76 PACIFIC BANKING v.

CA and ORIENTAL ASSURANCE

FACTS:
1. A fire police (open policy) was issued to the Paramount Shirt Manufacturing (insured) by Oriental Assurance
(P61k).
a. The stocks, materials, and supplies usual to a shirt factory, including furniture, machinery and
equipment were insured.
2. Paramount was then a debtor of Pacific Banking (P800k) and the goods described were held in trust by
Paramount for Pacific.
3. Policy was endorsed to Pacific as mortgagee/trustor of the properties insured, with the consent of Oriental. It
was made payable to Pacific.
4. A fire broke out destroying the goods.
5. Pacific sent a letter of demand to Oriental for indemnity due to the loss of property by fire.
6. Oriental said it was not ready to pay pending investigation.
7. The insurance adjuster notified Pacific that the insured under the policy had not filed any claim with it, nor
submitted proof of loss which is a violation of Policy Condition 11 and for that reason, determination of the
liability of Oriental cannot be ascertained.
8. Pacific: The records by the Bureau of Customs of the merchandise taken into a bonded warehouse that was
razed by fire should be reliable proof.
9. Pacific filed against Oriental a claim for P61k.
10. Oriental: Lack of formal claim by insured, premature filing because no proof of loss was submitted as required
in the Policy.
11. During trial, several undeclared co-insurances were discovered undertaken by Paramount. (Violation of
Condition No. 3 but was not pleaded in the answer/MTD).
12. TC: Oriental ordered to pay.
13. CA: Reversed. Failure to declare co-insurances was false declaration.

ISSUE: Whether there were violations of the Policy Conditions. YES.

RATIO:
 Policy Condition No. 3: Notice shall be given to the Company of any insurance already effected or subsequently
effected covering the properties insured… unless given, all benefit shall be forfeited.
 Had the insurer known that there were many co-insurances, it could have hesitated or desisted from entering
into such contract.
 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 Insurance Clause” are materially
different from the actual number of co-insurances taken over the subject property.
 Representations of facts are the foundation of the contract and if the foundation does not exist, the
superstructure does not arise. Falsehood in such representations is not shown to vary or add to the contract, or
to terminate a contract which has once been made, but to show that no contract has ever existed.
 A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never
been entered into, and which cannot be validated either by time or by ratification.
 As the insurance policy against fire expressly required that notice should be given by the insured of other
insurance upon the same property, the total absence of such notice nullifies the policy.
 RE: Mortgage Clause of the Policy:
o The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the
mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson.
o As correctly found by the Court of Appeals, concealment of the aforecited co-insurances can easily be
fraud, or in the very least, misrepresentation
 Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of
the policy has by its fraud and/or misrepresentation, forfeited said right, with more reason, Pacific which is
merely claiming as indorsee of said insured, cannot be entitled to such proceeds.

RE: Policy No. 11

 Notice should be given 15 days after loss through a claim in writing as to the articles destroyed and
particulars of all other insurances. Claimant shall also produce documents and proofs.
 24 days after the fire, Pacific merely wrote letters to Oriental to serve as notice of loss. No pertinent
documents were furnished. Pacific shifted the burden to Oriental to ascertain which is contrary to the
Policy.
 Compliance to the Policy Condition is a requirement sine qua non to the right to maintain an action.
 Terms of the contract are clear and unambiguous.
 It is to be construed according to the sense and meaning of the terms which the parties used.