sec. 1 to 20 of insurance code full text cases

Title I TO III (Sections 1 – 25), P.D. 1460 [ ] ATTY. TAYAG

A. Interpretation of insurance contracts; contract of adhesion:

[G.R. No. 119599. March 20, 1997]

MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON.

COURT OFAPPEALS and TKC MARKETING

CORPORATION,respondents.

D E C I S I O N

ROMERO, J.:

Assailed in this petition for review on certiorari is the decision of the

Court of Appeals in CA-G.R. No. 43023[1] which affirmed, with slight

modification, the decision of the Regional Trial Court of Cebu, Branch

15.

Private respondent TKC Marketing Corp. was the owner/consignee of

some 3,189.171metric tons of soya bean meal which was loaded on

board the ship MV Al Kaziemah on or about September 8, 1989 for

carriage from the port of Rio del Grande, Brazil, to theport of Manila.

Said cargo was insured against the risk of loss by petitioner Malayan

Insurance Corporation for which it issued two (2) Marine Cargo Policy

Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP

97800306 amounting to P1,195,005.45, both dated September 1989.

While the vessel was docked in Durban, South Africa on September

11, 1989 enroute to Manila, the civil authorities arrested and detained

it because of a lawsuit on a question of ownership and possession. As

a result, private respondent notified petitioner on October 4, 1989 of

the arrest of the vessel and made a formal claim for the amount

ofUS$916,886.66, representing the dollar equivalent on the policies,

for non-delivery of the cargo. Private respondent likewise sought the

assistance of petitioner on what to do with the cargo.

Petitioner replied that the arrest of the vessel by civil authority was not

a peril covered by the policies. Private respondent, accordingly,

advised petitioner that it might tranship the cargo and requested an

extension of the insurance coverage until actual transhipment, which

extension was approved upon payment of additional premium. The

insurance coverage was extended under the same terms and

conditions embodied in the original policies while in the process of

making arrangements for the transhipment of the cargo from Durban

to Manila, covering the period October 4-December 19, 1989.

However, on December 11, 1989, the cargo was sold in Durban,

South Africa, for US$154.40 per metric ton or a total of

P10,304,231.75 due to its perishable nature which could no longer

stand a voyage of twenty days to Manila and another twenty days for

the discharge thereof. On January 5, 1990, private respondent

forthwith reduced its claim to US$448,806.09 (or its peso equivalent

of P9,879,928.89 at the exchange rate of P22.0138 per $1.00)

representing private respondent's loss after the proceeds of the sale

were deducted from the original claim of $916,886.66

or P20,184,159.55.

Petitioner maintained its position that the arrest of the vessel by civil

authorities on a question of ownership was an excepted risk under the

http://sc.judiciary.gov.ph/jurisprudence/1997/mar1997/119599.htm#_edn1


marine insurance policies. This prompted private respondent to file a

complaint for damages praying that aside from itsclaim, it be

reimbursed the amount of P128,770.88 as legal expenses and the

interest it paid for the loan it obtained to finance the shipment

totalling P942,269.30. In addition, private respondent asked for moral

damages amounting to P200,000.00, exemplary damages amounting

to P200,000.00 and attorney's fees equivalent to 30% of what will be

awarded by the court.

The lower court decided in favor of private respondent and required

petitioner to pay, aside from the insurance claim, consequential and

liquidated damages amounting toP1,024,233.88, exemplary damages

amounting to P100,000.00, reimbursement in the amount equivalent

to 10% of whatever is recovered as attorney's fees as well as the

costs of the suit. On private respondent's motion for reconsideration,

petitioner was also required to further pay interest at the rate of 12%

per annum on all amounts due and owing to the private respondent by

virtue of the lower court decision counted from the inception of this

case until the same is paid.

On appeal, the Court of Appeals affirmed the decision of the lower

court stating that with the deletion of Clause 12 of the policies issued

to private respondent, the same became automatically covered under

subsection 1.1 of Section 1 of the Institute War Clauses. The arrests,

restraints or detainments contemplated in the former clause were

those effected by political or executive acts. Losses occasioned by riot

or ordinary judicial processes were not covered therein. In other

words, arrest, restraint or detainment within the meaning of Clause 12

(or F.C. & S. Clause) rules out detention by ordinary legal processes.

Hence, arrests by civil authorities, such as what happened in the

instant case, is an excepted risk under Clause 12 of the Institute

Cargo Clause or the F.C. & S. Clause. However, with the deletion of

Clause 12 of the Institute Cargo Clause and the consequent adoption

or institution of the Institute War Clauses (Cargo), the arrest and

seizure by judicial processes which were excluded under the former

policy became one of the covered risks.

The appellate court added that the failure to deliver the consigned

goods in the port of destination is a loss compensable, not only under

the Institute War Clause but also under the Theft, Pilferage, and Non-

delivery Clause (TNPD) of the insurance policies, as read in relation

to Section 130 of the Insurance Code and as held in Williams v. Cole.

[2]

Furthermore, the appellate court contended that since the vessel was

prevented at an intermediate port from completing the voyage due to

its seizure by civil authorities, a perilinsured against, the liability of

petitioner continued until the goods could have been transhipped. But

due to the perishable nature of the goods, it had to be promptly sold to

minimize loss. Accordingly, the sale of the goods being reasonable

and justified, it should not operate to discharge petitioner from its

contractual liability.

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



1. In ruling that the arrest of the vessel was a risk covered under the

subject insurance policies.

2. In ruling that there was constructive total loss over the cargo.

3. In ruling that petitioner was in bad faith in declining private

respondent's claim.

4. In giving undue reliance to the doctrine that insurance policies are

strictly construed against the insurer.

In assigning the first error, petitioner submits the following: (a) an

arrest by civil authority is not compensable since the term "arrest"

refers to "political or executive acts" and does not include a loss

caused by riot or by ordinary judicial process as in this case; (b) the

deletion of the Free from Capture or Seizure Clause would leave the

assured covered solely for the perils specified by the wording of the

policy itself; (c) the rationale for the exclusion of an arrest pursuant to

judicial authorities is to eliminate collusion between unscrupulous

assured and civil authorities.

As to the second assigned error, petitioner submits that any loss

which private respondent may have incurred was in the nature and

form of unrecovered acquisition value brought about by a voluntary

sacrifice sale and not by arrest, detention or seizure of the ship.

As to the third issue, petitioner alleges that its act of rejecting the

claim was a result of its honest belief that the arrest of the vessel was

not a compensable risk under the policies issued. In fact, petitioner

supported private respondent by accommodating the latter's request

for an extension of the insurance coverage, notwithstanding that it

was then under no legal obligation to do so.

Private respondent, on the other hand, argued that when it appealed

its case to the Court of Appeals, petitioner did not raise as an issue

the award of exemplary damages. It cannot now, for the first time,

raise the same before this Court. Likewise, petitioner cannot submit

for the first time on appeal its argument that it was wrong for the Court

of Appeals to have ruled the way it did based on facts that would need

inquiry into the evidence. Even if inquiry into the facts were possible,

such was not necessary because the coverage as ruled upon by the

Court of Appeals is evident from the very terms of the policies.

It also argued that petitioner, being the sole author of the policies,

"arrests" should be strictly interpreted against it because the rule is

that any ambiguity is to be taken contra proferentum. Risk policies

should be construed reasonably and in a manner as to make effective

the intentions and expectations of the parties. It added that the

policies clearly stipulate that they cover the risks of non-delivery of an

entire package and that it was petitioner itself that invited and granted

the extensions and collected premiums thereon.

The resolution of this controversy hinges on the interpretation of the

"Perils" clause of the subject policies in relation to the excluded risks

or warranty specifically stated therein.


By way of a historical background, marine insurance developed as an

all-risk coverage, using the phrase "perils of the sea" to encompass

the wide and varied range of risks that were covered.[3] The subject

policies contain the "Perils" clause which is a standard form in any

marine insurance policy. Said clause reads:

"Touching the adventures which the said MALAYAN INSURANCE

CO., are content to bear, and to take upon them in this voyage; they

are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves,

Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the

Sea, Arrests, Restraints and Detainments of all Kings, Princess and

Peoples, of what Nation, condition, or quality soever, Barratry of the

Master and Mariners, and of all other Perils, Losses, and Misfortunes,

that have come to hurt, detriment, or damage of the said goods and

merchandise or any part thereof . AND in case of any loss or

misfortune it shall be lawful to the ASSURED, their factors, servants

and assigns, to sue, labour, and travel for, in and about the defence,

safeguards, and recovery of the said goods and merchandises, and

ship, & c., or any part thereof, without prejudice to this INSURANCE;

to the charges whereof the said COMPANY, will contribute according

to the rate and quantity of the sum herein INSURED. AND it is

expressly declared and agreed that no acts of the Insurer or Insured

in recovering, saving, or preserving the Property insured shall be

considered as a Waiver, or Acceptance of Abandonment. And it is

agreed by the said COMPANY, that this writing or Policy of

INSURANCE shall be of as much Force and Effect as the surest

Writing or Policy of INSURANCE made in LONDON. And so the said

MALAYAN INSURANCE COMPANY, INC., are contented, and do

hereby promise and bind themselves, their Heirs, Executors, Goods

and Chattel, to the ASSURED, his or their Executors, Administrators,

or Assigns, for the true Performance of the Premises; confessing

themselves paid the Consideration due unto them for this

INSURANCE at and after the rate arranged." (Underscoring supplied)

The exception or limitation to the "Perils" clause and the "All other

perils" clause in the subject policies is specifically referred to as

Clause 12 called the "Free from Capture & Seizure Clause" or the

F.C. & S. Clause which reads, thus:

"Warranted free of capture, seizure, arrest, restraint or detainment,

and the consequences thereof or of any attempt thereat; also from the

consequences of hostilities and warlike operations, whether there be

a declaration of war or not; but this warranty shall not exclude

collision, contact with any fixed or floating object (other than a mine or

torpedo), stranding, heavy weather or fire unless caused directly (and

independently of the nature of the voyage or service which the vessel

concerned or, in the case of a collision, any other vessel involved

therein is performing) by a hostile act by or against a belligerent

power and for the purpose of this warranty 'power' includes any

authorities maintaining naval, military or air forces in association with

power.

Further warranted free from the consequences of civil war, revolution,

insurrection, or civil strike arising therefrom or piracy.



Should Clause 12 be deleted, the relevant current institute war

clauses shall be deemed to form part of this insurance."

(Underscoring supplied)

However, the F. C. & S. Clause was deleted from the policies.

Consequently, the Institute War Clauses (Cargo) was deemed

incorporated which, in subsection 1.1 of Section 1, provides:

"1. This insurance covers:

1.1 The risks excluded from the standard form of English Marine

Policy by the clause warranted free of capture, seizure, arrest,

restraint or detainment, and the consequences thereof of hostilities or

warlike operations, whether there be a declaration of war or not; but

this warranty shall not exclude collision, contact with any fixed or

floating object (other than a mine or torpedo), stranding, heavy

weather or fire unless caused directly (and independently of the

nature on voyage or service which the vessel concerned or, in the

case of a collision any other vessel involved therein is performing) by

a hostile act by or against a belligerent power; and for the purpose of

this warranty 'power' includes any authority maintaining naval, military

or air forces in association with a power. Further warranted free from

the consequences of civil war, revolution, rebellion, insurrection, or

civil strike arising therefrom, or piracy."

According to petitioner, the automatic incorporation of subsection 1.1

of section 1 of the Institute War Clauses (Cargo), among others,

means that any "capture, arrest, detention, etc." pertained exclusively

to warlike operations if this Court strictly construes the heading of the

said Clauses. However, it also claims that the parties intended to

include arrests, etc. even if it were not the result of hostilities or

warlike operations. It further claims that on the strength of

jurisprudence on the matter, the term "arrests" would only cover those

arising from political or executive acts, concluding that whether private

respondent's claim is anchored on subsection 1.1 of Section 1 of the

Institute War Clauses (Cargo) or the F.C. & S. Clause, the arrest of

the vessel by judicial authorities is an excluded risk.[4]

This Court cannot agree with petitioner's assertions, particularly when

it alleges that in the "Perils" Clause, it assumed the risk of arrest

caused solely by executive or political acts of the government of the

seizing state and thereby excludes "arrests" caused by ordinary legal

processes, such as in the instant case.

With the incorporation of subsection 1.1 of Section 1 of the Institute

War Clauses, however, this Court agrees with the Court of Appeals

and the private respondent that "arrest" caused by ordinary judicial

process is deemed included among the covered risks. This

interpretation becomes inevitable when subsection 1.1 of Section 1 of

the Institute War Clauses provided that "this insurance covers the

risks excluded from the StandardForm of English Marine Policy by the

clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the

F.C. & S. Clause. Jurisprudentially, "arrests" caused by ordinary

judicial process is also a risk excluded from the Standard Form of

English Marine Policy by the F.C. & S. Clause.



Petitioner cannot adopt the argument that the "arrest" caused by

ordinary judicial process is not included in the covered risk simply

because the F.C. & S. Clause under the Institute War Clauses can

only be operative in case of hostilities or warlike operations on

account of its heading "Institute War Clauses." This Court agrees with

the Court of Appeals when it held that ". . . Although the F.C. & S.

Clause may have originally been inserted in marine policies to protect

against risks of war, (see generally G. Gilmore & C. Black, The Law of

Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in

recent years to include seizure or detention by civil authorities seems

consistent with the general purposes of the clause, x x x"[5] In fact,

petitioner itself averred that subsection 1.1 of Section 1 of the Institute

War Clauses included "arrest" even if it were not a result of hostilities

or warlike operations.[6] In this regard, since what was also excluded

in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary

judicial process, logically, such "arrest" would now become a covered

risk under subsection 1.1 of Section 1 of the Institute War Clauses,

regardless of whether or not said "arrest" by civil authorities occurred

in a state of war.

Petitioner itself seems to be confused about the application of the F.C.

& S. Clause as well as that of subsection 1.1 of Section 1 of the

Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was

"originally incorporated in insurance policies to eliminatethe risks of

warlike operations". It also averred that the F.C. & S. Clause

applies even if there be no war or warlike operations x x x"[7] In the

same vein, it contended that subsection 1.1 of Section 1 of the

Institute War Clauses (Cargo) "pertained exclusively to warlike

operations" and yet it also stated that "the deletion of the F.C. & S.

Clause and the consequent incorporation of subsection 1.1 of Section

1 of the Institute War Clauses (Cargo) was to include "arrest,

etc. even if it were not a result of hostilities or warlike operations."[8]

This Court cannot help the impression that petitioner is overly

straining its interpretation of the provisions of the policy in order to

avoid being liable for private respondent's claim.

This Court finds it pointless for petitioner to maintain its position that it

only insures risks of "arrest" occasioned by executive or political acts

of government which is interpreted as not referring to those caused by

ordinary legal processes as contained in the "Perils" Clause; deletes

the F.C. & S. Clause which excludes risks of arrest occasioned by

executive or political acts of the government and naturally, also those

caused by ordinary legal processes; and, thereafter incorporates

subsection 1.1 of Section 1 of the Institute War Clauses which now

includes in the coverage risks of arrest due to executive or political

acts of a government but then still excludes "arrests" occasioned by

ordinary legal processes when subsection 1.1 of Section 1 of said

Clauses should also have included "arrests" previously excluded from

the coverage of the F.C. & S. Clause.

It has been held that a strained interpretation which is unnatural and

forced, as to lead to an absurd conclusion or to render the policy

nonsensical, should, by all means, be avoided.[9] Likewise, it must be

borne in mind that such contracts are invariably prepared by the







companies and must be accepted by the insured in the form in which

they are written.[10] Any construction of a marine policy rendering it

void should be avoided.[11] Such policies will, therefore, be construed

strictly against the company in order to avoid a forfeiture, unless no

other result is possible from the language used.[12]

If a marine insurance company desires to limit or restrict the operation

of the general provisions of its contract by special proviso, exception,

or exemption, it should express such limitation in clear and

unmistakable language.[13] Obviously, the deletion of the F.C. & S.

Clause and the consequent incorporation of subsection 1.1 of Section

1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the

risk of arrest occasioned by ordinary judicial process was expressly

indicated as an exception in the subject policies, there would have

been no controversy with respect to the interpretation of the subject

clauses.

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

most strongly against the company.[14] Even an express exception in

a policy is to be construed against the underwriters by whom the

policy is framed, and for whose benefit the exception is introduced.

[15]

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

purpose for which the parties entered into the contract which is, to

insure against risks of loss or damage to the goods. Such

interpretation should result from the natural and reasonable meaning

of language in the policy.[16] Where restrictive provisions are open to

two interpretations, that which is most favorable to the insured is

adopted.[17]

Indemnity and liability insurance policies are construed in accordance

with the general rule of resolving any ambiguity therein in favor of the

insured, where the contract or policy is prepared by the insurer.[18] A

contract of insurance, being a contract of adhesion, par excellence,

any ambiguity therein should be resolved against the insurer; in other

words, it should be construed liberally in favor of the insured and

strictly against the insurer. Limitations of liability should be regarded

with extreme jealousy and must be construed in such a way as to

preclude the insurer from noncompliance with its obligations.[19]

In view of the foregoing, this Court sees no need to discuss the other

issues presented.

WHEREFORE, the petition for review is DENIED and the decision of

the Court ofAppeals is AFFIRMED.

SO ORDERED.












G.R. No. L-16215 June 29, 1963

SIMEON DEL ROSARIO, plaintiff-appellee,

vs.

THE EQUITABLE INSURANCE AND CASUALTY CO.,

INC., defendant-appellant.

Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.

K. V. Faylona for defendant-appellant.

PAREDES, J.:

On February 7, 1957, the defendant Equitable Insurance and

Casualty Co., Inc., issued Personal Accident Policy No. 7136 on the

life of Francisco del Rosario, alias PaquitoBolero, son of herein

plaintiff-appellee, binding itself to pay the sum of P1,000.00 to

P3,000.00, as indemnity for the death of the insured. The pertinent

provisions of the Policy, recite:

Part I. Indemnity For Death

If the insured sustains any bodily injury which is effected solely

through violent, external, visible and accidental means, and which

shall result, independently of all other causes and within sixty (60)

days from the occurrence thereof, in the Death of the Insured, the

Company shall pay the amount set opposite such injury:

Section 1. Injury sustained other than those specified

below unless excepted hereinafter. . . . . . . . P1,000.00

Section 2. Injury sustained by the wrecking or

disablement of a railroad passenger car or street

railway car in or on which the Insured is travelling as a

farepaying passenger. . . . . . . . P1,500.00

Section 3. Injury sustained by the burning of a church,

theatre, public library or municipal administration

building while the Insured is therein at the

commencement of the fire. . . . . . . . P2,000.00

Section 4. Injury sustained by the wrecking or

disablement of a regular passenger elevator car in

which the Insured is being conveyed as a passenger

(Elevator in mines excluded) P2,500.00

Section 5. Injury sustained by a stroke of lightning or by

a cyclone. . . . . . . . P3,000.00

x x x x x x x x x

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it

cover Death, Disability, Hospital fees, or Loss of Time, caused to the

insured:


. . . (h) By drowning except as a consequence of the wrecking or

disablement in the Philippine waters of a passenger steam or motor

vessel in which the Insured is travelling as a farepaying

passenger; . . . .

A rider to the Policy contained the following:

IV. DROWNING

It is hereby declared and agreed that exemption clause Letter (h)

embodied in PART VI of the policy is hereby waived by the company,

and to form a part of the provision covered by the policy.

On February 24, 1957, the insured Francisco del

Rosario, alias Paquito Bolero, while onboard the motor launch

"ISLAMA" together with 33 others, including his beneficiary in the

Policy, Remedios Jayme, were forced to jump off said launch on

account of fire which broke out on said vessel, resulting in the death

of drowning, of the insured and beneficiary in the waters of

Jolo. 1äwphï1.ñët

On April 13, 1957, Simeon del Rosario, father of the insured, and as

the sole heir, filed a claim for payment with defendant company, and

on September 13, 1957, defendant company paid to him (plaintiff) the

sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The

receipt signed by plaintiff reads —

RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO.,

INC., the sum of PESOS — ONE THOUSAND (P1,000.00) Philippine

Currency, being settlement in full for all claims and demands against

said Company as a result of an accident which occurred on February

26, 1957, insured under out ACCIDENT Policy No. 7136, causing the

death of the Assured.

In view of the foregoing, this policy is hereby surrendered and

CANCELLED.

LOSS COMPUTATION

Amount of Insurance P1,000.00

__________

v v v v v

On the same date (September 13, 1957), Atty. Vicente J. Francisco,

wrote defendant company acknowledging receipt by his client (plaintiff

herein), of the P1,000.00, butinforming said company that said

amount was not the correct one. Atty. Francisco claimed —

The amount payable under the policy, I believe should be P1,500.00

under the provision of Section 2, part 1 of the policy, based on the rule

of pari materia as the death of the insured occurred under the

circumstances similar to that provided under the aforecited section.

Defendant company, upon receipt of the letter, referred the matter to

the Insurance Commissioner, who rendered an opinion that the

liability of the company was only P1,000.00, pursuant to Section 1,

Part I of the Provisions of the policy (Exh. F, or 3). Because of the

above opinion, defendant insurance company refused to pay more


than P1,000.00. In the meantime, Atty. Vicente Francisco, in a

subsequent letter to the insurance company, asked for P3,000.00

which the Company refused, to pay. Hence, a complaint for the

recovery of the balance of P2,000.00 more was instituted with the

Court of First Instance of Rizal (Pasay City, Branch VII), praying for it

further sum of P10,000.00 as attorney's fees, expenses of litigation

and costs.

Defendant Insurance Company presented a Motion to Dismiss,

alleging that the demand or claim is set forth in the complaint had

already been released, plaintiff having received the full amount due as

appearing in policy and as per opinion of the Insurance

Commissioner. An opposition to the motion to dismiss, was presented

by plaintiff, and other pleadings were subsequently file by the parties.

On December 28, 1957, the trial court deferred action on the motion

to dismiss until termination of the trial of the case, it appearing that the

ground thereof was not indubitable. In the Answer to the complaint,

defendant company practically admitted all the allegations therein,

denying only those which stated that under the policy its liability was

P3,000.00.

On September 1, 1958, the trial court promulgated an Amended

Decision, the pertinent portions of which read —

x x x x x x x x x

Since the contemporaneous and subsequent acts of the parties show

that it was not their intention that the payment of P1,000.00 to the

plaintiff and the signing of the loss receipt exhibit "1" would be

considered as releasing the defendant completely from its liability on

the policy in question, said intention of the parties should prevail over

the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil

Code).

". . . . Under the terms of this policy, defendant company agreed to

pay P1,000.00 to P3,000.00 as indemnity for the death of the insured.

The insured died of drowning. Death by drowning is covered by the

policy the pertinent provisions of which reads as follows:

x x x x x x x x x

"Part I of the policy fixes specific amounts as indemnities in case of

death resulting from "bodily injury which is effected solely thru

violence, external, visible and accidental means" but, Part I of the

Policy is not applicable in case of death by drowning because death

by drowning is not one resulting from "bodily injury which is affected

solely thru violent, external, visible and accidental means" as "Bodily

Injury" means a cut, a bruise, or a wound and drowning is death due

to suffocation and not to any cut, bruise or wound."

x x x x x x x x x

Besides, on the face of the policy Exhibit "A" itself, death by drowning

is a ground for recovery apart from the bodily injury because death by

bodily injury is covered by Part I of the policy while death by drowning

is covered by Part VI thereof. But while the policy mentions specific

amounts that may be recovered for death for bodily injury, yet, there is


not specific amount mentioned in the policy for death thru drowning

although the latter is, under Part VI of the policy, a ground for

recovery thereunder. Since the defendant has bound itself to pay

P1000.00 to P3,000.00 as indemnity for the death of the insured but

the policy does not positively state any definite amount that may be

recovered in case of death by drowning, there is an ambiguity in this

respect in the policy, which ambiguity must be interpreted in favor of

the insured and strictly against the insurer so as to allow greater

indemnity.

x x x x x x x x x

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant

had already paid the amount of P1,000.00 to the plaintiff so that there

still remains a balance of P2,000.00 of the amount to which plaintiff is

entitled to recover under the policy Exhibit "A".

The plaintiff asks for an award of P10,000.00 as attorney's fees and

expenses of litigation. However, since it is evident that the defendant

had not acted in bad faith in refusing to pay plaintiff's claim, the Court

cannot award plaintiff's claim for attorney's fees and expenses of

litigation.

IN VIEW OF THE FOREGOING, the Court hereby reconsiders and

sets aside its decision dated July 21, 1958 and hereby renders

judgment, ordering the defendant to pay plaintiff the sum of Two

Thousand (P2,000.00) Pesos and to pay the costs.

The above judgment was appealed to the Court of Appeals on three

(3) counts. Said Court, in a Resolution dated September 29, 1959,

elevated the case to this Court, stating that the genuine issue is purely

legal in nature.

All the parties agree that indemnity has to be paid. The conflict

centers on how much should the indemnity be. We believe that under

the proven facts and circumstances, the findings and conclusions of

the trial court, are well taken, for they are supported by the generally

accepted principles or rulings on insurance, which enunciate that

where there is an ambiguity with respect to the terms and conditions

of the policy, the same will be resolved against the one responsible

thereof. It should be recalled in this connection, that generally, the

insured, has little, if any, participation in the preparation of the policy,

together with the drafting of its terms and Conditions. The

interpretation of obscure stipulations in a contract should not favor the

party who cause the obscurity (Art. 1377, N.C.C.), which, in the case

at bar, is the insurance company.

. . . . And so it has been generally held that the "terms in an insurance

policy, which are ambiguous, equivocal or uncertain . . . are to be

construed strictly against, the insurer, and liberally in favor of the

insured so as to effect the dominant purpose of indemnity or payment

to the insured, especially where a forfeiture is involved," (29 Am. Jur.

181) and the reason for this rule is that the "insured usually has no

voice in the selection or arrangement of the words employed and that

the language of the contract is selected with great care and


deliberation by expert and legal advisers employed by, and acting

exclusively in the interest of, the insurance company" (44 C.J.S.

1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16,

1955.

. . . . Where two interpretations, equally fair, of languages used in an

insurance policy may be made, that which allows the greater

indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48

Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas.

749).

At any event, the policy under consideration, covers death or disability

by accidental means, and the appellant insurance company agreed to

pay P1,000.00 to P3,000.00. is indemnity for death of the insured.

In view of the conclusions reached, it would seem unnecessary to

discuss the other issues raised in the appeal.

The judgment appealed from is hereby affirmed. Without costs.

G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.

COURT OF APPEALS and PRODUCERS BANK OF THE

PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review

on certiorari is whether the petitioner is liable under the Money,

Security, and Payroll Robbery policy it issued to the private

respondent or whether recovery thereunder is precluded under the

generalexceptions clause thereof. Both the trial court and the Court of

Appeals held that there should be recovery. The petitioner contends

otherwise.

This case began with the filing with the Regional Trial Court (RTC) of

Makati, Metro Manila, by private respondent Producers Bank of the

Philippines (hereinafter Producers) against petitioner Fortune

Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for

recovery of the sum of P725,000.00 under the policy issued by

Fortune. The sum was allegedly lost during a robbery of Producer's

armored vehicle while it was in transit to transfer the money from its

Pasay City Branch to its head office in Makati. The case was

docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render

judgment based on the following stipulation of facts:


1. The plaintiff was insured by the defendants and an insurance policy

was issued, the duplicate original of which is hereto attached as

Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring

cash in the sum of P725,000.00 under the custody of its teller,

Maribeth Alampay, from its Pasay Branch to its Head Office at 8737

Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed

of the said cash. The robbery took place while the armored car was

traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de

Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver

Magalong was assigned by PRC Management Systems with the

plaintiff by virtue of an Agreement executed on August 7, 1983, a

duplicate original copy of which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security

Services, Inc. with the plaintiff by virtue of a contract of Security

Service executed on October 25, 1982, a duplicate original copy of

which is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities,

the driver Magalong and guard Atiga were charged, together with

Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with

violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of

Pasay City. A copy of the complaint is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the

aforesaid persons with the said crime before Branch 112 of the

Regional Trial Court of Pasay City. A copy of the said information is

hereto attached as Exhibit "E." The case is still being tried as of this

date;

7. Demands were made by the plaintiff upon the defendant to pay the

amount of the loss of P725,000.00, but the latter refused to pay as the

loss is excluded from the coverage of the insurance policy, attached

hereto as Exhibit "A," specifically under page 1 thereof, "General

Exceptions" Section (b), which is marked as Exhibit "A-1," and which

reads as follows:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the

insured or any officer, employee, partner, director, trustee or

authorized representative of the Insured whether acting alone or in

conjunction with others. . . .

8. The plaintiff opposes the contention of the defendant and contends

that Atiga and Magalong are not its "officer, employee, . . . trustee or

authorized representative . . . at the time of the robbery. 1

On 26 April 1990, the trial court rendered its decision in favor of

Producers. The dispositive portion thereof reads as follows:


WHEREFORE, premises considered, the Court finds for plaintiff and

against defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as

liability under Policy No. 0207 (as mitigated by the P40,000.00 special

clause deduction and by the recovered sum of P145,000.00), with

interest thereon at the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for

attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed

forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or

representatives of Producers. It Said:

The Court is satisfied that plaintiff may not be said to have selected

and engaged Magalong and Atiga, their services as armored car

driver and as security guard having been merely offered by PRC

Management and by Unicorn Security and which latter firms assigned

them to plaintiff. The wages and salaries of both Magalong and Atiga

are presumably paid by their respective firms, which alone wields the

power to dismiss them. Magalong and Atiga are assigned to plaintiff in

fulfillment of agreements to provide driving services and property

protection as such — in a context which does not impress the Court

as translating into plaintiff's power to control the conduct of any

assigned driver or security guard, beyond perhaps entitling plaintiff to

request are replacement for such driver guard. The finding is

accordingly compelled that neither Magalong nor Atiga were plaintiff's

"employees" in avoidance of defendant's liability under the policy,

particularly the general exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver

Magalong and guard Atiga were the "authorized representatives" of

plaintiff. They were merely an assigned armored car driver and

security guard, respectively, for the June 29, 1987 money transfer

from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly

— it was teller Maribeth Alampay who had "custody" of the

P725,000.00 cash being transferred along a specified money route,

and hence plaintiff's then designated "messenger" adverted to in the

policy. 3

Fortune appealed this decision to the Court of Appeals which

docketed the case as CA-G.R. CV No. 32946. In its

decision 4 promulgated on 3 May 1994, it affirmed in toto the

appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that

Magalong and Atiga were neither employees nor authorized

representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of

the insured and strictly against the insurance company (New Life


Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance

Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of

insurance, like other contracts, are to be construed according to the

sense and meaning of the terms which the parties themselves have

used. If such terms are clear and unambiguous, they must be taken

and understood in their plain, ordinary and popular sense (New Life

Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court

of Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted

stipulation is plain, ordinary and simple. No other interpretation is

necessary. The word "employee" must be taken to mean in the

ordinary sense.

The Labor Code is a special law specifically dealing with/and

specifically designed to protect labor and therefore its definition as to

employer-employee relationships insofar as the

application/enforcement of said Code is concerned must necessarily

be inapplicable to an insurance contract which defendant-appellant

itself had formulated. Had it intended to apply the Labor Code in

defining what the word "employee" refers to, it must/should have so

stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of

plaintiff-appellee bank because it has no power to hire or to dismiss

said driver and security guard under the contracts (Exhs. 8 and C)

except only to ask for their replacements from the contractors. 5

On 20 June 1994, Fortune filed this petition for review on certiorari. It

alleges that the trial court and the Court of Appeals erred in holding it

liable under the insurance policy because the loss falls within the

general exceptions clause considering that driver Magalong and

security guard Atiga were Producers' authorized representatives or

employees in the transfer of the money and payroll from its branch

office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a

driver to transfer its funds from one branch to another, they effectively

and necessarily became its authorized representatives in the care and

custody of the money. Assuming that they could not be considered

authorized representatives, they were, nevertheless, employees of

Producers. It asserts that the existence of an employer-employee

relationship "is determined by law and being such, it cannot be the

subject of agreement." Thus, if there was in reality an employer-

employee relationship between Producers, on the one hand, and

Magalong and Atiga, on the other, the provisions in the contracts of

Producers with PRC Management System for Magalong and with

Unicorn Security Services for Atigawhich state that Producers is not

their employer and that it is absolved from any liability as an

employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends

upon four standards: (1) the manner of selection and engagement of

the putative employee; (2) the mode of payment of wages; (3) the

presence or absence of a power to dismiss; and (4) the presence and


absence of a power to control the putative employee's conduct. Of the

four, the right-of-control test has been held to be the decisive

factor. 6 It asserts that the power of control over Magalong and Atiga

was vested in and exercised by Producers. Fortune further insists that

PRC Management System and Unicorn Security Services are but

"labor-only" contractors under Article 106 of the Labor Code which

provides:

Art. 106. Contractor or subcontractor. — There is "labor-only"

contracting where the person supplying workers to an employer does

not have substantial capital or investment in the form of tools,

equipment, machineries, work premises, among others, and the

workers recruited and placed by such persons are performing

activities which are directly related to the principal business of such

employer. In such cases, the person or intermediary shall be

considered merely as an agent of the employer who shall be

responsible to the workers in the same manner and extent as if the

latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of

Producers, following the ruling in International Timber

Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only"

contractor is equivalent to a finding that there is an employer-

employeerelationship between the owner of the project and the

employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were

not its employees since it had nothing to do with their selection and

engagement, the payment of their wages, their dismissal, and the

control of their conduct. Producers argued that the rule in International

Timber Corp. is not applicable to all cases but only when it becomes

necessary to prevent any violation or circumvention of the Labor

Code, a social legislation whose provisions may set aside contracts

entered into by parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule

in American President Lines vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the

following elements are generally considered, namely: (1) the selection

and engagement of the employee; (2) the payment of wages; (3) the

power of dismissal; and (4) the power to control the employee's

conduct.

Since under Producers' contract with PRC Management Systems it is

the latter which assigned Magalong as the driver of Producers'

armored car and was responsible for his faithful discharge of his

duties and responsibilities, and since Producers paid the monthly

compensation of P1,400.00 per driver to PRC Management Systems

and not to Magalong, it is clear that Magalong was not Producers'

employee. As to Atiga, Producersrelies on the provision of its contract

with Unicorn Security Services which provides that the guards of the

latter "are in no sense employees of the CLIENT."

There is merit in this petition.


It should be noted that the insurance policy entered into by the parties

is a theft or robbery insurance policy which is a form of casualty

insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability

arising from accident or mishap, excluding certain types of loss which

by law or custom are considered as falling exclusively within the

scope of insurance such as fire or marine. It includes, but is not

limited to, employer's liability insurance, public liability insurance,

motor vehicle liability insurance, plate glass insurance, burglary and

theft insurance, personal accident and health insurance as written by

non-life insurance companies, and other substantially similar kinds of

insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance,

the Insurance Code contains no other provisions applicable to

casualty insurance or to robbery insurance in particular. These

contracts are, therefore, governed by the general provisions

applicable to all types of insurance. Outside of these, the rights and

obligations of the parties must be determined by the terms of their

contract, taking into consideration its purpose and always in

accordance with the general principles of insurance law. 9

It has been aptly observed that in burglary, robbery, and theft

insurance, "the opportunity to defraud the insurer — the moral hazard

— is so great that insurers have found it necessary to fill up their

policies with countless restrictions, many designed to reduce this

hazard. Seldom does the insurer assume the risk of all losses due to

the hazards insured against." 10 Persons frequently excluded under

such provisions are those in the insured's service and

employment. 11 The purpose of the exception is to guard against

liability should the theft be committed by one having unrestricted

access to the property. 12 In such cases, the terms specifying the

excluded classes are to be given their meaning as understood in

common speech. 13 The terms "service" and "employment" are

generally associated with the idea of selection, control, and

compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity

therein should be resolved against the insurer, 15 or it should be

construed liberally in favor of the insured and strictly against the

insurer. 16 Limitations of liability should be regarded with extreme

jealousy and must be construed

in such a way, as to preclude the insurer from non-compliance with its

obligation. 17 It goes without saying then that if the terms of the

contract are clear and unambiguous, there is no room for construction

and such terms cannot be enlarged or diminished by judicial

construction. 18

An insurance contract is a contract of indemnity upon the terms and

conditions specified therein. 19 It is settled that the terms of the policy

constitute the measure of the insurer's liability. 20 In the absence of

statutory prohibition to the contrary, insurance companies have the

same rights as individuals to limit their liability and to impose whatever


conditions they deem best upon their obligations not inconsistent with

public policy.

With the foregoing principles in mind, it may now be asked whether

Magalong and Atiga qualify as employees or authorized

representatives of Producers under paragraph (b) of the general

exceptions clause of the policy which, for easy reference, is again

quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the

insured or any officer, employee, partner, director, trustee or

authorized representative of the Insured whether acting alone or in

conjunction with others. . . . (emphases supplied)

There is marked disagreement between the parties on the correct

meaning of the terms "employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its

intention to exclude and exempt from protection and coverage losses

arising from dishonest, fraudulent, or criminal acts of persons granted

or having unrestricted access to Producers' money or payroll. When it

used then the term "employee," it must have had in mind any

personwho qualifies as such as generally and universally understood,

or jurisprudentially established in the light of the four standards in the

determination of the employer-employee relationship, 21 or as

statutorily declared even in a limited sense as in the case of Article

106 of the Labor Code which considers the employees under a "labor-

only" contract as employees of the party employing them and not of

the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management

Systems and Unicorn Security Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not

the employer of Magalong. Notwithstanding such express assumption

of PRC Management Systems and Unicorn Security Services that the

drivers and the security guards each shall supply to Producers are not

the latter's employees, it may, in fact, be that it is because the

contracts are, indeed, "labor-only" contracts. Whether they are is, in

the light of the criteria provided for in Article 106 of the Labor Code, a

question of fact. Since the parties opted to submit the case for

judgment on the basis of their stipulation of facts which are strictly

limited to the insurance policy, the contracts with PRC Management

Systems and Unicorn Security Services, the complaint for violation of

P.D. No. 532, and the information therefor filed by the City Fiscal of

Pasay City, there is a paucity of evidence as to whether the contracts

between Producers and PRC Management Systems and Unicorn

Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were

not "labor-only" contracts, and PRC Management Systems and

Unicorn Security Services were truly independent contractors, we are


satisfied that Magalong and Atiga were, in respect of the transfer of

Producer's money from its Pasay City branch to its headoffice in

Makati, its "authorized representatives" who served as such with its

teller Maribeth Alampay. Howsoever viewed, Producers entrusted the

three with the specific duty to safely transfer the money to its head

office, with Alampay to be responsible for its custody in transit;

Magalong to drive the armored vehicle which would carry the money;

and Atiga to provide the needed security for the money, the vehicle,

and his two other companions. In short, for these particular tasks, the

three acted as agents of Producers. A "representative" is defined as

one who represents or stands in the place of another; one who

represents others or another in a special capacity, as an agent, and is

interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the

general exceptions clause of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The

decision of the Court of Appeals in CA-G.R. CV No. 32946 dated 3

May 1994 as well as that of Branch 146 of the Regional Trial Court of

Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The

complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 75605 January 22, 1993

RAFAEL (REX) VERENDIA, petitioner,

vs.

COURT OF APPEALS and FIDELITY & SURETY CO. OF THE

PHILIPPINES, respondents.

G.R. No. 76399 January 22, 1993

FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,

vs.

RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.

B.L. Padilla for petitioner.

Sabino Padilla, Jr. for Fidelity & Surety, Co.

MELO, J.:

The two consolidated cases involved herein stemmed from the

issuance by Fidelity and Surety Insurance Company of the Philippines

(Fidelity for short) of its Fire Insurance Policy No. F-18876 effective


between June 23, 1980 and June 23, 1981 covering Rafael (Rex)

Verendia's residential building located at Tulip Drive, Beverly Hills,

Antipolo, Rizal in the amount of P385,000.00. Designated as

beneficiary was the Monte de Piedad & Savings Bank. Verendia also

insured the same building with two other companies, namely, The

Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-

1913 expiring on May 12, 1981, and The Development Insurance for

P400,000.00 under Policy No. F-48867 expiring on June 30, 198l.

While the three fire insurance policies were in force, the insured

property was completely destroyed by fire on the early morning of

December 28, 1980. Fidelity was accordingly informed of the loss and

despite demands, refused payment under its policy, thus prompting

Verendia to file a complaint with the then Court of First Instance of

Quezon City, praying for payment of P385,000.00, legal interest

thereon, plus attorney's fees and litigation expenses. The complaint

was later amended to include Monte de Piedad as an "unwilling

defendant" (P. 16, Record).

Answering the complaint, Fidelity, among other things, averred that

the policy was avoided by reason of over-insurance; that Verendia

maliciously represented that the building at the time of the fire was

leased under a contract executed on June 25, 1980 to a certain

Roberto Garcia, when actually it was a Marcelo Garcia who was the

lessee.

On May 24, 1983, the trial court rendered a decision, per Judge

Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses

set up by Fidelity, the trial court ruled that Paragraph 3 of the policy

was also violated by Verendia in that the insured failed to inform

Fidelity of his other insurance coverages with Country Bankers

Insurance and Development Insurance.

Verendia appealed to the then Intermediate Appellate Court and in a

decision promulgated on March 31, 1986, (CA-G.R. No. CV No.

02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate

court reversed for the following reasons: (a) there was no

misrepresentation concerning the lease for the contract was signed by

Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of

the policy contract requiring Verendia to give notice to Fidelity of other

contracts of insurance was waived by Fidelity as shown by its conduct

in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R.

No. 76399).

Fidelity received a copy of the appellate court's decision on April 4,

1986, but instead of directly filing a motion for reconsideration within

15 days therefrom, Fidelity filed on April 21, 1986, a motion for

extension of 3 days within which to file a motion for reconsideration.

The motion for extension was not filed on April 19, 1986 which was

the 15th day after receipt of the decision because said 15th day was a

Saturday and of course, the following day was a Sunday (p.

14., Rollo of G.R. No. 75605). The motion for extension was granted

by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had

in the meantime filed its motion for reconsideration on April 24, 1986

(p. 16, ibid.).


Verendia filed a motion to expunge from the record Fidelity's motion

for reconsideration on the ground that the motion for extension was

filed out of time because the 15th day from receipt of the decision

which fell on a Saturday was ignored by Fidelity, for indeed, so

Verendia contended, the Intermediate Appellate Court has personnel

receiving pleadings even on Saturdays.

The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and

after a motion for reconsideration was similarly brushed aside on July

22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No.

75605 was initiated. Subsequently, or more specifically on October

21, 1986, the appellate court denied Fidelity's motion for

reconsideration and account thereof. Fidelity filed on March 31, 1986,

the petition for review on certiorari now docketed as G.R. No. 76399.

The two petitions, inter-related as they are, were consolidated

(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.

Before we can even begin to look into the merits of the main case

which is the petition for review oncertiorari, we must first determine

whether the decision of the appellate court may still be reviewed, or

whether the same is beyond further judicial scrutiny. Stated otherwise,

before anything else, inquiry must be made into the issue of whether

Fidelity could have legally asked for an extension of the 15-day

reglementary period for appealing or for moving for reconsideration.

As early as 1944, this Court through Justice Ozaeta already

pronounced the doctrine that the pendency of a motion for extension

of time to perfect an appeal does not suspend the running of the

period sought to be extended (Garcia vs. Buenaventura 74 Phil. 611

[1944]). To the same effect were the rulings in Gibbs vs. CFI of

Manila (80 Phil. 160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]),

and Joe vs. King (20 SCRA 1120 [1967]).

The above cases notwithstanding and because the Rules of Court do

not expressly prohibit the filing of a motion for extension of time to file

a motion for reconsideration in regard to a final order or judgment,

magistrates, including those in the Court of Appeals, held sharply

divided opinions on whether the period for appealing which also

includes the period for moving to reconsider may be extended. The

matter was not definitely settled until this Court issued its Resolution

in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]),

declaring that beginning one month from the promulgation of the

resolution on May 30, 1986 —

. . . the rule shall be strictly enforced that no motion for extension of

time to file a motion for new trial or reconsideration shall be filed . . .

(at p. 212.)

In the instant case, the motion for extension was filed and granted

before June 30, 1986, although, of course, Verendia's motion to

expunge the motion for reconsideration was not finally disposed until

July 22, 1986, or after the dictum in Habaluyas had taken effect.

Seemingly, therefore, the filing of the motion for extension came

before its formal proscription under Habaluyas, for which reason we

now turn our attention to G.R. No. 76399.


Reduced to bare essentials, the issues Fidelity raises therein are: (a)

whether or not the contract of lease submitted by Verendia to support

his claim on the fire insurance policy constitutes a false declaration

which would forfeit his benefits under Section 13 of the policy and (b)

whether or not, in submitting the subrogation receipt in evidence,

Fidelity had in effect agreed to settle Verendia's claim in the amount

stated in said receipt. 1

Verging on the factual, the issue of the veracity or falsity of the lease

contract could have been better resolved by the appellate court for, in

a petition for review on certiorari under Rule 45, the jurisdiction of this

Court is limited to the review of errors of law. The appellate court's

findings of fact are, therefore, conclusive upon this Court except in the

following cases: (1) when the conclusion is a finding grounded entirely

on speculation, surmises, or conjectures; (2) when the inference

made is manifestly absurd, mistaken, or impossible; (3) when there is

grave abuse of discretion in the appreciation of facts; (4) when the

judgment is premised on a misapprehension of facts; (5) when the

findings of fact are conflicting; and (6) when the Court of Appeals in

making its findings went beyond the issues of the case and the same

are contrary to the admissions of both appellant and appellee

(Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view of the

conflicting findings of the trial court and the appellate court on

important issues in these consolidated cases and it appearing that the

appellate court judgment is based on a misapprehension of facts, this

Court shall review the evidence on record.

The contract of lease upon which Verendia relies to support his claim

for insurance benefits, was entered into between him and one Robert

Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a

couple of days after the effectivity of the insurance policy. When the

rented residential building was razed to the ground on December 28,

1980, it appears that Robert Garcia (or Roberto Garcia) was still

within the premises. However, according to the investigation report

prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the

building appeared to have "no occupant" and that Mr. Roberto Garcia

was "renting on the otherside (sic) portion of said compound"

(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated

testimony that Marcelo Garcia, whom he considered as the real

lessee, was occupying the building when it was burned (TSN, July 27,

1982, p.10).

Robert Garcia disappeared after the fire. It was only on October 9,

1981 that an adjuster was able to locate him. Robert Garcia then

executed an affidavit before the National Intelligence and Security

Authority (NISA) to the effect that he was not the lessee of Verendia's

house and that his signature on the contract of lease was a complete

forgery. Thus, on the strength of these facts, the adjuster submitted a

report dated December 4, 1981 recommending the denial of

Verendia's claim (Exh. "2").

Ironically, during the trial, Verendia admitted that it was not Robert

Garcia who signed the lease contract. According to Verendia, it was

signed by Marcelo Garcia, cousin of Robert, who had been paying the


rentals all the while. Verendia, however, failed to explain why Marcelo

had to sign his cousin's name when he in fact was paying for the rent

and why he (Verendia) himself, the lessor, allowed such a ruse.

Fidelity's conclusions on these proven facts appear, therefore, to have

sufficient bases; Verendia concocted the lease contract to deflect

responsibility for the fire towards an alleged "lessee", inflated the

value of the property by the alleged monthly rental of P6,500 when in

fact, the Provincial Assessor of Rizal had assessed the property's fair

market value to be only P40,300.00, insured the same property with

two other insurance companies for a total coverage of around

P900,000, and created a dead-end for the adjuster by the

disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance contract is the law

between the parties (Pacific Banking Corporation vs. Court of Appeals

168 SCRA 1 [1988]). Its terms and conditions constitute the measure

of the insurer's liability and compliance therewith is a condition

precedent to the insured's right to recovery from the insurer (Oriental

Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991],

citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185

SCRA 741 [1991]). As it is also a contract of adhesion, an insurance

contract should be liberally construed in favor of the insured and

strictly against the insurer company which usually prepares it

(Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652

[1980]).

Considering, however, the foregoing discussion pointing to the fact

that Verendia used a false lease contract to support his claim under

Fire Insurance Policy No. F-18876, the terms of the policy should be

strictly construed against the insured. Verendia failed to live by the

terms of the policy, specifically Section 13 thereof which is expressed

in terms that are clear and unambiguous, that all benefits under the

policy shall be forfeited "If the claim be in any respect fraudulent, or if

any false declaration be made or used in support thereof, or if any

fraudulent means or devises are used by the Insured or anyone acting

in his behalf to obtain any benefit under the policy". Verendia, having

presented a false declaration to support his claim for benefits in the

form of a fraudulent lease contract, he forfeited all benefits therein by

virtue of Section 13 of the policy in the absence of proof that Fidelity

waived such provision (Pacific Banking Corporation vs. Court of

Appeals, supra). Worse yet, by presenting a false lease contract,

Verendia, reprehensibly disregarded the principle that insurance

contracts areuberrimae fidae and demand the most abundant good

faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).

There is also no reason to conclude that by submitting the

subrogation receipt as evidence in court, Fidelity bound itself to a

"mutual agreement" to settle Verendia's claims in consideration of the

amount of P142,685.77. While the said receipt appears to have been

a filled-up form of Fidelity, no representative of Fidelity had signed it. It

is even incomplete as the blank spaces for a witness and his address

are not filled up. More significantly, the same receipt states that

Verendia had received the aforesaid amount. However, that Verendia


had not received the amount stated therein, is proven by the fact that

Verendia himself filed the complaint for the full amount of

P385,000.00 stated in the policy. It might be that there had been

efforts to settle Verendia's claims, but surely, the subrogation receipt

by itself does not prove that a settlement had been arrived at and

enforced. Thus, to interpret Fidelity's presentation of the subrogation

receipt in evidence as indicative of its accession to its "terms" is not

only wanting in rational basis but would be substituting the will of the

Court for that of the parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The

petition in G.R. No. 76399 is GRANTED and the decision of the then

Intermediate Appellate Court under review is REVERSED and SET

ASIDE and that of the trial court is hereby REINSTATED and

UPHELD.

SO ORDERED.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

# Footnotes

1 Fidelity appears to have agreed with the appellate court that it had

waived Verendia's failure to abide by policy condition No. 3 on

disclosure of other insurance policies by its failure to assign it as an

error in the petition in G.R. No. 76399. It must have likewise realized

the futility of assigning it as an error because on the first page of the

policy the following is typewritten: "Other insurances allowed, the

amounts to be declared in the event of loss or when required."

G.R. No. 94071 March 31, 1992

NEW LIFE ENTERPRISES and JULIAN SY, petitioners,

vs.

HON. COURT OF APPEALS, EQUITABLE INSURANCE

CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC.

and WESTERN GUARANTY CORPORATION, respondents.

REGALADO, J.:

This appeal by certiorari seeks the nullification of the

decision 1 of respondent Court of Appeals in CA-G.R. CV No. 13866

which reversed the decision of the Regional Trial Court, Branch LVII

at Lucena City, jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84

thereof and consequently ordered the dismissal of the aforesaid

actions filed by herein petitioners.


The undisputed background of this case as found by the court a

quo and adopted by respondent court, being sustained by the

evidence on record, we hereby reproduce the same with approval. 2

The antecedents of this case show that Julian Sy and Jose Sy Bang

have formed a business partnership in the City of Lucena. Under the

business name of New Life Enterprises, the partnership engaged

in the sale of construction materials at its place of business, a two

storey building situated at Iyam, Lucena City. The facts show that

Julian Sy insured the stocks in trade of New Life Enterpriseswith

Western Guaranty Corporation, Reliance Surety and Insurance. Co.,

Inc., and Equitable Insurance Corporation.

On May 15, 1981, Western Guaranty Corporation

issued Fire Insurance Policy No. 37201 in the amount of P350,000.00.

This policy was renewed on May, 13, 1982.

On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire

Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed

under Renewal Certificate No. 41997) An additional

insurancewas issued by the same company on

November 12, 1981 under Fire Insurance Policy No. 71547 in the

amount of P700,000.00.

On February 8, 1982, Equitable Insurance

Corporation issued Fire Insurance Policy No. 39328 in the amount of

P200,000.00.

Thus when the building occupied by the New Life Enterprises

was gutted by fire at about 2:00

o'clockin the morning of October 19, 1982, the stocks in the

trade inside said building were insured against

fire in the total amount of P1,550,000.00.

According to the certification issued by the Headquarters,Philippine

Constabulary /Integrated National Police,

Camp Crame, the cause of fire was

electrical innature. According to the plaintiffs,

the building and the stocks inside were burned.

After the fire, JulianSy went to the agent of

Reliance Insurance whom he asked to accompany him to the

office of thecompany so that he can file

his claim. He averred that in support of his claim, he

submitted the fireclearance, the insurance policies and inventory

of stocks. He further testified that the three insurance companies are

sister companies, and as a matter of fact when he was following-

up his claim with Equitable Insurance, the Claims Manager told him to

go first to Reliance Insurance and if saidcompany agrees to pay, they

would also pay. The same treatment was given him

by the otherinsurance

companies. Ultimately, the three insurance companies denied

plaintiffs' claim for payment.

In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-

84) Western Guaranty Corporationthrough Claims Manager Bernard S

. Razon told the plaintiff that his claim "is


denied for breach ofpolicy conditions." Reliance Insurance purveyed

the same message in its letter dated November 23,

1982 and signed by Executive Vice-President Mary Dee

Co (Exhibit "C" No. 7-84) which said that "plaintiff's

claim is denied for breach of policy conditions."

The letter of denial received by the plaintifffrom Equitable Insurance

Corporation (Exhibit "C" No. 6-84) was of the same tenor, as said

letter dated February 22, 1983, and signed by Vice-President

Elma R. Bondad, said "we find that certain

policy conditions were violated, therefore, we regret,

we have to deny your claim, as it is hereby denied in its entirety."

In relation to the case against Reliance

Surety and Insurance Company, a certain Atty. Serafin

D.Dator, acting in behalf of the

plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 7-

84) toExecutive Vice-President Mary Dee Co asking that he

be informed as to the specific policy conditions allegedly

violated by the plaintiff. In her reply-letter dated March

30, 1983, Executive Vice-PresidentMary Dee Co informed Atty.

Dator that Julian Sy violated Policy Condition No.

"3" which requires theinsured

to give notice of any insurance or insurances already effected

covering the stocks in trade. 3

Because of the denial of their claims for payment by the three

(3) insurance companies, petitioner filed separate

civil actions against the former before the Regional Trial

Court of Lucena City, which cases were consolidated for trial,

and thereafter the court below rendered its decision on December 19,

l986 with the following disposition:

WHEREFORE, judgment in the above-entitled cases is rendered in

the following manner, viz:

1. In Civil Case No. 6-84, judgment is rendered for the

plaintiff New Life Enterprises and against the defendant Equitable

Insurance Corporation ordering the latter to pay the former the sum of

TwoHundred Thousand (P200,000.00) Pesos and

considering that payment of the claim of the insuredhas been unreaso

nably denied, pursuant to Sec. 244 of the Insurance Code, defendant i

s furtherordered to pay the plaintiff attorney's fees in the amount of

Twenty Thousand (P20,000.00)

Pesos. Allsums of money to be paid by virtue

hereof shall bear interest at 12% per annum (pursuant

to Sec.244 of the Insurance Code) from

February 14, 1983, (91st day from November 16,

1982, when SwornStatement of Fire Claim

was received from the insured) until they are fully paid;

2. In Civil Case No. 7-

84, judgment is rendered for the plaintiff Julian Sy and against

the defendantReliance Surety and Insurance Co.,

Inc., ordering the latter to pay the former the sum

ofP1,000,000.00 (P300,000.00 under Policy


No. 69135 and P700,000.00 under Policy No. 71547)

andconsidering that payment of the claim of the

insured has been unreasonably denied, pursuant to

Sec.244 of the Insurance Code, defendant is further ordered

to pay the plaintiff the amount of P100,000.00 as attorney's fees.

All sums of money to be paid by virtue hereof shall

bear interest at 12% per annum (pursuant to Sec.

244 of the Insurance Code) from February 14, 1983,

(91st day from November 16,

1982 when SwornStatement of Fire Claim was received from the

insured) until they are fully paid;

3. In Civil Case No. 8-84, judgment is rendered for

the plaintiff New Life Enterprises and against thedefendant Western G

uaranty Corporation ordering the latter to pay the sum of P350,000.00

to theConsolidated Bank and Trust Corporation,

Lucena Branch, Lucena City, as stipulated on the

face ofPolicy No. 37201, and considering that payment of the

aforementioned sum of money has been

unreasonably denied, pursuant to Sec. 244 of the Insurance Code,

defendant is further ordered topay the

plaintiff attorney's fees in the amount of P35,000.00.

All sums of money to be paid by virtue hereof shall bear interest at

12% per annum (pursuant to Sec. 244 of the Insurance

Code) from February 5, 1982, (91st day from 1st week of November

1983 when insured filed formal claim for full indemnity according to

adjuster Vetremar Dela Merced) until they are fully paid. 4

As aforestated, respondent Court of Appeals reversed

said judgment of the trial court, hence this petition the cruxwherein is

whether or not Conditions Nos. 3 and 27 of

the insurance contracts were violated by petitioners thereby resulting

in their forfeiture of all the benefits thereunder.

Condition No. 3 of said insurance policies, otherwise known as

the "Other Insurance Clause," is uniformlycontained

in all the aforestated insurance contracts of herein petitioners, as

follows:

3. The insured shall give notice to the Company

of any insurance or insurances already effected, orwhich

may subsequently be effected, covering any of the property or

properties consisting of stocksin trade, goods in process

and/or inventories only hereby insured, and unless

such notice be givenand the particulars of such

insurance or insurances be stated therein or endorsed on this policy

pursuant to Section 50 of the Insurance

Code, by or on behalf of the Company

before the occurrenceof any loss or damage, all benefits

under this policy shall be deemed forfeited, provided however, that

this condition shall not apply when the total insurance or insurances in

force at the time of loss ordamage not more than P200,000.00. 5


Petitioners admit that the respective insurance policies

issued by private respondents did not state or endorse thereon

the other insurance coverage obtained or subsequently effected on

the same stocks in trade for the loss of which

compensation is claimed by petitioners. 6 The policy

issued by respondent Western Guaranty Corporation(Western) did not

declare respondent Reliance Surety and Insurance Co., Inc.

(Reliance) and respondent Equitable Insurance

Corporation (Equitable) as co-insurers on the same stocks,

while Reliance's Policies covering the same stocks didnot

likewise declare Western and Equitable as such co-insurers. It is

further admitted by petitioners that Equitable's policy stated "nil" in the

space thereon requiring indication of any co-insurance although

there were three (3) policies subsisting on the same stocks in trade

at the time of the loss, namely, that of Western in

the amount of P350,000.00 and two (2) policies of Reliance in the

total amount of P1,000,000.00. 7

In other words, the coverage by other insurance or co-insurance

effected or subsequently arranged by petitioners were

neither stated nor endorsed in the policies of the three (3) private

respondents, warranting forfeiture of all benefits

thereunder if we are to follow the express stipulation in the

aforequoted Policy Condition No. 3.

Petitioners contend that they are not to be blamed for the omissions,

alleging that insurance agent Leon Alvarez (for Western) and Yap

Kam Chuan (for Reliance and Equitable) knew about the existence of

the additional insurance coverage and that they were not

informed about the requirement that such other or additional

insurance should be stated in the

policy, as they have not even read policies. 8 These contentions

cannot pass judicial muster.

The terms of the contract are clear and unambiguous.

The insured is specifically required to disclose to the insurer any other

insurance and its particulars which he may have effected on the

same subject matter. Theknowledge of such insurance

by the insurer's agents, even assuming the acquisition thereof by the

former, is notthe "notice" that would estop the insurers from denying

the claim. Besides, the so-called theory of imputed knowledge, that is,

knowledge of the agent is

knowledge of the principal, aside from being

of dubious applicabilityhere has likewise been roundly

refuted by respondent court whose factual findings we find

acceptable.

Thus, it points out that while petitioner Julian Sy

claimed that he had informed insurance agent Alvarez regarding the

co-insurance on the property, he contradicted

himself by inexplicably claiming that he had not read the termsof the

policies; that Yap Dam Chuan could not likewise have obtained such

knowledge for the same reason, asidefrom the fact that

the insurance with Western was obtained before those of


Reliance and Equitable; and that theconclusion of

the trial court that Reliance and Equitable are "sister

companies" is an unfounded conjecture drawnfrom the mere fact that

Yap Kam Chuan was an agent for both companies which also had the

same insuranceclaims adjuster. Availment of the

services of the same agents and adjusters by different companies is a

commonpractice in the insurance business and such facts

do not warrant the speculative conclusion of the trial court.

Furthermore, when the words and language of documents are clear

and plain or readily understandable by an ordinary reader thereof,

there is absolutely no room for interpretation or construction

anymore. 9 Courts are not allowed to make contracts

for the parties; rather, they will intervene

only when the terms of the policy are ambiguous, equivocal,

or uncertain. 10 The parties must abide by the

terms of the contract because such terms constitute the

measureof the insurer's liability and compliance therewith is a

condition precedent to the insured's right of recovery from the

insurer.11

While it is a cardinal principle of insurance law that a policy or contract

of insurance is to be construed liberally

infavor of the insured and strictly against the insurer

company, yet contracts of insurance, like other contracts, are to be

construed according to the sense and meaning of the terms which

the parties themselves have used. If suchterms are clear and

unambiguous, they must be taken and understood in their

plain, ordinary and popular sense.12 Moreover,

obligations arising from contracts have the force of law between

the contracting parties and should be compliedwith in good faith. 13

Petitioners should be aware of the fact that a party is not relieved of

the duty to exercise the ordinary care and

prudence that would be exacted in relation to other contracts. The

conformity of the insured to the terms of the

policy is implied from his failure to express any disagreement with

what is provided for. 14 It may be true that themajority rule, as cited

by petitioners, is that injured

persons may accept policies without reading them, and that this is not

negligence per se. 15 But, this is not without any exception. It is and

was incumbent upon petitioner Sy to read the insurance contracts,

and this can be reasonably expected

of him considering that he has been a businessman since

1965 16 and the contract concerns indemnity in case

ofloss in his money-making trade of which important

consideration he could not have been unaware as it was pre-in case

of loss in his money-making trade of which important consideration he

could not have been unaware as it was precisely the reason for his

procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety

Corporation vs. Yap: 17


. . .

And considering the terms of the policy which required the insured to

declare other insurances,the statement in question must be deemed t

o be a statement (warranty) binding on both insurer and insured, that

there were no other insurance on the property. . . .

The annotation then, must be deemed

to be a warranty that the property was not insured by any other policy.

Violation thereof entitled the insurer to rescind (Sec. 69, Insurance

Act). Suchmisrepresentation is fatal in the light of our views in Santa

Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329.

The materiality of non-disclosure of other insurance policies is not

open to doubt.

xxx xxx xxx

The obvious purpose of the aforesaid requirement in the policy

is to prevent over-insurance and thus avert the perpetration of

fraud. The public, as well as the insurer, is interested in preventing the

situation in which a fire would be profitable to

the insured. According to Justice Story: "The insured has

no right to complain, for he assents to comply

with all the stipulations on his side, in order toentitle himself to the

benefit of the contract, which, upon reason or principle, he

has no right to askthe court to dispense with the

performance of his own part of the agreement, and yet to

bind the otherparty to obligations, which, but for those stipulations,

would not have been entered into."

Subsequently, in the case of Pacific Banking Corporation vs. Court of

Appeals, et al., 18 we held:

It is not disputed that the insured failed to reveal before the

loss three other insurances. As found by the Court

of Appeals, by reason of said unrevealed insurances, the

insured had been guilty of a

falsedeclaration; a clear misrepresentation and a vital one because

where the insured had been asked to reveal

but did not, that was deception. Otherwise stated, had the

insurer known that there were many co-insurances, it could

have hesitated or plainly desisted from entering into such contract.

Hence, theinsured was guilty of clear fraud (Rollo, p. 25).

Petitioner's contention that the allegation of fraud is but

a mere inference or suspicion is untenable. In fact,

concrete evidence of fraud or false declaration by

the insured was furnished by the petitioner itself when the facts

alleged in the policy under clauses "Co-Insurances Declared" and

"OtherInsurance Clause" are materially different from the actual

number of co-insurances taken over

thesubject property. Consequently, "the whole foundation of the

contract fails, the

risk does not attachand the policy never becomes a contract between

the parties." Representations of facts are the

foundation of the contract and if the foundation does not

exist, the superstructure does


not arise.Falsehood in such representations is not shown to vary

or add to the contract, or to terminate a contract which has

once been made, but to show that no contract has ever

existed (Tolentino,Commercial Laws of the Philippines, p.

991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no

force and effect from the very beginning, as if it had

never been entered into, and which cannot be

validated either by time or by ratification

(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA,

1986).

As the insurance policy against fire expressly required that notice

should be given by the insured ofother insurance upon the same

property, the total absence of such notice nullifies the policy.

To further warrant and justify the forfeiture of the

benefits under the insurance contracts involved, we need

merelyto turn to Policy Condition No. 15 thereof, which reads in part:

15. . . . if any false declaration be made or used

in support thereof, . . . all benefits under this Policy shall be

forfeited . . . . 19

Additionally, insofar as the liability of respondent

Reliance is concerned, it is not denied that the complaint for recovery

was filed in court by petitioners only on

January 31, 1984, or after more than one (1) year had

elapsedfrom petitioners' receipt of the insurers' letter of

denial on November 29, 1982. Policy Condition No. 27 of their

insurance contract with Reliance provides:

27. Action or suit

clause. — If a claim be made and rejected and an action or suit be not

commenced

either in the Insurance Commission or any court of competent jurisdict

ion of notice of such rejection,or in case of arbitration taking place

as provided herein, within twelve (12) months after due

notice ofthe award made by the arbitrator or arbitrators

or umpire, then the claim shall for all purposes be

deemed to have been abandoned and shall not thereafter be

recoverable hereunder. 20

On this point, the trial court ruled:

. . . However, because of the peculiar circumstances of this case, we

hesitate

in concluding thatplaintiff's right to ventilate his claim in court has been

barred by reason of the time constraint providedin the insurance contr

act. It is evident that after the plaintiff had received

the letter of denial, he stillfound it necessary to be informed of the spe

cific causes or reasons for the denial of his claim, reasonfor which his

lawyer, Atty. Dator deemed it wise to send a

letter of inquiry to the defendant which wasanswered by

defendant's Executive Vice-President in a letter

dated March 30, 1983, . . .

. Assuming,gratuitously, that the letter of Executive Vice-President


Mary Dee Co dated March 30, 1983, was received by plaintiff

on the same date, the period of limitation should

start to run only from said date in the spirit of fair play and

equity. . . . 21

We have perforce to reject this theory of the court below for being

contrary to what we have heretofore declared:

It is important to note the principle laid down

by this Court in the case of Ang vs. Fulton Fire Insurance Co. (2

SCRA 945 [1961]) to wit:

The condition contained in an insurance policy that claims must be pr

esented within one year

after rejection is not merely a procedural requirement but an important

matter essential to a prompt settlement of claims against insurance

companies as it demandsthat insurance suits be brought by

the insured while the evidence as to the

origin andcause of destruction have not yet disappeared.

In enunciating the above-cited principle, this Court had definitely

settled the rationale for the

necessity of bringing suits against the Insurer

within one year from the rejection of the claim. The contention

of the respondents that the one-year prescriptive period does

not start to run until thepetition for reconsideration had been resolved

by the insurer, runs counter to the declared purpose

for requiring that an action or suit be filed in the Insurance

Commission or in a court of competent

jurisdiction from the denial of the claim. To uphold respondents'

contention would contradict anddefeat the very principle which this

Court had laid down. Moreover, it can easily be used by insured

persons as a scheme or device to waste time

until any evidence which may be considered againstthem is

destroyed.

xxx xxx xxx

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

this Court uses the phrase "final rejection", the

samecannot be taken to mean the rejection of a petition

for reconsideration as insisted by respondents.

Such was clearly not the meaning contemplated by this Court. The ins

urance policy in said caseprovides that the insured should file his

claim first, with the carrier and then with the insurer.

The "finalrejection" being referred to in said case is the rejection by

the insurance company. 22

Furthermore, assuming arguendo that petitioners felt the

legitimate need to be clarified as to the policy condition violated, there

was a considerable lapse of time from their receipt of the insurer's

clarificatory letter dated March 30, 1983, up to the time the complaint

was filed in court on January 31, 1984. The one-

year prescriptive periodwas yet

to expire on November 29, 1983, or about eight (8) months from the

receipt of the clarificatory letter, butpetitioners let the


period lapse without bringing their action in court.

We accordingly find no "peculiarcircumstances" sufficient to

relax the enforcement of the one-year prescriptive period and

we, therefore, hold thatpetitioners' claim was definitely filed out of

time.

WHEREFORE, finding no cogent reason to disturb the judgment

of respondent Court of Appeals, the same ishereby AFFIRMED.

SO ORDERED.

G.R. No. L-43706 November 14, 1986

NATIONAL POWER CORPORATION, petitioner,

vs.

COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL

INSURANCE CO., INC., respondents.

Conrado Q. Crucillo for petitioner.

Gregorio D. David for private respondent.

PARAS, J.:

This is a petition for review on certiorari seeking to set aside: (a) the

judgment of respondent Court of Appeals dated March 25, 1976 in

CA-G.R. No. 50112-R, entitled National Power Corporation, Plaintiff-

Appellee vs. The Philippine American Insurance Company, Inc.

Defendant-Appellant, which reversed the decision of the Court of First

Instance of Manila in Civil Case No. 70811 entitled "National Power

Corporation v. Far Eastern Electric, Inc., et al." and (b) respondent's

Court's resolution dated April 19, 1976 denying petitioner National

Power Corporation's Motion for Reconsideration (Petition, p. 13,

Rollo).

The undisputed facts of this case are as follows:

The National Power Corporation (NPC) entered into a contract with

the Far Eastern Electric, Inc. (FFEI) on December 26, 1962 for the

erection of the Angat Balintawak 115-KW-3-Phase transmission lines

for the Angat Hydroelectric Project. FEEI agreed to complete the work

within 120 days from the signing of the contract, otherwise it would

pay NPC P200.00 per calendar day as liquidated damages, while

NPC agreed to pay the sum of P97,829.00 as consideration. On the

other hand, Philippine American General Insurance Co., Inc.

(Philamgen) issued a surety bond in the amount of P30,672.00 for the

faithful performance of the undertaking by FEEI, as required.

The condition of the bond reads:


The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE

COMPANY, INC. under this bond will expire One (1) year from final

Completion and Acceptance and said bond will be cancelled 30 days

after its expiration, unless surety is notified of any existing obligation

thereunder. (Exhibit 1-a)

in correlation with the provisions of the construction contract between

Petitioner and Far Eastern Electric, Inc. particularly the following

provisions of the Specifications. to wit:

1. Par. 1B-2l Release of Bond

1B-21 Release of Bond

The Contractor's performance bond will be released by the National

Power Corporation at the expiration of one (1) year from the

completion and final acceptance of the work, pursuant to the

provisions of Act No. 3959, and subject to the General Conditions of

this contract. (Page 49, Printed Record on Appeal); and

2. GP-19 of Specifications, which reads:

(a) Should the Contractor fail to complete the construction of the work

as herein specified and agreed upon, or if the work is abandoned, ...

the Corporation shall have the power to take over the work by giving

notice in writing to that effect to the Contractor and his sureties of its

intention to take over the construction work.

(b) ... It is expressly agreed that in the event the corporation takes

over the work from the Contractor, the latter and his bondsmen shall

continue to be liable under this contract for any expense in the

completion of the work in excess of the contract price and the bond

filed by the Contractor shall be answerable for the same and for any

and all damages that the Corporation may suffer as a result thereof.

(pp. 76-78, Printed Record on Appeal)

FEEI started construction on December 26, 1962 but on May 30,

1963, both FEEI and Philamgen wrote NPC requesting the assistance

of the latter to complete the project due to unavailability of the

equipment of FEEI. The work was abandoned on June 26, 1963,

leaving the construction unfinished. On July 19, 1963, in a joint letter,

Philamgen and FEEI informed NPC that FEEI was giving up the

construction due to financial difficulties. On the same date, NPC wrote

Philamgen informing it of the withdrawal of FEEI from the work and

formally holding both FEEI and Philamgen liable for the cost of the

work to be completed as of July 20, 1962 plus damages.

The work was completed by NPC on September 30, 1963. On

January 30, 1967 NPC notified Philamgen that FEEI had an

outstanding obligation in the amount of P75,019.85, exclusive of

interest and damages, and demanded the remittance of the amount of

the surety bond the answer for the cost of completion of the work. In

reply, Philamgen requested for a detailed statement of account, but

after receipt of the same, Philamgen did not pay as demanded but

contended instead that its liability under the bond has expired on

September 20, 1964 and claimed that no notice of any obligation of


the surety was made within 30 days after its expiration. (Record on

Appeal, pp. 191-194; Rollo, pp. 62-64).

NPC filed Civil Case No. 70811 for collection of the amount of

P75,019.89 spent to complete the work abandoned; P144,000.00 as

liquidated damages and P20,000.00 as attorney's fees. Only

Philamgen answered while FEEI was declared in default.

The trial court rendered judgment in favor of NPC, the dispositive

portion of which reads:

WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to

pay the plaintiff the sum of P75,019.86 plus interest at the legal rate

from September 21, 1967 until fully paid. Out of said amount, both

defendants, Far Eastern Electric, Inc., and the Philippine American

Insurance Company, Inc., are ordered to pay, jointly and severally, the

amount of P30,672.00 covered by Surety Bond No. 26268, dated

December 26, 1962, plus interest at the legal rate from September 21,

1967 until fully paid,

Both defendants are also ordered to pay plaintiff the sum of P3,000.00

as attorney's fees and costs.

On appeal by Philamgen, the Court of Appeals reversed the lower

court's decision and dismissed the complaint.

Hence this petition.

Respondent Philamgen filed its comment on the petition on August 6,

1978 (Rollo, p. 62) in compliance with the resolution dated June 16,

1976 of the First Division of this Court (Rollo, p. 52) while petitioner

NPC filed its Reply to the comment of respondent (Rollo, p. 76) as

required in the resolution of this Court of August 16, 1976, (Rollo, p.

70). In the resolution of September 20, 1976, the petition for certiorari

was given due course (Rollo, p. 85). Petitioner's brief was filed on

November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief

within the required period and this case was submitted for decision

without respondent's brief in the resolution of this Court of February

25. 1977) Rollo, p. 103).

In its brief, petitioner raised the following assignment of errors:

I

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER SHOULD HAVE GIVEN NOTICE TO PRIVATE

RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION

WITHIN 30 DAYS FROM EXPIRATION OF THE BOND TO HOLD

SAID SURETY LIABLE THEREUNDER, DESPITE PETITIONER'S

TAKING OVER OF THE WORK ABANDONED BY THE

CONTRACTOR BEFORE ITS COMPLETION.

II

ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL

NOTIFY PRIVATE RESPONDENT PHILAMGEN OF ANY EXISTING

OBLIGATION UNDER THE BOND DESPITE THE TAKE-OVER OF

WORK BY PETITIONER, RESPONDENT COURT OF APPEALS

NONETHELESS ERRED IN HOLDING THAT PETITIONER'S


LETTER DATED JULY 19, 1963 (EXH. E) TO PRIVATE

RESPONDENT WAS NOT SUFFICIENT COMPLIANCE WITH THE

CONDITION OF THE BOND.

III

RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING

PRIVATE RESPONDENT PHILAMGEN FROM ITS LIABILITY

UNDER THE BOND.

The decisive issue in this case is the correct interpretation and/or

application of the condition of the bond relative to its expiration, in

correlation with the provisions of the construction contract, the faithful

performance of which, said bond was issued to secure.

The bone of contention in this case is the compliance with the notice

requirement as a condition in order to hold the surety liable under the

bond.

Petitioner claims that it has already complied with such requirement

by virtue of its notice dated July 19, 1963 of abandonment of work by

FEEI and of its takeover to finish the construction, at the same time

formally holding both FEEI and Philamgen liable for the uncompleted

work and damages. It further argued that the notice required in the

bond within 30 days after its expiration of any existing obligation, is

applicable only in case the contractor itself had completed the

contract and not when the contractor failed to complete the work, from

which arises the continued liability of the surety under its bond as

expressly provided for in the contract. Petitioner's contention was

sustained by the trial court.

On the other hand, private respondent insists that petitioner's notice

dated July 19, 1983 is not sufficient despite previous events that it had

knowledge of FEEI's failure to comply with the contract and claims

that it cannot be held liable under the bond without notice within thirty

days from the expiration of the bond, that there is a subsisting

obligation. Private respondent's contention is sustained by the Court

of Appeals.

The petition is impressed with merit.

As correctly assessed by the trial court, the evidence on record shows

that as early as May 30, 1963, Philamgen was duly informed of the

failure of its principal to comply with its undertaking. In fact, said

notice of failure was also signed by its Assistant Vice President. On

July 19, 1963, when FEEI informed NPC that it was abandoning the

construction job, the latter forthwith informed Philamgen of the fact on

the same date. Moreover, on August 1, 1963, the fact that Philamgen

was seasonably notified, was even bolstered by its request from NPC

for information of the percentage completed by the bond principal

prior to the relinquishment of the job to the latter and the reason for

said relinquishment. (Record on Appeal, pp. 193-195). The 30-day

notice adverted to in the surety bond applies to the completion of the

work by the contractor. This completion by the contractor never

materialized.


The surety bond must be read in its entirety and together with the

contract between NPC and the contractors. The provisions must be

construed together to arrive at their true meaning. Certain stipulations

cannot be segregated and then made to control.

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

construed liberally in favor of the insured and strictly against the

insurer. Thus ambiguity in the words of an insurance contract should

be interpreted in favor of its beneficiary. (Serrano v. Court of Appeals,

130 SCRA 327, July 16, 1984).

In the case at bar, it cannot be denied that the breach of contract in

this case, that is, the abandonment of the unfinished work of the

transmission line of the petitioner by the contractor Far Eastern

Electric, Inc. was within the effective date of the contract and the

surety bond. Such abandonment gave rise to the continuing liability of

the bond as provided for in the contract which is deemed incorporated

in the surety bond executed for its completion. To rule therefore that

private respondent was not properly notified would be gross error.

PREMISES CONSIDERED, the decision dated March 25, 1976 and

the resolution dated April 19, 1976 of the Court of Appeals are hereby

SET ASIDE, and a new one is hereby rendered reinstating the

decision of the Court of First Instance of Manila in Civil Case No.

70811 entitled "National Power Corporation v. Far Eastern Electric,

Inc., et al."

SO ORDERED.

B. As a consensual contract:

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.

HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,

vs.

HON. COURT OF APPEALS and NGO HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna &

Manalo for petitioner Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the

Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p.

58), because the petitioners in both cases seek similar relief, through

these petitions for certiorari by way of appeal, from the amended

decision of respondent Court of Appeals which affirmed in toto the

decision of the Court of First Instance of Cebu, ordering "the


defendants (herein petitioners Great Pacific Ligfe Assurance

Company and Mondragon) jointly and severally to pay plaintiff (herein

private respondent Ngo Hing) the amount of P50,000.00 with interest

at 6% from the date of the filing of the complaint, and the sum of

P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed

an application with the Great Pacific Life Assurance Company

(hereinafter referred to as Pacific Life) for a twenty-year endownment

policy in the amount of P50,000.00 on the life of his one-year old

daughter Helen Go. Said respondent supplied the essential data

which petitioner Lapulapu D. Mondragon, Branch Manager of the

Pacific Life in Cebu City wrote on the corresponding form in his own

handwriting (Exhibit I-M). Mondragon finally type-wrote the data on

the application form which was signed by private respondent Ngo

Hing. The latter paid the annual premuim the sum of P1,077.75 going

over to the Company, but he reatined the amount of P1,317.00 as his

commission for being a duly authorized agebt of Pacific Life. Upon the

payment of the insurance premuim, the binding deposit receipt

(Exhibit E) was issued to private respondent Ngo Hing. Likewise,

petitioner Mondragon handwrote at the bottom of the back page of the

application form his strong recommendation for the approval of the

insurance application. Then on April 30, 1957, Mondragon received a

letter from Pacific Life disapproving the insurance application (Exhibit

3-M). The letter stated that the said life insurance application for 20-

year endowment plan is not available for minors below seven years

old, but Pacific Life can consider the same under the Juvenile Triple

Action Plan, and advised that if the offer is acceptable, the Juvenile

Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was

allegedly not communicated by petitioner Mondragon to private

respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote

back Pacific Life again strongly recommending the approval of the 20-

year endowment insurance plan to children, pointing out that since

1954 the customers, especially the Chinese, were asking for such

coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go

died of influenza with complication of bronchopneumonia. Thereupon,

private respondent sought the payment of the proceeds of the

insurance, but having failed in his effort, he filed the action for the

recovery of the same before the Court of First Instance of Cebu,

which rendered the adverse decision as earlier refered to against both

petitioners.

The decisive issues in these cases are: (1) whether the binding

deposit receipt (Exhibit E) constituted a temporary contract of the life

insurance in question; and (2) whether private respondent Ngo Hing

concealed the state of health and physical condition of Helen Go,

which rendered void the aforesaid Exhibit E.

1. At the back of Exhibit E are condition precedents required before a

deposit is considered a BINDING RECEIPT. These conditions state

that:


A. If the Company or its agent, shan have received the premium

deposit ... and the insurance application, ON or PRIOR to the date of

medical examination ... said insurance shan be in force and in

effect from the date of such medical examination, for such period as is

covered by the deposit ...,PROVIDED the company shall be satisfied

that on said date the applicant was insurable on standard rates under

its rule for the amount of insurance and the kind of policy requested in

the application.

D. If the Company does not accept the application on standard rate

for the amount of insurance and/or the kind of policy requested in the

application but issue, or offers to issue a policy for a different plan

and/or amount ..., the insurance shall not be in force and in effect until

the applicant shall have accepted the policy as issued or offered by

the Company and shall have paid the full premium thereof. If the

applicant does not accept the policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A

above, and the Company declines to approve the application the

insurance applied for shall not have been in force at any time and the

sum paid be returned to the applicant upon the surrender of this

receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding

deposit receipt is intended to be merely a provisional or temporary

insurance contract and only upon compliance of the following

conditions: (1) that the company shall be satisfied that the applicant

was insurable on standard rates; (2) that if the company does not

accept the application and offers to issue a policy for a different plan,

the insurance contract shall not be binding until the applicant accepts

the policy offered; otherwise, the deposit shall be reftmded; and (3)

that if the applicant is not ble according to the standard rates, and the

company disapproves the application, the insurance applied for shall

not be in force at any time, and the premium paid shall be returned to

the applicant.

Clearly implied from the aforesaid conditions is that the binding

deposit receipt in question is merely an acknowledgment, on behalf of

the company, that the latter's branch office had received from the

applicant the insurance premium and had accepted the application

subject for processing by the insurance company; and that the latter

will either approve or reject the same on the basis of whether or not

the applicant is "insurable on standard rates." Since petitioner Pacific

Life disapproved the insurance application of respondent Ngo Hing,

the binding deposit receipt in question had never become in force at

any time.

Upon this premise, the binding deposit receipt (Exhibit E) is,

manifestly, merely conditional and does not insure outright. As held by

this Court, where an agreement is made between the applicant and

the agent, no liability shall attach until the principal approves the risk

and a receipt is given by the agent. The acceptance is merely

conditional and is subordinated to the act of the company in approving

or rejecting the application. Thus, in life insurance, a "binding slip" or


"binding receipt" does not insure by itself (De Lim vs. Sun Life

Assurance Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of

April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance

application in question on the ground that it is not offering the twenty-

year endowment insurance policy to children less than seven years of

age. What it offered instead is another plan known as the Juvenile

Triple Action, which private respondent failed to accept. In the

absence of a meeting of the minds between petitioner Pacific Life and

private respondent Ngo Hing over the 20-year endowment life

insurance in the amount of P50,000.00 in favor of the latter's one-year

old daughter, and with the non-compliance of the abovequoted

conditions stated in the disputed binding deposit receipt, there could

have been no insurance contract duly perfected between thenl

Accordingly, the deposit paid by private respondent shall have to be

refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of

Canada, supra, "a contract of insurance, like other contracts, must be

assented to by both parties either in person or by their agents ... The

contract, to be binding from the date of the application, must have

been a completed contract, one that leaves nothing to be dione,

nothing to be completed, nothing to be passed upon, or determined,

before it shall take effect. There can be no contract of insurance

unless the minds of the parties have met in agreement."

We are not impressed with private respondent's contention that failure

of petitioner Mondragon to communicate to him the rejection of the

insurance application would not have any adverse effect on the

allegedly perfected temporary contract (Respondent's Brief, pp. 13-

14). In this first place, there was no contract perfected between the

parties who had no meeting of their minds. Private respondet, being

an authorized insurance agent of Pacific Life at Cebu branch office, is

indubitably aware that said company does not offer the life insurance

applied for. When he filed the insurance application in dispute, private

respondent was, therefore, only taking the chance that Pacific Life will

approve the recommendation of Mondragon for the acceptance and

approval of the application in question along with his proposal that the

insurance company starts to offer the 20-year endowment insurance

plan for children less than seven years. Nonetheless, the record

discloses that Pacific Life had rejected the proposal and

recommendation. Secondly, having an insurable interest on the life of

his one-year old daughter, aside from being an insurance agent and

an offense associate of petitioner Mondragon, private respondent Ngo

Hing must have known and followed the progress on the processing

of such application and could not pretend ignorance of the Company's

rejection of the 20-year endowment life insurance application.

At this juncture, We find it fit to quote with approval, the very apt

observation of then Appellate Associate Justice Ruperto G. Martin

who later came up to this Court, from his dissenting opinion to the

amended decision of the respondent court which completely reversed

the original decision, the following:


Of course, there is the insinuation that neither the memorandum of

rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon

reiterating the desire for applicant's father to have the application

considered as one for a 20-year endowment plan was ever duly

communicated to Ngo; Hing, father of the minor applicant. I am not

quite conninced that this was so. Ngo Hing, as father of the applicant

herself, was precisely the "underwriter who wrote this case" (Exhibit

H-1). The unchallenged statement of appellant Mondragon in his letter

of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing

was "our associate" and that it was the latter who "insisted that the

plan be placed on the 20-year endowment plan." Under these

circumstances, it is inconceivable that the progress in the processing

of the application was not brought home to his knowledge. He must

have been duly apprised of the rejection of the application for a 20-

year endowment plan otherwise Mondragon would not have asserted

that it was Ngo Hing himself who insisted on the application as

originally filed, thereby implictly declining the offer to consider the

application under the Juvenile Triple Action Plan. Besides, the

associate of Mondragon that he was, Ngo Hing should only be

presumed to know what kind of policies are available in the company

for minors below 7 years old. What he and Mondragon were

apparently trying to do in the premises was merely to prod the

company into going into the business of issuing endowment policies

for minors just as other insurance companies allegedly do. Until such

a definite policy is however, adopted by the company, it can hardly be

said that it could have been bound at all under the binding slip for a

plan of insurance that it could not have, by then issued at all.

(Amended Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is

of the firm belief that private respondent had deliberately concealed

the state of health and piysical condition of his daughter Helen Go.

Wher private regpondeit supplied the required essential data for the

insurance application form, he was fully aware that his one-year old

daughter is typically a mongoloid child. Such a congenital physical

defect could never be ensconced nor disguished. Nonetheless,

private respondent, in apparent bad faith, withheld the fact materal to

the risk to be assumed by the insurance compary. As an insurance

agent of Pacific Life, he ought to know, as he surely must have

known. his duty and responsibility to such a material fact. Had he

diamond said significant fact in the insurance application fom Pacific

Life would have verified the same and would have had no choice but

to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides

meaning good faith, absolute and perfect candor or openness and

honesty; the absence of any concealment or demotion, however slight

[Black's Law Dictionary, 2nd Edition], not for the alone but equally so

for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25

SCRA 70). Concealment is a neglect to communicate that which a

partY knows aDd Ought to communicate (Section 25, Act No. 2427).

Whether intentional or unintentional the concealment entitles the

insurer to rescind the contract of insurance (Section 26, Id.: Yu Pang


Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs.

Philippine American Life Insurance Company, 7 SCRA 316). Private

respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was

perfected between the parties with the noncompliance of the

conditions provided in the binding receipt, and concealment, as legally

defined, having been comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in

lieu thereof, one is hereby entered absolving petitioners Lapulapu D.

Mondragon and Great Pacific Life Assurance Company from their civil

liabilities as found by respondent Court and ordering the aforesaid

insurance company to reimburse the amount of P1,077.75, without

interest, to private respondent, Ngo Hing. Costs against private

respondent.

SO ORDERED.

C. As a contract of indemnity:

[G.R. No. 124050. June 19, 1997]

MAYER STEEL PIPE CORPORATION and HONGKONG

GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs. COURT

OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC.

and the CHARTER INSURANCE CORPORATION, respondents.

D E C I S I O N

PUNO, J.:

This is a petition for review on certiorari to annul and set aside the

Decision of respondent Court of Appeals dated December 14,

1995[1] and its Resolution dated February 22, 1996[2] in CA-G.R. CV

No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong

Government Supplies Department v. South Sea Surety Insurance Co.,

Inc. and The Charter Insurance Corporation.[3]

In 1983, petitioner Hongkong Government Supplies Department

(Hongkong) contracted petitioner Mayer Steel Pipe Corporation

(Mayer) to manufacture and supply various steel pipes and

fittings. From August to October, 1983, Mayer shipped the pipes and

fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014,

MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-

1022.[4]

Prior to the shipping, petitioner Mayer insured the pipes and fittings

against all risks with private respondents South Sea Surety and

Insurance Co., Inc. (South Sea) and Charter Insurance Corp.

(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014,

1015 and 1025 with a total amount of US$212,772.09 were insured

with respondent South Sea, while those covered by Invoice Nos.

http://sc.judiciary.gov.ph/jurisprudence/1997/jun1997/124050.htm#_edn4





1020, 1017 and 1022 with a total amount of US$149,470.00 were

insured with respondent Charter.

Petitioners Mayer and Hongkong jointly appointed Industrial

Inspection (International) Inc. as third-party inspector to examine

whether the pipes and fittings are manufactured in accordance with

the specifications in the contract. Industrial Inspection certified all the

pipes and fittings to be in good order condition before they were

loaded in the vessel.Nonetheless, when the goods reached

Hongkong, it was discovered that a substantial portion thereof was

damaged.

Petitioners filed a claim against private respondents for indemnity

under the insurance contract. Respondent Charter paid petitioner

Hongkong the amount of HK$64,904.75. Petitioners demanded

payment of the balance of HK$299,345.30 representing the cost of

repair of the damaged pipes. Private respondents refused to pay

because the insurance surveyor's report allegedly showed that the

damage is a factory defect.

On April 17, 1986, petitioners filed an action against private

respondents to recover the sum of HK$299,345.30. For their defense,

private respondents averred that they have no obligation to pay the

amount claimed by petitioners because the damage to the goods is

due to factory defects which are not covered by the insurance

policies.

The trial court ruled in favor of petitioners. It found that the damage to

the goods is not due to manufacturing defects. It also noted that the

insurance contracts executed by petitioner Mayer and private

respondents are "all risks" policies which insure against all causes of

conceivable loss or damage. The only exceptions are those excluded

in the policy, or those sustained due to fraud or intentional misconduct

on the part of the insured. The dispositive portion of the decision

states:

WHEREFORE, judgment is hereby rendered ordering the defendants

jointly and severally, to pay the plaintiffs the following:

1. the sum equivalent in Philippine currency of HK$299,345.30 with

legal rate of interest as of the filing of the complaint;

2. P100,000.00 as and for attorney's fees; and

3. costs of suit.

SO ORDERED.[5]

Private respondents elevated the case to respondent Court of

Appeals.

Respondent court affirmed the finding of the trial court that the

damage is not due to factory defect and that it was covered by the "all

risks" insurance policies issued by private respondents to petitioner

Mayer. However, it set aside the decision of the trial court and

dismissed the complaint on the ground of prescription. It held that the

action is barred under Section 3(6) of the Carriage of Goods by Sea



Act since it was filed only on April 17, 1986, more than two years from

the time the goods were unloaded from the vessel. Section 3(6) of the

Carriage of Goods by Sea Act provides that "the carrier and the ship

shall be discharged from all liability in respect of loss or damage

unless suit is brought within one year after delivery of the goods or the

date when the goods should have been delivered." Respondent court

ruled that this provision applies not only to the carrier but also to the

insurer, citing Filipino Merchants Insurance Co., Inc. vs. Alejandro.[6]

Hence this petition with the following assignments of error:

1. The respondent Court of Appeals erred in holding that petitioners'

cause of action had already prescribed on the mistaken application of

the Carriage of Goods by Sea Act and the doctrine of Filipino

Merchants Co., Inc. v. Alejandro (145 SCRA 42); and

2. The respondent Court of Appeals committed an error in dismissing

the complaint.[7]

The petition is impressed with merit. Respondent court erred in

applying Section 3(6) of the Carriage of Goods by Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the

carrier and the ship shall be discharged from all liability for loss or

damage to the goods if no suit is filed within one year after delivery of

the goods or the date when they should have been delivered. Under

this provision, only the carrier's liability is extinguished if no suit is

brought within one year. But the liability of the insurer is not

extinguished because the insurer's liability is based not on the

contract of carriage but on the contract of insurance. A close reading

of the law reveals that the Carriage of Goods by Sea Act governs the

relationship between the carrier on the one hand and the shipper, the

consignee and/or the insurer on the other hand. It defines the

obligations of the carrier under the contract of carriage. It does not,

however, affect the relationship between the shipper and the

insurer. The latter case is governed by the Insurance Code.

Our ruling in Filipino Merchants Insurance Co., Inc. v.

Alejandro[8] and the other cases[9] cited therein does not support

respondent court's view that the insurer's liability prescribes after one

year if no action for indemnity is filed against the carrier or the

insurer. In that case, the shipper filed a complaint against the insurer

for recovery of a sum of money as indemnity for the loss and damage

sustained by the insured goods. The insurer, in turn, filed a third-party

complaint against the carrier for reimbursement of the amount it paid

to the shipper. The insurer filed the third-party complaint on January

9, 1978, more than one year after delivery of the goods on December

17, 1977. The court held that the Insurer was already barred from

filing a claim against the carrier because under the Carriage of Goods

by Sea Act, the suit against the carrier must be filed within one year

after delivery of the goods or the date when the goods should have

been delivered. The court said that "the coverage of the Act includes

the insurer of the goods."[10]

The Filipino Merchants case is different from the case at bar. In

Filipino Merchants, it was the insurer which filed a claim against the







carrier for reimbursement of the amount it paid to the shipper. In the

case at bar, it was the shipper which filed a claim against the

insurer. The basis of the shipper's claim is the "all risks" insurance

policies issued by private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the

carrier filed either by the shipper, the consignee or the insurer. When

the court said in Filipino Merchants that Section 3(6) of the Carriage of

Goods by Sea Act applies to the insurer, it meant that the insurer, like

the shipper, may no longer file a claim against the carrier beyond the

one-year period provided in the law. But it does not mean that the

shipper may no longer file a claim against the insurer because the

basis of the insurer's liability is the insurance contract. An insurance

contract is a contract whereby one party, for a consideration known as

the premium, agrees to indemnify another for loss or damage which

he may suffer from a specified peril.[11] An "all risks" insurance policy

covers all kinds of loss other than those due to willful and fraudulent

act of the insured.[12] Thus, when private respondents issued the "all

risks" policies to petitioner Mayer, they bound themselves to

indemnify the latter in case of loss or damage to the goods

insured. Such obligation prescribes in ten years, in accordance with

Article 1144 of the New Civil Code.[13]

IN VIEW WHEREOF, the petition is GRANTED. The Decision of

respondent Court of Appeals dated December 14, 1995 and its

Resolution dated February 22, 1996 are hereby SET ASIDE and the

Decision of the Regional Trial Court is hereby REINSTATED. No

costs.

SO ORDERED.

G.R. No. L-68037 July 29, 1992

PARAMOUNT INSURANCE CORPORATION, petitioner,

vs.

HON. MAXIMO M. JAPZON, Presiding Judge, Br. 36, RTC, Manila;

City Sheriff and Deputy Sheriffs Nestor Macabilin & Teodoro

Episcope, public respondents, JOSE LARA and ARSENIO

PAED, private respondents.

ROMERO, J.:

Assailed in this petition for certiorari and prohibition with preliminary

injunction is the decision 1 of the Regional Trial Court of Manila,

Branch 36 dated August 30, 1983 in Civil Case No. 82-4416 entitled

"Jose Lara and Arsenio Paed v. Willy Garcia, Emilio Macasieb,





Domingo Natividad, Willy Manuel, and Paramount Insurance Co. Inc."

ordering petitioner to pay private respondents an aggregate sum of

P175,000.00 as insurer of a motor vehicle owned by Domingo

Natividad despite the absence of jurisdiction over its persons.

It appears that on May 27, 1978, Jose Lara contracted the services of

a passenger jeepney with Plate No. PUJ K5-826, owned and operated

by Willy Garcia (Garcia for brevity), to transport his family, relatives

and friends from Manila to Pangasinan. The said jeepney was then

driven by Emilio Macasieb (Macasieb for brevity).

On the very same date, within the vicinity of Barangay Parsolingan in

Gerona, Tarlac, a Ford truck F-600 with Plate No. WL-628, then

driven by Willy Manuel (Manuel for brevity) while cruising the National

Highway on its way to Manila, overtook an unidentified motor vehicle

and in the process hit and sideswept the said passenger jeepney then

driven by Macasieb. As a consequence of such mishap, the two (2)

passengers of the jeepney, namely: Jose Lara (Lara for brevity) and

Arsenio Paed (Paed for brevity) sustained physical injuries of varying

degrees. Specifically, Lara suffered serious physical injuries resulting

in the amputation of his right arm while Paed suffered serious physical

injuries which incapacitated him to work for more than two (2) weeks.

Aside from bodily injuries suffered by its passengers, both vehicles

suffered minor damages at their respective points of impact. The

insurer of said truck is herein petitioner Paramount Surety and

Insurance Co. Inc. 2

After the said accident, Natividad filed a notice of claim with

Paramount and the latter lost no time in dispatching and/or contracting

an independent adjuster handling casualty and marine claims, the EM

Salvatierra Adjustment Office.

Thereafter, the adjustment of Natividad's claims were transferred to

Speedway Adjustment and Appraisal Corporation which investigated

the facts surrounding the incident and recommended petitioner to pay

Natividad under its policy, using the "no fault" clause under the

Insurance Code as its basis of liability.

A check in the amount of Eight Hundred Pesos (P800.00) covered by

Check No. EBC-10036191F was paid to Paed's wife, Priscilla Paed. It

was covered by Voucher No. 32358. 3

In addition to said amount, another check in the amount of Five

Thousand Pesos (P5,000.00) covered by EBC Check No. 3082 was

paid by Paramount to Central Luzon Doctor's Hospital covering the

expense for medical treatment and hospitalization of the victims, Lara

and Paed. It was covered by Voucher No. 32196. 4

On or about June 5, 1978, Lara and Paed filed a criminal case against

Manuel for Reckless Imprudence resulting in Damage to Property

docketed as Criminal Case No. 2227 before the Municipal Trial Court

of Gerona, Tarlac. 5

During the pendency of said criminal case, Lara filed a manifestation

reserving the right to file a separate civil action against the operators


of the two (2) vehicles, namely: Natividad and Garcia as well as the

two (2) drivers, Manuel and Macasieb. 6

Accordingly, Lara and Paed filed on September 17, 1978 a civil case

for damages docketed as Civil Case No. 82-4416 against Garcia,

Macasieb, Manuel, Natividad, and impleaded Paramount, the latter as

insurer of the Ford truck. 7

A certain Atty. Segundo Gloria filed a notice of appearance dated

November 16, 1978 where he informed the court that he was

appearing for and in behalf of the defendants Natividad, Manuel and

Paramount. 8 Subsequently, on December 14, 1978, he filed an

answer with crossclaim and counterclaim. 9

During the trial of Criminal Case No. 2227 for Reckless Imprudence

resulting in Damage to Property, accused Manuel pleaded guilty to

the crime charged on September 18, 1979, and was accordingly,

sentenced to imprisonment of six months of arresto mayor maximum

under Article 365 of the Revised Penal Code. 10

In the interim period, a fire gutted the City Hall of Manila on November

19, 1981 and the records of the case were burned to ashes.

Subsequently, on January 25, 1982, plaintiffs (herein private

respondents Lara and Paed) filed a petition for reconstitution of the

judicial records of the case 11 which was approved without any

opposition in the order of the court dated November 4, 1982. 12

On February 17, 1983, the court reiterated its order before the

reconstitution of the judicial records declaring defendants Natividad,

Manuel and Paramount in default in view of their continued failure to

appear during the trial of the case and allowed the plaintiffs (Lara and

Paed) to make a formal offer of exhibits and considered the case

submitted for decision. 13

After protracted proceedings which lasted for almost five years, the

Regional Trial Court of Manila, rendered a decision dated August 30,

1983, the decretal portion of which states:

WHEREFORE, finding the evidence presented by plaintiff sufficient to

prove the allegations of the complaint, judgment is hereby rendered in

favor of the plaintiffs and against the defendants ordering the latter to

pay jointly and severally plaintiff Jose Lara, the amount of P15,000.00

for medical and hospitalization expenses; the sum of P80,000.00 as

moral and exemplary damages; the sum of P50,000.00 as

compensatory damages; to pay jointly and severally plaintiff Arsenio

Paed the sum of P20,000.00 as moral and actual damages and to pay

the sum of P10,000.00 by way of attorney's fees and the costs of

suit. 14

A copy of the said decision was served on the petitioner's counsel,

Atty. Segundo Gloria, on October 5, 1981. 15No appeal from the

judgment having been filed within the reglementary period or up to

October 20, 1983, the same became final and executory. So, on

March 2, 1984, Lara and Paed, now private respondents, filed an ex-

parte motion for execution of the said judgment and the trial court

granted the same on July 10, 1984. 16


It was only on March 3, 1984 that Paramount, now petitioner, filed a

motion to set aside the Decision raising the issue that the court has

not validly acquired jurisdiction over its person. 17

Hence, the present recourse.

After deliberating on the petition, the Court issued a temporary

restraining order on July 30, 1984 as prayed for and enjoined the

respondents from enforcing the Decision dated August 30, 1983 and

the Writ of Execution dated July 10, 1984, both rendered and issued

in Civil Case No. 82-4416. 18

The pivotal issue to be resolved in this case is whether or not the

court validly acquired jurisdiction over petitioner despite the

appearance of Atty. Segundo M. Gloria who allegedly was not

retained or authorized to file an answer for it. 19

Petitioner now claims that the Decision of the trial court dated August

30, 1983, should be set aside since the court has not validly acquired

jurisdiction over its person, not having been validly served with

summons and a copy of the complaint nor did it actively participate in

the said proceedings. It alleged that Atty. Segundo Gloria was not its

retained counsel at that time nor was he authorized by petitioner to

act for and in its behalf; and that private respondents' claims for

moral, exemplary and compensatory damages as well as attorney's

fees are not recoverable from petitioner. 20

The petition is devoid of merit.

Jurisdiction is the power with which courts are invested for

administering justice, that is, for hearing and deciding cases. 21 In

order for the court to have authority to dispose of the case on the

merits, it must acquire jurisdiction over the subject matter and the

parties. 22

Jurisdiction over the person of the defendant in civil cases is acquired

either by his voluntary appearance in court and his submission to its

authority or by service of summons. The service of summons is

intended to give notice to the defendant or respondent that an action

has been commenced against it. The defendant or respondent is thus

put on guard as to the demands of the plaintiff or the petitioner. 23

Consequently, petitioner's contentions that it was not properly served

with summons and that Atty. Segundo Gloria was not authorized to

appear for and in its behalf are untenable.

In the case at bar, although petitioner questioned the propriety of the

service of summons, it however failed to substantiate its allegation

that it was not properly served with summons. Hence, the disputable

presumption that official duty has been regularly performed

prevails. 24

The records of the case, however, showed that all the pleadings,

including the answer with crossclaim and counterclaim filed by Atty.

Segundo Gloria stated that he represented the defendants Natividad,

Manuel and Paramount. In fact, he even filed a notice of appearance

informing the court that he is representing the said defendants. 25


It is worth noting that this is not the first time petitioner raised the

issue of warrant of jurisdiction over its person as well as warrant of

authority of a lawyer to appear for and in its behalf. In the case

docketed as G.R. No. 68066 entitled "Paramount Insurance Corp. v.

Luna," this Court had the opportunity to rule that "the mere filling of

the answer with crossclaim raised a presumption of authority to

appear for petitioner Paramount Insurance Corporation . . . in

accordance with Section 21, Rule 138 of the Rules of Court. Such

presumption is rebuttable, but only by clear and positive proof.

In the absence of such clear and positive proof, the presumption of

authority . . . should prevail over the petitioner's self-serving denial of

such authority.

It strains credulity that a counsel who has no personal interest in the

case would fight for and defend a case with persistence and vigor if

he has not been authorized or employed by the party concerned. 26

To the mind of the Court, the instant petition is filed merely to derail its

execution. It took Paramount almost six years to question the

jurisdiction of the lower court. Moreover, as earlier adverted to, the

controverted Decision of August 30, 1983, became final and

executory on October 20, 1983. In any event, it is axiomatic that there

is no justification in law and in fact for the reopening of a case which

has long become final and which in fact was already executed on July

18, 1984. Time and again, this Court has said that the doctrine of

finality of judgment is grounded on fundamental considerations of

public policy and sound practice and at the risk of occasional error,

the judgments of courts must become final at some definite date fixed

by law. 27

However, there is merit in petitioner's contention that its liability is

limited only to P50,000.00 as expressed in Insurance Policy No. CV-

3466 issued on February 23, 1978. 28 The said insurance policy

clearly and categorically placed the petitioners liability for all damages

arising out of death or bodily injury sustained by one person as a

result of any one accident at P50,000.00. Said amount complied with

the minimum fixed by law then prevailing, Section 377 of Presidential

Decree No. 6123 (which was retained by P.D. No. 1460, the

Insurance Code of 1978), which provided that the liability of land

transportation vehicle operators for bodily injuries sustained by a

passenger arising out of the use of their vehicles shall not be less

than P12,000.00. Since the petitioner's liability under the insurance

contract is neither less than P12,000.00 nor contrary to law, morals,

good customs, public order or public policy, said stipulation must be

upheld as effective and binding between the parties. Therefore, the

terms of the contract constitute the measure of the insurer's liability.29

WHEREFORE, the petition is DISMISSED and the temporary

restraining order of July 30, 1984 is LIFTED. The decision of the

Regional Trial Court of Manila, Branch 36, dated August 30, 1983, is

hereby AFFIRMED with the MODIFICATION that petitioner be held

liable to pay respondents Jose Lara and Arsenio Paed the amount of

P50,000.00 each which is the limit of its liability under the insurance

policy minus the amounts of P5,000.00 and P800.00 which it paid for


the hospitalization and medical expenses, respectively, of

respondents.

Costs against petitioner.

SO ORDERED.

D. Right to Subrogation:

[G.R. No. 116940. June 11, 1997]

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,

INC., petitioner, vs. COURT OF APPEALS and FELMAN

SHIPPING LINES,respondents.

D E C I S I O N

BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of

cargo due to its failure to observe the extraordinary diligence required

by Art. 1733 of the Civil Code as well as the right of the insurer to be

subrogated to the rights of the insured upon payment of the insurance

claim.

On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on

board MV Asilda, a vessel owned and operated by respondent

Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter

Coca-Cola softdrink bottles to be transported from Zamboanga City to

Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.[1]

The shipment was insured with petitioner Philippine American General

Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open

Policy No. 100367-PAG.

MV Asilda left the port of Zamboanga in fine weather at eight oclock in

the evening of the same day. At around eight forty-five the following

morning, 7 July 1983, the vessel sank in the waters of Zamboanga del

Norte bringing down her entire cargo with her including the subject

7,500 cases of 1-liter Coca-Cola softdrink bottles.

On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc.,

Cebu plant, filed a claim with respondent FELMAN for recovery of

damages it sustained as a result of the loss of its softdrink bottles that

sank with MV Asilda. Respondent denied the claim thus prompting the

consignee to file an insurance claim with PHILAMGEN which paid its

claim ofP755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse

against respondent FELMAN which disclaimed any liability for the



loss. Consequently, on 29 November 1983 PHILAMGEN sued the

shipowner for sum of money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss

of MV Asilda and its cargo were due to the vessels unseaworthiness

as she was put to sea in an unstable condition. It further alleged

that the vessel was improperly manned and that its officers were

grossly negligent in failing to take appropriate measures to proceed to

a nearby port or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the

affirmative defense that no right of subrogation in favor of

PHILAMGEN was transmitted by the shipper, and that, in any event,

FELMAN had abandoned all its rights, interests and ownership

over MV Asilda together with her freight and appurtenances for the

purpose of limiting and extinguishing its liability under Art. 587 of the

Code of Commerce.[2]

On 17 February 1986 the trial court dismissed the complaint of

PHILAMGEN. On appeal the Court of Appeals set aside the dismissal

and remanded the case to the lower court for trial on the

merits. FELMAN filed a petition for certiorari with this Court but it was

subsequently denied on 13 February 1989.

On 28 February 1992 the trial court rendered judgment in favor of

FELMAN.[3] It ruled that MV Asilda was seaworthy when it left the

port of Zamboanga as confirmed by certificates issued by the

Philippine Coast Guard and the shipowners surveyor attesting to its

seaworthiness. Thus the loss of the vessel and its entire shipment

could only be attributed to either a fortuitous event, in which case, no

liability should attach unless there was a stipulation to the contrary, or

to the negligence of the captain and his crew, in which case, Art. 587

of the Code of Commerce should apply.

The lower court further ruled that assuming MV Asilda was

unseaworthy, still PHILAMGEN could not recover from FELMAN since

the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its

implied warranty on the vessels seaworthiness. Resultantly, the

payment made by PHILAMGEN to the assured was an undue, wrong

and mistaken payment.Since it was not legally owing, it did not give

PHILAMGEN the right of subrogation so as to permit it to bring an

action in court as a subrogee.

On 18 March 1992 PHILAMGEN appealed the decision to the Court of

Appeals. On 29 August 1994 respondent appellate court rendered

judgment finding MV Asildaunseaworthy for being top- heavy as 2,500

cases of Coca-Cola softdrink bottles were improperly stowed on

deck. In other words, while the vessel possessed the necessary Coast

Guard certification indicating its seaworthiness with respect to the

structure of the ship itself, it was not seaworthy with respect to the

cargo. Nonetheless, the appellate court denied the claim of

PHILAMGEN on the ground that the assureds implied warranty of

seaworthiness was not complied with. Perfunctorily, PHILAMGEN was

not properly subrogated to the rights and interests of the

shipper. Furthermore, respondent court held that the filing of notice of




abandonment had absolved the shipowner/agent from liability under

the limited liability rule.

The issues for resolution in this petition are: (a) whether MV

Asilda was seaworthy when it left the port of Zamboanga; (b) whether

the limited liability under Art. 587 of the Code ofCommerce should

apply; and, (c) whether PHILAMGEN was properly subrogated to the

rights and legal actions which the shipper had against FELMAN, the

shipowner.

MV Asilda was unseaworthy when it left the port of Zamboanga. In a

joint statement, the captain as well as the chief mate of the vessel

confirmed that the weather was fine when they left the port of

Zamboanga. According to them, the vessel was carrying 7,500 cases

of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200

empty CO2 cylinders and an undetermined quantity of empty boxes

for fresh eggs. They loaded the empty boxes for eggs and about 500

cases of Coca-Cola bottles on deck.[4] The ship captain stated that

around four oclock in the morning of 7 July 1983 he was awakened by

the officer on duty to inform him that the vessel had hit a floating

log. At that time he noticed that the weather had deteriorated with

strong southeast winds inducing big waves. After thirty minutes he

observed that the vessel was listing slightly to starboard and would

not correct itself despite the heavy rolling and pitching. He then

ordered his crew to shift the cargo from starboard to portside until the

vessel was balanced. At about seven oclock in the morning, the

master of the vessel stopped the engine because the vessel was

listing dangerously to portside. He ordered his crew to shift the cargo

back to starboard. The shifting of cargo took about an hour afterwhich

he rang the engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and

before the captain could decide on his next move, some of the

cargo on deck were thrown overboard andseawater entered the

engine room and cargo holds of the vessel. At that instance, the

master of the vessel ordered his crew to abandon ship. Shortly

thereafter, MV Asilda capsized and sank. He ascribed the

sinking to the entry of seawater through a hole in the hull caused by

the vessels collision with a partially submerged log.[5]

The Elite Adjusters, Inc., submitted a report regarding the sinking

of MV Asilda. The report, which was adopted by the Court of Appeals,

reads -

We found in the course of our investigation that a reasonable

explanation for the series of lists experienced by the vessel that

eventually led to her capsizing and sinking, was that the vessel

was top-heavy which is to say that while the vessel may not have

been overloaded, yet the distribution or stowage of the cargo on board

was done in such a manner that the vessel was in top-heavy condition

at the time of her departure and which condition rendered her

unstable and unseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact that this vessel

was designed as a fishing vessel x x x x and it was not designed to




carry a substantial amount or quantity of cargo on deck. Therefore, we

believe strongly that had her cargo been confined to those that could

have been accommodated under deck, her stability would not have

been affected and the vessel would not have been in any danger of

capsizing, even given the prevailing weather conditions at that time of

sinking.

But from the moment that the vessel was utilized to load heavy cargo

on its deck, the vessel was rendered unseaworthy for the purpose of

carrying the type of cargo because the weight of the deck cargo so

decreased the vessels metacentric height as to cause it to become

unstable.

Finally, with regard to the allegation that the vessel encountered big

waves, it must be pointed out that ships are precisely designed to be

able to navigate safely even during heavy weather and frequently we

hear of ships safely and successfully weathering encounters with

typhoons and although they may sustain some amount of damage,

the sinking of ship during heavy weather is not a frequent occurrence

and is not likely to occur unless they are inherently unstable and

unseaworthy x x x x

We believe, therefore, and so hold that the proximate cause of the

sinking of the M/V Asilda was her condition of unseaworthiness

arising from her having been top-heavy when she departed from the

Port of Zamboanga. Her having capsized and eventually sunk was

bound to happen and was therefore in the category of an inevitable

occurrence (underscoring supplied).[6]

We subscribe to the findings of the Elite Adjusters, Inc., and the Court

of Appeals that the proximate cause of the sinking of MV Asilda was

its being top-heavy. Contrary to the ship captains allegations,

evidence shows that approximately 2,500 cases of softdrink bottles

were stowed on deck. Several days after MV Asilda sank, an

estimated 2,500 empty Coca-Cola plastic cases were recovered near

the vicinity of the sinking. Considering that the ships hatches were

properly secured, the empty Coca-Cola cases recovered could have

come only from the vessels deck cargo. It is settled that carrying a

deck cargo raises the presumption of unseaworthiness unless it can

be shown that the deck cargo will not interfere with the proper

management of the ship. However, in this case it was established

that MV Asilda was not designed to carry substantial amount of cargo

on deck. The inordinate loading of cargo deck resulted in the

decrease of the vessels metacentric height[7] thus making it

unstable. The strong winds and waves encountered by the vessel are

but the ordinary vicissitudes of a sea voyage and as such merely

contributed to its already unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not

applicable to the case at bar.[8] Simply put, the ship agent is liable for

the negligent acts of the captain in the care of

goods loaded on the vessel. This liability however can be limited

through abandonment of the vessel, its equipment and freightage as

provided in Art. 587. Nonetheless, there are exceptional

circumstances wherein the ship agent could still be held answerable

despite the abandonment, as where the loss or injury was due to the





fault of the shipowner and the captain.[9] The international rule is to

the effect that the right of abandonment of vessels, as a legal

limitation of a shipowners liability, does not apply to cases where the

injury or average was occasioned by the shipowners own fault.[10] It

must be stressed at this point that Art. 587 speaks only of situations

where the fault or negligence is committed solely by the

captain. Where the shipowner is likewise to be blamed, Art. 587 will

not apply, and such situation will be covered by the provisions of the

Civil Code on common carrier.[11]

It was already established at the outset that the sinking of MV

Asilda was due to its unseaworthiness even at the time of its

departure from the port of Zamboanga. It was top-heavy as an

excessive amount of cargo was loaded on deck. Closer supervision

on the part of the shipowner could have prevented this fatal

miscalculation. As such, FELMAN was equally negligent. It cannot

therefore escape liability through the expedient of filing a notice of

abandonment of the vessel by virtue of Art. 587 of the Code of

Commerce.

Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature

of their business and for reasons of

public policy, are bound to observe extraordinary diligence in the

vigilance over the goods and for the safety of the

passengers transported by them, according to all the circumstances of

each case x x x x" In the event of loss of goods, common carriers are

presumed to have acted negligently. FELMAN, the shipowner, was

not able to rebut this presumption.

In relation to the question of subrogation, respondent appellate court

found MV Asilda unseaworthy with reference to the cargo and

therefore ruled that there was breach of warranty of seaworthiness

that rendered the assured not entitled to the payment of is claim under

the policy. Hence, when PHILAMGEN paid the claim of the bottling

firm there was in effect a voluntary payment and no right of

subrogation accrued in its favor. In other words, when PHILAMGEN

paid it did so at its own risk.

It is generally held that in every marine insurance policy the assured

impliedly warrants to the assurer that the vessel is seaworthy and

such warranty is as much a term of the contract as if expressly written

on the face of the policy.[12] Thus Sec. 113 of the Insurance Code

provides that (i)n every marine insurance upon a ship or freight, or

freightage, or upon anything which is the subject of marine insurance,

a warranty is implied that the ship is seaworthy. Under Sec. 114, a

ship is seaworthy when reasonably fit to perform the service, and to

encounter the ordinary perils of the voyage, contemplated by the

parties to the policy. Thus it becomes the obligation of the cargo

owner to look for a reliable common carrier which keeps its vessels in

seaworthy condition. He may have no control over the vessel but he

has full control in the selection of the common carrier that will

transport his goods. He also has full discretion in the choice of assurer

that will underwrite a particular venture.






We need not belabor the alleged breach of warranty of seaworthiness

by the assured as painstakingly pointed out by FELMAN to stress that

subrogation will not work in this case.In policies where the law will

generally imply a warranty of seaworthiness, it can only be excluded

by terms in writing in the policy in the clearest language.[13] And

where the policy stipulates that the seaworthiness of the vessel as

between the assured and the assurer is admitted, the question of

seaworthiness cannot be raised by the assurer without showing

concealment or misrepresentation by the assured.[14]

The marine policy issued by PHILAMGEN to the Coca-Cola bottling

firm in at least two (2) instances has dispensed with the usual

warranty of worthiness. Paragraph 15 of the Marine Open Policy No.

100367-PAG reads (t)he liberties as per Contract of Affreightment the

presence of the Negligence Clause and/or Latent Defect Clause in the

Bill of Lading and/or Charter Party and/or Contract of Affreightment as

between the Assured and the Company shall not prejudice the

insurance. The seaworthiness of the vessel as between the Assured

and the Assurers is hereby admitted.[15]

The same clause is present in par. 8 of the Institute Cargo

Clauses (F.P.A.) of the policy which states (t)he seaworthiness of the

vessel as between the Assured and Underwriters in hereby admitted x

x x x"[16]

The result of the admission of seaworthiness by the assurer

PHILAMGEN may mean one or two things: (a) that the warranty of the

seaworthiness is to be taken as fulfilled; or, (b) that the risk of

unseaworthiness is assumed by the insurance company.[17] The

insertion of such waiver clauses in cargo policies is in recognition of

the realistic fact that cargo owners cannot control the state of the

vessel. Thus it can be said that with such categorical

waiver, PHILAMGEN has accepted the risk of unseaworthiness so

that if the ship should sink by unseaworthiness, as what occurred in

this case, PHILAMGEN is liable.

Having disposed of this matter, we move on to the legal basis for

subrogation. PHILAMGENs action against FELMAN is squarely

sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiffs property has been insured, and he has

received indemnity from the insurance company for the injury or loss

arising out of the wrong or breach of contract complained of, the

insurance company shall be subrogated to the rights of the insured

against the wrongdoer or the person who has violated the contract. If

the amount paid by the insurance company does not fully cover the

injury or loss, the aggrieved party shall be entitled to recover the

deficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we

said that payment by the assurer to the assured operates as an

equitable assignment to the assurer of all the remedies

which the assured may have against the third party whose

negligence or wrongful act caused the loss. The right of subrogation is

not dependent upon, nor does it grow out of any privity of contract or

upon payment by the insurance company of the insurance claim. It








accrues simply upon payment by the insurance company of the

insurance claim.

The doctrine of subrogation has its roots in equity. It is designed to

promote and to accomplish justice and is the mode which equity

adopts to compel the ultimate payment of a debt by one who in

justice, equity and good conscience ought to pay.[19] Therefore, the

payment made by PHILAMGEN to Coca-Cola Bottlers Philippines,

Inc., gave the former the right to bring an action as subrogee against

FELMAN. Having failed to rebut the presumption of fault, the liability

of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola

softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN

SHIPPING LINES is ordered to pay petitioner PHILIPPINE

AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred

Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00) plus

legal interest thereon counted from 29 November 1983, the date

of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.

[20]

SO ORDERED.

G.R. No. L-27427 April 7, 1976

FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE

AND RUBBER COMPANY OF THE PHILIPPINES, plaintiffs-

appellants,

vs.

JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE

CO., INC., defendants-appellees.

Conrado R. Ayuyao for plaintiffs-appellees.

Ponciano U. Pitargue for defendant-appellee First quezon City

Insurance Co., Inc.

Fernando B. Zamora for defendant-appellee Jamila & Company, Inc.

AQUINO, J.:

Fireman's Fund and Insurance Company (Fireman's Fund for short)

and Firestone Tire and Rubber Company of the Philippines appealed

from the order dated October 18, 1966 of the Court of First Instance of

Manila, dismissing their complaint against Jamila & Co., Inc.

(hereinafter called Jamila) for the recovery of the sum of P11,925.00

plus interest, damages and attorney's fees (Civil Case No. 65658).




The gist of the complaint is that Jamila or the Veterans Philippine

Scouts Security Agency contracted to supply security guards to

Firestone; that Jamila assumed responsibility for the acts of its

security guards; that First Quezon City Insurance Co., Inc. executed a

bond in the sum of P20,000.00 to guarantee Jamila's obligations

under that contract; that on May 18, 1963 properties of Firestone

valued at P11,925.00 were lost allegedly due to the acts of its

employees who connived with Jamila's security guard; that Fireman's

Fund, as insurer, paid to Firestone the amount of the loss; that

Fireman's Fund was subrogated to Firestone's right to get

reimbursement from Jamila, and that Jamila and its surety, First

Quezon City Insurance Co., Inc., failed to pay the amount of the loss

in spite of repeated demands.

Upon defendants' motions, the lower court in its order of July 22, 1966

dismissed the complaint as to Jamila on the ground that there was no

allegation that it had consented to the subrogation and, therefore,

Fireman's Fund had no cause of action against it.

In the same order the lower court dismissed the complaint as to First

Quezon City Insurance Co., Inc. on the ground of res judicata. It

appears that the same action was previously filed in Civil Case No.

56311 which was dismiss because of the failure of the same plaintiffs

and their counsel to appear at the pre trial.

Firestone and Fireman's Fund moved for the reconsideration of the

order of dismissal. The lower court on September 3, 1966 set aside its

order of dismissal. It sustained plaintiffs' contention that there was

no res judicataas to First Quezon City Insurance Co., Inc. because

Civil Case No. 56311 was dismissed without prejudice. Later, First

Quezon City Insurance Co., Inc. filed its answer to the complaint.

However, due to inadvertence, the lower court did not state in its order

of September 3, 1966 why it set aside its prior order dismissing the

complaint with respect to Jamila.

What is now to be recounted shows the lack of due care on the part of

the lower court and the opposing lawyers in their management of the

case. Such lack of due care has given the case a farcical ambiance

and might partially explain the long delay in its adjudication.

Jamila, upon noticing that the order of September 3, 1966 had

obliterated its victory without any reason therefor, filed a motion for

reconsideration. It had originally moved for the dismissal of the

complaint on the ground of lack of cause of action. Its contention was

based on two grounds, to wit: (1) that the complaint did not allege that

Firestone, pursuant to the contractual stipulation quoted in the

complaint, had investigated the loss and that Jamila was represented

in the investigation and (2) that Jamila did not consent to the

subrogation of Fireman's Fund to Firestone's right to get

reimbursement from Jamila and its surety. The lower court in its order

of dismissal had sustained the second ground.

Jamila in its motion for the reconsideration of the order of September

3, 1966 invoked the first ground which had never been passed upon


by the lower court. Firestone and Fireman's Fund in their opposition

joined battle, in a manner of speaking, on that first ground.

But the lower court in its order of October 18, 1966, granting Jamila's

motion for reconsideration, completely ignored that first ground. It

reverted to the second ground which was relied upon in its order of

September 3, 1966. The lower court reiterated its order of July 22,

1966 that Fireman's Fund had no cause of action against Jamila

because Jamila did not consent to the subrogation. The court did not

mention Firestone, the co-plaintiff of Fireman's Fund.

At this juncture, it may be noted that motions for reconsideration

become interminable when the court's orders follow a seesaw pattern.

That phenomenon took place in this case.

Firestone and Fireman's Fund filed a motion for the reconsideration of

the lower court's order of October 18, 1966 on the ground that

Fireman's Fund Insurance Company was suing on the basis

of legal subrogation whereas the lower court erroneously predicated

its dismissal order on the theory that there was

no conventional subrogation because the debtor's consent was

lacking.

The plaintiffs cited article 2207 of the Civil Code which provides that

"if the plaintiff's property has been insured, and he has received

indemnity from the insurance company for the injury or loss arising out

of the wrong or breach of contract complained of, the insurance

company shall be subrogated to the rights of the insured against the

wrongdoer or the person who has violated the contract".

The lower court denied plaintiffs' motion. They filed a second motion

for reconsideration. In that motion they sensibly called the lower

court's attention to the fact that the issue of subrogation was of no

moment because Firestone, the subrogor, is a party-plaintiff and could

sue directly Jamila in its own right. Without resolving that contention,

the lower court denied plaintiffs' second motion for reconsideration.

In this appeal Firestone and Fireman's Fund contend that the trial

court's dismissal of their complaint is contrary to the aforementioned

article 2207 which provides for legal subrogation.

Jamila, in reply, stubbornly argues that legal subrogation under article

2207 requires the debtor's consent; that legal subrogation takes place

in the cases mentioned in article 1302 of the Civil Code and the

instant case is not among the three cases enumerated in that article,

and that there could be no subrogation in this case because according

to the plaintiffs the contract between. Jamila and Firestone was

entered into on June 1, 1965 but the loss complained of occurred on

May 18, 1963.

With respect to the factual point raised by Jamila, it should be stated

that plaintiffs' counsel gratuitously alleged in their brief that Firestone

and Jamila entered into a "contract of guard services" on June

1, 1965. That allegation, which was uncalled for because it is not


found in the complaint, created confusion which heretofore did not

exist. No copy of the contract was annexed to the complaint.

That confusing statement was an obvious error since it was expressly

alleged in the complaint that the loss occurred on May 18, 1963. The

fact that such an error was committed is another instance

substantiating our previous observation that plaintiffs' counsel had not

exercised due care in the presentation of his case.

The issue is whether the complaint of Firestone and Fireman's Fund

states a cause of action against Jamila.

We hold that Firestone is really a nominal, party in this case. It had

already been indemnified for the loss which it had sustained.

Obviously, it joined as a party-plaintiff in order to help Fireman's Fund

to recover the amount of the loss from Jamila and First Quezon City

Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund

its cause of action against Jamila for breach of contract. Sufficient

ultimate facts are alleged in the complaint to sustain that cause of

action.

On the other hand, Fireman's Fund's action against Jamila is squarely

sanctioned by article 2207. As the insurer, Fireman's Fund is entitled

to go after the person or entity that violated its contractual

commitment to answer for the loss insured against (Cf. Philippine Air

Lines, Inc. vs. Heald Lumber Co., 101 Phil. 1032; Rizal Surety &

Insurance Co. vs. Manila Railroad Company, L-24043, April 25, 1968,

23 SCRA 205).

The trial court erred in applying to this case the rules on novation. The

plaintiffs in alleging in their complaint that Fireman's Fund "became a

party in interest in this case by virtue of a subrogation right given in its

favor by" Firestone, were not relying on the novation by change of

creditors as contemplated in articles 1291 and 1300 to 1303 of the

Civil Code but rather on article 2207.

Article 2207 is a restatement of a settled principle of American

jurisprudence. Subrogation has been referred to as the doctrine of

substitution. It "is an arm of equity that may guide or even force one to

pay a debt for which an obligation was incurred but which was in

whole or in part paid by another" (83 C.J.S. 576, 678, note 16, citing

Fireman's Fund Indemnity Co. vs. State Compensation Insurance

Fund, 209 Pac. 2d 55).

"Subrogation is founded on principles of justice and equity, and its

operation is governed by principles of equity. It rests on the principle

that substantial justice should be attained regardless of form, that is,

its basis is the doing of complete, essential, and perfect justice

between all the parties without regard to form"(83 C.J.S. 579- 80)

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

Co. vs Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the

loss, the insurer is entitled to be subrogated pro tanto to any right of

action which the insured may have against the third person whose.

negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745,

citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance

Co., 283 U. S. 294, 75 L. ed. 1037).


The right of subrogation is of the highest equity. The loss in the first

instance is that of the insured but after reimbursement or

compensation, it becomes the loss of the insurer (44 Am. Jur. 2d 746,

note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).

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

provide for subrogation, and thus determine the rights of the insurer in

this respect, the equitable right of subrogation as the legal effect of

payment inures to the insurer without any formal assignment or any

express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746).

Stated otherwise, when the insurance company pays for the loss,

such payment operates as an equitable assignment to the insurer of

the property and all remedies which the insured may have for the

recovery thereof. That right is not dependent upon, nor does it grow

out of, any privity of contract, or upon written assignment of claim, and

payment to the insured makes the insurer an assignee in equity

(Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N. C.

456,142 SE 2d 18).

Whether the plaintiffs would be able to prove their cause of action

against Jamila is another question.

Finding the trial court's order of dismissal to be legally untenable, the

same is set aside with costs against defendant-appellee Jamila & Co.,

Inc.

SO ORDERED.

E. Who may be insured (Sec. 7):

G.R. No. L-2294 May 25, 1951

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,

vs.

CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.

PARAS, C.J.:

On October 1, 1941, the respondent corporation, Christern Huenefeld,

& Co., Inc., after payment of corresponding premium, obtained from

the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the

sum of P1000,000, covering merchandise contained in a building

located at No. 711 Roman Street, Binondo Manila. On February 27,

1942, or during the Japanese military occupation, the building and

insured merchandise were burned. In due time the respondent

submitted to the petitioner its claim under the policy. The salvage

goods were sold at public auction and, after deducting their value, the

total loss suffered by the respondent was fixed at P92,650. The

petitioner refused to pay the claim on the ground that the policy in

favor of the respondent had ceased to be in force on the date the

United States declared war against Germany, the respondent


Corporation (though organized under and by virtue of the laws of the

Philippines) being controlled by the German subjects and the

petitioner being a company under American jurisdiction when said

policy was issued on October 1, 1941. The petitioner, however, in

pursuance of the order of the Director of Bureau of Financing,

Philippine Executive Commission, dated April 9, 1943, paid to the

respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First

Instance of Manila for the purpose of recovering from the respondent

the sum of P92,650 above mentioned. The theory of the petitioner is

that the insured merchandise were burned up after the policy issued

in 1941 in favor of the respondent corporation has ceased to be

effective because of the outbreak of the war between the United

States and Germany on December 10, 1941, and that the payment

made by the petitioner to the respondent corporation during the

Japanese military occupation was under pressure. After trial, the

Court of First Instance of Manila dismissed the action without

pronouncement as to costs. Upon appeal to the Court of Appeals, the

judgment of the Court of First Instance of Manila was affirmed, with

costs. The case is now before us on appeal by certiorari from the

decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that

the respondent corporation became an enemy when the United States

declared war against Germany, relying on English and American

cases which held that a corporation is a citizen of the country or state

by and under the laws of which it was created or organized. It rejected

the theory that nationality of private corporation is determine by the

character or citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the

respondent corporation were German subjects. This being so, we

have to rule that said respondent became an enemy corporation upon

the outbreak of the war between the United States and Germany. The

English and American cases relied upon by the Court of Appeals have

lost their force in view of the latest decision of the Supreme Court of

the United States in Clark vs. Uebersee Finanz Korporation, decided

on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-

153, in which the controls test has been adopted. In "Enemy

Corporation" by Martin Domke, a paper presented to the Second

International Conference of the Legal Profession held at the Hague

(Netherlands) in August. 1948 the following enlightening passages

appear:

Since World War I, the determination of enemy nationality of

corporations has been discussion in many countries, belligerent and

neutral. A corporation was subject to enemy legislation when it was

controlled by enemies, namely managed under the influence of

individuals or corporations, themselves considered as enemies. It was

the English courts which first the Daimler case applied this new

concept of "piercing the corporate veil," which was adopted by the

peace of Treaties of 1919 and the Mixed Arbitral established after the

First World War.


The United States of America did not adopt the control test during the

First World War. Courts refused to recognized the concept whereby

American-registered corporations could be considered as enemies

and thus subject to domestic legislation and administrative measures

regarding enemy property.

World War II revived the problem again. It was known that German

and other enemy interests were cloaked by domestic corporation

structure. It was not only by legal ownership of shares that a material

influence could be exercised on the management of the corporation

but also by long term loans and other factual situations. For that

reason, legislation on enemy property enacted in various countries

during World War II adopted by statutory provisions to the control test

and determined, to various degrees, the incidents of control. Court

decisions were rendered on the basis of such newly enacted statutory

provisions in determining enemy character of domestic corporation.

The United States did not, in the amendments of the Trading with the

Enemy Act during the last war, include as did other legislations the

applications of the control test and again, as in World War I, courts

refused to apply this concept whereby the enemy character of an

American or neutral-registered corporation is determined by the

enemy nationality of the controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations,

and other administrative practice in the treatment of foreign-owned

property in the United States allowed to large degree the

determination of enemy interest in domestic corporations and thus the

application of the control test. Court decisions sanctioned such

administrative practice enacted under the First War Powers Act of

1941, and more recently, on December 8, 1947, the Supreme Court of

the United States definitely approved of the control theory. In

Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss

corporation allegedly controlled by German interest, the Court: "The

property of all foreign interest was placed within the reach of the

vesting power (of the Alien Property Custodian) not to appropriate

friendly or neutral assets but to reach enemy interest which

masqueraded under those innocent fronts. . . . The power of seizure

and vesting was extended to all property of any foreign country or

national so that no innocent appearing device could become a Trojan

horse."

It becomes unnecessary, therefore, to dwell at length on the

authorities cited in support of the appealed decision. However, we

may add that, in Haw Pia vs. China Banking Corporation,* 45 Off

Gaz., (Supp. 9) 299, we already held that China Banking Corporation

came within the meaning of the word "enemy" as used in the Trading

with the Enemy Acts of civilized countries not only because it was

incorporated under the laws of an enemy country but because it was

controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section

8, provides that "anyone except a public enemy may be insured." It

stands to reason that an insurance policy ceases to be allowable as

soon as an insured becomes a public enemy.


Effect of war, generally. — All intercourse between citizens of

belligerent powers which is inconsistent with a state of war is

prohibited by the law of nations. Such prohibition includes all

negotiations, commerce, or trading with the enemy; all acts which will

increase, or tend to increase, its income or resources; all acts of

voluntary submission to it; or receiving its protection; also all acts

concerning the transmission of money or goods; and all contracts

relating thereto are thereby nullified. It further prohibits insurance

upon trade with or by the enemy, upon the life or lives of aliens

engaged in service with the enemy; this for the reason that the

subjects of one country cannot be permitted to lend their assistance to

protect by insurance the commerce or property of belligerent, alien

subjects, or to do anything detrimental too their country's interest. The

purpose of war is to cripple the power and exhaust the resources of

the enemy, and it is inconsistent that one country should destroy its

enemy's property and repay in insurance the value of what has been

so destroyed, or that it should in such manner increase the resources

of the enemy, or render it aid, and the commencement of war

determines, for like reasons, all trading intercourse with the enemy,

which prior thereto may have been lawful. All individuals therefore,

who compose the belligerent powers, exist, as to each other, in a

state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins.

Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from

year, or for some other specified term it is plain that when the parties

become alien enemies, the contractual tie is broken and the

contractual rights of the parties, so far as not vested. lost. (Vance, the

Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December

10, 1941, the insurance policy issued in its favor on October 1, 1941,

by the petitioner (a Philippine corporation) had ceased to be valid and

enforcible, and since the insured goods were burned after December

10, 1941, and during the war, the respondent was not entitled to any

indemnity under said policy from the petitioner. However, elementary

rules of justice (in the absence of specific provision in the Insurance

Law) require that the premium paid by the respondent for the period

covered by its policy from December 11, 1941, should be returned by

the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue

hinges on the question of whether the policy in question became null

and void upon the declaration of war between the United States and

Germany on December 10, 1941, and its judgment in favor of the

respondent corporation was predicated on its conclusion that the

policy did not cease to be in force. The Court of Appeals necessarily

assumed that, even if the payment by the petitioner to the respondent

was involuntary, its action is not tenable in view of the ruling on the

validity of the policy. As a matter of fact, the Court of Appeals held

that "any intimidation resorted to by the appellee was not unjust but

the exercise of its lawful right to claim for and received the payment of

the insurance policy," and that the ruling of the Bureau of Financing to

the effect that "the appellee was entitled to payment from the


appellant was, well founded." Factually, there can be no doubt that

the Director of the Bureau of Financing, in ordering the petitioner to

pay the claim of the respondent, merely obeyed the instruction of the

Japanese Military Administration, as may be seen from the following:

"In view of the findings and conclusion of this office contained in its

decision on Administrative Case dated February 9, 1943 copy of

which was sent to your office and the concurrence therein of the

Financial Department of the Japanese Military Administration,

and following the instruction of said authority, you are hereby ordered

to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The

payment of said claim, however, should be made by means of

crossed check." (Emphasis supplied.)

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

respondent under the circumstances on this case. However, the

petitioner will be entitled to recover only the equivalent, in actual

Philippines currency of P92,650 paid on April 19, 1943, in accordance

with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the

respondent corporation is ordered to pay to the petitioner the sum of

P77,208.33, Philippine currency, less the amount of the premium, in

Philippine currency, that should be returned by the petitioner for the

unexpired term of the policy in question, beginning December 11,

1941. Without costs. So ordered.

F. Insurable Interest in life (Sec. 10)

[G.R. No. 120959. November 14, 1996]

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. YIP WAI

MING, accused-appellant.

D E C I S I O N

MELO, J.:

Accused-appellant Yip Wai Ming and victim Lam Po Chun, both

Hongkong nationals, came to Manila on vacation on July 10,

1993. The two were engaged to be married. Hardly a day had passed

when Lam Po Chun was brutally beaten up and strangled to death in

their hotel room. On the day of the killing, July 11, 1993, Yip Wai

Ming, was touring Metro Manila with Filipino welcomers while Lam Po

Chun was left in the hotel room allegedly because she had a

headache and was not feeling well enough to do the sights.

For the slaying, an Information was lodged against Yip Wai Ming

on July 19, 1991, which averred:


That on or about July 11, 1993, in the City of Manila, Philippines, the

said accused did then and there wilfully, unlawfully and feloniously

with intent to kill with treachery and evident premeditation, did then

and there attack, assault and use personal violence upon one Lam Po

Chun by then and there mauling and strangling the latter, thereby

inflicting upon her mortal and fatal wounds which were the direct and

immediate cause of her death thereafter.

On May 15, 1995, Branch 44 of the Regional Trial Court of the

National Capital Judicial Region stationed in Manila and presided over

by the Honorable Lolita O. Gal-lang rendered a decision in essence

finding that Yip Wai Ming killed his fiancee before he left for the Metro

Manila tour. Disposed thus the trial court:

WHEREFORE, in view of the foregoing established evidence,

judgment is hereby rendered convicting the accused Yip Wai Ming

beyond reasonable doubt of the crime of Murder as charged in the

information and as defined in Article 248, paragraph 5 of the Revised

Penal Code, and in accordance therewith the aggravating

circumstance of evident premeditation which attended the commission

of the offense, the said accused Yip Wai Ming is hereby sentenced to

suffer the penalty of Reclusion Perpetua with all the accessory

penalties provided for by law.

Accused is likewise ordered to pay the heirs of the deceased Lam Po

Chun of Hongkong the death indemnity for damages at Fifty

Thousand (P50,000.00) Pesos; Moral and compensatory damages of

Fifty Thousand (P50,000.00) Pesos each or a total of One Hundred

Thousand Pesos (P100,000.00); plus costs of suit.

The accused being detained, he is credited with the full extent of the

period under which he was under detention, in accordance with the

rules governing convicted prisoners.

SO ORDERED.

(p. 69, Rollo.)

There was no eyewitness to the actual killing of Lam Po Chun. All the

evidence about the killing is circumstantial. The key issue in the

instant appeal is, therefore, whether or not the circumstantial evidence

linking accused-appellant to the killing is sufficient to sustain a

judgment of conviction beyond reasonable doubt.

The evidence upon which the prosecution convinced the trial court of

accused-appellants guilt beyond reasonable doubt is summarized in

the Solicitor-Generals brief as follows:

On or about 7 oclock in the evening of July 10, 1993, appellant and

his fiancee Lam Po Chun who are both Hongkong nationals, checked

in at Park Hotel located at No. 1032-34 Belen St., Paco,Manila. They

were billeted at Room 210. Angel Gonzaga, the roomboy on duty,

assisted the couple in going up to their room located at the second

floor of the hotel (p. 14, tsn, October 13, 1993, p. 66, tsn, September

1, 1993). When they reached Room 210, appellant got the key from

Angel Gonzaga and informed the latter that they do not need any


room service, particularly the bringing of foods and other orders to

their room (pp. 67-69, tsn, September 1, 1993).

After staying for about an hour inside Room 210, the couple went

down to the lobby of the hotel. Appellant asked the front desk

receptionist on duty to call a certain Gwen delos Santos and to

instruct her to pick them up the following day, July 11, 1993, a Sunday

at 10 oclock in the morning (pp. 21-25, tsn, September 8,1993).

At about past 8 oclock in the same evening of July 10, 1993, Cariza

Destreza, occupant of Room 211 which is adjacent to Room 210,

heard a noise which sounds like a heated argument between a man

and a woman coming from the room occupied by appellant and Lam

Po Chun. The heated discussions lasted for thirty (30) minutes and

thereafter subsided.

In the following morning, that is, July 11, 1993, at around 9:15, the

same Cariza Destresa again heard a banging which sounds like

somebody was thrown and stomped on the floor inside Room

210.Cariza, who became curious, went near the wall dividing her

room and Room 210. She heard a cry of a woman as if she cannot

breathe (pp. 23-24, tsn, August 30, 1993).

At about 10 oclock a.m., Gwen delos Santos, together with two lady

companions, arrived at the lobby of the Park Hotel. The receptionist

informed appellant by telephone of her arrival. In response, appellant

came down without his fiancee Lam Po Chun. After a while he

together with Gwen delos Santos and the latters companions, left the

hotel. Before leaving, he gave instruction to the front desk receptionist

not to disturb his fiancee at Room 210. He also ordered not to accept

any telephone calls, no room cleaning and no room service (pp. 37-

43, tsn, October 18, 1993).

When appellant left, the front desk receptionist, Enriqueta Patria,

noticed him to be in a hurry, perspiring and looking very scared (p. 32,

tsn, September 22, 1993).

During the whole morning of July 11, 1993, after appellant left the

hotel until his return at 11 oclock in the evening, he did not call his

fiancee Lam Po Chun to verify her physical condition (p. 44 tsn,

October 18, 1993, p. 18, tsn, November 23, 1993).

When appellant arrived at 11 oclock p.m. on that day, he asked the

receptionist for the key of his room. Then together with Fortunato

Villa, the roomboy, proceeded to Room 210. When the lock was

opened and the door was pushed, Lam Po Chun was found dead

lying face down on the bed covered with a blanket. Appellant removed

the blanket and pretended to exclaim My God, she is dead but did not

even embrace his fiancee. Instead, appellant asked the room boy to

go down the hotel to inform the front desk, the security guard and

other hotel employees to call the police (pp. 8-27, tsn, October 18,

1993).

When the police arrived, they conducted an examination of the

condition of the doors and windows of the room as well as the body of

the victim and the other surroundings. They found no signs of forcible


entry and they observed that no one can enter from the outside

except the one who has the key. The police also saw the victim

wrapped in a colored blanket lying face down. When they removed

the blanket and tried to change the position of her body, the latter was

already in state of rigor mortis, which indicates that the victim has

been dead for ten (10) to twelve (12) hours. The police calculated that

Lam Po Chun must have died between 9 to 10 in the morning of July

11, 1993 (pp. 2-29), tsn, September 22, 1993).

Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an

autopsy of the body of the victim. His examination (Exh. V) revealed

that the cause of death was asphyxia by strangulation. Dr. Lagonera

explained that asphyxia is caused by lack of oxygen entering the body

when the entrance of air going to the respiratory system is blocked

(pp. 6-19, tsn, December 14, 1993).

Prior to the death of the victim, her brother, Lam Chi Keung, learned

that her life was insured with the Insurance Company of New

Zealand in Causeway Bay, Hongkong, with appellant as the

beneficiary. The premium paid for the insurance was more than the

monthly salary of the deceased as an insurance underwriter in

Hongkong (Exh. X).

It was on the bases of the foregoing facts that appellant was charged

before the Regional Trial Court in Manila for the crime of murder

committed against the person of Lam Po Chun.

(pp. 3-7, Appellees Brief, ff. p. 176, Rollo.)

In his brief, accused-appellant offers explanatory facts and argues

that the findings of fact of the trial court are based mainly on the

prosecution evidence displaying bias against accused-appellant. He

contends that the court made unwarranted and unfounded

conclusions on the basis of self-contradictory and conflicting

evidence.

Accused-appellant, at the time of the commission of the crime, was a

customer relations officer of Well Motors Company in Kowloon,

Hongkong. He met Lam Po Chun at a party in 1991. Both were

sportsminded and after a short courtship, the two began to have a

relationship, living together in the same apartment. The two

toured China and Macao together in 1992. In April, 1993 the two

decided to get married. In May 1993, they registered with the

Hongkong Marriage Registry. The wedding was set for August

29,1993.

An office-mate of accused-appellant named Tessie Amay Ticar

encouraged him and Lam Po Chun to tour the Philippines in

celebration of their engagement. After finishing the travel

arrangements, the two were given by Ticar the names (Toots,

Monique, and Gwen) of her cousins in Manila and their telephone

number. Photos of their Manila contacts were shown to them. In

addition to his Citibank credit card, accused-appellant

brought P24,000.00 secured at a Hongkong money exchange and

HK$4,000.00. Lam Po Chun had HK$3,000.00.


The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on

board Cathay Pacific Flight CX 903. They arrived at Park Hotel

around 7 P.M. From their hotel room, accused-appellant called their

contact, Gwen delos Santos, by telephone informing her of their

arrival. The two ate outside at McDonalds restaurant

Accused-appellant woke up the following morning - Sunday, July 11,

1993 - at around 8 oclock. After the usual amenities, including a

shower, the two had breakfast in the hotel restaurant, then they went

back to their room. At around 10 oclock that same morning, accused-

appellant received a phone call from the hotel staff telling him that

their visitors had arrived.

He then went to the lobby ahead of Lam Po Chun, introduced himself

to the delos Santos sisters, Gwen and Monique, and their mother. A

few minutes later, Lam Po Chun joined them. Two bottles of perfume

were given to the sisters as arrival gifts.

Gwen delos Santos invited the couple to tour the city but Lam Po

Chun decided to stay behind as it was very hot and she had a

headache. She excused herself and went up to her room, followed

later by accused-appellant to get another bottle of perfume.

Accused-appellant claims that before leaving, he instructed the clerk

at the front desk to give Lam Po Chun some medicine for headache

and, as much as possible, not to disturb her.

Accused-appellant, Gwen, Monique, and the sisters mother took a

taxicab to Landmark Department Store where they window

shopped. Accused-appellant states that from a telephone booth in the

store, he called Lam Po Chun but no one answered his call. From

Landmark where they had lunch, the four went to Shoemart

Department Store in Makati. Accused-appellant bought a Giordano T-

shirt at Landmark and chocolates at Shoemart. Gwen delos Santos

brought the group to the house of her aunt, Edna Bayona, at Roces,

Quezon City. From Roces St., Gwen delos Santos brought the group

to her home in Balut, Tondo. Using the delos Santos telephone,

accused-appellant called his office in Hongkong. The PLDT receipt

showed that the call was made at 6:44 P.M. on July 11,

1993. Accused-appellant claims that, afterwards, he called up Lam Po

Chun at their hotel room but the phone just kept on ringing with

nobody answering it. The group had dinner at the delos Santos house

in Tondo. After dinner, Gwen delos Santos brother and sister-in-law

arrived. They insisted in bringing their guest to a restaurant near

Manila Bay for coffee, but it was full so they proceeded to Tia Maria, a

Mexican restaurant in Makati.

Finally, the delos Santos family brought Andy Yip back to the Park

Hotel, arriving there at around 10:30 PM. Before the delos Santos

group left, there was an agreement that the following morning

accused-appellant and Lam Po Chun would join them in another city

tour.

After accused-appellants knocks at the door of their room remained

unanswered, he went back to the hotel front desk and asked the hotel

staff to open the door for him. The room was dark. Accused-appellant


put on the light switch. He wanted to give the roomboy who

accompanied him a P20 or P30 tip but his smallest bill was P100. He

went to a side table to get some smaller change. It was then when he

noticed the disordered room, a glass case and wallet on the floor, and

Lam Po Chun lying face down on one of the beds.

Accused-appellant tried to wake Lam Po Chun up by calling her name

but when she did not respond, he lifted up her face, moving her body

sidewards. He saw blood. Shocked, he shouted at the roomboy to call

a doctor.

Several people rushed to Room 210. A foreigner looked at Lam Po

Chun and said she was dead. The foreigner placed his arms around

accused-appellant who was slumped on the floor and motioned for

him to leave the room. Accused-appellant refused, but he was made

to move out and to go to the lobby, at which place, dazed and crying,

he called up Gwen delos Santos to inform her of what

happened. Gwen could not believe what she heard, but she assured

accused-appellant that they were going to the hotel. Policemen then

arrived.

In the instant appeal, accused-appellant, through his new counsel,

former Justice Ramon C. Fernandez, assigns the following alleged

errors:

I

THE TRIAL COURT ERRED IN NOT FINDING THAT THE

ACCUSED-APPELLANT WAS ARRESTED WITHOUT WARRANT,

WAS TORTURED AND WAS NOT INFORMED THAT HE HAD THE

RIGHT TO REMAIN SILENT AND BE ASSISTED BY INDEPENDENT

AND COMPETENT COUNSEL DURING CUSTODIAL

INVESTIGATION.

II

THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-

APPELLANT HAD THE VICTIM APPLE INSURED AND LATER

KILLED HER FOR THE INSURANCE PROCEEDS.

III

THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-

APPELLANT COMMITTED A CRIME OF MURDER AGGRAVATED

BY EVIDENT PREMEDITATION.

IV

THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE

TESTIMONY OF OFFICER ALEJANDRO YANQUILING, JR.

V

THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF

CARISA DESTREZA WHO INCURRED SERIOUS

CONTRADICTIONS ON MATERIAL POINTS.

VI


THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES

OF THE OTHER PROSECUTION WITNESSES THAT

CONTRADICTED EACH OTHER ON MATERIAL POINTS.

VII

THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES

OF THE WITNESSES OF THE ACCUSED ARE INCREDIBLE.

VIII

THE TRIAL COURT ERRED IN FINDING THAT THE

PROSECUTION HAS ESTABLISHED THE GUILT OF THE

ACCUSED-APPELLANT BY PROOF BEYOND REASONABLE

DOUBT.

IX

THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING

THE ACCUSED-APPELLANT OF THE CRIME CHARGED IN THE

INFORMATION.

(pp. 80-82, Rollo.)

The trial court, in arriving at its conclusions, took the various facts

presented by the prosecution, tied them up together like parts of a jig-

saw puzzle, and came up with a complete picture of circumstantial

evidence depicting not only the commission of the crime itself but also

the motive behind it.

Our review of the record, however, discloses that certain key

elements, without which the picture of the crime would be faulty and

unsound, are not based on reliable evidence.They appear to be mere

surmises and assumptions rather than hard facts or well-grounded

conclusions.

A key element in the web of circumstantial evidence is motive which

the prosecution tried to establish. Accused-appellant and Lam Po

Chun were engaged to be married. They had toured China and

Macao together. They were living together in one apartment. They

were registered with the Hongkong Marriage Registry in May

1993. Marriage date was set for August 29, 1993. This date was only

a month and a half away from the date of death of Lam Po Chun. In

the absence of direct evidence indubitably showing that accused-

appellant was the perpetrator of the killing, motive becomes

important. The theory developed by the prosecution was not only of a

cold-blooded crime but a well-planned one, including its timing up to

the half hour. It is not the kind of crime that a man would commit

against his wife-to-be unless a strong motive for it existed.

The trial court would have been justified in finding that there was

evident premeditation of murder if the story is proved that Lam Po

Chun insured herself for the amounts of US $498,750.00 and US

$249,375.00 naming accused-appellant as the beneficiary.

There is, however, no evidence that the victim secured an insurance

policy for a big amount in US dollars and indicated accused-appellant

as the beneficiary. The prosecution presented Exhibit X, a mere xerox


copy of a document captioned Proposal for Life Insurance as proof of

the alleged insurance. It is not a certified copy, nor was the original

first identified.

The authenticity of the document has thus not been duly

established. Exhibit X was secured in Hongkong when Lam Chi

Keung, the brother of the victim, learned that his sister was murdered

in Manila. It is not shown how and from whom the information about

any alleged insurance having been secured came. There is no

signature indicating that the victim herself applied for the

insurance. There is no marking in Exhibit X of any entry which

purports to be the victims signature. There is a signature of Apple

Lam which is most unusual for an insurance application because the

victims name is Lam Po Chun. To be sure nobody insures himself or

herself under a nickname. The entries in the form are in block letters

uniformly written by one hand. Below the printed name Lam Po Chun

are Chinese characters which presumably are the Chinese translation

of her name. Nobody was presented to identify the author of the block

handwriting. Neither the prosecution nor the trial court made any

comparisons, such as the signature of Lam Po Chun on her passport

(Exh. C), with her purported signature or any other entry in the form.

It needs not much emphasis to say that an application form does not

prove that insurance was secured. Anybody can get an application

form for insurance, fill it up at home before filing it with the insurance

company. In fact, the very first sentence of the form states that it

merely forms the basis of a contract between you and NZI Life. There

was no contract yet.

There is evidence in the record that the family of Lam Po Chun did not

like her relationship with accused-appellant. After all the trouble that

her brother went through to gather evidence to pin down accused-

appellant, the fact that all he could come up with is an unsigned

insurance application form shows there was no insurance money

forthcoming for accused-appellant if Lam Po Chun died. There is no

proof that the insurance company approved the proposal, no proof

that any premium payments were made, and no proof from the record

of exhibits as to the date it was accomplished. It appearing that no

insurance was issued to Lam Po Chun with accused-appellant as the

beneficiary, the motive capitalized upon by the trial court

vanishes. Thus, the picture changes to one of the alleged perpetrator

killing his fiancee under cold-blooded circumstances for nothing.

There are other suspicious circumstances about the insurance angle.

Lam Po Chun was working for the National Insurance Company. Why

then should she insure her life with the New Zealand Insurance

Company? Lams monthly salary was only HK $5,000.00. The

premiums for the insurance were HK $5,400.00 or US $702.00 per

month. Why should Lam insure herself with the monthly premiums

exceeding her monthly salary? And why should any insurance

company approve insurance, the premiums of which the supposed

insured obviously can not afford to pay, in the absence of any

showing that somebody else is paying for said premiums. It is not


even indicated whether or not there are rules in Hongkong allowing a

big amount of insurance to be secured where the beneficiary is not a

spouse, a parent, a sibling, a child, or other close relative.

Accused-appellant points out an apparent lapse of the trial court

related to the matter of insurance. At page 33 of the decision, the trial

court stated:

Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant

in Hongkong and told Yip and Lam Po Chun should be married and

there must be an insurance for her life . . .

(p. 33, RTC Decision; p. 66, Rollo.)

The source of the above finding is stated by the court as tsn hearing

Sept. 22, 1992. But accused-appellant Yip Wai Ming did not testify on

September 22, 1992. The entire 112 pages of the testimony on that

date came from SPO2 Yanquiling. The next hearing was on

September 29, 1993. All the 100 pages of the testimony on that date

came from Yanquiling.The next hearing on October 13, 1993 resulted

in 105 pages of testimony, also from Yanquiling. This Court is at a

complete loss as to the reason of the trial court sourcing its statement

to accused-appellants alleged testimony.

Lam Po Chun must have been unbelievably trusting or stupid to follow

the alleged advice of Andy Kwong. It is usually the man who insures

himself with the wife or future wife as beneficiary instead of the other

way around. Why should Lam Po Chun, with her relatively small

salary which is not even enough to pay for the monthly premiums,

insure herself for such a big amount. This is another reason why

doubts arise as to the truth of the insurance angle.

Another key factor which we believe was not satisfactorily established

is the time of death. This element is material because from 10 A.M. of

July 11, 1993 up to the time the body was discovered late that

evening, accused-appellant was in the company of Gwen delos

Santos, her sister Monique, and their mother, touring Metro Manila

and going from place to place. This much is established.

To go around this problem of accused-appellant being away from the

scene of the crime during the above mentioned hours, the prosecution

introduced testimonial evidence as to the probable time of death,

always placing it within the narrow 45-minute period between 9:15

and 10 A.M. of July 11,1993, the time when Cariza Destresa, the

occupant of the adjoining room, heard banging sounds coming from

the room of accused-appellant, and the time accused-appellant left

with his Filipino friends.

The prosecution alleges that at 10 A.M., Lam Po Chun was already

dead. However, Gwen delos Santos who never saw the couple before

was categorical in declaring that she met both of them at the lobby

before the group left for the tour (tsn, Feb. 14, 1994, p. 64; p.

20, RTC Decision; p. 150, Rollo), but Lam Po Chun asked to be

excused because of a headache. In fact, delos Santos was able to

identify Lam Po Chun from pictures shown during the trial. She could

not have done this unless she really saw and met the victim at the

hotel lobby at around 10 A.M. of July 11,1993.


The prosecution introduced an expert in the person of Dr. Manuel

Lagonera to establish the probable time of death. Dr. Lagonera,

medico-legal officer of the PNP Western Police District, after

extensive questioning on his qualifications as an expert witness, what

he discovered as the cause of death (strangulation), the contents of

the deceaseds stomach, injuries sustained, and the condition of the

cadaver, was asked to establish the time of death, to wit:

Q. If we use thirty six (36) hours to forty eight (48) hours, will you

agree with me that it is possible that the victim was killed in the

morning of July 10, 1993?

A. I cannot, I have no basis whether the victim was killed in the

morning or in the afternoon.

(tsn, Dec. 14, 1993, p. 31.)

Dr. Lagoneras testimony on the number of assailants was similar. He

had no basis for an answer, thusly:

ATTY. PASCUA:

Q. Would you be able to determine also based on your findings your

autopsy whether the assailants, the number of the assailants?

WITNESS:

A. I have no basis, Sir.

ATTY. PASCUA:

Q. You have no basis. And would it also have been possible, that

there were more than one assailants?

WITNESS:

A. It is possible also.

ATTY. PASCUA:

Q. It is possible also, who simultaneously inflicted the wounds of the

victim?

WITNESS:

A. It is possible.

ATTY. PASCUA:

Q. Based also on your autopsy report, were there signs that the victim

put a struggle?

WITNESS:

A. There were no injuries in the hand or forearms or upper arms of the

victim. So, there were no sign of struggle on the part of the victim.

ATTY. PASCUA:

Q. And your basis in saying that there was no struggle on the part of

the victim was that there were no apparent or seen injuries in the

hands of the victim?

WITNESS:


A. Yes, sir.

ATTY. PASCUA:

Q. But you did not examine the fingernails?

WITNESS:

A. No, I did not examine, Sir.

ATTY. PASCUA:

Q. Were there also injuries at the back portion of the head of the

victim?

WITNESS:

A. No injuries at the back, all in front.

ATTY. PASCUA:

Q. All in front, meaning in terms of probability and based on your

professional opinion, the attack would have come from a frontal attack

or the attacker would have come from behind to inflict the frontal

injuries of the victim?

WITNESS:

A. It can be the attack coming from behind in the front or both, sir.

ATTY. PASCUA:

Q. But in your professional opinion or in your experience, based on

the injuries sustained including the location of the injuries on the body

of the victim, would it be more probable that the attack came from in

front of the victim?

WITNESS:

A. Yes, it is possible, Sir.

(tsn, Dec. 14, 1993, pp. 60-63.)

Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn,

Dec. 14, 1993, p.108). It is undisputed that at around 8:30 A.M. of July

11,1993 accused-appellant and Lam Po Chun took breakfast together

at the hotel restaurant. She could not have been killed on July

10,1993. The autopsy conducted by Dr. Lagonera and the testimony

of accused-appellant coincided insofar as the food taken at breakfast

is concerned. The couple ate eggs, bacon, and toasted bread. But the

doctor was insistent that the death occurred the previous day.

Where a medico-legal expert of the police department could not, with

any measure of preciseness, fix the time of death, the police

investigator was bold and daring enough to establish it. Surprisingly,

the trial court accepted this kind of evidence. SPO2 Alejandro

Yanquiling testified that he arrived at the Park Hotel at about 11:25

oclock on the evening of July 11, 1993 to conduct the investigation of

the crime. At the time, the victim showed signs of rigor

mortis, stiffening of the muscle joints, with liquid and blood oozing


from the nose and mouth. On the basis of his observations, he

declared that the victim had been dead for 10 to 12 hours.

The trial court stated that if the victim had been dead from 10 to 12

hours at 11:35 oclock in the evening, it is safe to conclude that she

was killed between 9 and 10 oclock on the morning of July 11,

1993. The mathematics of the trial court is faulty. Twelve hours before

11:35 P.M. would be 11:35 A.M.. Ten hours earlier would even be

later -- 1:35 P.M.. Since accused-appellant was unquestionably with

Gwen delos Santos and her group touring and shopping in megamalls

between 10 A.M. and 11:35 P.M., the assailant or assailants must

have been other people who were able to gain entry into the hotel

room at that time.

The trial court stated that there was no sign of any forcible entry into

the room, no broken locks, windows, etc. The answer is

simple. Somebody could have knocked on the door and Lam Po Chun

could have opened it thinking they were hotel staff. Unfortunately,

Detective Yanquiling was so sure of himself that after pinpointing

accused-appellant as the culprit, he did not follow any other leads. In

the course of his interviews with witnesses, his purpose was simply to

nail down one suspect. His investigation was angled towards pinning

down Yip Wai Ming. In fact, Gwen delos Santos testified that

Yanquiling talked to her over the telephone almost daily urging her to

change her testimony.

Officer Yanquiling testified on cross-examination that he did not apply

any mode of scientific investigation. If a medico-legal expert of the

same police department who conducted an autopsy had no basis for

giving the probable time of death, the police officer who merely looked

at the body and saw the blood oozing out of the victims nose and

mouth must have simply guessed such time, plucking it out of thin

air. The trial court accepted the erroneous timing, conveniently placing

it where a finding of guilt would follow as a consequence.

Before a conviction can be had upon circumstantial evidence, the

circumstances should constitute an unbroken chain which leads to but

one fair and reasonable conclusion, which points to the accused, to

the exclusion of all others, as the guilty person (U.S. vs. Villos, 6 Phil.

510 [1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis

consistent with innocence must be excluded if guilt beyond

reasonable doubt is based on circumstantial evidence (U.S. vs.

Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan Chian, 17 Phil. 209

[1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the evidence must

be consistent with the hypothesis that the accused is guilty, and at the

same time inconsistent with the hypothesis that he is innocent, and

with every other rational hypothesis except that of guilt (People vs.

Andia, 2 SCRA 423 [1961]).

The tests as to the sufficiency of the circumstantial evidence to prove

guilt beyond reasonable doubt have not been met in the case at bar.

The chain of circumstances is not unbroken. The most vital

circumstantial evidence in this case is that which proves that accused-

appellant killed the victim so he could gain from the insurance

proceeds on the life of the victim. Another vital circumstance is the


time of death precisely between 9:15 and 10 A.M. Both were not

satisfactorily established by the prosecution. Where the weakest link

in the chain of evidence is at the same time the most vital

circumstance, there can be no other alternative but to acquit the

accused (People vs. Magborang, 9 SCRA 108 [1963]).

Since the sentence of conviction is based on the crime having been

committed within a short time frame, accused-appellant cannot be

convicted on the strength of circumstantial evidence if doubts are

entertained as to where he was at that particular time and reasonable

conclusions can be had that other culprits could have entered the

room after accused-appellant left with the delos Santos family. Other

people could have killed the victim.

The trial court also relied heavily on the testimony of Cariza Destresa,

a 19-year old cultural dancer occupying with her Australian boyfriend

Peter Humphrey, the adjoining Room 211. Destresa testified that

while she was in Room 211 at about 9:15 oclock on the morning of

July 11,1993, she heard banging sounds in Room 210, as if

somebody was being thrown, and there was stomping on the

floor. The banging sounds lasted about thirty (30) minutes, an

improbably long time to kill a woman. Destresa stated that she placed

her ear near the wall and heard the cry of a woman having difficulty in

breathing.

The witness heard the banging sounds between 9:15 and 9:45 A.M. of

July 11, 1993, not before or after. The unreliability of Destresas

memory as to dates and time is shown by the fact that when asked as

to the date of her Australian boyfriends arrival in the Philippines, she

stated, July 29, 1993. Pressed by the prosecuting attorney if she was

sure of said date, she changed this to July 16,1993. Pressed further:

Q. Are you sure that he arrived in the Philippines on July 16,1993?

A. I cant exactly remember the date of the arrival of my boyfriend here

in the Philippines because his coming was sudden, Sir.

(tsn, Sept. 30, 1993, p.10.)

On July 16 and July 19, 1993 Lam Po Chun was already dead. If

Peter Humphrey was still in Australia on July 11, 1993, how could he

occupy with his girlfriend the next door room, Room 211, on that date

at the Park Hotel. If Destresa cannot remember the date her

Australian boyfriend arrived, how could the trial court rely on her

memory as to the 30-minute interval from 9:15 A.M. to 9:45 A.M. of

July 11, 1993 when the alleged murder took place. Asked what time

on July 13, 1993 she gave her sworn statement to the police,

Destresa answered, I am not sure, may be it was in the early morning

between 2 or 3 oclock of that day, Sir. Destresa was asked how she

could be certain of July 13, 1993 as the date of her sworn

statement. She answered that this was the day her boyfriend left for

Australia (tsn, Aug. 31, 1993, p. 29). In her testimony given on the

same day, Destresa states that she stayed in Room 211 for 3

months. She later changed her mind and said she stayed there only

when Peter Humphrey was in the Philippines. According to the

witness, Peter left on May 29, 1993; arrived in June and July; left in


June; arrived in July; left on July 13, 1993. Destresa was confused

and evasive not only as to dates, but also as to her employment,

stating at the start of her testimony that she was jobless, but later

declaring that she was a dancer with the Rampage group and

performed in Dubai.

Destresa testified at one point that she heard an argument between a

man and a woman in a dialect she could not understand. This was

supposed to be on the evening of July 11,1993. At that time, the

victim had long been dead. Destresa gave various contradictory

statements in her August 30, 1993; August 31,1993; and September

1, 1993 testimony. To our mind, the trial court gravely erred in relying

on her testimony.

Accused-appellant was arrested on July 13, 1993, two days after the

killing. There was no warrant of arrest. Officer Yanquiling testified that

there was no warrant and he arrested the accused-appellant based on

series of circumstantial evidence. He had no personal knowledge of

Yip Wai Ming having committed the crime. Accused-appellant stated

that five police officers at the police station beat him up. They asked

him to undress, forced him to lie down on a bench, sat on his

stomach, placed a handkerchief over his face, and poured water and

beer over his face. When he could no longer bear the pain, he

admitted the crime charged, participated in a re-enactment, and

signed an extrajudicial statement. All the while, he was not informed

of his right to remain silent nor did he have counsel of his choice to

assist him in confessing the crime.

The custodial interrogation of accused-appellant was violative of

Section 12, Article III of the Constitution. The Constitution provides

that (3) Any confession or admission obtained in violation of this

section or Section 17 hereof shall be inadmissible against

him. Section 17, Article III provides: No person shall be compelled to

be a witness against himself. Any confession, including a re-

enactment without admonition of the right to silence and to counsel,

and without counsel chosen by the accused is inadmissible in

evidence (People vs. Duero, 104 SCRA 379 [1981]).

This Court notes that accused-appellant did not file any complaint or

charges against the police officers who allegedly tortured him. But he

was a foreign national, a tourist charged with a serious crime, finding

himself in strange surroundings. In Hongkong, there would have been

family members and friends who could have given him moral

support. He would have known that he was being questioned in his

own country, being investigated under the laws of that country. The

degree of intimidation needed to coerce a person to confess to the

commission of a crime he did not commit would be much less if he is

in a strange land. Accused-appellant states that his lawyers told him

not to file any charges against the policemen. He followed their

advice, obviously not wanting to get into more trouble.

This Court has carefully gone over the record of this case. We simply

cannot state that the circumstantial evidence is in its entirety credible

and unbroken and that the finding of guilt excludes any other

possibility that the accused-appellant may be innocent.


Most of the circumstantial evidence in this case came from the

investigation conducted by Officer Alejandro Yanquiling or from the

prodding by him of various witnesses. The desire of a police officer to

solve a high profile crime which could mean a promotion or additional

medals and commendations is admirable. However, an investigator

must pursue various leads and hypotheses instead of singlemindedly

pursuing one suspect and limiting his investigation to that one

possibility, excluding various other probabilities. The killing of a tourist

is a blot on the peace and order situation in the Philippines and must

be solved. Still, concentrating on pinning down an alien companion of

the victim and not pursuing the possibilities that other persons could

have killed the victim for her money and valuables does not speak

well of our crime detection system. It is not enough to solve a

crime. The truth is more important and justice must be rendered.

WHEREFORE, the decision appealed from is

hereby REVERSED and SET ASIDE. Accused-appellant Yip Wai

Ming is acquitted of the charge of murder on grounds of reasonable

doubt and his immediate release from custody is ordered unless he is

being held on other legal grounds.

SO ORDERED.

G. Right to Change Beneficiary (Sec.11)

G.R. No. L-54216 July 19, 1989

THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,

vs.

HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the

Court of First Instance of Rizal, and RODOLFO C.

DIMAYUGA, respondents.

PARAS, J.:

Challenged before Us in this petition for review on certiorari are the

Orders of the respondent Judge dated March 19, 1980 and June 10,

1980 granting the prayer in the petition in Sp. Proc. No. 9210 and

denying petitioner's Motion for Reconsideration, respectively.

The undisputed facts are as follows:

On January 15, 1968, private respondent procured an ordinary life

insurance policy from the petitioner company and designated his wife

and children as irrevocable beneficiaries of said policy.


Under date February 22, 1980 private respondent filed a petition

which was docketed as Civil Case No. 9210 of the then Court of First

Instance of Rizal to amend the designation of the beneficiaries in his

life policy from irrevocable to revocable.

Petitioner, on March 10, 1980 filed an Urgent Motion to Reset

Hearing. Also on the same date, petitioner filed its Comment and/or

Opposition to Petition.

When the petition was called for hearing on March 19, 1980, the

respondent Judge Gregorio G. Pineda, presiding Judge of the then

Court of First Instance of Rizal, Pasig Branch XXI, denied petitioner's

Urgent Motion, thus allowing the private respondent to adduce

evidence, the consequence of which was the issuance of the

questioned Order granting the petition.

Petitioner promptly filed a Motion for Reconsideration but the same

was denied in an Order June 10, 1980. Hence, this petition raising the

following issues for resolution:

I

WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE

BENEFICIARIES COULD BE CHANGED OR AMENDED WITHOUT

THE CONSENT OF ALL THE IRREVOCABLE BENEFICIARIES.

II

WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES

HEREIN, ONE OF WHOM IS ALREADY DECEASED WHILE THE

OTHERS ARE ALL MINORS, COULD VALIDLY GIVE CONSENT TO

THE CHANGE OR AMENDMENT IN THE DESIGNATION OF THE

IRREVOCABLE BENEFICIARIES.

We are of the opinion that his Honor, the respondent Judge, was in

error in issuing the questioned Orders.

Needless to say, the applicable law in the instant case is the

Insurance Act, otherwise known as Act No. 2427 as amended, the

policy having been procured in 1968. Under the said law, the

beneficiary designated in a life insurance contract cannot be changed

without the consent of the beneficiary because he has a vested

interest in the policy (Gercio v. Sun Life Ins. Co. of Canada, 48 Phil.

53; Go v. Redfern and the International Assurance Co., Ltd., 72 Phil.

71).

In this regard, it is worth noting that the Beneficiary Designation

Indorsement in the policy which forms part of Policy Number 0794461

in the name of Rodolfo Cailles Dimayuga states that the designation

of the beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc.

No. 9210, Annex "C" of the Petition for Review on Certiorari), to wit:

It is hereby understood and agreed that, notwithstanding the

provisions of this policy to the contrary, inasmuch as the designation

of the primary/contingent beneficiary/beneficiaries in this Policy has

been made without reserving the right to change said beneficiary/

beneficiaries, such designation may not be surrendered to the

Company, released or assigned; and no right or privilege under the


Policy may be exercised, or agreement made with the Company to

any change in or amendment to the Policy, without the consent of the

said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)

Be it noted that the foregoing is a fact which the private respondent

did not bother to disprove.

Inevitably therefore, based on the aforequoted provision of the

contract, not to mention the law then applicable, it is only with the

consent of all the beneficiaries that any change or amendment in the

policy concerning the irrevocable beneficiaries may be legally and

validly effected. Both the law and the policy do not provide for any

other exception, thus, abrogating the contention of the private

respondent that said designation can be amended if the Court finds a

just, reasonable ground to do so.

Similarly, the alleged acquiescence of the six (6) children beneficiaries

of the policy (the beneficiary-wife predeceased the insured) cannot be

considered an effective ratification to the change of the beneficiaries

from irrevocable to revocable. Indubitable is the fact that all the six (6)

children named as beneficiaries were minors at the time,** for which

reason, they could not validly give their consent. Neither could they

act through their father insured since their interests are quite divergent

from one another. In point is an excerpt from the Notes and Cases on

Insurance Law by Campos and Campos, 1960, reading-

The insured ... can do nothing to divest the beneficiary of his rights

without his consent. He cannot assign his policy, nor even take its

cash surrender value without the consent of the beneficiary. Neither

can the insured's creditors seize the policy or any right thereunder.

The insured may not even add another beneficiary because by doing

so, he diminishes the amount which the beneficiary may recover and

this he cannot do without the beneficiary's consent.

Therefore, the parent-insured cannot exercise rights and/or privileges

pertaining to the insurance contract, for otherwise, the vested rights of

the irrevocable beneficiaries would be rendered inconsequential.

Of equal importance is the well-settled rule that the contract between

the parties is the law binding on both of them and for so many times,

this court has consistently issued pronouncements upholding the

validity and effectivity of contracts. Where there is nothing in the

contract which is contrary to law, good morals, good customs, public

policy or public order the validity of the contract must be sustained.

Likewise, contracts which are the private laws of the contracting

parties should be fulfilled according to the literal sense of their

stipulations, if their terms are clear and leave no room for doubt as to

the intention of the contracting parties, for contracts are obligatory, no

matter in what form they may be, whenever the essential requisites for

their validity are present (Phoenix Assurance Co., Ltd. vs. United

States Lines, 22 SCRA 675, Phil. American General Insurance Co.,

Inc. vs. Mutuc, 61 SCRA 22.)

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

SCRA 385, this Court ruled that:


... it is settled that the parties may establish such stipulations, clauses,

terms, and conditions as they may want to include; and as long as

such agreements are not contrary to law, good morals, good customs,

public policy or public order, they shall have the force of law between

them.

Undeniably, the contract in the case at bar, contains the indispensable

elements for its validity and does not in any way violate the law,

morals, customs, orders, etc. leaving no reason for Us to deny

sanction thereto.

Finally, the fact that the contract of insurance does not contain a

contingency when the change in the designation of beneficiaries could

be validly effected means that it was never within the contemplation of

the parties. The lower court, in gratuitously providing for such

contingency, made a new contract for them, a proceeding which we

cannot tolerate. Ergo, We cannot help but conclude that the lower

court acted in excess of its authority when it issued the Order dated

March 19, 1980 amending the designation of the beneficiaries from

"irrevocable" to "revocable" over the disapprobation of the petitioner

insurance company.

WHEREFORE, premises considered, the questioned Orders of the

respondent Judge are hereby nullified and set aside.

SO ORDERED.

H. Applicability of Art. 739, N.C.C.

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

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-

appellee,

vs.

CARPONIA T. EBRADO and PASCUALA VDA. DE

EBRADO, defendants-appellants.

MARTIN, J.:

This is a novel question in insurance law: Can a common-law wife

named as beneficiary in the life insurance policy of a legally married

man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by

The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for

P5,882.00 with a, rider for Accidental Death for the same amount


Buenaventura C. Ebrado designated T. Ebrado as the revocable

beneficiary in his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t

when he was hit by a failing branch of a tree. As the policy was in

force, The Insular Life Assurance Co., Ltd. liable to pay the coverage

in the total amount of P11,745.73, representing the face value of the

policy in the amount of P5,882.00 plus the additional benefits for

accidental death also in the amount of P5,882.00 and the refund of

P18.00 paid for the premium due November, 1969, minus the unpaid

premiums and interest thereon due for January and February, 1969,

in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of

the Policy as the designated beneficiary therein, although she admits

that she and the insured Buenaventura C. Ebrado were merely living

as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the

deceased insured. She asserts that she is the one entitled to the

insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the

insurer, The Insular Life Assurance Co., Ltd. commenced an action for

Interpleader before the Court of First Instance of Rizal on April 29,

1970.

After the issues have been joined, a pre-trial conference was held on

July 8, 1972, after which, a pre-trial order was entered reading as

follows: ñé+.£ªwph!1

During the pre-trial conference, the parties manifested to the court.

that there is no possibility of amicable settlement. Hence, the Court

proceeded to have the parties submit their evidence for the purpose of

the pre-trial and make admissions for the purpose of pretrial. During

this conference, parties Carponia T. Ebrado and Pascuala Ebrado

agreed and stipulated: 1) that the deceased Buenaventura Ebrado

was married to Pascuala Ebrado with whom she has six —

(legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo

and Helen, all surnamed Ebrado; 2) that during the lifetime of the

deceased, he was insured with Insular Life Assurance Co. Under

Policy No. 009929 whole life plan, dated September 1, 1968 for the

sum of P5,882.00 with the rider for accidental death benefit as

evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant

Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime

of Buenaventura Ebrado, he was living with his common-wife,

Carponia Ebrado, with whom she had 2 children although he was not

legally separated from his legal wife; 4) that Buenaventura in accident

on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit

of the police report of his death Exhibit 5; 5) that complainant

Carponia Ebrado filed claim with the Insular Life Assurance Co. which

was contested by Pascuala Ebrado who also filed claim for the

proceeds of said policy 6) that in view ofthe adverse claims the

insurance company filed this action against the two herein claimants


Carponia and Pascuala Ebrado; 7) that there is now due from the

Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8)

that the beneficiary designated by the insured in the policy is Carponia

Ebrado and the insured made reservation to change the beneficiary

but although the insured made the option to change the beneficiary,

same was never changed up to the time of his death and the wife did

not have any opportunity to write the company that there was

reservation to change the designation of the parties agreed that a

decision be rendered based on and stipulation of facts as to who

among the two claimants is entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their

simultaneous memoranda from the receipt of this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring

among others, Carponia T. Ebrado disqualified from becoming

beneficiary of the insured Buenaventura Cristor Ebrado and directing

the payment of the insurance proceeds to the estate of the deceased

insured. The trial court held: ñé+.£ªwph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a

criminal conviction for adultery or concubinage is not essential in

order to establish the disqualification mentioned therein. Neither is it

also necessary that a finding of such guilt or commission of those acts

be made in a separate independent action brought for the purpose.

The guilt of the donee (beneficiary) may be proved by preponderance

of evidence in the same proceeding (the action brought to declare the

nullity of the donation).

It is, however, essential that such adultery or concubinage exists at

the time defendant Carponia T. Ebrado was made beneficiary in the

policy in question for the disqualification and incapacity to exist and

that it is only necessary that such fact be established by

preponderance of evidence in the trial. Since it is agreed in their

stipulation above-quoted that the deceased insured and defendant

Carponia T. Ebrado were living together as husband and wife without

being legally married and that the marriage of the insured with the

other defendant Pascuala Vda. de Ebrado was valid and still existing

at the time the insurance in question was purchased there is no

question that defendant Carponia T. Ebrado is disqualified from

becoming the beneficiary of the policy in question and as such she is

not entitled to the proceeds of the insurance upon the death of the

insured.

From this judgment, Carponia T. Ebrado appealed to the Court of

Appeals, but on July 11, 1976, the Appellate Court certified the case

to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as

amended) or even the new Insurance Code (PD No. 612, as

amended) does not contain any specific provision grossly resolutory

of the prime question at hand. Section 50 of the Insurance Act which


provides that "(t)he insurance shag be applied exclusively to the

proper interest of the person in whose name it is made" 1 cannot be

validly seized upon to hold that the mm includes the beneficiary. The

word "interest" highly suggests that the provision refers only to the

"insured" and not to the beneficiary, since a contract of insurance is

personal in character. 2 Otherwise, the prohibitory laws against illicit

relationships especially on property and descent will be rendered

nugatory, as the same could easily be circumvented by modes of

insurance. Rather, the general rules of civil law should be applied to

resolve this void in the Insurance Law. Article 2011 of the New Civil

Code states: "The contract of insurance is governed by special

laws. Matters not expressly provided for in such special laws shall be

regulated by this Code." When not otherwise specifically provided for

by the Insurance Law, the contract of life insurance is governed by the

general rules of the civil law regulating contracts. 3 And under Article

2012 of the same Code, "any person who is forbidden from receiving

any donation under Article 739 cannot be named beneficiary of a fife

insurance policy by the person who cannot make a donation to

him. 4 Common-law spouses are, definitely, barred from receiving

donations from each other. Article 739 of the new Civil Code

provides: ñé+.£ªwph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or

concubinage at the time of donation;

Those made between persons found guilty of the same criminal

offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or

ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity

may be brought by the spouse of the donor or donee; and the guilt of

the donee may be proved by preponderance of evidence in the same

action.

2. In essence, a life insurance policy is no different from a civil

donation insofar as the beneficiary is concerned. Both are founded

upon the same consideration: liberality. A beneficiary is like a donee,

because from the premiums of the policy which the insured pays out

of liberality, the beneficiary will receive the proceeds or profits of said

insurance. As a consequence, the proscription in Article 739 of the

new Civil Code should equally operate in life insurance contracts. The

mandate of Article 2012 cannot be laid aside: any person who cannot

receive a donation cannot be named as beneficiary in the life

insurance policy of the person who cannot make the donation.5 Under

American law, a policy of life insurance is considered as a testament

and in construing it, the courts will, so far as possible treat it as a will

and determine the effect of a clause designating the beneficiary by

rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the

institution of a barrier between common law spouses in record to


Property relations since such hip ultimately encroaches upon the

nuptial and filial rights of the legitimate family There is every reason to

hold that the bar in donations between legitimate spouses and those

between illegitimate ones should be enforced in life insurance policies

since the same are based on similar consideration As above pointed

out, a beneficiary in a fife insurance policy is no different from a

donee. Both are recipients of pure beneficence. So long as manage

remains the threshold of family laws, reason and morality dictate that

the impediments imposed upon married couple should likewise be

imposed upon extra-marital relationship. If legitimate relationship is

circumscribed by these legal disabilities, with more reason should an

illicit relationship be restricted by these disabilities. Thus,

in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,

said: ñé+.£ªwph!1

If the policy of the law is, in the language of the opinion of the then

Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit

donations in favor of the other consort and his descendants because

of and undue and improper pressure and influence upon the donor, a

prejudice deeply rooted in our ancient law;" por-que no se enganen

desponjandose el uno al otro por amor que han de consuno'

(According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the

rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk,

24, Titl. 1, De donat, inter virum et uxorem); then there is very reason

to apply the same prohibitive policy to persons living together as

husband and wife without the benefit of nuptials. For it is not to be

doubted that assent to such irregular connection for thirty years

bespeaks greater influence of one party over the other, so that the

danger that the law seeks to avoid is correspondingly increased.

Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum,

fr. 1), 'it would not be just that such donations should subsist, lest the

condition 6f those who incurred guilt should turn out to be better.' So

long as marriage remains the cornerstone of our family law, reason

and morality alike demand that the disabilities attached to marriage

should likewise attach to concubinage.

It is hardly necessary to add that even in the absence of the above

pronouncement, any other conclusion cannot stand the test of

scrutiny. It would be to indict the frame of the Civil Code for a failure to

apply a laudable rule to a situation which in its essentials cannot be

distinguished. Moreover, if it is at all to be differentiated the policy of

the law which embodies a deeply rooted notion of what is just and

what is right would be nullified if such irregular relationship instead of

being visited with disabilities would be attended with benefits.

Certainly a legal norm should not be susceptible to such a reproach. If

there is every any occasion where the principle of statutory

construction that what is within the spirit of the law is as much a part

of it as what is written, this is it. Otherwise the basic purpose

discernible in such codal provision would not be attained. Whatever

omission may be apparent in an interpretation purely literal of the

language used must be remedied by an adherence to its avowed

objective.


4. We do not think that a conviction for adultery or concubinage is

exacted before the disabilities mentioned in Article 739 may

effectuate. More specifically, with record to the disability on "persons

who were guilty of adultery or concubinage at the time of the

donation," Article 739 itself provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity

may be brought by the spouse of the donor or donee; and the guilty of

the donee may be proved by preponderance of evidence in the same

action.

The underscored clause neatly conveys that no criminal conviction for

the offense is a condition precedent. In fact, it cannot even be from

the aforequoted provision that a prosecution is needed. On the

contrary, the law plainly states that the guilt of the party may be

proved "in the same acting for declaration of nullity of donation. And, it

would be sufficient if evidence preponderates upon the guilt of the

consort for the offense indicated. The quantum of proof in criminal

cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship

between the insured and the beneficiary has been conveniently

supplied by the stipulations between the parties in the pre-trial

conference of the case. It case agreed upon and stipulated therein

that the deceased insured Buenaventura C. Ebrado was married to

Pascuala Ebrado with whom she has six legitimate children; that

during his lifetime, the deceased insured was living with his common-

law wife, Carponia Ebrado, with whom he has two children. These

stipulations are nothing less thanjudicial admissions which, as a

consequence, no longer require proof and cannot be

contradicted. 8 A fortiori, on the basis of these admissions, a

judgment may be validly rendered without going through the rigors of

a trial for the sole purpose of proving the illicit liaison between the

insured and the beneficiary. In fact, in that pretrial, the parties even

agreed "that a decision be rendered based on this agreement and

stipulation of facts as to who among the two claimants is entitled to

the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby

affirmed. Carponia T. Ebrado is hereby declared disqualified to be the

beneficiary of the late Buenaventura C. Ebrado in his life insurance

policy. As a consequence, the proceeds of the policy are hereby held

payable to the estate of the deceased insured. Costs against

Carponia T. Ebrado.

SO ORDERED.

Re: Art. 1523, N.C.C; (Sec. 14)


G.R. No. 85141 November 28, 1989

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

vs.

COURT OF APPEALS and CHOA TIEK SENG, respondents.

Balgos & Perez Law Offices for petitioner.

Lapuz Law office for private respondent.

REGALADO, J.:

This is a review of the decision of the Court of Appeals, promulgated

on July 19,1988, the dispositive part of which reads:

WHEREFORE, the judgment appealed from is affirmed insofar as it

orders defendant Filipino Merchants Insurance Company to pay the

plaintiff the sum of P51,568.62 with interest at legal rate from the date

of filing of the complaint, and is modified with respect to the third party

complaint in that (1) third party defendant E. Razon, Inc. is ordered to

reimburse third party plaintiff the sum of P25,471.80 with legal interest

from the date of payment until the date of reimbursement, and (2) the

third-party complaint against third party defendant Compagnie

Maritime Des Chargeurs Reunis is dismissed. 1

The facts as found by the trial court and adopted by the Court of

Appeals are as follows:

This is an action brought by the consignee of the shipment of fishmeal

loaded on board the vessel SS Bougainville and unloaded at the Port

of Manila on or about December 11, 1976 and seeks to recover from

the defendant insurance company the amount of P51,568.62

representing damages to said shipment which has been insured by

the defendant insurance company under Policy No. M-2678. The

defendant brought a third party complaint against third party

defendants Compagnie Maritime Des Chargeurs Reunis and/or E.

Razon, Inc. seeking judgment against the third (sic) defendants in

case Judgment is rendered against the third party plaintiff. It appears

from the evidence presented that in December 1976, plaintiff insured

said shipment with defendant insurance company under said cargo

Policy No. M-2678 for the sum of P267,653.59 for the goods

described as 600 metric tons of fishmeal in new gunny bags of 90

kilos each from Bangkok, Thailand to Manila against all risks under

warehouse to warehouse terms. Actually, what was imported was

59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The

fishmeal in 666 new gunny bags were unloaded from the ship on

December 11, 1976 at Manila unto the arrastre contractor E. Razon,

Inc. and defendant's surveyor ascertained and certified that in such

discharge 105 bags were in bad order condition as jointly surveyed by

the ship's agent and the arrastre contractor. The condition of the bad

order was reflected in the turn over survey report of Bad Order

cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3)

pages which are also Exhibits 4, 5 and 6- Razon. The cargo was also

surveyed by the arrastre contractor before delivery of the cargo to the


consignee and the condition of the cargo on such delivery was

reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and

14869 covering a total of 227 bags in bad order condition.

Defendant's surveyor has conducted a final and detailed survey of the

cargo in the warehouse for which he prepared a survey report Exhibit

F with the findings on the extent of shortage or loss on the bad order

bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based

on said computation the plaintiff made a formal claim against the

defendant Filipino Merchants Insurance Company for P51,568.62

(Exhibit C) the computation of which claim is contained therein. A

formal claim statement was also presented by the plaintiff against the

vessel dated December 21, 1976, Exhibit B, but the defendant Filipino

Merchants Insurance Company refused to pay the claim.

Consequently, the plaintiff brought an action against said defendant

as adverted to above and defendant presented a third party complaint

against the vessel and the arrastre contractor. 2

The court below, after trial on the merits, rendered judgment in favor

of private respondent, the decretal portion whereof reads:

WHEREFORE, on the main complaint, judgment is hereby rendered

in favor of the plaintiff and against the defendant Filipino Merchant's

(sic) Insurance Co., ordering the defendants to pay the plaintiff the

following amount:

The sum of P51,568.62 with interest at legal rate from the date of the

filing of the complaint;

On the third party complaint, the third party defendant Compagnie

Maritime Des Chargeurs Reunis and third party defendant E. Razon,

Inc. are ordered to pay to the third party plaintiff jointly and severally

reimbursement of the amounts paid by the third party plaintiff with

legal interest from the date of such payment until the date of such

reimbursement.

Without pronouncement as to costs. 3

On appeal, the respondent court affirmed the decision of the lower

court insofar as the award on the complaint is concerned and modified

the same with regard to the adjudication of the third-party complaint. A

motion for reconsideration of the aforesaid decision was denied,

hence this petition with the following assignment of errors:

1. The Court of Appeals erred in its interpretation and application of

the "all risks" clause of the marine insurance policy when it held the

petitioner liable to the private respondent for the partial loss of the

cargo, notwithstanding the clear absence of proof of some fortuitous

event, casualty, or accidental cause to which the loss is attributable,

thereby contradicting the very precedents cited by it in its decision as

well as a prior decision of the same Division of the said court (then

composed of Justices Cacdac, Castro-Bartolome, and Pronove);

2. The Court of Appeals erred in not holding that the private

respondent had no insurable interest in the subject cargo, hence, the

marine insurance policy taken out by private respondent is null and

void;


3. The Court of Appeals erred in not holding that the private

respondent was guilty of fraud in not disclosing the fact, it being

bound out of utmost good faith to do so, that it had no insurable

interest in the subject cargo, which bars its recovery on the policy. 4

On the first assignment of error, petitioner contends that an "all risks"

marine policy has a technical meaning in insurance in that before a

claim can be compensable it is essential that there must be "some

fortuity, " "casualty" or "accidental cause" to which the alleged loss is

attributable and the failure of herein private respondent, upon whom

lay the burden, to adduce evidence showing that the alleged loss to

the cargo in question was due to a fortuitous event precludes his right

to recover from the insurance policy. We find said contention

untenable.

The "all risks clause" of the Institute Cargo Clauses read as follows:

5. This insurance is against all risks of loss or damage to the subject-

matter insured but shall in no case be deemed to extend to cover loss,

damage, or expense proximately caused by delay or inherent vice or

nature of the subject-matter insured. Claims recoverable hereunder

shall be payable irrespective of percentage. 5

An "all risks policy" should be read literally as meaning all risks

whatsoever and covering all losses by an accidental cause of any

kind. The terms "accident" and "accidental", as used in insurance

contracts, have not acquired any technical meaning. They are

construed by the courts in their ordinary and common acceptance.

Thus, the terms have been taken to mean that which happens by

chance or fortuitously, without intention and design, and which is

unexpected, unusual and unforeseen. An accident is an event that

takes place without one's foresight or expectation; an event that

proceeds from an unknown cause, or is an unusual effect of a known

cause and, therefore, not expected. 6

The very nature of the term "all risks" must be given a broad and

comprehensive meaning as covering any loss other than a willful and

fraudulent act of the insured. 7 This is pursuant to the very purpose of

an "all risks" insurance to give protection to the insured in those cases

where difficulties of logical explanation or some mystery surround the

loss or damage to property. 8 An "all asks" policy has been evolved to

grant greater protection than that afforded by the "perils clause," in

order to assure that no loss can happen through the incidence of a

cause neither insured against nor creating liability in the ship; it is

written against all losses, that is, attributable to external causes. 9

The term "all risks" cannot be given a strained technical meaning, the

language of the clause under the Institute Cargo Clauses being

unequivocal and clear, to the effect that it extends to all

damages/losses suffered by the insured cargo except (a) loss or

damage or expense proximately caused by delay, and (b) loss or

damage or expense proximately caused by the inherent vice or nature

of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss

arose from a covered peril, but under an "all risks" policy the burden is


not on the insured to prove the precise cause of loss or damage for

which it seeks compensation. The insured under an "all risks

insurance policy" has the initial burden of proving that the cargo was

in good condition when the policy attached and that the cargo was

damaged when unloaded from the vessel; thereafter, the burden then

shifts to the insurer to show the exception to the coverage. 10 As we

held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co.,

Ltd. 11 the basic rule is that the insurance company has the burden of

proving that the loss is caused by the risk excepted and for want of

such proof, the company is liable.

Coverage under an "all risks" provision of a marine insurance policy

creates a special type of insurance which extends coverage to risks

not usually contemplated and avoids putting upon the insured the

burden of establishing that the loss was due to the peril falling within

the policy's coverage; the insurer can avoid coverage upon

demonstrating that a specific provision expressly excludes the loss

from coverage. 12 A marine insurance policy providing that the

insurance was to be "against all risks" must be construed as creating

a special insurance and extending to other risks than are usually

contemplated, and covers all losses except such as arise from the

fraud of the insured. 13 The burden of the insured, therefore, is to

prove merely that the goods he transported have been lost, destroyed

or deteriorated. Thereafter, the burden is shifted to the insurer to

prove that the loss was due to excepted perils. To impose on the

insured the burden of proving the precise cause of the loss or damage

would be inconsistent with the broad protective purpose of "all risks"

insurance.

In the present case, there being no showing that the loss was caused

by any of the excepted perils, the insurer is liable under the policy. As

aptly stated by the respondent Court of Appeals, upon due

consideration of the authorities and jurisprudence it discussed —

... it is believed that in the absence of any showing that the

losses/damages were caused by an excepted peril, i.e. delay or the

inherent vice or nature of the subject matter insured, and there is no

such showing, the lower court did not err in holding that the loss was

covered by the policy.

There is no evidence presented to show that the condition of the

gunny bags in which the fishmeal was packed was such that they

could not hold their contents in the course of the necessary transit,

much less any evidence that the bags of cargo had burst as the result

of the weakness of the bags themselves. Had there been such a

showing that spillage would have been a certainty, there may have

been good reason to plead that there was no risk covered by the

policy (See Berk vs. Style [1956] cited in Marine Insurance

Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to

show that there was damage occasioned by some accidental cause of

any kind, and there is no necessity to point to any particular cause. 14

Contracts of insurance are contracts of indemnity upon the terms and

conditions specified in the policy. The agreement has the force of law


between the parties. The terms of the policy constitute the measure of

the insurer's liability. If such terms are clear and unambiguous, they

must be taken and understood in their plain, ordinary and popular

sense. 15

Anent the issue of insurable interest, we uphold the ruling of the

respondent court that private respondent, as consignee of the goods

in transit under an invoice containing the terms under "C & F Manila,"

has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in

property as every interest in property, whether real or personal, or any

relation thereto, or liability in respect thereof, of such nature that a

contemplated peril might directly damnify the insured. In principle,

anyone has an insurable interest in property who derives a benefit

from its existence or would suffer loss from its destruction whether he

has or has not any title in, or lien upon or possession of the property

y. 16 Insurable interest in property may consist in (a) an existing

interest; (b) an inchoate interest founded on an existing interest; or (c)

an expectancy, coupled with an existing interest in that out of which

the expectancy arises. 17

Herein private respondent, as vendee/consignee of the goods in

transit has such existing interest therein as may be the subject of a

valid contract of insurance. His interest over the goods is based on

the perfected contract of sale. 18 The perfected contract of sale

between him and the shipper of the goods operates to vest in him an

equitable title even before delivery or before be performed the

conditions of the sale. 19 The contract of shipment, whether under

F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the

determination of whether the vendee has an insurable interest or not

in the goods in transit. The perfected contract of sale even without

delivery vests in the vendee an equitable title, an existing interest over

the goods sufficient to be the subject of insurance.

Further, Article 1523 of the Civil Code provides that where, in

pursuance of a contract of sale, the seller is authorized or required to

send the goods to the buyer, delivery of the goods to a carrier,

whether named by the buyer or not, for, the purpose of transmission

to the buyer is deemed to be a delivery of the goods to the buyer, the

exceptions to said rule not obtaining in the present case. The Court

has heretofore ruled that the delivery of the goods on board the

carrying vessels partake of the nature of actual delivery since, from

that time, the foreign buyers assumed the risks of loss of the goods

and paid the insurance premium covering them. 20

C & F contracts are shipment contracts. The term means that the

price fixed includes in a lump sum the cost of the goods and freight to

the named destination. 21 It simply means that the seller must pay the

costs and freight necessary to bring the goods to the named

destination but the risk of loss or damage to the goods is transferred

from the seller to the buyer when the goods pass the ship's rail in the

port of shipment. 22

Moreover, the issue of lack of insurable interest was not among the

defenses averred in petitioners answer. It was neither an issue agreed


upon by the parties at the pre-trial conference nor was it raised during

the trial in the court below. It is a settled rule that an issue which has

not been raised in the court a quo cannot be raised for the first time

on appeal as it would be offensive to the basic rules of fair play,

justice and due process. 23 This is but a permuted restatement of the

long settled rule that when a party deliberately adopts a certain

theory, and the case is tried and decided upon that theory in the court

below, he will not be permitted to change his theory on appeal

because, to permit him to do so, would be unfair to the adverse

party. 24

If despite the fundamental doctrines just stated, we nevertheless

decided to indite a disquisition on the issue of insurable interest raised

by petitioner, it was to put at rest all doubts on the matter under the

facts in this case and also to dispose of petitioner's third assignment

of error which consequently needs no further discussion.

WHEREFORE, the instant petition is DENIED and the assailed

decision of the respondent Court of Appeals is AFFIRMED in toto.

SO ORDERED.

J. When insurable interest in property must exist:

[G.R. No. 124520. August 18, 1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED

INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and

CKS DEVELOPMENT CORPORATION, respondents.

D E C I S I O N

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of

Court seeks to set aside a decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees,

entered into a lease contract with private respondent CKS

Development Corporation (hereinafter CKS), as lessor, on 5 October

1988.

2. One of the stipulations of the one (1) year lease contract states:

18. x x x. The LESSEE shall not insure against fire the chattels,

merchandise, textiles, goods and effects placed at any stall or store or

space in the leased premises without first obtaining the written

consent and approval of the LESSOR. If the LESSEE obtain(s) the

insurance thereof without the consent of the LESSOR then the policy


is deemed assigned and transferred to the LESSOR for its own

benefit; x x x[1]

3. Notwithstanding the above stipulation in the lease contract, the Cha

spouses insured against loss by fire their merchandise inside the

leased premises for Five Hundred Thousand (P500,000.00) with the

United Insurance Co., Inc. (hereinafter United) without the written

consent of private respondents CKS.

4. On the day that the lease contract was to expire, fire broke out

inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha

spouses (without its consent), it wrote the insurer (United) a demand

letter asking that the proceeds of the insurance contract (between the

Cha spouses and United) be paid directly to CKS, based on its lease

contract with Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint

against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila,

rendered a decision* ordering therein defendant United to pay CKS

the amount of P335,063.11 and defendant Cha spouses to

payP50,000.00 as exemplary damages, P20,000.00 as attorneys fees

and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328

rendered a decision** dated 11 January 1996, affirming the trial court

decision, deleting however the awards for exemplary damages and

attorneys fees. A motion for reconsideration by United was denied on

29 March 1996.

In the present petition, the following errors are assigned by petitioners

to the Court of Appeals:

I

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO

DECLARE THAT THE STIPULATION IN THE CONTRACT OF

LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE

TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY

TO LAW, MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO

DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A

CONTRACT OF ADHESION AND THEREFORE THE

QUESTIONABLE PROVISION THEREIN TRANSFERRING THE

PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE

RULED OUT IN FAVOR OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS

NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE

INSURANCE LAW

http://sc.judiciary.gov.ph/jurisprudence/1997/aug1997/124520.htm#_edn3




IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A

STIPULATION WHICH IS VOID FOR BEING WITHOUT

CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON

THE WILL OF THE RESPONDENT CORPORATION.[2]

The core issue to be resolved in this case is whether or not the

aforequoted paragraph 18 of the lease contract entered into between

CKS and the Cha spouses is valid insofar as it provides that any fire

insurance policy obtained by the lessee (Cha spouses) over their

merchandise inside the leased premises is deemed assigned or

transferred to the lessor (CKS) if said policy is obtained without the

prior written of the latter.

It is, of course, basic in the law on contracts that the stipulations

contained in a contract cannot be contrary to law, morals, good

customs, public order or public policy.[3]

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be

enforceable except for the benefit of some person having an insurable

interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by

petitioner-spouses over their merchandise is primarily a contract of

indemnity. Insurable interest in the property insured must exist at the

time the insurance takes effect and at the time the loss occurs.[4] The

basis of such requirement of insurable interest in property insured is

based on sound public policy: to prevent a person from taking out an

insurance policy on property upon which he has no insurable interest

and collecting the proceeds of said policy in case of loss of the

property. In such a case, the contract of insurance is a mere wager

which is void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the

payment of loss, whether the person insured has or has not any

interest in the property insured, or that the policy shall be received as

proof of such interest, and every policy executed by way of gaming or

wagering, is void.

In the present case, it cannot be denied that CKS has no insurable

interest in the goods and merchandise inside the leased premises

under the provisions of Section 17 of the Insurance Code which

provide.

Section 17. The measure of an insurable interest in property is the

extent to which the insured might be damnified by loss of injury

thereof."

Therefore, respondent CKS cannot, under the Insurance Code a

special law be validly a beneficiary of the fire insurance policy taken

by the petitioner-spouses over their merchandise. This insurable

interest over said merchandise remains with the insured, the Cha

spouses. The automatic assignment of the policy to CKS under the





provision of the lease contract previously quoted is void for being

contrary to law and/or public policy. The proceeds of the fire insurance

policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-

Cha (herein co-petitioners). The insurer (United) cannot be compelled

to pay the proceeds of the fire insurance policy to a person (CKS) who

has no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease

contract in that Cha spouses obtained a fire insurance policy over

their own merchandise, without the consent of CKS, is a separate and

distinct issue which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV

No. 39328 is SET ASIDE and a new decision is hereby entered,

awarding the proceeds of the fire insurance policy to petitioners Nilo

Cha and Stella Uy-Cha.

SO ORDERED.

sec. 1 to 20 of insurance code full text cases

Documents