G.R. No. L-43862 January 13, 1989 MERCANTILE INSURANCE CO., INC., Plaintiff-Appellee, vs. FELIPE YSMAEL, JR., & CO., INC., defendants-appellants.

BIDIN, J.: This is an appeal from the decision** dated October 30, 1971 of the Court of First Instance of Manila (now Regional Trial Court) in Civil Case No. 82168 entitled "Mercantile Insurance Co., Inc. (herein referred to as the plaintiff-appellee) vs. Felipe Ysmael, Jr. &. Co., Inc., et al (hereinafter referred to as the defendant-appellant) ordering defendants-appellants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr., to pay jointly and severally to the plaintiff the sum of P100,000.00 plus 15% thereof as attorney's fees, and costs. On appeal to the Court of Appeals, this case which involves only a question of law, was certified to this Court.chanroblesvirtualawlibrary chanrobles virtual law library The factual milieu of this case as found by the trial court is as follows: Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an overdraft line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National Bank. The latter was willing to grant credit accommodation of P2,000,000.00 applied for provided that the applicant shall have filed a bond in the sum of P140,000.00 to guarantee the payment of the said amount. Accordingly, on March 6, 1967, Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed surety bond No. G(16) 007 of Mercantile Insurance Co., Inc. in the sum of P100,000.00 (Exh. A). On December 4, 1967, Felipe Ysmael Jr. & Co., Inc. as principal and the Mercantile Insurance Co., Inc. executed another surety bond MERICO Bond No. G (16) 0030 in the sum of P40,000.00. It is the condition in both bonds that if the principal Felipe Ysmael, Jr. & Co., Inc. shall perform and fulfill its undertakings with the Philippine National Bank, then these surety bonds shall be null and void (Exh. B).chanroblesvirtualawlibrary chanrobles virtual law library As security and in consideration of the execution of the surety bonds, exhibits A and B, Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. an indemnity agreement (Exh. D) wherein the defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound themselves jointly and severally to indemnify the plaintiff, hold save it harmless from and against any and all payments, damages, costs, losses, penalties, charges and expenses which said company as surety (relative to MERICO Bond No. 0007) shall incur or become liable to pay plus an additional amount as attorney's fees equal to 20% of the amount due to the company, Paragraph 3 of the indemnity agreement expressly provides: chanrobles virtual law library 3) ACCRUAL OF ACTION: - Notwithstanding the provisions of the next preceding paragraph, where the obligation involves a liquidated amount for the payment of which the company has become legally liable under the terms of the obligation and its suretyship undertaking or by the demand of the obligee or otherwise and the latter has merely allowed the COMPANY a term or extension for payment of the latter's demand the full amount necessary to discharge the COMPANY's aforesaid liability irrespective of whether or not payment has actually been made by the COMPANY, the COMPANY for the protection of its interest may forthwith proceed against the undersigned or either of them by court action or otherwise to enforce payment even prior to making payment to the obligee which may hereafter be done by the COMPANY.chanroblesvirtualawlibrary chanrobles virtual law library On September 6, 1967, Gabriel Daza, Jr., Edgardo L. Tordesillas and Augusta Torres in their official capacities and the defendants executed another indemnity agreement (Exh. E) with the plaintiff in consideration of the surety bond (referring to MERICO Bond No. G (16) 0030. In the indemnity agreement (Exh. E) the same provisions of paragraph 3 found in exhibit D is provided for.chanroblesvirtualawlibrary chanrobles virtual law library By agreement dated September 5, 1967 (Exh. C), the amount of the Bond was reduced by P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in view of the aforesaid reduction is P100,000.00 (Exh. C), P60,000.00

on Surety Bond No. 0007 plus P40,000.00 on Surety Bond No. 0030.chanroblesvirtualawlibrary chanrobles virtual law library In view of the failure of the defendants to pay the overdraft and credit line with the Philippine National Bank demanded from the Mercantile Insurance Co., Inc. settlement of its obligation under surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)- 0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P) otherwise drastic measures for collection to protect the interest of the bank would be taken. Attached to the demand letter is a statement of account.chanroblesvirtualawlibrary chanrobles virtual law library By letter of December 17, 1970, the Legal Department of plaintiff company wrote a letter of demand to the defendants (Exhs. G and H) inviting their attention to the letter of demand of the Philippine National Bank sent to the plaintiff and demanding from the defendants the settlement of said account. These letters were received as shown by the registry return receipts (Exhs. G-2 and H-2). Since the defendants failed to settle their obligation with the Philippine National Bank, on February 10, 1971, plaintiff brought the present action. Instead of filing their answer, the defendants (appellants herein) filed a motion to DISMISS, which motion was subsequently denied. Thereafter, the defendants filed their answer and the case was set for pre-trial. On the date scheduled for pre-trial, the defendants and their counsel failed to appear, thus on motion of the plaintiff, they were declared in default and plaintiff was allowed to present its evidence ex-parte. Upon motion for reconsideration filed by the defendants, the case was ordered re-opened and the case was scheduled for reception of defendant's evidence. Thereafter, the parties were required to submit their respective memoranda and the case was submitted for decision. On October 30, 1971, the trial court rendered its decision, the dispositive part of which reads: WHEREFORE, in view of the foregoing considerations, judgment is rendered for the plaintiff and the defendants are ordered to pay jointly and severally the plaintiff the sum of P100,000.00 plus the further sum of 15% thereof in the concept of reasonable attorney's fees and the costs.chanroblesvirtualawlibrary chanrobles virtual law library Plaintiff upon payment of this judgment, shall deliver the sum of P100,000.00 to the Philippine National Bank in partial satisfaction of the obligation of the defendants to said Bank.chanroblesvirtualawlibrary chanrobles virtual law library SO ORDERED. (Record on Appeal, p. 96) Said decision was appealed to the Court of Appeals on questions of facts and law. Acting on the appeal and finding that the only question raised therein involves a question of law, the Court of Appeals by resolution *** dated April 29, 1976, certified the same to this Court, for proper disposition (Rollo, pp. 62-63).chanroblesvirtualawlibrary chanrobles virtual law library This Court, thru its First Division by Resolution dated May 31, 1978, resolved to have the case docketed and declared the same submitted for decision (Rollo, p. 65).chanroblesvirtualawlibrary chanrobles virtual law library The defendants-appellants raised the following assignments of errors in the Court of Appeals: I chanrobles virtual law library THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR LACK OF CAUSE OF ACTION, THE COMPLAINT BEING PREMATURE BECAUSE THE PLAINTIFF HAS PAID NOTHING ON THE SURETY BONDS AND HAS SUFFERED NO ACTUAL DAMAGE.chanroblesvirtualawlibrary chanrobles virtual law library II chanrobles virtual law library THE LOWER COURT ERRED IN NOT DECLARING THAT PARAGRAPH 3 OF THE INDEMNITY AGREEMENTS IS VOID.chanroblesvirtualawlibrary chanrobles virtual law library

III chanrobles virtual law library CONSEQUENTLY, THE TRIAL COURT ERRED IN ORDERING THE DEFENDANTS-APPELLANT'S TO PAY JOINTLY AND SEVERALLY TO THE PLAINTIFF THE SUM OF P100,000.00 PLUS THE FURTHER SUM OF 15% THEREOF IN THE CONCEPT OF REASONABLE ATTORNEY'S FEES AND THE COSTS. (Brief for Defendants-Appellants, CA, pp. 1-2). The crux of the controversy is whether or not the surety can be allowed indemnification from the defendants-appellants, upon the latter's default even before the former has paid to the creditor.chanroblesvirtualawlibrary chanrobles virtual law library There is no dispute that the overdraft line of P1,000,000.00 and the credit line of Pl,000,000.00 applied for by the defendant was granted by the Philippine National Bank on the strength of the two surety bonds denominated as MERICO Bond No. G(16) 0007 for one hundred thousand pesos (Exh. A) and MERICO Bond No. G(16) 0030 for forty thousand pesos (Exh. B), later reduced as above stated on September 5, 1967 (Exh. C) by P40,000.00 or a total amount of P100,000.00. As security and in consideration of the execution of the surety bonds, the defendants executed with the plaintiff identical indemnity agreements (Exhs. D and E) which provide, among others that payment of indemnity or compensation may be claimed irrespective of whether or not plaintiff company has actually paid the same.chanroblesvirtualawlibrary chanrobles virtual law library Defendants-appellants maintain that the complaint is premature and that paragraph 3 of the indemnity agreements is void for being contrary to law, public policy and good morals. They argued that to allow plaintiff surety (appellee herein) to receive indemnity or compensation for something it has not paid in its capacity as surety would constitute unjust enrichment at the expense of another. (Brief for Defendants-Appellants, CA, p.6).chanroblesvirtualawlibrary chanrobles virtual law library To bolster their contention, defendants-appellants argue that it is an indispensable requisite for an action to prosper, that the party bringing the action must have a cause of action against the other party; and that for a cause of action to be ripe for litigation, there must be both wrongful violation and damages; all of which are not present in the case at bar because plaintiff-appellee has not suffered any injury whatsoever, notwithstanding the demand sent to it by the Philippine National Bank, nor has plaintiff-appellee made a single actual payment to said bank. Hence, to allow plaintiff-appellee to recover from them something which it has not paid in its capacity as surety would violate the fundamental principle which states NEMOCUM ALTERIUS DETRIMENTO LOCOPLETARI POTEST (No person should unjustly enrich himself at the expense of another). [Defendants-Appellants' Brief, pp. 7-8; 49].chanroblesvirtualawlibrary chanrobles virtual law library The question as to whether or not under the Indemnity Agreement of the parties, the Surety can demand indemnification from the principal, upon the latter's default, even before the former has paid to the creditor, has long been settled by this Court in the affirmative.chanroblesvirtualawlibrary chanrobles virtual law library It has been held that: The stipulation in the indemnity agreement allowing the surety to recover even before it paid the creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even before paying the creditors. (Cosmopolitan Ins. Co., Inc. v. Reyes, 15 SCRA 528 [1965] citing; Security Bank v. Globe Assurance, 58 Off. Gaz. 3709 [April 30, 1962]; Alto Surety and Ins. Co., v. Aguilar, et al., G.R. No. L-5625, March 16, 1954). Hence, appellants contention that the action of the appellee (surety company) is premature or that the complaint fails to state a cause of action because the surety has not paid anything to the bank, cannot be sustained (Cosmopolitan Ins. Co., Inc. v. Reyes, supra). In fact, such contention is belied not only by the allegations in the complaint but also by the agreement entered into between the appellants and the appellee in favor of the bank.chanroblesvirtualawlibrary chanrobles virtual law library The records show that the cause of action is distinctly set forth in the complaint, the pertinent portion of which states:

chanrobles virtual law library 7. they shall have the force of law between them (Herrera v. and as long as such agreements are not contrary to law. paragraph 3 thereof. plaintiff becomes liable to the Philippine National Bank in the sum of ONE HUNDRED THOUSAND (P100. they are fully sanctioned by well-established jurisprudence. IAC. it is readily apparent that said cause of action was derived from the terms of the Indemnity Agreement. In fact.000. chanrobles virtual law library 8.00) PESOS which is the defendants' account with the said bank that is secured and covered by the abovementioned bonds (Annexes "A" and "B"). and the liability of the parties under the surety bonds is joint and several. Their indemnity agreement have the force and effect of law. The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default of defendants-appellants. so that the obligee PNB may proceed against either of them for the satisfaction of the obligation. given the plaintiff-appellee the prerogative of filing an action even prior to the latter's making any payment to the Philippine National Bank. defendants-appellants have undertaken to hold plaintiff-appellee free and harmless from any suit. the defendants failed and refused to pay the Philippine National Bank the sum of ONE HUNDRED THOUSAND (P l00.chanroblesvirtualawlibrary chanrobles virtual law library In the case at bar. a credit accommodation in the sum of TWO MILLION (P2. 99 SCRA 722 [1980] and Escano v. That defendants.chanroblesvirtualawlibrary chanrobles virtual law library II chanrobles virtual law library Defendants-appellants have.. 7). That under the terms of the Indemnity Agreements (Annexes "D" and "E") more particularly paragraph 3.000. 146 SCRA [1986]. That notwithstanding series of demands made by plaintiff.' (Record on Appeal.00) PESOS. By virtue of the provisions of the Indemnity Agreement.chanroblesvirtualawlibrary chanrobles virtual law library .00) PESOS. by virtue of the two Surety Bonds (Annexes "A" and "B") were extended by the Philippine National Bank. CA. by virtue of the Indemnity Agreement. That on account of defendants' default. terms and conditions as they may want to include. the appellants cannot now be heard to complain. the literal meaning of the stipulation shall control.chanroblesvirtualawlibrary chanrobles virtual law library Contracts are respected as the law between the contracting parties (Henson v. chanrobles virtual law library 10. p. as shown above. citing Castro v. clauses.chanroblesvirtualawlibrary chanrobles virtual law library Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious intentment (Ibid.000. 100 SCRA 197 [1980]) It is settled that the parties may establish such stipulations.000.00) PESOS. 2. public policy or public order. It is a basic and fundamental rule in the interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties.6. even prior to making payment to the Philippine National Bank. CA. Having voluntarily entered into such contract. as above quoted. there is no dispute as to meaning of the terms of the Indemnity Agreement.) Correspondingly. The only bone of contention is whether or not such terms are null and void as defendants-appellants would have this Court declare.).000. damage or liability which may be incurred by reason of non-performance by the defendants-appellants of their obligation with the Philippine National Bank. 148 SCRA 11 [1987]. plaintiff may forthwith proceed against the defendants to impose payment. good customs. morals. Petrophil Corp. That the Philippine National Bank is demanding and collecting from the plaintiff the sum of ONE HUNDRED THOUSAND (P100. (Brief for Plaintiff-Appellee. p.chanroblesvirtualawlibrary chanrobles virtual law library A careful analysis of the contract in question will show that the provisions therein do not contravene any law or public policy much less do they militate against the public good. chanrobles virtual law library 9.

therefore.chanroblesvirtualawlibrary chanrobles virtual law library As to the attorney's fees. are simultaneously the same persons who executed the Indemnity Agreement. Gutierrez.chanroblesvirtualawlibrary chanrobles virtual law library III Finally.. Otherwise stated.chanroblesvirtualawlibrary chanrobles virtual law library SO ORDERED. and the indemnitors voluntarily agreed to the same. no principle of guaranty involved and. therefore. defendants-appellants herein. Fernan. the principal debtors.J. Thus. Inc.chanroblesvirtualawlibrary chanrobles virtual law library It must be stressed that in the case at bar. the court should respect the agreement of the parties and require them to abide by their contract..Elucidating further on the obligations of the parties in agreements of this nature. the provision of Article 2071 of the Civil Code does not apply. (Security Bank v. There is. it has been squarely ruled by this Court that the award of fifteen (15) per cent for cases of this nature is not unreasonable (Cosmopolitan Insurance Co. Globe Assurance. it was rather for the benefit of the surety and if the latter thought it necessary in its own interest to impose this stipulation. JJ. v. Feliciano and Cortes. this Court ruled: .00 plus 15% as attorney's fees. supra). Reyes.000. the decision appealed from is hereby AFFIRMED. the Philippine National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds.The indemnity agreement was not executed for the benefit of the creditors. concur. Jr. the trial court did not err in ordering defendants-appellants to pay jointly and severally the plaintiff the sum of P100. 107 Phil.. and their liability being joint and several with the plaintiff-appellee's. .chanroblesvirtualawlibrary chanrobles virtual law library WHEREFORE. the position occupied by them is that of a principal debtor and indemnitor at the same time. there is no more need for the plaintiff-appellee to exhaust all the properties of the principal debtor before it may proceed against defendants-appellants.... 733 [1960]. C.

R. L-34382. N.105. No. respondents. L-34383 July 20.. Upon weighing at CONSIGNEE's warehouse. the 2. JR. Zapa Law Office for petitioner. 1983 THE HOME INSURANCE COMPANY. Japan. INC. MELENCIO-HERRERA. Ross. The shipment was insured with plaintiff against all risks in the amount of P1. Zapa Law Office for petitioner. Misa & Lozada Law Office for respondents.361 coils with 73 coils loose and partly cut. of which 53 were in bad order. S. shipped on board the SS "Eastern Jupiter' from Osaka. petitioner.361.R. J.G. There is no dispute over the facts of these cases for recovery of maritime damages. on the ground that plaintiff therein. Kajita & Co. MELENCIOHERRERA. had failed to prove its capacity to sue.361 coils were found to weight 263. NEDLLOYD LIJNEN. partly cut.940. and which had to be considered as scrap. respondents. 1967. on behalf of Atlas Consolidated Mining & Development Corporation. L-34383. 71694. xxx xxx xxx The coils discharged from the VESSEL numbered 2. COLUMBIAN PHILIPPINES. O-MA-9. The shipment was covered by Bill of Lading No. V." The said VESSEL is owned and operated by defendant Eastern Shipping Lines (CARRIER).06 under its Insurance Policy No. INC. No. Presiding Judge of the Manila Court of First Instance.. petitioner. and HON. A. INC. EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION. G. the facts are found in the decision of the respondent court which stated: On or about January 13. dismissing the complaints in Civil Case No. No.. vs. Presiding Judge of the Manila Court of First Instance. Bito. 71923 and in Civil Case No. and HON. with arrival notice to Phelps Dodge Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. In L-34382. now appellant.85 kilos as against its invoiced . AS-73633. No. Salcedo. Del Rosario. Branch XVII. Branch XVII. What the CONSIGNEE ultimately received at its warehouse was the same number of 2. A. Bito & Misa Law office for respondents. GUTIERREZ. L-34382 July 20.580.361 coils of "Black Hot Rolled Copper Wire Rods..: Questioned in these consolidated petitions for review on certiorari are the decisions of the Court of First Instance of Manila. 1983 THE HOME INSURANCE COMPANY. and/or GUACODS. and 28 coils entangled. vs. 2. Branch XVII.

209. VICTOR H. leaving 5 cases in bad order. N.79. in turn filed its answer admitting the allegations of the complaint.weight of 264. The facts of L-34383 are found in the decision of the lower court as follows: On or about December 22. Germany. Makati. Plaintiff made demands for payment against the CARRIER and the TRANSPORTATION COMPANY for reimbursement of the aforesaid amount but each refused to pay the same. the Hansa Transport Kontor shipped from Bremen. or 1. 1966. In both cases. the petitioner-appellant made the following averment regarding its capacity to sue: The plaintiff is a foreign insurance company duly authorized to do business in the Philippines through its agent..56 lbs. according to Exhibit "A". V. The shipment was insured with plaintiff company under its Cargo Policy No. . (CARRIER).66. Ayala Avenue. Inc.. Inc. Manila. Inc. Mr.426.260. For the short-delivery of 1 package and the missing items in 5 other packages. 1 package was accepted by the CONSIGNEE in good order due to the negligible damages sustained. filed its answer and alleged that it: Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. xxx xxx xxx The packages discharged from the VESSEL numbered 29. Out of these 9 packages.98. 30 packages of Service Parts of Farm Equipment and Implements on board the VESSEL. (CONSIGNEE)..534. the contents of 3 out of the 8 cases were also found to be complete and intact. and delivery at. . of legal age and with office address at Oledan Building.. according to the claims presented by the consignee against the plaintiff (Exhibit "D-1"). regarding the capacity of plaintiff-appellant. and the TRANSPORTATION COMPANY (Exhibit "K. Nedlloyd Lijnen. Rizal. of which seven packages were found to be in bad order. the CARRIER (Exhibit "J-1"). The shipment was covered by Bill of Lading No.l"). 2. The contents of these 5 packages showed several items missing in the total amount of $131.98. For the loss/damage suffered by the cargo. The pertinent paragraph of this answer reads as follows: Angel Jose Admits the jurisdictional averments in paragraphs 1. Respondent-appellee. plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the amount of P2. Demands were made on defendants CARRIER and CONSIGNEE for reimbursement thereof but they failed and refused to pay the same. the respondent-appellee Eastern Shipping Lines. Inc. Upon inspection at the consignee's warehouse.426.00 kilos or a net loss/shortage of 593. plaintiff paid the consignee under its insurance policy the amount of P3. and represented in the Philippines by its local agent. Angel Jose Transportation. AS-73735 "with average terms" for P98. In L-34382. or a total of $525. BELLO.80 or P2. the defendant Columbian Philippines. What the CONSIGNEE ultimately received at its warehouse was the same number of 29 packages with 9 packages in bad order. and 3 of the heading Parties.14. while the contents of the undelivered 1 package were valued at $394. international Harvester Macleod. in favor of the consignee.. by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. SS "NEDER RIJN" owned by the defendant.567.44. by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE.15 kilos. 22 for transportation to.

In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and Guacods, Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. As earlier stated, the respondent court dismissed the complaints in the two cases on the same ground, that the plaintiff failed to prove its capacity to sue. The court reasoned as follows: In the opinion of the Court, if plaintiff had the capacity to sue, the Court should hold that a) defendant Eastern Shipping Lines should pay plaintiff the sum of P1,630.22 with interest at the legal rate from January 5, 1968, the date of the institution of the Complaint, until fully paid; b) defendant Angel Jose Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid; c) the counterclaim of defendant Angel Jose transportation, Inc. should be ordered dismissed; and d) each defendant to pay one-half of the costs. The Court is of the opinion that Section 68 of the Corporation Law reflects a policy designed to protect the public interest. Hence, although defendants have not raised the question of plaintiff's compliance with that provision of law, the Court has resolved to take the matter into account. A suing foreign corporation, like plaintiff, has to plead affirmatively and prove either that the transaction upon which it bases its complaint is an isolated one, or that it is licensed to transact business in this country, failing which, it will be deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs. Cebu Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by plaintiff before this Court, of which judicial cognizance can be taken, and under the ruling in Far East International Import and Export Corporation vs. Hankai Koayo Co., 6 SCRA 725, it has to be held that plaintiff is doing business in the Philippines. Consequently, it must have a license under Section 68 of the Corporation Law before it can be allowed to sue. The situation of plaintiff under said Section 68 has been described as follows in Civil Case No. 71923 of this Court, entitled 'Home Insurance Co. vs. N. V. Nedlloyd Lijnen, of which judicial cognizance can also be taken: Exhibit "R",presented by plaintiff is a certified copy of a license, dated July 1, 1967, issued by the Office of the Insurance Commissioner authorizing plaintiff to transact insurance business in this country. By virtue of Section 176 of the Insurance Law, it has to be presumed that a license to transact business under Section 68 of the Corporation Law had previously been issued to plaintiff. No copy thereof, however, was submitted for a reason unknown. The date of that license must not have been much anterior to July 1, 1967. The preponderance of the evidence would therefore call for the finding that the insurance contract involved in this case, which was executed at Makati, Rizal, on February 8, 1967, was contracted before plaintiff was licensed to transact business in the Philippines. This Court views Section 68 of the Corporation Law as reflective of a basic public policy. Hence, it is of the opinion that, in the eyes of Philippine law, the insurance contract involved in this case must be held void under the provisions of Article 1409 (1) of the Civil Code, and could not be validated by subsequent procurement of the license. That view of the Court finds support in the following citation: According to many authorities, a constitutional or statutory prohibition against a foreign corporation doing business in the state, unless such corporation has complied with conditions prescribed, is effective to make the contracts of such corporation void, or at least unenforceable, and prevents the maintenance by the corporation of any action on such

contracts. Although the usual construction is to the contrary, and to the effect that only the remedy for enforcement is affected thereby, a statute prohibiting a non-complying corporation from suing in the state courts on any contract has been held by some courts to render the contract void and unenforceable by the corporation, even after its has complied with the statute." (36 Am. Jur. 2d 299-300). xxx xxx xxx The said Civil Case No. 71923 was dismissed by this Court. As the insurance contract involved herein was executed on January 20, 1967, the instant case should also be dismissed. We resolved to consolidate the two cases when we gave due course to the petition. The petitioner raised the following assignments of errors: First Assignment of Error THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE THE LEGAL EXISTENCE OR CAPACITY OF PLAINTIFF-APPELLANT. Second Assignment of Error THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE FINDING THAT PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE. On the basis of factual and equitable considerations, there is no question that the private respondents should pay the obligations found by the trial court as owing to the petitioner. Only the question of validity of the contracts in relation to lack of capacity to sue stands in the way of the petitioner being given the affirmative relief it seeks. Whether or not the petitioner was engaged in single acts or solitary transactions and not engaged in business is likewise not in issue. The petitioner was engaged in business without a license. The private respondents' obligation to pay under the terms of the contracts has been proved. When the complaints in these two cases were filed, the petitioner had already secured the necessary license to conduct its insurance business in the Philippines. It could already filed suits. Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreign insurance company duly authorized to do business in the Philippines through its agent Mr. Victor H. Bello. However, when the insurance contracts which formed the basis of these cases were executed, the petitioner had not yet secured the necessary licenses and authority. The lower court, therefore, declared that pursuant to the basic public policy reflected in the Corporation Law, the insurance contracts executed before a license was secured must be held null and void. The court ruled that the contracts could not be validated by the subsequent procurement of the license. The applicable provisions of the old Corporation Law, Act 1459, as amended are: Sec. 68. No foreign corporation or corporations formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands until after it shall have obtained a license for that purpose from the chief of the Mercantile Register of the Bureau of Commerce and Industry, (Now Securities and Exchange Commission. See RA 5455) upon order of the Secretary of Finance (Now Monetary Board) in case of banks, savings, and loan banks, trust corporations, and banking institutions of all kinds, and upon order of the Secretary of Commerce and Communications

(Now Secretary of Trade. See 5455, section 4 for other requirements) in case of all other foreign corporations. ... xxx xxx xxx Sec. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shag be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the court. As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. The Marshall Wells Co. decision referred to a litigation over an isolated act for the unpaid balance on a bill of goods but the philosophy behind the law applies to the factual circumstances of these cases. The Court stated: xxx xxx xxx Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the court to give it a literal meaning Counsel would have the law read thus: "No foreign corporation shall be permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary, desires for the court to consider the particular point under discussion with reference to all the law, and thereafter to give the law a common sense interpretation. The object of the statute was to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law. (State vs. American Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph Co. vs. Superior Court of City & Country of San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2d ed., chap. 184.) Confronted with the option of giving to the Corporation Law a harsh interpretation, which would disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would markedly help in the development of trade; confronted with the option of barring from the courts foreign litigants with good causes of action or of assuming jurisdiction of their cases; confronted with the option of construing the law to mean that any corporation in the United States, which might want to sell to a person in the Philippines must send some representative to the Islands before the sale, and go through the complicated formulae provided by the Corporation Law with regard to the obtaining of the license, before the sale was made, in order to avoid being swindled by Philippine citizens, or of construing the law to mean that no foreign corporation doing business in the Philippines can maintain any suit until it shall possess the necessary

Co. interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries. Ready Elevator Mfg. when the tendency is to re-examine the political boundaries separating one nation from another insofar as they define business requirements or restrict marketing conditions. Glue Co. and procured a certificate to that effect from the . the foreign corporation or its assignee may not maintain any suit for the recovery of any debt. 233-234) cites an Illinois decision which holds the contracts void and a Michigan statute and decision declaring them merely voidable: xxx xxx xxx Where a contract which is entered into by a foreign corporation without complying with the local requirements of doing business is rendered void either by the express terms of a statute or by statutory construction. 199. v. Professor Sulpicio Guevarra in his book Corporation Law (Philippine Jurisprudence Series. at some time after the making of the contract. v. Insofar as transacting business without a license is concerned. (Perkins Mfg. Law Center. and no action can be maintained thereon at any time. (United Lead Co. J. The Corporation Law must be given a reasonable. supra.) Notwithstanding the above decision. having been entered into in this state when appellant was not permitted to transact business in this state. etc. Co. until it complies with the law. supra. (Sioux Remedy Co. Cope and Cope. and. or demand whatever. Perkins. 295 P. (Perkins Mfg. 567 [1906]. The court said: 'The contract upon which this suit was brought. Co. 1 [1930].M." as this phrase is known in corporation law. And insofar as litigation is concerned. not an unduly harsh. Co.000.P. until it shall have fully complied with the requirement of this Act. Section 69 of the Corporation Law imposed a penal sanction-imprisonment for not less than six months nor more than two years or payment of a fine not less than P200. U. a subsequent compliance with the statute by the corporation will not enable it to maintain an action on the contract. unless it shall have the license required by law.) A Michigan statute provides: "No foreign corporation subject to the provisions of this Act. p.. 73 N. U. There is a penalty for transacting business without registration. We are not unaware of the conflicting schools of thought both here and abroad which are divided on whether such contracts are void or merely voidable. claim. and is therefore null and void. A contrary holding would bring the law to the verge of unconstitutionality. We distinguish between the denial of a right to take remedial action and the penal sanction for non-registration.license. and compliance at any time before suit was sufficient. The Corporation Law is silent on whether or not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio. 264.00 or both in the discretion of the court. even if the corporation shall. among other things that a foreign corporation that fails to comply with the conditions of doing business in that state cannot maintain a suit or action.) But where the statute merely prohibits the maintenance of a suit on such contract (without expressly declaring the contract "void"). Philippine Business Law. shall maintain any action in this state upon any contract made by it in this state after the taking effect of this Act.. the objective of the law was to subject the foreign corporation to the jurisdiction of our courts. can anyone doubt what our decision will be? The law simply means that no foreign corporation shall be permitted "to transact business in the Philippine Islands. vs.. shall not be permitted to maintain any suit in the local courts. is in violation of the plain provisions of the statute. v.00 nor more than P1. supra see note 18.N.. the Illinois statute provides. v. qualify itself to transact business in this state by a compliance with our laws in reference to foreign corporations that desire to engage in business here.-confronted with these options. Clinton Const. it was held that a failure to comply with the statute rendered the contract voidable and not void. Clinton Const. pp. See also Diamond Glue Co. a result which should be and can be easily avoided.S.) To repeat. 222 Ill. The objectives enunciated in the 1924 decision are even more relevant today when we view commercial relations in terms of a world economy. Co.

relying for their protection on duly executed foreign marine insurance policies made payable in Manila and duly endorsed and delivered to them. It has also been held that where the law provided that a corporation which has not complied with the statutory requirements "shall not maintain an action until such compliance". v. in terms. there is a prohibition with a penalty.. 143 Mich. as here. section 14. Warren Bros. 172 N. 799 [1909]. Henry W. The primary purpose of our statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of this state. upon compliance with the law. render invalid contracts made in this state by non-complying corporations. To maintain an action is not the same as to commence an action. .W. Co.. v. The statute does not fix any time within which foreign corporations shall comply with the Act. but they may be enforced only after compliance therewith." It was held that the above statute does not render contracts of a foreign corporation that fails to comply with the statute void. If such contracts were void. Union Insurance Society of Canton Ltd et al. Moral. 313) entered into insurance contracts without the necessary license or authority. v. The test is whether a foreign corporation was actually doing business here. The defendant American corporation in General Corporation of the Philippines v. 123 N. 319 [1930]. the contracts . as already stated. Carper. with no express or implied declarations respecting the validity of enforceability of contracts made by qualified foreign corporations." (See also Kendrick & Roberts Inc. 769 [1910]).S. In another case. Co. Section 299 does not declare that the plaintiff shall not commence an action in any county unless it has filed a certified copy in the office of the county clerk.. but it did file with the officer several months before the defendant filed his amended answer. . Elser & Co (supra). 399. Fidelity & G.) Our jurisprudence leans towards the later view. that when they go to court to enforce said policies. the defendant had not yet been registered and authorized to do business. Bridges & Noel v. setting up this defense. U. 47. Kuennan v. it has long been the rule that a foreign corporation actually doing business in the Philippines without license to do so may be sued in our courts. It does not...E. but implies that the action has already been commenced. a foreign corporation illegally doing business here because of its refusal or neglect to obtain the corresponding license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. 461 [1909]). 706 [1906]. the wiser and fairer policy. no suits could be prosecuted on them in any court. The registration and authority came a little less than two months later. to the citizens in this jurisdiction who in all good faith and in the regular course of business accept and pay for shipments of goods from America. the appellant had not yet been authorized to do business. v. and the greater weight lie with those decisions which hold that where.. 110 Md. Rule 7 of the Rules of Court makes no distinction as to corporations with or without authority to do business in the Philippines. 72 A. 679.W. The better reason. Mich. the insurer who all along has been engaging in this business of issuing similar marine policies.E.107 N. The statute was not intended to exclude foreign corporations from the state. the court said: "The very fact that the prohibition against maintaining an action in the courts of the state was inserted in the statute ought to be conclusive proof that the legislature did not intend or understand that contracts made without compliance with the law were void. 122. Zierleyn. (87 Phil. are enforceable ." (Peter & Burghard Stone Co.Secretary of State. Apart from the objectives earlier cited from Marshall Wells Co. serenely pleads immunity to local jurisdiction because of its refusal or neglect to obtain the corresponding license to do business here thereby compelling the consignees or purchasers of the goods insured to go to America and sue in its courts for redress. It would indeed be anomalous and quite prejudicial. as that at the time this defense was pleaded by the defendant the plaintiff had complied with the statute. But.. The defense pleaded by the defendant was therefore unavailable to him to prevent the plaintiff from thereafter maintaining the action. but merely declares that it shall not maintain an action until it has filled it. (Hastings Industrial Co. Despres. This Court ruled: Counsel for appellant contends that at the time of the service of summons. 163 Mich. even disastrous. When summons was served on the agent.. 128 N. "At the commencement of this action the plaintiff had not filed the certified copy with the country clerk of Madera County. Otherwise.

Nedlloyd Lijnen. the petitioner introduced documentary evidence that it had the authority to engage in the insurance business at the time it filed the complaints. Batas Pambansa Blg. 133. Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of these cases. the Corporation Code of the Philippines has corrected the ambiguity caused by the wording of Section 69 of the old Corporation Law. The private respondents countered either with an admission of the plaintiff's jurisdictional averments or with a general denial based on lack of knowledge or information sufficient to form a belief as to the truth of the averments. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. Inc.00 attorney's fees. but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.630. . Bello. Victor H. Doing business without a license. 1968 until fully paid. 68. In L-34383. V. The prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of Section 144 of the Code. Each respondent shall pay one-half of the costs.22 also with interest at the legal rate from January 5. The decisions of the respondent court are reversed and set aside. At the very least.426. and that its office address is the Oledan Building at Ayala Avenue. therefore. even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers. is dismissed. the petitions are hereby granted. 1968 until fully paid.98 with interest at the legal rate from February 1. Section 4. respondent N. the sum of P500. and costs. Inc. that its agent is Mr. The petitioner averred in its complaints that it is a foreign insurance company. or its successors or assigns.22 with interest at the legal rate from January 5. We find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the light of its positive averment that it is authorized to do so. Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific denial. The counterclaim of Angel Jose Transportation Inc. These are all the averments required by Section 4. And yet. Rule 8 of the Rules of Court. 1968 until fully paid and respondent Angel Jose Transportation Inc. Section 133 of the present Corporation Code provides: SEC. is ordered to pay the petitioner the sum of P1. It is. not necessary to declare the contract nun and void even as against the erring foreign corporation. is dismissed. The petitioner sufficiently alleged its capacity to sue.There is no question that the contracts are enforceable. is ordered to pay the petitioner the sum of P2. The old Section 69 has been reworded in terms of non-access to courts and administrative agencies in order to maintain or intervene in any action or proceeding. The requirement of registration affects only the remedy. WHEREFORE. that it is authorized to do business in the Philippines. The complaint against Guacods. shag be permitted to maintain or intervene in any action. Makati. which shag include such supporting particulars as are particularly within the pleader's knowledge. suit or proceeding in any court or administrative agency in the Philippines.-No foreign corporation transacting business in the Philippines without a license. or its agent Columbian Phil. respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1. Significantly. the private respondents should have stated particulars in their answers upon which a specific denial of the petitioner's capacity to sue could have been based or which could have supported its denial for lack of knowledge. In L-34382.630.

. defendant-appellee Ker & Co. 2.. Ltd. Jr. by a letter dated 18th June. Said defendant-appellee Ker & Co. dated August 30. defendants-appellees. " When plaintiff-appellant failed to make any answer to the request for admission within the period prescribed by the rules. L-28237 August 31.. plaintiff-appellant. Ltd. the Bay View Hotel. On June 22. A true copy of this letter of denial is annexed to the present request as Annex "C" hereof.. On February 14.as such it was not liable under the policy.490. in favor of the Bay View Hotel.. defendant-appellee Ker & Co. filed a request for admission. for defendants-appellants..G.... This appeal was originally brought before the Court of Appeals but was certified to this Court pursuant to the appellate court's resolution of October 13. was discovered by plaintiffappellant to have had a cash shortage and unremitted collections in the total amount of P42. denied and refused indemnification and payment. Inc. INC... In its answer. while acting in his capacity as cashier. it filed claims for payments on the said fidelity guarantee bond but defendant-appellee Ker & Co. dated July 6. likewise averred that it was merely an agent and. a foreign corporation duly licensed to do insurance business in the Philippines. and PHOENIX ASSURANCE CO. 63181 of the Court of First Instance of Manila.. on June 22. insisting that since .. Ker & Co. 1958 by the Phoenix Assurance Co. a true copy of which is annexed to our answer as Annex "A" thereof. Inc.��t 1. A true copy of the policy as it finally stood at the time of the alleged defalcation is annexed to our answer as Annex 'B ' thereof. KER & CO.95. Ablaza. 1982 BAY VIEW HOTEL. No. Alfonso Felix. Ltd. & TEEHANKEE. Ablaza and non-production of the documents to prove the alleged loss.. counsel for Ker & Co. for its accountable employees against acts of fraud and dishonesty.. 1965 sent by registered mail to the Bay View Hotel. 3. 1965 docketed as Civil Case No.. Inc. LTD. is the Philippine general agent of Phoenix Assurance Co.. for plaintiff-appellant. justified its denial of the claims of plaintiff-appellant on various reas• such as ns.. then the lessee arid operator of the Manila Hotel. furnishing plaintiff-appellant's counsel with a copy thereof requesting admission of the following facts: 1�wph�1.. non-presentation of evidence regarding the various charges of dishonesty and misrepresentation against Tomas E. 1965. When one of the bonded employees. LTD. filed a Motion to Dismiss on Affirmative Defense. vs. J. 1967. 1958. 1967 since it involved purely questions of law. and was renewed from time to time with amendments. This claim filed by the Bay View Hotel. Inc. 1966.R. non-compliance with the conditions stipulated in the insurance policy. Ltd. Ampil. for a fidelity guarantee bond through a proposal form. plaintiff-appellant instituted its complaint. Sometime in January. To enforce its claims. applied to the Phoenix Assurance Co. Tomas E. Inc. Mariano V. Such a policy was actually issued on January 22. Jr. plaintiff-appellant Bay View Hotel. Ltd. Ltd.. under this policy was denied on behalf of the Phoenix Assurance Co. 1966. secured a fidelity guarantee bond from defendant-appellee Ker & Co..

. plaintiff-appellant was deemed to have abandoned its claim in view of the fact that it did not ask for an arbitration of its claim within twelve (12) months from June 22. Phoenix. it should be submitted to an arbitration" despite the admissions by the parties and the established fact that Condition No. it follows that Phoenix has no right to avail of these admissions. defendants. 1966 arguing that the proper remedy. On the other hand." IV The lower court erred and acted with grave abuse of discretion in granting the Motion for Summary Judgment and dismissing the complaint. the case should be dismissed and plaintiff-appellant should file the necessary action against the principal Phoenix. Defendantappellee Ker & Co. it followed that the proper party in interest against whom plaintiff-appellant might have a claim was the principal Phoenix Assurance Co. 8 of the Policy No. 2. ordering the dismissal of the case.. 1966. raising the following assignment of errors: 1�wph�1. 8 of said Policy No.��t I The lower court erred and acted with grave abuse of discretion in extending the legal effects. Plaintiff-appellant filed an opposition. Ltd. . FGC-5018-P requires that should there be a controversy in the payment of the claims. 1966. Ltd. Rule 26 of the Rules of Court. plaintiff-appellant filed the present appeal. 1966. this time impleading Phoenix as party defendant. FGC-5018-P provides for Arbitration if any dispute shall arise as to the amount of company's liability. filed a reply to the opposition reiterating its stand that since it merely acted as an agent. plaintiff-appellant filed a Motion for Leave to Admit Amended Complaint. II The lower court erred and acted with grave abuse of discretion in giving legal effects to a request for admission by the defendant-appellee under the original complaint after the said original complaint was. if any. argued that it was merely an agent and therefore not liable under the policy. Ltd. under the circumstances was not to dismiss the complaint but to amend it in order to bring the necessary or indispensable parties to the suit. attaching copy of the complaint. On August 1. Plaintiff-appellant argues that since the implied admission was made before the amendment of its complaint so as to include Phoenix. which was not a partydefendant at the time said request was filed and for whom no similar request was ever filed. Ker & Co. amended. The first two errors assigned may be taken jointly.. of the request for admission filed by Ker & Co. 1966.. (Phoenix) and not the agent Ker & Co. plaintiff-appellant was deemed to have impliedly admitted each of the matters enumerated in the request for admission. On August 16. and that the trial court committed a grave abuse of discretion in extending to Phoenix the legal effects of the request for admission filed solely by Ker & Co. with leave of court. as amended. On August 24. dated July 19. averred that under Condition 8 of the insurance policy.appellees filed their joint answer to the amended complaint. III The lower court erred and acted with grave abuse of discretion in holding that "Condition No. 1965 the date of receipt of the denial of the claim.under Sec. defendants-appellees filed a motion for summary judgment which the trial court granted in its decision of November 4.. After denial of its motion for reconsideration. to the Phoenix Assurance Co. Again.

We find in favor of plaintiff-appellant. Ltd. because by failing to seek an arbitration within twelve months from the date of its receipt of the denial of its claim on June 22. 8 of the insurance policy. admissions secured by the agent within the scope of the agency ought to favor the principal. plaintiff Bay View Hotel. Moreover.. If a fact is admitted to be true at any stage of the proceedings. the reference to arbitration is not a condition precedent to the filing of the suit contrary to the insurer company's posture.appellant's failure to answer the request for admission could and should have been corrected below by its filing a motion to be relieved of the consequences of the implied admission with respect to respondent Phoenix. 2 Plaintiff-appellant maintains that Condition No.. there is a total and complete negation of liability. since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency. because being purely and simply the agent of the insurer.. Ltd. To allow a party to alter the legal effects of the request for admission by the mere amendment of a pleading would constitute a dangerous and undesirable precedent. The legal effects of plaintiff. The issues. The costs of and connected with the arbitration shag be in the discretion of the arbitrators. Condition No. arbitrator or umpire of the amount of the loss shall first be obtained. Plaintiff-appellant insists that since the motion for summary judgment was filed on behalf of defendant-appellee Ker & Co.. Admission is in the nature of evidence and its legal effects were already part of the records of the case and therefore could be availed of by any party even by one subsequently impleaded. Ltd. 1965. whom shall be named by each party or of an umpire who shall be appointed by the said arbitrators before entering on the reference and in case either party or his representative shall neglect or refuse for the space of two months after request in writing from the other party so to do to name an arbitrator the arbitrator of the other party may proceed alone. The provisions of Condition No. arbitrator or umpire.��t If any dispute shall arise as to the amount of company's liability under this Policy the matter shall if required by either party be to the decision of two neutral persons as arbitrators one of. there was no motion for summary judgment as far as Phoenix was concerned and the trial court's decision dismissing the case should not have included the principal Phoenix. acts and representations of his principal 1 and may be given in evidence against such party. more particularly the prayer thereof. to have abandoned its claim against said defendant phoenix Assurance Co. Inc.. The amendment of the complaint per se cannot set aside the legal effects of the request for admission since its materiality has not been affected by the amendment. while here the insurer denies liability wholly and totally. "if any dispute shall arise as to the amount of company's liability under this policy .. 8. This has to be the rule. 8 requires arbitration only as to disputes regarding the amount of the insurer's liability but not . There is no dispute as to the amount of company's liability because this presupposes an admission of responsibility although not to the extent of the cost thereof. it is not stricken out through the amendment of the complaint. tie policy. for the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and treated in turn as the declarations. 8 of the policy provides for arbitration only "if any dispute should arise as to the amount of company's liability" consequently. alone... a reading of the said motion for summary judgment. with respect to Phoenix had already been likewise joined. But the motion for summary judgment was filed after the complaint had been amended and answer thereto had been filed. And it is hereby expressly agreed and declared that it shag be a condition precedent to any right of action or upon this Policy that the award by such arbitrators. therefore.. Plaintiff-appellant points out that in the instant case. more specifically the portion thereof which reads. is deemed under condition 8 of . photostatic copy of which was submitted to the trial court and reproduced as follows: 1�wph�1. in moving for the dismissal of the case and prayed "that the present action be dismissed as against Ker & Co. it is not liable under the policy and as against the Phoenix Assurance Co. shows that Phoenix did join Ker & Co." do not appear to require any extended interpretation." The main issue raised by plaintiff-appellant is with respect to Condition No. Moreover.The argument is untenable.

Ltd set aside and case remanded to court of origin for further proceedings and determination on the merits. for the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and treated in turn as the declarations. The authority cited for this view. J. It has no reference to a principal using in his favor an admission secured by the agent from a third party. Phoenix seeks to profit from something done by Ker. this rule of evidence finds no application herein. whether it may be utilized by Phoenix against Bay View itself.as to any dispute as to the existence or non. Thus. its justification must be based on some legal ground other than Section 26 of Rule 130..existence of liability. Ltd. 8 comes into play only if the insurer admits liability but cannot agree with the insured as to the amount thereof and cannot be invoked in cases like that at bar where the insurer completely denies any liability. Plana. to wit.. however. Ltd. acts and representations of his principal and may be given in evidence against such party. Considering that there was full disclosure of such agency since the insurance policy was actually issued by Phoenix. The question is not whether such act or declaration is admissible in evidence against some other entity with which Bay View is in privity. is hereby set aside and the case is remanded to the court of origin for further proceedings and determination on the merits.. Phoenix. Ltd. Melencio-Herrera. This has to be the rule. In the case at bar. Defendants-appellees' contention that plaintiff-appellant's failure to request arbitration proceedings is a bar to its filing of the suit at bar against the insurer company cannot be sustained. Makasiar. concur. res inter alios acta does not come into play herein. While this may be correct.. Relova and Gutierrez. The act or declaration involved herein is that of petitioner Bay View. As to appellee Ker & Co. the dismissal of the case against Ker & Co. Condition No. is hereby affirmed and maintained.��t Moreover.. Accordingly. and Phoenix Assurance Co. since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency. I do not subscribe to the view expressed in the following paragraph of the main opinion: 1�wph�1.. We find no error in the dismissal of the case against said defendant Ker & Co. JJ.. Rule 130 of the Rules of Court.��t & & Separate Opinions & VASQUEZ. reveals that the same is being justified under one of the recognized exceptions to the rule of res inter alios acta. concurring: I concur in the resolution of the issues in regard to the respective liabilities of Ker & Co.. Ltd.1�wph�1. Clearly.. specially considering the established principle that contracts of adhesion such as the insurance policy in question are to be strictly construed in case of doubt against the insurer. while case against Phoenix Assurance Co. affirmed and maintained.. Ltd.. To my mind. Phoenix is not being held bound or made liable by any act or declarations of Ker Instead. Section 26.. Case against Ker & Co. Section 26 of Rule 130 allows the admission against the principal of any act or declaration of the agent within the scope of his authority during its existence. Ltd. However. there appears to be no serious contradiction as to the fact that it merely acted as the agent of its principal. while the dismissal of the case against Phoenix Assurance Co.. admissions secured by the agent within the scope of the agency ought to favor the principal. but rather. Ltd. . No costs.

In the case at bar. for the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and treated in turn as the declarations. admissions secured by the agent within the scope of the agency ought to favor the principal. . since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency.. reveals that the same is being justified under one of the recognized exceptions to the rule of res inter alios acta. While this may be correct. acts and representations of his principal and may be given in evidence against such party. The act or declaration involved herein is that of petitioner Bay View. The authority cited for this view. I do not subscribe to the view expressed in the following paragraph of the main opinion: 1�wph�1.. Rule 130 of the Rules of Court. to wit.& & Separate Opinions VASQUEZ. and Phoenix Assurance Co. but rather. Ltd. Section 26. this rule of evidence finds no application herein. concurring: I concur in the resolution of the issues in regard to the respective liabilities of Ker & Co. However. res inter alios acta does not come into play herein. Ltd.. affirmed and maintained.�t�@lF� The question is not whether such act or declaration is admissible in evidence against some other entity with which Bay View is in privity. J. Case against Ker & Co... its justification must be based on some legal ground other than Section 26 of Rule 130. Section 26 of Rule 130 allows the admission against the principal of any act or declaration of the agent within the scope of his authority during its existence. This has to be the rule.��t Moreover. Clearly. while case against Phoenix Assurance Co. It has no reference to a principal using in his favor an admission secured by the agent from a third party.. Ltd. whether it may be utilized by Phoenix against Bay View itself. Ltd set aside and case remanded to court of origin for further proceedings and determination on the merits. To my mind. Phoenix is not being held bound or made liable by any act or declarations of Ker Instead. Phoenix seeks to profit from something done by Ker.

4 The facts of the case are as follows: . IN VIEW OF THE FOREGOING. L-43766 February 26. the appealed judgment of the City Court is affirmed insofar as it dismisses the complaint as well as the counter-claim filed in the above entitled case. is hereby affirmed in toto. 1 the then CFI of Zamboanga City which affirmed the above in a decision the dispositive portion of which reads: . 1988 PHILIPPINE NATIONAL BANK. IGNACIO DESIDERIO AND VICTORIA F.855. BY WAY OF IMPLIED OFF-SETTING FROM ITS LOAN ACCOUNT WITH PETITIONER. J. Desiderio filed by the Philippine National Bank. no evidence having been presented to prove the contrary. a premier banking institution. is hereby ordered dismissed and that the amount of P 1. II THE COURT OF APPEALS ERRED IN EXONERATING PRIVATE RESPONDENTS. with costs against the petitioner. the appealed judgment.60 which the Defendants paid as partial payment to the Plaintiff Bank on account of the loss contracted. That no pronouncement as to damages. vs. SARMIENTO. AS ATTORNEY-IN-FACT OF PRIVATE RESPONDENTS. incredulous of the adverse decisions of three lower courts. DESIDERIO. petitioner. being in accordance with law and the evidence. to wit: the City Court of Zamboanga City which rendered a decision the dispositive portion of which reads: WHEREFORE. No. COURT OF APPEALS (SPECIAL THIRD DIVISION).60.R. this Court hereby renders judgment in the following tenor: That the complaint for the unpaid balance of the contractual loan of the Defendant Ignacio Desiderio and Victoria F. is hereby declared unrecoverable and the same shall inure to the benefit of the Philippine National Bank. costs and attorney's fees is hereby made. as the loss of the things mortgaged were presumed to be caused by accident. IS BOUND TO SUCCESSFULLY COLLECT THE INSURANCE PROCEEDS OF THE MORTGAGED PROPERTY OF THE LATTER. THERE BEING NO COUNTERCLAIM FOR DAMAGES FILED BASED ON BREACH OF DUTY.089.G. THE HON.: In its resolve to recover the trifling sum of P 3. petitioner Philippine National Bank (PNB). 3 has elevated this case to the highest court of the land with the following errors assigned: I THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER. respondents. 2 and the Court of Appeals which likewise affirmed the above in a decision the dispositive portion of which reads: WHEREFORE.

SO ORDERED. the petitioner could have collected the insurance proceeds if only it were not negligent. were insured with the Cosmopolitan Insurance Go. had to be dragged into this suit if only because of the petitioner's resoluteness to recover what. the petitioner did not pursue other remedies to press its claim. It is sad that the private respondents. and as found by the lower courts.60 as partial payment of the loan in accordance with the loan agreement. subject matter of the mortgage. Zamboanga City. with triple costs against the petitioner. to collect the insurance proceeds when the same became due. Seven years after the insured chattels mortgaged were burned. It did not even file a suit for the recovery of the insurance proceeds against the insurance company before and even during the liquidation of the company. For. . It allowed seven long years to pass before finally deciding to file a collection case. being. not really worth litigating upon. 1964. Realizing that it could no longer collect from the insurance company because the same had already folded up. The loan which was subsequently approved was secured by a chattel mortgage consisting of the verified inventory of stocks in the store of the private respondents. as earlier mentioned. yet. the petition is hereby DISMISSED and the appealed judgment AFFIRMED. the insured building and merchandise of the private respondents were totally destroyed by fire.00 with the petitioner as the beneficiary pursuant to the requirements of the latter. the petitioner directed the collection suit against the private respondents whose obligation with the petitioner had long been extinguished. the petitioner filed a complaint for collection against the private respondents. The argument of the petitioner to the effect that there is no express provision in the Chattel Mortgage Contract which compels the petitioner to collect the proceeds of the insurance in case of loss is a mere rationalization of one trying hard to put the blame on another for its own fault or negligence. in the amount of P 4. It had ample time and enough legal remedies. income or benefits produced by the mortgaged property and apply such amount collected and received in payment of the interest accruing and of the principal obligation. to our minds. The petitioner was itself the beneficiary of the insurance policy to which it was duly indorsed and made payable.089. is too measly an amount. and after the private respondents had paid the petitioner the amount of P 1. In addition to this.000. And when the company did not act on the letters. not even worth wasting the time of this Court. We find no cogent reasons to disturb the ruling of the Court of Appeals. the goods and merchandise. the private respondents cannot have been expected to initiate moves for the collection of the insurance proceeds. The petitioner as the attorney-in-fact of the private respondents and as the beneficiary of the insurance policy had the obligation to collect the proceeds of the policy. the private respondents as mortgagors constituted and appointed the petitioner as mortgagee their attorney-in-fact with full power and authority to collect and receive any interest. under the facts obtaining.More than a quarter century ago. the said insurance company became the subject of liquidation. not to mention resources. located at Marahui Street. in toto." 5 Indeed. while the insurance and the chattel mortgage were still in force. the attorney-in-fact of the private respondents and the beneficiary of the insurance policy. WHEREFORE. The petitioner sent several letters to the insurance company for the purpose of recovering the proceeds of the insurance but to no avail. small time sari-sari store keepers. it merely sent demand letters to the insurance company. On August 1. indeed. Sometime in 1966. in fact. on January 10. For "under the chattel mortgage covering the goods offered as security for payment of the loan. 1963. and was in possession thereof. the private respondents-spouses applied for a retailers' loan with the petitioner. It was the petitioner which was duty bound to enforce the claim for the insurance proceeds.

000 under Fire Insurance Policy No. PB107861 dated July 6.000 to the Cebu Filipino Press of Cebu City. Insurance companies are prone to invent excuses to avoid their just obligations (American Home Ins. 1981 to July 5. D). and 7. G). Ltd. GRIÑO-AQUINO. This case is one such instance. Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in broad daylight. covering the period from March 19. 1981. INC. 1981 renewing Policy No. renewing Policy No. 1981 to July 10. Court of Appeals. 1982 (Exh. renewing Policy No. F-1095 (Exh. Philippine British Insurance Company for P500. No. UNION INSURANCE SOCIETY OF CANTON. covering the period from June 20. PB-933 11 (Exh.000 under Fire Insurance Policy No. covering the period from July 10. 1981 to May 21. 1981 to February 15. F-31056 dated June 10. 4. renewing Policy No. 3. 1981. 1981. covering the period from July 5. Lasam & Associates and F. covering the period from July 15. 1981 to March 19. Sumulong & Associates Law offices for petitioners.. Co. 1981.000 under Fire Insurance Policy No. 1982 (Exh. as follows: 1. F27942 (Exh-B-5). Philippine First Insurance Company for P500. MU-223903 (Exh.G. vs. 85624 June 5. COURT OF APPEALS & EMILIA CHAN LUGAY. Paramount Insurance Corp. she is still waiting to collect the proceeds of seven (7) fire policies which the petitioners sold to her. LTD. F-5). 1982 (Exh.. 1982 (Exh-B). S.. C). 1981.: It has been the sad experience of many who sought protection from disaster or tragedy through insurance. PB-102653 (Exh G-5).000. F).000. PARAMOUNT INSURANCE CORP.R. Union Insurance Society of Canton. 2. 1982 (Exh.. 76.000 under another Fire Insurance Policy No.000 under Fire Insurance Policy No. EMPIRE INSURANCE CO. The petitioners are the six (6) insurance companies that issued fire insurance policies for the total sum of P4. 1982 (Exh. D-5). covering the period from May 21. to realize that insurance is quite easy to buy but difficult to collect.000 under Fire Insurance Policy No. for P500. CEBG-0515 dated January 28. 1981 to July 15. E). H). HON. Philippine British Insurance Company for P500. respondents. Guzman. Empire Insurance Company for P500. 25311 dated July 1. 6. J.. 109 SCRA 180).000 under Fire Insurance Policy No. C-5). for P500. petitioners. YASCO/F1101 dated March 7. Cathay Insurance Company for P1. 1981 to June 20. covering the period from February 15. NU-0530 dated May 5.. (p. & PHILIPPINE FIRST INSURANCE CO. PHILIPPINE BRITISH INSURANCE CO. 1982 (Exh. Rollo. 1989 CATHAY INSURANCE CO. Garcia & Pepito Law Offices for private respondent.. vs.) . 5. 1981. renewing Policy No. PB-107848 dated July 1.

the amount of P5. this petition for review under Rule 45 of the Rules of Court wherein the petitioners allege that the Court of Appeals erred: 1.000. 1982 and in not holding that the action is premature. All. for all the defendants jointly and severaly to pay P48. The insurance companies denied liability. 1982. papers and general merchandise usual to the Assured's trade" (p. misdeclaration. Rollo) of the parties. Sotto Sts. diligence and perseverance of the trial judge in wading through the voluminous documents.) (p. After the trial on the merits.00 representing fees of councel.00. On December 18. come the pre-trial. in finding that sufficient proofs of loss had been presented by the private respondent. submitted sworn Statements of Loss Formal Claims to the insurers.000. making an exhaustive examination and detailed evaluation of the evidence. directing payment by Cathay Insurance Company. but she insisted in full recovery.00.00 representing expenses of the plaintiff. Mrs.. in holding that the private respondent's cause of action had already acrued when the complaint was filed on December 15.000. in awarding exorbitant attorney's fees. and finally. and even arson which was not seriously pressed for. She submitted proofs of loss required by the adjusters.000. 3. the amount of P1. the amount P5. Hence. with costs. Accordingly. the decision was affirmed in toto (pp.000.000. pp. and thus emerging from the maze of testimonial and documentary evidence with accuracy of perception in determining the merits of the respective claims of the litigants. owner and operator of the printing press. she sued to collect on December 15.00 by Philippine First Insurance Company.. On January 15.000.000. in view of the provision in Section 2. The co-insurers were indicated in each of the policies. 1-3.The fire policies described the insured property as "stocks of printing materials. It is plain to see that all these grounds of the petition for review present factual issues which. by Paramount Insurance Company.000.) On appeal to the Court of Appeals. through their djusters. by Insurance Society of Canton Limited the amount P5. Mabolo. After nearly ten (10) months of wating for the insurers to pay his claim. She claimed a total loss of P4. the petitioners offered to pay 50% of her claim. (Decision Court of Appeal. 2. Don V. as follows: . except one policy (Paramount's). 57. 53. the court rendered judgment in her favor..00.. 77. and a separate amount of 20% of the P4.00. were renewals of earlier policies issued for the same property.000. 4. by Philippine British Insurance Company Inc. the Court of Appeals said: We are impressed indeed with the patience. Referring to the evidence presented at the trial of this case. 1981. Inc. Lugay.000. at around ten o'clock in the morning.000. 52-67. and 5. Rule 45 of the Rules of Court that "only questions of law may be raised" this Court may not inquire into by conducting a tedious reassessment of the "maze of testimonial and documentary evidence" (p. Cebu City. Quirino cor. in not holding that the private respondent's claim for loss was infrated. Rollo) stored in a one-storey building of strong materials housing the Cebu Filipina Press located at UNNO Pres. alleging violation of certain conditions of the policy. by Empire the amount of P5. Rollo). in awarding damages to the private respondent in the form of interests equivalent to double the interest ceiling set by the Monetary Board despite absence of a finding of unreasonable withholding or refusal to pay the claim. Inc.00.595.000.000. We are constrained to honor . the amount of P5. Rollo. the Cebu Filipina Press was razed by electrical fire together with all the stocks and merchandise stored in the premises.000.. 1982. and interests at the rate of twice the ceiling being prescribe by the Monetary Board starting from the time when the case was filed..

(p. but if such ascertainiment is not had or made within sixty days after such receipt by the insurer of the proof of loss. all encumbrances thereon. by whom and for what purpose any buildings herein described and the several parts thereof were occupied at the time of the loss and whether or not they stood on leased ground. 136 SCRA 365). under any policy other than the insurance policy. 13 was prepared by the insurers themselves. 13 of the insurance policy on proofs of loss. Sec. No claim under this policy shall be payable unless the terms of this condition have been complied with. The amount of any loss or damage for which an insurer may be liable. and shall furnish a copy of all the descriptions and schedules in all policies and. The insured shall give immediate written notice to th company of any loss. possession or exposures of said property since the issuing of this policy. as often as may be reasonably required. 1982. and shall permit extracts and copies thereof to be made. showing in detail quantities. Sr. the interest of the insured and of all others in the property. Condition No. the actual cash value of each item thereof and the amount of loss thereto. does not require the insured to produce her bank statements. 57. (Insurance Code. (pp. bills. protect the property from further damage. The insured as often as may be reasonable required shall exhibit to any person designated by the Company all that remains of any property therein described. whether valid or not covering any of said property. Therefore. verified plans and specifications of any building. and subscribe the same. 1982 through June 21. UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY. the insured was not obligated to produce them and the insurers had no right to ask for them. actual cash value and the amount of loss claimed. forth with separate the damaged and undamaged personal property. any changes in the title. 1982. as well as to observe the demeanor of the witnesses while testifying in the case (Chase vs. costs. Hence. hence. it was in a better position than We are to examine the real evidence. admittedly. when the assured file her complaint on December 15. 243. as the Court of Appeals observed. if required. . shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration. Rollo. it "should be taken most strongly" (p. 1981 and the proofs of loss were submitted from January 15.) The finding of the trial court and the Court of Appeals that the insured's cause of action had already accrued before she filed her complaint is supported by Section 243 of the Insurance Code which fixes a maximum period of 90 days after receipt of the proofs of loss by the insurer for the latter to pay the insured s claim. her cause of action had a ready accrued. stating the knowledge and belief of th insured as to the following: the time and origin of the loss. or on or before September 21. invoices.) As the fire which destroyed the Cebu Filipina Press occurred on December 19.) Condition No. There is no merit in the petitioners' contention that the proof of loss were insufficient because respondent Emilia Chan Luga failed to comply with the adjuster's request for the submission of her bank statements.. and submit to examination under oath by any person named by the Company. THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed and sworn to by the insured. provides: 13. shall produce for examination all books of account. AN WITHIN SIXTY DAYS AFTER THE LOSS. At such reasonable time and place as may be designated by the Company or its representative. 13. occupation.and stamp our imprimatur to the findings of fact and conclusions of the trial court since.. Rollo. all other contracts of insurance. put it in the best possible order. use. location. 1982 in compliance with the adjusters' numerous requests for various documents. and other vouchers. payment should have been made within 90 days thereafter. or certified copies thereof if originals be lost. fixtures or machine destroyed or damaged. Condition No. . 55-56.. furnish a complete inventory of the destroyed damaged and undamaged property. Buencamino. Rollo) against them. 58. then the loss or damage shall be paid within ninety days after such receipt.

.. Under Section 244. the insurance company shall be adjudged to pay damages which shall consist attorney's fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of claim due the insured. "would amount to giving the insurers limitless latitude in making unreasonable demands if only to evade and avoid liability" (p. is refuted by the trial court' explicit finding that "there was a delay that was not reasonable in processing the claim and doing payments" (p. 244. No. for defendants (insurers) to do a just assessment supporting the 1981 fire claim for an amount exceeding four million pesos" (p. 243.. 13 of the insurance contract.. 29 of the policies issued by the petitioners to th private respondents (p. 13" (p. as pointed out by the Appellate Court. p. and in the affirmative case.. However.R. the insurers "shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured. 81. a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in both Section 242 and 243 of the Insurance Code. except the award of attorney's fees to the private respondents which is hereby reduced to ten (10%) percent of the proceeds of the insurance policies sued upon. she need not disclose) would add more requirements to Condition No. 66. . . . In case of any litigation for the enforcement of any policy or contract of insurance. (Emphasis supplied. Rollo). 58. The adjuster's demand for the assured's bank statements (which under the law on the secrecy of bank deposits. Rollo). CV-12100 is affirmed. as the case may be. Sec. The trial court's award (which was affirmed by the Court of Appeals) of double interest on the private respondent's claim is lawful and justified under Sections 243 and 244 of the Insurance Code which provide: Sec. Rollo). We hold that attorney's fees were properly awarded to the private respondents. to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld. an award equivalent to (10%) percent of the proceeds of the policies would be more reasonable than the 20% awarded by the trial court and th Appellate Court. .. Rollo). Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board.The Court of Appeals found that the insured "fully complied with the requirements of Condition No. As provided in Section 244 also. and. it shall be the duty of the Commissioner or the Court." In view of the not insubstantial value of the private respondent's claims and the considerable time and effort expended by them and their counsel in prosecuting these claims for the past eight (8) years. 58. 60. 82. Rollo. Rollo). by reason of the delay and consequent filing of this suit by the insured. Both the trial court and the Court of Appeals noted that the proofs were ample and "more than enough . the decision of the Court of Appeals in CA-G.. The petitioners' contention that the charging of double interest was improper because no unreasonable delay in the processing of the fire claim was proven. Nor was the claim inflated. WHEREFORE. Costs against the petitioners..) Section 243 of the Insurance Code is in fact embodied in provision No.

Mr. Mr.500. was placed under conservatorship as a financially distressed company by the Insurance Commissioner sometime in September 1981 pursuant to Section 248 of the Insurance Code. Makati. 1982. J. 1982 advising him that all officers of the company. Insurance Commissioner Gregoria Cruz-Arnaldo appointed Mr. Private respondents Julian Aguila and Tito Paglinawan were the vice-presidents and Juanita Fernandez was the assistant vice-president. L-67825 September 4. Locsin was likewise informed that he was elected as member of the Board of Directors and Chairman of the Executive Committee of Filriters. 1984 which affirmed the decision 2 of the Labor Arbiter dated November 24. for short) wrote the president of Filriters on January 11. Mr.R. 1982. NATIONAL LABOR RELATIONS COMMISSION. orders and instructions promulgated by the Insurance Commissioner and/or the legal conservator are strictly implemented. JUANITA FERNANDEZ. Filriters Guaranty Assurance Corporation FILRITERS for short). 9-6045-82. petitioner. 5 confirmed the guidelines that the Board of Directors and the operating officer should consider and follow. JULIAN AGUILA and TITO PAGLINAWAN. respondents. De la Rosa St. bonus for the year 1981. which policies and orders. No. Locsin as her representative vested with the powers of a conservator under Section 248 of the Insurance Code. On September 17. In carrying out his functions as conservator. was the executive vice-president. challenges in this certiorari proceedings the resolution 1 of the National Labor Relations Commission dated March 15. The company may also allow the 13th month pay for those receiving P11. Maronilla collaborating counsel for respondents. Joaquin Rodriguez was the president of the company while Elias C. particularly the president and Executive Vice-President. vs. on private respondents' claim for separation pay and/or retirement benefits. an executive vice-president of Filriters Guaranty Assurance Corporation. The antecedent facts of the case are undisputed. Locsin (CONSERVATOR. GARCIA. 1981.00 below. Metro Manila. petitioner herein. finding him liable in his personal capacity. shall in proper cases see to it that the policies. and accumulated vacation leave in addition to the retrenchment benefits they received by virtue of their having been retrenched when Filriters Guaranty Assurance Corporation was placed under conservatorship pursuant to Section 248 of the Insurance Code.. comer Esteban St. 4 A retrenchment policy was thereafter instituted by the CONSERVATOR who. Jose S. 1987 ELIAS C. Legaspi Village. Garcia. Thus: l. and. Sterling Life Condominium.G. Julian J. . FERNAN. shall be considered to have amended and superseded any standing policy or power granted by the board or by-laws of the corporation in favor of any officer of the company in accordance with Section 248 of the Insurance Code. Julian J. The company may only allow the retrenched employee or officer one-half salary for every year of service. share in the profits for the year 1980. 3 In his letter of appointment. Garcia.. an insurance company with home office at the 6th floor. in a letter dated January 27. At the time of Filriters was placed under conservatorship. Julian J. 2.: Petitioner Elias C. as one of the respondents in NLRC-NCR Case No.

.. 1982.....44 TOTAL.. Garcia] are hereby ordered to pay herein complainants.000...... Garcia filed on December 16.... On motion of private respondents upon submission of their position paper.... Records show that FILRITERS and petitioner Elias C. private respondents were formally notified of their retrenchment and termination from the service effective as of the close of office hours on August 6. Garcia. FILRITERS and petitioner Elias C. On separate appeals. as a consequence thereof. 25. private respondents wrote FILRITERS on August 20. In the meantime.. 8 On November 24.. Aguila.. P30. the Insurance Commissioner suspended on January 30. 96045-82... share in the profits for the year 1980. 1982 on the basis of the documents on record.. 6 Unable to elicit a favorable response from FILRITERS......... SO ORDERED...... 1983 in view of its consistent inability to maintain an .. 1983 FILRITERS' certificate of authority effective February 1....768.. private respondents filed on September 21.....422....On July 31...... Notwithstanding acceptance of their retrenchment benefit checks.. 1982 in separate letters signed by Elias C. and Juanita Fernandez P13. Fernandez... as follows: 1. the dispositive portion of which reads: WHEREFORE. bonus for the year 1981. 1982 demanding payment of their unenjoyed vacation leave...... respondents [Filriters and E.. Juanita T.. 1982.. share in the profits for the year 1980 and bonus for the year 1981.. that the waivers of claim that they signed were made under duress and do not reflect their voluntary act and deed..... the Labor Arbiter rendered his decision directing FILRITERS and petitioner Elias C.. Garcia to pay the claims of private respondents.... Garcia.. 7 The case was docketed as NLRC-NCR Case No.. 1982 with the then Ministry of Labor and Employment a complaint for payment of separation pay and/or retirement benefits. Filriters Guaranty Assurance Corporation and Elias C..... C.... (Words in parenthesis supplied) FILRITERS and petitioner Elias C. Garcia elevated the case to the National Labor Relations Commission.50 3..498... 9........... the case was submitted for resolution by the Labor Arbiter on November 22... P64... money equivalent of accumulated vacation leave for the last three [31 years and 13th month pay or bonus for 1981...00. among others.... Treated as a motion for reconsideration........00.. Thus.000.. Tito O... 1982.... Garcia did not appear during the three [3] scheduled hearings and. Tito Paglinawan P40.. 1982.15 2.......307.600......... and accumulated vacation leave. the motion to re-open the case was denied by the Labor Arbiter on December 23....... naming as respondents therein. Julian B........09 representing the latter's share in profits for 1980... Upon their separation from the service and after executing Identical release and waiver documents.00. Paglinawan. 1982 a motion to re-open the case and to admit the attached position paper and to reset the case for hearing with proper notice.... stating therein... both were deemed by the Labor Arbiter to have waived their right to present evidence in support of their stand. while the case was pending appeal before the NLRC....... executive vice-president of FILRITERS acting as operating officer of the CONSERVATOR.... Julian Aguila received P46.... private respondents were given their retrenchment benefits equivalent to fifteen [15] days salary for every year of service in accordance with the guidelines set by the CONSERVATOR on January 27....

On March 15.: whether or not petitioner Elias C. i. Garcia instituted the instant petition for certiorari seeking the reversal of the resolution of the NLRC dated March 15. 13 Dissatisfied. al.. 1984. 15 Insofar therefore as the liability of FILRITERS is concerned. among others. et. who is neither the employer of private respondents nor a stockholder of Filriters Guaranty-Assurance Corporation. However. 1982. Garcia relies on Section 248 of the Insurance Code 16 which provides: SEC. Respondents-Appellants. Elias C. the CONSERVATOR retained Elias C. et. formally informed petitioner that the CONSERVATOR would enter into a new working arrangement with him and Mrs. 1984 restraining respondent National Labor Relations Commission and its officers. 10 In a memorandum addressed to petitioner Elias C. agents. petitioner's motion for reconsideration was denied for lack of merit by the NLRC. the Commissioner finds that company is in a state of continuing inability or unwillingness to maintain a condition of solvency or liquidity deemed adequate to protect the interest of policyholders and creditors. Garcia dated February 22. 1984. bonus for 1981.unimpaired paid-up capital and required margin of solvency. 1984 rendered in NLRC-NCR Case No. Garcia filed a motion for reconsideration 12 pointing out. the National Labor Relations Commission issued its resolution denying the appeal and thus affirming the decision of the Labor Arbiter dated November 24. Garcia as executive vice-president and vice. A party who did not appeal the decision of the NLRC is bound by its findings of facts and cannot impugn the correctness of its judgment. 9 Following the suspension of FILRITERS' certificate of authority. on July 9. for reasons of necessity. Garcia and Mrs. formally informed private respondents of their termination pursuant to the retrenchment policy undertaken by the CONSERVATOR. a temporary restraining order was issued. the services of all senior officers. could be held liable for the latter's corporate liabilities as an employer of private respondents. If at any time before. 1982 and the order dated December 23. the same has now become final although the nature and extent of FILRITERS' liability depend on the resolution of the issue raised in the instant petition.11 the CONSERVATOR laid down the rules and guidelines to be observed following the suspension of the company's certificate of authority. 248. Garcia is jointly and severally liable with Filriters Guaranty Assurance Corporation for the payment of private respondents' claim for profit sharing in 1980. al. The CONSERVATOR likewise. Complainants-Appellees. petitioner Elias C. representatives and/or any person or persons acting upon its orders or in its place or stead from enforcing and executing the decision dated March 15. he may appoint a conservator to take charge of the . In asserting his theory of non-liability for the corporate obligations of FILRITERS to its retrenched employees as a results of its having been placed under conservatorship proceedings by the Insurance Commissioner. 1983. Pilar R. and accrued vacation leave when petitioner. versus Filriters Guaranty Assurance Corporation. On June 13.president for finance were likewise terminated by the end of February 1983. Petitioner Elias C. including that of petitioner Elias C. as prayed for. that the NLRC only passed upon the issue of whether or not private respondents are entitled to additional retrenchment benefits but did not rule on the issue of whether or not he.1984 insofar as it holds him personally liable and praying that he be absolved from liability on the claim of private respondents for additional retrenchment benefits from Filriters Guaranty Assurance Corporation. Jacobe special arrangements or terms to be determined by the CONSERVATOR. 1984 to this Court. Pilar R. or after.14 Records show that Filriters Guaranty Assurance Corporation did not appeal the NLRC decision of March 15. Jacobe to handle the duties and responsibilities assigned to them by the CONSERVATOR. A cease and desist order was issued on the same day enjoining the company from taking any risk of any kind or character until such time its certificate of authority is restored by the Insurance Commission. 9-6045-82 entitled "Juanita Fernandez. the suspension or revocation of the certificate of authority of an insurance company as provided in the p title. After due consideration. as executive vice-president of FILRITERS at the time it was placed under conservatorship pursuant to Section 248 of the Insurance Code.e.

that the resolution of the NLRC results in an unjust and inequitous situation that while the CONSEVATOR cannot be liable under Section 248 of the Insurance Code. and officer or officers of such company. At the outset. restore its viability. The conservator appointed shall report and be responsible to the Commissioner until such time as the Commissioner is satisfied that the insurance company can continue to operate on its own and the conservatorship shall likewise be terminated should the Commissioner. firm or corporation. collect all moneys and debts due said company and exercise all powers necessary to preserve the assets of said company. Referring to the aforequoted Section 248 of the Insurance Code. that private respondents actually received retrenchment benefits in accordance with the guidelines fixed by the CONSERVATOR and had executed release and waiver deeds fully and completely releasing Filriters Guaranty Assurance Corporation from all claims of whatever nature resulting from their retrenchment. in which case the provisions of Title 15 shall apply. 17 We granted the motion of the Solicitor General that he be excused from filing the required comment because he is unable to agree with the decision of public respondent NLRC. and restore viability. reorganize the management thereof. exercise all powers necessary to preserve the assets of said company. and such other powers as the Commissioner shall deem necessary. The conservator may be another insurance company doing business in the Philippines. that there is no factual nor legal basis to hold petitioner personally liable as he is neither an employer of private respondents nor a stockholder of Filriters Guaranty Assurance Corporation is himself an employee who was also retrenched but subsequently appointed as manager-in-charge by the CONSERVATOR from March 1. took charge of its assets and liabilities and was authorized to collect all moneys and debts due said company. claim or demand by. mention must be made of the fact that in the resolution of October 1. petitioner maintains that when FILRITERS was placed under conservatorship proceedings. Business reverses or losses are recognized by law as a just cause for terminating employment. petitioner was made liable in his personal capacity to the retrenched personnel by the mere accident that he was the one who formally notified them of the CONSERVATOR'S order of retrenchment. to the contrary notwithstanding. petitioner argues that he cannot be held liable in his personal capacity for the payment of additional retrenchment benefits to the retrenched employees benefits because he merely implemented the CONSERVATOR'S retrenchment program and has no discretion or choice on the matter. or any other competent and qualified person. The remuneration of the conservator and other expenses attendant to the conservation shall be borne by the insurance company concerned. reorganize the management thereof.19 But it is essentially required that the alleged losses in business . as amended. retrenchment of personnel to prevent losses can only be availed of by management if the company is losing or meeting financial reverses. or liability to. The said conservator shall have the power to overrule or revoke the action of the previous management and board of directors of the said company. Since retrenchment of personnel was undertaken by the CONSERVATOR as early as January 1982. the CONSERVATOR appointed by the Insurance commissioner virtually took over the management of FILRITERS. determine that the continuance in business of the insurance company would be hazardous to policyholders and creditors. 1984. and overrule or revoke the actions of the previous management and board of directors of the said company. 1983 to handle duties and responsibilities assigned to him. any person in respect of anything done or omitted to be done in good faith in the exercise or in connection with the exercise of the powers conferred on the conservator. or of the articles of incorporation or by-laws of the company.18 Under Article 284 of the Labor Code. We sustain petitioner. any provision of law. liabilities and the management of such company.assets. The conservator shall not be subject to any action. on the basis of the report of the conservator or of his own findings.

merely being impleaded in the complaint is no justifiable reason at all to hold petitioner personally and severally liable with FILRITERS for the latter's corporate obligations to private respondents. Verily. the authority to carry out a retrenchment program to prevent the further dissipation of company funds. said ground for termination would be susceptible to abuse by scheming employers who might be merely feigning business losses or reverses in their business ventures in order to ease out employees. 20 Otherwise. Paglinawan and Juanita T. petitioner herein. As such. 1983 to the Ministry of Labor and Employment . In other words. Instead of correcting said error. as the operating officer of the CONSERVATOR. It was well within the scope of his delegated authority for petitioner to formally inform private respondents of their termination from FILRITERS. there is nothing in the decision which reasonably justify the liability of petitioner in his personal capacity. Garcia personally and severally liable with FILRITERS for the payment of additional retrenchment benefits to private respondents. the CONSERVATOR may only act with the approval of the Insurance Commissioner with respect to the major aspects of rehabilitation. Aguila. among others. Joaquin C. on the other hand. 1982 of the CONSERVATOR. The general rules of agency as to the binding effect of the acts of the company's executive vice-president. Mr. private respondents would now change their posture and alleged that petitioner was not vested with direct or delegated authority from the CONSERVATOR relative to the termination of their employment. would apply to the implementation of the retrenchment program delegated to him by the CONSERVATOR. and management aimed at preserving its assets and restoring its viability as a going business enterprise. The authority conferred by law upon the CONSERVATOR to reorganize the management of the insurance company under his control embraces. the insurance company placed under conservatorship is facing financial difficulties which require the appointment of a conservator to take charge of its assets. With respect to the ordinary details of administration. who thereafter yields control to the regular officers of the company. Realizing that the appointment of a CONSERVATOR by the Insurance Commissioner as early as September 17. understandably. to which contract and property rights must yield. as well as the report 26 of the CONSERVATOR dated July 14. He is clothed with such discretion in conducting and managing the affairs of the insurance company placed under his control. Mr. 23 It is within that sphere of authority that a program of retrenchment was undertaken by the CONSERVATOR as early as January 1982. The retrenchment of personnel as a consequence of conservatorship proceedings against an insurance company in financial difficulties is. a cost-saving measure resorted to by the CONSERVATOR to preserve the assets of the company for the protection not only of the policy-holders and creditors but also of the investors and the public in general. did not at all touch on the issue. the CONSERVATOR has implied authority by virtue of his appointment to proceed without the approval of the Insurance Commissioner. conservatorship under Section 248 of the Insurance Code is in the nature of rehabilitation proceedings. 24 This belated argument is belied by the letter 25 dated July 24. Fernandez. Locsin. 9-6045-82. Aluquin. as one of the named respondents in NLRC-NCR Case No. for conservatorship proceedings contemplate. addressed to the President of the Filriters. Julian J. 1981 pursuant to Section 248 of the Insurance Code militates against their argument before the Labor Arbiter. confirming the retrenchment of Julian B. Rodriguez. Conservatorship proceedings against a financially distressed insurance company are statutory in nature and are resorted to only if and when the Insurance Commissioner finds that such company is in a state of continuing inability or unwillingness to maintain a condition of solvency or liquidity deemed adequate to protect the interest of policy holders and creditors. the NLRC. The Labor Arbiter inexplicably failed to disclose the reasons why petitioner Elias C. liabilities. Tito O. not the liquidation of the insurance company involved.operations must be prove. Rightly so. 22 Essentially. Virginia B. but a conservation of company assets and business during the period of stress by the Commissioner of Insurance. was made personally and severally liable with FILRITERS. Except for the allegations of private respondents in their complaint that petitioner's act of terminating them was ULTRA VIRES in nature as it was done without the authority and approval of the FILRITERS' Board of Directors. 21 The power of the Insurance Commissioner with respect to the statutory proceedings against insolvent or delinquent insurer is of general public concern. it is a reversible error for the NLRC to affirm the resolution of the Labor Arbiter holding petitioner Elias C. Garcia. Thus.

56 SCRA 694 and DE LEON vs. vs. Liability of corporate officers in their personal capacities to corporate employees who were terminated from their employment depends on whether or not the act of termination was tainted with evident malice and bad faith. AFPMBI EMPLOYEES UNION. In denying FILRITERS' and petitioner's motion to re-open the case and to admit their position paper despite the proferred reason for their failure to appear at the scheduled hearings. on the other hand. Correctly read. NLRC. L-44959 [April 15. however. thereby resulting in herein petitioner being deprived of his right to property without due process of law as well as of his right to the equal protection of the law afforded to similarly situated corporate officers found acting within the scope of their authority. [PAGLINAWAN] and No. 97 SCRA 715. 32 [AGUILA]. the exemption applies only with reference to acts done or left undone in good faith by the receiver in the discharge of the receivership. COURT OF INDUSTRIAL RELATIONS. this Court ruled that quitclaims and/or complete releases executed by the employees do not estop them from pursuing their claim arising from the unfair labor practice of the employer.[MOLE] listing private respondents in No. 34. there is no evidence on record which sufficiently shows that petitioner Elias C. claim or demand by. It does not apply to actions brought upon claims against the person or property under receivership and was in any event. In fact.R. 1987]. or of the Receiver/Liquidator if it is under receivership or liquidation. In AFPMBA INC. In interpreting a similar provision 31 of the Insurance Code relating to the receiver or liquidator of the insurance company. The Court stated. The rule as held in MERCURY DRUG CO.00 completely released FILRITERS from all claims of whatever nature resulting from their retrenchment. such policy has given rise to abuses on the part of the labor arbiter resulting in the deprivation of the parties' right to due process. FORTUN. 29 In the instant case. vs. upon claim which matured before the receivership was established [Emphasis supplied] It was likewise an error for petitioner to claim that the execution of release and waiver deeds after private respondents actually received their retrenchment benefits in the total amount of P99. Administrative agencies exercising quasi-judicial functions are not bound by the rigidities of technical rules of procedure 28 precisely to allow them every opportunity to arrive at the truth of the matter in controversy.600. The case at bar. the labor arbiter relied too much on technicalities. HON.. 100 SCRA 691 [1980] is that employees who received their separation pay are not barred from contesting the legality of their dismissal and that the acceptance of those benefits would not amount to estoppel. Garcia acted in bad faith or with malice in carrying out the retrenchment program of the CONSERVATOR. We held in PIONEER INSURANCE AND SURETY CORPORATION vs. that said provision cannot be construed to prohibit suits being brought against a receiver in his or its representative capacity. or liability to any person under Section 248 of the Insurance Code. 1982 of the CONSERVATOR addressed to the President of Filriters and in the report submitted by the CONSERVATOR to the Ministry of 31 Labor and Employment on July 14. INC. 27 will not legally sustain the conclusion that Petitioner is personally and severally liable with FILRITERS for the payment of the latter's corporate obligations to its retrenched employees. as custodian and manager of the funds and property of the person or firm under receivership. There is then no reason to absolve FILRITERS of its corporate obligations to private respondents which may be satisfied from any available funds or assets of the company under the custody and control of the CONSERVATOR if it is still under conservatorship. 35 [FERNANDEZ] among the retrenched employees of FILRITERS. thus: To do so would work inequity and injustice upon parties with just claims against the latter and leave them without remedy to pursue and recover on the claims. 30 We do not. 1983. Even the repeated reference by the Labor Arbiter and the NLRC to the fact that FILRITERS and petitioner waived their right to present evidence in support of their stand by virtue of their having failed to appear during the three (3) scheduled hearings. No. . quite agree with the general proposition of petitioner that the CONSERVATOR cannot be held liable as he is not subject to any action. It would have been more in keeping with the mandate of Article 221 of the Labor Code had the Labor Arbiter granted petitioner's motion to re-open the case and admit his position paper as no full-blown hearing was conducted by the Labor Arbiter. G. the retrenchment of private respondents was confirmed in the letter dated July 24. et. presents a study in contrast. More often than not. al..

. We rule. as earlier discussed that petitioner Elias C. WHEREFORE.While FILRITERS is liable for its corporate obligations to private respondents. No costs. SO ORDERED. Garcia is not liable in his personal capacity for the payment to private respondents of their additional retrenchment benefits. modified as above indicated. the decision of the National Labor Relations Commission dated March 15. 1984 is affirmed with respect to the sole liability of Filriters Guaranty Assurance Corporation to private respondents. Petitioner is absolved from liability to private respondents.

a waitress employed by the Ongs in the discount Restaurant and covered by the policy. 1973. Her heirs filed against the Ongs and OIC a compensation claim for her death with the Department of Labor. petitioner. 1974 handed down an award of P6. 6 On August 19. 4 OIC's answer alleged in the main that the complaint stated no cause of action because the plaintiff's. 1 in Dagupan City. 1976 in Civil Case No. Pioneer) as additional defendant. 1973 to October 16. No. private respondents herein. owners of the discount Restaurant in Lingayen. NARVASA. 1976. To that end. WC-1714 effective from October 16. and P61. not exceeding P15. LINGAYEN BRANCH I. PRESIDING JUDGE. Workmen's Compensation Unit. the Spouses Ong. attorney's fees and costs allegedly consequent upon that refusal to pay. and on July 23. 1976.00 per employee. That Office. The facts are not in dispute. OIC issued to them Policy No. with Pioneer In.R. Regional Office No. Soledad Saura. OIC was already under receivership. through the Chief.000. THE HONORABLE WILLELMO C. died of illness. ASUNCION TORIO ONG AND BEN ONG. Pangasinan. and that when the complaint was filed. 2 On May 18. despite demand. 1974. had not yet paid the award to the deceased employee's heirs. that: If at any time during the Period of Insurance any Employee shall sustain personal injury by accident arising out of and in the course of his employment by the Insured in the Business or shall contract any illness or disease caused by such employment or as the result of the nature of such employment and if the Insured shall be liable to pay compensation or damages for such illness or disease under the Laws set out in the Schedule then subject to the terms exceptions conditions and Limits of Liability contained herein or endorsed hereon the Company will indemnify the Insured against all sums for which the Insured shall be so liable and win in addition be responsible for all costs and expenses incurred with its consent in defending any claim for such compensation or damages. that might be adjudged against them by the Workmen's Compensation by reason of injury and/or death of any of their employees in said establishment. the respondent Judge rendered judgment. 15176 of his Court. vs. FORTUN. to pay the amounts awarded.G.00 payable to the Workmen's Compensation Commission in fees.00 in favor of her heirs. The basic issue concerns the nature and extent of the liability of a statutory receiver appointed for an insurance corporation under the Insurance Code. and hence had sustained no loss. appointed by the Insurance Commissioner pursuant to the Insurance Code (PD 612). On October 16. the Spouses Ong sued it in the Court of First Instance to compel payment and to recover moral damages. the policy being then in force. the dispositive portion of which reads: . insurance and Surety Corporation (petitioner herein) as the statutory receiver. L-44959 April 15. 1 The policy provided.000. the Ongs. as modified by his order dated August 24. 1973. as regards policies issued by the corporation. found that Soledad had died from an illness contracted in the course of her employment. respondents. J.: Petitioner seeks a review of the decision of the respondent Judge rendered on August 19. 3 OIC having refused. 1987 PIONEER INSURANCE AND SURETY CORPORATION. insured themselves with petitioner Overseas Insurance Corporation (OIC) against any liability. 5 The Ongs thereafter amended their complaint to include Pioneer Insurance and Surety Corporation (hereafter simply. among other things. COURT OF FIRST INSTANCE OF PANGASINAN.

the Judge issued an order declaring that he had erred in absolving Pioneer from liability and modifying the judgment thus: WHEREFORE. petitioner was a complete stranger to this award of death benefits. claim or demand by. or by stipulation or by provision of law. the dispositive portion of said Decision of August 19. as modified. ordering defendant OIC to pay to plaintiffs the sum of P6. ordering defendant OIC to pay to plaintiffs the sums of P6. Upon the other assigned error. on August 24. 11 cannot be construed to prohibit suits being brought against a receiver in his or its representative capacity. 1976. on its own account. is ordered to pay to plaintiffs said amounts in the event that OIC fails to make such payments. and costs of suit.000. plus P1. 8 From this decision. even in a subsidiary capacity. Res inter alios acta alteri nocere non debet Contracts take effect only between the parties. that the first error assigned by petitioner Pioneer is well taken.00 as attorney's fees. or liability to. 9 Plainly then. plus P1. designated under the provisions of this title. purely on questions of law. as receiver appointed under the Insurance Code. as petitioner does. Petitioner cannot therefore be held liable upon such a claim. is hereby amended to read as follows: WHEREFORE. To do so would work inequity and injustice upon parties with just claims against the latter and leave them without remedy to pursue and recover on their claims. or the insurance contract insuring the Ongs' liability therefor. or any of the events giving rise to the Ongs' claim against OIC. any person in respect to anything done or omitted to be done in good faith in the exercise. this Court is of the view that the provisions of the Insurance Code to the effect that: The receiver or the liquidator. without having to distinguish. namely: (1) in pronouncing it subsidiarily liable for the Ongs' claim for payment on their insurance policy. It is immediately evident. it is exempted by Section 251 thereof from "any action. judgment is hereby rendered in favor of the plaintiffs. Defendant PISC is absolved from liability. 7 Five days later. it is to that extent erroneous and must be reversed. except in case where the rights and obligations arising from the contract are not transmissible by nature.00 as adjudged by the WCC to pay plaintiffs' liabilities to the heirs of the deceased Soledad Saura. of the powers conferred upon it. claim or demand by. of the powers conferred on such receiver or liquidator. for the Ongs' claim under the policy issued to it by OIC in the event that the latter fail to pay the same. and in this Court. or liability to. any person in respect to anything done or omitted to be done in good faith in the exercise. Defendant PISC. The fact is that the event giving rise to the Ongs' claim against OIC the requirement by the Workmen's Compensation Commission that they (the Ongs) pay death benefits to the heirs of Soledad Saura-antedated the appointment of petitioner as OIC's receiver by almost a year. it ascribes two errors to the respondent Judge. plus the sum of P61. 1976. or in connection with the exercise. The heir is not hable beyond the value of the property he received from the decedent.00 as payment to WCC.00 as adjudged by the WCC to pay plaintiffs' liabilities to the heirs of the deceased Soledad Saura.000. 10 Since the amended judgment clearly makes petitioner liable. and (2) in not dismissing the Ongs' amended complaint on the ground that.000. and costs of suit. their assigns and heirs. Correctly . as custodian and manager of the funds and property of the person or firm under receivership. judgment is hereby rendered in favor of the plaintiffs. Statutory Receiver of OIC. shall not be subject to any action. between a statutory receivership under the Insurance Code and one judicially instituted under Rule 59 of the Rules of Court. and for all that the record shows. plus the sum of P61. apparently.000. Pioneer seasonably perfected an appeal. or in connection with the exercise.00 as payment to WCC.WHEREFORE.00 as attorney's fees. as the case may be. motu proprio.

. 1976 that it purports to amend is reinstated in toto. The petitioner was. properly impleaded. the exemption applies only with reference to acts done or left undone in good faith by the receiver in the discharge of the receivership. the judgment may be satisfied from any available funds or assets of the latter under the custody and control of the petitioner. Shorn of the objectionable amendment. the private respondents could not recover upon their claim while the receivership existed. Overseas Insurance Corporation. or as receiver of the real party in interest. The questioned order of August 24. WHEREFORE. in any event upon claims which matured before the receivership was established. the petition is granted. No pronouncement as to costs. It does not apply to actions brought upon claims against the person or property under receivership and not. SO ORDERED.read. 1976 of the respondent Judge is set aside. but with petitioner remaining in the action in a representative capacity. and the earlier decision of August 19. therefore. otherwise. Said decision may be satisfied from any available assets of OIC in the custody of Pioneer as receiver.

1982.000.(p. Said complaint prayed for award of money claims consisting of separation pay. III. arising from their agency relations.000. II. is that of agent and principal to be governed by the Insurance Code and the Civil Code provisions on agency. Whether the public respondent acted correctly in setting aside the decision of Labor Arbiter Vito J. unpaid salary and 13th month pay.00 to complainant in the absence of any legal or factual basis to support its payment. hence this petition for review raising four legal issues to wit: I. Minoria and in ordering the case remanded to said Labor Arbiter for further proceedings. 73887 December 21. The records of the case show that Honorato Judico filed a complaint for illegal dismissal against Grepalife.A. or one of employer-employee. PARAS J. 1983. On appeal. Whether insurance agents are entitled to the employee benefits prescribed by the Labor Code. the insurance company. Great Pacific Life Assurance Corporation (Grepalife. refund of cash bond. 281 of the Labor Code and 2) remanding the case to its origin for the determination of private respondent Judico's money claims. No. 281 of the Labor Code and declaring the appeal of Grepalife questioning the legality of the payment of Pl. 1985 reversing the decision of Labor Arbiter Vito J. a duly organized insurance firm. for brevity) to recognize private respondent Honorato Judico. HONORATO JUDICO and NATIONAL LABOR RELATIONS COMMISSION. Whether the public respondent NLRC has jurisdiction to take cognizance of a controversy between insurance agent and the insurance company.R. Corsino B. petitioner. Cebu City on August 27.G. vs. 159. as its regular employee as defined under Art. Nevertheless. dated June 9. for brevity) dated September 9. by 1) ordering petitioner insurance company.000.: Before us is a Petition for certiorari to review the decision of the National Labor Relations Commission (NLRC. said decision was reversed by the NLRC ruling that complainant is a regular employee as defined under Art. VII. which was denied. Rollo) The crux of these issues boil down to the question of whether or not employer-employee relationship existed between petitioner and private respondent. G. for the purpose of revoking the supersedeas bond of said company it ruled that the Labor Arbiter erred in awarding Pl. to be governed by the Labor Code. IV. Whether the relationship between insurance agents and their principal. . Both parties appealed to the NLRC when a decision was rendered by the Labor Arbiter dismissing the complaint on the ground that the employer-employee relations did not exist between the parties but ordered Grepalife to pay complainant the sum of Pl. Petitioner company moved to reconsider.00 to complainant moot and academic.00 by reason of Christian Charity. before the NLRC Regional Arbitration Branch No. 1989 GREAT PACIFIC LIFE ASSURANCE CORPORATION. Soco for private respondent. moral and exemplary damages and attorney's fees. respondents. Fortun and Associates for petitioner. Minoria.

Petitioner assails the findings of the NLRC that private respondent is an employee of the former. He earned out of his faithful and productive service. Such admission is in line with the findings of public respondent that as such debit agent. and in addition to his canvassing work he was burdened with the . 156. But. cannot be construed as salary but as a subsidy or a way of assistance for transportation and meal expenses of a new debit agent during the initial period of his training which was fixed for thirteen (13) weeks. 1982.00 regardless of production. We can readily see that the element of control by the petitioner on Judico was very much present. and in addition to canvassing and making regular reports. The test therefore is whether the "employer" controls or has reserved the right to control the "employee" not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished. Sometime in September 1981. The record shows that petitioner Judico received a definite minimum amount per week as his wage known as "sales reserve" wherein the failure to maintain the same would bring him back to a beginner's employment with a fixed weekly wage of P 200. Finally on June 28. He was assigned a definite place in the office to work on when he is not in the field. Petitioner defines a debit agent as "an insurance agent selling/servicing industrial life plans and policy holders. He was assigned a definite place in the office to work on when he is not in the field. 21 SCRA 294. 00 as allowance for thirteen (13) weeks regardless of production and later a certain percentage denominated as sales reserve of his total collections but not lesser than P 200.00.00) that he was dismissed primarily because of anemic performance and not because of the termination of the contract of agency substantiate the fact that he was indeed an employee of the petitioner and not an insurance agent in the ordinary meaning of the term. he was reverted to his former position as debit agent but. Said contentions of petitioner are strongly rejected by private respondent. they shoulder their own selling expenses as well as transportation. (insurance plans sold and premium collections). That private respondent Judico was an agent of the petitioner is unquestionable. The agents who belong to the second category are not required to report for work at anytime. not paid socalled weekly sales reserve of at least P 200. and they are paid their commission based on a certain percentage of their sales. complainant was dismissed by way of termination of his agency contract. private respondent Judico entered into an agreement of agency with petitioner Grepalife to become a debit agent attached to the industrial life agency in Cebu City. as We have held in Investment Planning Corp. and (2) registered representatives who work on commission basis. private respondent Judico had definite work assignments including but not limited to collection of premiums from policy holders and selling insurance to prospective clients. He maintains that he received a definite amount as his Wage known as "sales reserve" the failure to maintain the same would bring him back to a beginner's employment with a fixed weekly wage of P 200. Public respondent NLRC also found out that complainant was initially paid P 200.Petitioner admits that on June 9. Petitioner argues that Judico's compensation was not based on any fixed number of hours he was required to devote to the service of petitioner company but rather it was the production or result of his efforts or his work that was being compensated and that the socalled allowance for the first thirteen weeks that Judico worked as debit agent. a promotion to Zone Supervisor with additional supervisor's allowance. After determining the commission earned by an agent on his sales the agent directly deducts it from the amount he received from the investor or the person insured and turns over to the insurance company the amount invested after such deduction is made.00. (a definite or fixed amount of P110. One salient point in the determination of employer-employee relationship which cannot be easily ignored is the fact that the compensation that these agents on commission received is not paid by the insurance company but by the investor (or the person insured). Stated otherwise. in the form of commissions and bonuses. was based on actual production. Industrial life plans are those whose premiums are payable either daily.00 for thirteen weeks regardless of production. they are not required to account for their time nor submit a report of their activities. During the third week of November 1981. petitioner contends that Judico's compensation. Applying the aforementioned test to the case at bar. he was burdened with the job of collection and to make regular weekly report thereto for which an anemic performance would mean dismissal. Rollo). 1976. they do not have to devote their time exclusively to or work solely for the company since the time and the effort they spend in their work depend entirely upon their own will and initiative. vs. an insurance company may have two classes of agents who sell its insurance policies: (1) salaried employees who keep definite hours and work under the control and supervision of the company. complainant was promoted to the position of Zone Supervisor and was given additional (supervisor's) allowance fixed at P110.00 per week. weekly or monthly and which are collectible by the debit agents at the home or any place designated by the policy holder" (p. SSS. for unknown reasons.

the amount of results. had been a regular employee of petitioner and is therefore entitled to the protection of the law and could not just be terminated without valid and justifiable cause. Whereas. an ordinary commission insurance agent works at his own volition or at his own leisure without fear of dismissal from the company and short of committing acts detrimental to the business interest of the company or against the latter. his contract of services with petitioner is not for a piece of work nor for a definite period.00 weekly "allowance". Premises considered. Conversely faithful and productive service earned him a promotion to Zone Supervisor with additional supervisor's allowance. whether he produces or not is of no moment as his salary is based on his production.00 aside from the regular P 200. private respondent. . the undisputed facts show that he was controlled by petitioner insurance company not only as to the kind of work. in private respondent's case. the kind of performance but also the power of dismissal. by nature of his position and work. a definite amount of P110. his anemic performance or even dead result does not become a ground for dismissal. Undoubtedly. the appealed decision is hereby AFFIRMED in toto.job of collection. and for which an anemic performance would mean a dismissal. On the other hand. Furthermore. SO ORDERED. In both cases he was required to make regular report to the company regarding these duties.

unlawfully and feloniously act as agent in the solicitation or procurement of an application for insurance by soliciting therefor the application of one Eugenio S. and at that time. for and in behalf of Perla Compania de Seguros. apparently. Exh. Republic of the Philippines. 1970 in an information 3 which reads as follows: That on or before the 21st day of June. charging wife of Rodolfo with violation of Sec. and within the jurisdiction of this Honorable Court. 1971 which found the petitioner guilty for having violated Section 189 of the Insurance Act (Act No. . wilfully. defendant-appellant" of respondent Court of Appeals affirming the judgment of the City Court of Cabanatuan 2 rendered on August 2. Inc. petitioner-accused Aisporna seeks the reversal of the decision dated August 14. she naturally helped him in his work. 1970.00.: In this petition for certiorari. the above-named accused. Mapalad Aisporna. and to pay the costs. vs. on that date. Rodolfo. Republic of the Philippines.. was absent and so she left a note on top of her husband's desk to renew . "as agent in the solicitation for insurance by soliciting therefore the application of one Eugenio S. her husband. CONTRARY TO LAW. THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES. Isidro. C.00) dated June 21. wilfully. 13243-CR entitled "People of the Philippines. 1982 MAPALAD AISPORNA. 4 as found by the respondent Court of Appeals are quoted hereunder: IT RESULTING: That there is no debate that since 7 March. petitioner. at Cabanatuan City. L-39419 April 12. without said accused having first secured a certificate of authority to act as such agent from the office of the Insurance Commissioner. with license to expire on 30 June.000. Personal Accident Policy..G." and in the trial. 2427. 1969 and as of 21 June. and that policy was merely a renewal and was issued because Isidro had called by telephone to renew. a duly organized insurance company.000. DE CASTRO. did then and there. 1969. plaintiff-appellee. Aisporna was duly licensed by Insurance Commission as agent to Perla Compania de Seguros. and for P5. vs. and feloniously acted.R. Republic of the Philippines. 1974 1 in CAG. appellant's husband. Isidro. present information was filed by Fiscal. with assistance of private prosecutor. Aisporna. No.. for a period of twelve (12) months with beneficiary as Ana M. as clerk. against which appellant in her defense sought to show that being the wife of true agent. Rodolfo.. 1969. No. without said accused having first secured a certificate of authority to act as such agent from the office of the Insurance Commission. People presented evidence that was hardly disputed. Rodolfo S. D was issued by Perla thru its author representative. Isidro for and in behalf of Perla Compaña de Seguros. J. 28PI-RSA 0001 in the amount not exceeding FIVE THOUSAND PESOS (P5. as amended) and sentenced her to pay a fine of P500. respondents.R.00 with subsidiary imprisonment in case of insolvency. Exh. 1969. The facts. unlawfully. insured died by violence during lifetime of policy. registered under the laws of the Republic of the Philippines. that aforementioned policy was issued with active participation of appellant wife of Rodolfo. . Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189 of the Insurance Act on November 21. Rodolfo S. and for reasons not explained in record. resulting in the issuance of a Broad Personal Accident Policy No. in the City of Cabanatuan.. 189 of Insurance Law for having.

1975 reiterating his stand that the petitioner has not violated Section 189 of the Insurance Act. 3. it is necessary to determine whether or not the agent mentioned in the first paragraph of the aforesaid section is governed by the definition of an insurance agent found on its second paragraph. 1974. In other words. or receive for services in obtaining new insurance. to require the respondent to comment on the aforesaid petition. this present recourse was filed on October 22. which must be renewed annually on the first day of January. TO F-17. petitioner submitted his Brief 9 while the Solicitor General. INCLUSIVE SUFFICIENT TO ESTABLISH PETITIONER'S GUILT BEYOND REASONABLE DOUBT. Any person who for compensation solicits or obtains insurance on behalf of any insurance company. shall be an insurance agent within the . In seeking reversal of the judgment of conviction. Hence. On appeal. In the comment 7 filed on December 20. and shall be upon a form approved by the Insurance Commissioner. without giving due course to this instant petition. or agent thereof.Consequently. any commission or other compensation from any insurance company doing business in the Philippine Islands. We find the petition meritorious. represented by the Office of the Solicitor General. 1975. filed a manifestation 10 in lieu of a Brief on May 3. in any event after the first day of July of the year following the issuing of such certificate. or within six months thereafter. The pertinent provision of Section 189 of the Insurance Act reads as follows: No insurance company doing business within the Philippine Islands. such application being approved and countersigned by the company such person desires to represent. on behalf of the respondent. Such certificate shall be issued by the Insurance Commissioner only upon the written application of persons desiring such authority. however. No person shall act as agent. The main issue raised is whether or not a person can be convicted of having violated the first paragraph of Section 189 of the Insurance Act without reference to the second paragraph of the same section. without first procuring a certificate of authority so to act from the Insurance Commissioner. or broker in the solicitation of procurement of applications for insurance. shall pay any commission or other compensation to any person for services in obtaining new insurance. 5 In its resolution of October 28. 8 On April 3. the trial court found herein petitioner guilty as charged. No such certificate shall be valid. the respondent. or transmits for a person other than himself an application for a policy of insurance to or from such company or offers or assumes to act in the negotiating of such insurance. the trial court's decision was affirmed by the respondent appellate court finding the petitioner guilty of a violation of the first paragraph of Section 189 of the Insurance Act. sub-agent. THE RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING HEREIN PETITIONER. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT OF COMPENSATION IS NOT AN ESSENTIAL ELEMENT OF THE CRIME DEFINED BY THE FIRST PARAGRAPH OF SECTION 189 OF THE INSURANCE ACT. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT TO EXHIBITS F. nor any agent thereof. unless such person shall have first procured from the Insurance Commissioner a certificate of authority to act as an agent of such company as hereinafter provided. 1974. F-1. petitioner assigns the following errors 11 allegedly committed by the appellate court: 1. The Insurance Commissioner shall have the right to refuse to issue or renew and to revoke any such certificate in his discretion. 2. 6 this Court resolved. submitted that petitioner may not be considered as having violated Section 189 of the Insurance Act. giving such information as he may require. 1974. Renewal certificates may be issued upon the application of the company.

Insurance Law. so that Errors 2 and 4 must be overruled. the respondent court concludes that under the second paragraph of Section 189. or broker. or broker. there was no technical defect in the wording of the charge. sub-agent. or agent thereof.. 12 From the above-mentioned ruling. neither her point that she received no compensation for issuance of the policy because any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy of insurance to or from such company or offers or assumes to act in the negotiating of such insurance. it can no longer be denied that it was appellant's most active endeavors that resulted in issuance of policy to Isidro. a person is an insurance . now it is true that information does not even allege that she had obtained the insurance. finally. requirements. Parenthetically. therefore. and shall thereby become liable to all the duties. Sec. of the commission of any offense connected with the business of insurance. liabilities. and received the pay thereof � her defense that she was only acting as helper of her husband can no longer be sustained. the third paragraph thereof prescribes the penalty to be imposed for its violation. for compensation which is the gist of the offense in Section 189 of the Insurance Law in its 2nd paragraph. liabilities. On the conviction of any person acting as agent. the Insurance Commissioner shall immediately revoke the certificate of authority issued to him and no such certificate shall thereafter be issued to such convicted person. requirements. Any person or company violating the provisions of this section shall be fined in the sum of five hundred pesos. sub-agent or broker in the solicitation or procurement of applications for insurance without first procuring a certificate of authority so to act from the Insurance Commissioner. but what appellant apparently overlooks is that she is prosecuted not under the 2nd but under the 1st paragraph of Sec. while its second paragraph defines who is an insurance agent within the intent of this section and. to which an agent of such company is subject. A careful perusal of the above-quoted provision shows that the first paragraph thereof prohibits a person from acting as agent. and penalties to which an agent of such company is subject. which must be renewed annually on the first day of January. The respondent appellate court ruled that the petitioner is prosecuted not under the second paragraph of Section 189 of the aforesaid Act but under its first paragraph. Thus � . she was there and then acting as agent. and penalties. 189. or receive for services in obtaining new insurance any commission or other compensation from any insurance company doing business in the Philippine Island.intent of this section. sub-agent.. in the solicitation or procurement of applications for insurance. without first procuring a certificate of authority to act from the insurance commissioner. 189 wherein it is provided that. and shall thereby become liable to all the duties. or within six months thereafter. paragraph 2. shall be an insurance agent within the intent of this section. No person shall act as agent. the respondent appellate court seems to imply that the definition of an insurance agent under the second paragraph of Section 189 is not applicable to the insurance agent mentioned in the first paragraph.

its true meaning may be made clear and specific by considering the company in which it is found or with which it is associated. Stake. and while acting in such capacity negotiated and concluded insurance contracts for compensation. 20 After going over the records of this case. 17 Considering that the definition of an insurance agent as found in the second paragraph is also applicable to the agent mentioned in the first paragraph. an information. We are fully convinced. 15 Every part of the statute must be interpreted with reference to the context. Under the Texas Penal Code 1911. not separately and independently. WHEREFORE. but. as the Solicitor General maintains. We find this to be a reversible error. Snyder's Compiled Laws of Oklahoma 1909 is intended to penalize persons only who acted as insurance solicitors without license. it is explicitly provided that the definition of an insurance agent is within the intent of Section 189. does not allege that the negotiation of an insurance contracts by the accused with Eugenio Isidro was one for compensation. and kept subservient to the general intent of the whole enactment. and having been omitted. every element of the crime must be alleged and proved. failing to allege that the solicitor was to receive compensation either directly or indirectly. It must be noted that the information. Article 689. We rule otherwise.. it must be borne in mind. with costs de oficio. Applying the definition of an insurance agent in the second paragraph to the agent mentioned in the first and second paragraphs would give harmony to the aforesaid three paragraphs of Section 189. making it a misdemeanor for any person for direct or indirect compensation to solicit insurance without a certificate of authority to act as an insurance agent. As correctly pointed out by the Solicitor General. 13 A statute must be so construed as to harmonize and give effect to all its provisions whenever possible. to receive a compensation by the agent is an essential element for a violation of the first paragraph of the aforesaid section. in its first paragraph. there is no necessity that a person solicits an insurance for compensation in order to be called an insurance agent. the definition of an insurance agent under the second paragraph holds true with respect to the agent mentioned in the other two paragraphs of the said section. the definition of an insurance agent as found in the second paragraph of Section 189 is intended to define the word "agent" mentioned in the first and second paragraphs of the aforesaid section. clauses and phrases should not be studied as detached and isolated expressions. The second paragraph of Section 189 is a definition and interpretative clause intended to qualify the term "agent" mentioned in both the first and third paragraphs of the aforesaid section. the judgment appealed from is reversed and the accused is acquitted of the crime charged. . the receipt of compensation for issuing an insurance policy is not an essential element for a violation of the first paragraph of Section 189 of the Insurance Act. It is well-settled in Our jurisprudence that to warrant conviction. shall be an insurance agent within the intent of this section. This allegation is essential. portion or section or from isolated words and phrases. SO ORDERED. 18 In the case of Bolen vs. the doctrine of associated words (Noscitur a Sociis) provides that where a particular word or phrase in a statement is ambiguous in itself or is equally susceptible of various meanings. This means that every part of the statute must be considered together with the other parts. Patently. clauses or sentences but from a general consideration or view of the act as a whole. 14 The meaning of the law. 19 the provision of Section 3750. in the case at bar..agent if he solicits and obtains an insurance for compensation. a conviction of the accused could not be sustained. in its second paragraph. The particular words. Legislative intent must be ascertained from a consideration of the statute as a whole. 16 More importantly. but the whole and every part of the statute must be considered in fixing the meaning of any of its parts and in order to produce harmonious whole.. the accused was convicted by the appellate court for. that accused did not violate Section 189 of the Insurance Act. according to the latter. Hence � Any person who for compensation . Nevertheless.. More significantly. . The appellate court has established ultimately that the petitioner-accused did not receive any compensation for the issuance of the insurance policy of Eugenio Isidro. is not to be extracted from any single part. charges no offense.

Smith. doing business under the style of Tic Hin Chiong. Caloocan City. 142. The surveyor s report ( Exh. R. These were contained in 1. for US$19. 359. 6] and are narrated by respondent Court. a formal statement of claim ( Exh. CV No. 110668. the latter wrote Smith. stamped at the lower left side of the policy as `Claim Agent. informed the plaintiff by letter dated February 15. expressing his refusal to the `redress offer. petitioner. 1982. Grace Park. 250 bags and shipped from the Port of Kaohsiung. 78.G. Upon weighing. Bell. Taiwan on Board S. Accordingly. vs. and Co. paragraph . paragraph This is a petition for review on certiorari of the Decision of respondent Court2] promulgated on January 20. ( p. 1983 ( Exh. and Co. the plaintiff secured the services of a cargo surveyor to conduct a survey of the damaged cargo which were ( sic ) delivered by plaintiff s broker on said date to the plaintiff s premises at 12th Avenue. 357. with the note `Claim. [1] respondents. the plaintiff filed with Smith. Bell. R. 48 with that of Metroport s. COURT OF APPEALS and JOSEPH BENGZON CHUA. : paragraph The main issue raised in this case is whether a local claim or settling agent is personally and / or solidarily liable upon a marine insurance policy issued by its disclosed foreign principal. 31812 affirming the decision3] of the trial court4] which disposed as follows : 5] paragraph Wherefore. Taiwan. 0 kg short. & Co. The offer not being acceptable to the plaintiff. 00 `against all risks at port of departure under Marine Policy No.. 600 were damaged by tearing at the sides of the container bags and the contents partly empty. Metroport Services Inc. 17 as redress. 1997] paragraph SMITH. `1. 1993 in CA . S. with a number of the cargo in apparent bad order condition. 546. INC. ) as follows : paragraph x x x in July 1982. the entire cargo was discharged to the local arrastre contractor. 1000M82070033219. payable in U. BELL & CO. the Court renders judgment condemning the defendants ( petitioner and First Insurance Co. bought and imported to the Philippines from the firm Chin Gact Co. 78. contending that the discrepancy was a result of loss from vessel to arrastre to consignees warehouse which losses were still within the `all risk insurance cover.2 ) that its principal offered only 50% of the claim or US$3. Bell. S.. 250 bags of the imported material. paragraph D E C I S I O N paragraph PANGANIBAN. 00 CIF Manila. ( sic ) After purportedly conveying the claim to its principal. No settlement of the claim having been made. and Co. in the sum of US$7. 616. if any. the plaintiff then caused the instant case to be filed. quoting the trial court. Ltd. GOLDEN WEALTH for the Port on ( sic ) Manila. `D for the plaintiff ) and with defendant Smith. 1982. plus 24% interest thereon annually until the claim is fully paid. Record ). 500. February 6. 00. Inc. p. paragraph The cargo arrived at the Port of Manila on September 1. On September 27. and the cost.. 10% as and for attorney s fees.. `G ) with proof of loss and a demand for settlement of the corresponding value of the losses. Ltd.[G. `G . RTC Decision . ) jointly and severally to pay the plaintiff ( private respondent ) the amount of US$7. Feed Grade F . currency at Manila ( Exh. On July 27. Importer. the plaintiffs. of Taipei. paragraph The Facts paragraph The facts are undisputed by the parties. on the alleged ground of discrepancy between the amounts contained in the shipping agent s reply to the claimant of only US$90. Thereafter. `E ) showed that of the 1.15% valued at US$13. 1982 aboard the above . on October 16 following. Inc. 50 metric tons of Dicalcium Phospate. J. Bell.. this shipment was insured by the defendant First Insurance Co. 000. 1982. 2. as follows : 7] paragraph The undisputed facts of the case have been succintly ( sic ) summarized by the lower court (.mentioned carrying vessel and landed at port on September 2. the contents of the damaged bags were found to be 18. No.

Barnes & Co.. 13] invoked by petitioner in its appeal. petitioner still had recourse against its foreign principal. vs.appellant.[9] paragraph On the other hand. Also.. ( 2 ) it had no participation at all in the contract of insurance . where petitioner was also a party . this Court ruled in this wise : 15] paragraph We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal. the insurance firm. the defendant has . paragraph Petitioner rejects liability under the said insurance contract. 14] paragraph The Court s Ruling paragraph There are three reasons why we find for petitioner. claiming that : ( 1 ) it is merely an agent and thus not personally liable to the party with whom it contracts on behalf of its principal . the lower court rendered a decision favorable to plaintiff .[10] In that case.. x x x paragraph The Issue paragraph Whether or not a local settling or claim agent of a disclosed principal .can be held jointly and severally liable with said principal under the latter s marine cargo insurance policy. In the leading case of Salonga vs.litigant. these two cases impleaded only the insurance agent and did not include the principal. Warner. Its defense that its authority excluded personal liability must be proven satisfactorily. respondent Court in ruling against petitioner disposed of the main issue by citing a case it decided in 1987. an insurance agreement must be strictly construed against the insurer. the lower court held that since it is admittedly a claim agent of the foreign insurance firm doing business in the Philippines justice is better served if said agent is made liable without prejudice to its right of action against its principal. paragraph First Reason : Existing Jurisprudence paragraph Petitioner.isthe sole issue raised by petitioner. Macias & Co. paragraph After due trial and proceeding. hence it was declared in default.a foreign insurance company .[8] . The ruling continued with the statement that the interest of justice is better served by holding the settling or claim agent jointly and severally liable with its principal. defendant . was authorized to settle claims against its principal. According to private respondent. as claim agent.. Ltd.and petitioner. Ltd. As regards defendant .appellant averred in its answer that it is merely a settling or claim agent of defendant insurance company and as such agent. did not file an Answer. it is not personally liable under the policy in which it has not even taken part of. Warner. were found to be solidarily liable in this case. undisputedly a settling agent acting within the scope of its authority.. There is a complete dearth of evidence supportive of appellant s non responsibility as resident agent.appellee. . given that the agent is not a party to the insurance contract . Ltd. but we disagree with counsel in his contention that as such adjustment and settlement agent.Denying any liability. Ltd.which was declared in default by the trial court . Barnes & Co. respondent Court held that petitioner as resident agent of First Insurance Co.[11] paragraph Likewise.appellee has no cause of action against it..interest. private respondent disputed the applicability of the cases of E. It ruled that plaintiff appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete evidence of the amount of losses resulting from the risks insured against which were supported by reliable report and assessment of professional cargo surveyor. While both the foreign principal . Barnes & Co. It then alleged that plaintiff . being a contract of adhesion. 12] and Salonga vs. paragraph Defendant The First Insurance Co. . cannot be held personally and / or solidarily liable for the obligations of its disclosed principal merely because there is allegedly a need for a speedy settlement of the claim of private respondent. and ( 3 ) the suit is not brought against the real party .. . Warner.in .

contracts are binding only upon the parties ( and their assigns and heirs ) who execute them. there is no privity of contract. and if the claim is disputed or is disapproved by the principal. The subject cargo insurance was between the First Insurance Company. and was signed in Taipei. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed.1340. It still applies with equal force and vigor. Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from the principal which disapproved such claim. Without anything else to back it up. and thus no cause of action against petitioner attaches. either express or implied. ( 45 C. More importantly. or when the law or the nature of the obligation requires solidarity. as a representative of the foreign insurance company. it can be sued in its own right. ) paragraph It. paragraph The foregoing doctrine may have been enunciated by this Court in 1951.. 1338 . The contention that. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibilty ( sic ). the ordinary rule of agency applies. and his authority is prima facie coextensive with the business intrusted to him. such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated in the preparation of said contract. and the president of the Chin Gact Co. It must be positively and clearly expressed. and correspondingly there can be no obligation or liability. oral or written. Ltd. for he also acts in a representative capacity. paragraph Second Reason : Absence of Solidary Liability paragraph May then petitioner. Such distinction is immaterial. to whom he owes faithful service. Whenever he adjusts or settles a claim. J. paragraph Private respondent s contention that Salonga does not apply simply because only the agent was sued therein while here both agent and principal were impleaded and found solidarily liable is without merit. The well entrenched rule is that solidary obligation cannot lightly be inferred. and. in the employer s interest. paragraph Every cause of action ex contractu must be founded upon a contract. clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability..judicial nature. And here again. The agent can not be sued nor held liable whether singly or solidarily with its principal. We quote : paragraph . paragraph The Insurance Code is quite clear as to the purpose and role of a resident agent. Ltd. The following authorities bear this out : paragraph An insurance adjuster is ordinarily a special agent for the person or company for whom he acts. he does it in behalf of his principal. Under Article 131117] of the Civil Code. the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment. Taiwan by the president of the First Insurance Company.assumed personal liability under said policies. Ltd. in its capacity as resident agent ( as found in the case cited by the respondent Court ) 19] be held solidarily liable with the foreign insurer ? Article 1207 of the Civil Code clearly provides that ( t ) here is a solidary liability only when the obligation expressly so states. is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance claims. which would be held liable is specious and cannot be accepted. Such agent.. S. but represents his employer. therefore. and his action is binding not upon himself but upon his principal. Hence. 18] There is absolutely nothing in the contract which mentions the personal liability of petitioner. and the Chin Gact Co. the agent does not assume any personal liability. such position would have absolutely no legal basis. but the passage of time has not eroded its value or merit. in the end. ( Underscoring supplied ). Ltd. The recourse of the insured is to press his claim against the principal. like in the instant case. * * * paragraph An adjuster does not discharge functions of a quasi . it would really be First Insurance Company. Ltd. both of Taiwan. 16] The only involvement of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the policy as Claim Agent.. in the first place. therefore. and for his acts.

summons. If the party sued is not the proper party. that is. being a mere agent and representative. statutory law or judicial pronouncements. 21] Upon the other hand. from our reading of the records of this case. which would not have been necessary if petitioner was its resident agent. summons and other legal processes may be served in all actions or other legal proceedings against such company. make and file with the Commissioner an agreement or stipulation. that such company file in his office a written power of attorney designating some person who shall be a resident of the Philippines as its general agent.party . Any such foreign company shall. within ten days thereafter.interest are.. As no law backs up such pronouncement. the appellate Court is thus resorting to equity. or other legal process to the company at its home or principal office. petitioner is also not the real party . However. and never against.in .in .. proof of loss.SEC. service of any notice provided by law. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. 190.interest in this case. paragraph Third Reason : Not Real Party . or other legal process. for the decision cannot be enforced or executed. In the instant case however. or insurance policy. any decision that may be rendered against him would be futile. or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants. the trial court had to order the service of summons upon First Insurance Co. Ltd. It will not benefit or suffer in case the action prospers. The sending of such copy of the Commissioner shall be necessary part of the service of the notice. or cease to transact business therein.interest. thus : paragraph Section 2. is availed of only in the absence of. transmit by mail. petitioner was found to be a resident agent of First Insurance Co. on whom any notice provided by law or by any insurance policy. or shall be without any agent in the Philippines on whom any notice. The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by any foreign insurance company. equity which has been aptly described as justice outside legality. An action is brought for a practical purpose. we note that in the case cited by respondent Court. Rule 3 of the Rules of Court identifies who the real parties . Indeed.. or other legal process shall be made upon the Commissioner he must. paragraph Further. . we find no factual and legal bases for the finding of respondent Court that petitioner is the resident agent of First Insurance Co. proof of loss. proof of loss. Parties in interest.Interest paragraph Lastly. postage paid. that if at any time such company shall leave the Philippines. a copy of such notice. paragraph Whenever such service of notice.In . It is not a person who claim ( s ) an interest adverse to the plaintiff nor is said respondent necessary to a complete determination or settlement of the questions involved in the controversy. Petitioner is improperly impleaded for not being a real . Section 2. to obtain actual and positive relief. summons. and consenting that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office. or other legal process may be made upon the Insurance Commissioner shall have the same force and effect as if made upon the company. proof of loss. then in any action or proceeding arising out of any business or transaction which occurred in the Philippines. summons. summons. proof of loss. ( Underscoring supplied ). respondent Court also contends that the interest of justice is better served by holding the settling agent jointly and severally liable with its principal. Ltd. 20] paragraph Resort to Equity Misplaced paragraph Finally. or legal process may be served. All persons who claim an interest in the controversy or the subject thereof adverse to the plaintiff. as further condition precedent to the transaction of insurance business in the Philippines. executed by the proper authorities of said company in form and substance as follows : paragraph The ( name of company ) does hereby stipulate and agree in consideration of the permission granted by the Insurance Commissioner to transact business in the Philippines. Ltd. proof of loss. the liability of agents is clearly provided for by our laws and existing jurisprudence. paragraph The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by petitioner.Every action must be prosecuted and defended in the name of the real party in interest. paragraph .

paragraph No costs. in view of the foregoing considerations. the Petition is GRANTED and the Decision appealed from is REVERSED and SET ASIDE.WHEREFORE. paragraph .

R. as her commission out of the first annual premium paid by private respondent.R. 1976. J. docketed as Civil Case No.180.R. petitioner was able to convince private respondent Eugenio Trinidad. petitioner interposed an appeal with respondent appellate court. petitioner failed to comply with her commitment to pay private respondent P46. In reply thereto. to take out a life insurance policy with Manila Bankers Life Insurance Corporation. 1975. private respondent's attorney sent a demand letter dated July 7. 61200 which reversed the decision of the trial court. Inc. the Vice-President and General Manager and principal stockholder of Victory Liner Inc. 61200. Upon such inducement. holding that it could not grant private respondent any relief because the agreement entered into between the parties was void for being contrary to the provisions of Pres.590. Dizon & Domingo for private respondents..00 from Bescon Insurance Agencies.249. In order to persuade private respondent to take out the policy at the computed premium. Not satisfied with the decision. Ocampo. On June 4. despite such finding. private respondent instituted an action against petitioner for specific performance and damages. the trial court ordered the dismissal of private respondent's complaint.000. petitioner offered to return to him the amount corresponding to her commission out of the first premium payment. in a decision dated September 15. CORTES. .590. Yet. representing the Manila Bankers Life Insurance Corporation. THE HONORABLE INTERMEDIATE APPELLATE COURT AND EUGENIO TRINIDAD. In her answer with counterclaim filed on September 29. he issued two checks in favor of the insurance company for P46. respondents. 1990 NORA LUMIBAO. As a result of a medical examination conducted on private respondent showing that he was a diabetic. the insurance company fixed the annual insurance premium at P93. petitioner received the sum of P51. on April 30. 1975. Juanito Carpio-Cruz for petitioner. thereby ordering petitioner to pay private respondent the sum of P46. Soon after. Decree No. However. CV No.G. made a categorical finding that petitioner had induced private respondent to take out a life insurance policy with Manila Bankers Life Insurance Corporation by promising a rebate of 50% of his first annual premium payment on said policy.00 for a life insurance policy with a face value of Pl. docketed as AC-G.00 each or a total of P93. petitioner. CV No. 3653. 1975. Sometime in January 1975. Both the trial and respondent appellate courts are in agreement as to the factual antecedents of the case. 1975.00. denied that she had entered into such an arrangement with private respondent.590. The trial court also dismissed petitioner's counterclaim. thus: Petitioner is a life insurance underwriter or agent and a member of a group of insurance underwriters known as Bescon Insurance Agencies. No. petitioner. On August 6. through her counsel. Inc. Both checks were postdated May 30.000. 1975. with interest thereon from the time of the filing of the complaint below until fully paid. L-64677 September 13.00.: Assailed in this petition for review is a decision of the respondent appellate court rendered in AC-G. petitioner denied that she had made a verbal promise to return to private respondent 50% of his premium.00.00. The trial court. 1975 so as to enable petitioner to make arrangements for the return to private respondent of one check corresponding to the amount of her commission. vs. which is equivalent to FIFTY percent (50%) thereof. private respondent agreed to take the policy thus.180. 612 [otherwise known as the Insurance Code] and public policy..

shall make. pay or allow or offer to pay or allow to the insured or to any employee of such insured. therefore.590. Petitioner.590. with interest thereon. or shall give or offer to give any valuable consideration or inducement of any kind. which is not specified in such policy or contract of insurance. rejoinder. Section 361 of Pres. respondent appellate court affirmed the factual findings of the trial court and sustained the dismissal of petitioner's counterclaim. either as an inducement to the making of such insurance or after such insurance has been effected. Two issues are presented for resolution. however. and no employee or other representative of any such insurance company. 961. But in a split decision. no insurance broker. directly or indirectly. an insurance agent. As to the first issue. the present petition for review. 612 states: No insurance company doing business in the Philippines or any agent thereof. Neither can it be gainsaid that petitioner. other than is plainly expressed in the policy or other written contract issued or to be issued as evidence thereof. (2) Whether or not respondent appellate court erred in ordering petitioner to pay private respondent the sum of P46. Petitioner's reliance on Article 1358 is misplaced for the apparent reason that this article does not lay down any evidentiary rule which precludes oral testimony as a means of proving that parties have entered into a contract or agreement involving an amount of more than five hundred pesos. and instead ordered petitioner to pay private respondent the sum of P46. final and binding upon the Court. is enjoined by law from inducing prospective clients to take out insurance by offering rebates from the premiums specified in the insurance policies. by giving or sharing a commission or in any manner whatsoever. which provides that contracts where the amount involved exceeds five hundred pesos must appear in writing. the Court considered the issues joined and the case submitted for decision. A preponderance of evidence on record supports the findings of the trial and appellate courts that petitioner had induced private respondent to take out a life insurance policy from Manila Bankers Life Insurance Corporation by promising him a rebate equivalent to 50% of the first annual premium payment. or any agent thereof. nor shall any such company. After the filing of the comment. with interest thereon. Decree No. Decree No.On June 30. make any discrimination against any Filipino in the sense that he . to wit: (1) Whether or not respondent appellate court erred in holding that petitioner violated Section 361 of Pres. These factual findings are. 1983. and the parties' respective briefs. the Court holds that the respondent appellate court committed no reversible error in holding that petitioner violated the provisions of Section 361 of the Insurance Code of the Philippines.00. or any special favor or advantage in the dividends or other benefits to accrue thereon. or Pres. Decree No. or broker. argues that in view of the last paragraph of Article 1358 of the New Civil Code. Hence. * respondent appellate court reversed the trial court's judgment in so far as it dismissed the complaint. reply. procure or negotiate any contract of insurance or agreement as to policy contract. as to any policy or contract of insurance issued. or shall directly or shall indirectly.00. agent. This contention is patently erroneous. 961. any rebate from the premium which is specified in the policy. the courts below erred in giving weight and credence to the testimonies of private respondent and his witnesses which sought to prove that she had promised such rebate.

the Court will now proceed to tackle the issue pertaining to the enforceability of the rebate agreement between petitioner and private respondent. does not give rise to enforceable rights and obligations as between the parties thereto. It is evident that petitioner's promise to pay private respondent an amount equivalent to 50% of the first premium payment. to recover the amount of P46. private respondent inexplicably failed to appeal from the same decision which dismissed his complaint as well. brokers or companies.] Furthermore. In the case at bar. the Court finds that respondent appellate court committed reversible error of law in ordering petitioner to pay private respondent the promised rebate of P46. The appellee can only advance any argument that he may deem necessary to defeat the appellant's claim or to uphold the decision that is being disputed. refer only to insurance agents. 1966. and. Respondent appellate court erred in citing Article . 612 provides that violation of the above section constitutes a ground for the immediate revocation of the license issued to the erring insurance company. Decree No.. By virtue of Article 1409 (7) of the New Civil Code. G. 91 Phil. while petitioner interposed her appeal from the adverse decision rendered by the trial court dismissing her counterclaim. Section 363 of Pres. Manansala. May 19. the rebate agreement between the petitioner and private respondent is deemed a contract void ab initio. the Court must conclude that respondent appellate court gravely erred in compelling petitioner to comply with her promised undertaking. Secondly.590. but contrary to the ruling of respondent appellate court. No. grave error on the part of respondent appellate court. an appellee who has not himself appealed may not obtain from the appellate court any affirmative relief other than the ones granted in the decision of the court below.17 SCRA 125].is given less advantageous rates. It is well-settled in this jurisdiction that whenever an appeal is taken in a civil case. to grant private respondent affirmative relief other than that found in the appealed judgment.00. It was. 107 Phil. 1151 (1960). which would be taken out of her commission on the insurance policy. 961. the party who is not at fault. and the penalty imposed therefor under Section 363. prescinding from the earlier discussion declaring the collateral agreement for rebate between the parties a prohibited transaction under Section 361 of Pres Decree No. This position is untenable. is covered squarely by the express provisions of Section 361. Elena Camenforte & Co.R. Firstly. and he can assign errors in his brief if such is required to strengthen the views expressed by the court a quo.00 from petitioner. without legal justification. 861 (1952). There are indeed instances where the law recognizes the right of an innocent party to recover what he has paid or delivered under the agreement [See Articles 1411-1417 of the New Civil Code]. Magsaysay. Article 1412 (2) of the New Civil Code provides the legal basis for allowing private respondent. dividends or other policy conditions or privileges than are accorded to other nationals because of his race [Emphasis supplied. L-21568. However. consequently. respondent appellate court opined that since the prohibition against rebate agreements under Section 361 of Pres. 612. but not for the purpose of reversing or modifying the judgment in the appellee's favor and giving him other affirmative reliefs [Bunge Corporation v. therefore. in reversing the trial court's decision. agent or broker and the imposition of a fine not exceeding five hundred pesos. Having disposed of the first issue. respondent appellate court contravened a basic rule in appellate procedure. Enecilla v. After deliberating on the arguments adduced in the pleadings. the case at bar does not fall under any of the legal exceptions.590. Andaya v. These assigned errors in turn may be considered by the appellate court solely to maintain the appealed decision on other grounds. Decree No.

54 NE 2d 889 (1944). of California. 105 SW 2d 941 (1937). Hartford Life and Accident Insurance Company. There is no indication on record that petitioner. would be subversive of the very public policy which the law was designed and intended to uphold. Sovereign Camp v. Public policy considerations serve to underscore further the Court's foregoing ruling that petitioner's promise of rebate. may not be enforced for compliance by the courts.00. 961. (2) of the New Civil Code as legal basis for compelling petitioner to comply with her promise to pay private respondent the sum of P46. of Hartford. In aid and furtherance of this desirable policy. which is expressly prohibited by law. Article 1412.00 to petitioner. Mahone v. are addressed to the insurance companies.. The agreement between the parties consists of an undertaking on the part of private respondent to take out a life insurance policy with Manila Bankers Life Insurance Corporation and.180.R. par. par. Section 361 of Pres. 173 So.180. Co. the assailed decision of respondent appellate court in AC-G. had acted with the knowledge and under the authority of the insurance company. 61200 is SET ASIDE. Bloom.. he cannot recover what he had given by reason of the contract. SO ORDERED. The other. 961. 3653 is hereby REINSTATED. Co. Decree No. states that: If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense. has paid or delivered property to the latter. The article contemplates of a situation where the party who is not at fault. 65 SE 746 (1909). (2). Chatz v. CV No. in terms. the following rules shall be observed: xxx xxx xxx (2) When only one of the contracting parties is at fault. may demand the return of what he has given without any obligation to comply with his promise. thereby allowing recovery thereunder. and the trial court's decision in Civil Case No.00 was actually paid to the insurance company in consideration of the policy taken out. Connecticut. agents and brokers. on the part of petitioner. Decree No. strictly speaking. Travelers Ins.590. when she made the promise. 561 P 2d 142 (1976)]. Richmond v.1412. This is not the case between private respondent and petitioner. pay the amount of P93. . but this is for the general body of policyholders who would suffer by the enforcement of the prohibited agreements. 612 is similar to the so-called "anti-discrimination" statutes found in other jurisdictions which regulate the activities in the insurance industry. Co. or ask for the fulfillment of what has been promised him. 111 NW 660 (1907). 165 NW 286 (1917). Private respondent's checks were issued for the account of Manila Bankers Life Insurance Corporation and so encashed by the insurance company as the payee. like Sections 361 and 363 of Pres. the statutes. to give private respondent a rebate on the first premium payment. 424 (1937)]. Private respondent thus cannot "demand the return of what he has given" from petitioner because he did not. and not for those who have entered into such agreements and are seeking to profit by its terms [See Smathers v. True. Co. who is not at fault. WHEREFORE. agents and brokers in order to ensure that equal terms are fixed for policyholders of the same insurable class and equal expectation of life. Bankers' Life Ins. and is enacted for the protection of policyholders. Bernblum v. Let the Insurance Commissioner be furnished a copy of this decision for appropriate administrative action against petitioner pursuant to Section 363 of Pres. The purpose of these statutes is the prevention of unfair discriminatory practices by insurance companies. Conservative Life Ins. the statutes prohibit such practices involving rebates or preferential treatment with respect to the cost of the policy or the benefits allowed for the premium [See Laun v. Pacific Mutual Life Ins. Waggoner. It follows that to enforce contracts or agreements directly forbidden under these statutes. in the performance of his undertaking with the party who is at fault. Decree No. But it is clear that the premium of P93.

84157 July 28. 84197) was dismissed but in all other respects the trial court's decision was affirmed.R. the amount of Pl84.R. No.000. Renato J. LIM. respondents. No. Lucena for Constancio Maglana. JR. until full payment is made.00 for each of the two Cervanteses.G. 84197) against all defendants (respondents in G. 1989 JACOB S. vs.74. COURT OF APPEALS.. It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from Pl51. THE HON. Furthermore. The plaintiffs complaint (petitioner in G. INC. J.74 with interest from the filing of the cross-complaints until the amount is fully paid. MAGLANA and JACOB S. COURT OF APPEALS. CONSTANCIO M.000. CV No. Hernandez & Gatmaitan for Jacob S. plus P70. plus 15% of the amount awarded to plaintiff as attorney's fees from July 2. Lim. No. FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA.02. Eriberto D. BORDER MACHINERY and HEAVY EQUIPMENT CO.R. BORDER MACHINERY & HEAVY EQUIPMENT.: The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G. Defendant Jacob S. GUTIERREZ. Lim is further required to pay cross party plaintiff. respondents. PIONEER INSURANCE AND SURETY CORPORATION.00 to Bormaheco and the Cervanteses. G. Bormaheco.R. Inc. Ignacio for Pioneer Insurance & Surety Corporation.00 moral and exemplary damages.. (BORMAHECO). Maglana as attorney's fees. plus moral and exemplary damages in the amount of P50. INC. Lim requiring Lim to pay plaintiff the amount of P311. 66135. vs. Sycip..000. The dispositive portion of the trial court's decision reads as follows: WHEREFORE.000.00 to Constancio B. 1989 PIONEER INSURANCE & SURETY CORPORATION. with interest at the rate of 12% per annum compounded monthly. plus moral and exemplary damages in the amount of P184.000.878. No.878. Leonardo B.. petitioner.. 84197 July 28. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No. xxx xxx xxx .R.1966. Salazar. judgment is rendered against defendant Jacob S. LIM. the Cervanteses one-half and Maglana the other half. Robles for BORMAHECO.00.056. he is required to pay P20. and another P20. and Cervanteses.878.making a total of P184.84 with interest from the filing of the cross-complaints until the amount is fully paid. petitioner.

On May 17. for the balance price of the aircrafts and spare parts. 15-16) In 1965. (Bormaheco).1965. taxes. Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109. the third-party defendant. Jacob S.00 to be paid in installments. Lim (petitioner in G. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. 84197) as surety executed and issued its Surety Bond No. Maglana. No. If an insurance company would be liable for damages in performing an act which is clearly within its power and which is the reason for its being. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages. pp. the rights exercised were provided for in the Rules of Court. its successors and assigns. Maglana the amount of P20. is not an act of bad faith. Furthermore. 6639 (Exhibit C) in favor of JDA. Japan. the Cervanteses and Constancio B.21. Pioneer Insurance and Surety Corporation (Pioneer. Inc. one signed by Maglana and the other jointly signed by Lim for SAL. he should not be saddled with moral or exemplary damages.000. PIC-718. 1965. in view of all above.R. On June 10. No damage is decided against Malayan Insurance Company.. No further claim or counter-claim for or against anybody is declared by this Court. losses. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer. 1965. When a man tries to protect his rights. per year from 1966 with legal rate of interest up to the time it is paid. No.626. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. the plaintiff is required to pay Constancio B. petitioner in G. It appears that Border Machinery and Heavy Equipment Company. reimburse and make good to Pioneer. (Rollo . Inc. plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses the amount of P20. No. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. for it only secured the attachment prayed for by the plaintiff Pioneer. 1965. charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay.12. arrived in Manila on June 7. penalties. arrived in Manila on July 18.WHEREFORE. On May 22.1965 while the other aircraft.00 as attorney's fees and costs. One DC-3 Aircraft with Registry No. respectively. . 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts.379.G. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. in the exercise of its discretion. then nobody would engage in the insurance business. Furthermore.R. 24197.000. costs.00 as attorney's fees and the amount of P4. 776). Lim. Instead. The fact that the properties of the Bormaheco and the Cervanteses were attached and that they were required to file a counterbond in order to dissolve the attachment. Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. the complaint of plaintiff Pioneer against defendants Bormaheco.000. all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature. damages. Bormaheco and the Cervanteses. is dismissed. Pioneer paid a total sum of P298.R. and it was the court that ordered it. in behalf of its principal. at Tokyo.

It has been held that the real party in interest is the party who would be benefited or injured by the judgment or the party entitled to the avails of the suit (Salonga v. 88 Phil.00 � the bulk of defendants' alleged obligation to Pioneer. 2d 667. No. 1966. Bormaheco and Maglana. Oglleaby v. sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. however. plaintiffs instant action for the recovery of the amount of P298.666. 10) The petitioner questions the following findings of the appellate court: We find no merit in plaintiffs appeal. 1 NW 2d 424.000. p. Vol. Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants. 27. Maglana. 1979 ed. 35).. p. 84197. David.28 from defendants will no longer prosper. 155). 2d 1600. filed a third party claim alleging that they are co-owners of the aircrafts. After trial on the merits. by way of counterclaim. quoting 47 C. it instituted the action is utterly devoid of merit. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety bond in favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295.G. Defendants' alleged obligation to Pioneer amounts to P295. a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. Based on the foregoing premises. Comments on the Rules of Court. Flowers v. In their Answers. the Cervanteses.Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. subordinate or consequential interest (Garcia v.000. the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed.. Warner Barnes & Co. plaintiff Pioneer cannot be considered as the real party in interest as it has already been paid by the reinsurer the sum of P295.000. By real party in interest is meant a present substantial interest as distinguished from a mere expectancy or a future. Springfield Marine Bank. To qualify a person to be a real party in interest in whose name an action must be prosecuted.E. In all other respects the trial court's decision was affirmed. 52 N. he must appear to be the present real owner of the right sought to be enforced (Moran. 669. Germans. 84197. As stated earlier. . Weber v. Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand to be benefited or injured by the judgment. 125. contingent. Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents. authorized to institute an action for and in behalf of the latter.00. 414.00. 67 Phil. On July 19. hence. The Cervanteses and Maglana. hence. Plaintiff did not even present any evidence that it is the attorney-in-fact of the reinsurance company. R. I.. Ltd. Petitioner Pioneer Insurance and Surety Corporation avers that: RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. 131).V. 97 P. We first resolve G.R. City of Cheye. (Rollo . 385 III. No. Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and.

666. that is suing defendants for the amount paid to it by the reinsurers. To allow plaintiff Pioneer to recover from defendants the amount in excess of P298. 24-25). pp. (Rollo-84197. The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its reinsurer in the aforesaid amount. Well settled is the rule that no person should unjustly enrich himself at the expense of another (Article 22.R. New Civil Code). as this matter has never been raised by any of the parties herein both in their answers in the court below and in their respective briefs with respondent court. it is patent that plaintiff has been overpaid in the amount of P33.. 11) (2) even assuming hypothetically that it was paid by its reinsurer. the petitioner is entitled to recover from respondents Bormaheco and Maglana. instead of the reinsurance (sic). 84157).28. Lastly.666.00 from the sale of the mortgaged chattels. p. and this is so even where the name of the principal is disclosed in the complaint. and most important of all. No. Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the amount. 359.00. If the answer to the preceding question is in the negative.050. it is plain that on this score it no longer has any right to collect to the extent of the said amount.00. Annex B of G. But in the first place. and paid with the said amount the bulk of its alleged liability to JDA under the said surety bond.000. collected the proceeds of such reinsurance in the sum of P295. .000. Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alone the case. the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine. .fact of the reinsurers for any amount. A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were: xxx xxx xxx 1. . (3) pursuant to the indemnity agreements.050. notwithstanding that the cause of action pertains to the latter. considering the amount it has realized from the sale of the mortgaged properties? (Record on Appeal. Pioneer has no right to institute and maintain in its own name an action for the benefit of the reinsurers.72 considering that the total amount it had paid to JDA totals to only P298. It is well-settled that an action brought by an attorney-in-fact in his own name instead of that of the principal will not prosper. (Rollo. On the question of why it is Pioneer. insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact.28 would be tantamount to unjust enrichment as it has already been paid by the reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA.In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer. realizing the total amount of P37. . has Pioneer still any claim against defendants. still none of the respondents had any interest in the matter since the reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91 of the Insurance Code. The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties. p. Adding the sum of P37. and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would recover from the co-indemnitor will be paid to the reinsurer. In resolving these issues. the trial court made the following findings: It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA.' In other words. there is not the slightest indication in the complaint that Pioneer is suing as attorneyin. to the proceeds of the reinsurance amounting to P295. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as has been paid with reinsurance money? 2.383.

Rep. In general a reinsurer. The real party in interest is the party who would be benefitted or injured by the judgment or is the party entitled to the avails of the suit. on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the original insurer pays a loss (Universal Ins. 19 Phil.050. 46 F 2nd 925). It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer. 7 Ann.22347. it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss. Pioneer is still overpaid by P33. (Emphasis supplied). Filipinos Industrial Corporation v. The payment to the petitioner made by the reinsurers was not disputed in the appellate court.126 GA. Evidently.00 from the reinsurers.00. Therefore. the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. Court of Appeals (154 SCRA 650 [1987]): Note that if a property is insured and the owner receives the indemnity from the insurer. 1134). Hence the applicable law is Article 2207 of the new Civil Code. L. Granada and Gentero. . Interpreting the aforesaid provision. If the amount paid by the insurance company does not fully cover the injury or loss. But since the amount realized from the sale of the mortgaged chattels are P35. (Record on Appeal. C. San Diego G. (Delaware. Since Pioneer has collected P295. 360-363). Ins. The total amount paid by Pioneer to JDA is P299.666. This is the amount for which Pioneer may sue defendants. v.' This provision is mandatory.. Co. then the aggrieved party is the one entitled to recover the deficiency.C. the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. pp. No.050. Pennsylvania Fire Ins. La.666.000. 23 SCRA 706. the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.A. (101 Phil. or a total of P37.29. Arroyo v. 18 Phil. 484. the petitioner's argument that the respondents had no interest in the reinsurance contract as this is strictly between the petitioner as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis. Co. Limjuco and Gonzalo. Inc.00 for one of the airplanes and P2. under this legal provision. Co. v. the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. 12. to wit: Art.. Pioneer has no more claim against defendants. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Luchauco v. Old Time Molasses Co.72. assuming that the indemnity agreement is still valid and effective. Considering this admitted payment.1968. The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance. we ruled in the case of Phil. or P3. the uninsured portion of what it paid to JDA is the difference between the two amounts.E. Therefore.000. Air Lines. 2207.00 for a spare engine.28. v.Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name of the real party in interest. This Court has held in various cases that an attorney-in-fact is not a real party in interest. 710-714. 380. that there is no law permitting an action to be brought by an attorney-in-fact. 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.383. Heald Lumber Co. 330. Rep. If the plaintiffs property has been insured. 55 S.R. Con.

Filipinas Investment & Finance Corp. we find the trial court's findings on the matter replete with evidence to substantiate its finding that the counter-indemnitors are not liable to the petitioner. 23 SCRA 791. but this was not possible because the planes were still in Japan and could not be mortgaged here in the Philippines. as provided by the aforementioned provisions. Testimonies of defendants Francisco Cervantes and Modesto Cervantes. v. Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. It does not. On the other hand. the indemnity agreement ceased to be valid and effective after the execution of the chattel mortgage. which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this action was instituted. as indemnitors.' Cruz. having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made of the payments to JDA. Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to recover any unpaid balance of the price. Pioneer Insurance.1968. Such being the case. 12. however. Pioneer. Sec 2. has no cause of action against the respondents. 795-6. This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be enforced by this action. Revised Rules of Court. Pioneer shall have no further action against the purchaser to recover any unpaid balance and any agreement to the contrary is void. May 27. Rollo) to back up its contention. known as the Recto Law. would be entitled to be subrogated to the right of Pioneer should they make payments to the latter. . These defendants. they would be mortgaged to Pioneer Insurance to cover the bond. Nevertheless. agreed to issue the bond provided that the same would be mortgaged to it. cite any grounds except its allegation that respondent "Maglanas defense and evidence are certainly incredible" (p.24772. Articles 2067 and 2080 of the New Civil Code of the Philippines. Rule 129. and this indemnity agreement would be cancelled. therefore. L. SAL or Lim. the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code. As soon as the aircrafts were brought to the Philippines. Prescinding from the foregoing. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel mortgage. no longer has any further action against the defendants as indemnitors to recover any unpaid balance of the price. The following is averred under oath by Pioneer in the original complaint: The various conflicting claims over the mortgaged properties have impaired and rendered insufficient the security under the chattel mortgage and there is thus no other sufficient security for the claim sought to be enforced by this action. having foreclosed the chattel mortgage on the planes and spare parts. the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the premise that the evidence on record shows that it is entitled to recover from the counter indemnitors. The trial court stated: Apart from the foregoing proposition.Accordingly. et al. No. knowing the value of the aircrafts and the spare parts involved. the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for the reason that the petitioner was not the real party in interest in the complaint and.

having subrogated it in such rights. Universal Motors Corporation. v. v. shall be due and payable on the 26th day x x x of each succeeding three months and the last of which shall be due and payable 26th May 1967.. 1967. would have it believed that these defendants Maglana (sic). ... effected twice. 12. These restructuring of the obligations with regard to their maturity dates. 45 Phil. et al. the due date of the first installment appears as October 15. Pascual. The reason is that Pioneer is actually exercising the rights of JDA as vendor. of each succeeding months and the last of which shall be due and payable 4th June 1967. Consequently. at the trial of this case. v. and the case of Asiatic Petroleum Co. 61 SCRA 124. 538. that of the last installment being July 15.A. 1571. there would have been the corresponding documents in the form of a written notice to as well as written conformity of these defendants.. were done without the knowledge. Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. M. Art. Nor may the application of the provision be validly opposed on the ground that these defendants and defendant Maglana are not the vendee but indemnitors. 532.. the 15th of each succeeding three months.. Climacom et al.1974. But if that were so. The consequence of this was the extinguishment of the obligations and of the surety bond secured by the indemnity agreement which was thereby also extinguished. 563. The principal hereof shall be paid in eight equal successive three months interval installments.The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA. 20. 4th ed. G. Pioneer has no more cause of action to recover from these defendants. (New Civil Code).G. 55 Phil. much less. as supposed indemnitors. the first of which shall be due and payable 25 August 1965. 562-563. No. pp. 316-317. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension time referred to herein. Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the aforesaid memorandum. 1965. L. Vol. Pioneer produced a memorandum executed by SAL or Lim and JDA. Nov. and there are no such document. VI. Vol. 553.27862. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar Co.. the remainder of which . as follows: The principal hereof shall be paid in eight equal successive three month interval installments the first of which shall be due and payable 4 September 1965. By virtue of an express stipulation in the surety bond. Not only that. Hizon David. Pacheco. modifying the maturity dates of the obligations. released Pioneer from liability from the claim. The change of the maturity dates of the obligations of Lim. However. pp. Ltd. (C.. or SAL extinguish the original obligations thru novations thus discharging the indemnitors. 2079. the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every installment..' Manresa. Stevenson & Co. what it has paid to JDA.F. shall be due and payable on the 4th day .) 36 O. thru the change of their maturity dates discharged these defendants from any liability as alleged indemnitors. The restructuring of the obligations of SAL or Lim.R. v. Pioneer's official Numeriano Carbonel would have it believed that these defendants and defendant Maglana knew of and consented to the modification of the obligations. the remainder of which . and those of the rest of the installments.

So. 121. S. and their rights as members of the company to the property acquired by the company will be recognized (Smith v. 268. While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v.R. Thus. The instant action is clearly unfounded insofar as plaintiff drags these defendants and defendant Maglana.R. 29 Okl. Cas.000. 363-369. Brush Electric Co. where persons associate themselves together under articles to purchase property to carry on a business. Spouses Cervantes. What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in situations where their contributions to the intended 'corporation' were invested not through the corporate form? This Petition presents these fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA'). hence. and that as a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. Payment by a solidary debtor shall not entitle him to reimbursement from his codebtors if such payment is made after the obligation has prescribed or became illegal.Therefore. the cross-party plaintiffs incurred additional expenses. and their organization is so defective as to come short of creating a corporation within the statute.. and two of them contracted to pay a third the difference in the . The petitioner. Constancio Maglana and petitioner Lim to incorporate.878.109 Me. 54 A. These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing of the instant case against them and the attachment and garnishment of their properties. p.R. and each conveyed land to the corporation. to form a corporation and who carry on business under the corporate name occupy the position of partners inter se (Lynch v. Rollo of G.R.' (Record on Appeal. they become in legal effect partners inter se. 555. Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity. Lim poses the following issues: l. questions the appellate court's findings ordering him to reimburse certain amounts given by the respondents to the petitioner as their contributions to the intended corporation. defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184. 84197 is not meritorious. 84157. 229. 369). therefore. 446. 615. the total sum of P 184. Parker.878. These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco. 1913A 1065). In addition. pp. with interest from the filing of the cross-complaints until the amount is fully paid. We first state the principles. Hence. 96 Md. but fail. (Rollo. Ann.74. 29 Mich. Perryman. 584). It is established in the records that defendant Lim had duly received the amount of Pl51. No. where certain persons associated themselves as a corporation for the development of land for irrigation purposes. 6). Schoodoc Pond Packing Co. Whipple v.74 as correctly found by the trial court. it is ordinarily held that persons who attempt. Defendant Lim should pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. Petitioner Jacob S. Art.. We find no cogent reason to reverse or modify these findings.00 from defendants Bormaheco and Maglana representing the latter's participation in the ownership of the subject airplanes and spare parts (Exhibit 58). it is our conclusion that the petition in G. No. We now discuss the merits of G. 94 Am. 1318. 119 P. 84 A. to wit: However. No. 84157). a de facto partnership among them was created.

Down payments were advanced by defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh. however. so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v.. Lim has refused. 442. E.W.000. 461. and its capital stock was treated as partnership assets. who were also directors.000. will not be implied in the absence of an agreement. such a relation does not necessarily exist. 29 L. The trial court and the appellate court. one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation..Ed. Maglana alleged in his cross-claim: . that sometime in early 1965. and no stock was ever issued in the corporation. Notwithstanding repeated oral demands made by defendants Bormaheco and Cervanteses. pp. when their purpose is that no partnership shall exist (London Assur. Jacob Lim. 116 U. 464). found through Exhibit 58. In the instant case. Since then up to the filing of this answer. gave Cervantes his share of P75. v.proportionate value of the land conveyed by him. Maglana in the ownership of the subject airplanes and spare parts. for ordinarily persons cannot be made to assume the relation of partners. 44 N. signed and executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL. 79 Iowa 23). 446). the Cervanteses and Maglana. and the proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. p. 68. counterclaim.000. to defendant Lim. that the petitioner received the amount of P151. it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial despite notification. defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts from Japan which the latter considered as their lawful contribution and participation in the proposed corporation to be known as SAL.S. This gives credence to the cross-claims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. thereby forcing them to file an adverse claim in the form of third party claim. Cervantes. thus. (Record on Appeal. the petitioner denied having received any amount from respondents Bormaheco. It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. A partnership relation between certain stockholders and other stockholders. it was treated as a trustee for the associates in an action between them for an accounting. when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim.Ct. Arrangements and negotiations were undertaken by defendant Lim.. Constancio B. However. cross-claim and third party complaint: Sometime in April 1965. Beaudry.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Owen. 337-338). while respondents Bormaheco and the Cervanteses alleged in their answer. to surrender the possession of the two planes and their . 472. Minn. Brigham. 688). promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his own account. as between themselves. The record shows that defendant Maglana gave P75. so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. 6 S. Contrary to the agreement among the defendants. failed and still refuses to set up the corporation or return the money of Maglana. Maglana sometime in May 1965. 127 Mass. defendant Lim in connivance with the plaintiff.1). (Italics supplied). Lim in an undertaking sometime on or about August 9. Drennen. (Corpus Juris Secundum.00 to petitioner Jacob Lim thru the Cervanteses. likewise.00 representing the participation of Bormaheco and Atty. 56 Cal. Corp. sold. Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the operation thereof. In his answer. 210. 24). and it should be implied only when necessary to do justice between the parties. The answering defendants learned for the first time of this trickery and misrepresentation of the other. delivered his share of the undertaking.1965. Vol.

pp. SO ORDERED.997. the latter ignored. The questioned decision of the Court of Appeals is AFFIRMED.accessories and or return the amount advanced by the former amounting to an aggregate sum of P 178. (Record on Appeal. WHEREFORE. no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. omitted and refused to comply with them. necessarily. .14 as evidenced by a statement of accounts. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. the instant petitions are DISMISSED. Applying therefore the principles of law earlier cited to the facts of the case. 341-342).

Full thickness laceration of lower lip and adjacent skin. who was a passenger in the Volkswagen car when allegedly hit and bumped by the car driven by petitioner. being then the driver and in actual physical control of a Ford Laser car bearing Plate No. 78848 November 14. HON. 381-85. 2 over his Ford Laser car with Plate No. diligence and due care to avoid accident to persons and damage to property and in disregard of existing traffic rules and regulations. Sr. NJE-338 owned and driven by Felino llano y Legaspi. No. 6 cm. GA No.. to wit: 1. INC. and MAKATI INSURANCE COMPANY. Sr. vs. Camacho and Associates for respondents. petitioner. in the course of the trial in the criminal case. 0889. . the above-named accused. which injuries causing [sic] deformity on the face. did then and there wilfully. PADILLA. a prosecution for reckless imprudence resulting in damage to property and serious physical injuries. laceration of left side of tongue. CFN-361 from Makati Insurance Company. J.R. in the City of Olongapo. dated 24 April 1986 dismissing petitioner's third party complaint filed in Criminal Case No.00 Pesos. REGIONAL TRIAL COURT OF OLONGAPO CITY. who was on board of the said Volkswagen car sustained physical injuries.G.M. 4 The owner of the damaged Volkswagen car filed a separate civil action against petitioner for damages. 1988 SHERMAN SHAFER. petitioner Sherman Shafer obtained a private car policy. thereby causing damage in the total amount of P12. Philippines. and within the jurisdiction of this Honorable Court. Instead. 3. Branch 75. Olongapo City. The information reads as follows: That on or about the seventeeth (17th) day of May 1985. testified on his claim for damages for the serious physical injuries which he claimed to have sustained as a result of the accident. causing by such carelessness.345. Poblete.<�re||an��1�w> During the effectivity of the policy. laceration with partial transection of muscle (almost full thickness) left side of face. JUDGE. 2. recklessness and imprudence the said Ford Laser car to hit and bump a Volkswagen car bearing Plate No. 1 On 2 January 1985. reckless and imprudent manner without exercising reasonable caution. Blanco for petitioner. an information 3 for reckless imprudence resulting in damage to property and serious physical injuries was filed against petitioner. operate and manage the said Ford Laser car in a careless.. while Jovencio Poblete. R. Inc. for third party liability (TPL). unlawfully and criminally drive. 2 cm..: This is a petition for review on certiorari of the Order * of the Regional Trial Court. did not reserve his right to file a separate civil action for damages. respondents. CFN-361. Sr. BRANCH 75. Philippine Currency. and as a result thereof one Jovencio Poblete.

and to give such injured person a certain beneficial interest in the proceeds of the policy. available only if the defendant has a right to demand contribution. the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. the court a quo issued an order dismissing the third party complaint on the ground that it was premature. 7 hence. regardless of the financial capacity of motor vehicle owners. It is the contention of herein petitioner that the dismissal of the third party complaint amounts to a denial or curtailment of his right to defend himself in the civil aspect of the case. the insurance company submits that a third party complaint is. On the other hand. but the motion was denied. based on the premise that unless the accused (herein petitioner) is found guilty and sentenced to pay the offended party (Poblete Sr. to minimize the number of lawsuits and avoid the necessity of bringing two (2) or more suits involving the same subject matter. The court further stated that the better procedure is for the accused (petitioner) to wait for the outcome of the criminal aspect of the case to determine whether or not the accused. 6 Petitioner moved for reconsideration of said order. as stipulated in the contract of insurance. the damages and attorney's fees claimed by accused/third party plaintiff are matters entirely different from his criminal liability in the reckless imprudence case. and that petitioner has no cause of action against the insurer until petitioner's liability shall have been determined by final judgment. There is no need on the part of the insured to . however. The insurance company further contends that the contract of motor vehicle insurance. Inc. and statutes are to be liberally construed so that their intended purpose may be accomplished. has a cause of action against the third party defendant for the enforcement of its third party liability (TPL) under the insurance contract. Petitioner further raises the legal question of whether the accused in a criminal action for reckless imprudence. as one of his modes of defense in the civil aspect of said proceedings.) indemnity or damages. The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for loss or damage. or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. petitioner was granted leave by the former presiding judge of the trail court to file a third party complaint against the herein private respondent. It has even been held that such a provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy.Upon motion. under the rules. the third party complaint is without cause of action. the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury. 5 On 24 April 1987. Where an insurance policy insures directly against liability. and does not depend on the recovery of judgment by the injured party against the insured. can legally implead the insurance company as third party defendant under its private car insurance policy. 12 In the instant case. Makati Insurance Company. the court a quo erred in dismissing petitioner's third party complaint on the ground that petitioner had no cause of action yet against the insurance company (third party defendant). this petition. 11 In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the insured. subrogation or any other relief in respect of plaintiff's claim. also the third party plaintiff. where the civil action is jointly prosecuted. Not even a "no action" clause under the policy-which requires that a final judgment be first obtained against the insured and that only thereafter can the person insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits. indemnity. 8 Compulsory Motor Vehicle Liability Insurance (third party liability. 9 The victims and/or their dependents are assured of immediate financial assistance. 10 The injured for whom the contract of insurance is intended can sue directly the insurer. moved to vacate the order granting leave to petitioner to file a third party complaint against it and/or to dismiss the same. Said insurance company.

the instant petition is GRANTED. Sr. complicate and delay the criminal case is without merit. WHEREFORE.) has sought to recover civil damages. i. Inc.wait for the decision of the trial court finding him guilty of reckless imprudence. from which the injured (Jovencio Poblete. for the alleged bodily injuries caused to said third party. and the second is the personal injury caused to the victim of the crime. the civil aspect of the offense charged. which injury is sought to be compensated thru indemnity. 15 In the instant case. They are predicated on the need for expediency and the avoidance of unnecessary lawsuits. arose from the offense charged in the criminal case. and that this result can be avoided by allowing the third party complaint to remain. serious physical injuries allegedly suffered by Jovencio Poblete. was impliedly instituted with the criminal case. then the motion to dismiss the third party complaint should be denied. SO ORDERED.e.. Hence. 13 Third party complaints are allowed to minimize the number of lawsuits and avoid the necessity of bringing two (2) or more actions involving the same subject matter. A third party complaint is a device allowed by the rules of procedure by which the defendant can bring into the original suit a party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in the original suit. The claim of petitioner for payment of indemnity to the injured third party. .. Sr. which is civil in nature. Petitioner may thus raise all defenses available to him insofar as the criminal and civil aspects of the case are concerned. The occurrence of the injury to the third party immediately gave rise to the liability of the insurer under its policy. 14 Respondent insurance company's contention that the third party complaint involves extraneous matter which will only clutter. such claim of petitioner against the insurance company cannot be regarded as not related to the criminal action. An offense causes two (2) classes of injuries the first is the social injury produced by the criminal act which is sought to be repaired thru the imposition of the corresponding penalty. under the insurance policy. The questioned order dated 24 April 1987 is SET ASIDE and a new one entered admitting petitioner's third party complaint against the private respondent Makati Insurance Company. If it appears probable that a second action will result if the plaintiff prevails.

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