INSURANCE TITLE

S
Insular Life vs. Ebrado 80 SCRA 181- Common Law Wife Insurance
Category: Law on Insurance
Insular Life vs. Ebrado
80 SCRA 181
Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as his
beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company then
filed an action for interpleader.
Issue:
Whether or not the common law wife named as beneficiary can collect the proceeds.
Held:
NO.
The civil code prohibitions on donations made between persons guilty of adulterous concubinage
applies to insurance contracts. On matters not specifically provided for by the Insurance Law, the
general rules on Civil law shall apply. A life insurance policy is no different from a civil donation as
far as the beneficiary is concerned, since both are founded on liberality.
Why was the common law wife not ed to collect the proceeds despite the fact that she was the
beneficiary? Isn’t this against Sec. 53?
It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC had
to consider. Art. 739 and 2012 of CC prohibit persons who are guilty of adultery or concubinage
from being beneficiaries of the life insurance policies of the persons with whom they committed
adultery or concubinage. If the SC used only Sec. 53, it would have gone against Art. 739 and 2012.
{INSURANCE}
G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd.,
Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same
amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He
to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and
interest thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were
merely living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance
Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29,
1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972,
On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T.
Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and
directing the payment of the insurance proceeds to the estate of the deceased insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but affirm the judgment
of the lower court.
"The contract of insurance is governed by special laws. Matters not expressly provided for in such special
laws shall be regulated by this Code." When not otherwise specifically provided for by the Insurance
Law, the contract of life insurance is governed by the general rules of the civil law regulating
contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving
any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person
who cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving
donations from each other. Article 739 of the new Civil Code provides:
The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of
donation;
Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his
office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance
of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of
the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012
cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the
life insurance policy of the person who cannot make the donation. 5 Under American law, a policy of
life insurance is considered as a testament and in construing it, the courts will, so far as possible treat
it as a will and determine the effect of a clause designating the beneficiary by rules under which wins
are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between
common law spouses in record to Property relations since such hip ultimately encroaches upon the
nuptial and filial rights of the legitimate family There is every reason to hold that the bar in donations
between legitimate spouses and those between illegitimate ones should be enforced in life insurance
policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife
insurance policy is no different from a donee. Both are recipients of pure beneficence.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons
who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides:
In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On
the contrary, the law plainly states that the guilt of the party may be proved "in the same acting for
declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the
guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not
demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children;
that during his lifetime, the deceased insured was living with his common-law wife, Carponia
Ebrado, with whom he has two children. These stipulations are nothing less than judicial
admissions which, as a consequence, no longer require proof and cannot be contradicted. 8 A fortiori,
on the basis of these admissions, a judgment may be validly rendered without going through the
rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the
beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this
agreement and stipulation of facts as to who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is
hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life
insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate
of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
[G.R. No. L-1669. August 31, 1950.]
PAZ LOPEZ DE CONSTANTINO, Plaintiff-Appellant, v. ASIA LIFE INSURANCE

COMPANY, Defendant-Appellee.
[G.R. No. L-1670. August 31, 1950].
AGUSTINA PERALTA, Plaintiff-Appellant, v. ASIA LIFE INSURANCE COMPANY, Defendant-

Appellee.
Mariano Lozada, for appellant Constantino.
Cachero & Madarang, for appellant Peralta.
Dewitt, Perkins & Ponce Enrile, for Appellee.
Ramirez & Ortigas and Padilla, Carlos & Fernando, as amici curiae.
SYLLABUS
1. INSURANCE; EFFECT OF NON-PAYMENT OF PREMIUM DUE TO WAR; LIFE INSURANCE;

FORFEITURE OF POLICY. — When
the life insurance policy provides that non-payment of premiums will cause its forfeiture, war doe
not excuse non-payment, and does not avoid forfeiture.
2. ID.; EFFECT OF WAR ON NON-PAYMENT OF PREMIUMS; COURT REJECTS CONNECTICUT

AND NEW YORK RULES AND ADOPTS UNITED STATES RULE. — Rejecting the Connecticut
Rule, and the New York Rule, the court adopts the Unites States Rule about the effects of war upon
non-payment of premiums.
3. ID.; LIFE INSURANCE; PERIODIC PAYMENT OF PREMIUMS IS NOT AN ACTIONABLE
OBLIGATION. — The periodic payment of premiums in life insurances policies is not an obligation
of the insured enforceable by action.
DECISION
BENGZON, J.:
These two cases, appealed from the Court of First Instance of Manila, call for decision of the question
whether the beneficiary in a life insurance policy may recover the amount thereof although the
insured died after repeatedly failing to pay the stipulated premiums, such failure having been caused
by the last war in the Pacific.
The facts are these:
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, it insured the
life of Arcadio Constantino for a term of twenty years. The first premium covered the period up to
September 26, 1942. The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The
policy contained these stipulations, among others:
"This POLICY OF INSURANCE is issued in consideration of the written and printed application
herefor, a copy of which is attached hereto and is hereby made a part hereof, and of the payment in
advance during the lifetime and good health of the Insured of the annual premium of One Hundred
fifty-eight and 4/100 pesos Philippine currency 1 and of the payment of a like amount upon each
twenty-seventh day of September hereafter during the term of Twenty years or until the prior death
of the Insured. (Emphasis supplied.)
x x x
"All premium payments are due in advance and any unpunctuality in making any such payment
shall cause this policy to lapse unless and except as kept in force by the Grace Period condition or
under Option 4 below. (Grace of 31 days.)"
After that first payment, no further premiums were paid. The insured died on September 22, 1944.
It is admitted that the defendant, being an American corporation, had to close its branch office in
Manila by reason of the Japanese occupation, i. e. from January 2 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No.
78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the lives of
the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000, The policy was regularly paid
from August 1, 1938, up to and including September 30, 1941. Xxx Because the insured had borrowed
on the policy an amount of P234.00 in January, 1941, the cash surrender value of the policy was
sufficient to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died on February
16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with
defendant’s refusal, grounded on non-payment of the premiums.
The policy provides SAME AS THE FIRST POLICY INSURANCExxx
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus
all sums due for premiums in arrears. They allege that non-payment of the premiums was caused by
Japanese occupation and the impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in
accordance with the contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.

The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the
benefit of extensive and exhaustive memoranda including those of amici curiae. The matter has
received careful consideration, inasmuch as it affects the interest of thousands of policy-holders and
the obligations of many insurance companies operating in this country.
Decision
In Young v. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are
contracts of indemnity upon the terms and conditions specified in the policy. The parties have a
right to impose such reasonable conditions at the time of the making of the contract as they may
deem wise and necessary. The rate of premium is measured by the character of the risk assumed.
The insurance company, for a comparatively small consideration, undertakes to guarantee the
insured against loss or damage, upon the terms and conditions agreed upon, and upon no other,
and when called upon to pay, in case of loss, the insurer, therefore, may justly insist upon a
fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy,
he is not entitled to recover for the loss. The terms of the policy constitute the measure of the
insurer’s liability, and in order to recover the insured must show himself within those terms; and
if it appears that the contract has been terminated by a violation, on the part of the insured, of its
conditions, then there can be no right of recovery. The compliance of the insured with the terms of
the contract is a condition precedent to the right of recovery."xxxx
In Glaraga v. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because
the premium had not been paid within the time fixed, since by its express terms, non-payment of
any premium when due or within the thirty-day period of grace, ipso facto caused the policy to
lapse. This goes to show that although we take the view that insurance policies should be
conserved 5 and should not lightly be thrown out, still we do not hesitate to enforce the agreement
of the parties.
"Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to
enforce an insurance contract according to its meaning." (45 C. J. S., p. 150.) .
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the
consequence of war, it should be excused and should not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of
non-payment of premiums occasioned by war, the American cases may be divided into three groups,
according as they support the so-called Connecticut Rule, the New York Rule, or the United States
Rule.
The first holds the view that "there are two elements in the consideration for which the annual
premium is paid — First, the mere protection for the year, and, second, the privilege of renewing the
contract for each succeeding year by paying the premium for that year at the time agreed upon.
According to this view of the contract, the payment of premiums is a condition precedent, the non-
performance of which, even when performance would be illegal, necessarily defeats the right to
renew the contract."
The second rule, apparently followed by the greater number of decisions, holds that "war between
states in which the parties reside merely suspends the contracts of life insurance, and that, upon
tender of all premiums due by the insured or his representative after the war has terminated, the
contract revives and becomes fully operative."
" The payment of the premium is entirely optional, while a debt may be enforced at law, and the
fact that the premium is agreed to be paid is without force, in the absence of an unqualified and
absolute agreement to pay a specified sum at some certain time. In the ordinary policy there is no
promise to pay, but it is optional with the insured whether he will continue the policy or forfeit
it." (3 Couch, Cyc. on Insurance, Sec. 623, p. 1996.)
"It is well settled that a contract of insurance is sui generis. While the insured by an observance of
the conditions may hold the insurer to his contract, the latter has not the power or right to compel
the insured to maintain the contract relation with it longer than he chooses. Whether the insured
will continue it or not is optional with him. There being no obligation to pay for the premium,
they did not constitute a debt." Noble v. Southern States M. D. Ins. Co., 157 Ky., 46; 162 S. W., 528)
(Emphasis ours.)
It should be noted that the parties contracted not only for peacetime conditions but also for times of
war, because the policies contained provisions applicable expressly to wartime days. The logical
inference, therefore, is that the parties contemplated uninterrupted operation of the contract even if
armed conflict should ensue.
For all the foregoing, the lower court’s decision absolving the defendant from all liability on the
policies in question, is hereby affirmed, without costs.
{INTERPRETATION OF INSURANCE CONTRACT}
EN BANC
DIOSDADO C. TY, Plaintiff-Appellant, v. FAR EASTERN SURETY & INSURANCE CO.,

INC., Defendant-Appellee.
[G.R. No. 16144. April 29, 1961.]
DIOSDADO C. TY, Plaintiff-Appellant, v. CAPITAL INSURANCE & SURETY CO., INC., Defendant-

Appellee.
[G.R. No. 16145. April 29, 1961.]
DIOSDADO C. TY, Plaintiff-Appellant, v. CAPITAL INSURANCE & SURETY CO., INC., Defendant-

Appellee.
V. B. Gesunundo, for Plaintiff-Appellant.
M. Perez Cardenas, for Defendant-Appellee.
DECISION
LABRADOR, J.:
"On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton Factory.
Fighting his way out of the factory, plaintiff was injured on the left hand by a heavy object. He was
brought to the Manila Central University hospital, and after receiving first aid there, he went to the
National Orthopedic Hospital for treatment of his injuries which were as follows:
1-6. Fracture, simple, proximal phalanx index finger, left;
He underwent medical treatment in the Orthopedic Hospital from December 26, 1953 to February 8,
1954. The above-described physical injuries have caused temporary total disability of plaintiff’s left
hand.
Plaintiff filed the corresponding notice of accident and notice of claim with all of the above-named
defendants to recover indemnity under Part II of the policy, which is similarly worded in all of the
policies, and which reads pertinently as follows:
"INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
"If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible
and accidental means, and which shall not prove fatal but shall result, independently of all other
causes and within sixty (60) days from the occurrence thereof, in Total or Partial Disability of the
Insured, the Company shall pay, subject to the exceptions as provided for hereinafter, the amount set
opposite such injury:
"PARTIAL DISABILITY
"LOSS
"Either hand P650.00
x x x
". . . The loss of a hand shall means the loss by amputation through the bones of the wrist. . .."
Defendants rejected plaintiff’s claim for indemnity for the reason that there being no severance of
amputation of the left hand, the disability suffered by him was not covered by his policy. Hence,
plaintiff sued the defendants in the Municipality Court of this City, and from the decision of said
Court dismissing his complaints, plaintiff appealed to this Court." (Decision of the Court of First
Instance of Manila, pp. 223-226, Records).
In view of its findings, the court absolved the defendants from the complaints. Hence this appeal.
The main contention of appellant in these cases is that in order that he may recover on the insurance
policies issued him for the loss of his left hand, it is not necessary that there should be an amputation
thereof, but that it is sufficient if the injuries prevent him from performing his work or labor
necessary in the pursuance of his occupation or business. Authorities are cited to the effect that "total
disability" in relation to one’s occupation means that the condition of the insurance is such that
common prudence requires him to desist from transacting his business or renders him incapable of
working. (46 C.J.S., 970). It is also argued that obscure words or stipulations should be interpreted
against the person who caused the obscurity, and the ones which caused the obscurity in the cases at
bar are the defendant insurance companies.
While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued,
we can not go beyond the clear and express conditions of the insurance policies, all of which define
partial disability as loss of either hand by a amputation through the bones of the wrist." There was no
such amputation in the case at bar. All that was found by the trial court, which is not disputed on
appeal, was that the physical injuries "caused temporary total disability of plaintiff’s left hand." Note
that the disability of plaintiff’s hand was merely temporary, having been caused by fractures of the
index, the middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is the law between the parties.
As the terms of the policies are clear, express and specific that only amputation of the left hand
should be considered as a loss thereof, an interpretation that would include the mere fracture or other
temporary disability not covered by the policies would certainly be unwarranted.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the plaintiff-
appellant.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ.,
concur.
G.R. No. 119599 March 20, 1997

MALAYAN INSURANCE CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS and TKC MARKETING CORPORATION, respondents.
ROMERO, J.:
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of
soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989
for carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured
against the risk of loss by petitioner Malayan Insurance Corporation for which it issued two (2)
Marine Cargo policy Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306
amounting to P1,195,005.45, both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the
civil authorities arrested and detained it because of a lawsuit on a question of ownership and
possession. As a result, private respondent notified petitioner on October 4, 1989 of the arrest of the
vessel and made a formal claim for the amount of US$916,886.66, representing the dollar equivalent
on the policies, for non-delivery of the cargo. Private respondent likewise sought the assistance of
petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the
policies. Private respondent, accordingly, advised petitioner that it might tranship the cargo and
requested an extension of the insurance coverage until actual transhipment, which extension was
approved upon payment of additional premium.
The insurance coverage was extended under the same terms and conditions embodied in the original
policies while in the process of making arrangements for the transhipment of the cargo from Durban
to Manila, covering the period October 4 - December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South 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 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 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 were deducted from the original claim of $916,886.66 or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of
ownership was an excepted risk under the marine insurance policies. This prompted private
respondent to file a complaint for damages praying that aside from its claim, it be reimbursed the
amount of P128,770.88 as legal expenses and the interest it paid for the loan it obtained to finance
the shipment totalling P942,269.30.
In addition, private respondent asked for moral damages amounting to P200,000.00, exemplary
damages amounting to P200,000.00 and attorney's fees equivalent to 30% of what will be awarded by
the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from the
insurance claim,
On appeal, the Court of Appeals affirmed the decision of the lower court
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.
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. (Emphasis 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. . . ." 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.
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.
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
therein should be resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.
In view of the foregoing, this Court sees no need to discuss the other issues presented.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
FIRST DIVISION
[G.R. No. 124554. December 9, 1997]
ETERNAL GARDENS MEMORIAL PARK CORPORATION, Petitioner, v. COURT OF APPEALS and
NORTH PHILIPPINE UNION MISSION OF THE SEVENTH DAY ADVENTISTS, Respondents.
DECISION
KAPUNAN, J.:
This case is the derivative of G.R. No. 73794, which was decided by the Second Division of this Court
on September 19, 1988.
The antecedents are as follows:

cräläwvirtualibräry
Petitioner EGMPC and private respondent NPUM entered into a Land Development Agreement
dated October 6, 1976. Under the agreement, EGMPC was to develop a parcel of land owned by
NPUM into a memorial park subdivided into lots. The parties further agreed –
(d) THAT the FIRST PARTY shall receive forty (40%) percent of the gross collection less Perpetual
Care Fees (which in no case shall exceed 10% of the price per lot unless otherwise agreed upon by
both parties in writing) or Net Gross Collection (NGC) from this project. This shall be remitted
monthly by the SECOND PARTY in the following manner: (i) Forty (40%) percent of the NGC, plus
(ii) if it becomes necessary for the FIRST PARTY to vacate the property earlier than two years from
the date of this agreement, at the option of the FIRST PARTY, an additional amount equivalent to
twenty (20%) percent of the NGC as cash advance for the first four (4) years with interest at twelve
(12%) percent per annum which cash advance shall be deductible out of the proceeds from the FIRST
PARTYs 40% from the 5th year onward. The SECOND PARTY further agrees that if the FIRST
PARTY shall desire to have its projected receivables collected at the 5th year, the SECOND PARTY
shall assist in having the same discounted in advance.
The P1.5 million initial payment mentioned in the Deed of Absolute Sale, covering the first phase of
the project, shall be deducted out of the proceeds from the FIRST PARTYs 40% at the end of the 5th
year. Subsequent payments made by the SECOND PARTY on account of the stated purchase price in
said Deed of Absolute Sale shall be charged against what is due to the FIRST PARTY under this
LAND DEVELOPMENT AGREEMENT.
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Later, two claimants of the parcel of land surfaced - Maysilo Estate and the heirs of a certain Vicente
Singson Encarnacion. EGMPC thus filed an action for interpleader against Maysilo Estate and
NPUM, docketed as Civil Case No. 9556 before the Regional Trial Court of Kalookan City, Branch
120. The Singson heirs in turn filed an action for quieting of title against EGMPC and NPUM,
docketed as Civil Case No. C-11836 before Branch 122 of the same court.
From these two cases, several proceedings ensued. One such case, from the interpleader action,
culminated in the filing and subsequent resolution of G.R. No. 73794. In G.R. No. 73794, EGMPC
assailed the appellate courts resolution requiring petitioner Eternal Gardens [to] deposit whatever
amounts are due from it under the Land Development Agreement with a reputable bank to be
designated by the respondent court.
In the Decision of September 19, 1988, the court ruled thus:
PREMISES CONSIDERED, (a) the petition is DISMISSED for lack of merit; (b) this case (together with
all the claims of the intervenors on the merits) is REMANDED to the lower court for further
proceedings; and (c) the Resolution of the Third Division of this Court of July 8, 1987 requiring the
deposit by the petitioner (see footnote 6) 5 of the amounts contested in a depository bank STANDS
(the Motion for Reconsideration thereof being hereby DENIED for reasons already discussed) until
after the decision on the merits shall have become final and executory.
Entry of judgment was made on April 24, 1989.
Sometime thereafter, the trial court rendered decisions in Civil Case Nos. 9556 (interpleader) and C-
11836 (quieting of title). These decisions were appealed to the Court of Appeals, and the appeals were
consolidated.
The appellate court rendered judgment in the consolidated case on December 17, 1991 as follows: (a.)
the trial courts decision in Civil Case No. 9556 was affirmed insofar as it dismissed the claims of the
intervenors, including the Maysilo Estate, and the titles of NPUM to the subject parcel of land were
declared valid; and (b.) the trial courts decision in Civil Case No. C-11836 in favor of the Singson
heirs was reversed and set aside.
From the consolidated decision, the Singson heirs, Maysilo Estate and EGMPC each filed with this
Court their petitions for review on certiorari. The petition filed by the Singson heirs docketed as G.R.
No. 103247-48 was denied for failure to comply with Circular No. 28-91, 8 and entry of judgment made
on July 27, 1992. G.R. No. 105159 filed by the Maysilo Estate was denied for failure of petitioner to
raise substantial legal issues,9 and entry of judgment made on August 19, 1992. G.R. Nos. 103230-31
filed by EGMPC was denied for failure to comply with Circular No. 19-91, 10 and entry of judgment
made on July 20, 1993. EGMPCs other petition, this time under Rule 65, docketed as G.R. Nos.
107646-47 was dismissed for having been filed out of time and for lack of merit.
Following these, the Court, through the Third Division, issued a Resolution dated December 1, 1993
in G.R. No. 73794, thus:
WHEREFORE, considering that the ownership of the property in dispute has now been settled with
finality, the Court sees no further legal obstacle in carrying out the respective covenants of the parties
to the Land Development Agreement. x x x. In respect to the mutual accounting required to
determine the remaining accrued rights and liabilities of said parties, the case is hereby remanded to
the Court of Appeals for proper determination and disposition.
All other incidental motions involving G.R. No. 73794, still pending with this Court, are hereby,
declared MOOT and are NOTED WITHOUT ACTION.11cräläwvirtualibräry
In compliance with the Supreme Court resolution, the Court of Appeals proceeded with the
disposition of the case, docketed therein as CA G.R. SP No. 04869, and required the parties to appear
at a scheduled hearing on June 16, 1994, with counsel and accountants, as well as books of accounts
and related records, to determine the remaining accrued rights and liabilities of said parties.
Citing the following provision of the land development agreement:
(e) THAT the SECOND PARTY shall keep proper books and accounting records of all transactions
affecting the sale of said memorial lots, which records shall be open for inspection by the FIRST
PARTY at any time during usual office hours. The SECOND PARTY shall also render to the FIRST
PARTY a monthly accounting report of all sales and cash collections effected the preceding month. It
is also understood that all financial statements shall be subject to annual audit by a reputable external
accounting firm which should be acceptable to the FIRST PARTY. 13cräläwvirtualibräry
the appellate court required EGMPC to produce at the scheduled hearings the following documents:
(a) statements of monthly gross income from the year 1981, supported by copies of the
contracts/agreements of the sale of lots to buyers/customers; and
(b) summary statements, by month, of the forty per cent (40%) share in the net gross income under
the land development agreement between the parties.
The accounting of the parties respective obligations was referred to the Courts Accountant, Ms.
Carmencita Angelo, with the concurrence of the parties, to whom the documents were to be
submitted.
NPUM prepared and submitted a Summary of Sales and Total Amounts Due based on the following
documents it likewise submitted to the court:
A-1 Land Development Agreement executed between NPUM and EGMPC on October 6, 1976.
xxx
9. List of all the corporate officers and employees of ETERNAL from 1975 up to the present whose
duties and responsibilities involved the recording of all sales and other transactions and the
safekeeping of such records relating to the sale of the memorial lots subject of the Land Development
Agreement.
NPUM also filed a Request for Admission of the documents it had earlier submitted to the Court
annexed to the Summary of Sales and Total Amounts Due, addressed to Mr. Vida. EGMPC, however,
filed a Denial to the Request for Admission, alleging that it was without knowledge or information of
the documents, except for the Land Development Agreement of October 6, 1976. cräläwvirtualibräry
NPUM then reiterated its request for and was granted by the appellate court, a subpoena duces tecum
and subpoena ad testificandum, this time addressed to the Chief of the Records Division of
EGMPC. NPUM further filed a Motion for Production, Inspection and Photocopying of Documents
and Books of Accounts of EGMPC, in particular:
1. Master Development and/or Operational Plan of Eternal Gardens for Memorial Park at Baesa,
Metro Manila subject of the Land Development Agreement.
Xx
10. Records of collections representing 10% of the gross collections on each memorial lot sold under
the Land Development Agreement, for perpetual care fees and constituting a trust fund to secure
perpetual care of the memorial park affected by the Land Development Agreement.
Later, NPUM filed a second Request for Admissions addressed to Mr. Vida. He was asked to make
the following admissions:
1. That the auditor retained by Eternal Gardens Memorial Park Corp. to audit and examine its
financial position, and which prepared Eternals audited financial statements, for the years 1982, 1983
and 1984 was the auditing and accounting firms of Josue, Arceo & Co., CPAs, with office at the 2nd
Floor, Roman R. Santos Building, Plaza Goeti, Manila.
j. Annex J (inclusive of sub-markings from Annexes J-1 to J-7) is the audit report prepared by
Bernardino T. Dela Cruz, CPA, of the financial position of Eternal Gardens Memorial Park Corp. at 31
December 1993. cräläwvirtualibräry
Meanwhile, EGMPC failed to present the documents required by the subpoena. It further filed a
Denial and/or Objection to the Requests for Admission on the ground that it could not make
comparison of the documents with the originals thereof.
On November 10, 1995, Ms. Angelo submitted her Report.

In a Resolution dated January 15, 1996, the Court of Appeals approved the report of Ms. Angelo,
finding this to be a just and fair account of what Eternal Gardens and Memorial Park owes to the
petitioner North Philippine Union Mission of the Seventh-Day Adventists, and accordingly orders
the former to pay and turn over to the latter the amounts of P167,065,195.00 as principal and
P167,235,451.00 in interest x x x.
EGMPC filed a Motion for Reconsideration, which was denied for lack of merit by the appellate court
in a Resolution dated April 12, 1996.
On April 29, 1996, EGMPC filed a Motion for Extension of Time to File Petition for Certiorari and
Prohibition with this Court, docketed as G.R. No. 124554, seeking the review of the appellate courts
Resolutions dated January 15, 1996 and April 12, 1996. The Court granted this motion for
extension, and on May 27, 1996, EGMPC filed the instant petition.
It appears, however, that in a Report dated May 31, 1996 in CA-G.R. SP No. 04869, the Court of
Appeals informed the parties that its January 15, 1996 Resolution had attained finality considering
the following:
The respondent Eternal Gardens Memorial Park received copy of the [January 15, 1996] resolution on
January 22, 1996 and, after twelve (12) days from its receipt or on February 2, 1996, filed a motion for
reconsideration thereof. This Court denied Eternal Gardens motion for reconsideration in a resolution
promulgated April 12, 1996, a copy of which it received on April 18, 1996. After eleven (11) days from
receipt of the resolution denying its motion for reconsideration, or on April 12, 1996 (sic), it filed a
motion for extension to file a petition for review with the Supreme Court.
It is quite clear that after the denial of its motion for reconsideration, Eternal Gardens had only three
(3) days left of the reglementary period to file a petition for review, or only up to April 12, 1996, but
Eternal Gardens allowed that period to lapse, and then filed its motion to extend to file its petition on
April 29, 1996 - which is eight (8) days beyond the period of finality of the resolution sought to be
reviewed by the Supreme Court. Consequently, the resolution of January 15, 1996 had attained
finality before Eternal Gardens filed its motion to extend before this Honorable Court.
Entry of judgment was made on June 6, 1996.
Following the above incidents, on June 20, 1996, EGMPC filed in G.R. No. 73794 an Opposition
and/or Comment to the Report of the Court of Appeals dated 31 May 1996 with the prayer:
x x x to disregard and nullify the Report of the Court of Appeals dated May 31, 1996 and at the same
time allow or tolerate the First Division of the Honorable Supreme Court to resolved (sic) the
petitioner Eternal Gardens Petition for Certiorari against the Court of Appeals and NPUM with G.R.
No. 124554.
In retort to EGMPCs opposition, also in G.R. No. 73794, NPUM filed on June 11, 1996 an Omnibus
Motion (a) to dismiss the petition in G.R. No. 124554, or (b) to consolidate the two petitions, and (c)
for the issuance of a writ of execution. NPUM contended that as a consequence of the appellate courts
resolutions in CA G.R. SP No. 04869 having attained finality, a writ of execution may be issued under
G.R. No. 73794, and EGMPC could no longer file a separate petition such as that docketed as G.R. No.
124554.
In its Comment filed on July 17, 1996, in G.R. No. 124554, NPUM prayed for the denial of the petition
for being frivolous and dilatory, citing EGMPCs violation of Circular No. 04-94 on forum shopping,
in reference to its (EGMPCs) pleadings filed in G.R. No. 73794. NPUM pointed out that the reliefs
sought by EGMPC in G.R. No. 124554 were identical to those in its Opposition And/Or Comment to
the Report of the Court of Appeals dated 31 May 1996 filed in G.R. No. 73794.
On December 26, 1996, the Regional Trial Court of Kalookan City, Branch 120, issued an Order in the
case of origin, Civil Case No. 9556, granting NPUMs motion for execution of judgment. A writ of
execution was subsequently issued by that trial court on January 7, 1997.
Because of the trial courts issuance of the writ of execution, on January 10, 1997, EGMPC filed in G.R.
No. 124554 an Urgent Motion for Restraining Order And/Or Injunction and Motion for Contempt of
Court. EGMPC prayed that pending resolution of the petition to promptly issue a restraining order
and/or injunction against Judge Jaime Discaya of the RTC Br. 120 of Kalookan City in Civil Case No.
9556 x x x.
EGMPC also filed in G.R. No. 73794 on January 17, 1997 an Urgent Motion for Restraining Order
And/Or Injunctive Relief with the same prayer as in its Urgent Motion filed in G.R. No. 124554.
In G.R. No. 124554, the Court granted EGMPCs motion and issued a temporary restraining order
against the trial courts order dated December 16, 1996 and writ of execution dated January 7, 1997.
In a Resolution dated January 27, 1997 issued in G.R. No. 73794, the Court denied for lack of merit
EGMPCs Urgent Motion.
The threshold question here is whether Eternal Gardens timely filed its petition for review from the
Court of Appeals January 15, 1996 and April 12, 1996 Resolutions.
We restate the material dates thus:
EGMPC received a copy of the January 15, 1996 Resolution on January 22, 1996. Twelve days from
such receipt, or on February 2, 1996, EGMPC filed its Motion for Reconsideration. On April 18, 1996,
EGMPC received the appellate courts Resolution of April 12, 1996 denying its Motion for
Reconsideration. On April 29, 1996, or eleven days from its receipt of the denial of its motion for
reconsideration, EGMPC filed a motion for extension of time to file its Petition for Certiorari and
Prohibition and concurrently paid the legal fees.
We find that EGMPCs Motion for Extension of Time to File a Petition for Review was timely filed on
April 29, 1996, such motion having been filed eleven days from receipt of the appellate courts denial
of its motion for reconsideration. Supreme Court Circular No. 10 dated August 28, 1986 on modes
and periods of appeal provides thus:
(5) APPEALS BY CERTIORARI TO THE SUPREME COURT

In an appeal by certiorari to this Court under Rule 45 of the Rules of Court, Section 25 of the Interim
Rules and Section 7 of PD 1606, a party may file a petition for review on certiorari of the judgment of a
regional trial court, the Court of Appeals or the Sandiganbayan within fifteen days from notice of
judgment or of the denial of his motion for reconsideration filed in due time, and paying at the same
time the corresponding docket fee (Section 1 of Rule 45). In other words, in the event a motion for
reconsideration is filed and denied, the period of fifteen days begins to run again from notice of
denial (See Codilla vs. Estenzo, 97 SCRA 351; Turingan vs. Cacdad, 122 SCRA 634).
A motion for extension of time to file a petition for review on certiorari may be filed with the
Supreme Court within the reglementary period, paying at the same time the corresponding docket
fee.
While the petition filed by EGMPC purports to be one of certiorari under Rule 65 of the Revised
Rules of Court, we shall treat it as having been filed under Rule 45, considering that it was filed
within the 15-day reglementary period for the filing of a petition for review on certiorari. As the
Court stated in Delsan Transport Lines, Inc. vs. Court of Appeals, where the Court was liberal in its
application of the Rules of Court in the interest of justice: It cannot x x x be claimed that this petition
is being used as a substitute for appeal after that remedy has been lost through the fault of petitioner.
Moreover, stripped of allegations of grave abuse of discretion, the petition actually avers errors of
judgment rather than of jurisdiction, which are the subject of a petition for review
The May 31, 1996 Report of the Court of Appeals informed the parties that the January 15, 1996
Resolution had attained finality, erroneously applying the rule applicable to petitions for review filed
with the Court of Appeals from a final judgment or order of the regional trial court.
We cannot and do not in the instant case vacate and set aside the May 31, 1996 Report. The report is
not before this Court on review. We must however, within the milieu of this case, regard the report
impertinent by the fact of EGMPC having timely filed its motion for extension of time to file its
petition on April 29, 1996.
We also consider that the consequences of the issuance of the report, that is, the entry of judgment in
the appellate court and the writ of execution issued by the trial court in the case of origin, inextricably
affect the resolution of the instant case. Hence, the rationale for our restraining order of January 15,
1997.
We next consider whether, as asserted by NPUM, EGMPCs petition must be summarily dismissed on
the ground of forum shopping. NPUM points to EGMPCs Opposition and/or Comment to the
Report of the Court of Appeals dated May 31, 1996 filed in G. R. No. 73794 vis-a-vis its Petition for
Review in the instant case, and the two Urgent Motions for the Issuance of a Temporary Restraining
Order filed in G.R. No. 73794 and in the instant case.
NPUM asserts that the reliefs sought by EGMPC in its opposition and in its petition are identical. We
disagree. The petition here seeks the setting aside of the Court of Appeals January 15, 1996 and April
12, 1996 Resolutions.
The Opposition in G.R. No. 73794, on the other hand, sought the nullification of the May 31, 1996
Report and as a corollary, for the instant case to be allowed or tolerated.
The opposition and the petition do not seek to provoke from this Court the resolution of a same issue,
the evil which Revised Circular No. 28-91 and its companion Administrative Circular No. 04-94
address. We read the opposition in G.R. No. 73794 as a complement to the petition here, to which it
makes categorical and express reference. 48 We consider it as merely a matter of discourse and
emphasis that Eternal Gardens reiterated its case in the later pleading.
Regarding the motions for the issuance of a temporary restraining order filed by EGMPC on January
10, 1997 in the instant case and on January 17, 1997 in G.R. No. 73794, we consider the exigency which
may have prompted EGMPC to file the motions in both cases. The trial court in the case of origin,
acted favorably on NPUMs motion for the issuance of a writ of execution, the basis of which is the
alleged finality of the appellate courts January 15, 1996 Resolution. The trial court ruled that the
instant case denominated as an original action for certiorari does not interrupt the course of the
principal action [G.R. No. 73794] nor the running of the period in the proceeding. 49 To not stay the
execution considering the trial courts ratiocination would render moot EGMPCs remedy in the
instant case.
NPUM also contends that EGMPC has committed perjury, pointing to the certification under oath
filed by EGMPC, through its President Gabriel O. Vida, where he states that there is no other case
pending in any court or tribunal in the Philippines, with the same issues in this case x x x.
Again, we disagree. It does not appear that EGMPC was to pursue the two cases concurrently.
EGMPC filed this new petition, and did not assail the appellate courts resolution under G.R. No.
73794, as in fact the Court has informed the parties that no further pleadings were to be entertained in
G.R. No. 73794 after remand to the Court of Appeals.
EGMPC next asserts that the Resolution of the Third Division dated December 1, 1993 ordering the
remand to the Court of Appeals of the case for accounting changed, modified and reversed the
September 19, 1988 Decision of the Second Division which ordered the remand of the case to the trial
court. EGMPC contends that the Third Division is in violation of the constitution which provides that
no doctrine or principle of law laid down in a decision en banc or in division may be changed
modified or revised by the Court except when sitting en banc.52cräläwvirtualibräry
EGMPC had raised the very same issue in its Motion for Reconsideration 53 of the December 1, 1993
Resolution. The Court, in its Resolution dated February 14, 1994 had denied the motion with finality
for lack of merit.
Needless to say, the argument raised by EGMPC is utterly without consequence. At the time the
September 19, 1988 Decision was rendered, the two civil cases - interpleader and quieting of title -
were still pending. What was brought before the appellate courts and subject of G.R. No. 73794 were
mere incidents, and not the judgment of the trial court; thus, the remand to the trial court for further
proceedings on the merits of the case. The December 1, 1993 Resolution was issued after the issue of
ownership of the subject parcel of land was already resolved with finality. What was left for the
courts to do was to have an accounting done of the rights and liabilities of EGMPC and NPUM, thus,
the remand to the Court of Appeals.
We now consider the merits of the case.
The gist of EGMPCs contentions is that it owes the amount of only P35,000,000.00 less advances and
not P167,065,195.00 as principal and P167,235,451.00 in interest as computed by Court Accountant
Carmencita C. Angelo.
EGMPC first contends that the appellate court, in appointing an accountant to make the
computations, delegated judicial function, such as to determine the admissibility of evidence.
Under the Revised Internal Rules of the Court of Appeals, that court has the -
d. Authority to receive evidence and perform any and all acts necessary for the resolution of factual
issues raised in cases falling within its original jurisdiction.
For the proper disposition of the case, the appellate court, under the above-quoted authority,
designated an accountant to receive, collate and analyze the documents to be filed by the parties.
räläwvirtualibräry
No judicial function was exercised by Ms. Angelo. She was not asked to rule on the admissibility of
the evidence. The documents were duly marked during the hearing of July 19, 1995, for the
consideration of the appellate court, which alone had the power to decide. Ms. Angelos role in the
proceedings was to prepare a report, which she did, culling from the documents submitted to her.
While it may be true that the report, when adopted by the appellate court, became part of its decision,
judicial power lies, not with the official who prepared the report, but with the court itself which
wields the power of approval or rejection. Under American jurisprudence, the rule is thus -
It would seen on principle that a commissioner, master or referee appointed by a court to aid it in the
adjudication of a particular case is not a court when performing the functions assigned to him,
although the court may adopt his conclusions in its decision x x x. It has, for instance, been held that a
statute giving the supreme court of a state the power to appoint commissioners thereof whose duty
shall be, under such rules and regulations as the court may adopt, to assist it in the performance of its
functions, and in disposing of undetermined cases before it, is not unconstitutional or open to the
objection that the commissioners are vested with judicial power, since the commissioners merely
report facts found and conclusions reached, and the court retains the power to decide which is the
only judicial power. It has also been pointed out that a chancellor does not, by referring a matter to a
commissioner, delegate his judicial function to him. The commissioner is appointed for the purpose
of assisting the chancellor, not to supplant or replace him, and the findings of a commissioner are
merely advisory and not binding on the court.
EGMPC also contends that it was deprived of due process because it was not given reasonable
opportunity to know and meet the claim of [NPUM] as its counsel was not able to cross-examine the
American Accountant of [NPUM].58cräläwvirtualibräry
The contention is without merit.
Contrary to EGMPCs claim, it was given every opportunity to present its case. At the outset, the
parties were asked by the appellate court to submit documents for accounting. NPUM made full
utilization of the modes of discovery, asking the appellate court to subpoena documents and
testimonies, and requesting admissions from EGMPC regarding documents it (EGMPC) had in its
possession, documents which emanated from the corporation itself, and either sent to NPUM as
communiqus, such as the Letter of Mr. Vida dated April 4, 1980 to Pastor Bienvenido Capule of
NPUM stating inter alia that for 1978, EGMPC sold 2,805 memorial lots and that during the first
quarter of 1980 the corporation sold 2,418 lots, totalling 10,730, 59 or documents available to the
general public, as in the Price Lists, or filed with government offices, specifically the Securities and
Exchange Commission and the Bureau of Internal Revenue.
EGMPC cannot claim that it was denied the forum to confer with NPUM and NPUMs accountant.
The appellate court had arranged conferences for the parties and their accountants to allow them to
discuss with each other and with Ms. Angelo. Even Ms. Angelo, in her Letter dated November 10,
1995 covering her second and final report spoke of such a conference, to wit:
In compliance with your instructions in the last conference-meeting with the party-litigants in Case
CA-G.R. No. SP No. 04869 held last August 30, 1995, the undersigned together with the
representatives of the North Philippine Union Mission (NPUM) and the Eternal Gardens Memorial,
Inc. had a discussion on the computations made by each of the party of the amount due to the North
Philippine Union Mission which were submitted to the Court. 60cräläwvirtualibräry
It was not even imperative that EGMPC cross-examine the accountant who prepared EGMPCs
computation, and there was no denial of due process without such cross-examination. This
computation was merely to aid Ms. Angelo, who was to make her own independent computation
from the documents submitted to her.
EGMPC also asserts that substantially if not all records, documents and papers submitted by the
private respondent NPUM to the Courts Accountant which eventually became the basis of the report
and Resolution of January 15, 1996 of the public respondent Court, were not genuine and not
properly identified by the persons who were supposed to have executed the same including the
alleged financial statement of Eternal Gardens allegedly issued by the Securities and Exchange
Commission (SEC).61cräläwvirtualibräry
From the transcript of stenographic notes of the proceedings in the appellate court, we find that
EGMPC acquiesced to the use of the documents submitted by NPUM, including the financial
statements, even actively participating in the discussion of the contents of such documents. EGMPCs
main objection was only on how the entries in these documents were to be interpreted, for example,
on how payments towards the perpetual care fund would be credited. 62 EGMPC did not object even
when counsel for NPUM read into the records the contents of the
documents. chanroblesvirtuallawlibrary
63
It even appears that after Ms. Angelo came up with her first report, EGMPCs counsel expressed that
it was amenable to that computation. 64 In that report, Ms. Angelo had stressed that [s]ince the Eternal
Gardens Memorial Park, Inc. did not submit to the Court any documents pertaining to the
computations of the 40% share of the North Philippine Union Mission of the Seventh Day Adventists,
then we have no other recourse but to base the computation on the available figures and on the other
documents as presented by the petitioner [NPUM].65cräläwvirtualibräry
EGMPC lastly contends that it is not liable for interest. It claims that it was justified in withholding
payment as there was still the unresolved issue of ownership over the property subject of the Land
Development Agreement of October 6, 1976.66chanroblesvirtuallawlibrary
The argument is without merit. EGMPC under the agreement had the obligation to remit monthly to
NPUM forty percent (40%) of its net gross collection from the development of a memorial park on
property owned by NPUM. The same agreement provided for the designation of a
depository/trustee bank to act as the depository/trustee for all funds collected by EGMPC. 67 There
was no obstacle, legal or otherwise, to the compliance by EGMPC of this provision in the contract,
even on the affectation that it did not know to whom payment was to be made.
Even disregarding the agreement, EGMPC cannot suspend payment on the pretext that it did not
know who among the subject propertys claimants was the rightful owner. It had a remedy under the
New Civil Code of the Philippines - to give in consignation the amounts due, as these fell
due.68 Consignation produces the effect of payment.69chanroblesvirtuallawlibrary
The rationale for consignation is to avoid the performance of an obligation becoming more onerous to
the debtor by reason of causes not imputable to him. 70 For its failure to consign the amounts due,
Eternal Gardens obligation to NPUM necessarily became more onerous as it became liable for interest
on the amounts it failed to remit.
Notably, EGMPC filed an interpleader action, the essence of which, aside from the disavowal of
interest in the property in litigation on the part of the petitioner, is the deposit of the property or
funds in controversy with the court. Yet from the outset, EGMPC had assailed any court ruling
ordering the deposit with a reputable bank of the amounts due from it under the Land Development
Agreement. In G.R. No. 73794,71 the Court made the following discourse on the disavowal of EGMPC
of its obligations, thus:
In the case at bar, a careful analysis of the records will show that petitioner admitted among others in
its complaint in Interpleader that it is still obligated to pay certain amounts to private respondent;
that it claims no interest in such amounts due and is willing to pay whoever is declared entitled to
said amounts. Such admissions in the complaint were reaffirmed in open court before the Court of
Appeals as stated in the latter courts resolution dated September 5, 1985 in C.A. G.R. No. 04869 which
states:
The private respondent (MEMORIAL) then reaffirms before the Court its original position that it is a
disinterested party with respect to the property now the subject of the interpleader case.
In the light of the willingness, expressly made before the court, affirming the complaint filed below,
that the private respondent (MEMORIAL) will pay whatever is due on the Land Development
Agreement to the rightful owner/owners, there is no reason why the amount due on subject
agreement has not been placed in the custody of the Court.
Under the circumstances, there appears to be no plausible reason for petitioners objections to the
deposit of the amounts in litigation after having asked for the assistance of the lower court by filing a
complaint for interpleader where the deposit of aforesaid amounts is not only required by the nature
of the action but is a contractual obligation of the petitioner under the Land Development Program.
As correctly observed by the Court of Appeals, the essence of an interpleader, aside from the
disavowal of interest in the property in litigation on the part of the petitioner, is the deposit of the
property or funds in controversy with the court, it is a rule founded on justice and equity: that the
plaintiff may not continue to benefit from the property or funds in litigation during the pendency of
the suit at the expense of whoever will ultimately be decided as entitled thereto.
The case at bar was elevated to the Court of Appeals on certiorari with prohibitory and mandatory
injunction. Said appellate court found that more than twenty million pesos are involved; so that on
interest alone for savings or time deposit would be considerable, now accruing in favor of the Eternal
Gardens. Finding that such is violative of the very essence of the complaint for interpleader as it
clearly runs against the interest of justice in this case, the Court of Appeals cannot be faulted for
finding that the lower court committed a grave abuse of discretion which requires correction by the
requirement that a deposit of said amounts should be made to a bank approved by the Court.
Petitioner would now compound the issue by its obvious turnabout, presently claiming in its
memorandum that there is a novation of contract so that the amounts due under the Land
Development Agreement were allegedly extinguished, and the requirement to make a deposit of said
amounts in a depository bank should be held in abeyance until after the conflicting claims of
ownership now on trial before Branch CXXII RTC-Caloocan City, has finally been resolved.
All these notwithstanding, the need for the deposit in question has been established, not only in the
lower courts and in the Court of Appeals but also in the Supreme Court where such deposit was
required in the resolution of July 8, 1987 to avoid wastage of funds.
Even during the pendency of G.R. No. 73794, EGMPC was required to deposit the accruing interests
with a reputable commercial bank to avoid possible wastage of funds when the case was given due
course.72 Yet, EGMPC hedged in depositing the amounts due and made obvious attempts to stay
payment by filing sundry motions and pleadings.
We thus find that the Court of Appeals correctly held Eternal Gardens liable for interest at the rate of
twelve percent (12%). The withholding of the amounts due under the agreement was tantamount to a
forbearance of money.73chanroblesvirtuallawlibrary
CONSIDERING THE FOREGOING, the Court Resolved to DENY the petition. The Resolutions
dated January 15, 1996 and April 12, 1996 are AFFIRMED. The temporary restraining order issued by
this Court on January 15, 1997 is LIFTED.
FIRST DIVISION
[G.R. No. 125678. March 18, 2002.]
PHILAMCARE HEALTH SYSTEMS, INC., Petitioner, v. COURT OF APPEALS and JULITA

TRINOS, Respondents.
DECISION
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the
following question:chanrob1es virtual 1aw library
Have you or any of your family members ever consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). 1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondent’s
husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed
therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations,
preventive health care and other out-patient services.chanrob1es virtua1 1aw 1ibrary
Upon the termination of the agreement, the same was extended for another year from March 1, 1989
to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner
denied her claim saying that the Health Care Agreement was void. According to petitioner, there was
a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the
time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer
in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to
about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home.
Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however,
respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Respondent was constrained to bring him back to the Chinese General
Hospital where he died on the same day.cralaw : red
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action
for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil
Case No. 90 53795. She asked for reimbursement of her expenses plus moral damages and attorney’s
fees. After trial, the lower court ruled against petitioners, viz:chanrob1es virtual 1aw library
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita
Trinos, ordering:chanrob1es virtual 1aw library
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the
amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED 3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente. 4 Petitioner’s motion for reconsideration was denied. 5
Hence, petitioner brought the instant petition for review, raising the primary argument that a health
care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance
Code 6 does not apply.
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last longer, 7
petitioner argues that the incontestability clause does not apply, as the same requires an effectivity
period of at least two years. Petitioner further argues that it is not an insurance company, which is
governed by the Insurance Commission, but a Health Maintenance Organization under the authority
of the Department of Health.chanrob1es virtua1 1aw 1ibrary
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements
concur:chanrob1es virtual 1aw library
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group
of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium. 8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself. Section 10 provides:chanrob1es
virtual 1aw library
Every person has an insurable interest in the life and health:chanrob1es virtual 1aw library
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has
a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or
service, of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. 9 Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.chanrob1es virtua1 1aw 1ibrary
Petitioner argues that respondent’s husband concealed a material fact in his application. It appears
that in the application for health coverage, petitioners required respondent’s husband to sign an
express authorization for any person, organization or entity that has any record or knowledge of his
health to furnish any and all information relative to any hospitalization, consultation, treatment or
any other medical advice or examination. 10 Specifically, the Health Care Agreement signed by
respondent’s husband states:chanrob1es virtual 1aw library
We hereby declare and agree that all statement and answers contained herein and in any addendum
annexed to this application are full, complete and true and bind all parties in interest under the
Agreement herein applied for, that there shall be no contract of health care coverage unless and until
an Agreement is issued on this application and the full Membership Fee according to the mode of
payment applied for is actually paid during the lifetime and good health of proposed Members; that
no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare
unless set out in writing in the application; that any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any information acquired by him in his
professional capacity upon any question affecting the eligibility for health care coverage of the
Proposed Members and that the acceptance of any Agreement issued on this application shall be a
ratification of any correction in or addition to this application as stated in the space for Home Office
Endorsement. 11 (Emphasis ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to
inquire about the applicant’s medical history, thus:chanrob1es virtual 1aw library
I hereby authorize any person, organization, or entity that has any record or knowledge of my health
and/or that of ________ to give to the PhilamCare Health Systems, Inc. any and all information
relative to any hospitalization. consultation. treatment or any other medical advice or examination.
This authorization is in connection with the application for health care coverage only. A photographic
copy of this authorization shall be as valid as the original. 12 (Emphasis ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which

reads:chanrob1es virtual 1aw library
Failure to disclose or misrepresentation of any material information by the member in the application
or medical examination, whether intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare shall be limited to return of all
Membership Fees paid. An undisclosed or misrepresented information is deemed material if its
revelation would have resulted in the declination of the applicant by Philamcare or the assessment of
a higher Membership Fee for the benefit or benefits applied for. 13
The answer assailed by petitioner was in response to the question relating to the medical history of
the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not avoid a policy even though they
are untrue. 14 Thus,chanrob1es virtua1 1aw 1ibrary
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or
its acceptance at a lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character, since in such case the
insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There
is a clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be
actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in
such case the intent to deceive the insurer is obvious and amounts to actual fraud. 15 (Emphasis ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract. 16 Concealment as a defense for the health care provider or insurer to avoid
liability is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with or without the authority to
investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility
under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end,
the liability of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance." The right to rescind should be exercised previous to the commencement of an action on
the contract. 17 In this case, no rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of the following conditions:chanrob1es
virtual 1aw library
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request
of insured, to furnish facts on which cancellation is based. 18
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. 19 Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract — the insurer. 20
By reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture. 21 This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service contracts, such as the one at bar, must be
liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider. 22
Anent the incontestability of the membership of respondent’s husband, we quote with approval the
following findings of the trial court:chanrob1es virtual 1aw library
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had
twelve months from the date of issuance of the Agreement within which to contest the membership
of the patient if he had previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods having expired, the
defense of concealment or misrepresentation no longer lie. 23
Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering
that at the time of their marriage, the deceased was previously married to another woman who was
still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment
should be made to the party who incurred the expenses. It is not controverted that respondent paid
all the hospital and medical expenses. She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication
and the professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of
Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno and Kapunan, JJ., concur.
Endnotes:
{PUT IN FIRE INSURANCE}
SECOND DIVISION
[G.R. NO. 156167 : May 16, 2005]
GULF RESORTS, INC., Petitioner, v. PHILIPPINE CHARTER INSURANCE
CORPORATION, Respondent.
DECISION
PUNO, J.:
For review are the warring interpretations of petitioner and respondent on the scope of the insurance
company's liability for earthquake damage to petitioner's properties. Petitioner avers that, pursuant
to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the
properties within its resort caused by earthquake. Respondent contends that the rider limits its
liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said
resort insured originally with the American Home Assurance Company (AHAC-AIU).
that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on July 16,
1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff's properties covered by
Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort
were damaged.
After the earthquake, petitioner advised respondent that it would be making a claim under its
Insurance Policy No. 31944 for damages on its properties.
On August 23, 1990, respondent denied petitioner's claim on the ground that its insurance policy only
afforded earthquake shock coverage to the two swimming pools of the resort. Petitioner and
respondent failed to arrive at a settlement. 9 Thus, on January 24, 1991, petitioner filed a
complaint10 with the regional trial court of Pasig praying for the payment of the following:
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against earthquake shock only on the two swimming
pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the
Court must consequently agree with the position of defendant that the endorsement rider (Exhibit "7-
C") means that only the two swimming pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the
language used in an insurance contract or application is such as to create ambiguity the same should
be resolved against the party responsible therefor, i.e., the insurance company which prepared the
contract. To the mind of [the] Court, the language used in the policy in litigation is clear and
unambiguous hence there is no need for interpretation or construction but only application of the
provisions therein.
From the above observations the Court finds that only the two (2) swimming pools had earthquake
shock coverage and were heavily damaged by the earthquake.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE
HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2)
swimming pools, with interest at 6% per annum from the date of the filing of the Complaint until
defendant's obligation to plaintiff is fully paid.
No pronouncement as to costs.13
Petitioner's Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of
Appeals based on the following assigned errors:14
Coming to the defendant-appellant's prayer for an attorney's fees, long-standing is the rule that the
award thereof is subject to the sound discretion of the court. Thus, if such discretion is well-exercised,
it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover,
being the award thereof an exception rather than a rule, it is necessary for the court to make findings
of facts and law that would bring the case within the exception and justify the grant of such award
(Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R.
No. 136914, January 25, 2002). Therefore, holding that the plaintiff-appellant's action is not baseless
and highly speculative, We find that the Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the
Trial Court hereby AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues: 16
DECISION
A careful examination of the premium recapitulation will show that it is the clear intent of the parties
to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance
Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.
Thus, an insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group
of persons bearing a similar risk; andcralawlibrary
5. In consideration of the insurer's promise, the insured pays a premium.26 (Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.27 In fire, casualty, and marine insurance, the premium payable becomes a
debt as soon as the risk attaches. 28 In the subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two swimming pools. There is no mention of any
premium payable for the other resort properties with regard to earthquake shock. This is consistent
with the history of petitioner's previous insurance policies from AHAC-AIU. As borne out by
petitioner's witnesses:
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-
4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some terms,
specifically in the replacement cost endorsement, but the principal provisions of the policy remained
essentially similar to AHAC-AIU's policy. Consequently, we cannot apply the "fine print" or "contract
of adhesion" rule in this case as the parties' intent to limit the coverage of the policy to the two
swimming pools only is not ambiguous. 37
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The Petition for Certiorari is
dismissed. No costs.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

FIRST DIVISION
[G.R. NO. 147039 - January 27, 2006]
DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, v. RADIO MINDANAO
NETWORK, INC., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc.
(respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and Provident
Insurance Corporation (Provident) for recovery of insurance benefits. Respondent owns several
broadcasting stations all over the country. Provident covered respondent's transmitter equipment
and generating set for the amount of P13,550,000.00 under Fire Insurance Policy No. 30354, while
petitioner covered respondent's transmitter, furniture, fixture and other transmitter facilities for the
amount of P5,883,650.00 under Fire Insurance Policy No. F-66860.
In the evening of July 27, 1988, respondent's radio station located in SSS Building, Bacolod City, was
razed by fire causing damage in the amount of P1,044,040.00. Respondent sought recovery under the
two insurance policies but the claims were denied on the ground that the cause of loss was an
excepted risk excluded under condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or through or in consequence,
directly or indirectly, of any of the following consequences, namely:
(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or
not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped
power.
The insurance companies maintained that the evidence showed that the fire was caused by members
of the Communist Party of the Philippines/New People's Army (CPP/NPA); and consequently,
denied the claims. Hence, respondent was constrained to file Civil Case No. 90-602 against petitioner
and Provident.
After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in favor
of respondent. The dispositive portion of the decision reads:
Both insurance companies appealed from the trial court's decision but the CA affirmed the decision,
with the modification that the applicable interest rate was reduced to 6% per annum. A motion for
reconsideration was filed by petitioner DBP which was denied by the CA per its Resolution dated
January 30, 2001.
Hence, herein petition by DBP Pool of Accredited Insurance Companies, 6 with the following
assignment of errors:
Assignment of Errors
THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO
SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED
MEN WHO CUSED [sic] THE FIRE AT RESPONDENT'S RMN PROPERTY AT BACOLOD CITY
WERE MEMBERS OF THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT

RMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEY'S FEES FOR INSTITUTING THE
PRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF
THE CIVIL CODE OF THE PHILIPPINES.7
Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to
support its allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPA
caused the fire. In upholding respondent's claim for indemnity, the trial court found that:
The only evidence which the Court can consider to determine if the fire was due to the intentional act
committed by the members of the New People's Army (NPA), are the testimony [sic] of witnesses Lt.
Col. Nicolas Torres and SPO3 Leonardo Rochar who were admittedly not present when the fire
occurred. Their testimony [sic] was [sic] limited to the fact that an investigation was conducted and in
the course of the investigation they were informed by bystanders that "heavily armed men entered
the transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went out
shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995).
Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed by
the CA are conclusive and binding on the parties, 11 which this Court will not review unless there are
exceptional circumstances. There are no exceptional circumstances in this case that would have
impelled the Court to depart from the factual findings of both the trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss was
caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that the cause of the damage/loss
is covered by the insurance policy, as stipulated in the insurance policy, to wit:
Any loss or damage happening during the existence of abnormal conditions (whether physical or
otherwise) which are occasioned by or through in consequence directly or indirectly, of any of the
said occurrences shall be deemed to be loss or damage which is not covered by the insurance, except
to the extent that the Insured shall prove that such loss or damage happened independently of the
existence of such abnormal conditions.
In any action, suit or other proceeding where the Companies allege that by reason of the provisions of
this condition any loss or damage is not covered by this insurance, the burden of proving that such
loss or damage is covered shall be upon the Insured.
An insurance contract, being a contract of adhesion, 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. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its obligations.
The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of
evidence" (burden of going forward).14 As applied in this case, it refers to the duty of the insured to
show that the loss or damage is covered by the policy. The foregoing clause notwithstanding, the
burden of proof still rests upon petitioner to prove that the damage or loss was caused by an
excepted risk in order to escape any liability under the contract.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by the
amount of evidence required by law, which is preponderance of evidence in civil cases. The party,
whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to
obtain a favorable judgment. For the plaintiff, the burden of proof never parts. 15 For the defendant, an
affirmative defense is one which is not a denial of an essential ingredient in the plaintiff's cause of
action, but one which, if established, will be a good defense - i.e. an "avoidance" of the claim. 16
Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insures
against other perils or hazards, loss from such a risk constitutes a defense which the insurer may
urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a
claim because of an exception or limitation in the policy has the burden of proving that the loss
comes within the purview of the exception or limitation set up. If a proof is made of a loss
apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose
from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its
liability.17
The Court finds the foregoing to be insufficient to establish that the cause of the fire was the
intentional burning of the radio facilities by the rebels or an act of insurrection, rebellion or usurped
power. Evidence that persons who burned the radio facilities shouted "Mabuhay ang NPA" does not
furnish logical conclusion that they are member [sic] of the NPA or that their act was an act of
rebellion or insurrection. Additional convincing proof need be submitted. Defendants failed to
discharge their responsibility to present adequate proof that the loss was due to a risk excluded.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16, 2000
and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto.
SO ORDERED.
[G.R. No. 124554. December 9, 1997]
ETERNAL GARDENS MEMORIAL PARK CORPORATION, Petitioner, v. COURT OF APPEALS and
NORTH PHILIPPINE UNION MISSION OF THE SEVENTH DAY ADVENTISTS, Respondents.
DECISION
KAPUNAN, J.:
The antecedents are as follows:
Petitioner EGMPC and private respondent NPUM entered into a Land Development Agreement
dated October 6, 1976. Under the agreement, EGMPC was to develop a parcel of land owned by
NPUM into a memorial park subdivided into lots. The parties further agreed –
(d) THAT the FIRST PARTY shall receive forty (40%) percent of the gross collection less Perpetual
Care Fees (which in no case shall exceed 10% of the price per lot unless otherwise agreed upon by
both parties in writing) or Net Gross Collection (NGC) from this project. This shall be remitted
monthly by the SECOND PARTY in the following manner: (i) Forty (40%) percent of the NGC, plus
(ii) if it becomes necessary for the FIRST PARTY to vacate the property earlier than two years from
the date of this agreement, at the option of the FIRST PARTY, an additional amount equivalent to
twenty (20%) percent of the NGC as cash advance for the first four (4) years with interest at twelve
(12%) percent per annum which cash advance shall be deductible out of the proceeds from the FIRST
PARTYs 40% from the 5th year onward. The SECOND PARTY further agrees that if the FIRST
PARTY shall desire to have its projected receivables collected at the 5th year, the SECOND PARTY
shall assist in having the same discounted in advance.
The P1.5 million initial payment mentioned in the Deed of Absolute Sale, covering the first phase of
the project, shall be deducted out of the proceeds from the FIRST PARTYs 40% at the end of the 5th
year. Subsequent payments made by the SECOND PARTY on account of the stated purchase price in
said Deed of Absolute Sale shall be charged against what is due to the FIRST PARTY under this
LAND DEVELOPMENT AGREEMENT.
Later, two claimants of the parcel of land surfaced - Maysilo Estate and the heirs of a certain Vicente
Singson Encarnacion. EGMPC thus filed an action for interpleader against Maysilo Estate and
NPUM, docketed as Civil Case No. 9556 before the Regional Trial Court of Kalookan City, Branch
120. The Singson heirs in turn filed an action for quieting of title against EGMPC and NPUM,
docketed as Civil Case No. C-11836 before Branch 122 of the same court.
From these two cases, several proceedings ensued. One such case, from the interpleader action,
culminated in the filing and subsequent resolution of G.R. No. 73794. In G.R. No. 73794, EGMPC
assailed the appellate courts resolution requiring petitioner Eternal Gardens [to] deposit whatever
amounts are due from it under the Land Development Agreement with a reputable bank to be
designated by the respondent court.
In the Decision of September 19, 1988, the court ruled thus:

PREMISES CONSIDERED, (a) the petition is DISMISSED for lack of merit; (b) this case (together with
all the claims of the intervenors on the merits) is REMANDED to the lower court for further
proceedings; and (c) the Resolution of the Third Division of this Court of July 8, 1987 requiring the
deposit by the petitioner (see footnote 6) of the amounts contested in a depository bank STANDS
(the Motion for Reconsideration thereof being hereby DENIED for reasons already discussed) until
after the decision on the merits shall have become final and executory.
The appellate court rendered judgment in the consolidated case on December 17, 1991 as follows:
(a.) the trial courts decision in Civil Case No. 9556 was affirmed insofar as it dismissed the claims of
the intervenors, including the Maysilo Estate, and the titles of NPUM to the subject parcel of land
were declared valid; and (b.) the trial courts decision in Civil Case No. C-11836 in favor of the
Singson heirs was reversed and set aside.
From the consolidated decision, the Singson heirs, Maysilo Estate and EGMPC each filed with this
Court their petitions for review on certiorari.
Following these, the Court, through the Third Division, issued a Resolution dated December 1, 1993
in G.R. No. 73794, thus:
WHEREFORE, considering that the ownership of the property in dispute has now been settled with
finality, the Court sees no further legal obstacle in carrying out the respective covenants of the parties
to the Land Development Agreement. x x x. In respect to the mutual accounting required to
determine the remaining accrued rights and liabilities of said parties, the case is hereby remanded to
the Court of Appeals for proper determination and disposition.
All other incidental motions involving G.R. No. 73794, still pending with this Court, are hereby,
declared MOOT and are NOTED WITHOUT ACTION.11cräläwvirtualibräry
In compliance with the Supreme Court resolution, the Court of Appeals proceeded with the
disposition of the case.
EGMPC filed a Motion for Reconsideration, which was denied for lack of merit by the appellate court
in a Resolution dated April 12, 1996.
On April 29, 1996, EGMPC filed a Motion for Extension of Time to File Petition for Certiorari and
Prohibition with this Court, docketed as G.R. No. 124554, seeking the review of the appellate courts
Resolutions dated January 15, 1996 and April 12, 1996. The Court granted this motion for
extension,32 and on May 27, 1996, EGMPC filed the instant petition.
It appears, however, that in a Report dated May 31, 1996 in CA-G.R. SP No. 04869, the Court of
Appeals informed the parties that its January 15, 1996 Resolution had attained finality considering
the following:
The respondent Eternal Gardens Memorial Park received copy of the [January 15, 1996] resolution on
January 22, 1996 and, after twelve (12) days from its receipt or on February 2, 1996, filed a motion for
reconsideration thereof. This Court denied Eternal Gardens motion for reconsideration in a resolution
promulgated April 12, 1996, a copy of which it received on April 18, 1996. After eleven (11) days from
receipt of the resolution denying its motion for reconsideration, or on April 12, 1996 (sic), it filed a
motion for extension to file a petition for review with the Supreme Court.
It is quite clear that after the denial of its motion for reconsideration, Eternal Gardens had only three
(3) days left of the reglementary period to file a petition for review, or only up to April 12, 1996, but
Eternal Gardens allowed that period to lapse, and then filed its motion to extend to file its petition on
April 29, 1996 - which is eight (8) days beyond the period of finality of the resolution sought to be
reviewed by the Supreme Court. Consequently, the resolution of January 15, 1996 had attained
finality before Eternal Gardens filed its motion to extend before this Honorable Court.
Entry of judgment was made on June 6, 1996.

Following the above incidents, on June 20, 1996, EGMPC filed in G.R. No. 73794 an Opposition
and/or Comment to the Report of the Court of Appeals dated 31 May 1996 with the prayer:
x x x to disregard and nullify the Report of the Court of Appeals dated May 31, 1996 and at the same
time allow or tolerate the First Division of the Honorable Supreme Court to resolved (sic) the
petitioner Eternal Gardens Petition for Certiorari against the Court of Appeals and NPUM with G.R.
No. 124554.
In retort to EGMPCs opposition, also in G.R. No. 73794, NPUM filed on June 11, 1996 an Omnibus
Motion (a) to dismiss the petition in G.R. No. 124554, or (b) to consolidate the two petitions, and (c)
for the issuance of a writ of execution. NPUM contended that as a consequence of the appellate courts
resolutions in CA G.R. SP No. 04869 having attained finality, a writ of execution may be issued under
G.R. No. 73794, and EGMPC could no longer file a separate petition such as that docketed as G.R. No.
124554.
In its Comment filed on July 17, 1996, in G.R. No. 124554, NPUM prayed for the denial of the petition
for being frivolous and dilatory, citing EGMPCs violation of Circular No. 04-94 on forum shopping,
in reference to its (EGMPCs) pleadings filed in G.R. No. 73794. NPUM pointed out that the reliefs
sought by EGMPC in G.R. No. 124554 were identical to those in its Opposition And/Or Comment to
the Report of the Court of Appeals dated 31 May 1996 filed in G.R. No. 73794.
On December 26, 1996, the Regional Trial Court of Kalookan City, Branch 120, issued an Order in the
case of origin, Civil Case No. 9556, granting NPUMs motion for execution of judgment. 39 A writ of
execution was subsequently issued by that trial court on January 7, 1997. y
Because of the trial courts issuance of the writ of execution, on January 10, 1997, EGMPC filed in G.R.
No. 124554 an Urgent Motion for Restraining Order And/Or Injunction and Motion for Contempt of
Court. EGMPC prayed that pending resolution of the petition to promptly issue a restraining order
and/or injunction against Judge Jaime Discaya of the RTC Br. 120 of Kalookan City in Civil Case No.
9556 x x x.41c
EGMPC also filed in G.R. No. 73794 on January 17, 1997 an Urgent Motion for Restraining Order
And/Or Injunctive Relief with the same prayer as in its Urgent Motion filed in G.R. No. 124554.
In G.R. No. 124554, the Court granted EGMPCs motion and issued a temporary restraining order
against the trial courts order dated December 16, 1996 and writ of execution dated January 7, 1997.
In a Resolution dated January 27, 1997 issued in G.R. No. 73794, the Court denied for lack of merit
EGMPCs Urgent Motion.
The threshold question here is whether Eternal Gardens timely filed its petition for review from the
Court of Appeals January 15, 1996 and April 12, 1996 Resolutions.
We restate the material dates thus:
EGMPC received a copy of the January 15, 1996 Resolution on January 22, 1996. Twelve days from
such receipt, or on February 2, 1996, EGMPC filed its Motion for Reconsideration. On April 18, 1996,
EGMPC received the appellate courts Resolution of April 12, 1996 denying its Motion for
Reconsideration. On April 29, 1996, or eleven days from its receipt of the denial of its motion for
reconsideration, EGMPC filed a motion for extension of time to file its Petition for Certiorari and
Prohibition and concurrently paid the legal fees.
We find that EGMPCs Motion for Extension of Time to File a Petition for Review was timely filed on
April 29, 1996, such motion having been filed eleven days from receipt of the appellate courts denial
of its motion for reconsideration. Supreme Court Circular No. 10 dated August 28, 1986 on modes
and periods of appeal provides thus:
(5) APPEALS BY CERTIORARI TO THE SUPREME COURT
In an appeal by certiorari to this Court under Rule 45 of the Rules of Court, Section 25 of the Interim
Rules and Section 7 of PD 1606, a party may file a petition for review on certiorari of the judgment of a
regional trial court, the Court of Appeals or the Sandiganbayan within fifteen days from notice of
judgment or of the denial of his motion for reconsideration filed in due time, and paying at the same
time the corresponding docket fee (Section 1 of Rule 45). In other words, in the event a motion for
reconsideration is filed and denied, the period of fifteen days begins to run again from notice of
denial (See Codilla vs. Estenzo, 97 SCRA 351; Turingan vs. Cacdad, 122 SCRA 634).
A motion for extension of time to file a petition for review on certiorari may be filed with the
Supreme Court within the reglementary period, paying at the same time the corresponding docket
fee.45cräläwvirtualibräry
While the petition filed by EGMPC purports to be one of certiorari under Rule 65 of the Revised
Rules of Court, we shall treat it as having been filed under Rule 45, considering that it was filed
within the 15-day reglementary period for the filing of a petition for review on certiorari. As the
Court stated in Delsan Transport Lines, Inc. vs. Court of Appeals, where the Court was liberal in its
application of the Rules of Court in the interest of justice: It cannot x x x be claimed that this petition
is being used as a substitute for appeal after that remedy has been lost through the fault of petitioner.
Moreover, stripped of allegations of grave abuse of discretion, the petition actually avers errors of
judgment rather than of jurisdiction, which are the subject of a petition for
review.46chanroblesvirtuallawlibrary
The May 31, 1996 Report of the Court of Appeals informed the parties that the January 15, 1996
Resolution had attained finality, erroneously applying the rule applicable to petitions for review filed
with the Court of Appeals from a final judgment or order of the regional trial
court.47chanroblesvirtuallawlibrary
We cannot and do not in the instant case vacate and set aside the May 31, 1996 Report. The report is
not before this Court on review. We must however, within the milieu of this case, regard the report
impertinent by the fact of EGMPC having timely filed its motion for extension of time to file its
petition on April 29, 1996.
We also consider that the consequences of the issuance of the report, that is, the entry of judgment in
the appellate court and the writ of execution issued by the trial court in the case of origin, inextricably
affect the resolution of the instant case. Hence, the rationale for our restraining order of January 15,
1997.
We next consider whether, as asserted by NPUM, EGMPCs petition must be summarily dismissed on
the ground of forum shopping. NPUM points to EGMPCs Opposition and/or Comment to the
Report of the Court of Appeals dated May 31, 1996 filed in G. R. No. 73794 vis-a-vis its Petition for
Review in the instant case, and the two Urgent Motions for the Issuance of a Temporary Restraining
Order filed in G.R. No. 73794 and in the instant case.
NPUM asserts that the reliefs sought by EGMPC in its opposition and in its petition are identical. We
disagree. The petition here seeks the setting aside of the Court of Appeals January 15, 1996 and April
12, 1996 Resolutions.
The Opposition in G.R. No. 73794, on the other hand, sought the nullification of the May 31, 1996
Report and as a corollary, for the instant case to be allowed or tolerated.
The opposition and the petition do not seek to provoke from this Court the resolution of a same issue,
the evil which Revised Circular No. 28-91 and its companion Administrative Circular No. 04-94
address. We read the opposition in G.R. No. 73794 as a complement to the petition here, to which it
makes categorical and express reference. 48 We consider it as merely a matter of discourse and
emphasis that Eternal Gardens reiterated its case in the later pleading.
Regarding the motions for the issuance of a temporary restraining order filed by EGMPC on January
10, 1997 in the instant case and on January 17, 1997 in G.R. No. 73794, we consider the exigency which
may have prompted EGMPC to file the motions in both cases. The trial court in the case of origin,
acted favorably on NPUMs motion for the issuance of a writ of execution, the basis of which is the
alleged finality of the appellate courts January 15, 1996 Resolution. The trial court ruled that the
instant case denominated as an original action for certiorari does not interrupt the course of the
principal action [G.R. No. 73794] nor the running of the period in the proceeding. 49 To not stay the
execution considering the trial courts ratiocination would render moot EGMPCs remedy in the
instant case.
NPUM also contends that EGMPC has committed perjury, pointing to the certification under oath
filed by EGMPC, through its President Gabriel O. Vida, where he states that there is no other case
pending in any court or tribunal in the Philippines, with the same issues in this case x x
Again, we disagree. It does not appear that EGMPC was to pursue the two cases concurrently.
EGMPC filed this new petition, and did not assail the appellate courts resolution under G.R. No.
73794, as in fact the Court has informed the parties that no further pleadings were to be entertained in
G.R. No. 73794 after remand to the Court of Appeals.
EGMPC next asserts that the Resolution of the Third Division dated December 1, 1993 ordering the
remand to the Court of Appeals of the case for accounting changed, modified and reversed the
September 19, 1988 Decision of the Second Division which ordered the remand of the case to the trial
court. EGMPC contends that the Third Division is in violation of the constitution which provides that
no doctrine or principle of law laid down in a decision en banc or in division may be changed
modified or revised by the Court except when sitting en banc.52cräläwvirtualibräry
EGMPC had raised the very same issue in its Motion for Reconsideration 53 of the December 1, 1993
Resolution. The Court, in its Resolution dated February 14, 1994 had denied the motion with finality
for lack of merit.
Needless to say, the argument raised by EGMPC is utterly without consequence. At the time the
September 19, 1988 Decision was rendered, the two civil cases - interpleader and quieting of title -
were still pending. What was brought before the appellate courts and subject of G.R. No. 73794 were
mere incidents, and not the judgment of the trial court; thus, the remand to the trial court for further
proceedings on the merits of the case. The December 1, 1993 Resolution was issued after the issue of
ownership of the subject parcel of land was already resolved with finality. What was left for the
courts to do was to have an accounting done of the rights and liabilities of EGMPC and NPUM, thus,
the remand to the Court of Appeals.
We now consider the merits of the case.

The gist of EGMPCs contentions is that it owes the amount of only P35,000,000.00 less advances and
not P167,065,195.00 as principal and P167,235,451.00 in interest as computed by Court Accountant
Carmencita C. Angelo.
EGMPC first contends that the appellate court, in appointing an accountant to make the
computations, delegated judicial function, such as to determine the admissibility of evidence.
Under the Revised Internal Rules of the Court of Appeals, that court has the -
d. Authority to receive evidence and perform any and all acts necessary for the resolution of factual
issues raised in cases falling within its original jurisdiction.
For the proper disposition of the case, the appellate court, under the above-quoted authority,
designated an accountant to receive, collate and analyze the documents to be filed by the parties.
No judicial function was exercised by Ms. Angelo. She was not asked to rule on the admissibility of
the evidence. The documents were duly marked during the hearing of July 19, 1995, for the
consideration of the appellate court, which alone had the power to decide. Ms. Angelos role in the
proceedings was to prepare a report, which she did, culling from the documents submitted to her.
While it may be true that the report, when adopted by the appellate court, became part of its decision,
judicial power lies, not with the official who prepared the report, but with the court itself which
wields the power of approval or rejection. Under American jurisprudence, the rule is thus -
It would seen on principle that a commissioner, master or referee appointed by a court to aid it in the
adjudication of a particular case is not a court when performing the functions assigned to him,
although the court may adopt his conclusions in its decision x x x. It has, for instance, been held that a
statute giving the supreme court of a state the power to appoint commissioners thereof whose duty
shall be, under such rules and regulations as the court may adopt, to assist it in the performance of its
functions, and in disposing of undetermined cases before it, is not unconstitutional or open to the
objection that the commissioners are vested with judicial power, since the commissioners merely
report facts found and conclusions reached, and the court retains the power to decide which is the
only judicial power. It has also been pointed out that a chancellor does not, by referring a matter to a
commissioner, delegate his judicial function to him. The commissioner is appointed for the purpose
of assisting the chancellor, not to supplant or replace him, and the findings of a commissioner are
merely advisory and not binding on the court.
EGMPC also contends that it was deprived of due process because it was not given reasonable
opportunity to know and meet the claim of [NPUM] as its counsel was not able to cross-examine the
American Accountant of [NPUM].
The contention is without merit.
Contrary to EGMPCs claim, it was given every opportunity to present its case. At the outset, the
parties were asked by the appellate court to submit documents for accounting. NPUM made full
utilization of the modes of discovery, asking the appellate court to subpoena documents and
testimonies, and requesting admissions from EGMPC regarding documents it (EGMPC) had in its
possession, documents which emanated from the corporation itself, and either sent to NPUM as
communiqus, such as the Letter of Mr. Vida dated April 4, 1980 to Pastor Bienvenido Capule of
NPUM stating inter alia that for 1978, EGMPC sold 2,805 memorial lots and that during the first
quarter of 1980 the corporation sold 2,418 lots, totalling 10,730, 59 or documents available to the
general public, as in the Price Lists, or filed with government offices, specifically the Securities and
Exchange Commission and the Bureau of Internal Revenue.
EGMPC cannot claim that it was denied the forum to confer with NPUM and NPUMs accountant.
The appellate court had arranged conferences for the parties and their accountants to allow them to
discuss with each other and with Ms. Angelo. Even Ms. Angelo, in her Letter dated November 10,
1995 covering her second and final report spoke of such a conference, to wit:
In compliance with your instructions in the last conference-meeting with the party-litigants in Case
CA-G.R. No. SP No. 04869 held last August 30, 1995, the undersigned together with the
representatives of the North Philippine Union Mission (NPUM) and the Eternal Gardens Memorial,
Inc. had a discussion on the computations made by each of the party of the amount due to the North
Philippine Union Mission which were submitted to the Court.
It was not even imperative that EGMPC cross-examine the accountant who prepared EGMPCs
computation, and there was no denial of due process without such cross-examination. This
computation was merely to aid Ms. Angelo, who was to make her own independent computation
from the documents submitted to her.
EGMPC also asserts that substantially if not all records, documents and papers submitted by the
private respondent NPUM to the Courts Accountant which eventually became the basis of the report
and Resolution of January 15, 1996 of the public respondent Court, were not genuine and not
properly identified by the persons who were supposed to have executed the same including the
alleged financial statement of Eternal Gardens allegedly issued by the Securities and Exchange
Commission (SEC).
From the transcript of stenographic notes of the proceedings in the appellate court, we find that
EGMPC acquiesced to the use of the documents submitted by NPUM, including the financial
statements, even actively participating in the discussion of the contents of such documents. EGMPCs
main objection was only on how the entries in these documents were to be interpreted, for example,
on how payments towards the perpetual care fund would be credited. EGMPC did not object even
when counsel for NPUM read into the records the contents of the documents.
It even appears that after Ms. Angelo came up with her first report, EGMPCs counsel expressed that
it was amenable to that computation. In that report, Ms. Angelo had stressed that [s]ince the Eternal
Gardens Memorial Park, Inc. did not submit to the Court any documents pertaining to the
computations of the 40% share of the North Philippine Union Mission of the Seventh Day Adventists,
then we have no other recourse but to base the computation on the available figures and on the other
documents as presented by the petitioner [NPUM].
EGMPC lastly contends that it is not liable for interest. It claims that it was justified in withholding
payment as there was still the unresolved issue of ownership over the property subject of the Land
Development Agreement of October 6, 1976.
The argument is without merit. EGMPC under the agreement had the obligation to remit monthly to
NPUM forty percent (40%) of its net gross collection from the development of a memorial park on
property owned by NPUM. The same agreement provided for the designation of a
depository/trustee bank to act as the depository/trustee for all funds collected by EGMPC. 67 There
was no obstacle, legal or otherwise, to the compliance by EGMPC of this provision in the contract,
even on the affectation that it did not know to whom payment was to be made.
Even disregarding the agreement, EGMPC cannot suspend payment on the pretext that it did not
know who among the subject propertys claimants was the rightful owner. It had a remedy under the
New Civil Code of the Philippines - to give in consignation the amounts due, as these fell
due.68 Consignation produces the effect of payment.
The rationale for consignation is to avoid the performance of an obligation becoming more onerous to
the debtor by reason of causes not imputable to him. 70 For its failure to consign the amounts due,
Eternal Gardens obligation to NPUM necessarily became more onerous as it became liable for interest
on the amounts it failed to remit.
Notably, EGMPC filed an interpleader action, the essence of which, aside from the disavowal of
interest in the property in litigation on the part of the petitioner, is the deposit of the property or
funds in controversy with the court. Yet from the outset, EGMPC had assailed any court ruling
ordering the deposit with a reputable bank of the amounts due from it under the Land Development
Agreement. In G.R. No. 73794,71 the Court made the following discourse on the disavowal of EGMPC
of its obligations, thus:
In the case at bar, a careful analysis of the records will show that petitioner admitted among others in
its complaint in Interpleader that it is still obligated to pay certain amounts to private respondent;
that it claims no interest in such amounts due and is willing to pay whoever is declared entitled to
said amounts. Such admissions in the complaint were reaffirmed in open court before the Court of
Appeals as stated in the latter courts resolution dated September 5, 1985 in C.A. G.R. No. 04869 which
states:
The private respondent (MEMORIAL) then reaffirms before the Court its original position that it is a
disinterested party with respect to the property now the subject of the interpleader case.
In the light of the willingness, expressly made before the court, affirming the complaint filed below,
that the private respondent (MEMORIAL) will pay whatever is due on the Land Development
Agreement to the rightful owner/owners, there is no reason why the amount due on subject
agreement has not been placed in the custody of the Court.
Under the circumstances, there appears to be no plausible reason for petitioners objections to the
deposit of the amounts in litigation after having asked for the assistance of the lower court by filing a
complaint for interpleader where the deposit of aforesaid amounts is not only required by the nature
of the action but is a contractual obligation of the petitioner under the Land Development Program.
As correctly observed by the Court of Appeals, the essence of an interpleader, aside from the
disavowal of interest in the property in litigation on the part of the petitioner, is the deposit of the
property or funds in controversy with the court, it is a rule founded on justice and equity: that the
plaintiff may not continue to benefit from the property or funds in litigation during the pendency of
the suit at the expense of whoever will ultimately be decided as entitled thereto.
The case at bar was elevated to the Court of Appeals on certiorari with prohibitory and mandatory
injunction. Said appellate court found that more than twenty million pesos are involved; so that on
interest alone for savings or time deposit would be considerable, now accruing in favor of the Eternal
Gardens. Finding that such is violative of the very essence of the complaint for interpleader as it
clearly runs against the interest of justice in this case, the Court of Appeals cannot be faulted for
finding that the lower court committed a grave abuse of discretion which requires correction by the
requirement that a deposit of said amounts should be made to a bank approved by the Court.
Petitioner would now compound the issue by its obvious turnabout, presently claiming in its
memorandum that there is a novation of contract so that the amounts due under the Land
Development Agreement were allegedly extinguished, and the requirement to make a deposit of said
amounts in a depository bank should be held in abeyance until after the conflicting claims of
ownership now on trial before Branch CXXII RTC-Caloocan City, has finally been resolved.
All these notwithstanding, the need for the deposit in question has been established, not only in the
lower courts and in the Court of Appeals but also in the Supreme Court where such deposit was
required in the resolution of July 8, 1987 to avoid wastage of funds.
Even during the pendency of G.R. No. 73794, EGMPC was required to deposit the accruing interests
with a reputable commercial bank to avoid possible wastage of funds when the case was given due
course.72 Yet, EGMPC hedged in depositing the amounts due and made obvious attempts to stay
payment by filing sundry motions and pleadings.
We thus find that the Court of Appeals correctly held Eternal Gardens liable for interest at the rate of
twelve percent (12%). The withholding of the amounts due under the agreement was tantamount to a
forbearance of money.
CONSIDERING THE FOREGOING, the Court Resolved to DENY the petition. The Resolutions
dated January 15, 1996 and April 12, 1996 are AFFIRMED. The temporary restraining order issued by
this Court on January 15, 1997 is LIFTED.
THIRD DIVISION
[G.R. NOS. 180880-81 : September 25, 2009]
KEPPEL CEBU SHIPYARD, INC., Petitioner, v. PIONEER INSURANCE AND SURETY
CORPORATION, Respondent.
[G.R. NOS. 180896-97]
PIONEER INSURANCE AND SURETY CORPORATION, Petitioner, v. KEPPEL CEBU SHIPYARD,
INC., Respondent.
DECISION
NACHURA, J.:
Facts
On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair
Agreement5 wherein KCSI would renovate and reconstruct WG&A's M/V "Superferry 3" using its
dry docking facilities pursuant to its restrictive safety and security rules and regulations. Prior to the
execution of the Shiprepair Agreement, "Superferry 3" was already insured by WG&A with Pioneer
for US$8,472,581.78. The Shiprepair Agreement reads'
SHIPREPAIR AGREEMENT6
Company: WG & A JEBSENS SHIPMANAGEMENT INC.

Address: Harbour Center II, Railroad & Chicago Sts.
Port Area, City of Manila
We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V "SUPERFERRY 3" and KEPPEL CEBU
SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking and Repair of the above-
named vessel ordered by the Owner's Authorized Representative shall be carried out under the
Keppel Cebu Shipyard Standard Conditions of Contract for Shiprepair, guidelines and regulations on
safety and security issued by Keppel Cebu Shipyard. In addition, the following are mutually agreed
upon by the parties:
1. The Owner shall inform its insurer of Clause 20 7 and 22 (a)8 (refer at the back hereof) and shall
include Keppel Cebu Shipyard as a co-assured in its insurance policy.xxxxxx
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any
responsibility for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated
demands, Pioneer, on August 7, 2000, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking the following reliefs:
1. To pay to the claimant Pioneer Insurance and Surety Corporation the sum of U.S.$8,472,581.78 or
its equivalent amount in Philippine Currency, plus interest thereon computed from the date of the
"Loss and Subrogation Receipt" on 16 June 2000 or from the date of filing of [the] "Request for
Arbitration," as may be found proper;
2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping Corporation and WG&A Jebsens
Shipmanagement, Inc. the sum of P500,000,000.00 plus interest thereon from the date of filing [of the]
"Request for Arbitration" or date of the arbitral award, as may be found proper;
3. To pay to the claimants herein the sum of P3,000,000.00 for and as attorney's fees; plus other
damages
It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of the "Shiprepair
Agreement" (Annex "A") as well as the hardly legible Clauses 20 and 22 (a) and other similar clauses
printed in very fine print on the unsigned dorsal page thereof, be all declared illegal and void ab
initio and without any legal effect whatsoever.
KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of Withdrawal of
Claim on April 17, 2001 with the CIAC. The CIAC granted the withdrawal on October 22, 2001,
thereby dismissing the claim of WG&A against KCSI. Hence, the arbitration proceeded with Pioneer
as the remaining claimant.
In the course of the proceedings, Pioneer and KCSI stipulated, among others, that: (1) on January 26,
2000, M/V "Superferry 3" arrived at KCSI in Lapu-Lapu City, Cebu, for dry docking and repairs; (2)
on the same date, WG&A signed a ship repair agreement with KCSI; and (3) a fire broke out on board
M/V "Superferry 3" on February 8, 2000, while still dry docked in KCSI's shipyard.11
As regards the disputed facts, below are the respective positions of the parties, viz.:
Pioneer's Theory of the Case:
First, Pioneer (as Claimant) is the real party in interest in this case and that Pioneer has been
subrogated to the claim of its assured. The Claimant claims that it has the preponderance of evidence
over that of the Respondent. Claimant cited documentary references on the Statutory Source of the
Principle of Subrogation. Claimant then proceeded to explain that the Right of Subrogation:
Is by Operation of Law
exists in Property Insurance
is not Dependent Upon Privity of Contract.
Claimant then argued that Payment Operates as Equitable Assignment of Rights to Insurer and that
the Right of Subrogation Entitles Insurer to Recover from the Liable Party.
Second, Respondent Keppel had custody of and control over the M/V "Superferry 3" while said
vessel was in Respondent Keppel's premises. In its Draft Decision, Claimant stated:
A. The evidence presented during the hearings indubitably proves that respondent not only took
custody but assumed responsibility and control over M/V Superferry 3 in carrying out the dry-
docking and repair of the vessel.
B. The presence on board the M/V Superferry 3 of its officers and crew does not relieve the
respondent of its responsibility for said vessel.
C. Respondent Keppel assumed responsibility over M/V Superferry 3 when it brought the vessel
inside its graving dock and applied its own safety rules to the dry-docking and repairs of the vessel.
D. The practice of allowing a shipowner and its sub-contractors to perform maintenance works while
the vessel was within respondent's premises does not detract from the fact that control and custody
over M/V Superferry 3 was transferred to the yard.
From the preceding statements, Claimant claims that Keppel is clearly liable for the loss of M/V
Superferry 3.
Third, the Vessel's Safety Manual cannot be relied upon as proof of the Master's continuing control
over the vessel.
Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa Loquitur. According to
Claimant, the Yard is liable under the ruling laid down by the Supreme Court in the "Manila City"
case. Claimant asserts that said ruling is applicable hereto as The Law of the Case.
Fifth, the liability of Respondent does not arise merely from the application of the Doctrine of Res
Ipsa Loquitur, but from its negligence in this case.
Sixth, the Respondent Yard was the employer responsible for the negligent acts of the welder.
According to Claimant;
In contemplation of law, Sevillejo was not a loaned servant/employee. The yard, being his employer,
is solely and exclusively liable for his negligent acts. Claimant proceeded to enumerate its reasons:
A. The "Control Test" - The yard exercised control over Sevillejo. The power of control is not
diminished by the failure to exercise control.
B. There was no independent work contract between Joniga and Sevillejo - Joniga was not the
employer of Sevillejo, as Sevillejo remained an employee of the yard at the time the loss occurred.
C. The mere fact that Dr. Joniga requested Sevillejo to perform some of the Owner's hot works under
the 26 January 2000 work order did not make Dr. Joniga the employer of Sevillejo.
Claimant proffers that Dr. Joniga was not a Contractor of the Hot Work Done on Deck A. Claimant
argued that:
A. The yard, not Dr. Joniga, gave the welders their marching orders, and
B. Dr. Joniga's authority to request the execution of owner's hot works in the passenger areas was
expressly recognized by the Yard Project Superintendent Orcullo.
Seventh, the shipowner had no legal duty to apply for a hotworks permit since it was not required by
the yard, and the owner's hotworks were conducted by welders who remained employees of the
yard. Claimant contends that the need, if any, for an owner's application for a hot work permit was
canceled out by the yard's actual knowledge of Sevillejo's whereabouts and the fact that he was in
deck A doing owner's hotworks.
Eight[h], in supplying welders and equipment as per The Work Order Dated 26 January 2000, the
Yard did so at its own risk, and acted as a Less Than Prudent Ship
Repairer.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The Claimant then disputed the statements of Manuel Amagsila by claiming that Amagsila was a
disgruntled employee. Nevertheless, Claimant claims that Amagsila affirmed that the five yard
welders never became employees of the owner so as to obligate the latter to be responsible for their
conduct and performance.
Claimant enumerated further badges of yard negligence.
According to Claimant:
A. Yard's water supply was inadequate.
B. Yard Fire Fighting Efforts and Equipment Were Inadequate.
C. Yard Safety Practices and Procedures Were Unsafe or Inadequate.
D. Yard Safety Assistants and Firewatch-Men were Overworked.
Finally, Claimant disputed the theories propounded by the Respondent (The Yard). Claimant
presented its case against:
(i) Non-removal of the life jackets theory.
(ii) Hole-in-the[-]floor theory.
(iii) Need for a plan theory.
(iv) The unauthorized hot works theory.
(v) The Marina report theory.
The Claimant called the attention of the Tribunal (CIAC) on the non-appearance of the welder
involved in the cause of the fire, Mr. Severino Sevillejo. Claimant claims that this is suppression of
evidence by Respondent.
KCSI's Theory of the Case
1. The Claimant has no standing to file the Request for Arbitration and the Tribunal has no
jurisdiction over the case:
(a) There is no valid arbitration agreement between the Yard and the Vessel Owner. On January 26,
2000, when the ship repair agreement (which includes the arbitration agreement) was signed by
WG&A Jebsens on behalf of the Vessel, the same was still owned by Aboitiz Shipping. Consequently,
when another firm, WG&A, authorized WG&A Jebsens to manage the MV Superferry 3, it had no
authority to do so. There is, as a result, no binding arbitration agreement between the Vessel Owner
and the Yard to which the Claimant can claim to be subrogated and which can support CIAC
jurisdiction.
(b) The Claimant is not a real party in interest and has no standing because it has not been subrogated
to the Vessel Owner. For the reason stated above, the insurance policies on which the Claimant bases
its right of subrogation were not validly obtained. In any event, the Claimant has not been
subrogated to any rights which the Vessel may have against the Yard because:
i. The Claimant has not proved payment of the proceeds of the policies to any specific party. As a
consequence, it has also not proved payment to the Vessel Owner.
ii. The Claimant had no legally demandable obligation to pay under the policies and did so only
voluntarily. Under the policies, the Claimant and the Vessel agreed that there is no Constructive Total
Loss "unless the expense of recovering and repairing the vessel would exceed the Agreed Value"
of P360 million assigned by the parties to the Vessel, a threshold which the actual repair cost for the
Vessel did not reach. Since the Claimant opted to pay contrary to the provisions of the policies, its
payment was voluntary, and there was no resulting subrogation to the Vessel.
iii. There was also no subrogation under Article 1236 of the Civil Code. First, if the Claimant asserts a
right of payment only by virtue of Article 1236, then there is no legal subrogation under Article 2207
and it does not succeed to the Vessel's rights under the Ship [R]epair Agreement and the arbitration
agreement. It does not have a right to demand arbitration and will have only a purely civil law claim
for reimbursement to the extent that its payment benefited the Yard which should be filed in court.
Second, since the Yard is not liable for the fire and the resulting damage to the Vessel, then it derived
no benefit from the Claimant's payment to the Vessel Owner. Third, in any event, the Claimant has
not proved payment of the proceeds to the Vessel Owner.
2. The Ship [R]epair Agreement was not imposed upon the Vessel. The Vessel knowingly and
voluntarily accepted that agreement. Moreover, there are no signing or other formal defects that can
invalidate the agreement.
3. The proximate cause of the fire and damage to the Vessel was not any negligence committed by
Angelino Sevillejo in cutting the bulkhead door or any other shortcoming by the Yard. On the
contrary, the proximate cause of the fire was Dr. Joniga's and the Vessel's deliberate decision to have
Angelino Sevillejo undertake cutting work in inherently dangerous conditions created by them.
(a) The Claimant's material witnesses lied on the record and the Claimant presented no credible proof
of any negligence by Angelino Sevillejo.
(b) Uncontroverted evidence proved that Dr. Joniga neglected or decided not to obtain a hot work
permit for the bulkhead cutting and also neglected or refused to have the ceiling and the flammable
lifejackets removed from underneath the area where he instructed Angelino Sevillejo to cut the
bulkhead door. These decisions or oversights guaranteed that the cutting would be done in extremely
hazardous conditions and were the proximate cause of the fire and the resulting damage to the
Vessel.
(c) The Yard's expert witness, Dr. Eric Mullen gave the only credible account of the cause and the
mechanics of ignition of the fire. He established that: i) the fire started when the cutting of the
bulkhead door resulted in sparks or hot molten slag which fell through pre-existing holes on the deck
floor and came into contact with and ignited the flammable lifejackets stored in the ceiling void
directly below; and ii) the bottom level of the bulkhead door was immaterial, because the sparks and
slag could have come from the cutting of any of the sides of the door. Consequently, the cutting itself
of the bulkhead door under the hazardous conditions created by Dr. Joniga, rather than the
positioning of the door's bottom edge, was the proximate cause of the fire.
(d) The Manila City case is irrelevant to this dispute and in any case, does not establish governing
precedent to the effect that when a ship is damaged in dry dock, the shipyard is presumed at fault.
Apart from the differences in the factual setting of the two cases, the Manila City pronouncements
regarding the res ipsa loquitur doctrine are obiter dicta without value as binding precedent.
Furthermore, even if the principle were applied to create a presumption of negligence by the Yard,
however, that presumption is conclusively rebutted by the evidence on record.
(e) The Vessel's deliberate acts and its negligence created the inherently hazardous conditions in
which the cutting work that could otherwise be done safely ended up causing a fire and the damage
to the Vessel. The fire was a direct and logical consequence of the Vessel's decisions to: (1) take
Angelino Sevillejo away from his welding work at the Promenade Deck restaurant and instead to
require him to do unauthorized cutting work in Deck A; and (2) to have him do that without
satisfying the requirements for and obtaining a hot work permit in violation of the Yard's Safety
Rules and without removing the flammable ceiling and life jackets below, contrary to the
requirements not only of the Yard's Safety Rules but also of the demands of standard safe practice
and the Vessel's own explicit safety and hot work policies.
(f) The vessel has not presented any proof to show that the Yard was remiss in its fire fighting
preparations or in the actual conduct of fighting the 8 February 2000 fire. The Yard had the necessary
equipment and trained personnel and employed all those resources immediately and fully to putting
out the 8 February 2000 fire.
4. Even assuming that Angelino Sevillejo cut the bulkhead door close to the deck floor, and that this
circumstance rather than the extremely hazardous conditions created by Dr. Joniga and the Vessel for
that activity caused the fire, the Yard may still not be held liable for the resulting damage.
(a) The Yard's only contractual obligation to the Vessel in respect of the 26 January 2000 Work Order
was to supply welders for the Promenade Deck restaurant who would then perform welding work
"per owner['s] instruction." Consequently, once it had provided those welders, including Angelino
Sevillejo, its obligation to the Vessel was fully discharged and no claim for contractual breach, or for
damages on account thereof, may be raised against the Yard.
(b) The Yard is also not liable to the Vessel/Claimant on the basis of quasi-delict.
i. The Vessel exercised supervision and control over Angelino Sevillejo when he was doing work at
the Promenade Deck restaurant and especially when he was instructed by Dr. Joniga to cut the
bulkhead door. Consequently, the Vessel was the party with actual control over his tasks and is
deemed his true and effective employer for purposes of establishing Article 2180 employer liability.
ii. Even assuming that the Yard was Angelino Sevillejo's employer, the Yard may nevertheless not be
held liable under Article 2180 because Angelino Sevillejo was acting beyond the scope of his tasks
assigned by the Yard (which was only to do welding for the Promenade Deck restaurant) when he
cut the bulkhead door pursuant to instructions given by the Vessel.
iii. The Yard is nonetheless not liable under Article 2180 because it exercised due diligence in the
selection and supervision of Angelino Sevillejo.
5. Assuming that the Yard is liable, it cannot be compelled to pay the full amount of P360 million paid
by the Claimant.
(a) Under the law, the Yard may not be held liable to the Claimant, as subrogee, for an amount
greater than that which the Vessel could have recovered, even if the Claimant may have paid a higher
amount under its policies. In turn, the right of the Vessel to recover is limited to actual damage to the
MV Superferry 3, at the time of the fire.
(b) Under the Ship [R]epair Agreement, the liability of the Yard is limited to P50 million - a
stipulation which, under the law and decisions of the Supreme Court, is valid, binding and
enforceable.
(c) The Vessel breached its obligation under Clause 22 (a) of the Yard's Standard Terms to name the
Yard as co-assured under the policies - a breach which makes the Vessel liable for damages. This
liability should in turn be set-off against the Claimant's claim for damages.
The Respondent listed what it believes the Claimant wanted to impress upon the Tribunal.
Respondent enumerated and disputed these as follows:
1. Claimant's counsel contends that the cutting of the bulkhead door was covered by the 26 January
2000 Work Order.
2. Claimant's counsel contends that Dr. Joniga told Gerry Orcullo about his intention to have
Angelino Sevillejo do cutting work at the Deck A bulkhead on the morning of 8 February 2000.
3. Claimant's counsel contends that under Article 1727 of the Civil Code, "The contractor is
responsible for the work done by persons employed by him."
4. Claimant's counsel contends that "[t]he second reason why there was no job spec or job order for
this cutting work, [is] the cutting work was known to the yard and coordinated with Mr. Gerry
Orcullo, the yard project superintendent."
5. Claimant's counsel also contends, to make the Vessel's unauthorized hot works activities seem less
likely, that they could easily be detected because Mr. Avelino Aves, the Yard Safety Superintendent,
admitted that "No hot works could really be hidden from the Yard, your Honors, because the
welding cables and the gas hoses emanating from the dock will give these hotworks away apart from
the assertion and the fact that there were also safety assistants supposedly going around the vessel."
Respondent disputed the above by presenting its own argument in its Final Memorandum. 12
On October 28, 2002, the CIAC rendered its Decision 13 declaring both WG&A and KCSI guilty of
negligence, with the following findings and conclusions'
The Tribunal agrees that the contractual obligation of the Yard is to provide the welders and
equipment to the promenade deck. [The] Tribunal agrees that the cutting of the bulkhead door was
not a contractual obligation of the Yard. However, by requiring, according to its own regulations, that
only Yard welders are to undertake hotworks, it follows that there are certain qualifications of Yard
welders that would be requisite of yard welders against those of the vessel welders. To the Tribunal,
this means that yard welders are aware of the Yard safety rules and regulations on hotworks such as
applying for a hotwork permit, discussing the work in a production meeting, and complying with the
conditions of the hotwork permit prior to implementation. By the requirement that all hotworks are
to be done by the Yard, the Tribunal finds that Sevillejo remains a yard employee. The act of Sevillejo
is however mitigated in that he was not even a foreman, and that the instructions to him was (sic) by
an authorized person. The Tribunal notes that the hotworks permit require[s] a request by at least a
foreman. The fact that no foreman was included in the five welders issued to the Vessel was never
raised in this dispute. As discussed earlier by the Tribunal, with the fact that what was ask (sic) of
Sevillejo was outside the work order, the Vessel is considered equally negligent. This Tribunal finds
the concurrent negligence of the Yard through Sevillejo and the Vessel through Dr. Joniga as both
contributory to the cause of the fire that damaged the vessel. 14
Holding that the liability for damages was limited to P50,000,000.00, the CIAC ordered KCSI to pay
Pioneer the amount of P25,000,000.00, with interest at 6% per annum from the time of the filing of the
case up to the time the decision is promulgated, and 12% interest per annum added to the award, or
any balance thereof, after it becomes final and executory. The CIAC further ordered that the
arbitration costs be imposed on both parties on a pro rata basis.15
Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No. 74018. KCSI likewise
filed its own appeal and the same was docketed as CA-G.R. SP No. 73934. The cases were
consolidated.
On December 17, 2004, the Former Fifteenth Division of the CA rendered its Decision, disposing as
follows:
WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No. 74018) is DISMISSED
while the Petition of the Yard (CA-G.R. SP No. 73934) is GRANTED, dismissing petitioner's claims in
its entirety. No costs.
The Yard and The WG&A are hereby ordered to pay the arbitration costs pro-rata.
SO ORDERED.16
Aggrieved, Pioneer sought reconsideration of the December 17, 2004 Decision, insisting that it
suffered from serious errors in the appreciation of the evidence and from gross misapplication of the
law and jurisprudence on negligence. KCSI, for its part, filed a motion for partial reconsideration of
the same Decision.
On December 20, 2007, an Amended Decision was promulgated by the Special Division of Five -
Former Fifteenth Division of the CA - in light of the dissent of Associate Justice Lucas P.
Bersamin,17 joined by Associate Justice Japar B. Dimaampao. The fallo of the Amended Decision
reads'
WHEREFORE, premises considered, the Court hereby decrees that:
1. Pioneer's Motion for Reconsideration is PARTIALLY GRANTED, ordering The Yard to pay
Pioneer P25 Million, without legal interest, within 15 days from the finality of this Amended
Decision, subject to the following modifications:
1.1 - Pioneer's Petition (CA-G.R. SP No. 74018) is PARTIALLY GRANTED as the Yard is hereby
ordered to pay Pioneer P25 Million without legal interest;
2. The Yard is hereby declared as equally negligent, thus, the total GRANTING of its Petition (CA-
G.R. SP No. 73934) is now reduced to PARTIALLY GRANTED, in so far as it is ordered to pay
Pioneer P25 Million, without legal interest, within 15 days from the finality of this Amended
Decision; andcralawlibrary
3. The rest of the disposition in the original Decision remains the same.
SO ORDERED.18
Hence, these petitions. Pioneer bases its petition on the following grounds:
I
THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON NON-FACTS
LEADING IT TO MAKE FALSE LEGAL CONCLUSIONS; NON-FACTS REMAIN TO INVALIDATE
THE AMENDED DECISION. THIS ALSO VIOLATES SECTION 14, ARTICLE VIII OF THE
CONSTITUTION.
II
THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE YARD TO THE
SUM OF P50,000,000.00, IN THAT:
A. STARE DECISIS RENDERS INAPPLICABLE ANY INVOCATION OF LIMITED LIABILITY BY
THE YARD.
B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.
C. THE VESSEL OWNER DID NOT AGREE THAT THE YARD'S LIABILITY FOR LOSS OR
DAMAGE TO THE VESSEL ARISING FROM YARD'S NEGLIGENCE IS LIMITED TO THE SUM
OF P50,000,000.00 ONLY.
D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY, IN THAT:
(i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL (M/V "SUPERFERRY 3") ON
08 FEBRUARY 2000 WHEN IT WAS GUTTED BY FIRE;
(ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OF THE REPAIRS
EXCLUSIVELY PERFORMED BY YARD WORKERS.
III
THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS CONCURRENTLY
NEGLIGENT, CONSIDERING THAT:
A. DR. JONIGA, THE VESSEL'S PASSAGE TEAM LEADER, DID NOT SUPERVISE OR CONTROL
THE REPAIRS.
B. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENT GERMINIANO ORCULLO
THAT SUPERVISED AND CONTROLLED THE REPAIR WORKS.
C. SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT FOLLOWS THAT THEY
ALONE COULD BE GUILTY OF NEGLIGENCE IN DOING THE SAME.
D. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER ANGELINO SEVILLEJO.
E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE CAUSE OF THE LOSS.
F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT DIRECT OR CONTRIBUTORY TO THE
LOSS.
IV
THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A CONSTRUCTIVE
TOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING THAT THE YARD WAS LIABLE
FOR THE VALUE OF THE FULL CONSTRUCTIVE TOTAL LOSS.
V
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR INTEREST.
VI
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE FOR
ARBITRATION COSTS.19
On the other hand, KCSI cites the following grounds for the allowance of its petition, to wit:
1. ABSENCE OF YARD RESPONSIBILITY
IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT, WITHOUT
EXPLANATION, THE CIAC'S RULING THAT THE YARD WAS EQUALLY NEGLIGENT
BECAUSE OF ITS FAILURE TO REQUIRE A HOT WORKS PERMIT FOR THE CUTTING WORK
DONE BY ANGELINO SEVILLEJO, AFTER THE COURT OF APPEALS ITSELF HAD SHOWN
THAT RULING TO BE COMPLETELY WRONG AND BASELESS.
2. NO CONSTRUCTIVE TOTAL LOSS
IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO RULE, WITHOUT
EXPLANATION, THAT THE VESSEL WAS A CONSTRUCTIVE TOTAL LOSS AFTER HAVING
ITSELF EXPLAINED WHY THE VESSEL COULD NOT BE A CONSTRUCTIVE TOTAL LOSS.
3. FAILURE OR REFUSAL TO ADDRESS
KEPPEL'S MOTION FOR RECONSIDERATION
FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF APPEALS TO HAVE
EFFECTIVELY DENIED, WITHOUT ADDRESSING IT AND ALSO WITHOUT EXPLANATION,
KEPPEL'S PARTIAL MOTION FOR RECONSIDERATION OF THE ORIGINAL DECISION WHICH
SHOWED: 1) WHY PIONEER WAS NOT SUBROGATED TO THE RIGHTS OF THE VESSEL
OWNER AND SO HAD NO STANDING TO SUE THE YARD; 2) WHY KEPPEL MAY NOT BE
REQUIRED TO REIMBURSE PIONEER'S PAYMENTS TO THE VESSEL OWNER IN VIEW OF THE
CO-INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY PIONEER ALONE
SHOULD BEAR THE COSTS OF ARBITRATION.
4. FAILURE TO CREDIT FOR SALVAGE RECOVERY
EVEN IF THE COURT OF APPEAL'S RULINGS ON ALL OF THE FOREGOING ISSUES WERE
CORRECT AND THE YARD MAY PROPERLY BE HELD EQUALLY LIABLE FOR THE DAMAGE
TO THE VESSEL AND REQUIRED TO PAY HALF OF THE DAMAGES AWARDED (P25
MILLION), THE COURT OF APPEALS STILL ERRED IN NOT DEDUCTING THE SALVAGE
VALUE OF THE VESSEL RECOVERED AND RECEIVED BY THE INSURER, PIONEER, TO
REDUCE ANY LIABILITY ON THE PART OF THE YARD TO P9.874 MILLION.20
To our minds, these errors assigned by both Pioneer and KCSI may be summed up in the following
core issues:
A. To whom may negligence over the fire that broke out on board M/V "Superferry 3" be imputed?
cralawred
B. Is subrogation proper? If proper, to what extent can subrogation be made?cralawred
C. Should interest be imposed on the award of damages? If so, how much?cralawred
D. Who should bear the cost of the arbitration?
To resolve these issues, it is imperative that we digress from the general rule that in petitions for
review under Rule 45 of the Rules of Court, only questions of law shall be entertained. Considering
the disparate findings of fact of the CIAC and the CA which led them to different conclusions, we are
constrained to revisit the factual circumstances surrounding this controversy. 21
The Court's Ruling
A. The issue of negligence
Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo (Sevillejo)
on the accommodation area of the vessel, specifically on Deck A. As established before the CIAC'
The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms. Aini Ling, 22 p. 20). Angelino
Sevillejo tried to put out the fire by pouring the contents of a five-liter drinking water container on it
and as he did so, smoke came up from under Deck A. He got another container of water which he
also poured whence the smoke was coming. In the meantime, other workers in the immediate
vicinity tried to fight the fire by using fire extinguishers and buckets of water. But because the fire
was inside the ceiling void, it was extremely difficult to contain or extinguish; and it spread rapidly
because it was not possible to direct water jets or the fire extinguishers into the space at the source.
Fighting the fire was extremely difficult because the life jackets and the construction materials of the
Deck B ceiling were combustible and permitted the fire to spread within the ceiling void. From there,
the fire dropped into the Deck B accommodation areas at various locations, where there were
combustible materials. Respondent points to cans of paint and thinner, in addition to the plywood
partitions and foam mattresses on deck B (Exh. 1-Mullen, 23 pp. 7-8, 18; Exh. 2-Mullen, pp. 11-12).24
Pioneer contends that KCSI should be held liable because Sevillejo was its employee who, at the time
the fire broke out, was doing his assigned task, and that KCSI was solely responsible for all the hot
works done on board the vessel. KCSI claims otherwise, stating that the hot work done was beyond
the scope of Sevillejo's assigned tasks, the same not having been authorized under the Work
Order25 dated January 26, 2000 or under the Shiprepair Agreement. KCSI further posits that WG&A
was itself negligent, through its crew, particularly Dr. Raymundo Joniga (Dr. Joniga), for failing to
remove the life jackets from the ceiling void, causing the immediate spread of the fire to the other
areas of the ship.
We rule in favor of Pioneer.
First. The Shiprepair Agreement is clear that WG&A, as owner of M/V "Superferry 3," entered into a
contract for the dry docking and repair of the vessel under KCSI's Standard Conditions of Contract
for Shiprepair, and its guidelines and regulations on safety and security. Thus, the CA erred when it
said that WG&A would renovate and reconstruct its own vessel merely using the dry docking
facilities of KCSI.
Second. Pursuant to KCSI's rules and regulations on safety and security, only employees of KCSI may
undertake hot works on the vessel while it was in the graving dock in Lapu-Lapu City, Cebu. This is
supported by Clause 3 of the Shiprepair Agreement requiring the prior written approval of KCSI's
Vice President for Operations before WG&A could effect any work performed by its own workers or
sub-contractors. In the exercise of this authority, KCSI's Vice-President for Operations, in the letter
dated January 2, 1997, banned any hot works from being done except by KCSI's workers, viz.:
The Yard will restrict all hot works in the engine room, accommodation cabin, and fuel oil tanks to be
carried out only by shipyard workers x x x.26
WG&A recognized and complied with this restrictive directive such that, during the arrival
conference on January 26, 2000, Dr. Joniga, the vessel's passage team leader in charge of its hotel
department, specifically requested KCSI to finish the hot works started by the vessel's contractors on
the passenger accommodation decks.27 This was corroborated by the statements of the vessel's hotel
manager Marcelo Rabe28 and the vessel's quality control officer Joselito Esteban. 29 KCSI knew of the
unfinished hot works in the passenger accommodation areas. Its safety supervisor Esteban Cabalhug
confirmed that KCSI was aware "that the owners of this vessel (M/V 'Superferry 3' ) had undertaken
their own (hot) works prior to arrival alongside (sic) on 26th January," and that no hot work permits
could thereafter be issued to WG&A's own workers because "this was not allowed for the Superferry
3."30 This shows that Dr. Joniga had authority only to request the performance of hot works by KCSI's
welders as needed in the repair of the vessel while on dry dock.
Third. KCSI welders covered by the Work Order performed hot works on various areas of the M/V
"Superferry 3," aside from its promenade deck. This was a recognition of Dr. Joniga's authority to
request the conduct of hot works even on the passenger accommodation decks, subject to the
provision of the January 26, 2000 Work Order that KCSI would supply welders for the promenade
deck of the ship.
At the CIAC proceedings, it was adequately shown that between February 4 and 6, 2000, the welders
of KCSI: (a) did the welding works on the ceiling hangers in the lobby of Deck A; (b) did the welding
and cutting works on the deck beam to access aircon ducts; and (c) did the cutting and welding
works on the protection bars at the tourist dining salon of Deck B, 31 at a rate
of P150.00/welder/hour.32 In fact, Orcullo, Project Superintendent of KCSI, admitted that "as early as
February 3, 2000 (five days before the fire) [the Yard] had acknowledged Dr. Joniga's authority to
order such works or additional jobs."33
It is evident, therefore, that although the January 26, 2000 Work Order was a special order for the
supply of KCSI welders to the promenade deck, it was not restricted to the promenade deck only.
The Work Order was only a special arrangement between KCSI and WG&A that meant additional
cost to the latter.
Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was subject to the latter's direct
control and supervision.
Indeed, KCSI was the employer of Sevillejo paying his salaries; retaining the power and the right to
discharge or substitute him with another welder; providing him and the other welders with its
equipment; giving him and the other welders marching orders to work on the vessel; and monitoring
and keeping track of his and the other welders' activities on board, in view of the delicate nature of
their work.34 Thus, as such employee, aware of KCSI's Safety Regulations on Vessels Afloat/Dry,
which specifically provides that "(n)o hotwork (welding/cutting works) shall be done on board [the]
vessel without [a] Safety Permit from KCSI Safety Section," 35 it was incumbent upon Sevillejo to
obtain the required hot work safety permit before starting the work he did, including that done on
Deck A where the fire started.
Fifth. There was a lapse in KCSI's supervision of Sevillejo's work at the time the fire broke out.
It was established that no hot works could be hidden from or remain undetected by KCSI because the
welding cables and the gas hoses emanating from the dock would give the hot works away.
Moreover, KCSI had roving fire watchmen and safety assistants who were moving around the
vessel.36 This was confirmed by Restituto Rebaca (Rebaca), KCSI's Safety Supervisor, who actually
spotted Sevillejo on Deck A, two hours before the fire, doing his cutting work without a hot work
permit, a fire watchman, or a fire extinguisher. KCSI contends that it did its duty when it prohibited
Sevillejo from continuing the hot work. However, it is noteworthy that, after purportedly scolding
Sevillejo for working without a permit and telling him to stop until the permit was acquired and the
other safety measures were observed, Rebaca left without pulling Sevillejo out of the work area or
making sure that the latter did as he was told. Unfortunately for KCSI, Sevillejo reluctantly proceeded
with his cutting of the bulkhead door at Deck A after Rebaca left, even disregarding the 4-inch
marking set, thus cutting the door level with the deck, until the fire broke out.
This conclusion on the failure of supervision by KCSI was absolutely supported by Dr. Eric Mullen of
the Dr. J.H. Burgoyne & Partners (International) Ltd., Singapore, KCSI's own fire expert, who
observed that -
4.3. The foregoing would be compounded by Angelino Sevillejo being an electric arc welder, not a
cutter. The dangers of ignition occurring as a result of the two processes are similar in that both
electric arc welding and hot cutting produce heat at the work area and sparks and incendive material
that can travel some distance from the work area. Hence, the safety precautions that are expected to
be applied by the supervisor are the same for both types of work. However, the quantity and
incendivity of the spray from the hot cutting are much greater than those of sparks from electric arc
welding, and it may well be that Angelino Sevillejo would not have a full appreciation of the dangers
involved. This made it all the more important that the supervisor, who should have had such an
appreciation, ensured that the appropriate safety precautions were carried out.37
In this light, therefore, Sevillejo, being one of the specially trained welders specifically authorized by
KCSI to do the hot works on M/V "Superferry 3" to the exclusion of other workers, failed to comply
with the strict safety standards of KCSI, not only because he worked without the required permit, fire
watch, fire buckets, and extinguishers, but also because he failed to undertake other precautionary
measures for preventing the fire. For instance, he could have, at the very least, ensured that whatever
combustible material may have been in the vicinity would be protected from the sparks caused by the
welding torch. He could have easily removed the life jackets from the ceiling void, as well as the foam
mattresses, and covered any holes where the sparks may enter.
Conjunctively, since Rebaca was already aware of the hazard, he should have taken all possible
precautionary measures, including those above mentioned, before allowing Sevillejo to continue with
his hot work on Deck A. In addition to scolding Sevillejo, Rebaca merely checked that no fire had
started yet. Nothing more. Also, inasmuch as KCSI had the power to substitute Sevillejo with another
electric arc welder, Rebaca should have replaced him.
There is negligence when an act is done without exercising the competence that a reasonable person
in the position of the actor would recognize as necessary to prevent an unreasonable risk of harm to
another. Those who undertake any work calling for special skills are required to exercise reasonable
care in what they do.38 Verily, there is an obligation all persons have - to take due care which, under
ordinary circumstances of the case, a reasonable and prudent man would take. The omission of that
care constitutes negligence. Generally, the degree of care required is graduated according to the
danger a person or property may be subjected to, arising from the activity that the actor pursues or
the instrumentality that he uses. The greater the danger, the greater the degree of care required.
Extraordinary risk demands extraordinary care. Similarly, the more imminent the danger, the higher
degree of care warranted.39 In this aspect,
KCSI failed to exercise the necessary degree of caution and foresight called for by the circumstances.
We cannot subscribe to KCSI's position that WG&A, through Dr. Joniga, was negligent.
On the one hand, as discussed above, Dr. Joniga had authority to request the performance of hot
works in the other areas of the vessel. These hot works were deemed included in the January 26, 2000
Work Order and the Shiprepair Agreement. In the exercise of this authority, Dr. Joniga asked
Sevillejo to do the cutting of the bulkhead door near the staircase of Deck A. KCSI was aware of what
Sevillejo was doing, but failed to supervise him with the degree of care warranted by the attendant
circumstances.
Neither can Dr. Joniga be faulted for not removing the life jackets from the ceiling void for two
reasons - (1) the life jackets were not even contributory to the occurrence of the fire; and (2) it was not
incumbent upon him to remove the same. It was shown during the hearings before the CIAC that the
removal of the life jackets would not have made much of a difference. The fire would still have
occurred due to the presence of other combustible materials in the area. This was the uniform
conclusion of both WG&A's40 and KCSI's41 fire experts. It was also proven during the CIAC
proceedings that KCSI did not see the life jackets as being in the way of the hot works, thus, making
their removal from storage unnecessary.42
These circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was negligent in
the performance of his assigned task. His negligence was the proximate cause of the fire on board
M/V "Superferry 3." As he was then definitely engaged in the performance of his assigned tasks as an
employee of KCSI, his negligence gave rise to the vicarious liability of his employer 43 under Article
2180 of the Civil Code, which provides'
Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own act or
omission, but also for those of persons for whom one is responsible.
xxx
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
xxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.
KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the legal
presumption of its negligence in supervising Sevillejo. 44 Consequently, it is responsible for the
damages caused by the negligent act of its employee, and its liability is primary and solidary. All that
is needed is proof that the employee has, by his negligence, caused damage to another in order to
make the employer responsible for the tortuous act of the former. 45 From the foregoing disquisition,
there is ample proof of the employee's negligence.
B. The right of subrogation
Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full
amount of the insurance coverage and, by operation of law, it was entitled to be subrogated to the
rights of WG&A to claim the amount of the loss. It further argues that the limitation of liability clause
found in the Shiprepair Agreement is null and void for being iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is
no proof of payment of the insurance proceeds. KCSI insists on the validity of the limited-liability
clause up to P50,000,000.00, because WG&A acceded to the provision when it executed the Shiprepair
Agreement. KCSI also claims that the salvage value of the vessel should be deducted from whatever
amount it will be made to pay to Pioneer.
We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of M/V "Superferry
3."
In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section
139 of the Insurance Code, which provides'
Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion hereof separately valued by the policy, or otherwise separately insured, and
recover for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to
recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.
It appears, however, that in the execution of the insurance policies over M/V "Superferry 3," WG&A
and Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77, the Total Loss
Provision of which reads'
Total Loss
In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall be taken as the
repaired value and nothing in respect of the damaged or break-up value of the Vessel or wreck shall
be taken into account.
There shall be no recovery for a constructive Total Loss hereunder unless the expense of recovering
and repairing the Vessel would exceed the Agreed Value in policies on Hull and Machinery. In
making this determination, only expenses incurred or to be incurred by reason of a single accident or
a sequence of damages arising from the same accident shall be taken into account, but expenses
incurred prior to tender of abandonment shall not be considered if such are to be claimed separately
under the Sue and Labor clause. x x x.
In the course of the arbitration proceedings, Pioneer adduced in evidence the estimates made by three
(3) disinterested and qualified shipyards for the cost of the repair of the vessel, specifically:
(a) P296,256,717.00, based on the Philippine currency equivalent of the quotation dated April 17, 2000
turned in by Tsuneishi Heavy Industries (Cebu) Inc.; (b) P309,780,384.15, based on the Philippine
currency equivalent of the quotation of Sembawang Shipyard Pte. Ltd., Singapore; and
(c) P301,839,974.00, based on the Philippine currency equivalent of the quotation of Singapore
Technologies Marine Ltd. All the estimates showed that the repair expense would
exceed P270,000,000.00, the amount equivalent to - of the vessel's insured value of P360,000,000.00.
Thus, WG&A opted to abandon M/V "Superferry 3" and claimed from Pioneer the full amount of the
policies. Pioneer paid WG&A's claim, and now demands from KCSI the full amount
of P360,000,000.00, by virtue of subrogation.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
KCSI denies the liability because, aside from its claim that it cannot be held culpable for negligence
resulting in the destructive fire, there was no constructive total loss, as the amount of damage was
only US$3,800,000.00 or P170,611,260.00, the amount of repair expense quoted by Simpson, Spence &
Young.
In the face of this apparent conflict, we hold that Section 139 of the Insurance Code should govern,
because (1) Philippine law is deemed incorporated in every locally executed contract; and (2) the
marine insurance policies in question expressly provided the following:
IMPORTANT
This insurance is subject to English jurisdiction, except in the event that loss or losses are payable in
the Philippines, in which case if the said laws and customs of England shall be in conflict with the
laws of the Republic of the Philippines, then the laws of the Republic of the Philippines shall
govern. (Underscoring supplied.)
The CA held that Section 139 of the Insurance Code is merely permissive on account of the word
"may" in the provision. This is incorrect. Properly considered, the word "may" in the provision is
intended to grant the insured (WG&A) the option or discretion to choose the abandonment of the
thing insured (M/V "Superferry 3"), or any particular portion thereof separately valued by the policy,
or otherwise separately insured, and recover for a total loss when the cause of the loss is a peril
insured against. This option or discretion is expressed as a right in Section 131 of the same Code, to
wit:
Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon under
Section one hundred thirty-nine.
It cannot be denied that M/V "Superferry 3" suffered widespread damage from the fire that occurred
on February 8, 2000, a covered peril under the marine insurance policies obtained by WG&A from
Pioneer. The estimates given by the three disinterested and qualified shipyards show that the damage
to the ship would exceed P270,000,000.00, or - of the total value of the policies - P360,000,000.00.
These estimates constituted credible and acceptable proof of the extent of the damage sustained by
the vessel. It is significant that these estimates were confirmed by the Adjustment Report dated June
5, 2000 submitted by Richards Hogg Lindley (Phils.), Inc., the average adjuster that Pioneer had
enlisted to verify and confirm the extent of the damage. The Adjustment Report verified and
confirmed that the damage to the vessel amounted to a constructive total loss and that the claim
for P360,000,000.00 under the policies was compensable. 46 It is also noteworthy that KCSI did not
cross-examine Henson Lim, Director of Richards Hogg, whose affidavit-direct testimony submitted to
the CIAC confirmed that the vessel was a constructive total loss.
Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its
policies. Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss and
Subrogation Receipt evidencing receipt of the payment of the insurance proceeds from Pioneer. On
this note, we find as unacceptable the claim of KCSI that there was no ample proof of payment
simply because the person who signed the Receipt appeared to be an employee of Aboitiz Shipping
Corporation.47 The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of
payment of the insurance proceeds to the former, and no controverting evidence was presented by
KCSI to rebut the presumed authority of the signatory to receive such payment.
On the matter of subrogation, Article 2207 of the Civil Code provides'
Art. 2207. If the plaintiff's property has been insured and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. 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.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including
its remedies or securities. The principle covers a situation wherein an insurer has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the insured against a third
party with respect to any loss covered by the policy. It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may use all means that the creditor
could employ to enforce payment.48
We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured 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. 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 that equity adopts to compel the ultimate payment of a debt by one who, in
justice, equity, and good conscience, ought to pay.49
We cannot accept KCSI's insistence on upholding the validity Clause 20, which provides that the limit
of its liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI stands as a co-assured in the
insurance policies, as found in the Shiprepair Agreement.
Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation. They are
unfair and inequitable under the premises. It was established during arbitration that WG&A did not
voluntarily and expressly agree to these provisions. Engr. Elvin F. Bello, WG&A's fleet manager,
testified that he did not sign the fine-print portion of the Shiprepair Agreement where Clauses 20 and
22(a) were found, because he did not want WG&A to be bound by them. However, considering that it
was only KCSI that had shipyard facilities large enough to accommodate the dry docking and repair
of big vessels owned by WG&A, such as M/V "Superferry 3," in Cebu, he had to sign the front
portion of the Shiprepair Agreement; otherwise, the vessel would not be accepted for dry docking. 50
Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a "take-it-or-
leave-it" basis. A contract of adhesion is so-called because its terms are prepared by only one party,
while the other party merely affixes his signature signifying his adhesion thereto. Although not
invalid, per se, a contract of adhesion is void when the weaker party is imposed upon in dealing with
the dominant bargaining party, and its option is reduced to the alternative of "taking it or leaving it,"
completely depriving such party of the opportunity to bargain on equal footing. 51
Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for the full
insured value of the vessel or, at the very least, for its actual market value. There was clearly no
intention on the part of WG&A to relinquish such right. It is an elementary rule that a waiver must be
positively proved, since a waiver by implication is not normally countenanced. The norm is that a
waiver must not only be voluntary, but must have been made knowingly, intelligently, and with
sufficient awareness of the relevant circumstances and likely consequences. There must be persuasive
evidence to show an actual intention to relinquish the right. 52 This has not been demonstrated in this
case.
Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI
to limit its liability to only P50,000,000.00, notwithstanding the fact that there was a constructive total
loss in the amount of P360,000,000.00, would sanction the exercise of a degree of diligence short of
what is ordinarily required. It would not be difficult for a negligent party to escape liability by the
simple expedient of paying an amount very much lower than the actual damage or loss sustained by
the other.53
Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make each other a
co-assured under an insurance policy is to be gleaned principally from the insurance contract or
policy itself and not from any other contract or agreement, because the insurance policy denominates
the assured and the beneficiaries of the insurance contract. Undeniably, the hull and machinery
insurance procured by WG&A from Pioneer named only the former as the assured. There was no
manifest intention on the part of WG&A to constitute KCSI as a co-assured under the policies. To
have deemed KCSI as a co-assured under the policies would have had the effect of nullifying any
claim of WG&A from Pioneer for any loss or damage caused by the negligence of KCSI. No ship
owner would agree to make a ship repairer a co-assured under such insurance policy. Otherwise, any
claim for loss or damage under the policy would be rendered nugatory. WG&A could not have
intended such a result.54
Nevertheless, we concur with the position of KCSI that the salvage value of the damaged M/V
"Superferry 3" should be taken into account in the grant of any award. It was proven before the CIAC
that the machinery and the hull of the vessel were separately sold for P25,290,000.00 (or
US$468,333.33) and US$363,289.50, respectively. WG&A's claim for the upkeep of the wreck until the
same were sold amounts to P8,521,737.75 (or US$157,809.96), to be deducted from the proceeds of the
sale of the machinery and the hull, for a net recovery of US$673,812.87, or equivalent
to P30,252,648.09, at P44.8977/$1, the prevailing exchange rate when the Request for Arbitration was
filed. Not considering this salvage value in the award would amount to unjust enrichment on the part
of Pioneer.
C. On the imposition of interest

Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 55 the award in favor of
Pioneer in the amount of P350,146,786.89 should earn interest at 6% per annum from the filing of the
case until the award becomes final and executory. Thereafter, the rate of interest shall be 12% per
annum from the date the award becomes final and executory until its full satisfaction.
D. On the payment for the cost of arbitration

It is only fitting that both parties should share in the burden of the cost of arbitration, on a pro rata
basis. We find that Pioneer had a valid reason to institute a suit against KCSI, as it believed that it
was entitled to claim reimbursement of the amount it paid to WG&A. However, we disagree with
Pioneer that only KCSI should shoulder the arbitration costs. KCSI cannot be faulted for defending
itself for perceived wrongful acts and conditions. Otherwise, we would be putting a price on the right
to litigate on the part of Pioneer.
WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in G.R. No. 180896-97 and
the Petition of Keppel Cebu Shipyard, Inc. in G.R. No. 180880-81 are PARTIALLY GRANTED and the
Amended Decision dated December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly,
KCSI is ordered to pay Pioneer the amount of P360,000,000.00 less P30,252,648.09, equivalent to the
salvage value recovered by Pioneer from M/V "Superferry 3," or the net total amount
of P329,747,351.91, with six percent (6%) interest per annum reckoned from the time the Request for
Arbitration was filed until this Decision becomes final and executory, plus twelve percent (12%)
interest per annum on the said amount or any balance thereof from the finality of the Decision until
the same will have been fully paid. The arbitration costs shall be borne by both parties on a pro rata
basis. Costs against KCSI.
SO ORDERED.
THIRD DIVISION
G.R. No. 198174, September 02, 2013
ALPHA INSURANCE AND SURETY CO., Petitioner, v. ARSENIA SONIA CASTOR, Respondent.
DECISION
PERALTA, J.:
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The
contract of insurance obligates the petitioner to pay the respondent the amount of Six Hundred
Thirty Thousand Pesos (P630,000.00) in case of loss or damage to said vehicle during the period
covered, which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza
(Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza
no longer returned the motor vehicle to respondent and despite diligent efforts to locate the same,
said efforts proved futile. Resultantly, respondent promptly reported the incident to the police and
concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds
in the total sum of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among
others, thus:chanrobles virtua1aw 1ibrary
Upon verification of the documents submitted, particularly the Police Report and your Affidavit,
which states that the culprit, who stole the Insure[d] unit, is employed with you. We would like to
invite you on the provision of the Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by “A PERSON IN
THE INSURED’S SERVICE.”
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the
exception refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial of
respondent’s insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before
the Regional Trial Court (RTC) of Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this
wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant ordering the latter as follows:
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision.
The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated
December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-
61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a
Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance of its
petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR
GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE
RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES NOT
COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE
[AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES
DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY WILL BE
CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY
AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED
GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE
TRIAL COURT.
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under
the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:chanrobles virtua1aw 1ibrary
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage
to the Schedule Vehicle and its accessories and spare parts whilst thereon:chanrobles virtua1aw
1ibrary
(a)
by accidental collision or overturning, or collision or overturning consequent upon mechanical
breakdown or consequent upon wear and tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road,
rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated
by the driver of the insured is not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance
policy subject of this case. This is evident from the very provision of Section III – “Loss or Damage.”
The insurance company, subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is
committed by the driver of the insured, there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, “(A)n insurance contract should be
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. Where restrictive provisions are open to
two interpretations, that which is most favorable to the insured is adopted.” The defendant would
argue that if the person employed by the insured would commit the theft and the insurer would be
held liable, then this would result to an absurd situation where the insurer would also be held liable
if the insured would commit the theft. This argument is certainly flawed. Of course, if the theft would
be committed by the insured himself, the same would be an exception to the coverage since in that
case there would be fraud on the part of the insured or breach of material warranty under Section 69
of the Insurance Code.
Moreover, 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.8
Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the
excluded classes therein are to be given their meaning as understood in common speech.
Adverse to petitioner’s claim, the words “loss” and “damage” mean different things in common
ordinary usage. The word “loss” refers to the act or fact of losing, or failure to keep possession, while
the word “damage” means deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy
under paragraph 4 of “Exceptions to Section III,” since the same refers only to “malicious damage,”
or more specifically, “injury” to the motor vehicle caused by a person under the insured’s service.
Paragraph 4 clearly does not contemplate “loss of property,” as what happened in the instant case.
Further, the CA aptly ruled that “malicious damage,” as provided for in the subject policy as one of
the exceptions from coverage, is the damage that is the direct result from the deliberate or willful act
of the insured, members of his family, and any person in the insured’s service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to
clearly delineate between the terms “loss” and “damage” by using both terms throughout the said
policy. x x xx x x x
If the intention of the defendant-appellant was to include the term “loss” within the term “damage”
then logic dictates that it should have used the term “damage” alone in the entire policy or otherwise
included a clear definition of the said term as part of the provisions of the said insurance contract.
Which is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to
the policy’s coverage in Section III thereof, which is one of the crucial parts in the insurance contract,
the insurer, after liberally using the words “loss” and “damage” in the entire policy, suddenly went
specific by using the word “damage” only in the policy’s exception regarding “malicious damage.”
Now, the defendant-appellant would like this Court to believe that it really intended the word
“damage” in the term “malicious damage” to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of
property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
assured, determine the import of the various terms and provisions embodied in the policy. However,
when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, the policy will be construed by the
courts liberally in favor of the assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled –
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s
interest.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude the insurer from non-
compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the
above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to avoid forfeiture.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of
Appeals are hereby AFFIRMED.
SO ORDERED.
Velasco, Jr., (Chairperson), Abad, Mendoza, and Leonen, JJ., concur.
Endnotes:
FIRST DIVISION
G.R. No. 243733, January 12, 2021
EDITA A. DE LEON, LARA BIANCA L. SARTE, AND RENZO EDGAR L. SARTE, Petitioners, v.
THE MANUFACTURERS LIFE INSURANCE COMPANY (PHILS.) INC., ZENAIDA S. SARTE,
JESSICA SARTE-GUSTILO, VILMA C. CAPARROS, EDGAR ALVIN C. CAPARROS, AND
ROBERTO MORENO, Respondents.
DECISION
CARANDANG, J.:
Facts of the Case
This case has its origins from a complaint for interpleader filed by respondent Manufacturers Life
Insurance Company (Phils.) Inc. (Manulife) on August 12, 2004, before the RTC to determine the
rightful recipients of the proceeds of three life insurance policies issued to the late Edgar H. Sarte
(Sarte), who passed away on December 23, 2003.5
During his lifetime, Sarte sired three sets of children: (1) with his legitimate wife Zenaida S. Sarte
(Zenaida), he had Jessica S. Sarte-Gustilo (Jessica) and Edgard Eldon S. Sarte (Eldon); (2) with Vilma
C. Caparros (Vilma), he had Edgar Alvin C. Sarte (Alvin) and Edgar Angelo C. Sarte (Angelo); and (3)
with Edita De Leon (Edita), he had Lara Bianca L. Sarte (Lara) and Renzo Edgar L. Sarte (Renzo).6
Three life insurance policies subject to this case, all with revocable beneficiaries, viz.:
POLICY NO.
DATE OF ISSUE
POLICY OWNER
LIFE INSURED
COVERAGE AMOUNT
DESIGNATED AS REVOCABLE BENEFICIARIES IN THE POLICY
"Policy 1"7
4321987-2
August 25, 1994
Systems Technology, Inc. (STI)
Edgar H. Sarte
P1,000,000.00
Policy 1
Zenaida Sarte & Jessica Sarte-Gustillo —> Renzo Edgar L. Sarte12
Policy 2
Zenaida Sarte & Renzo Edgar L. Sarte —> Renzo Edgar L. Sarte13
Policy 3
Edgar Alvin C. Sarte and Renzo Edgar L. Sarte —> Lara Bianca L. Sarte14
xxx
On October 22, 2009, before she could adduce evidence on her behalf, Cepeda passed away and has
since then been represented in this case by her son, herein respondent Roberto Alejandro Moreno
Jr.17 In her pleading, Cepeda admitted to receiving the originals of the said BDFs, but observed that
the designated beneficiaries, Lara and Renzo, were still minors, but no trustee or individual
capacitated to act in their behalf was designated as required by Manulife. The BDFs could have been
easily corrected by the designation of a trustee. However, since "Nothing Follows"18 was typewritten
on the BDFs, such a correction could not be made. Cepeda declined to affix her signature on the BDFs
and alleged that she returned them to Sarte through Gealogo.19 Gealogo denied ever receiving
them20 and testified that Cepeda called her, inquiring as to who should be designated as the trustees
of the minors. Gealogo claimed to have faxed to Cepeda a tabulation21 indicating the names of the
trustees, but only on January 19, 2004, after Mr. Sarte's death on December 23, 2003.22 Gealogo said
that the fax transmittal slip of the tabulation was printed on thermal paper, which could be easily
erased, so she stamped the word "faxed" on the same. Other than the said transmittal slip, Gealogo
said she had no other proof that she actually faxed the document to Cepeda's office.23
Before Sarte died, he gave to Edita the originals of four insurance policies, two of which [Policies 1
and 2] are the subject policies of this case.24 She also received photocopies of the BDFs dated July 31,
2002.25 Sometime after Sarte's death, Edita met with Cepeda at the latter's office to process the
insurance claims in behalf of her children. However, in that meeting, Cepeda initially denied
receiving the said BDFs and that she had no record of them. A week later, they went to Manulife's
office to check the records. They were accompanied by Gealogo. At that meeting, Edita presented the
following documents to Manulife's representatives in support of her claim: 1) an Acknowledgment
Receipt of the July 31, 2002 BDFs signed by Cepeda's secretary, Lynn Gagan; 2) the trip report of
Allan Quiñones; 3) a matrix of Sarte's insurance policies and a copy of the tabulation which were
provided to her by Yolanda Domingo, who was Sarte's executive assistant. Manulife, however, did
not release the proceeds to her. 26
On January 20, 2004, Edita wrote to Manulife's head office seeking assistance for her claim.27
Manulife, through their Claims Manager, Jessie Bell Victoriano (Victoriano), responded by mail on
February 2, 2004, suggesting that Sarte's three families settle their claims amicably to avoid costly
litigation.
On March 25, 2004, Zenaida met with Victoriano to inquire into her claims on Sarte's policies that she
knew of, including Policy 2. In that meeting, Victoriano revealed to Zenaida that as per the insurer's
records, she was also named in Policy 1 as co-beneficiary with Renzo. Two months after, Manulife
still did not release the proceeds of the said policies. So, Zenaida set another meeting with Victoriano,
at which point she was informed of Edita's claims on the subject policies. Victoriano thus asked
Zenaida for more time.29
Victoriano testified that the subject BDFs dated July 31, 2002, appeared to be valid as they contained
Sarte's signature.30 It was because of this that Manulife was in doubt as to the rightful beneficiaries of
the subject policies. Thus on August 12, 2004, it filed the complaint31 for interpleader against: (1)
Zenaida and Jessica; (2) minor Alvin, to be represented by his mother, Vilma; and (3) minors Lara and
Renzo, to be represented by their mother, Edita. The RTC gave due course to the complaint,
summoned the interpleaded parties, and ordered them to file their respective answers.32
Zenaida S. Sarte and Jessica S. Sarte-Gustilo's claim
Zenaida and Jessica argued that as per Manulife's own records, they are entitled to the full proceeds
of Policy 1. In addition, Zenaida claimed half of the proceeds of Policy 2. They asserted no claim over
Policy 3. However, they filed a counterclaim against Manulife, arguing that the insurer was in bad
faith for filing the complaint for interpleader despite knowing that Zenaida and Jessica are
beneficiaries on record for Policies 1 and 2.33
Edgar Alvin C. Sarte's claim
Alvin made no claim over Policies 1 and 2. However, he claimed all of the proceeds to Policy 3, in
which he was originally named as the lone beneficiary. At the time the interpleader was instituted,
Alvin's mother Vilma had possession of the original of Policy 3. Like Zenaida and Jessica, Arvin also
argued that the complaint was a frivolous suit as Manulife already knew, based on its records, that he
is solely entitled to Policy 3. As such, Manulife is liable for damages.34
Lara Bianca L. Sarte and Renzo Edgar L. Sarte's claim
Lara and Renzo maintained that on July 31, 2002, their father executed BDFs instituting Renzo as the
sole beneficiary of Policies 1 and 2 and Lara as the sole beneficiary of Policy 3. These BDFs were
submitted to Betty Q. Alejandro, a.k.a. Betty Cepeda (Cepeda), the Manulife servicing agent in charge
of the subject policies. Meanwhile, they also filed a counterclaim against Manulife, arguing that the
insurer should be liable for compensatory damages for failing to reflect the BDFs in their records
despite Sarte having done all that was necessary to effect the changes.35
The third-party complaint against the servicing agent, Betty Cepeda
Lara and Renzo also filed a third-party complaint against Cepeda, averring that should the proceeds
are not given to them due to Cepeda's failure to register the BDFs, then the latter should be made to
pay the amount of the proceeds plus damages.36
In her Answer with Counterclaim,37 Cepeda alleged that sometime in February 2002, Sarte's
secretary Veneranda C. Gealogo requested forms for the changes of beneficiary designations. Cepeda
had wanted to meet Sarte in person to discuss the matter, but Gealogo insisted on having the forms.
The forms were filled in and returned to Cepeda in March 2002, resulting in changes of the
beneficiaries as they now appear in Manulife's records.38
In July 2002, Gealogo again returned with four BDFs, three of which pertain to the subject policies.
Cepeda denied registering these BDFs because the intended beneficiaries are minors (herein Lara and
Renzo) and as per company policy, the insured must designate trustees who may act on such minors.
However, they could not be rectified in that manner because "Nothing Follows" was typed on the
form. Cepeda thus declined to affix her signature in the forms and sent them back to Gealogo.
Cepeda maintains that, thereafter, she never received the BDFs with the required corrections. She
maintains that Gealogo had ample time, from July 31, 2002 until December 23, 2003 to return the
BDFs with the necessary corrections. However, Gealogo never did. As such, Gealogo is the only one
to blame. Cepeda thus contended that the third-party complaint was entirely baseless and that she is
entitled to damages for having to defend herself against a frivolous suit.39
Manulife's stance
Manulife has consistently been neutral as to the issue of the rightful beneficiaries of the subject
policies. Against the counterclaims, however, it maintained that interpleader is a remedy that it is
entitled to and which it has availed in good faith. As such, it should not be made liable for filing the
interpleader suit. However, it claimed for costs of suit and attorney's fees, arguing that it was only
compelled to file the interpleader due to the conflicting claims of the interpleaded parties.40
Eden Broñosa (Broñosa), Manulife's Vice President for Clients Services and Customer Care, was
presented as an adverse witness by herein petitioners. Manulife's internal rules and procedure for
changing beneficiary designation was established from her testimony, thus:
the insured must submit to Manulife a duly completed and signed BDF;
the servicing agent, in this case Cepeda, is authorized by Manulife to accept the BDF in behalf of
Manulife;
if the designated beneficiary is a minor, the insured must also designate a trustee as per company
policy;
a BDF for a minor without a designated trustee is deemed an incomplete form;
incomplete BDFs need not be transmitted by the servicing agent to Manulife and shall be returned to
the insured for necessary corrections;
complete BDFs are transmitted to Manulife, processed, and stamped registered once entered into
their records;
Manulife then sends the insured a letter confirming the designation.41
Manulife, however, made no comment as to the legal significance of the aforesaid internal rules in
resolving the interpleader, leaving such matter to the trial court.
Ruling of the Regional Trial Court
From the terms of the subject policies, the RTC found the following provisions on "Beneficiary
Designation" and "Change of Beneficiary," as relevant to the issues of this case:
Beneficiary Designation. Whenever a beneficiary is designated either in this policy or by a declaration

in writing by the Owner, such beneficiary will be deemed to be beneficially entitled to the proceeds of
the policy, if and when the policy becomes payable upon the life insured's death. x x x
Change of beneficiary. To the extent allowed by law, during the life insured's lifetime the Owner can
change the beneficiary designation from time to time by written notice in form satisfactory to the
Company [Manulife]. The company assumes no responsibility for the validity of such written
notice.42
Based on these provisions, the RTC took the view that in order for the BDFs to be effective, the same
must have been processed, approved, and registered in Manulife's records. The July 31, 2002 BDFs
were rejected by Cepeda for non-compliance with Manulife's internal company policy on the
designation of trustees for minor beneficiaries, Lara and Renzo. As a consequence, it was not
registered in Manulife's records. On the other hand, the March 1, 2002 BDFs were duly filled in,
signed by Cepeda, transmitted to Manulife's office, and registered into their records.43
Furthermore, the trial court found that the Manulife was not in bad faith in filing the complaint for
interpleader. Nor were the interpleaded parties in bad faith for claiming the proceeds of the subject
policies. The trial court also found no fault on the part of Cepeda.44 Thus, the RTC disposed of the
case as follows:
WHEREFORE, premises considered, this Court RENDERS JUDGMENT as follows:
(1)Plaintiff The Manufacturer's Life Insurance Company (Phils.), Inc. is hereby DIRECTED to release
the insurance proceeds of the following policies to the beneficiaries as appearing in its records, thus:
(5) The compulsory counterclaims of third party defendant against third party plaintiff are hereby
DENIED FOR LACK OF MERIT.
Furnish copies of this Decision to the parties and there respective counsels.
SO ORDERED.45
Ruling of the Court of Appeals
On appeal to the CA,46 the petitioners maintained that the July 31, 2002 BDFs effectively changed the
beneficiaries of the subject policies in favor of Lara and Renzo. They argued that Sarte had complied
with all the requirements of the policy provision on "Change of Beneficiary" by merely filling up and
signing Manulife BDFs designating Lara and Renzo and transmitting the same to Cepeda, Manulife's
agent. They also maintained that Sarte had complied with the trustee designation requirement when
Gealogo faxed to Cepeda a tabulation with a list of names of trustees, even while maintaining that the
BDFs or the policies themselves do not indicate the necessity of a trustee.47
Zenaida,48 Jessica,49 Vilma,50 Alvin,51 and Betty Cepeda52 defended the RTC's decision and argued
that since the July 31, 2002 BDFs were not in a form satisfactory to Manulife, owing to the fact that no
trustee was designated, no change in beneficiary designation was effected. They maintained that the
RTC was correct in ordering Manulife to release the proceeds according to the latter's records.
Manulife maintained its neutral stance.53
The CA agreed with the RTC as to the result, but clarified that the petitioners were only able to
submit photocopies of the July 31, 2002 BDFs. The RTC had categorically ruled that Sarte had
executed the said BDFs, to wit: "[t]he evidence shows that the insured executed a Beneficiary
Designation Form changing the beneficiaries in the subject policies in favor of minor defendants Lara
Bianca and Renzo Edgar."54 However, the CA reasoned that according to the Best Evidence Rule,
under Section 3, Rule 129, the due authenticity and execution of said documents was not established.
Moreover, the CA found that there is no positive proof that the originals existed and that the
photocopies cannot be given evidentiary value.55
The petitioners moved for reconsideration, but the CA denied it as the arguments raised were mere
reiterations.56 Hence, this petition.
Issues
The issues to be resolved by the Court are as follows:
1. whether the subject insurance policies required Sarte to designate a trustee for minor beneficiaries;
2. whether the CA correctly applied the Best Evidence Rule to the photocopies of the BDFs dated July
31, 2002; and
3. whether Sarte effected a change of beneficiary designation by written notice in form satisfactory to
the Company by mere submission of the BDFs dated July 31, 2002 to Manulife's servicing agent,
Cepeda.
Ruling of the Court
The petition is meritorious.
Ordinarily, respondents would be correct; however, the Court has, on occasion, liberally applied its
rules of procedure in the interest of substantial justice. In the case of Bacolor v. VL Makabali
Memorial Hospital, Inc.,58 We summarized some guidelines to follow when confronted with a
defective verification or certificate against forum shopping, viz:
xxxx
2) As to verification, non-compliance therewith or a defect therein does not necessarily render the
pleading fatally defective. The court may order its submission or correction or act on the pleading if
the attending circumstances are such that strict compliance with the Rule may be dispensed with in
order that the ends of justice may be served thereby.
xxxx
4) As to certification against forum shopping, non compliance therewith or a defect therein, unlike in
verification, is generally not curable by its subsequent submission or correction thereof, unless there
is a need to relax the Rule on the ground of "substantial compliance" or presence of "special
circumstances or compelling reasons".59 (Emphasis and underscoring supplied).
The interests of substantial justice are paramount at all times. The Rules shall be liberally construed in
order to promote their objective of securing a just, speedy and inexpensive disposition of every action
and proceeding. Law and jurisprudence grant to courts the prerogative to relax compliance with
procedural rules of even the most mandatory character.61 This is not to say that adherence to the
Rules could be dispensed with. However, exigencies and situations might occasionally demand
flexibility in their application.62 In Bank of the Philippine Islands v. Dando, the Court restated the
reasons that may provide justification for a court to suspend a strict adherence to procedural rules,
such as:
(a) matters of life, liberty, honor or property; (b) the existence of special or compelling circumstances;
(c) the merits of the case; (d) a cause not entirely attributable to the fault or negligence of the party
favored by the suspension of the rules; (e) a lack of any showing that the review sought is merely
frivolous and dilatory; and (f) the fact that the other party will not be unjustly prejudiced thereby.64
(Emphasis supplied)
We find that the CA and the RTC committed errors of judgment, as extensively discussed below,
which We cannot ignore on the mere technicality that the petition has a defective verification and/or
certificate of non-forum shopping.
Sarte was not contractually required to designate a trustee for minor beneficiaries.
Petitioners protest that the RTC and CA erred in disposing the case based on Manulife's internal
rules. They argue that said rules are not binding upon either Sarte or the petitioners.
We agree.
The written instrument in which a contract of insurance is set forth, is called a policy of insurance.66
In relation thereto, Section 227 of the Insurance Code (Presidential Decree No. 612), provides:
Section 227. In the case of individual life or endowment insurance, the policy shall contain in
substance the following conditions:
x x x x.
(c) A provision that the policy shall constitute the entire contract between the parties, but if the
company desires to make the application a part of the contract it may do so provided a copy of such
application shall be indorsed upon or attached to the policy when issued, and in such case the policy
shall contain a provision that the policy and the application therefor shall constitute the entire
contract between the parties; (Emphasis and underscoring supplied)
Thus, the subject policies of this case uniformly contain the following provision:
CONTRACT
The application for this policy, any Medical Evidence form and any written statements and answers
furnished evidence of insurability, copies of all of which are attached, and the policy, constitute the
entire contract.
Only the President or a Vice-President of the Company has power on behalf of the Company to
change, modify or waive the provisions of the policy, and then only in writing.
The Company will not be bound by any promise or representation heretofore or hereafter made by or
to any agent or person other than as specified above. (Emphasis and underscoring supplied.)
In The Wellex Group, Inc. v. U-Land Airlines, Co. Ltd., the Court said:
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation
is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or
juridical tie which is the efficient cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct,
required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the
demandability of the obligation, are the active (obligee) and the passive (obligor) subjects69
The cause is the vinculum juris or juridical tie that essentially binds the parties to the obligation. This
linkage between the parties is a binding relation that is the result of their bilateral actions, which gave
rise to the existence of the contract.70 (Emphasis and underscoring supplied)
In this case, the vinculum juris (a legal bound) between Sarte and Manulife are the subject
policies themselves. Since the terms of the policies do not mention anything about Manulife's internal
rules, there is no juridical tie that binds Sarte to said internal rules. As such, the policies do not
obligate the insured to designate trustees for minor beneficiaries. Neither was it legally necessary for
the July 31, 2002 BDFs to be registered in Manulife's internal records so that Lara and Renzo may
acquire a vested interest in the subject policies. Simply put, Manulife's internal rules are not a legal
norm that has any relevance in the resolution of the issues of this case. Such internal rules are merely
for the guidance of the personnel, employees, and officers of Manulife.
The fundamental error in the CA and the RTC's reasoning is that they have premised the entirety of
their judgments upon the assumption that Manulife's internal rules were binding upon the insured.
Not only did the lower courts lack legal basis in applying Manulife's rules, they were not mindful of
the proper application of the parol evidence rule under Section 10, Rule 130 of the Rules,73 that when
the terms of an agreement have been reduced to writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in interest, no evidence of
such terms other than the contents of the written agreement. It forbids any addition to the terms of a
written agreement by testimony showing that the parties orally agreed on other terms before the
signing of the document.
In fact, the presentation of the Manulife internal rules was not called for as the procedural conditions
necessary for the presentation of parol evidence are not present in this case. A party may present
evidence to modify, explain, or add to the terms of a written agreement if he puts in issue in his
pleadings either: (a) an intrinsic ambiguity, mistake, or imperfection in the written agreement; (b) the
failure of the written agreement to express the parties' true intent and agreement; (c) the validity of
the written agreement; or (d) the existence of other terms agreed to by the parties or their successors
in interest after the execution of the written agreement. The issue must be squarely presented.74 In
this case, the terms of the subject policy were not put it in issue in either Manulife's complaint or in
any of the interpleaded parties' respective answers. As such, the introduction of Manulife's internal
rules was not a proper application of the parol evidence rule. Consequently, such rules cannot be
made to "modify, explain, or add" to the contract stipulations expressly stated in the subject policies.
The terms of the subject policies, therefore, are exclusively those which are stated within the four
corners of the document.
One might argue that it was necessary to present Manulife's internal rules to clarify certain provisions
of the subject policies. However, we have ruled that although parol evidence is admissible to explain
the contract's meaning, it cannot serve to incorporate into the contract additional conditions which
are not mentioned at all in the contract unless there is fraud or mistake.75
Moreover, it was made abundantly clear by the testimony of Broñosa, Manulife's Vice President for
Clients Services and Customer Care, that a trustee was not indispensable, rather only advisable, viz:
SETTLEMENT ON DEATH, MATURITY OR

SURRENDER
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.105 In the case of
Filipinas Life Assurance Company v. Pedroso, We bound the principal, an insurance company, for an
act by its insurance agent done within the scope of authority. As Manulife's agent, Cepeda was
authorized to receive the BDFs. This was confirmed by Broñosa. Receipt by Cepeda was duly proven
by Quinones' testimony and the Acknowledgment Receipt.109 Cepeda, in fact, had confirmed in her
Answer that she had received the originals of the July 31, 2002 BDFs. Furthermore, under the doctrine
of imputed knowledge, notice to the agent is deemed notice to the principal. Thus, upon Cepeda's
receipt of the July 31, 2002 BDFs, Manulife is deemed to have been notified of the designations
therein.
We now turn to the second part of the issue, which is whether the July 31, 2002 BDFs were in "form
satisfactory to the Company."112 The question is not without difficulty as the policies do not set out a
list of requirements or a criteria to meet what may be considered as "satisfactory" to Manulife. The
clause, therefore, admits of any number of interpretations. Petitioners contend that "satisfactory form"
refers to the physical pro forma document which Manulife itself provides to clients when the latter
wish to change their beneficiaries. Thus, they argue that the July 31, 2002 BDFs were in satisfactory
form.113 On the other hand, the RTC and the CA's considers a "satisfactory form" as not only one that
has been duly-filled up by the insured, but that has also been processed by Manulife, approved,
registered in the records, and then confirmed to the insured by mail.114 Thus, the lower courts
applied a "stricter" standard. It appears that the question is one of first impression in our jurisdiction,
but one that is familiar to American courts, to whom We may reasonably refer considering that the
law on life insurance first came to our shores during the Commonwealth period with the enactment
of the Insurance Act of 1914. As one scholar in 1969 observed:
Reservation to the insured of the right to change the beneficiary has produced a kind of backlash in
many courts. Policies containing this reservation specify a procedure by which such changes are to be
accomplished and usually stipulate that such changes are not to take effect until this procedure is
fully carried out. Courts in many cases made strict adherence to these contract terms a condition of
the effectiveness of any attempted change. This approach undoubtedly was prompted in part by a
desire to provide some protection to beneficiaries whose interests had been so easily reduced from a
vested interest to a mere expectancy. Subsequently, however, the strict compliance approach
produced a counterreaction as courts, uncomfortable with a dogma requiring them at times to
disregard the plain intention of the insured, evolved a "substantial compliance" principle rendering
effective any attempted change in which the insured had done all he reasonably could do to
accomplish it.115 (Emphasis and underscoring supplied)
The "substantial compliance" principle has been otherwise expressed as follows:
A clearly proved intention to change is not sufficient, if any of the formal requirements are lacking,
except: when the insured has done all in his power to comply with such requirements, but has failed
to surrender the policy because it is beyond his control, equity will protect the rights of the intended
beneficiary; or if the insured has pursued the courses pointed out by the policy..., and has done all
required of him to effect a change, but dies before the new certificate has been issued... equity will
decree that to be done which ought to be done, and regard the change as fully completed.116
(Emphasis supplied)
On the whole, the substantial compliance view appears to be more in tune with our doctrines on
contract law relevant to the instant case. Article 1377 of the New Civil Code117 provides that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. In this case, absent a clear stipulation as to what might constitute "satisfactory form", such
clause cannot be interpreted in a manner that would be more burdensome to the insured. To reiterate
Our discussion above, We cannot require strict adherence to Manulife's internal standards when the
insured was not contractually bound to them to begin with.
Furthermore, under Article 1373 of the New Civil Code,118 if some stipulation of any contract should
admit of several meanings, it shall be understood as bearing that import which is most adequate to
render it effectual. So that the right of the insured to designate his chosen beneficiary – both under
the subject policies and Section 11 of the Insurance Code119 – might be given effect in the
circumstances of this case, it is more just to take the substantial compliance view. Sarte had
substantially complied with all that was required of him under the subject policies to designate Lara
and Renzo as his beneficiaries. Since Cepeda had received the originals of the July 31, 2002 BDFs,
Manulife is deemed to have been notified in writing of said beneficiary designations. Such notice was
sufficient to vest Lara and Renzo with rights over the proceeds of the subject policy.
That said, We have to correct certain premises in the CA and RTC's disposition of Manulife's prayer
for attorney's fees, the counterclaims, the third-party complaint, and the third-party counterclaim. We
deal first with the third-party complaint and the third-party counterclaim which were rightly
dismissed by the lower court. Petitioner's cause of action in their third-party complaint was based on
Cepeda's failure to cause the recording of the July 31, 2002 BDFs.120 As We have said above, such
recording was not necessary to effect the beneficiary designation. Consequently, Cepeda cannot be
made liable on that basis. We also cannot grant Cepeda's counterclaim for actual, moral, temperate,
nominal, exemplary damages, attorney's fees and costs of suit.121 Her death denied her the chance to
adduce sufficient evidence to support of her counterclaim. In fact, all that was entered into evidence
on her behalf mostly constitutes her achievements and awards as a Manulife agent.122 More
importantly, however, her causes of action is specific to her person and not predicated on property
rights or interests. In Bonilla v. Barcena,123 We said that an action does not survive if "the injury
complained of is to the person, the property and rights of property affected being incidental." 124
Meanwhile, the counterclaims against Manulife must fail as the latter had properly availed of the
remedy of interpleader. In the case of Bank of Commerce v. Planters Development Bank125 We said
that "through this remedy, the stakeholder [Manulife] can join all competing claimants in a single
proceeding to determine conflicting claims without exposing the stakeholder to the possibility of
having to pay more than once on a single liability. It was developed on the theory that the
stakeholder should not be forced to take the personal risk of evaluating the claims."126 Thus, We
cannot fault Manulife for bringing the conflicting claimants into one judicial proceeding via
interpleader which is relatively better than possibly having to face multiple suits and so
unnecessarily expend the resources of the parties and the courts.
However, under Article 2209 of the New Civil Code,127 when a debtor delays in his obligation to pay
money, he may be made to pay legal interest, which is 6% per annum unless another rate was
stipulated.128 It is not disputed that Manulife had the obligation to pay the proceeds of the subject
policies upon notice of Sarte's death. As soon as its obligation to pay arose, it should have consigned
the proceeds to the court; otherwise, it incurs delay in payment. It is of no moment that Manulife did
not know at the time who the rightful beneficiary is. In Philippine National Bank v. Chan,129 We
said:
"Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment. [I]t generally requires a prior tender of
payment."130
Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior tender of
payment a) when the creditor is absent or unknown or does not appear at the place of payment; b)
when he is incapacitated to receive the payment at the time it is due; c) when, without just cause, he
refuses to give a receipt; d) when two or more persons claim the same right to collect; and e) when
the title of the obligation has been lost.131 (Emphasis and underscoring supplied)
Meanwhile, under Article 1169 of the New Civil Code,132 those obliged to deliver or to do something
incur in delay from the time the obligee judicially or extrajudicially demands the fulfillment of the
obligation. In Nacar v. Gallery Frames,133 We clarified that where the demand is established with
reasonable certainty, the legal interest of 6% per annum shall begin to run from the time the claim is
made judicially or extrajudicially.134 In this case, Edita claimed that she met with Cepeda on January
8, 2004. However, this was not established by evidence. What is undisputed, however, is that on
January 21, 2004, Manulife received Edita's letter reiterating her children's claim over the subject
policies.135 Therefore, we find it fitting that the legal interest rate of 6% per annum be applied on the
proceeds of the subject policies starting from January 21, 2004.
Corollary to the above, we cannot grant Manulife's prayer for attorney's fees and expenses of
litigation. There must be factual, legal, and equitable justification for attorney's fees and the award
thereof is within the discretion of the court taking into account the circumstances of each case.136 We
agree with the lower courts that Manulife was not injured when the interpleaded parties pursued
their respective claims. As discussed above, their conflicting claims was brought about by their
different views as to how a beneficiary is designated. These differences have now been settled.
WHEREFORE, the petition is GRANTED. The Decision dated July 20,2017 and the Resolution dated
December 13, 2018 of the Court of Appeals in CA-G.R. C.V. No. 106718 are hereby REVERSED and
SET ASIDE. Respondent the Manufacturers Life Insurance Company (Phils.) Inc., is hereby
ORDERED to release the proceeds of life insurance policies 4321987-2 & 4319830-8 to Renzo Edgar L.
Sarte and of life insurance policy 4319831-6 to Lara Bianca L. Sarte with six percent (6%) interest per
annum beginning January 21, 2004 until fully paid.
SO ORDERED.

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S

G.R. No. L-44059 October 28, 1977

The following donations shall be void:

PAZ LOPEZ DE CONSTANTINO, Plaintiff-Appellant, v. ASIA LIFE INSURANCE

[G.R. No. L-1670. August 31, 1950].

AGUSTINA PERALTA, Plaintiff-Appellant, v. ASIA LIFE INSURANCE COMPANY, Defendant-

Mariano Lozada, for appellant Constantino.

Cachero & Madarang, for appellant Peralta.

Dewitt, Perkins & Ponce Enrile, for Appellee.

1. INSURANCE; EFFECT OF NON-PAYMENT OF PREMIUM DUE TO WAR; LIFE INSURANCE;

2. ID.; EFFECT OF WAR ON NON-PAYMENT OF PREMIUMS; COURT REJECTS CONNECTICUT

The facts are these:

The policy provides SAME AS THE FIRST POLICY INSURANCExxx

The lower court absolved the defendant. Hence this appeal.

{INTERPRETATION OF INSURANCE CONTRACT}

DIOSDADO C. TY, Plaintiff-Appellant, v. FAR EASTERN SURETY & INSURANCE CO.,

[G.R. No. 16144. April 29, 1961.]

DIOSDADO C. TY, Plaintiff-Appellant, v. CAPITAL INSURANCE & SURETY CO., INC., Defendant-

[G.R. No. 16145. April 29, 1961.]

DIOSDADO C. TY, Plaintiff-Appellant, v. CAPITAL INSURANCE & SURETY CO., INC., Defendant-

M. Perez Cardenas, for Defendant-Appellee.

1-6. Fracture, simple, proximal phalanx index finger, left;

"Either hand P650.00

G.R. No. 119599 March 20, 1997

Hence this petition, claiming that the Court of Appeals erred:

The antecedents are as follows:

Entry of judgment was made on April 24, 1989.

On November 10, 1995, Ms. Angelo submitted her Report.

Entry of judgment was made on June 6, 1996.

(5) APPEALS BY CERTIORARI TO THE SUPREME COURT

We now consider the merits of the case.

[G.R. No. 125678. March 18, 2002.]

PHILAMCARE HEALTH SYSTEMS, INC., Petitioner, v. COURT OF APPEALS and JULITA

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

1. The insured has an insurable interest;

3. The insurer assumes the risk;

5. In consideration of the insurer’s promise, the insured pays a premium. 8

(1) of himself, of his spouse and of his children;

Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which

1. Prior notice of cancellation to insured;

Davide, Jr., C.J., Puno and Kapunan, JJ., concur.

Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT

In the Decision of September 19, 1988, the court ruled thus:

Entry of judgment was made on June 6, 1996.

We now consider the merits of the case.

Company: WG & A JEBSENS SHIPMANAGEMENT INC.

C. On the imposition of interest

D. On the payment for the cost of arbitration

G.R. No. 198174, September 02, 2013

The facts follow.

To pay the costs of suit.

Aggrieved, petitioner filed an appeal with the CA.

We rule in the negative.

G.R. No. 243733, January 12, 2021

Facts of the Case

Edgar Alvin C. Sarte's claim

Lara Bianca L. Sarte and Renzo Edgar L. Sarte's claim

The third-party complaint against the servicing agent, Betty Cepeda

Ruling of the Regional Trial Court

Beneficiary Designation. Whenever a beneficiary is designated either in this policy or by a declaration