132 Union Manufacturing Co., Inc. and Republic Bank v. Philippine Guaranty Co., Inc.

Doctrine: Where a fire policy requires the insured to give notice of the existence of other insurance
policies over the same property insured, the non-disclosure thereof is a violation of a material warranty
which entitles the insurer to rescind.

FACTS:
1. On January 12, 1962, the Union Manufacturing Co.(UMC), Inc. obtained certain loans from the
Republic Bank in the total sum of ₱ 415,000.00.
2. To secure the payment thereof, UMC executed real and chattel mortgage on certain properties.
3. The Republic Bank procured from the defendant Philippine Guaranty Co., Inc. an insurance coverage
on loss against fire for ₱ 500,000.00 over the properties of the UMC, as described in defendant’s
cover note dated September 25, 1962, with the annotation that loss or damage, if any, under said
cover note is payable to Republic Bank as its interest may appear. However, in the said cover note
and fire insurance policy, there was also a warranty wherein it was stated that there were no other co-
insurance declared.
4. On September 6, 1964, a fire occurred in the premises of UMC.
5. A month later, UMC filed its fire claim with the Philippine Guaranty Co. Inc., through its adjuster, H.H.
Bayne Adjustment Co., which was denied by said defendant in its letter dated November 26, 1964 on
ground that Policy Condition No. 3 and/or the ‘Other Insurance Clause’ of the policy was violated
because:
a. UMC did not give notice to Phil. Guaranty of the other insurance which it had taken from the
ff: New India for ₱ 80,000.00. Sincere Insurance for ₱ 25,000.00 and Manila Insurance for ₱
200,000.00.
b. These were not endorsed on their policy.
6. LOWER COURT: Philippine Guaranty Co., Inc was not liable upon proof that there was a violation of
a warranty. There was no denial thereof from the insured, Union Manufacturing Co., Inc.

ISSUE: Whether or not the Republic Bank can recover.

HELD:
1. If the insured has violated or failed to perform the conditions of the contract, and such a violation or
want of performance has not been waived by the insurer, then the insured cannot recover.
2. Courts are not permitted to make contracts for the parties. The functions and duty of the courts
consist simply in enforcing and carrying out the contracts actually made.
3. As a general rule, contracts of insurance are construed most favorably to the insured and, if clear and
unambiguous, also construed in their plain, ordinary and popular sense.
4. The annotation then, must be deemed to be a warranty that the property was not insured by any other
policy.
5. Violation thereof entitles the insurer to rescind. The materiality of non-disclosure of other insurance
policies is not open to doubt.
6. The insurance contract may be rather onerous, but that in itself does not justify the abrogation of its
express terms, terms which the insured accepted or adhered to and which is the law between the
contracting parties.
7. Court also used the doctrine laid down in Santa Ana v. Commercial Union Assurance Co.: “Without
deciding- whether notice of other insurance upon the same property must be given in writing, or
whether a verbal notice is sufficient to render an insurance valid which requires such notice, whether
oral or written, we hold that in the absolute absence of such notice when it is one of the conditions
specified in the fire insurance policy, the policy is null and void.”