination, for such period as is covered by the
deposit ..., PROVIDED the company shall be satisfied that on said date the
applicant was insurable on standard rates under its rule for the amount of
insurance and the kind of policy requested in the application.
D. If the Company does not accept the application  on standard rate for the
amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan and/or
amount ..., the insurance shall not be in force and in effect until the
applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant
does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above,
and the Company declines to approve the application the insurance applied
for shall not have been in force at any time and the sum paid be returned
to the applicant upon the surrender of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding
deposit receipt is intended to be merely a provisional or temporary
insurance contract and only upon compliance of the following conditions:
(1) that the company shall be satisfied that the applicant was insurable on
standard rates; (2) that if the company does not accept the application and
offers to issue a policy for a different plan, the insurance contract shall not
be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be reftmded; and (3) that if the applicant is not ble according
to the standard rates, and the company disapproves the application, the
insurance applied for shall not be in force at any time, and the premium
paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the
company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for
processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt
in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure outright. As held by this Court,
where an agreement is made between the applicant and the agent, no
liability shall attach until the principal approves the risk and a receipt is
given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself (De Lim vs. Sun Life Assurance Company of
Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April
30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in
question on the ground that it is not offering the twenty-year endowment
insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private
respondent failed to accept. In the absence of a meeting of the minds
between petitioner Pacific Life and private respondent Ngo Hing over the
20-year endowment life insurance in the amount of P50,000.00 in favor of
the latter's one-year old daughter, and with the non-compliance of the
abovequoted conditions stated in the disputed binding deposit receipt,
there could have been no insurance contract duly perfected between thenl
Accordingly, the deposit paid by private respondent shall have to be
refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a
contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract,
one that leaves nothing to be dione, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in
agreement."
We are not impressed with private respondent's contention that failure of
petitioner Mondragon to communicate to him the rejection of the
insurance application would not have any adverse effect on the allegedly
perfected temporary contract (Respondent's Brief, pp. 13-14). In this first
place, there was no contract perfected between the parties who had no
meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said
company does not offer the life insurance applied for. When he filed the
insurance application in dispute, private respondent was, therefore, only
taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question
along with his proposal that the insurance company starts to offer the 20-
year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the
proposal and recommendation. Secondly, having an insurable interest on
the life of his one-year old daughter, aside from being an insurance agent
and an offense associate of petitioner Mondragon, private respondent Ngo
Hing must have known and followed the progress on the processing of
such application and could not pretend ignorance of the Company's
rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt
observation of then Appellate Associate Justice Ruperto G. Martin who
later came up to this Court, from his dissenting opinion to the amended
decision of the respondent court which completely reversed the original
decision, the following:
Of course, there is the insinuation that neither the memorandum of
rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not quite
conninced that this was so. Ngo Hing, as father of the applicant herself,
was precisely the "underwriter who wrote this case" (Exhibit H-1). The
unchallenged statement of appellant Mondragon in his letter of May 6,
1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our
associate" and that it was the latter who "insisted that the plan be placed
on the 20-year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the application was
not brought home to his knowledge. He must have been duly apprised of
the rejection of the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing himself who
insisted on the application as originally filed, thereby implictly declining the
offer to consider the application under the Juvenile Triple Action Plan.
Besides, the associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company for
minors below 7 years old. What he and Mondragon were apparently trying
to do in the premises was merely to prod the company into going into the
business of issuing endowment policies for minors just as other insurance
companies allegedly do. Until such a definite policy is however, adopted by
the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by
then issued at all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the
firm belief that private respondent had deliberately concealed the state of
health and piysical condition of his daughter Helen Go. Wher private
regpondeit supplied the required essential data for the insurance
application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could never
be ensconced nor disguished. Nonetheless, private respondent, in
apparent bad faith, withheld the fact materal to the risk to be assumed by
the insurance compary. As an insurance agent of Pacific Life, he ought to
know, as he surely must have known. his duty and responsibility to such a
material fact. Had he diamond said significant fact in the insurance
application fom Pacific Life would have verified the same and would have
had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides
meaning good faith, absolute and perfect candor or openness and honesty;
the absence of any concealment or demotion, however slight [Black's Law
Dictionary, 2nd Edition], not for the alone but equally so for the insurer
(Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd
Ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract
of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105
Phil 930; Satumino vs. Philippine American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected
between the parties with the noncompliance of the conditions provided in
the binding receipt, and concealment, as legally defined, having been
comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu
thereof, one is hereby entered absolving petitioners Lapulapu D.
Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of P1,077.75, without
interest, to private respondent, Ngo Hing. Costs against private
respondent.

VIII. Mayer Steel Pipe Corp vs CA
This is a petition for review on certiorari to annul and set aside the
Decision of respondent Court of Appeals dated December 14, 1995 [1] and
its Resolution dated February 22, 1996[2] in CA-G.R. CV No. 45805 entitled
Mayer Steel Pipe Corporation and Hongkong Government Supplies
Department v. South Sea Surety Insurance Co., Inc. and The Charter
Insurance Corporation.[3]
In 1983, petitioner Hongkong Government Supplies Department
(Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to
manufacture and supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-
1020, MSPC-1017 and MSPC-1022.[4]
Prior to the shipping, petitioner Mayer insured the pipes and fittings
against all risks with private respondents South Sea Surety and Insurance
Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and
fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total
amount of US$212,772.09 were insured with respondent South Sea, while
those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection
(International) Inc. as third-party inspector to examine whether the pipes
and fittings are manufactured in accordance with the specifications in the
contract. Industrial Inspection certified all the pipes and fittings to be in
good order condition before they were loaded in the vessel. Nonetheless,
when the goods reached Hongkong, it was discovered that a substantial
portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under
the insurance contract. Respondent Charter paid petitioner Hongkong the
amount of HK$64,904.75. Petitioners demanded payment of the balance of
HK$299,345.30 representing the cost of repair of the damaged
pipes. Private respondents refused to pay because the insurance surveyor's
report allegedly showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to
recover the sum of HK$299,345.30. For their defense, private respondents
averred that they have no obligation to pay the amount claimed by
petitioners because the damage to the goods is due to factory defects
which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the
goods is not due to manufacturing defects. It also noted that the insurance
contracts executed by petitioner Mayer and private respondents are "all
risks" policies which insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in the policy, or those
sustained due to fraud or intentional misconduct on the part of the
insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly
and severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with legal
rate of interest as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.[5]
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is
not due to factory defect and that it was covered by the "all risks"
insurance policies issued by private respondents to petitioner
Mayer. However, it set aside the decision of the trial court and dismissed
the complaint on the ground of prescription. It held that the action is
barred under Section 3(6) of the Carriage of Goods by Sea Act since it was
filed only on April 17, 1986, more than two years from the time the goods
were unloaded from the vessel. Section 3(6) of the Carriage of Goods by
Sea Act provides that "the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one year
after delivery of the goods or the date when the goods should have been
delivered." Respondent court ruled that this provision applies not only to
the carrier but also to the insurer, citing Filipino Merchants Insurance Co.,
Inc. vs. Alejandro.[6]
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause
of action had already prescribed on the mistaken application of the
Carriage of Goods by Sea Act and the doctrine of Filipino Merchants Co.,
Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the
complaint.[7]
The petition is impressed with merit. Respondent court erred in applying
Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and
the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or the
date when they should have been delivered. Under this provision, only the
carrier's liability is extinguished if no suit is brought within one year. But
the liability of the insurer is not extinguished because the insurer's liability
is based not on the contract of carriage but on the contract of insurance. A
close reading of the law reveals that the Carriage of Goods by Sea Act
governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the
obligations of the carrier under the contract of carriage. It does not,
however, affect the relationship between the shipper and the insurer. The
latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro [8] and the
other cases[9] cited therein does not support respondent court's view that
the insurer's liability prescribes after one year if no action for indemnity is
filed against the carrier or the insurer. In that case, the shipper filed a
complaint against the insurer for recovery of a sum of money as indemnity
for the loss and damage sustained by the insured goods. The insurer, in
turn, filed a third-party complaint against the carrier for reimbursement of
the amount it paid to the shipper. The insurer filed the third-party
complaint on January 9, 1978, more than one year after delivery of the
goods on December 17, 1977. The court held that the Insurer was already
barred from filing a claim against the carrier because under the Carriage of
Goods by Sea Act, the suit against the carrier must be filed within one year
after delivery of the goods or the date when the goods should have been
delivered. The court said that "the coverage of the Act includes the insurer
of the goods."[10]
The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it
was the shipper which filed a claim against the insurer. The basis of the
shipper's claim is the "all risks" insurance policies issued by private
respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. When the
court said in Filipino Merchants that Section 3(6) of the Carriage of Goods
by Sea Act applies to the insurer, it meant that the insurer, like the shipper,
may no longer file a claim against the carrier beyond the one-year period
provided in the law. But it does not mean that the shipper may no longer
file a claim against the insurer because the basis of the insurer's liability is
the insurance contract. An insurance contract is a contract whereby one
party, for a consideration known as the premium, agrees to indemnify
another for loss or damage which he may suffer from a specified peril.
[11]
 An "all risks" insurance policy covers all kinds of loss other than those
due to willful and fraudulent act of the insured.[12] Thus, when private
respondents issued the "all risks" policies to petitioner Mayer, they bound
themselves to indemnify the latter in case of loss or damage to the goods
insured. Such obligation prescribes in ten years, in accordance with Article
1144 of the New Civil Code.[13]
IN VIEW WHEREOF, the petition is GRANTED. 

IX. Paramount vs Japzon
Assailed in this petition for certiorari and prohibition with preliminary
injunction is the decision 1 of the Regional Trial Court of Manila, Branch 36
dated August 30, 1983 in Civil Case No. 82-4416 entitled "Jose Lara and
Arsenio Paed v. Willy Garcia, Emilio Macasieb, Domingo Natividad, Willy
Manuel, and Paramount Insurance Co. Inc." ordering petitioner to pay
private respondents an aggregate sum of P175,000.00 as insurer of a
motor vehicle owned by Domingo Natividad despite the absence of
jurisdiction over its persons.
It appears that on May 27, 1978, Jose Lara contracted the services of a
passenger jeepney with Plate No. PUJ K5-826, owned and operated by
Willy Garcia (Garcia for brevity), to transport his family, relatives and
friends from Manila to Pangasinan. The said jeepney was then driven by
Emilio Macasieb (Macasieb for brevity).
On the very same date, within the vicinity of Barangay Parsolingan in
Gerona, Tarlac, a Ford truck F-600 with Plate No. WL-628, then driven by
Willy Manuel (Manuel for brevity) while cruising the National Highway on
its way to Manila, overtook an unidentified motor vehicle and in the
process hit and sideswept the said passenger jeepney then driven by
Macasieb. As a consequence of such mishap, the two (2) passengers of the
jeepney, namely: Jose Lara (Lara for brevity) and Arsenio Paed (Paed for
brevity) sustained physical injuries of varying degrees. Specifically, Lara
suffered serious physical injuries resulting in the amputation of his right
arm while Paed suffered serious physical injuries which incapacitated him
to work for more than two (2) weeks. Aside from bodily injuries suffered by
its passengers, both vehicles suffered minor damages at their respective
points of impact. The insurer of said truck is herein petitioner Paramount
Surety and Insurance Co. Inc. 2
After the said accident, Natividad filed a notice of claim with Paramount
and the latter lost no time in dispatching and/or contracting an
independent adjuster handling casualty and marine claims, the EM
Salvatierra Adjustment Office.
Thereafter, the adjustment of Natividad's claims were transferred to
Speedway Adjustment and Appraisal Corporation which investigated the
facts surrounding the incident and recommended petitioner to pay
Natividad under its policy, using the "no fault" clause under the Insurance
Code as its basis of liability.
A check in the amount of Eight Hundred Pesos (P800.00) covered by Check
No. EBC-10036191F was paid to Paed's wife, Priscilla Paed. It was covered
by Voucher No. 32358. 3
In addition to said amount, another check in the amount of Five Thousand
Pesos (P5,000.00) covered by EBC Check No. 3082 was paid by Paramount
to Central Luzon Doctor's Hospital covering the expense for medical
treatment and hospitalization of the victims, Lara and Paed. It was covered
by Voucher No. 32196. 4
On or about June 5, 1978, Lara and Paed filed a criminal case against
Manuel for Reckless Imprudence resulting in Damage to Property docketed
as Criminal Case No. 2227 before the Municipal Trial Court of Gerona,
Tarlac. 5
During the pendency of said criminal case, Lara filed a manifestation
reserving the right to file a separate civil action against the operators of
the two (2) vehicles, namely: Natividad and Garcia as well as the two (2)
drivers, Manuel and Macasieb. 6
Accordingly, Lara and Paed filed on September 17, 1978 a civil case for
damages docketed as Civil Case No. 82-4416 against Garcia, Macasieb,
Manuel, Natividad, and impleaded Paramount, the latter as insurer of the
Ford truck. 7
A certain Atty. Segundo Gloria filed a notice of appearance dated
November 16, 1978 where he informed the court that he was appearing
for and in behalf of the defendants Natividad, Manuel and
Paramount. 8 Subsequently, on December 14, 1978, he filed an answer
with crossclaim and counterclaim. 9
During the trial of Criminal Case No. 2227 for Reckless Imprudence
resulting in Damage to Property, accused Manuel pleaded guilty to the
crime charged on September 18, 1979, and was accordingly, sentenced to
imprisonment of six months of arresto mayor maximum under Article 365
of the Revised Penal Code. 10
In the interim period, a fire gutted the City Hall of Manila on November 19,
1981 and the records of the case were burned to ashes. Subsequently, on
January 25, 1982, plaintiffs (herein private respondents Lara and Paed)
filed a petition for reconstitution of the judicial records of the case 11 which
was approved without any opposition in the order of the court dated
November 4, 1982. 12
On February 17, 1983, the court reiterated its order before the
reconstitution of the judicial records declaring defendants Natividad,
Manuel and Paramount in default in view of their continued failure to
appear during the trial of the case and allowed the plaintiffs (Lara and
Paed) to make a formal offer of exhibits and considered the case submitted
for decision. 13
After protracted proceedings which lasted for almost five years, the
Regional Trial Court of Manila, rendered a decision dated August 30, 1983,
the decretal portion of which states:
WHEREFORE, finding the evidence presented by plaintiff sufficient to prove
the allegations of the complaint, judgment is hereby rendered in favor of
the plaintiffs and against the defendants ordering the latter to pay jointly
and severally plaintiff Jose Lara, the amount of P15,000.00 for medical and
hospitalization expenses; the sum of P80,000.00 as moral and exemplary
damages; the sum of P50,000.00 as compensatory damages; to pay jointly
and severally plaintiff Arsenio Paed the sum of P20,000.00 as moral and
actual damages and to pay the sum of P10,000.00 by way of attorney's fees
and the costs of suit. 14
A copy of the said decision was served on the petitioner's counsel, Atty.
Segundo Gloria, on October 5, 1981. 15 No appeal from the judgment
having been filed within the reglementary period or up to October 20,
1983, the same became final and executory. So, on March 2, 1984, Lara
and Paed, now private respondents, filed an ex-partemotion for execution
of the said judgment and the trial court granted the same on July 10,
1984. 16
It was only on March 3, 1984 that Paramount, now petitioner, filed a
motion to set aside the Decision raising the issue that the court has not
validly acquired jurisdiction over its person. 17
Hence, the present recourse.
After deliberating on the petition, the Court issued a temporary restraining
order on July 30, 1984 as prayed for and enjoined the respondents from
enforcing the Decision dated August 30, 1983 and the Writ of Execution
dated July 10, 1984, both rendered and issued in Civil Case No. 82-4416. 18
The pivotal issue to be resolved in this case is whether or not the court
validly acquired jurisdiction over petitioner despite the appearance of Atty.
Segundo M. Gloria who allegedly was not retained or authorized to file an
answer for it. 19
Petitioner now claims that the Decision of the trial court dated August 30,
1983, should be set aside since the court has not validly acquired
jurisdiction over its person, not having been validly served with summons
and a copy of the complaint nor did it actively participate in the said
proceedings. It alleged that Atty. Segundo Gloria was not its retained
counsel at that time nor was he authorized by petitioner to act for and in
its behalf; and that private respondents' claims for moral, exemplary and
compensatory damages as well as attorney's fees are not recoverable from
petitioner. 20
The petition is devoid of merit.
Jurisdiction is the power with which courts are invested for administering
justice, that is, for hearing and deciding cases. 21 In order for the court to
have authority to dispose of the case on the merits, it must acquire
jurisdiction over the subject matter and the parties. 22
Jurisdiction over the person of the defendant in civil cases is acquired
either by his voluntary appearance in court and his submission to its
authority or by service of summons. The service of summons is intended to
give notice to the defendant or respondent that an action has been
commenced against it. The defendant or respondent is thus put on guard
as to the demands of the plaintiff or the petitioner. 23
Consequently, petitioner's contentions that it was not properly served with
summons and that Atty. Segundo Gloria was not authorized to appear for
and in its behalf are untenable.
In the case at bar, although petitioner questioned the propriety of the
service of summons, it however failed to substantiate its allegation that it
was not properly served with summons. Hence, the disputable
presumption that official duty has been regularly performed prevails. 24
The records of the case, however, showed that all the pleadings, including
the answer with crossclaim and counterclaim filed by Atty. Segundo Gloria
stated that he represented the defendants Natividad, Manuel and
Paramount. In fact, he even filed a notice of appearance informing the
court that he is representing the said defendants. 25
It is worth noting that this is not the first time petitioner raised the issue of
warrant of jurisdiction over its person as well as warrant of authority of a
lawyer to appear for and in its behalf. In the case docketed as G.R. No.
68066 entitled "Paramount Insurance Corp. v. Luna," this Court had the
opportunity to rule that "the mere filling of the answer with crossclaim
raised a presumption of authority to appear for petitioner Paramount
Insurance Corporation . . . in accordance with Section 21, Rule 138 of the
Rules of Court. Such presumption is rebuttable, but only by clear and
positive proof.
In the absence of such clear and positive proof, the presumption of
authority . . . should prevail over the petitioner's self-serving denial of such
authority.
It strains credulity that a counsel who has no personal interest in the case
would fight for and defend a case with persistence and vigor if he has not
been authorized or employed by the party concerned. 26
To the mind of the Court, the instant petition is filed merely to derail its
execution. It took Paramount almost six years to question the jurisdiction
of the lower court. Moreover, as earlier adverted to, the controverted
Decision of August 30, 1983, became final and executory on October 20,
1983. In any event, it is axiomatic that there is no justification in law and in
fact for the reopening of a case which has long become final and which in
fact was already executed on July 18, 1984. Time and again, this Court has
said that the doctrine of finality of judgment is grounded on fundamental
considerations of public policy and sound practice and at the risk of
occasional error, the judgments of courts must become final at some
definite date fixed by law. 27
However, there is merit in petitioner's contention that its liability is limited
only to P50,000.00 as expressed in Insurance Policy No. CV-3466 issued on
February 23, 1978. 28 The said insurance policy clearly and categorically
placed the petitioners liability for all damages arising out of death or bodily
injury sustained by one person as a result of any one accident at
P50,000.00. Said amount complied with the minimum fixed by law then
prevailing, Section 377 of Presidential Decree No. 6123 (which was
retained by P.D. No. 1460, the Insurance Code of 1978), which provided
that the liability of land transportation vehicle operators for bodily injuries
sustained by a passenger arising out of the use of their vehicles shall not be
less than P12,000.00. Since the petitioner's liability under the insurance
contract is neither less than P12,000.00 nor contrary to law, morals, good
customs, public order or public policy, said stipulation must be upheld as
effective and binding between the parties. Therefore, the terms of the
contract constitute the measure of the insurer's liability. 29
WHEREFORE, the petition is DISMISSED and the temporary restraining
order of July 30, 1984 is LIFTED. The decision of the Regional Trial Court of
Manila, Branch 36, dated August 30, 1983, is hereby AFFIRMED with the
MODIFICATION that petitioner be held liable to pay respondents Jose Lara
and Arsenio Paed the amount of P50,000.00 each which is the limit of its
liability under the insurance policy minus the amounts of P5,000.00 and
P800.00 which it paid for the hospitalization and medical expenses,
respectively, of respondents.

X. Philippine American Gen. Ins. Co. vs CA
This case deals with the liability, if any, of a shipowner for loss of cargo due
to its failure to observe the extraordinary diligence required by Art. 1733 of
the Civil Code as well as the right of the insurer to be subrogated to the
rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV
Asilda, a vessel owned and operated by respondent Felman Shipping Lines
(FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to
be transported fromZamboanga City to Cebu City for consignee Coca-
Cola Bottlers Philippines, Inc., Cebu.[1] The shipment was insured with
petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for
brevity), under Marine Open Policy No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight oclock in the
evening of the same day. At around eight forty-five the following morning,
7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing
down her entire cargo with her including the subject 7,500 cases of 1-liter
Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu
plant, filed a claim with respondent FELMAN for recovery of damages it
sustained as a result of the loss of its softdrink bottles that sank with MV
Asilda. Respondent denied the claim thus prompting the consignee to file
an insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against
respondent FELMAN which disclaimed any liability for the
loss. Consequently, on 29 November 1983 PHILAMGEN sued the
shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of MV
Asilda and its cargo were due to the vessels unseaworthiness as she was
put to sea in an unstable condition. It further alleged
that the vessel was improperly manned andthat its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby
port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the
affirmative defense that no right of subrogation in favor of PHILAMGEN
was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over MV Asilda together
with her freight and appurtenances for the purpose of limiting and
extinguishing its liability under Art. 587 of the Code of Commerce. [2]
On 17 February 1986 the trial court dismissed the complaint of
PHILAMGEN. On appeal the Court of Appeals set aside the dismissal and
remanded the case to the lower court for trial on the merits. FELMAN filed
a petition for certiorari with this Court but it was subsequently denied on
13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of
FELMAN.[3] It ruled that MV Asilda was seaworthy when it left the port of
Zamboanga as confirmed by certificates issued by the Philippine Coast
Guard and the shipowners surveyor attesting to its seaworthiness. Thus
the loss of the vessel and its entire shipment could only be attributed to
either a fortuitous event, in which case, no liability should attach unless
there was a stipulation to the contrary, or to the negligence of the captain
and his crew, in which case, Art. 587 of the Code of Commerce should
apply.
The lower court further ruled that assuming MV Asilda was unseaworthy,
still PHILAMGEN could not recover from FELMAN since the assured (Coca-
Cola Bottlers Philippines, Inc.) had breached its implied warranty on the
vessels seaworthiness.Resultantly, the payment made by PHILAMGEN to
the assured was an undue, wrong and mistaken payment. Since it was not
legally owing, it did not give PHILAMGEN the right of subrogation so as to
permit it to bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of
Appeals. On 29 August 1994 respondent appellate court rendered
judgment finding MV Asilda unseaworthy for being top- heavy as 2,500
cases of Coca-Cola softdrink bottles were improperly stowed on deck. In
other words, while the vessel possessed the necessary Coast Guard
certification indicating its seaworthiness with respect to the structure of
the ship itself, it was not seaworthy with respect to the
cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on
the ground that the assureds implied warranty of seaworthiness was not
complied with. Perfunctorily, PHILAMGEN was not properly subrogated to
the rights and interests of the shipper.Furthermore, respondent court held
that the filing of notice of abandonment had absolved the
shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV Asilda was
seaworthy when it left the port of Zamboanga; (b) whether the limited
liability under Art. 587 of the Code of Commerce should apply; and, (c)
whether PHILAMGEN was properly subrogated to the rights and legal
actions which the shipper had against FELMAN, the shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint
statement, the captain as well as the chief mate of the vessel confirmed
that the weather was fine when they left the port of
Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-
liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2
cylinders and an undetermined quantity of empty boxes for fresh
eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-
Cola bottles on deck.[4] The ship captain stated that around four oclock in
the morning of 7 July 1983 he was awakened by the officer on duty to
inform him that the vessel had hit a floating log. At that time he noticed
that the weather had deteriorated with strong southeast winds inducing
big waves. After thirty minutes he observed that the vessel was listing
slightly to starboard and would not correct itself despite the heavy rolling
and pitching. He then ordered his crew to shift the cargo from starboard to
portside until the vessel was balanced. At about seven oclock in the
morning, the master of the vessel stopped the engine because the vessel
was listing dangerously to portside. He ordered his crew to shift the cargo
back to starboard. The shifting of cargo took about an hour afterwhich he
rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before
the captain could decide on his next move, some of the
cargo on deck were thrown overboard and seawater entered the engine
room and cargo holds of the vessel. At that instance, the master of the
vessel ordered his crew to abandon ship. Shortly thereafter, MV
Asilda capsized and sank. He ascribed the sinking to the entry of seawater
through a hole in the hull caused by the vessels collision with a partially
submerged log.[5]
The Elite Adjusters, Inc., submitted a report regarding the sinking of MV
Asilda. The report, which was adopted by the Court of Appeals, reads -
We found in the course of our investigation that a reasonable explanation
for the series of lists experienced by the vessel that eventually led to her
capsizing and sinking, was that the vessel was top-heavy which is to say
that while the vessel may not have been overloaded, yet the distribution
or stowage of the cargo on board was done in such a manner that the
vessel was in top-heavy condition at the time of her departure and which
condition rendered her unstable and unseaworthy for that particular
voyage.
In this connection, we wish to call attention to the fact that this vessel was
designed as a fishing vessel x x x x and it was not designed to carry a
substantial amount or quantity of cargo on deck. Therefore, we believe
strongly that had her cargo been confined to those that could have been
accommodated under deck, her stability would not have been affected and
the vessel would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on
its deck, the vessel was rendered unseaworthy for the purpose of carrying
the type of cargo because the weight of the deck cargo so decreased the
vessels metacentric height as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big
waves, it must be pointed out that ships are precisely designed to be able
to navigate safely even during heavy weather and frequently we hear of
ships safely and successfully weathering encounters with typhoons and
although they may sustain some amount of damage, the sinking of ship
during heavy weather is not a frequent occurrence and is not likely to
occur unless they are inherently unstable and unseaworthy x x x x
We believe, therefore, and so hold that the proximate cause of the sinking
of the M/V  Asilda was her condition of unseaworthiness arising from her
having been top-heavy when she departed from the Port of
Zamboanga. Her having capsized and eventually sunk was bound to
happen and was therefore in the category of an inevitable occurrence
(underscoring supplied).[6]
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of
Appeals that the proximate cause of the sinking of MV Asilda was its being
top-heavy. Contrary to the ship captains allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were stowed on
deck. Several days after MV Asilda sank, an estimated 2,500 empty Coca-
Cola plastic cases were recovered near the vicinity of the
sinking. Considering that the ships hatches were properly secured, the
empty Coca-Cola cases recovered could have come only from the vessels
deck cargo. It is settled that carrying a deck cargo raises the presumption
of unseaworthiness unless it can be shown that the deck cargo will not
interfere with the proper management of the ship. However, in this case it
was established that MV Asilda was not designed to carry substantial
amount of cargo on deck. The inordinate loading of cargo deck resulted in
the decrease of the vessels metacentric height [7] thus making it
unstable. The strong winds and waves encountered by the vessel are but
the ordinary vicissitudes of a sea voyage and as such merely contributed to
its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to
the case at bar.[8] Simply put, the ship agent is liable for the negligent acts
of the captain in the care of goods loaded on the vessel. This liability
however can be limited through abandonment of the vessel, its equipment
and freightage as provided in Art. 587. Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held answerable
despite the abandonment, as where the loss or injury was due to the fault
of the shipowner and the captain.[9] The international rule is to the effect
that the right of abandonment of vessels, as a legal limitation of a
shipowners liability, does not apply to cases where the injury or average
was occasioned by the shipowners own fault. [10] It must be stressed at this
point that Art. 587 speaks only of situations where the fault or negligence
is committed solely by the captain. Where the shipowner is likewise to be
blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier.[11]
It was already established at the outset that the sinking of MV Asilda was
due to its unseaworthiness even at the time of its departure from the port
of Zamboanga. It was top-heavy as an excessive amount of cargo was
loaded on deck. Closer supervision on the part of the shipowner could
have prevented this fatal miscalculation. As such, FELMAN was equally
negligent. It cannot therefore escape liability through the expedient of
filing a notice of abandonment of the vessel by virtue of Art. 587 of the
Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of
their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported bythem, according to all the circumstances of
each case x x x x" In the event of loss of goods, common carriers are
presumed to have acted negligently. FELMAN, the shipowner, was not able
to rebut this presumption.
In relation to the question of subrogation, respondent appellate court
found MV Asilda  unseaworthy with reference to the cargo and therefore
ruled that there was breach of warranty of seaworthiness that rendered
the assured not entitled to the payment of is claim under the
policy. Hence, when PHILAMGEN paid the claim of the bottling firm there
was in effect a voluntary payment and no right of subrogation accrued in
its favor. In other words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured
impliedly warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly written on the
face of the policy.[12] Thus Sec. 113 of the Insurance Code provides that (i)n
every marine insurance upon a ship or freight, or freightage, or upon
anything which is the subject of marine insurance, a warranty is implied
that the ship is seaworthy. Under Sec. 114, a ship is seaworthy when
reasonably fit to perform the service, and to
encounter the ordinary perils of the voyage, contemplated by the parties
to the policy. Thus it becomes the obligation of the cargo owner to look for
a reliable common carrier which keeps its vessels in seaworthy
condition. He may have no control over the vessel but he has full control in
the selection of the common carrier that will transport his goods. He also
has full discretion in the choice of assurer that will underwrite a particular
venture.
We need not belabor the alleged breach of warranty of seaworthiness by
the assured as painstakingly pointed out by FELMAN to stress that
subrogation will not work in this case. In policies where the law will
generally imply a warranty of seaworthiness, it can only be excluded by
terms in writing in the policy in the clearest language. [13] And where the
policy stipulates that the seaworthiness of the vessel as between the
assured and the assurer is admitted, the question of seaworthiness cannot
be raised by the assurer without showing concealment or
misrepresentation by the assured.[14]
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in
at least two (2) instances has dispensed with the usual warranty of
worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG
reads (t)he liberties as per Contract of Affreightment the presence of the
Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or
Charter Party and/or Contract of Affreightment as between the Assured
and the Company shall not prejudice the insurance. The seaworthiness of
the vessel as between the Assured and the Assurers is hereby admitted. [15]
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.)
of the policy which states (t)he seaworthiness of the vessel as between the
Assured and Underwriters in hereby admitted x x x x" [16]
The result of the admission of seaworthiness by the assurer PHILAMGEN
may mean one or two things: (a) that the warranty of the seaworthiness is
to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed
by the insurance company.[17] The insertion of such waiver clauses in cargo
policies is in recognition of the realistic fact that cargo owners cannot
control the state of the vessel. Thus it can be said that with such
categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness
so that if the ship should sink by unseaworthiness, as what occurred in this
case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for
subrogation. PHILAMGENs action against FELMAN is squarely sanctioned
by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing
the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said that
payment by the assurer to the assured operates as an equitable
assignment to the assurer of all the remedies which the assured may have
against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out
of any privity of contract or upon payment by the insurance company of
the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to
promote and to accomplish justice and is the mode which equity adopts to
compel the ultimate payment of a debt by one who in justice, equity and
good conscience ought to pay.[19]Therefore, the payment made by
PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the
right to bring an action as subrogee against FELMAN. Having failed to rebut
the presumption of fault, the liability of FELMAN for the loss of the 7,500
cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING
LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC., Seven Hundred Fifty-five Thousand
Two Hundred and Fifty Pesos(P755,250.00) plus legal interest thereon
counted from 29 November 1983, the date of judicial demand, pursuant to
Arts. 2212 and 2213 of the Civil Code.

XII. Filipinas vs Christern Huenfeld & Co.
On October 1, 1941, the respondent corporation, Christern Huenefeld, &
Co., Inc., after payment of corresponding premium, obtained from the
petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of
P1000,000, covering merchandise contained in a building located at No.
711 Roman Street, Binondo Manila. On February 27, 1942, or during the
Japanese military occupation, the building and insured merchandise were
burned. In due time the respondent submitted to the petitioner its claim
under the policy. The salvage goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was fixed
at P92,650. The petitioner refused to pay the claim on the ground that the
policy in favor of the respondent had ceased to be in force on the date the
United States declared war against Germany, the respondent Corporation
(though organized under and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner being a company
under American jurisdiction when said policy was issued on October 1,
1941. The petitioner, however, in pursuance of the order of the Director of
Bureau of Financing, Philippine Executive Commission, dated April 9, 1943,
paid to the respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First
Instance of Manila for the purpose of recovering from the respondent the
sum of P92,650 above mentioned. The theory of the petitioner is that the
insured merchandise were burned up after the policy issued in 1941 in
favor of the respondent corporation has ceased to be effective because of
the outbreak of the war between the United States and Germany on
December 10, 1941, and that the payment made by the petitioner to the
respondent corporation during the Japanese military occupation was
under pressure. After trial, the Court of First Instance of Manila dismissed
the action without pronouncement as to costs. Upon appeal to the Court
of Appeals, the judgment of the Court of First Instance of Manila was
affirmed, with costs. The case is now before us on appeal by certiorari from
the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the
respondent corporation became an enemy when the United States
declared war against Germany, relying on English and American cases
which held that a corporation is a citizen of the country or state by and
under the laws of which it was created or organized. It rejected the theory
that nationality of private corporation is determine by the character or
citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent
corporation were German subjects. This being so, we have to rule that said
respondent became an enemy corporation upon the outbreak of the war
between the United States and Germany. The English and American cases
relied upon by the Court of Appeals have lost their force in view of the
latest decision of the Supreme Court of the United States in
Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92
Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test
has been adopted. In "Enemy Corporation" by Martin Domke, a paper
presented to the Second International Conference of the Legal Profession
held at the Hague (Netherlands) in August. 1948 the following enlightening
passages appear:
Since World War I, the determination of enemy nationality of corporations
has been discussion in many countries, belligerent and neutral. A
corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or
corporations, themselves considered as enemies. It was the English courts
which first the  Daimler case applied this new concept of "piercing the
corporate veil," which was adopted by the peace of Treaties of 1919 and
the Mixed Arbitral established after the First World War.
The United States of America did not adopt the control test during the First
World War. Courts refused to recognized the concept whereby American-
registered corporations could be considered as enemies and thus subject
to domestic legislation and administrative measures regarding enemy
property.
World War II revived the problem again. It was known that German and
other enemy interests were cloaked by domestic corporation structure. It
was not only by legal ownership of shares that a material influence could
be exercised on the management of the corporation but also by long term
loans and other factual situations. For that reason, legislation on enemy
property enacted in various countries during World War II adopted by
statutory provisions to the control test and determined, to various
degrees, the incidents of control. Court decisions were rendered on the
basis of such newly enacted statutory provisions in determining enemy
character of domestic corporation.
The United States did not, in the amendments of the Trading with the
Enemy Act during the last war, include as did other legislations the
applications of the control test and again, as in World War I, courts refused
to apply this concept whereby the enemy character of an American or
neutral-registered corporation is determined by the enemy nationality of
the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and
other administrative practice in the treatment of foreign-owned property
in the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control
test. Court decisions sanctioned such administrative practice enacted
under the First War Powers Act of 1941, and more recently, on December
8, 1947, the Supreme Court of the United States definitely approved of the
control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing
with a Swiss corporation allegedly controlled by German interest, the
Court: "The property of all foreign interest was placed within the reach of
the vesting power (of the Alien Property Custodian) not to appropriate
friendly or neutral assets but to reach enemy interest which masqueraded
under those innocent fronts. . . . The power of seizure and vesting was
extended to all property of any foreign country or national so that no
innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities
cited in support of the appealed decision. However, we may add that,
in Haw Pia vs. China Banking Corporation, * 45 Off Gaz., (Supp. 9) 299, we
already held that China Banking Corporation came within the meaning of
the word "enemy" as used in the Trading with the Enemy Acts of civilized
countries not only because it was incorporated under the laws of an
enemy country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8,
provides that "anyone except a public enemy may be insured." It stands to
reason that an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.
Effect of war, generally. — All intercourse between citizens of belligerent
powers which is inconsistent with a state of war is prohibited by the law of
nations. Such prohibition includes all negotiations, commerce, or trading
with the enemy; all acts which will increase, or tend to increase, its income
or resources; all acts of voluntary submission to it; or receiving its
protection; also all acts concerning the transmission of money or goods;
and all contracts relating thereto are thereby nullified. It further prohibits
insurance upon trade with or by the enemy, upon the life or lives of aliens
engaged in service with the enemy; this for the reason that the subjects of
one country cannot be permitted to lend their assistance to protect by
insurance the commerce or property of belligerent, alien subjects, or to do
anything detrimental too their country's interest. The purpose of war is to
cripple the power and exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy's property and
repay in insurance the value of what has been so destroyed, or that it
should in such manner increase the resources of the enemy, or render it
aid, and the commencement of war determines, for like reasons, all
trading intercourse with the enemy, which prior thereto may have been
lawful. All individuals therefore, who compose the belligerent powers,
exist, as to each other, in a state of utter exclusion, and are public enemies.
(6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from
year, or for some other specified term it is plain that when the parties
become alien enemies, the contractual tie is broken and the contractual
rights of the parties, so far as not vested. lost. (Vance, the Law on
Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10,
1941, the insurance policy issued in its favor on October 1, 1941, by the
petitioner (a Philippine corporation) had ceased to be valid and enforcible,
and since the insured goods were burned after December 10, 1941, and
during the war, the respondent was not entitled to any indemnity under
said policy from the petitioner. However, elementary rules of justice (in the Philippine currency, less the amount of the premium, in Philippine
absence of specific provision in the Insurance Law) require that the currency, that should be returned by the petitioner for the unexpired term
premium paid by the respondent for the period covered by its policy from of the policy in question, beginning December 11, 1941. Without costs. So
December 11, 1941, should be returned by the petitioner. ordered.

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

It results that the petitioner is entitled to recover what paid to the

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

Wherefore, the appealed decision is hereby reversed and the respondent

corporation is ordered to pay to the petitioner the sum of P77,208.33,

XIII. People vs Yip Wai Ming
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong
nationals, came to Manila on vacation on July 10, 1993. The two were
engaged to be married. Hardly a day had passed when Lam Po Chun was
brutally beaten up and strangled to death in their hotel room. On the day
of the killing, July 11, 1993, Yip Wai Ming, was touring Metro Manila with
Filipino welcomers while Lam Po Chun was left in the hotel room allegedly
because she had a headache and was not feeling well enough to do the
sights.
For the slaying, an Information was lodged against Yip Wai Ming on July 19,
1991, which averred:
That on or about July 11, 1993, in the City of Manila, Philippines, the said
accused did then and there wilfully, unlawfully and feloniously with intent
to kill with treachery and evident premeditation, did then and there attack,
assault and use personal violence upon one Lam Po Chun by then and
there mauling and strangling the latter, thereby inflicting upon her mortal
and fatal wounds which were the direct and immediate cause of her death
thereafter.
On May 15, 1995, Branch 44 of the Regional Trial Court of the National
Capital Judicial Region stationed in Manila and presided over by the
Honorable Lolita O. Gal-lang rendered a decision in essence finding that Yip
Wai Ming killed his fiancee before he left for the Metro Manila
tour. Disposed thus the trial court:
WHEREFORE, in view of the foregoing established evidence, judgment is
hereby rendered convicting the accused Yip Wai Ming beyond reasonable
doubt of the crime of Murder as charged in the information and as defined
in Article 248, paragraph 5 of the Revised Penal Code, and in accordance
therewith the aggravating circumstance of evident premeditation which
attended the commission of the offense, the said accused Yip Wai Ming is
hereby sentenced to suffer the penalty of Reclusion Perpetua with all the
accessory penalties provided for by law.
Accused is likewise ordered to pay the heirs of the deceased Lam Po Chun
of Hongkong the death indemnity for damages at Fifty Thousand
(P50,000.00) Pesos; Moral and compensatory damages of Fifty Thousand
(P50,000.00) Pesos each or a total of One Hundred Thousand Pesos
(P100,000.00); plus costs of suit.
The accused being detained, he is credited with the full extent of the
period under which he was under detention, in accordance with the rules
governing convicted prisoners.
SO ORDERED.
(p. 69, Rollo.)
There was no eyewitness to the actual killing of Lam Po Chun. All the
evidence about the killing is circumstantial. The key issue in the instant
appeal is, therefore, whether or not the circumstantial evidence linking
accused-appellant to the killing is sufficient to sustain a judgment of
conviction beyond reasonable doubt.
The evidence upon which the prosecution convinced the trial court of
accused-appellants guilt beyond reasonable doubt is summarized in the
Solicitor-Generals brief as follows:
On or about 7 oclock in the evening of July 10, 1993, appellant and his
fiancee Lam Po Chun who are both Hongkong nationals, checked in at Park
Hotel located at No. 1032-34 Belen St., Paco, Manila. They were billeted at
Room 210. Angel Gonzaga, the roomboy on duty, assisted the couple in
going up to their room located at the second floor of the hotel (p. 14, tsn,
October 13, 1993, p. 66, tsn, September 1, 1993). When they reached
Room 210, appellant got the key from Angel Gonzaga and informed the
latter that they do not need any room service, particularly the bringing of
foods and other orders to their room (pp. 67-69, tsn, September 1, 1993).
After staying for about an hour inside Room 210, the couple went down to
the lobby of the hotel. Appellant asked the front desk receptionist on duty
to call a certain Gwen delos Santos and to instruct her to pick them up the
following day, July 11, 1993, a Sunday at 10 oclock in the morning (pp. 21-
25, tsn, September 8,1993).
At about past 8 oclock in the same evening of July 10, 1993, Cariza
Destreza, occupant of Room 211 which is adjacent to Room 210, heard a
noise which sounds like a heated argument between a man and a woman
coming from the room occupied by appellant and Lam Po Chun. The
heated discussions lasted for thirty (30) minutes and thereafter subsided.
In the following morning, that is, July 11, 1993, at around 9:15, the same
Cariza Destresa again heard a banging which sounds like somebody was
thrown and stomped on the floor inside Room 210. Cariza, who became
curious, went near the wall dividing her room and Room 210. She heard a
cry of a woman as if she cannot breathe (pp. 23-24, tsn, August 30, 1993).
At about 10 oclock a.m., Gwen delos Santos, together with two lady
companions, arrived at the lobby of the Park Hotel. The receptionist
informed appellant by telephone of her arrival. In response, appellant
came down without his fiancee Lam Po Chun. After a while he together
with Gwen delos Santos and the latters companions, left the hotel. Before
leaving, he gave instruction to the front desk receptionist not to disturb his
fiancee at Room 210. He also ordered not to accept any telephone calls, no
room cleaning and no room service (pp. 37-43, tsn, October 18, 1993).
When appellant left, the front desk receptionist, Enriqueta Patria, noticed
him to be in a hurry, perspiring and looking very scared (p. 32, tsn,
September 22, 1993).
During the whole morning of July 11, 1993, after appellant left the hotel
until his return at 11 oclock in the evening, he did not call his fiancee Lam
Po Chun to verify her physical condition (p. 44 tsn, October 18, 1993, p. 18,
tsn, November 23, 1993).
When appellant arrived at 11 oclock p.m. on that day, he asked the
receptionist for the key of his room. Then together with Fortunato Villa,
the roomboy, proceeded to Room 210. When the lock was opened and the
door was pushed, Lam Po Chun was found dead lying face down on the
bed covered with a blanket. Appellant removed the blanket and pretended
to exclaim My God, she is dead but did not even embrace his
fiancee. Instead, appellant asked the room boy to go down the hotel to
inform the front desk, the security guard and other hotel employees to call
the police (pp. 8-27, tsn, October 18, 1993).
When the police arrived, they conducted an examination of the condition
of the doors and windows of the room as well as the body of the victim
and the other surroundings. They found no signs of forcible entry and they
observed that no one can enter from the outside except the one who has
the key. The police also saw the victim wrapped in a colored blanket lying
face down. When they removed the blanket and tried to change the
position of her body, the latter was already in state of rigor mortis, which
indicates that the victim has been dead for ten (10) to twelve (12)
hours. The police calculated that Lam Po Chun must have died between 9
to 10 in the morning of July 11, 1993 (pp. 2-29), tsn, September 22, 1993).
Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an
autopsy of the body of the victim. His examination (Exh. V) revealed that
the cause of death was asphyxia by strangulation. Dr. Lagonera explained
that asphyxia is caused by lack of oxygen entering the body when the
entrance of air going to the respiratory system is blocked (pp. 6-19,
tsn, December 14, 1993).
Prior to the death of the victim, her brother, Lam Chi Keung, learned that
her life was insured with the Insurance Company of New
Zealand in Causeway Bay, Hongkong, with appellant as the beneficiary. The
premium paid for the insurance was more than the monthly salary of the
deceased as an insurance underwriter in Hongkong (Exh. X).
It was on the bases of the foregoing facts that appellant was charged
before the Regional Trial Court in Manila for the crime of murder
committed against the person of Lam Po Chun.
(pp. 3-7, Appellees Brief, ff. p. 176, Rollo.)
In his brief, accused-appellant offers explanatory facts and argues that the
findings of fact of the trial court are based mainly on the prosecution
evidence displaying bias against accused-appellant. He contends that the
court made unwarranted and unfounded conclusions on the basis of self-
contradictory and conflicting evidence.
Accused-appellant, at the time of the commission of the crime, was a
customer relations officer of Well Motors Company in Kowloon,
Hongkong. He met Lam Po Chun at a party in 1991. Both were
sportsminded and after a short courtship, the two began to have a
relationship, living together in the same apartment. The two
toured China and Macao together in 1992. In April, 1993 the two decided
to get married. In May 1993, they registered with the Hongkong Marriage
Registry. The wedding was set for August 29,1993.
An office-mate of accused-appellant named Tessie Amay Ticar encouraged
him and Lam Po Chun to tour the Philippines in celebration of their
engagement. After finishing the travel arrangements, the two were given
by Ticar the names (Toots, Monique, and Gwen) of her cousins in Manila
and their telephone number. Photos of their Manila contacts were shown
to them. In addition to his Citibank credit card, accused-appellant
brought P24,000.00 secured at a Hongkong money exchange and
HK$4,000.00. Lam Po Chun had HK$3,000.00.
The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board
Cathay Pacific Flight CX 903. They arrived at Park Hotel around 7 P.M. From
their hotel room, accused-appellant called their contact, Gwen delos
Santos, by telephone informing her of their arrival. The two ate outside at
McDonalds restaurant
Accused-appellant woke up the following morning - Sunday, July 11, 1993 -
at around 8 oclock. After the usual amenities, including a shower, the two
had breakfast in the hotel restaurant, then they went back to their
room. At around 10 oclock that same morning, accused-appellant received
a phone call from the hotel staff telling him that their visitors had arrived.
He then went to the lobby ahead of Lam Po Chun, introduced himself to
the delos Santos sisters, Gwen and Monique, and their mother. A few
minutes later, Lam Po Chun joined them. Two bottles of perfume were
given to the sisters as arrival gifts.
Gwen delos Santos invited the couple to tour the city but Lam Po Chun
decided to stay behind as it was very hot and she had a headache. She
excused herself and went up to her room, followed later by accused-
appellant to get another bottle of perfume.
Accused-appellant claims that before leaving, he instructed the clerk at the
front desk to give Lam Po Chun some medicine for headache and, as much
as possible, not to disturb her.
Accused-appellant, Gwen, Monique, and the sisters mother took a taxicab
to Landmark Department Store where they window shopped. Accused-
appellant states that from a telephone booth in the store, he called Lam Po
Chun but no one answered his call. From Landmark where they had lunch,
the four went to Shoemart Department Store in Makati. Accused-appellant
bought a Giordano T-shirt at Landmark and chocolates at Shoemart. Gwen
delos Santos brought the group to the house of her aunt, Edna Bayona, at
Roces, Quezon City. From Roces St., Gwen delos Santos brought the group
to her home in Balut, Tondo. Using the delos Santos telephone, accused-
appellant called his office in Hongkong. The PLDT receipt showed that the
call was made at 6:44 P.M. on July 11, 1993. Accused-appellant claims that,
afterwards, he called up Lam Po Chun at their hotel room but the phone
just kept on ringing with nobody answering it. The group had dinner at the
delos Santos house in Tondo. After dinner, Gwen delos Santos brother and
sister-in-law arrived. They insisted in bringing their guest to a restaurant
near Manila Bay for coffee, but it was full so they proceeded to Tia Maria, a
Mexican restaurant in Makati.
Finally, the delos Santos family brought Andy Yip back to the Park Hotel,
arriving there at around 10:30 PM. Before the delos Santos group left,
there was an agreement that the following morning accused-appellant and
Lam Po Chun would join them in another city tour.
After accused-appellants knocks at the door of their room remained
unanswered, he went back to the hotel front desk and asked the hotel staff
to open the door for him. The room was dark. Accused-appellant put on
the light switch. He wanted to give the roomboy who accompanied him a
P20 or P30 tip but his smallest bill was P100. He went to a side table to get
some smaller change. It was then when he noticed the disordered room, a
glass case and wallet on the floor, and Lam Po Chun lying face down on
one of the beds.
Accused-appellant tried to wake Lam Po Chun up by calling her name but
when she did not respond, he lifted up her face, moving her body
sidewards. He saw blood. Shocked, he shouted at the roomboy to call a
doctor.
Several people rushed to Room 210. A foreigner looked at Lam Po Chun
and said she was dead. The foreigner placed his arms around accused-
appellant who was slumped on the floor and motioned for him to leave the
room. Accused-appellant refused, but he was made to move out and to go
to the lobby, at which place, dazed and crying, he called up Gwen delos
Santos to inform her of what happened. Gwen could not believe what she
heard, but she assured accused-appellant that they were going to the
hotel. Policemen then arrived.
In the instant appeal, accused-appellant, through his new counsel, former
Justice Ramon C. Fernandez, assigns the following alleged errors:
I WITNESSES OF THE ACCUSED ARE INCREDIBLE.
THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED-APPELLANT
WAS ARRESTED WITHOUT WARRANT, WAS TORTURED AND WAS NOT
INFORMED THAT HE HAD THE RIGHT TO REMAIN SILENT AND BE ASSISTED
BY INDEPENDENT AND COMPETENT COUNSEL DURING CUSTODIAL
INVESTIGATION.
II
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT HAD
THE VICTIM APPLE INSURED AND LATER KILLED HER FOR THE INSURANCE
PROCEEDS.
III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT
COMMITTED A CRIME OF MURDER AGGRAVATED BY EVIDENT
PREMEDITATION.
IV
THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE TESTIMONY OF
OFFICER ALEJANDRO YANQUILING, JR.
V
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF CARISA
DESTREZA WHO INCURRED SERIOUS CONTRADICTIONS ON MATERIAL
POINTS.
VI
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES OF THE OTHER
PROSECUTION WITNESSES THAT CONTRADICTED EACH OTHER ON
MATERIAL POINTS.
VII
THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES OF THE
VIII
THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION HAS
ESTABLISHED THE GUILT OF THE ACCUSED-APPELLANT BY PROOF BEYOND
REASONABLE DOUBT.
IX
THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING THE ACCUSED-
APPELLANT OF THE CRIME CHARGED IN THE INFORMATION.
(pp. 80-82, Rollo.)
The trial court, in arriving at its conclusions, took the various facts
presented by the prosecution, tied them up together like parts of a jig-saw
puzzle, and came up with a complete picture of circumstantial evidence
depicting not only the commission of the crime itself but also the motive
behind it.
Our review of the record, however, discloses that certain key elements,
without which the picture of the crime would be faulty and unsound, are
not based on reliable evidence. They appear to be mere surmises and
assumptions rather than hard facts or well-grounded conclusions.
A key element in the web of circumstantial evidence is motive which the
prosecution tried to establish. Accused-appellant and Lam Po Chun were
engaged to be married. They had toured China and Macao together. They
were living together in one apartment. They were registered with the
Hongkong Marriage Registry in May 1993. Marriage date was set for
August 29, 1993. This date was only a month and a half away from the date
of death of Lam Po Chun. In the absence of direct evidence indubitably
showing that accused-appellant was the perpetrator of the killing, motive
becomes important. The theory developed by the prosecution was not
only of a cold-blooded crime but a well-planned one, including its timing
up to the half hour. It is not the kind of crime that a man would commit
against his wife-to-be unless a strong motive for it existed.
The trial court would have been justified in finding that there was evident
premeditation of murder if the story is proved that Lam Po Chun insured
herself for the amounts of US $498,750.00 and US $249,375.00 naming
accused-appellant as the beneficiary.
There is, however, no evidence that the victim secured an insurance policy
for a big amount in US dollars and indicated accused-appellant as the
beneficiary. The prosecution presented Exhibit X, a mere xerox copy of a
document captioned Proposal for Life Insurance as proof of the alleged
insurance. It is not a certified copy, nor was the original first identified.
The authenticity of the document has thus not been duly
established. Exhibit X was secured in Hongkong when Lam Chi Keung, the
brother of the victim, learned that his sister was murdered in Manila. It is
not shown how and from whom the information about any alleged
insurance having been secured came. There is no signature indicating that
the victim herself applied for the insurance. There is no marking in Exhibit
X of any entry which purports to be the victims signature. There is a
signature of Apple Lam which is most unusual for an insurance application
because the victims name is Lam Po Chun. To be sure nobody insures
himself or herself under a nickname. The entries in the form are in block
letters uniformly written by one hand. Below the printed name Lam Po
Chun are Chinese characters which presumably are the Chinese translation
of her name. Nobody was presented to identify the author of the block
handwriting. Neither the prosecution nor the trial court made any
comparisons, such as the signature of Lam Po Chun on her passport (Exh.
C), with her purported signature or any other entry in the form.
It needs not much emphasis to say that an application form does not prove
that insurance was secured. Anybody can get an application form for
insurance, fill it up at home before filing it with the insurance company. In
fact, the very first sentence of the form states that it merely forms the
basis of a contract between you and NZI Life. There was no contract yet.
There is evidence in the record that the family of Lam Po Chun did not like
her relationship with accused-appellant. After all the trouble that her
brother went through to gather evidence to pin down accused-appellant,
the fact that all he could come up with is an unsigned insurance application
form shows there was no insurance money forthcoming for accused-
appellant if Lam Po Chun died. There is no proof that the insurance
company approved the proposal, no proof that any premium payments
were made, and no proof from the record of exhibits as to the date it was
accomplished. It appearing that no insurance was issued to Lam Po Chun
with accused-appellant as the beneficiary, the motive capitalized upon by
the trial court vanishes. Thus, the picture changes to one of the alleged
perpetrator killing his fiancee under cold-blooded circumstances for
nothing.
There are other suspicious circumstances about the insurance angle. Lam
Po Chun was working for the National Insurance Company. Why then
should she insure her life with the New Zealand Insurance Company? Lams
monthly salary was only HK $5,000.00. The premiums for the insurance
were HK $5,400.00 or US $702.00 per month. Why should Lam insure
herself with the monthly premiums exceeding her monthly salary? And
why should any insurance company approve insurance, the premiums of
which the supposed insured obviously can not afford to pay, in the absence
of any showing that somebody else is paying for said premiums. It is not
even indicated whether or not there are rules in Hongkong allowing a big
amount of insurance to be secured where the beneficiary is not a spouse, a
parent, a sibling, a child, or other close relative.
Accused-appellant points out an apparent lapse of the trial court related to
the matter of insurance. At page 33 of the decision, the trial court stated:
Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant in
Hongkong and told Yip and Lam Po Chun should be married and there must
be an insurance for her life . . .
(p. 33, RTC Decision; p. 66, Rollo.)
The source of the above finding is stated by the court as tsn hearing Sept.
22, 1992. But accused-appellant Yip Wai Ming did not testify on September
22, 1992. The entire 112 pages of the testimony on that date came from
SPO2 Yanquiling. The next hearing was on September 29, 1993. All the 100
pages of the testimony on that date came from Yanquiling. The next
hearing on October 13, 1993 resulted in 105 pages of testimony, also from
Yanquiling. This Court is at a complete loss as to the reason of the trial
court sourcing its statement to accused-appellants alleged testimony.
Lam Po Chun must have been unbelievably trusting or stupid to follow the
alleged advice of Andy Kwong. It is usually the man who insures himself
with the wife or future wife as beneficiary instead of the other way
around. Why should Lam Po Chun, with her relatively small salary which is
not even enough to pay for the monthly premiums, insure herself for such
a big amount. This is another reason why doubts arise as to the truth of
the insurance angle.
Another key factor which we believe was not satisfactorily established is
the time of death. This element is material because from 10 A.M. of July
11, 1993 up to the time the body was discovered late that evening,
accused-appellant was in the company of Gwen delos Santos, her sister
Monique, and their mother, touring Metro Manila and going from place to
place. This much is established.
To go around this problem of accused-appellant being away from the
scene of the crime during the above mentioned hours, the prosecution
introduced testimonial evidence as to the probable time of death, always
placing it within the narrow 45-minute period between 9:15 and 10 A.M. of
July 11,1993, the time when Cariza Destresa, the occupant of the adjoining
room, heard banging sounds coming from the room of accused-appellant,
and the time accused-appellant left with his Filipino friends.
The prosecution alleges that at 10 A.M., Lam Po Chun was already
dead. However, Gwen delos Santos who never saw the couple before was
categorical in declaring that she met both of them at the lobby before the
group left for the tour (tsn, Feb. 14, 1994, p. 64; p. 20, RTC Decision; p.
150, Rollo), but Lam Po Chun asked to be excused because of a
headache. In fact, delos Santos was able to identify Lam Po Chun from
pictures shown during the trial. She could not have done this unless she
really saw and met the victim at the hotel lobby at around 10 A.M. of July
11,1993.
The prosecution introduced an expert in the person of Dr. Manuel
Lagonera to establish the probable time of death. Dr. Lagonera, medico-
legal officer of the PNP Western Police District, after extensive questioning
on his qualifications as an expert witness, what he discovered as the cause
of death (strangulation), the contents of the deceaseds stomach, injuries
sustained, and the condition of the cadaver, was asked to establish the
time of death, to wit:
Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn, Dec.
14, 1993, p.108). It is undisputed that at around 8:30 A.M. of July 11,1993
accused-appellant and Lam Po Chun took breakfast together at the hotel
restaurant. She could not have been killed on July 10,1993. The autopsy
conducted by Dr. Lagonera and the testimony of accused-appellant
coincided insofar as the food taken at breakfast is concerned. The couple
ate eggs, bacon, and toasted bread. But the doctor was insistent that the
death occurred the previous day.
Where a medico-legal expert of the police department could not, with any
measure of preciseness, fix the time of death, the police investigator was
bold and daring enough to establish it. Surprisingly, the trial court accepted
this kind of evidence.SPO2 Alejandro Yanquiling testified that he arrived at
the Park Hotel at about 11:25 oclock on the evening of July 11, 1993 to
conduct the investigation of the crime. At the time, the victim showed
signs of rigor mortis, stiffening of the muscle joints, with liquid and blood
oozing from the nose and mouth. On the basis of his observations, he
declared that the victim had been dead for 10 to 12 hours.
The trial court stated that if the victim had been dead from 10 to 12 hours
at 11:35 oclock in the evening, it is safe to conclude that she was killed
between 9 and 10 oclock on the morning of July 11, 1993. The
mathematics of the trial court is faulty.Twelve hours before 11:35 P.M.
would be 11:35 A.M.. Ten hours earlier would even be later -- 1:35 P.M..
Since accused-appellant was unquestionably with Gwen delos Santos and
her group touring and shopping in megamalls between 10 A.M. and 11:35
P.M., the assailant or assailants must have been other people who were
able to gain entry into the hotel room at that time.
The trial court stated that there was no sign of any forcible entry into the
room, no broken locks, windows, etc. The answer is simple. Somebody
could have knocked on the door and Lam Po Chun could have opened it
thinking they were hotel staff.Unfortunately, Detective Yanquiling was so
sure of himself that after pinpointing accused-appellant as the culprit, he
did not follow any other leads. In the course of his interviews with
witnesses, his purpose was simply to nail down one suspect. His
investigation was angled towards pinning down Yip Wai Ming. In fact,
Gwen delos Santos testified that Yanquiling talked to her over the
telephone almost daily urging her to change her testimony.
Officer Yanquiling testified on cross-examination that he did not apply any
mode of scientific investigation. If a medico-legal expert of the same police
department who conducted an autopsy had no basis for giving the
probable time of death, the police officer who merely looked at the body
and saw the blood oozing out of the victims nose and mouth must have
simply guessed such time, plucking it out of thin air. The trial court
accepted the erroneous timing, conveniently placing it where a finding of
guilt would follow as a consequence.
Before a conviction can be had upon circumstantial evidence, the
circumstances should constitute an unbroken chain which leads to but one
fair and reasonable conclusion, which points to the accused, to the
exclusion of all others, as the guilty person (U.S. vs. Villos,  6 Phil. 510
[1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis
consistent with innocence must be excluded if guilt beyond reasonable
doubt is based on circumstantial evidence (U.S. vs. Cajayon,  2 Phil. 570
[1903]; U.S. vs. Tan Chian, 17 Phil. 209 [1910]; U.S. vs. Levente, 18 Phil. 439
[1911]). All the evidence must be consistent with the hypothesis that the
accused is guilty, and at the same time inconsistent with the hypothesis
that he is innocent, and with every other rational hypothesis except that of
guilt (People vs. Andia, 2 SCRA 423 [1961]).
The tests as to the sufficiency of the circumstantial evidence to prove guilt
beyond reasonable doubt have not been met in the case at bar.
The chain of circumstances is not unbroken. The most vital circumstantial
evidence in this case is that which proves that accused-appellant killed the
victim so he could gain from the insurance proceeds on the life of the
victim. Another vital circumstance is the time of death precisely between
9:15 and 10 A.M. Both were not satisfactorily established by the
prosecution. Where the weakest link in the chain of evidence is at the
same time the most vital circumstance, there can be no other alternative
but to acquit the accused (People vs. Magborang, 9 SCRA 108 [1963]).
Since the sentence of conviction is based on the crime having been
committed within a short time frame, accused-appellant cannot be
convicted on the strength of circumstantial evidence if doubts are
entertained as to where he was at that particular time and reasonable
conclusions can be had that other culprits could have entered the room
after accused-appellant left with the delos Santos family. Other people
could have killed the victim.
The trial court also relied heavily on the testimony of Cariza Destresa, a 19-
year old cultural dancer occupying with her Australian boyfriend Peter
Humphrey, the adjoining Room 211. Destresa testified that while she was
in Room 211 at about 9:15 oclock on the morning of July 11,1993, she
heard banging sounds in Room 210, as if somebody was being thrown, and
there was stomping on the floor. The banging sounds lasted about thirty
(30) minutes, an improbably long time to kill a woman.Destresa stated that
she placed her ear near the wall and heard the cry of a woman having
difficulty in breathing.
The witness heard the banging sounds between 9:15 and 9:45 A.M. of July
11, 1993, not before or after. The unreliability of Destresas memory as to
dates and time is shown by the fact that when asked as to the date of her
Australian boyfriends arrival in the Philippines, she stated, July 29, 1993.
Pressed by the prosecuting attorney if she was sure of said date, she
changed this to July 16,1993. Pressed further:
Q. Are you sure that he arrived in the Philippines on July 16,1993?
A. I cant exactly remember the date of the arrival of my boyfriend here in
the Philippines because his coming was sudden, Sir.
(tsn, Sept. 30, 1993, p.10.)
On July 16 and July 19, 1993 Lam Po Chun was already dead. If Peter
Humphrey was still in Australia on July 11, 1993, how could he occupy with
his girlfriend the next door room, Room 211, on that date at the Park
Hotel. If Destresa cannot remember the date her Australian boyfriend
arrived, how could the trial court rely on her memory as to the 30-minute
interval from 9:15 A.M. to 9:45 A.M. of July 11, 1993 when the alleged
murder took place. Asked what time on July 13, 1993 she gave her sworn
statement to the police, Destresa answered, I am not sure, may be it was
in the early morning between 2 or 3 oclock of that day, Sir. Destresa was
asked how she could be certain of July 13, 1993 as the date of her sworn
statement. She answered that this was the day her boyfriend left for
Australia (tsn, Aug. 31, 1993, p. 29). In her testimony given on the same
day, Destresa states that she stayed in Room 211 for 3 months. She later
changed her mind and said she stayed there only when Peter Humphrey
was in the Philippines. According to the witness, Peter left on May 29,
1993; arrived in June and July; left in June; arrived in July; left on July 13,
1993. Destresa was confused and evasive not only as to dates, but also as
to her employment, stating at the start of her testimony that she was
jobless, but later declaring that she was a dancer with the Rampage group
and performed in Dubai.
Destresa testified at one point that she heard an argument between a man
and a woman in a dialect she could not understand. This was supposed to
be on the evening of July 11,1993. At that time, the victim had long been
dead. Destresa gave various contradictory statements in her August 30,
1993; August 31,1993; and September 1, 1993 testimony. To our mind, the
trial court gravely erred in relying on her testimony.
Accused-appellant was arrested on July 13, 1993, two days after the
killing. There was no warrant of arrest. Officer Yanquiling testified that
there was no warrant and he arrested the accused-appellant based on
series of circumstantial evidence. He had no personal knowledge of Yip
Wai Ming having committed the crime. Accused-appellant stated that five
police officers at the police station beat him up. They asked him to
undress, forced him to lie down on a bench, sat on his stomach, placed a
handkerchief over his face, and poured water and beer over his face. When
he could no longer bear the pain, he admitted the crime charged,
participated in a re-enactment, and signed an extrajudicial statement. All
the while, he was not informed of his right to remain silent nor did he have
counsel of his choice to assist him in confessing the crime.
The custodial interrogation of accused-appellant was violative of Section
12, Article III of the Constitution. The Constitution provides that (3) Any
confession or admission obtained in violation of this section or Section 17
hereof shall be inadmissible against him. Section 17, Article III provides: No
person shall be compelled to be a witness against himself. Any confession,
including a re-enactment without admonition of the right to silence and to
counsel, and without counsel chosen by the accused is inadmissible in
evidence (People vs. Duero, 104 SCRA 379 [1981]).
This Court notes that accused-appellant did not file any complaint or
charges against the police officers who allegedly tortured him. But he was
a foreign national, a tourist charged with a serious crime, finding himself in
strange surroundings. In Hongkong, there would have been family
members and friends who could have given him moral support. He would
have known that he was being questioned in his own country, being
investigated under the laws of that country. The degree of intimidation
needed to coerce a person to confess to the commission of a crime he did
not commit would be much less if he is in a strange land. Accused-
appellant states that his lawyers told him not to file any charges against
the policemen. He followed their advice, obviously not wanting to get into
more trouble.
This Court has carefully gone over the record of this case. We simply
cannot state that the circumstantial evidence is in its entirety credible and
unbroken and that the finding of guilt excludes any other possibility that
the accused-appellant may be innocent.
Most of the circumstantial evidence in this case came from the
investigation conducted by Officer Alejandro Yanquiling or from the
prodding by him of various witnesses. The desire of a police officer to solve
a high profile crime which could mean a promotion or additional medals
and commendations is admirable. However, an investigator must pursue
various leads and hypotheses instead of singlemindedly pursuing one
suspect and limiting his investigation to that one possibility, excluding
various other probabilities. The killing of a tourist is a blot on the peace
and order situation in the Philippines and must be solved. Still,
concentrating on pinning down an alien companion of the victim and not
pursuing the possibilities that other persons could have killed the victim for
her money and valuables does not speak well of our crime detection
system. It is not enough to solve a crime. The truth is more important and
justice must be rendered.

WHEREFORE, the decision appealed from is hereby REVERSED and SET

ASIDE. Accused-appellant Yip Wai Ming is acquitted of the charge of
murder on grounds of reasonable doubt and his immediate release from
custody is ordered unless he is being held on other legal grounds.
XI. Fireman’s Fund Ins Co. vs Jamila
Fireman's Fund and Insurance Company (Fireman's Fund for short) and
Firestone Tire and Rubber Company of the Philippines appealed from the
order dated October 18, 1966 of the Court of First Instance of Manila,
dismissing their complaint against Jamila & Co., Inc. (hereinafter called
Jamila) for the recovery of the sum of P11,925.00 plus interest, damages
and attorney's fees (Civil Case No. 65658).
The gist of the complaint is that Jamila or the Veterans Philippine Scouts
Security Agency contracted to supply security guards to Firestone; that
Jamila assumed responsibility for the acts of its security guards; that First
Quezon City Insurance Co., Inc. executed a bond in the sum of P20,000.00
to guarantee Jamila's obligations under that contract; that on May 18,
1963 properties of Firestone valued at P11,925.00 were lost allegedly due
to the acts of its employees who connived with Jamila's security guard;
that Fireman's Fund, as insurer, paid to Firestone the amount of the loss;
that Fireman's Fund was subrogated to Firestone's right to get
reimbursement from Jamila, and that Jamila and its surety, First Quezon
City Insurance Co., Inc., failed to pay the amount of the loss in spite of
repeated demands.
Upon defendants' motions, the lower court in its order of July 22, 1966
dismissed the complaint as to Jamila on the ground that there was no
allegation that it had consented to the subrogation and, therefore,
Fireman's Fund had no cause of action against it.
In the same order the lower court dismissed the complaint as to First
Quezon City Insurance Co., Inc. on the ground of res judicata. It appears
that the same action was previously filed in Civil Case No. 56311 which was
dismiss because of the failure of the same plaintiffs and their counsel to
appear at the pre trial.
Firestone and Fireman's Fund moved for the reconsideration of the order
of dismissal. The lower court on September 3, 1966 set aside its order of
dismissal. It sustained plaintiffs' contention that there was no res
judicataas to First Quezon City Insurance Co., Inc. because Civil Case No.
56311 was dismissed without prejudice. Later, First Quezon City Insurance
Co., Inc. filed its answer to the complaint.
However, due to inadvertence, the lower court did not state in its order of
September 3, 1966 why it set aside its prior order dismissing the
complaint with respect to Jamila.
What is now to be recounted shows the lack of due care on the part of the
lower court and the opposing lawyers in their management of the case.
Such lack of due care has given the case a farcical ambiance and might
partially explain the long delay in its adjudication.
Jamila, upon noticing that the order of September 3, 1966 had obliterated
its victory without any reason therefor, filed a motion for reconsideration.
It had originally moved for the dismissal of the complaint on the ground of
lack of cause of action. Its contention was based on two grounds, to wit:
(1) that the complaint did not allege that Firestone, pursuant to the
contractual stipulation quoted in the complaint, had investigated the loss
and that Jamila was represented in the investigation and (2) that Jamila did
not consent to the subrogation of Fireman's Fund to Firestone's right to get
reimbursement from Jamila and its surety. The lower court in its order of
dismissal had sustained the second ground.
Jamila in its motion for the reconsideration of the order of September 3,
1966 invoked the first ground which had never been passed upon by the
lower court. Firestone and Fireman's Fund in their opposition joined battle,
in a manner of speaking, on that first ground.
But the lower court in its order of October 18, 1966, granting Jamila's
motion for reconsideration, completely ignored that first ground. It
reverted to the second ground which was relied upon in its order of
September 3, 1966. The lower court reiterated its order of July 22, 1966
that Fireman's Fund had no cause of action against Jamila because Jamila
did not consent to the subrogation. The court did not mention Firestone,
the co-plaintiff of Fireman's Fund.
At this juncture, it may be noted that motions for reconsideration become
interminable when the court's orders follow a seesaw pattern. That
phenomenon took place in this case.
Firestone and Fireman's Fund filed a motion for the reconsideration of the
lower court's order of October 18, 1966 on the ground that Fireman's Fund
Insurance Company was suing on the basis of legal subrogation whereas
the lower court erroneously predicated its dismissal order on the theory
that there was no conventional subrogation because the debtor's consent
was lacking.
The plaintiffs cited article 2207 of the Civil Code which provides that "if the
plaintiff's property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract".
The lower court denied plaintiffs' motion. They filed a second motion for
reconsideration. In that motion they sensibly called the lower court's
attention to the fact that the issue of subrogation was of no moment
because Firestone, the subrogor, is a party-plaintiff and could sue directly
Jamila in its own right. Without resolving that contention, the lower court
denied plaintiffs' second motion for reconsideration.
In this appeal Firestone and Fireman's Fund contend that the trial court's
dismissal of their complaint is contrary to the aforementioned article 2207
which provides for legal subrogation.
Jamila, in reply, stubbornly argues that legal subrogation under article
2207 requires the debtor's consent; that legal subrogation takes place in
the cases mentioned in article 1302 of the Civil Code and the instant case is
not among the three cases enumerated in that article, and that there could
be no subrogation in this case because according to the plaintiffs the
contract between. Jamila and Firestone was entered into on June
1, 1965 but the loss complained of occurred on May 18,  1963.
With respect to the factual point raised by Jamila, it should be stated that
plaintiffs' counsel gratuitously alleged in their brief that Firestone and
Jamila entered into a "contract of guard services" on June 1, 1965. That
allegation, which was uncalled for because it is not found in the complaint,
created confusion which heretofore did not exist. No copy of the contract
was annexed to the complaint.
That confusing statement was an obvious error since it was expressly
alleged in the complaint that the loss occurred on May 18, 1963. The fact
that such an error was committed is another instance substantiating our
previous observation that plaintiffs' counsel had not exercised due care in
the presentation of his case.
The issue is whether the complaint of Firestone and Fireman's Fund states
a cause of action against Jamila.
We hold that Firestone is really a nominal, party in this case. It had already
been indemnified for the loss which it had sustained. Obviously, it joined as
a party-plaintiff in order to help Fireman's Fund to recover the amount of
the loss from Jamila and First Quezon City Insurance Co., Inc. Firestone had
tacitly assigned to Fireman's Fund its cause of action against Jamila for
breach of contract. Sufficient ultimate facts are alleged in the complaint to
sustain that cause of action.
On the other hand, Fireman's Fund's action against Jamila is squarely
sanctioned by article 2207. As the insurer, Fireman's Fund is entitled to go
after the person or entity that violated its contractual commitment to
answer for the loss insured against (Cf. Philippine Air Lines, Inc. vs. Heald
Lumber Co., 101 Phil. 1032; Rizal Surety & Insurance Co. vs. Manila
Railroad Company, L-24043, April 25, 1968, 23 SCRA 205).
The trial court erred in applying to this case the rules on novation. The
plaintiffs in alleging in their complaint that Fireman's Fund "became a party
in interest in this case by virtue of a subrogation right given in its favor by"
Firestone, were not relying on the novation by change of creditors as
contemplated in articles 1291 and 1300 to 1303 of the Civil Code but
rather on article 2207.
Article 2207 is a restatement of a settled principle of American
jurisprudence. Subrogation has been referred to as the doctrine of
substitution. It "is an arm of equity that may guide or even force one to
pay a debt for which an obligation was incurred but which was in whole or
in part paid by another" (83 C.J.S. 576, 678, note 16, citing Fireman's Fund
Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d 55).
"Subrogation is founded on principles of justice and equity, and its
operation is governed by principles of equity. It rests on the principle that
substantial justice should be attained regardless of form, that is, its basis is
the doing of complete, essential, and perfect justice between all the
parties without regard to form"(83 C.J.S. 579- 80)

Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co.

vs Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the
insurer is entitled to be subrogated pro tanto to any right of action which
the insured may have against the third person whose. negligence or
wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine
Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U. S. 294, 75 L. ed.
1037).

The right of subrogation is of the highest equity. The loss in the first
instance is that of the insured but after reimbursement or compensation, it
becomes the loss of the insurer (44 Am. Jur. 2d 746, note 16, citing
Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).

"Although many policies including policies in the standard form, now

provide for subrogation, and thus determine the rights of the insurer in
this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746).
Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the
property and all remedies which the insured may have for the recovery
thereof. That right is not dependent upon, nor does it grow out of, any
privity of contract, or upon written assignment of claim, and payment to
the insured makes the insurer an assignee in equity (Shambley v. Jobe-
Blackley Plumbing and Heating Co., 264 N. C. 456,142 SE 2d 18).

Whether the plaintiffs would be able to prove their cause of action against
Jamila is another question.

Finding the trial court's order of dismissal to be legally untenable, the same
is set aside with costs against defendant-appellee Jamila & Co., Inc.

SO ORDERED.
XIV. Phil. American Life Ins. Co. vs Pineda
Challenged before Us in this petition for review on certiorari are the Orders
of the respondent Judge dated March 19, 1980 and June 10, 1980 granting
the prayer in the petition in Sp. Proc. No. 9210 and denying petitioner's
Motion for Reconsideration, respectively.
The undisputed facts are as follows:
On January 15, 1968, private respondent procured an ordinary life
insurance policy from the petitioner company and designated his wife and
children as irrevocable beneficiaries of said policy.
Under date February 22, 1980 private respondent filed a petition which
was docketed as Civil Case No. 9210 of the then Court of First Instance of
Rizal to amend the designation of the beneficiaries in his life policy from
irrevocable to revocable.
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing.
Also on the same date, petitioner filed its Comment and/or Opposition to
Petition.
When the petition was called for hearing on March 19, 1980, the
respondent Judge Gregorio G. Pineda, presiding Judge of the then Court of
First Instance of Rizal, Pasig Branch XXI, denied petitioner's Urgent Motion,
thus allowing the private respondent to adduce evidence, the consequence
of which was the issuance of the questioned Order granting the petition.
Petitioner promptly filed a Motion for Reconsideration but the same was
denied in an Order June 10, 1980. Hence, this petition raising the following
issues for resolution:
I
WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES
COULD BE CHANGED OR AMENDED WITHOUT THE CONSENT OF ALL THE
IRREVOCABLE BENEFICIARIES.
II
WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF
WHOM IS ALREADY DECEASED WHILE THE OTHERS ARE ALL MINORS,
COULD VALIDLY GIVE CONSENT TO THE CHANGE OR AMENDMENT IN THE
DESIGNATION OF THE IRREVOCABLE BENEFICIARIES.
We are of the opinion that his Honor, the respondent Judge, was in error in
issuing the questioned Orders.
Needless to say, the applicable law in the instant case is the Insurance Act,
otherwise known as Act No. 2427 as amended, the policy having been
procured in 1968. Under the said law, the beneficiary designated in a life
insurance contract cannot be changed without the consent of the
beneficiary because he has a vested interest in the policy (Gercio v. Sun
Life Ins. Co. of Canada, 48 Phil. 53; Go v. Redfern and the International
Assurance Co., Ltd., 72 Phil. 71).
In this regard, it is worth noting that the Beneficiary Designation
Indorsement in the policy which forms part of Policy Number 0794461 in
the name of Rodolfo Cailles Dimayuga states that the designation of the
beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210,
Annex "C" of the Petition for Review on Certiorari), to wit:
It is hereby understood and agreed that, notwithstanding the provisions of
this policy to the contrary, inasmuch as the designation of the
primary/contingent beneficiary/beneficiaries in this Policy has been made
without reserving the right to change said beneficiary/ beneficiaries, such
designation may not be surrendered to the Company, released or assigned;
and no right or privilege under the Policy may be exercised, or agreement
made with the Company to any change in or amendment to the Policy,
without the consent of the said beneficiary/beneficiaries. (Petitioner's
Memorandum, p. 72, Rollo)
Be it noted that the foregoing is a fact which the private respondent did
not bother to disprove. Inevitably therefore, based on the aforequoted
provision of the contract, not to mention the law then applicable, it is only
with the consent of all the beneficiaries that any change or amendment in
the policy concerning the irrevocable beneficiaries may be legally and
validly effected. Both the law and the policy do not provide for any other
exception, thus, abrogating the contention of the private respondent that
said designation can be amended if the Court finds a just, reasonable ... it is settled that the parties may establish such stipulations, clauses,
ground to do so. Similarly, the alleged acquiescence of the six (6) children terms, and conditions as they may want to include; and as long as such
beneficiaries of the policy (the beneficiary-wife predeceased the insured) agreements are not contrary to law, good morals, good customs, public
cannot be considered an effective ratification to the change of the policy or public order, they shall have the force of law between them.
beneficiaries from irrevocable to revocable. Indubitable is the fact that all
the six (6) children named as beneficiaries were minors at the time,** for Undeniably, the contract in the case at bar, contains the indispensable
which reason, they could not validly give their consent. Neither could they elements for its validity and does not in any way violate the law, morals,
act through their father insured since their interests are quite divergent customs, orders, etc. leaving no reason for Us to deny sanction thereto.
from one another. In point is an excerpt from the Notes and Cases on
Insurance Law by Campos and Campos, 1960, reading- The insured ... can Finally, the fact that the contract of insurance does not contain a
do nothing to divest the beneficiary of his rights without his consent. He contingency when the change in the designation of beneficiaries could be
cannot assign his policy, nor even take its cash surrender value without the validly effected means that it was never within the contemplation of the
consent of the beneficiary. Neither can the insured's creditors seize the parties. The lower court, in gratuitously providing for such contingency,
policy or any right thereunder. The insured may not even add another made a new contract for them, a proceeding which we cannot tolerate.
beneficiary because by doing so, he diminishes the amount which the Ergo, We cannot help but conclude that the lower court acted in excess of
beneficiary may recover and this he cannot do without the beneficiary's its authority when it issued the Order dated March 19, 1980 amending the
consent. Therefore, the parent-insured cannot exercise rights and/or designation of the beneficiaries from "irrevocable" to "revocable" over the
privileges pertaining to the insurance contract, for otherwise, the vested disapprobation of the petitioner insurance company.
rights of the irrevocable beneficiaries would be rendered inconsequential.
WHEREFORE, premises considered, the questioned Orders of the
Of equal importance is the well-settled rule that the contract between the respondent Judge are hereby nullified and set aside.
parties is the law binding on both of them and for so many times, this court
has consistently issued pronouncements upholding the validity and
effectivity of contracts. Where there is nothing in the contract which is
contrary to law, good morals, good customs, public policy or public order
the validity of the contract must be sustained. Likewise, contracts which
are the private laws of the contracting parties should be fulfilled according
to the literal sense of their stipulations, if their terms are clear and leave
no room for doubt as to the intention of the contracting parties, for
contracts are obligatory, no matter in what form they may be, whenever
the essential requisites for their validity are present (Phoenix Assurance
Co., Ltd. vs. United States Lines, 22 SCRA 675, Phil. American General
Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)

In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA

385, this Court ruled that: